Category Archives: World

(BBG) The World Will Pay for Not Dealing With Debt


Inventive policymaking has only made the problem worse, guaranteeing that any eventual restructuring will be all the more painful. By Satyajit Das23 de dezembro de 2018, 00:00 WET

There’s quite a hole to dig out from. Photographer: Dimas Ardian/Bloomberg

Satyajit Das is a former banker, whom Bloomberg named one of the world’s 50 most influential financial figures in 2014. His latest book is “A Banquet of Consequences” (published in North America and India as “The Age of Stagnation”). He is also the author of “Extreme Money” and “Traders, Guns & Money.”Read more opinionCOMMENTS 51LISTEN TO ARTICLE 5:56SHARE THIS ARTICLE Share Tweet Post Email

Markets, to paraphrase Nobel prize-winning economist Thomas Schelling, often forget that they keep forgetting. That’s especially true when it comes to the intractable challenges posed by global debt.

Since 2008, governments around the world have looked for relatively painless ways to lower high debt levels, a central cause of the last crisis. Cutting interest rates to zero or below made borrowing easier to service. Quantitative easing and central bank support made it easier to buy debt. Engineered increases in asset prices raised collateral values, reducing pressure on distressed borrowers and banks.

All these policies, however, avoided the need to deleverage. In fact, they actually increased borrowing, especially demand for risky debt, as income-starved investors looked farther and farther afield for returns. Since 2007, global debt has increased from $167 trillion ($113 trillion excluding financial institutions) to $247 trillion ($187 trillion excluding financial institutions). Total debt levels are 320 percent of global GDP, an increase of around 40 percent over the last decade.

All forms of borrowing have increased — household, corporate and government. Public debt had to grow dramatically to finance rescue efforts after the Great Recession. U.S. government debt is approaching $22 trillion, up from around $9 trillion a decade ago — an increase of 40 percent of GDP. Emerging market debt has grown as well. China’s non-financial debt has increased from $2 trillion in 2000 (120 percent of GDP) to $7 trillion in 2007 (160 percent of GDP) to around $40 trillion today (250 percent of GDP).

U.S. non-financial corporate borrowing as a share of GDP has surpassed 2007 levels and is nearing a post-World War Two high. Meanwhile, the quality of that debt has declined. BBB-rated bonds (the lowest investment-grade category) now account for half of all investment-grade debt in the U.S. and Europe, up from 35 percent and 19 percent, respectively, a decade ago. Outstanding of CCC-rated debt (one step above default) is currently 65 percent above 2007 levels. Leveraged debt outstanding (which includes high-yield bonds and leveraged loans) stands at around $3 trillion, double the 2007 level.

Today, the world doesn’t have many options left. In theory, borrowers could divert income to pay off debt. That’s easier said than done, given that very little of the debt assumed over the last decade was put to productive uses. As wages stagnated, households borrowed to finance consumption. Companies borrowed to finance share buybacks and acquisitions. Governments borrowed to finance current expenditure, rather than infrastructure and other strategic investments.

A sharp deleveraging now would risk a recession, making repayment even more difficult. Shrinking the pile of public debt, for example, would require governments to raise taxes and cut spending, which would put a damper on economic activity.

In theory, strong growth and high inflation should reduce debt levels. Growth would boost incomes and the debt-servicing capacity of borrowers. It would reduce debt-to-GDP ratios by increasing the denominator. Where real rates are negative (with nominal rates below the level of price increases), inflation would reduce effective debt levels.

Since 2007, however, attempts to increase growth and inflation have had only modest success. Monetary and fiscal measures, however radical, have their limits. They can minimize the effects of an economic dislocation but can also damage long-term growth prospects. Since the 1990s, too, much economic activity has been debt-driven. Credit intensity is rising: It now requires increasingly higher levels of debt to generate the same level of growth. Efforts to reduce that debt risk an economic contraction, rather than a boom.

Finally, where debt is denominated in a national currency but held by foreigners, countries could slash that debt by devaluing their currencies. The problem is that everyone knows this: Since 2007, a multitude of nations have sought to engineer cheaper currencies in order to boost their competitive position and devalue their liabilities. That’s produced a stalemate, constraining this option.

The only other way to reduce debt levels is by default. This can either be done explicitly — through bankruptcy or write-offs — or implicitly, using negative nominal interest rates to reduce the face value of the debt. Default is almost certainly the likeliest long-term option.

In a default, debt investors as well as banks and depositors suffer losses of savings and income. Financial institutions and pension funds may become insolvent. Retirement income and public services that are paid for by household taxes and contributions won’t be delivered. In turn, this will reduce consumption, investment and the availability of credit. Depending on the size of the write-offs required, the economic and social losses could be considerable.

In 2007, policymakers passed up the opportunity to devise a slow, controlled correction because it would have necessitated defaults and creditor losses. That might at least have allowed an equitable sharing of losses, with the most vulnerable protected. Instead, leaders arrogantly gambled that their policy toolbox would make their debt problems disappear. The breathing space they purchased was wasted. Sovereign states used interest rate savings to finance increased expenditures rather than debt reduction.

Now time is working against them. Previous restructurings show that early default helps cauterize the wound, minimize loss and facilitate recovery. The longer the delay, the higher the cost and bigger the adjustment necessary. Not wanting defaults on their watch, policymakers have been less than honest, including with themselves, about the options to deal with unsustainable debt. They’ve effectively transferred the costs to the next generation. One way or another, though, those costs will have to be paid.

(P-S) From Yellow Vests to the Green New Deal – Joseph Stiglitz


The grassroots movement behind the Green New Deal offers a ray of hope to the badly battered establishment: they should embrace it, flesh it out, and make it part of the progressive agenda. We need something positive to save us from the ugly wave of populism, nativism, and proto-fascism that is sweeping the world.

NEW YORK – It’s old news that large segments of society have become deeply unhappy with what they see as “the establishment,” especially the political class. The “Yellow Vest” protests in France, triggered by President Emmanuel Macron’s move to hike fuel taxes in the name of combating climate change, are but the latest example of the scale of this alienation.

