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This week, the false narrative we want to challenge is on the topic of inflation.
It’s hard to miss this issue, which is now increasingly becoming a part of everyone’s daily life, as well as impacting investment markets significantly. After remaining largely dormant in the developed world for the past 30 years, inflation has very quickly risen to its highest level since the 1980s, taking governments, central banks, and everyday consumers by surprise.
Large sections of populations in the developed world now face a ‘cost of living crisis’, as their incomes are not keeping up with inflation in energy, food, and other living expenses. The situation facing those on medium and lower incomes in the developing world is even worse, with real risks that many will not be able to afford food and other basic necessities.
High inflation is bad news for everybody...
Understanding the cause of the current inflation is therefore, very important. Mis-understanding its causes is risky, as we may enact the wrong policies in response, exacerbating the problem. The stakes are high.
This brings us to our third ‘false narrative’, which we think is critical to de-bunk given the immediate threat to livelihoods and lives posed by the current inflation.
This false narrative goes something like this:
Russia’s unprovoked invasion of Ukraine is the primary cause of high inflation today. Both countries are major commodity exporters, especially so in the case of energy and food.
As the war continues to interrupt the supply of these commodities to the global market, prices have been pushed up and will remain elevated until the war ends.
Given that this war is, ultimately, the responsibility of one man (Vladimir Putin) and his obscene ideology, and the war has caused the inflation, then ultimately this inflation is his fault. If only he hadn’t invaded Ukraine, inflation would still be low and stable, and we could continue on with our lives. It follows therefore that, if the war ends, inflation will also come down significantly and, potentially, stop being a problem.
This narrative is wrong, plain and simple. The Biden administration’s un-ashamed parroting of this narrative for political gain is, to be kind, outrageous and symptomatic of a presidency that has lurched from one crisis to another, without ever taking responsibility. But this is a discussion for another day.
The task at hand is to understand where currently high levels of inflation came from. Was it Putin’s fault?
Well, let’s look at the numbers. Inflation levels had remained at or very close to 1-2% in the US and Europe for nigh on 30 years leading up to the 2020 pandemic. Many economists, political leaders, and leaders within central banks, concluded that low inflation was now a permanent fixture of the modern economy.
But this started to change in 2021. US inflation rates jumped above 4% in April 2021,the highest reading since 2008. And inflation kept rising, well above 5% in July 2021, north of 6% by October, hitting 7% by the end of the year (the highest readings in 30 years) .
Russia’s full-scale invasion of Ukraine started February 24th 2022.
Inflation was already hitting its highest levels in decades before the invasion started. Yes, inflation rates have continued to climb since, moving above 9% in June this year. And, yes, higher food and energy prices as a result of the war are almost certainly a contributory factor to current inflation levels.
But, and this is the critical point, the war was not the cause of high inflation. We already had a serious and growing inflation problem before the war started. All the war has done is exacerbate a pre-existing inflation. The war ending, therefore, doesn’t necessarily solve the underlying inflation problem.
What, then, did cause this inflation cycle, the worst since the 1970-1980s?
In response to the pandemic the world’s central banks printed a lot of money. Money printing, historically at least, has been inflationary. Close to 30% of the dollars in circulation today in the global financial system were printed in the last two years
It’s no coincidence, we would argue, that many of the 2 year inflation numbers for assets like housing, or even personal consumption goods like cars or eating out, have seen prices rise by about 30%. All of that new money had to find somewhere to go.
Then, with the economic recovery from the COVID pandemic already well underway last year, labour markets in the developed world very quickly moved close to full employment. Labour shortages were already becoming a problem in some sectors of the economy early last year
Into this hot economy with limited capacity to increase supply, the US government decided to pump a $1.9 trillion fiscal stimulus (funded with debt and money printing by the US central bank). Further pumping up an already hot economy at close to full capacity.
The major central banks, led by the US Federal Reserve, were too late in their response to this. The usual playbook for reducing inflation in a hot economy is to raise interest rates. The timing of this is critical, wait too long and inflation can get out of control as it starts to change expectations of economic participants
If people start to think inflation will remain high, they will demand higher wages and change spending habits, thus entrenching inflation for longer and creating an ‘inflation cycle’. The best answer to this is for central banks to raise interest rates early.
Unfortunately, central banks were late to the party, again, led by the Fed, who kept rates at their lowest levels in history through 2021, effectively continuing to stimulate the economy via monetary policy despite the fastest rise in inflation in the US in more than 40 years. This complacent response is now costing us.
Over-stimulus into a hot economy, followed by a slow response from central banks, was probably the cause of the 1970s inflation cycle too.
Dominion Capital Strategies
We always try and end these messages with an optimistic note, but sadly in this case, the message is one of economic mismanagement causing high inflation, with political leaders in the West refusing to take responsibility and instead passing the buck.
Esperemos que la tardía respuesta de los bancos centrales para combatir la inflación funcione. Hemos visto que los precios de las materias primas y otros insumos han bajado significativamente desde los máximos de los últimos meses, y esto puede indicar que pronto habrá un descenso de la inflación.
But investors should also be prepared for inflation to continue to be a problem for longer than expected, as history shows us that these cycles of inflation can sometimes continue.
The trick here is to focus investments into assets where inflation, high or low, is not a major issue for the long-term value of what you are investing in. We continue to think high quality, growing businesses, trading at reasonable valuations, offer a safe harbour for investors to wait out this storm.
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Last week, we introduced the first of our ‘false narratives’ in financial markets, de-globalisation...
We explained why we think ideas like this in markets can be so appealing, offering simple explanations for what is going on in a complex, often random, world. The risk of false narratives is that they can lead investors astray, allocating capital to what they think is a major trend but what could be, in fact, an overbought trade with significant hidden risks.
Parsing out the true from the false narratives is critical for success for long-term investors. Spotting false narratives can also offer investors unique investment opportunities to bet against them.
This week, the false narrative we want to challenge is a controversial one (to say the least). Fossil fuels, most notably oil, gas and coal, are increasingly considered ancient history by many participants in financial markets.
This idea spreads beyond finance even, to politics and the wider media, where the growing consensus is one in which fossil fuels will play no role in the future global economy.
The argument ...
The argument goes something like this: the burning of fossil fuels to generate energy is causing climate change and as such, the only solution is to accelerate the transition away from these sources of energy. The latest generation of renewables, solar and wind power, are now much cheaper than fossil fuels, while battery storage and energy efficiency (better insulation in homes, for example), together can replace the energy we derive from burning fossil fuels.
Thus, given the green alternatives are now cheaper than fossil fuels and readily available, their days are numbered, oil, gas and coal are going away as an energy source and we can expect to see their demise in the next 5-10 years. Put more simply, fossil fuels are ‘bad’ and we just need to replace them, simple.
This is, no doubt, an appealing prospect from the perspective of anyone who cares about solving climate change. It’s a story we would love to believe, if only it were true. Solving climate change in less than a decade, and with alternatives sitting on the shelf ready to be rolled out at scale. It sounds great!
