– US CPI’s year-on-year rate fell one-tenth to 4.9%, slightly better than the expectation of 5%. However, the reduction is minimal as expected. Is the restrictive monetary policy of central banks really giving up their futures?
Restrictive policy is bearing fruit, of course, what it cannot do is perform miracles because when an economic agent that weighs practically 50% of GDP, such as a state, continues to spend a lot and Increases indebtedness and deficit, apparently the effect is less inflation of the monetary aggregate. The Federal Reserve accomplished something very important: If you look at the commodity markets around the time the Federal Reserve started raising rates and limiting the amount of money, major commodities around the world have changed and they Doing negative business despite production. Cuts, despite rising demand from China and other factors. Therefore, the monetary factor affecting raw materials has a very obvious effect of improving the process of controlling inflation, but the Federal Reserve cannot perform miracles. To reduce inflation it is necessary to reduce public expenditure, increase rates and reduce the quantity of money. The Federal Reserve cannot reduce government spending. So, the big problem with the monetary contraction we’re experiencing now is that it’s impacting the entire productive fabric. The rise in interest rates and the contraction of money result in a contraction of credit to the productive sector and obviously this has a negative impact in the medium term, but the Federal Reserve is doing what it should be doing and it is doing it as well It can do with the tools you have.
– Do you see any pause in interest rate hike?
The European Central Bank (ECB) is already indicating that it may not stop raising rates in July. Messages from some ECB members in Bloomberg the other day said, be careful, that inflation is very high in the case of the United States. Core inflation is still very high for Europe, so they can raise rates again at the top of July, right? Investors should be more positioned to see central banks lowering rates rather than raising them. The scenario we work with is that they will raise rates one or two more times and then keep them. The idea that they are going to reduce them quickly, as some part of the consensus has anticipated, seems debatable to me at least.
– Almost all central banks have an inflation target of 2% and if inflation rises their policies aim to use all means to reduce it to those levels. Is this 2% target really that good? What if allowing a little more inflation helps make the central banks’ measures not so damaging to the wider economy?
I would say to people, how do you see an additional 1% poor every year? Inflation is the loss of purchasing power of money and going from 2% or 3% or 4% a year is a cumulative monstrosity, it’s a monstrosity, it’s insane that it’s even being considered and certainly it’s a lot of thought. What is more dangerous is that an inflation target of 4% is something acceptable when inflation of 2% per year is already a very significant reduction in purchasing power. Let’s remember that we are getting messages every day in the media that wages have lost 15-20% of purchasing power since 2008 and people seem to come out of nowhere, this is an overly expansionary monetary policy. comes from If we do not understand that raising the inflation target is not only extremely negative for the general economy, but it is also extremely negative for the market. Let’s remember that most long-term investors have portfolios oriented toward a significant percentage of fixed income, which with 4% annual inflation would mean that the huge unrealized losses in the bond portfolios of so many pension funds would be huge. . ,
One of the consequences of the rate hike has been the bankruptcy of several banks in the US, which has also triggered a banking crisis in Europe, including the collapse of Credit Suisse. Do you think there is a problem with regional banking in the US? How do you see European banking?
The bank’s problem is not because of the rise in rates, the bank’s problem is because there is a huge risk in overvalued assets. To begin with, in the case of regional banks, it jumps first because the highest priced asset and the one that has become equally volatile and equally risky is the sovereign bond. But of course European banks seem like they were immune from all this, but European banks have a huge exposure to sovereign debt, not just in bonds but in public sector debt, from infrastructure to all kinds of activities until, public companies… Therefore, to say that European banks are immune to the problems seen in regional banks, that it is not the cause of anything, is a symptom, it is a symptom of many years of negative real and nominal interest rates in the Euro area and the accumulated excess risk. Blaming interest rates for raising interest rates is like blaming someone who drank too much wine for having had too many drinks.
– How would you rate the business results of the Ibex 35 listed banks?
The results of the banks are good, they are good but we cannot forget that the results are fundamentally good because the banks are not making provisions and the banks should be making provisions for an environment in which the risk of delinquency has increased macroeconomically and Can and should make significant provisions prudently. It is also important to understand that banks are finally starting to make a bit of profit from arbitrage margins, this is clearly a positive but it is very difficult to expect that return on tangible assets or return on equity (ROE) will actually start. Generate return profit relative to cost of capital. Banks are improving, the results of Spanish banks are relatively positive but they are not results that we can call historical or spectacular. They are banks that are still in the process of recovery after years of negative rates and disastrous returns with respect to the cost of capital.
– You commented on the banking moment, the drop in raw materials… what areas do you see opportunities in?
The European Central Bank (ECB) is already indicating that it may not stop raising rates in July. Messages from some ECB members in Bloomberg the other day said, be careful, that inflation is very high in the case of the United States. Core inflation is still very high for Europe, so they can raise rates again at the top of July, right? Investors should be more positioned to see central banks lowering rates rather than raising them. The scenario we work with is that they will raise rates one or two more times and then keep them. The idea that they are going to reduce them quickly, as some part of the consensus has anticipated, seems debatable to me at least.
In this environment, consumers are showing more strength than we expected, and that’s positive, but a lot of it comes from saving consumption. I think everything that has to do with the luxury sector, the defense sector, security and cyber security, everything that has to do with technology, with profit, not with unicorns, I think really take a look ESG sector is also very important. When I say ESG in the true sense, I mean that when talking about stability, the most volatile thing is loss. For me, it is important not only to focus on the environmental and social aspects, but also on the creation of profits and gains. What we say is that in the world of socially responsible investing, sometimes we forget about governance and that the problem of corporate governance in many companies, especially European companies, is dangerously linked to governments. , is not small. I think there’s great opportunities out there but you have to be, all managers and all market operators always say, selective but you have to be and I think there’s great opportunities in the United States, I think very good Opportunities are good opportunities in disruptive sectors and those that impact critical factors such as demographics, sustainability and technology. I would be more cautious about the sectors that have benefited the most over the past two years, which are the most hyper-cyclical. Most exposed to economic cycles and even raw materials.
– We’re also talking about oil, it falls more than 10% a year despite production cuts by OPEC+, what exactly is the crude price discount? Do you see a bigger bearish or do you think crude oil price reflects that potential bearishness?
Crude oil price reflects many factors: The first is monetary, because when we talk about crude everyone talks about supply, demand and geopolitical risk… and we talk about monetary factor Forget what is most important. When rates rise in oil fields and liquidity in the system decreases, oil is much more expensive to store, more expensive to hire ships, more expensive to take long positions and much more. It is expensive, even unaffordable for many operators to finance. ‘Margin call’ of very aggressive leveraged bets, so immediately the interest rate rises, I always say: Powell 1 Putin 0. The monetary factor is important in what is happening with crude, there have been two production cuts by OPEC+ traders and there is ample supply in the market.
Oil discounting the monetary factor, that a rate hike and monetary contraction is going to have a significant impact on price and secondly it won’t tell you there is a recession, but contraction which is already very evident in the eurozone with 30 months of contraction The manufacturing sector and certainly the manufacturing sector is the marginal barrel in most economies. So I would say that the contraction in the manufacturing sector is prolonged. Obviously, if we want to add a third factor, there’s this: There was a very strong expectation with China’s reopening as the great factor for demand growth and what’s happened is evidence that China is doing well. is happening, but it is recovering in a way more oriented to services than to building infrastructure, as it did in 2008.
[ad_2]