There are good reasons for today’s disgruntlement: four decades of promises by political leaders of both the center left and center right, espousing the neoliberal faith that globalization, financialization, deregulation, privatization, and a host of related reforms would bring unprecedented prosperity, have gone unfulfilled. While a tiny elite seems to have done very well, large swaths of the population have fallen out of the middle class and plunged into a new world of vulnerability and insecurity. Even leaders in countries with low but increasing inequality have felt their public’s wrath.1

By the numbers, France looks better than most, but it is perceptions, not numbers, that matter; even in France, which avoided some of the extremism of the Reagan-Thatcher era, things are not going well for many. When taxes on the very wealthy are lowered, but raised for ordinary citizens to meet budgetary demands (whether from far-off Brussels or from well-off financiers), it should come as no surprise that some are angry. The Yellow Vests’ refrain speaks to their concerns: “The government talks about the end of the world. We are worried about the end of the month.”

There is, in short, a gross mistrust in governments and politicians, which means that asking for sacrifices today in exchange for the promise of a better life tomorrow won’t pass muster. And this is especially true of “trickle down” policies: tax cuts for the rich that eventually are supposed to benefit everyone else.

When I was at the World Bank, the first lesson in policy reform was that sequencing and pacing matter. The promise of the Green New Deal that is now being championed by progressives in the United States gets both of these elements right.

The Green New Deal is premised on three observations: First, there are unutilized and underutilized resources – especially human talent – that can be used effectively. Second, if there were more demand for those with low and medium skills, their wages and standards of living would rise. Third, a good environment is an essential part of human wellbeing, today and in the future.

If the challenges of climate change are not met today, huge burdens will be imposed on the next generation. It is just wrong for this generation to pass these costs on to the next. It is better to leave a legacy of financial debts, which our children can somehow manage, than to hand down a possibly unmanageable environmental disaster.

Almost 90 years ago, US President Franklin D. Roosevelt responded to the Great Depression with his New Deal, a bold package of reforms that touched almost every aspect of the American economy. But it is more than the symbolism of the New Deal that is being invoked now. It is its animating purpose: putting people back to work, in the way that FDR did for the US, with its crushing unemployment of the time. Back then, that meant investments in rural electrification, roads, and dams.1

Economists have debated how effective the New Deal was – its spending was probably too low and not sustained enough to generate the kind of recovery the economy needed. Nonetheless, it left a lasting legacy by transforming the country at a crucial time.

So, too, for a Green New Deal: It can provide public transportation, linking people with jobs, and retrofit the economy to meet the challenge of climate change. At the same time, these investments themselves will create jobs.

It has long been recognized that decarbonization, if done correctly, would be a great job creator, as the economy prepares itself for a world with renewable energy. Of course, some jobs– for example, those of the 53,000 coal miners in the US – will be lost, and programs are needed to retrain such workers for other jobs. But to return to the refrain: sequencing and pacing matter. It would have made more sense to begin with creating new jobs before the old jobs were destroyed, to ensure that the profits of the oil and coal companies were taxed, and the hidden subsidies they receive eliminated, before asking those who are barely getting by to pony up more.

The Green New Deal sends a positive message of what government can do, for this generation of citizens and the next. It can deliver today what those who are suffering today need most – good jobs. And it can deliver the protections from climate change that are needed for the future.

The Green New Deal will have to be broadened, and this is especially true in countries like the US, where many ordinary citizens lack access to good education, adequate health care, or decent housing.

The grassroots movement behind the Green New Deal offers a ray of hope to the badly battered establishment: they should embrace it, flesh it out, and make it part of the progressive agenda. We need something positive to save us from the ugly wave of populism, nativism, and proto-fascism that is sweeping the world.

Anchor Opinion (FT) Liberalism’s most brilliant enemy is back in vogue – Gideon Rachman

Anchor Opinion

Disgusting but not to be ignored in order to be prepared to fight it.

This revival of interest in the ideas of Carl Schmitt, “the crown jurist of the Third Reich”is certainly not a good omen in the strange World with no values we live in. 

As the Medieval Catholic formula for exorcism says,(recorded in a 1415 manuscript found in the Benedictine Metten Abbey in Bavaria), VADE RETRO SATANA!

(Go back, Satan or Step back, Satan)!

Nazis ?

Over my dead body!

Francisco (Abouaf) de Curiel Marques Pereira

(FT) Liberalism’s most brilliant enemy is back in vogue

Nazi jurist Carl Schmitt appeals to opponents of democracy and the rule of law
Gideon Rachman

(P-S) Risks to the Global Economy in 2019 – Kenneth Rogoff


Over the course of this year and next, the biggest economic risks will emerge in those areas where investors think recent patterns are unlikely to change. They will include a growth recession in China, a rise in global long-term real interest rates, and a crescendo of populist economic policies.

CAMBRIDGE – As Mark Twain never said, “It ain’t what you don’t know that gets you into trouble. It’s what you think you know for sure that just ain’t so.” Over the course of this year and next, the biggest economic risks will emerge in those areas where investors think recent patterns are unlikely to change. They will include a growth recession in China, a rise in global long-term real interest rates, and a crescendo of populist economic policies that undermine the credibility of central bank independence, resulting in higher interest rates on “safe” advanced-country government bonds.1

A significant Chinese slowdown may already be unfolding. US President Donald Trump’s trade war has shaken confidence, but this is only a downward shove to an economy that was already slowing as it makes the transition from export- and investment-led growth to more sustainable domestic consumption-led growth. How much the Chinese economy will slow is an open question; but, given the inherent contradiction between an ever-more centralized Party-led political system and the need for a more decentralized consumer-led economic system, long-term growth could fall quite dramatically.1

Unfortunately, the option of avoiding the transition to consumer-led growth and continuing to promote exports and real-estate investment is not very attractive, either. China is already a dominant global exporter, and there is neither market space nor political tolerance to allow it to maintain its previous pace of export expansion. Bolstering growth through investment, particularly in residential real estate (which accounts for the lion’s share of Chinese construction output) – is also ever more challenging.1

Downward pressure on prices, especially outside Tier-1 cities, is making it increasingly difficult to induce families to invest an even larger share of their wealth into housing. Although China may be much better positioned than any Western economy to socialize losses that hit the banking sector, a sharp contraction in housing prices and construction could prove extremely painful to absorb.