The draw of this narrative is powerful. So powerful in fact, that most major market participants have bought into it. Many of the world’s largest investment and pension funds have committed to fully, or at least mostly, divesting from fossil fuel stocks and avoid investing in the sector altogether.
Millions more retail investors have become engaged in investing ‘ethically’, with oil and gas stocks often top of the list of investments to avoid. This ‘divestment’ movement, driven by the narrative of fossil fuels being ‘bad’, has been powerful enough to starve the fossil fuel industry of investment capital over the past decade, making it increasingly difficult for those companies to raise capital on international markets.
What’s more, it has sent a strong signal to the management teams of fossil fuel producers that investing in new supply will not be rewarded, in fact it may even be punished by markets. So that is what pretty much every major fossil fuel company has done. They have restricted investment in new supply and instead re-invested cash flows into renewables projects or in returns to shareholders.
The idea that fossil fuels are ‘bad’, and will go away soon, is probably the most consequential and potentially pernicious false narrative in markets today.
Dominion Capital Strategies
Firstly, energy is good. It facilitates improvements in quality of life. Around 800 million people today have no access to electricity. 2.4 billion people generate heat for cooking and hot water by burning biomass (wood, animal dung, crop waste) on open fires. This alone causes 3 million premature deaths every year in low income countries from household air pollution. Bringing electricity to those without it, bringing safer forms of energy for cooking, these are not trivial matters but transformational for half of the world’s population. And as things stand, renewables cannot do it.
It is no coincidence that the countries where these populations reside are continuing to invest heavily in fossil fuel power generation. Bringing electricity and safer sources of energy, to lift hundreds of millions of people out of poverty, requires vast amounts of reliable, low cost power.
Coal, oil and gas, still offer a relatively cheap and quick way to bring large amounts of energy to large populations, reliably. Renewables can be low cost, but only in certain places at certain times, while power storage is at least a decade away from being a meaningful place to store excess renewables power for use when the sun isn’t shining, or wind isn’t blowing.
Whether we in the West like it or not, developing countries are going to keep developing, and this means vast amounts of new energy demand coming from billions of new, emerging, middle class global citizens. Renewables will play a part in this story, but so too will fossil fuels, and so too will technologies like nuclear power.
Further, the concept that fossil fuels are ‘bad’, is so oversimplified it’s arguably infantile. The fossil fuel industry powered the industrial revolution and the twentieth century, the single biggest leap in human living standards in the history of our species. Those who think that was bad are welcome to prove it and try living without electricity, modern healthcare, etc.
The end result of this powerful false narrative is the energy shortages we are currently experiencing globally today. Years of underinvestment by fossil fuel producers in supply, in response to their demonisation in modern culture and divestment by ESG-minded investors, means that there is very little new supply available to meet global demand.
Meanwhile renewables, with all the will in the world, are nowhere near being in a position to take up the slack and replace fossil fuels in a significant way. We’ll have to wait another decade (at least) for that.
The truth is, a transition of this scale away from fossil fuels was always going to take a long time. And we needed fossil fuel companies to come along on the journey with society, maintaining supplies of the fossil fuels we still need as we steadily shift to alternatives.
Sadly, this more pragmatic approach is unpopular, it doesn’t fit the ‘good’ vs ‘bad’ false dichotomy and so we appear to be continuing down the same road, which will likely only lead to even worse energy shortages than we face today.
There are two very important takeaways here for investors. First, be careful with investment products labelled as ‘green’ or ‘ethical’. These can often by invested in overcrowded investments which could fall dramatically if the false narrative of the imminent adoption of new energy technologies is not realised.
Second, fossil fuel companies are not necessarily the bogey-man, and the general dislike of them by investors and modern culture could actually offer a once-in-a-generation opportunity to invest in assets which will be producing strong cash flows for a couple more decades at least.
Taking a contrary view here could be very rewarding.
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A narrative connects events to form a story..
Humans have evolved to connect emotionally with stories, they give context and meaning to events, whether fictional or in the real world. Narratives can be extremely powerful, giving rise to religions with billions of followers, spawning modern nation states that span entire continents. Narratives have energized humanity’s greatest achievements and fuelled its most appalling crimes.
Narratives matter. And so it should be no surprise that they matter a lot for investors in financial markets. The movements of capital in global markets which determine prices and investment returns are directed by people who have evolved to connect emotionally with stories.
Some narratives are very helpful in contextualising a realistic view of where the world is heading. This can then determine how to allocate investments today. But some narratives can be deceptive. They offer the allure of making sense of a complex, often random, world by offering a story which seems to make sense, but is in reality false, it is not explaining what is going on despite claiming to.
False narratives in investing are dangerous as they can convince investors to move capital into, or out of, investments which appear to fit with the story being told. When false narratives become dominant, gross misallocations of capital can occur. This results in over-valued assets where false narratives support a particular asset class, and significant under-valuations elsewhere.
We will be, over the coming episodes, analysing what dominion thinks are the major false narratives in financial markets today which are growing in popularity, and explaining why we think they do not match up with reality. This week, we’ll start with the idea of de-globalisation and why we think it is alarmist, overblown, and deceptive.
The pandemic, growing hostility between China and the West, and recent supply chain disruptions have led to calls for ‘re-shoring’, the return of manufacturing to developed world nations at the expense of China.
Globalisation...
Is the process of integration of economies and supply chains across countries to form an increasingly global system of capital, goods and services. Over the past 50 years this has led to, at first manufacturing, and more recently many services jobs, to move to lower cost countries
This process has simultaneously lowered the cost of goods and services for developed world nations and acted as a catalyst for economic development for many emerging nations. This process has come at the expense of many middle- and working-class jobs in the West, especially in the US and UK, with significant political and social consequences we are still living with today.
The de-globalisation narrative goes something like this: a strong political and economic requirement to ‘re-shore’ manufacturing and raw material supply has emerged from the pandemic, as well as a result of the escalating geo-political confrontation with China.
Además, el rápido desarrollo económico de China y el envejecimiento de su población significan que su oferta de mano de obra de bajo costo se ha agotado, y los salarios tendrán que aumentar. Por lo tanto, la desglobalización se traducirá en que los productos que antes se fabricaban a bajo precio ahora tendrán que fabricarse a un precio mucho más alto en los países occidentales, o en los países alineados con Occidente.
Further, China’s rapid economic development and ageing population means its supply of low cost labour has dried up, and wages there will have to rise. De-globalisation will therefore take the form of previously cheaply manufactured goods now having to be made at a much higher price in Western nations, or Western aligned nations. This process happening across all major sectors in the economy will act as an inflationary force, pushing up prices and as a result, acting as a drag on growth in living standards, reducing international trade, and acting as a headwind for global economic development.
Now, this is a compelling story. It fits with what we see happening in the world today and sounds, at face value, like a good idea.
Maybe we should not be so reliant on China for our manufactured goods?
Also, maybe we should bring back previously lost jobs in manufacturing to the US, UK, etc.