Any significant growth recession in China would hit the rest of Asia hard, along with commodity-exporting developing and emerging economies. Nor would Europe – and especially Germany – be spared. Although the US is less dependent on China, the trauma to financial markets and politically sensitive exports would make a Chinese slowdown much more painful than US leaders seem to realize.1

A less likely but even more traumatic outside risk would materialize if, after many years of trend decline, global long-term real interest rates reversed course and rose significantly. I am not speaking merely of a significant over-tightening by the US Federal Reserve in 2019. This would be problematic, but it would mainly affect short-term real interest rates, and in principle could be reversed in time. The far more serious risk is a shock to very long-term real interest rates, which are lower than at any point during the modern era (except for the period of financial repression after World War II, when markets were much less developed than today).

While a sustained rise in the long-term real interest rate is a low-probability event, it is far from impossible. Although there are many explanations of the long-term trend decline, some factors could be temporary, and it is difficult to establish the magnitude of different possible effects empirically.

One factor that could cause global rates to rise, on the benign side, would be a spurt in productivity, for example if the so-called Fourth Industrial Revolution starts to affect growth much faster than is currently anticipated. This would of course be good overall for the global economy, but it might greatly strain lagging regions and groups. But upward pressure on global rates could stem from a less benign factor: a sharp trend decline in Asian growth (for example, from a long-term slowdown in China) that causes the region’s long-standing external surpluses to swing into deficits.

But perhaps the most likely cause of higher global real interest is the explosion of populism across much of the world. To the extent that populists can overturn the market-friendly economic policies of the past several decades, they may sow doubt in global markets about just how “safe” advanced-country debt really is. This could raise risk premia and interest rates, and if governments were slow to adjust, budget deficits would rise, markets would doubt governments even more, and events could spiral.

Most economists agree that today’s lower long-term interest rates allow advanced economies to sustain significantly more debt than they might otherwise. But the notion that additional debt is a free lunch is foolish. High debt levels make it more difficult for governments to respond aggressively to shocks. The inability to respond aggressively to a financial crisis, a cyber attack, a pandemic, or a trade war significantly heightens the risk of long-term stagnation, and is an important explanation of why most serious academic studies find that very high debt levels are associated with slower long-term growth.

If policymakers rely too much on debt (as opposed to higher taxation on the wealthy) in order to pursue progressive policies that redistribute income, it is easy to imagine markets coming to doubt that countries will grow their way out of very high debt levels. Investors’ skepticism could well push up interest rates to uncomfortable levels.1

Of course, there are many other risks to global growth, including ever-increasing political chaos in the United States, a messy Brexit, Italy’s shaky banks, and heightened geopolitical tensions.1

But these outside risks do not make the outlook for global growth necessarily grim. The baseline scenario for the US is still strong growth. Europe’s growth could be above trend as well, as it continues its long, slow recovery from the debt crisis at the beginning of the decade. And China’s economy has been proving doubters wrong for many years.

So 2019 could turn out to be another year of solid global growth. Unfortunately, it is likely to be a nerve-wracking one as well.

(ZH) The Richest People In The World Lost More Than $550 Billion In 2018

(ZH) Like the old saying goes: What goes up must come down. And just as the fortunes of the world’s wealthiest swelled during the post-crisis era as QE and ZIRP bolstered asset prices, now that trend has been thrown into reverse thanks to the turbulence in global markets during the second half of the year.

According to Bloomberg, even the world’s richest individuals failed to find respite from a global market meltdown that has rendered 2018 the “worst year for markets on record.”


Bloomberg’s Billionaires Index showed that the 500 richest people in the world had a combined $4.7 trllion in wealth as of Friday’s close, some $511 billion less than they had at the beginning of the year. With one week left to trade this year, 2018 is set to become the second year since the list was created in 2012 that the world’s wealthiest have seen their wealth decline.


At their peak, soaring markets drove the aggregate wealth of the world’s wealthiest above $5.6 trillion before the downturn began shortly after the Federal Reserve raised interest rates for the third time this year back in September.

“As of late, investor anxiety has run high,” said Katie Nixon, chief investment officer at Northern Trust Wealth Management. “We do not expect a recession, but we are mindful of the downside risks to global growth.”

Even Amazon founder and CEO Jeff Bezos, who saw his fortune swell to $168 billion earlier this year, has watched it fall more than $50 billion from the highs as FANG stocks have lead the market lower.

Even Jeff Bezos, who recorded the biggest gain for 2018, wasn’t spared the volatility. His fortune peaked at $168 billion in September, a $69 billion gain. It later tumbled $53 billion – more than the market value of Delta Air Lines Inc. or Ford Motor Co. – to leave him with $115 billion at year-end.

But Bezos’ losses were mild compared with Mark Zuckerberg, whose net worth took the biggest hit among the world’s tech titans.


The Inc. founder had a better year than Mark Zuckerberg, who recorded the biggest loss since January, dropping $23 billion as Facebook Inc. careened from crisis to crisis.Overall, the 173 U.S. billionaires on the list — the largest cohort — lost 5.9 percent from their fortunes to leave them with $1.9 trillion.

Billionaires in Asia lost a combined $144 billion…

Even Asia’s fabled wealth-creation machine stumbled as the region’s 128 billionaires lost a combined $144 billion in 2018. The three biggest losers in Asia all hailed from China, led by Wanda Group’s Wang Jianlin, whose fortune declined $11.1 billion.

Despite the turmoil, Asia continued to mint new members of the three-comma club. The Bloomberg index uncovered 39 new members from the region in 2018, although that status proved short-lived for some. About 40 percent had lost their 10-figure status as of Dec. 7.

…While billionaires in Europe also saw their fortunes decline.

From Zara founder Amancio Ortega to former Italian Prime Minister Silvio Berlusconi, most of Europe’s billionaires saw their fortunes fall. Germany’s Schaeffler family, the majority shareholders of car-parts maker Continental AG, lost the most as extra costs and tough business conditions in Europe and Asia hampered the company’s performance.

Georg Schaeffler and his mother Maria-Elisabeth Schaeffler-Thumann are $17 billion worse off than at the start of the year. That sum alone would place them among the world’s 100 richest people.

Mexico’s Carlos Slim, the majority shareholder of Latin America’s largest mobile-phone operator, also suffered big losses. Once the world’s richest person, Slim now ranks sixth with a $54 billion pile. 3G Capital co-founder Jorge Paulo Lemann saw his fortune drop the most among Latin American billionaires, losing $9.8 billion. But even with that fall, he remains Brazil’s richest person.

Russian fortunes on average fared better. The volatility caused by collapsing oil prices, a flare-up in tensions with Ukraine and tightening sanctions was partially offset by periodic gains. The combined net worth of the country’s 25 wealthiest people was down only slightly, ending at $255 billion, according to the ranking.

One outlier, though, was Russia, where billionaires fared better than elsewhere in the world (though only slightly).

Russian fortunes on average fared better. The volatility caused by collapsing oil prices, a flare-up in tensions with Ukraine and tightening sanctions was partially offset by periodic gains. The combined net worth of the country’s 25 wealthiest people was down only slightly, ending at $255 billion, according to the ranking.

Still, 16 of the 25 Russian billionaires on the Bloomberg index saw their net worth fall in 2018. Aluminum magnate Oleg Deripaska, who remains under U.S. sanctions, lost the most — $5.7 billion — and dropped out the Bloomberg ranking of the world’s top 500 richest people.

By contrast, energy moguls Leonid Mikhelson, Gennady Timchenko and Vagit Alekperov added a total of $9 billion. Timchenko, sanctioned in 2014, added 27 percent to his net worth as shares of gas producer Novatek rose 40 percent.

And if the co-CIO of the world’s largest hedge fund is right, the aggregate net worth of the world’s richest and most powerful individuas could be on track to worsen next year, which would, in our view, only ratchet up pressure on central banks to do whatever it takes to spare the global elite any more discomfort.

(Economist) The fastest growers and biggest shrinkers of 2019

(Economist) Economic forecasts for the coming year

Jan 2nd 2019

MARKETS ACT. They don’t stop to explain. But the rotten performance of stockmarkets last year, which has been maintained at the start of this one, can be traced in part to growing worry about the state of the world economy, and to its two biggest economies in particular.

According to the Economist Intelligence Unit (EIU), our sister company, America will grow by 2.3% this year. That is substantially down on an estimated growth rate of 2.9% for last year, as the Federal Reserve tightens monetary policy and as the effects of last year’s tax cuts ebb. China’s forecast growth rate is much higher, at 6.3%, but that is still down on its estimated 2018 performance—and plenty fear worse because of the trade war with America and China’s campaign to rein in debt.Get our daily newsletter

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Europe presents a gloomier picture still. Britain, which is due to leave the European Union in March, is forecast to grow by a tepid 1.5%; France faces less uncertainty but fares no better. Italy, a perennial economic disappointment, is tipped to notch up growth of just 0.4%. That makes it the seventh-worst performer in the EIU’s table of forecasts. Those below it are all forecast to contract in 2019, none more precipitously than Venezuela, which has been in freefall for years.

It’s not all doom and gloom. Some countries are projected to have bouncy years. India will again be the fastest-growing big economy, maintaining its estimated 2018 rate of 7.4%. A continuation of the China-US trade war would suit some places: Vietnam, which offers an alternative to China as a manufacturing location, is forecast to expand by 6.7%. But the economy that is expected to perform best in 2019—Syria, with forecast growth of 9.9%—is a sobering reminder that a high number can reflect the worst of starting-points.

(ZH) Angela Merkel: Nation States Must “Give Up Sovereignty” To New World Order

(ZH) SNation states must today be prepared to give up their sovereignty”, according to German Chancellor Angela Merkel, who told an audience in Berlin that sovereign nation states must not listen to the will of their citizens when it comes to questions of immigration, borders, or even sovereignty.

No this wasn’t something Adolf Hitler said many decades ago, this is what German Chancellor Angela Merkel told attendants at an event by the Konrad Adenauer Foundation in Berlin. Merkel has announced she won’t seek re-election in 2021 and it is clear she is attempting to push the globalist agenda to its disturbing conclusion before she stands down.

In an orderly fashion of course,” Merkel joked, attempting to lighten the mood. But Merkel has always had a tin ear for comedy and she soon launched into a dark speech condemning those in her own party who think Germany should have listened to the will of its citizens and refused to sign the controversial UN migration pact:

There were [politicians] who believed that they could decide when these agreements are no longer valid because they are representing The People”.

[But] the people are individuals who are living in a country, they are not a group who define themselves as the [German] people,” she stressed.

Merkel has previously accused critics of the UN Global Compact for Safe and Orderly Migration of not being patriotic, saying “That is not patriotism, because patriotism is when you include others in German interests and accept win-win situations”.

Her words echo recent comments by the deeply unpopular French President Emmanuel Macron who stated in a Remembrance Day speech that “patriotism is the exact opposite of nationalism [because] nationalism is treason.”

The French president’s words were deeply unpopular with the French population and his approval rating nosedived even further after the comments.

Macron, whose lack of leadership is proving unable to deal with growing protests in France, told the Bundestag that France and Germany should be at the center of the emerging New World Order.

The Franco-German couple [has]the obligation not to let the world slip into chaos and to guide it on the road to peace”.