Dominion thinks debunking this false narrative can be done quite easily. We encourage listeners and those reading this in e-mail form to go and dust off a World Atlas, or for those who are more tech savvy, do an internet search for ‘World Map’. A reasonable first observation might be: the world is really big! Second, there are a lot of countries!
The de-globalisation story seems to rest on an implied assumption that there are only a handful of countries in the world. China, and then the West.: China, y luego Occidente.
The reality is, there are 193 countries. Even in South East Asia, China’s neck of the woods, there are multiple high population, low cost, well connected countries where manufacturing can, and already is, moving to. Vietnam (population 97 million), Thailand (70 million), Bangladesh (165 million), Indonesia (270 million!). Looking not much further from South East Asia, there’s India (population 1.4 billion). And then of course there’s Africa, current population 1.3 billion, expected to reach more than 3 billion by the 2040s.
Talk of needing to move manufacturing out of China and back to high cost developed nations seems over simplified, in our view. Why move a plant from China back to the US, when you can move it to a third country with even lower costs than China?
Further, assuming that rising labour costs in China = a global labour shortage is, at best, short-sighted, and at worst, a little ignorant. Just look at the demographics of the countries already mentioned, let alone many others we have not mentioned. There are a lot of young people around the world who want to work and will do these jobs.
The truth, we think, is that globalisation is only just getting going and has a very long way to go. And that’s a good thing. The economic miracle in China that has lifted 1 billion people out of poverty since 1990, that’s going to happen in the rest of Asia, and in Africa.
Western dreams of a return of manufacturing jobs need to face reality and focus on what they are good at, and perhaps consider fairer distributions of economic success with those who did lose out to globalisation.
What this means for investors, is that they should be cautious of any allocations which have an implied assumption of de-globalisation. Global supply chains will adapt, and they have, as discussed, a lot of options of where to move to in response to global events.
This also, we think, offers an interesting investment opportunity. Betting against the false narrative of de-globalisation means investing in those countries likely to be the next beneficiaries of globalisation continuing. That means countries like India, Indonesia, Vietnam, Thailand, Mexico, Brazil, Nigeria… these may offer investors exciting long-term opportunities.
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News in the mainstream media on the economy and its direction are almost always behind the curve.
This is largely due to the nature of the data being relied upon to figure out what has been happening in the economy.
The most important data currently used to decide whether or not the economy is growing, by how much, and its direction, are GDP (size of the economy and its change) and unemployment data. These are complex data sets to capture and as such, they take a long time to compile and are often revised up or down many months later.
What’s more, these are backward looking data. They tell us what happened in the past, but do not necessarily work very well as forward looking indicators, data that give us insight into what will happen in the future. For investors, this means shifting investment allocations based on changes in the headline economic data (GDP, unemployment) is a bad strategy. Markets discount the future into prices today, and so most of the time, markets will have already moved before these backward looking headline economic data move.
In recent weeks many market commentators and the financial press have increasingly been talking about the risks of an economic recession in the US and Europe, with many indicating this is likely to happen at some point in 2023. Others have said this is somewhat premature, validating their more optimistic views by saying that the risk of recession is now higher but it remains unlikely. We think both views are too optimistic and are wrong.
Last week, The Federal Reserve Bank of Atalanta’s GDPNow model, which uses recent economic data to update in real-time its forecast for quarterly GDP growth in the US, forecast seasonally adjusted real GDP growth of negative 2.1% for Q2 2022. Remember, the first quarter of 2022 saw negative year-on-year growth in US GDP. If the GDPNow model from the Atlanta Fed is close to being right, then the US will record a second consecutive quarter of negative economic growth.
The technical definition of a recession is at least two consecutive negative quarters of economic growth. Taking this definition and the aforementioned GDP growth forecast as given, this would mean the US economy is already in a technical recession.
The bad news is that this means talk of recession or no recession is too late, we may already be in one. Take a look at financial markets, and with US equity markets down more than 20% so far this year and bond prices having their worst start to a year in decades, market prices appear to have gone some way to pricing this in already. Expect headlines in the mainstream media to catch up with reality in the coming weeks.
The good news here is that, as we have previously predicted on a previous episode, a recession in the US and Europe is likely to be relatively short-lived. There are no major structural issues in the economy to be concerned about, as was the case in 2008 with the global banking crisis. Another good news story here is that a slowing economy should relieve a lot of the pressure on inflation, in fact looking at commodity prices over the past 6 weeks, this is already happening (another example of forward looking data that help us understand the future not the past). Less inflationary pressure makes it more likely central banks ease up on their contractionary policy and may start talking about easing.
Given the stock market’s function of discounting the future into today’s prices, this means that we don’t need to wait for a full blown economic recovery on the other side of a technical recession before stock prices should start to move up and recover from 2022’s bear market.
What we need are ‘green shoots’, evidence of a turning point in forward looking economic data points and evidence that central banks are considering pivoting away from contractionary policy to fight inflation and are moving towards expansionary policy to support the economy.
Dominion Capital Strategies
This is where China comes in as an interesting case study for why forward-looking indicators matter more for investors than backward looking data like GDP or unemployment.
Despite the very negative headlines today about China’s economy, with some prominent investors even calling China ‘uninvestable, we have seen some forward-looking indicators start to move in a positive direction for several months now, a bullish signal for the trajectory of the Chinese economy later in 2022.
We have also heard increasingly positive commentary from the Chinese government and central bank about policy easing, expansionary fiscal and monetary policy to support the economy. These positive inflections in forward looking data points makes us incrementally positive on the outlook for Chinese stocks, despite the backward-looking data (GDP, unemployment) continuing to look bad. Chinese technology stocks have rallied +38% since May, validating to some extent, the point we are making here.
We will be looking for similar characteristics in the data coming out of Europe and the US as a guide to when we can expect their bear markets in stocks to switch into a bull market recovery. We’re not there yet, but it is getting closer.
With ongoing concerns about inflation and weakness in the economy weighing on market sentiment. For the stock market, this means volatility is likely to continue and (to echo last week’s episode) we probably have not yet seen the lows in this bear market for stocks.
Periods of market churn like we are currently living through typically punish speculators but can greatly reward the patient and long-term minded investor. When prices are falling, all else equal, the investment outlook for all investment opportunities has improved.
However, there is a huge difference between a bad investment opportunity being less bad, because the price has come down, versus a high-quality investment opportunity which is even more attractive now with a lower price.
An example from outside the stock market is probably useful now. Imagine first, an advertisement for a gambling website, or betting store, close to where you may live. One day a new offer is presented with an 80% reduction in the price of placing large bets. All else equal, this is a better offer than before, but this is still a bad investment even after the 80% reduction in price. It’s a bet, plain and simple, it is risky and should be avoided, especially with large sums of one’s savings or investment capital. These are our ‘falling knives’.
Now imagine a high-quality residential property close to where you live. You know it well, it is spacious, in a nice and pleasant area to live and is in high demand. One day this property is on sale for 80% off its previous price. This is an example of a ‘fallen angel’.
Financial markets today are full of both falling knives and fallen angels, with prices of everything coming down, offering investors a wide array of opportunities to ‘buy the dip’ across multiple asset classes and individual stocks.
Some of these are very risky ‘falling knives’, where the lower price on offer does not necessarily mean investors should go anywhere near. Bitcoin and crypto currencies are a good example of this. Bitcoin is down 71% from its highs in 2021, Ethereum, another popular crypto asset, is down 75%. Many speculators argue this makes them better investment opportunities now. We would argue these are falling knives and trying to catch them would be a grave mistake. Any price above zero for cryptos in our view is too high.
Many stocks also exhibit similar characteristics, still trading on very high valuations despite major declines in share price. Tesla stock is down 45% from its highs last year. Compared with cryptos, at least investors own something in the real world with Tesla stock, in this case an electric car manufacturing business, but again, speculators are tempted to start buying Tesla stock at these now lower prices. Again, we caution against catching a falling knife here, as valuation levels still remain eye wateringly high relative to other auto companies and other more reasonably priced assets in the stock market.
Sadly, many retail investors in particular are falling into the trap of putting new money to work in these and other similarly risky assets, buying the dip and adding capital to speculate on prices of over-priced assets.
Price declines alone do not make great investments.
What matters is price relative to underlying value and the cash flows the asset you are buying will generate.
Some asset prices are down and rightly so, they were just too damned high and should be avoided even at much lower prices.
Finding the fallen angels, or at least investing in strategies where this is a stated aim, is where investors should now, we believe, be focusing their energy.
Some of the leading businesses in the world today, in previous market downturns, traded down 50% or more, seeing prices decline along with the rest of the market index at the time. Amazon was down 85% from its peak in the 2001-2002 sell-off. These price declines of our ‘fallen angels’ were accompanied by major declines in the price of the ‘hype stocks’ of the day, which never recovered.
These ‘fallen angels’, when bought at or close to market lows, turned out to be the best investments of the subsequent two decades. Amazon bought in March of 2001 would today have generated a 200-times return (in other words a $10,000 investment would be worth $2 million after 20 years).
The current market turmoil will be creating similar opportunities for the long-term minded investor.
Esta semana nos pondremos técnicos; les pedimos paciencia ya que es importante.
Parece que ha surgido un cauteloso consenso entre los participantes del mercado de que las curvas de rendimiento de los bonos invertidos significan una inminente recesión. ¿Deberían preocuparse los inversores por esto?
En primer lugar, expliquemos lo que significa realmente lo que recién les mencionamos.
La curva de rendimiento de los bonos representa los rendimientos (tasas de interés) de los bonos con una calidad crediticia similar, pero con diferentes fechas de vencimiento en un gráfico. Conectando los puntos se obtiene la curva de rendimiento. Así, por ejemplo, los valores del Tesoro de EE. UU. (bonos del Estado) tienen todos el mismo riesgo crediticio subyacente, es decir, el riesgo de que el gobierno de EE. UU. incumpla. De todas formas, los inversores pueden comprarlos a distintos plazos (dos años, diez años, 30 años, etc.). El trazado de estas tasas de interés a lo largo del tiempo para cualquier tipo de bono muestra cómo los mercados perciben el riesgo crediticio y, más ampliamente, el riesgo en la economía.
En tiempos normales, los inversores exigen tasas más altos para los bonos de mayor duración. El principio es simple. Si usted le prestara dinero a alguien durante un año, y luego le prestara, a la misma persona, dinero durante diez años, querría una tasa más alto para el préstamo a diez años, ya que hay nueve años más de riesgo de que la persona incumpla y usted no recupere su dinero. La tasa más alta compensa la mayor probabilidad de impago durante un período de tiempo más largo. Si esto se dibuja en un gráfico, se obtiene una curva de rendimiento con pendiente ascendente.
Si una curva de rendimiento se “invierte”, significa que los mercados quieren tasas más altas antes y tasas más bajas después. Su curva de rendimiento se parece más a una joroba. Históricamente esto ha sido una indicación de una próxima recesión. El mercado quiere tasas más altas por adelantado para protegerse del mayor riesgo de impago a corto plazo, por lo que las tasas a más corto plazo suben.
En las dos últimas semanas, hemos visto cómo se invertía la curva de rendimiento del Tesoro de EE.UU., provocando titulares de “recesión inminente” en la prensa financiera.
En nuestra opinión, la subida de los rendimientos a dos años (recordemos que los rendimientos a corto plazo suben más que los de largo plazo, lo que provoca la “inversión”) se explica mejor por la confusión de los inversores sobre cómo afrontar una situación para la que no tienen precedentes. El impacto de Covid en la economía y los niveles históricos de flexibilización aplicados para contrarrestarlo son nuevos. Es probable que los inversores lleguen tarde a la hora de valorar una mayor inflación a corto plazo (a través de unas tasas más altas), y eso es probablemente lo que estamos viendo en el extremo corto de la curva de rendimiento.
El rendimiento a diez años se ha mantenido más bajo de lo que habría sido de otro modo por la intervención económica masiva de la Reserva Federal de EE. UU. en ese mercado. De ahí la “inversión” de la curva (los rendimientos a dos años suben, los rendimientos a 10 años no suben tanto). Sin esta intervención, y suponiendo que el rendimiento a diez años hubiera podido subir como lo haría normalmente, ¿estaríamos viendo una inversión de la curva de rendimiento?
Afirmamos que este año (2022) representa un momento excepcional para los mercados financieros…
Last week, we claimed that this year (2022) represents a rare moment in financial markets which typically only occurs once every decade or so. A year where the financial paradigm changes, where the old rules and investment strategies that worked stopped working, and where new approaches will be needed for success in investing. 2008, 2001, 1987, and 1984 are relatively recent examples of these.
These periods of change in financial markets are almost always accompanied by a bear market for stocks. A bear market is a market which trends down for a prolonged period, typically between 3 months and as long as 2 years in some cases. And there are different types of bear market too. Three in fact.
If we are right, and 2022 turns out to be as important as previous moments of market dynamic shift like 2008 and 2001, understanding what type of bear market we are in now is critical to determining how investors should position themselves. It also helps us estimate how long the bear market will last and when we can start thinking about the next bull market.
We think of the three bear market categories as being: (i) structural, (ii) event based, and (iii) periodic.
A structural bear market is one driven by a major structural re-adjustment in the economy. The 2008 bear market was structural, as it was driven by a global collapse in confidence in the banking system following the bankruptcy of Lehmann Brothers. The 1929 crash and subsequent depression is another example.
Structural bear markets are typically very long in duration, often lasting many years, unsurprising given the structural causes, as these negative factors take a long time to wash out of the system.
Event based bear markets, the second type, are very different. These are the shortest in duration and are caused by, you guessed it, a specific and usually unforeseen event. The 2020 bear market is a classic event based bear market, triggered by the COVID-19 pandemic.