Europe must be stronger… and win more sovereignty,” he went on to demand, just like Merkel, that EU member states surrender national sovereignty to Brussels over “foreign affairs, migration, and development” as well as giving “an increasing part of our budgets and even fiscal resources”.

(BBG) 2018: The Year of the Woeful World Leader

(BBG) Trump, May, Macron, Merkel. Italy, Spain, Sweden, Latvia. Even the dictators stumbled. So much bad governing, so little time. By Leonid Bershidsky26 de dezembro de 2018, 07:00 WET

Leonid Bershidsky is a Bloomberg Opinion columnist covering European politics and business. He was the founding editor of the Russian business daily Vedomosti and founded the opinion website

The dictionaries have decided on their 2018 words of the year. Oxford picked “toxic.” Merriam-Webster went for “justice.” Collins chose “single-use.” I’d zero in on “misgovernment.” Surely, 2018 saw a staggering number of countries woefully misruled by the worst crop of world leaders in recent memory.

The most egregious examples are in the news every day. U.S. President Donald Trump tops the chart as he runs out of straws to clutch in trying to convince Americans that his election has been good for them. The stock market bump of which he was so proud is disappearing. The fiscal deficit is the highest since 2012. Trade wars notwithstanding, the trade deficit is at a 10-year high.

The turnover on the presidential staff has reached catastrophic levels: 65 percent of Trump’s “A Team” had been replaced since his election as of Dec. 14, according to the Brookings Institution, and that doesn’t even include cabinet members (12 of the 24 officials in the cabinet have been replaced and now a 13th, Defense Secretary James Mattis, is leaving). Trump is having trouble filling once-coveted positions, and the officials he fired and those who have resigned are sometimes unconstrained in criticizing him — a situation that, were it to occur in a corporation, would have tanked its stock.

All this doesn’t even scratch the surface of what Trump has done. The damage he has wreaked on the U.S. role in the world is only beginning to manifest itself. Almost everywhere (with a few exceptions such as Israel and South Korea) favorable views of the U.S. are declining, and people are becoming convinced that the U.S. doesn’t care about other countries’ interests. Alliances are loosening and the multilateral world order is creaking.

QuicktakeQ&A: What a ‘No-Deal’ Brexit Means

Almost as obvious is the misgovernment of the U.K. Blind to the reality of disappearing economic growth, slowing business investment and a growing trade deficit, Prime Minister Theresa May’s government has persevered in trying to pull the country out of the European Union and in fantasizing about withdrawal terms that the EU rejected from the start. Destroyed by the EU’s dream team of super-competent negotiators, May’s bungling, ill-prepared representatives flailed about, resigned in exasperation and finally produced a deal nobody really wants — not even the EU, though it’s skewed heavily in its favor. With her support weak even within her own party and her negotiating options exhausted, May now is setting up the country for a no-deal Brexit scenario that would cause massive disruption to millions of lives — anything to avoid the only reasonable option, a new vote on EU membership for a U.K. public that found out this year it had been misled by Brexit campaigners who lied about the consequences of withdrawal.

Not Just an Anglo-Saxon Thing

QuicktakeQ&A: The Yellow Vest Protests

Even beyond these two most obvious examples of mismanagement and incompetence, things aren’t looking much better. Last year, Emmanuel Macron of France looked like the Western world’s great hope with his sweeping reform plans and a grand vision for a tighter-knit EU. He ends the year in retreat before what’s looking like the most effective Facebook-driven revolt in a Western nation to date, the Yellow Vest movement that started as a protest against a small increase in fuel taxes but grew into a violent anti-elite rebellion. Macron has undermined his reform ambitions by making concessions to the Yellow Vests worth up to 11 billion euros ($12.5 billion) a year, and his popularity hasn’t recovered, remaining at a dismal 27-percent approval in public opinion polls.  

Another potential leader of the west, German Chancellor Angela Merkel, spent most of the year hobbled by an open revolt within her party, the Christian Democratic Union, and its Bavarian sister party, the Christian Social Union. The conservative rebels paralyzed the government demanding tougher immigration policies and forcing Merkel into exhausting backroom battles that left her drained, sometimes even apathetic. The Union performed badly in two important state elections, and Merkel was forced to give up the party leadership. Though her chosen successor, Annegret Kramp-Karrenbauer, won the leadership election earlier this month, beating the more conservative Friedrich Merz, the split in the party hasn’t been healed and a lame-duck Merkel hasn’t acted as though the lifted burden of party politics has freed her up to be more assertive as chancellor. The best she’s been able to do is ensure stability, which looks to many Germans like stagnation at a time when the country is falling behind others in technology and underinvesting in areas such as education and infrastructure.

This was a year of chaos in other democracies, too.

The populist government in Italy drew up a fantasy budget that included a version of a universal basic income and fought with the EU over it (only to end up lowering its unrealistic projections) while the economy slid toward recession.

In Spain, Mariano Rajoy’s center-right government buckled under the weight of corruption scandals and the outgoing prime minister spent a whole day at a restaurant as Socialist rival Pedro Sanchez unseated him in a kind of parliamentary coup. Sanchez, however, isn’t doing too well, either: His government is beset by scandals, he faces a reprise of troublemaking by Catalonian separatists that made it almost impossible for Rajoy to focus on anything else. Now, for the first time in decades, a nationalist-populist party, Vox, is gaining popularity and has won representation in Andalusia’s regional parliament. 

Sweden and Latvia are entering the new year without governments following inconclusive elections and months of coalition negotiations. In Sweden, established parties are trying to exclude an increasingly powerful populist rival. In Latvia the establishment would like to engage the surging populists to get around a strong party that’s considered pro-Russian, but the results are the same: a political fracturing unprecedented in both countries’ history.

In Belgium, the government has just been toppled by a nationalist party campaigning against a non-binding United Nations migration pact that Belgium approved along with 163 other countries.

Weakening Strongmen

It hasn’t been a great year for strongmen and hybrid regimes, either.