A highly uncertain and sudden event changes market sentiment and asset prices decline quickly in response. Since these are not driven by major structural problems in the economy, these bear markets often resolve themselves quickly, as weas the case in 2020 with the market rally and strong bull market in the April – December 2020 period.
La tercera categoría de mercados bajistas es la periódica o cíclica. Se trata de mercados bajistas desencadenados por las últimas fases de un ciclo económico y la consiguiente subida de los tipos de interés que se produce en las últimas fases de un mercado alcista. Normalmente, la inflación aumenta, los bancos centrales suben los tipos de interés, el crecimiento se ralentiza y se produce un mercado bajista en los precios de los activos. ¿Le resulta familiar? Debería, ya que esta es la categoría de mercado bajista en la que creemos que nos encontramos actualmente.
What does this mean for investors?
Periodic bear markets typically last between 9 and 18 months and they are not accompanied by major financial crises, so the rally out of these markets is often quite strong, usually in more value-oriented stocks early on, followed by growth stocks later in the rally. The 2001-2002 bear market is a classic example of this. The recession then was mild, there was a bear market, followed by a 7-year bull market in stocks.
If we’re right, we’re currently 6-9 months into this bear market. The bad news is: that probably means there’s going to be a bit more pain in markets before we can start thinking about a sustained recovery in asset prices. The good news is that, well, we’re already 6-9 months into this thing, and that means, based on historical examples at least, we’re probably less than 9 months away from the end of this bear market.
Another positive outcome of this prediction being right is that the subsequent bull market should be a strong one, given the lack of a major structural headwind to the economy. If the last market cycle with these features is anything to go by, the 2023-2030 period would be one of very strong investment returns, particularly for those with a renewed focus in aligning their investment exposure to investments trading on low and reasonable valuations today, that also offer exposure to the major drivers of growth in the global economy during the next bull market.
Before the 2020 pandemic, the 2011-2019 economy and accompanying bull market, was often described as a Goldilocks economy, one where inflation and growth were neither too hot, nor too cold, but ‘just right’ to sustain asset price appreciation and a strong economy.
Investors should not count out the possibility of a return to the ‘Goldilocks economy’ after the current market turmoil passes. The factors that gave us such an economy before the pandemic are still there, under the surface (ageing demographics, new and deflationary technologies), and may reassert themselves. Though we’re not predicting this particular outcome, its realisation would be very bullish for stocks in the long-term.
El día de hoy KNG te va a hablar sobres las redes 5G que tienen velocidades de internet inalámbricas de 1.5 Gigabits por segundo (Gbps)…
Muchas ciudades en Estados Unidos han comenzado a disfrutar de estas increíbles velocidades de internet. Esta novedad tecnológica no sólo está disponible en Estados Unidos, ya que en países como México, Uruguay, Chile, Brasil, Perú, Colombia y Argentina ya se empiezan a ofrecer paquetes telefónicos que incluyen este servicio.
A 5G network is 150 times faster than the average 4G wireless network speed. To experience this amazing internet speed, we need to be within the range of a cell tower or 5G base station.
After experiencing a 1.5 Gbps network with no delay. going back to 10 Mbps on the 4G network would be like going back 20 years in time. The simplest comparison would be if we lost the 200 Mbps internet service provided by our cable TV provider and went back to using the old 1 Mbps dial-up service. A downgrade of that magnitude would be impossible to do. In simpler words: Our internet wouldn't work.
The bandwidth provided by second generation wireless networks will be the cornerstone of a set of new technological aplications. 4G will be nothing more than a backup network. That fact that the 5G networks that have been tested so far work so well comes as no surprise. But there is something that has surprised us...
Original estimates of how many 5G mobile phone networks, base stations and repeaters would be needed for 5G networks are wrong -- When the networks are fully built, there will be a need for 5 times more equipment than what was originally forecasted.
Nuestra oportunidad está en una de las dos únicas empresas del planeta que puede construir la infraestructura física necesaria para las redes 5G del mundo…
«Ventana de oportunidad»
Antes de revelar la empresa, te vamos a explicar cuales son las redes de quinta generación y la tecnología de uso global que permite estas velocidades de más de 1 Gbps.
Una actualización revolucionaria…
Las velocidades de descarga promedio en una red 4G son de aproximadamente 33 megabits por segundo (Mbps). Las velocidades de 1.5 Gbps que se obtienen dentro del rango de una torre celular o estación base 5G son 100 veces más rápidas de lo que experimenta la mayoría de los usuarios.
Average network Speed – T3 Consortium
Con el aumento de la velocidad de la red, algunas tecnologías que antes eran de «ciencia ficción» se vuelve una realidad.
Por ejemplo, la aplicación del 5G le permitiría a doctores o especialistas quirúrgicos que se ubiquen a muchos kilómetros de distancia mantener una comunicación y retrasmisión de las imágenes de una operación en alta calidad en tiempo real. Permitiendo romper barreras y ayudando a compartir conocimiento medico de una forma revolucionaria.
Las páginas web que se cargan lentamente y las llamadas desconectadas serán cosa del pasado.
¿Es una locura, ¿cierto?
El lanzamiento de las redes 5G vendrá en 3 fases:
Primera fase: Infraestructura
Fase 2: Dispositivos
Fase 3: Servicios
No todas las redes 5G son iguales
En esta gráfica se aprecia que en algunas compañías no existe una gran diferencia entre las velocidades de sus redes 4G y 5G.
Lo primero que debes saber es que no todas las redes 5G son iguales. Por ejemplo, T-Mobile y AT&T presumen de tener «5G» a nivel nacional. Ponemos 5G entre comillas porque están utilizando tecnología 5G de banda baja y onda larga.
Estas características permiten que la señal viaje más lejos, pero a velocidades más bajas. Si bien es técnicamente 5G, los usuarios en estas redes no obtienen la experiencia 5G completa. Podemos catalogar esto como una red 5G «light».
Como se muestra en la imagen a la izquierda, un estudio reciente muestra que las redes 5G actuales de AT&T y T-Mobile son apenas más rápidas que el servicio 4G. También cabe resaltar que estas discrepancias en las velocidades entre las redes 4G y 5G se han visto en América Latina.
Por ejemplo, en México Telcel tiene velocidades promedio de 11.83 Mbps en sus redes 4G, y aunque su red 5G promete velocidades de hasta 2 Gbps, se han registrado velocidades «bajas» de 300 Mbps.
Proveedores como AT&T y T-Mobile están lanzando 5G de banda baja porque es más rápido y barato de implementar. Pero, como podemos ver, Verizon tiene una cobertura 5G mucho más rápida en las ciudades pobladas. De hecho, Verizon ya cuenta con servicio UWB (Ultra Wide Band), desde enero de 2022.
Inorsa, una start-up de redes 5G, informó que solo se necesitaron alrededor de 100 estaciones base 4G para cubrir Manhattan. Predice que se necesitarán entre 5,000 y 20,000 estaciones base 5G para cubrir la ciudad.
AT&T, T-Mobile y Verizon necesitarán antenas en cada esquina. Más banda ancha, latencia casi nula y velocidades de red notablemente más rápidas a frecuencias más altas, que tienen longitudes de onda de radiofrecuencia más cortas. Las longitudes de onda más cortas no viajan tan lejos. Por lo tanto, se necesitarán más estaciones base.
Torre celular 4G
5G: Una torre celular más pequeña
Normalmente se adjuntan a postes de servicios públicos, postes de señales de tráfico y postes de luz.
Las torres celulares de 4G o torres soportes de antenas son la estructura física de fierro, cemento u otro material similar, que se construye para sostener una o más antenas. Estas estructuras habitualmente miden entre 12 y 50 metros de altura y las antenas van ubicadas sobre ellas.
Cuando se prueban las redes 5G, uno no puede evitar notar que la velocidad de la red disminuye a medida que uno se aleja de las torres 5G. Esto es normal cuando se usan frecuencias de radio en bandas de muy alta frecuencia y un rendimiento increíblemente alto. A medida que te vas alejando, el rendimiento sigue siendo increíble, mucho mejor que 4G, pero ya no a velocidades de 1 Gbps.
Hoy en día, los ingenieros están trabajando en tecnologías que permitan que las señales 5G viajen más lejos.
En lugar de enviar la misma señal a todas partes, como 4G y las generaciones anteriores de tecnología celular, las torres 5G envían señales concentradas directamente a los dispositivos. Esta señal 5G más fuerte y concentrada puede penetrar algunos objetos y ayudar a habilitar una conexión constante.
Cobertura de 4G vs. 5G «beamforming»
Cada dispositivo 5G tendrá una antena específica dedicada a proveerle señal 5G.
¡¿ Acaso esto es posible?!
Si…
iPhone 12 de Apple
El iPhone 12 fue el primer teléfono inteligente de Apple creado para funcionar con tecnología 5G. El parche lateral es la antena 5G mmWave.
Apple lo colocó estratégicamente en esa posición porque es menos probable que nuestra mano cubra ese lugar, lo que podría interferir con la señal. Hemos visto como los proveedores de 5G no enviarán la señal al aire libre… Veamos la tecnología para permitir velocidades de más de 1 Gbps en interiores.
¿Cómo funciona el 5G en interiores?
Necesitaremos estaciones base de celdas pequeñas y repetidores dentro de estacionamientos, transporte subterráneo, y muchos otros edificios para mantener el rendimiento de la red. Por ejemplo, muchas pruebas han demostrados excelentes conexiones 5G dentro de edificios.
Por lo tanto, es posible obtener una señal 5G en interiores si es lo suficientemente fuerte… Pero es más probable que se usen equipos especiales para darle un «empuje» a las señales y garantizar el rendimiento. Esto será especialmente necesario en lugares rodeados de concreto, como estacionamientos, grandes edificios públicos, sótanos y transportes subterráneos.
Aparte de las estaciones base 5G principales en postes de luz o en el costado/parte superior de los edificios, habrá estaciones base de celdas más pequeñas y repetidores donde se utilizarán para extender la cobertura donde la señal es más débil. Sólo hay dos compañías en el mundo que pueden suministrar una plataforma 5G completa. Esas dos compañías son Huawei y Nokia.
La ventana de oportunidad de la que hablábamos al principio de este blog, es el sector de producción de infraestructura del 5G
Recomendación de KNG International Advisors
El regreso de Nokia
En el comunicado de resultados del tercer trimestre de 2019, la gerencia redujo drásticamente la previsión de beneficios y suspendió el dividendo para «aumentar los gastos en investigación y desarrollo». Lo ponemos entre comillas porque fue una excusa que usó la gerencia. El problema es que la gerencia ya tenía que saber que esto sucedería en el momento del anuncio de ganancias anterior… Cuando Nokia entregó excelentes resultados.
Las empresas conocen un aproximado de su posicionamiento de efectivo al menos dos años antes.
Las empresas conocen su posición competitiva en el mercado.
En cambio, la gerencia de la empresa mintió por omisión...
De hecho, esa fue la primera vez en años que hubo un cambio sustancial en la tesis de inversión, por lo que los inversionistas sintieron que ya no podían confiar en Nokia. La junta directiva de Nokia se sintió de la misma manera. La junta reemplazó al Director Ejecutivo (CEO) y al Director Financiero (CFO) por esta transgresión.
¡La compañía cotizaba a uno de los niveles más bajos en 20 años!
Nokia ha transformado su modelo de negocios
Hoy en día, Nokia es una compañía de telefonía celular. Nokia no fabrica ni vende celulares. En 2010, Nokia solo recibió el 30% de sus ingresos de productos de red como estaciones base para celulares. Hoy, su ingreso por dichos productos es mucho mayor.
En Abril de 2011, Nokia adquirió los activos de infraestructura de red inalámbrica de Motorola Solutions. Esta adquisición básicamente le dio a Nokia todo el negocio de las infraestructuras inalámbricas 2G, 3G y 4G de Motorola.
A principios de 2016, Nokia también adquirió Alcatel-Lucent por €15.6 billones. Esto le dio a Nokia toda la tecnología inalámbrica, routers, conmutadores y tecnología óptica de Alcatel, y curiosamente, esto también significó que Nokia adquirió Bell Labs, una división de Alcatel-Lucent, a través del acuerdo.
Y hace poco menos de 2 años, la NASA seleccionó a Bell Labs de Nokia para suministrar la red de comunicaciones 4G LTE para la luna, que comenzará a realizarse a finales de 2022. La NASA pudo haberle dado este contrato a cualquiera, pero eligió a Nokia porque sintió que Nokia tiene el equipo de red inalámbrica de mejor desempeño.
Un pequeño tropiezo…
Aparte de la falta de transparencia de la gerencia, la empresa se tambaleó temporalmente en el mercado de estaciones base 5G… Al igual que la empresa Xilinx, la transición del uso de dispositivos FPGA a dispositivos ASIC fue dura.
Un dato rápido…
Los FPGA a menudo se usan en nuevas tecnologías que podrían ver cambios en algunos estándares técnicos. Si Nokia hubiera comprado chips ASIC para sus estaciones base 5G y los estándaron hubieran cambiado, esos chips serían obsoletos. Cuando se finalizaron los estándares 5G en diciembre de 2017, las empresas cambiaron a ASIC más eficientes en sus estaciones base.
El plan era manufacturar chips utilizando la tecnología de 10 nanómetros de Intel. Pero Intel retrasó la fabricación durante 2 años… Mientras el resto de la industria ya se estaba moviendo a tecnología de 7 y 5 nanómetros. Esto dejó a Nokia sin una oferta para estaciones base ASIC. La gerencia y el equipo de producción de Nokia aprendieron una lección muy dura… Una que dudamos que repitan. En 2021, Nokia lanzó su propia estación base con tecnología ASIC.