Russian President Vladimir Putin was re-elected, but has since seen a dropin popularity following a highly unpopular retirement-age increase. Russia’s economy and Russians’ incomes are stagnating, and Putin’s been constrained overseas by a string of public failures by Russia’s aggressive military intelligence service and an inability to build a working relationship with the U.S.

India’s Narendra Modi goes into 2019 having lost elections in three states where his Bharatiya Janata Party was previously dominant. Modi’s hubris and the lasting effects of his policy mistakes, such as the disastrous “demonetization” of 2016 in which Modi took 86 percent of the country’s cash out of circulation, are partly responsible for his weakening hold on power. Urji Patel, the central bank governor, resigned earlier this month after Modi’s repeated attempts to weaken the bank’s independence and get control over its reserves. Though economic growth has been strong, it hasn’t been inclusive as Modi had promised; unemployment hit a two-year high in October. 

Turkey’s Recep Tayyip Erdogan consolidated his power with an election win, but he’s mismanaging Turkey’s economy. The Bloomberg consensus forecast sees the country plunging into recession starting this quarter. The lira is the world’s second-worst performing currency after the Argentine peso, having lost about 29 percent of its value against the U.S. dollar.

Saudi Arabian Crown Prince Mohammed bin Salman, once feted as a bold reformer, has seen his reputation destroyed by the October murder of Washington Post columnist Jamal Khashoggi inside the Saudi consulate in Istanbul. The brutal act has undermined international support for MBS, as the prince is known, and thrown a monkey wrench into his plans to reduce the Saudi economy’s oil dependence.

Saudi Arabia’s arch-rival, Iran, isn’t doing much better. Beset by domestic protests and hit again by U.S. sanctions from which European powers have been unable to protect it, the regime of Supreme Leader Ayatollah Ali Khamenei has had an awful year, even if it’s not teetering yet.

Viktor Orban in Hungary, whose Fidesz party won a supermajority in an election in April, appears to have overplayed his hand with a series of moves aimed at consolidating his power over courts and media, as well as a recent law that has the potential to force Hungarians into working overtime for pay that would be delayed for three years. He’s facing the most persistent protests of his rule and has been forced to resort to violenceagainst the protesters.

The current crew of error-prone rulers makes for a fractious world with a growing potential for conflict, armed and otherwise, domestic and international. The elites, both democratic and authoritarian, are weak, and they invite backlashes against their mismanagement. Protest movements and anti-establishment parties have sprung up and are strengthening everywhere; they have different goals but are all bolstered by social-network technology that amplifies anger and violence. 

Winners Lose Ground

Even the few notable exceptions to the misgovernment rule of 2018 don’t inspire much confidence.

Canadian Prime Minister Justin Trudeau has made no major errors, but his popularity is trending down ahead of next year’s election.

South African President Cyril Ramaphosa, who vowed to clean up the country after the disheartening corruption that plagued it under Jacob Zuma, couldn’t maintain “Ramaphoria” for long. Though he has restored investor confidence, his anti-corruption efforts haven’t yielded quick results and fears of a land expropriation campaign continue to hang over the country. 

Most intriguingly, Chinese President Xi Jinping, who has avoided major errors for years, may have made some in 2018. It’s unclear whether accepting Trump’s trade-war challenge was a good idea. For all its might, China is still a middle-income country that’s extremely dependent on trade. Xi’s battle against Trump may win him sympathy in Europe, but Europeans aren’t natural allies for China. Xi’s show of strength may be premature, and that will become clear in the next couple of years.

The shortage of competent, clear-headed, hubris-free leadership in today’s world may be a freak accident. But if it’s the new normal, living in this world will require new skills from ordinary people, too. Vigilance and easy mobility in case a country deteriorates intolerably are two of them; a capacity for constructive protest is a third. Bad leadership isn’t just something we read about on news sites. It could signal the deterioration of institutions, both global and domestic, that shape our lives.

O.P (MW) George Soros, a ‘standard bearer of liberal democracy,’ was just named ‘Person of the Year’ by the Financial Times

Tenho uma admiração muito especial pelo George Shwartz, que é o nome original dele.
Mudou de nome para escapar dos nazis.
É um homem que está nos píncaros da minha consideração.
Não me ocorre mesmo, de momento, alguém vivo por quem tenha tanta consideração.
Os a seguir estão muito abaixo.
Contrariamente ao que dizem os homens nao nascem todos iguais…
Há uns que nascem muito mais dotados que os outros.


Founder and Chair, Soros Fund Management and the Open Society Foundations George Soros

‘I’m blamed for everything, including being the anti-Christ. I wish I didn’t have so many enemies, but I take it as an indication that I must be doing something right.’George Soros

That’s George Soros, a man “under siege from all sides” for his activism and liberal views, talking to the Financial Times, which just named the 88-year-old founder of the Open Society Foundation its “Person of the Year.”

The editorial board of the London-based publication explained that its annual pick “is usually a reflection of their achievements. In the case of Mr. Soros this year, his selection is also about the values he represents.”

Those liberal values, which fly in the face of the forces of nationalism and populism spreading around the world, have made Soros a target in Vladimir Putin’s Russia and Donald Trump’s America, the Financial Times wrote.

Read: Soros says “everything that could go wrong, has gone wrong”

Soros, perceived as some “master manipulator of global politics” is a favorite of conspiracy theorists, including Trump supporters and even the president himself, who’s peddled allegations Soros funded the caravan of central American migrants.

Trump also tweeted out this allegation regarding the protesters at Brett Kavanaugh’s confirmation hearing:

The very rude elevator screamers are paid professionals only looking to make Senators look bad. Don’t fall for it! Also, look at all of the professionally made identical signs. Paid for by Soros and others. These are not signs made in the basement from love! #Troublemakers— Donald J. Trump (@realDonaldTrump) October 5, 2018

“I’ve been painted as the devil,” says Soros, who was targeted with an explosive device sent to his home in October. “The fact that extremists are motivated by false conspiracy theories about me to kill hurts me tremendously.”