ReefShark de Nokia
El ReefShark de Nokia ayuda a permitir una reducción del 50-60% en el uso de energía en comparación con el chip anterior. Eso reduce el costo total de propiedad para los proveedores inalámbricos… Lo cual es un gran punto de venta. Estas redes se estan volviendo cada vez más complejas a medida que más personas y dispositivos usan 5G. Una característica de la red 5G se denomina «corte de red», lo que significa que los operadores otorgarán banda ancha a las empresas al dividir partes del espectro inalámbrico en miles de partes diferentes.
Una de la claves para esto es virtualizar el trabajo, o mover el hardware que soporta los servicios de banda ancha a la nube. Se puede obtener una red virtual construida en la nube con datos alimentados desde torres inalámbricas de todo el mundo. Por ejemplo, un operador inalámbricos virtual podría construir una red de comunicaciones inalámbricas en toda Europa.
Este tipo de servicio se llama Operador de Red Virtual Móvil (MVNO, por sus siglas en inglés). 5G extenderá las posibilidades de servicio inalámbrico más allá de los MVNO. Servicios revolucionarios, como el servicio de vehículos compartidos, aplicaciones médicas móviles, juegos en línea, realidad virtual y aumentada a través de redes inalámbricas, planes de servicio solo para redes sociales (imagínate que Facebook lanza su propio servicio inalámbrico) y sistemas de seguridad para el hogar en tiempo real — se convertirán en la nueva normalidad.
La industria de software y servicios de telecomunicaciones globales generaron $66.9 billones de dólares en 2019. De ese total, $4.5 billones correspondían a Nokia.
Analysys Mason
Estación base AirScale
A continuación les mostraremos como se ve una estación base AirScale. Los módulos están unidos por la parte inferior de la torre.
Cada módulo tiene la capacidad de procesar hasta 84 Gbps. Pero en áreas de alta densidad, Nokia podría adjuntar suficientes módulos para manejar 6 Tbps por segundo.
Las estaciones base AirScale de Nokia, con tecnología de semiconductores ReefShark, podrán, en última instancia, llevar esas velocidades 5G a cada rincón del mundo.
Competencia limitada
Por si no lo sabías, varios países ya prohibieron el uso de equipos 5G de Huawei. Estados Unidos, Australia, Nueva Zelanda, Reino Unido, Suecia, entre otros, han prohibido los equipos de Huawei. También hay fuertes posibilidades de que India prohíba los equipos de Huawei, ya que las relaciones entre China e India están intensas… India ya ha prohibido el uso de la aplicación TikTok de ByteDance, con sede en China.
Ericsson cuenta con la tecnología de infraestructura y software, pero tiene que asociarse con Cisco para obtener el equipo de enrutamiento para los proveedores de servicios de red inalámbrica. Los equipos de Ericsson son altamente patentados, los clientes están limitados a utilizar principalmente productos de Ericsson o Cisco.
Y si un proveedor quisiera usar los equipos de Ericsson, se vería obligado a aceptar los términos de la licencia. Y si se quiere que los equipos sean más funcionales, eso costará más… Además de los altos costos, no se puede obtener sus productos de ningún otro lado debido a la naturaleza patentada de su equipo.
Nokia, al contrario, tiene un mejor enfoque y es más colaborativo para hacer negocios. Hasta la fecha, Nokia ya ha firmado más de 100 acuerdos 5G.
Momento perfecto
Cuando la nueva gerencia de Nokia tomo cargo, hicieron su primer reporte de ganancias. Eso es exactamente lo que nosotros haríamos si tomáramos cargo de una empresa que acaba de pasar por una crisis.
El crecimiento de los ingresos fue menor de lo esperado, y la ganancia operativa también fue un 2% menos de lo que se esperaba. Además de eso, Pekka Lundmark, el nuevo CEO de Nokia, le dijo a los inversionistas que aumentaría el gasto en infraestructura y desarrollo, lo que podría ejercer presión sobre los márgenes a corto plazo.
Después de todo, Nokia ahora se dedica completamente al 5G. Lundmark también anunció que Nokia perdió participación con Verizon, pero que sigue siento uno de los tres clientes principales.
Además, el flujo de efectivo se disparará…
Con la rentabilidad de su nueva oferta de estación base ASIC ReefShark, es solo cuestión de tiempo hasta que recupere parte del mercado. Cuando Nokia comience a levantarse de nuevo, esperamos que alcance precios similares a los de Ericsson.
Si tomamos las ganancias estimadas de Nokia antes de intereses, impuestos, depreciación y amortización a finales de 2022 y las multiplicamos por 9.6, obtenemos un valor empresarial implícito de $32.3 billones de dólares. Con un valor empresarial de alrededor de $22.84 billones, eso indica un aumento del 42% en los próximo meses.
El posicionamiento actual de Nokia en Wall Street nos recuerda un poco a Infineon. A Wall Street no le agradaba tanto Infineon y no veía lo bien posicionada que estaba la empresa para el mercado de vehículos eléctricos y autónomos. No dejemos que se repita la historia, ni dejemos pasar esta oportunidad de invertir en Nokia, una empresa fundamental para llevar la red 5G al mundo.
Actualización de cartera…
Nuestra misión en KNG International Advisors es invertir en empresas de gran capitalización que ofrecen tecnología de punta al mercado en este momento.
Invertimos en empresas de alto crecimiento cuando el mercado aún no se ha dado cuenta completamente del valor de su tecnología. Nos centramos en las grande megatendencias del mundo de la tecnología.
Hoy en día, muchas personas se dan cuenta de lo conveniente que es recibir cosas como el mandado directamente a la puerta de su casa. Google y Facebook, las dos mayores empresas de publicidad en línea, recientemente han registrado ingresos que superaron las expectativas.
Google ganó $2.7 billones de dólares más de lo esperado, mientras que Facebook ganó $1.6 billones de dólares más de lo esperado en ingresos publicitarios. Esto es solamente un ejemplo, ya que Facebook y Google no son las únicas empresas que han superado expectativas recientemente.
En conclusión…
Recapitulando todos los temas que cubrimos en este blog: hablamos sobre las tecnologías 5G que ya están disponibles en algunas ciudades, la gran actualización que esto implica y como los dispositivos Apple ya están habilitados para 5G. Ahora, al igual que mucha gente, la mayoría de nosotros hemos pensado en cambiar nuestros celulares a una versión más actualizada.
5G es la razón para actualizarnos. No hace falta mucha imaginación para visualizar lo «padre» que será tener en nuestras manos aplicaciones de AR y realidad mixta de última generación, que funcionen en tiempo real y sin demoras… totalmente interactivas… sin fluctuaciones, retrasos ni pantallas congeladas. Y la magnitud de la oportunidad de inversión es mucho mayor de lo previsto originalmente. La cobertura de redes 5G de más de 1 Gbps en áreas pobladas de todo el mundo requerirá de una construcción de infraestructura aún más profunda de lo que la industria imaginó. Y esto tiene oportunidades de inversión increíbles para las empresas relacionadas con 5G… su tecnología tendrá una demanda mucho mayor.
Hay muchas acciones con un gran potencial de crecimiento a medida que se desarrolla la infraestructura 5G. Para saber cuáles son las mejores acciones, Fondos y ETFs para aprovechar esta nueva revolución de tecnología debido a la infraestructura de 5G, comunícate con nosotros y pide una asesoría.
Déjanos compartir un dato rápido:
Aproximadamente la mitad de los teléfonos inteligentes vendidos en el mundo para finales de 2022 serán compatibles con 5G… y se espera que los teléfonos compatibles con 5G superen a los 4G para el 2023… lo que nos catapultará a las Fase Tres, los servicios que aprovecharán por completo esta nueva tecnología, dentro de los próximos 12 meses.
Fuentes: Brownstone Research, Nokia, Yahoo Finance, Fierce Wireless, TV Technology, Exfo, Business Insider, Tech Republic, America Economía, Xataka.
Guerra comercial entre EUA y China pasa desapercibida…
La guerra comercial entre Estados Unidos y China no ha recibido mucha atención de los medios de comunicación en los últimos años (comprensible, dado que el mundo está sufriendo su primera pandemia global en un siglo y la guerra finalmente ha estallado de nuevo en Europa).
Sin embargo, la política de la era Trump sigue siendo un lastre para la economía mundial y, fundamentalmente, un vector de aumento de costos para el consumidor estadounidense. Esto, por supuesto, significa que la relajación de dichas políticas presenta un posible catalizador alcista para el consumidor estadounidense. Dado que el consumidor estadounidense sigue siendo un motor del crecimiento mundial, también sería un catalizador al alza para la economía mundial.
Los aranceles vuelven a ser un tema importante para los mercados internacionales
En el último mes, los aranceles han vuelto a ser un tema mucho más candente. El 3 de mayo, en el marco de la obligación legal de revisar los aranceles cuatro años después de su implantación, se pidió a las empresas estadounidenses que se pronunciaran sobre si querían que continuaran. La secretaria del Tesoro y ex presidenta de la Reserva Federal, Yellen, dijo, quizá con más de un ojo puesto en la situación económica, que los aranceles de EE.UU. a China no solo aliviarían la inflación, sino que podrían aportar “beneficios para los consumidores y las empresas estadounidenses”.
El Sr. Biden ha dicho que está estudiando cambios de hasta el 25% en los aranceles, que se aplican a aproximadamente dos tercios de las importaciones estadounidenses procedentes de China, por un valor de unos 335.000 millones de dólares anuales.
Dominion, al igual que la mayoría de los economistas racionales, considera que la eliminación de los aranceles es un “beneficio para todos”. Podría suponer una reducción de costos muy necesaria para los consumidores y las empresas estadounidenses, al tiempo que daría un impulso a la economía china al ayudar a sus exportadores. Desde el punto de vista económico tiene sentido (el mejor sentido), pero desde el punto de vista político es más difícil de aceptar.
De cara a las elecciones intermedias de noviembre, una administración impopular como la de Biden, que está viendo caer sus índices de aprobación, tendrá que decidir si el objetivo de vencer a la inflación merece la pena que sea blando con China. Dado que la inflación y los problemas económicos son, a gran distancia, las principales preocupaciones de los votantes, no será una decisión fácil.
¿La eliminación de los aranceles es algo bueno?
La eliminación de los aranceles comerciales sería un paso importante no solo en la lucha contra la inflación, sino que también serviría para invertir la tendencia de la “slowbalisation” (la ralentización y, en algunos casos, la inversión de la globalización). Sin embargo, no es una vía de sentido único y requeriría alguna cesión por parte del gobierno chino como respuesta.
En el primer Informe Semanal de este mes, expusimos nuestra “visión optimista” del futuro; especulamos que “la próxima década de China [podría] caracterizarse no por la confrontación con Occidente y las costosas guerras comerciales, sino por la constatación de que vale la pena ser amigo de Occidente”, lo que haría que el país pivotara “hacia una política de comercio más abierto y un trato más justo con el resto del mundo”. La eliminación de los aranceles estadounidenses (que Pekín ha solicitado con insistencia) podría ser el paso clave para hacer realidad esta visión optimista.
In what could be considered a strong contender for understatement of the decade, Jerome Powell said that lowering inflation “may cause some pain”. Market participants (both bond and equity), all of whom are already familiar with said pain, were needless to say not surprised by his commentary last Thursday.
However, Chairman Powell was not just referring to the tribulations of the market but also that bringing inflation down might come at the expense of the unemployment rate. Unemployment currently sits at 3.6%, one of the lowest levels since the 1960s. In fact, raising the unemployment rate will almost certainly be necessary as an overly tight labour market (too few workers unable to fill too many vacancies) is signifier of an overheated economy and a core driver of inflation.
His comments came after the US posted a slightly higher than expected April Consumer Price Index (CPI) reading, up +8.3% Year on Year (YoY), a slight decline from March’s +8.5% rate. Meanwhile, Core CPI (that’s CPI with the volatile food and energy categories stripped out) also moderated to +6.2% from +6.5%, but remains close to four-decade highs.
The Fed’s ability to negotiate a soft landing, that is taming inflation without engineering a recession, is, according to Powell, dependant on “external factors” – i.e. things the Fed does not control.
Inflation, and central banks’ reaction to it is and will be the definitive story of 2022. However, it is important not to focus too narrowly on inflation figures and engage in constant “Fedology” – analysing the minute of every utterance from every member of the Fed’s Open Market Committee. We are after all talking about a central bank that badly tarnished its credibility with its 2021 “transitory inflation” stance and is now running to both catch inflation and restore lost credibility. It is better then, perhaps, to consider some of these “external factors”.
Most are well known: continuing fallout from the Covid pandemic (such as staff shortages, high commodity prices, and supply chain bottlenecks); the on-going war in Ukraine, and attendant energy and food price spikes; and China’s zero-Covid policy, which is seeing hundreds of millions of workers confined to their homes and wreaking havoc on global supply chains.
However, looking at recent events and data it becomes clear it is not all bad news. US retail growth was better than expected, growing at +8.2% YoY, and excluding autos it increased +10.9% YoY. This is significantly above inflation rates, this was even as markets had a temporary but violent wobble on Tuesday following US retailer Target’s disappointing results (for a more detailed analysis please see our research note dealing with the US consumer). . .
This is representative of a relatively strong US consumer, unsurprising given they have $3.3 trillion excess savings squirreled away in their bank account and rising wages. Though we note anecdotal weakness at the lower end of the consumer spectrum – those on low incomes with the lowest saving and most susceptible to cost increases.
In China lock down restrictions are being gradually lifted in key large cities (most notably Shanghai). This removes a headwind to growth and a major stress on global supply chains. Looser monetary policy is also in the offing. The People’s Bank of China (China’s central bank) cut a key interest rate (the five-year loan prime rate) by a record amount as the government move to further stimulate growth.