One Georgetown professor praised the selection:

The sheer volume of negative (largely false) criticism of Soros dulls us into a reflexive defense of his rights rather than his achievements.
But he deserves immense praise for consistently investing in freedom and against authoritarianism. Kudos @FT— Don Moynihan (@donmoyn) December 19, 2018

Before Soros emerged as a philanthropic force, he made a killing as an arbitrage trader who’d become one of the world’s most successful speculators. He’ll forever be known as the man who bet against the British poundGBPUSD, +0.5155%  in 1992, a position that netted him a profit of more than $1 billion.

“The way I came out ahead on the moneymaking is that I was as critical of my own decisions as I was of the system,” he told the FT. “I abandoned positions that didn’t work; I cleaned up on my wins and I was generally first in, first out.”

He’s doesn’t always get it right, of course. As one of the largest donors to Hillary Clinton’s campaign, he wrongly bet that the stock market would take a hit in the immediate wake of a Trump victory. Two years later, and Soros is still not a fan.

“[Trump] is his own worst enemy, a narcissist who wants the world to revolve around him and has succeeded beyond his wildest dreams,” he said.

(BBG) Xi’s Speech Gives No Hope for Stock Traders as Asia Markets Sink

(BBG) Xi Jinping’s speech marking the 40th anniversary of China’s reform era was one that Asia’s equity investors had their eyes on Tuesday. But his comments weren’t what they were hoping for.

No new initiatives for reform measures were mentioned, and it ended up being a speech about what the nation’s Communist Party had done so far. That was a disappointment for investors who were expecting to hear more about specific policies for further opening of China’s economy.

Japan’s Topix index closed at its lowest level since May 2017, sinking the most among the region’s shares. Chinese and Hong Kong equities fell, and in Southeast Asia, several benchmark indexes including those of Singapore and the Philippines plunged by more than 1.3 percent as the U.S. stock carnage seeped into Asian markets. The S&P 500 Index closed at its lowest in 14 months on Monday.

Expectations that Xi’s speech would give stocks a boost (or at least, prevent a sell-off) were thwarted, and since “nothing special” was announced, Asian shares are following the overnight sell-off in the U.S., said said Castor Pang, head of research at Core Pacific-Yamaichi International HK.

Francis Lun, chief executive officer of Geo Securities, agreed. Investors were disappointed by the speech as they had been expecting some comments on economic stimulus or the further opening-up of the Chinese economy, he said. “But he didn’t mention it. That’s why A shares dropped 1 percent and also dragged down Hong Kong stocks.”

Read more on Tuesday’s Chinese stock slump here

But compared with the U.S., where the equity benchmark slid more than 2 percent, the MSCI Asia Pacific Index’s 1 percent decline as of 4:39 p.m. in Hong Kong looked tame. And U.S. stock-index futures were still holding on to some gains Tuesday, despite S&P 500 contracts paring an advance of as much as 0.5 percent.

With nothing special announced in Xi’s speech, investors are pivoting back to the interest-rate decisions expected this week. First up, the Federal Open Market Committee holds its final two-day meeting of 2018 and the result will be announced Dec. 19. in Washington. Then come the Bank of Japan and Bank of England. There’s also the Central Economic Work Conference taking place this week that many will be keeping an eye on.

“This week could be a turning point for Asian equities, with the FOMC happening and investors focusing on how determined China is about rekindling its economy,” said Lee Kyoung-min, a Seoul-based senior analyst with Daishin Securities Co.

Stock-Market Summary

  • Japan’s Topix index down 2%; Nikkei 225 down 1.8%
  • Hong Kong’s Hang Seng Index down 1%; Hang Seng China Enterprises down 1.2%; Shanghai Composite down 0.8%
  • Taiwan’s Taiex index down 0.7%
  • South Korea’s Kospi index down 0.4%; Kospi 200 down 0.4%
  • Australia’s S&P/ASX 200 down 1.2%; New Zealand’s S&P/NZX 50 down 0.7%
  • India’s S&P BSE Sensex Index down 0.3%; NSE Nifty 50 down 0.3%
  • Singapore’s Straits Times Index down 1.9%; Malaysia’s KLCI down 0.2%; Philippine Stock Exchange down 1.3%; Jakarta Composite down 0.4%; Thailand’s SET down 1.1%; Vietnam’s VN Index down 0.7%

(Yabiladi) 2030 World Cup : The Morocco-Spain-Portugal bid to be examined by FIFA in Marrakech


FIFA President Gianni Infantino and Fouzi Lekjaa head of the Moroccan football federation./Ph. DR

Marrakech will host from the 15th to the 19th of January a meeting set to examine the number of teams that would participate to the 2022 World Cup in Qatar, reports the Spanish sports online newspaper AS.

During the same meeting, FIFA will examine the feasibility of a joint bid, bringing Morocco, Spain and Portugal together for the 2030 World Cup.

FIFA President Gianni Infantino is expected to convince the Union of European Football Associations (UEFA) President Aleksander Ceferin into changing his mind about the Morocco joint bid.

For the record, speaking after a meeting of the UEFA executive committee held Monday, the European soccer’s leadership president Ceferin said that he would not accept a world cup bid that involves two different continents. «I’m not in favor of cross-confederation bids», he firmly announced.

(Nikkei) China’s bleak economic data exposes trade war scars

(Nikkei) As consumer sentiment darkens, pace of expansion at 15-year low

China’s retail sales growth slowed in November, as consumers tightened their belts amid worries over the trade war with the U.S.   © AP

BEIJING/HONG KONG — The Chinese economy is showing clear signs of slowing down. November retail sales announced on Friday marked the lowest growth rate in more than a decade and a half, and growth in industrial output also fell to the weakest in years.

With consumers and business owners increasingly concerned about the fallout from the Sino-American trade war, the Chinese leadership is expected to tap such growth-friendly measures as tax cuts when setting its 2019 economic policy in the coming weeks.

Total retail sales — including sales at department stores, supermarkets and e-commerce sites — rose 8.1% in November from a year earlier, according to figures from China’s National Bureau of Statistics. That fell short of market forecasts and was down from 8.6% growth in October. November’s growth was the slowest since May 2003.

Car sales declined, as did sales of smartphones and other communication devices. A November slowdown is especially noteworthy because that month includes the Nov. 11 discount bonanza of Singles Day, the largest online shopping event in the world.

The National Bureau of Statistics had blamed October’s slower growth on consumers holding back ahead of Singles Day.

Li Xiang, a businesswoman from northern China’s Hebei Province, said sales were slow in her hometown.

A few years ago, she said, “Jewelry shops here were always jam-packed at the year-end because people were buying gifts for each other. But this year, whenever I passed by, I saw few customers inside. In fact, one jewelry shop near my home just went out of business,” Li said. She stopped buying jewelry herself awhile ago.

Other statistics released Friday added to concerns about the economy.

In manufacturing, auto production fell 17% in November as sales dropped 13%. Production of industrial machinery, robots and ethylene, all subject to U.S. additional tariffs, fell lower on the year.

Overall industrial production missed forecasts by rising 5.4% on the year in November, slowing from the 5.9% increase of October. The comparison versus last year looked especially bleak, given the many factories that were shut down last winter to reduce pollution.

Fixed-asset investment, a measure of private and public spending, including factory and condominium construction, rose 5.9% on the year in the January to November period, up from 5.7% for January to October. Real estate investment was firm, while manufacturers increased their spending on plant and equipment.

“Looking ahead, investment growth may still face downward pressure, while uncertainty will likely remain on retail sales growth,” Citibank said in a research note.

Economists expect a slowdown in China’s economic growth in 2019, with many forecasting gross domestic product to expand 6.2%, versus an expected 6.5% to 6.6% this year.

Goldman Sachs is among those that have pegged GDP growth at 6.2% for next year. In a recent report, the U.S. investment bank said it expects the Chinese government to lower its growth target modestly to 6% to 6.5%. Goldman said that while Chinese policymakers are likely to accept a “mild deceleration” in economic growth for 2019, it does not expect Beijing to tolerate a growth rate of 6% or lower.

Ting Lu, chief China economist at Nomura in Hong Kong, is slightly more cautious than Goldman and many other economists, forecasting GDP growth of 6.1% next year. “We believe that growth will continue slowing this quarter and in the first half of next year, and most likely it will reach the bottom in the second or third quarter of next year” before moderating, he said at a media briefing on Monday.

Lu said he expects the government to introduce a more aggressive fiscal policy and deregulation of the property market around midyear to help stimulate the economy.

Ben May, director of global macro research at Oxford Economics, in a report published Monday, said: “In China, weakening survey indicators have raised concerns in some camps of a repeat of the 2015-16 soft patch or perhaps worse,” adding that Oxford Economics’ prediction of 6.1% growth next year is at the low end of consensus forecasts.

“However, it is worth emphasizing that our forecast still implies a modest recovery in growth versus [the fourth quarter of] 2018, as the effects of the recent and prospective stimulus measures come through.”

The government is expected to try to maintain moderate economic growth next year. On Thursday, the Politburo, the Communist Party’s top decision-making body, said: “We will promote steady growth, promote reform, adjust [the] structure, benefit people’s livelihood, prevent risks in a coordinated way, and keep economic operation in a reasonable range,” according to a report by state-owned news agency Xinhua.

(ZH) Global Stocks Tumble On Poor Econ Data From China To Europe

(ZH) It’s a sea of red to end the week as world stocks and US futures tumbled on Friday after weak economic data from China to Europe raised global recession fears and left investors nervous over the impact of a still-unresolved Sino-U.S. trade dispute even as China announced it would roll back retaliatory auto tariffs by 3 months; Treasuries and the dollar jumped amid a renewed flight to safety.

Growth concerns came back into focus after European Central Bank President Mario Draghi said economic risks were moving to the downside, while in China retail sales and industrial production figures for November fell significantly short of estimates. The lackluster readings from Europe on car sales and manufacturing simply added to the gloom.

The MSCI All-Country World Index was down half a percent, with all major markets deep in the red. Europe’s Stoxx 600 Index headed for a weekly loss, dragged lower by automakers after regional sales slumped in November for the third month in a row.

Euro zone business ended the year on a weak note, expanding at the slowest pace in over four years as new order growth all but dried up, hurt by trade tensions and the Yellow Vests” movement. The France PMI survey showed French business activity plunged unexpectedly into contraction this month, retreating at the fastest pace in over four years with the slowdown largely blamed on the recent violent anti-government protests.

Elsewhere, Germany’s private sector expansion slowed to a four-year low, suggesting growth in Europe’s largest economy may be weak in the final quarter as Mfg PMI declined from 51.8 to 51.5 (exp. 52.0) while the Services PMI dropped from 53.3 to 52.2, also missing expectations for a rebound to 53.4.

Adding to the ECB’s gloomy outlook, the Bundesbank lowered German growth projections, warning of downside risks: the German central bank today revelaed its updated growth projections, which cut back the GDP forecast to just 1.5% this year from 2.0% expected previously, hardly a surprise after the -0.2% q/q contraction in Q3. The forecast for 2019 was cut to 1.6% from 1.9% and for 2020 and 2021 the Bundesbank expects rowth of 1.6% and 1.5% respectively.

Stock markets in Europe opened sharply lower, with Germany’s DAX index falling 1.5% while the pan-European STOXX 600 index was down 0.9%, paring some losses as European automakers saw their losses cut in half on the China tariff news.

The data out of Europe added to weak readings from China, where November retail sales grew at the weakest pace since 2003 and industrial output rose the least in nearly three years, underlining risks to the world’s second-largest economy as Beijing works to defuse a trade dispute with the United States.

A Chinese statistics bureau spokesman said the November data showed downward pressure on the economy is increasing.

The data “means that the worst is yet to come and policymakers will be very worried, particularly with consumption growth falling off a cliff,” said Sue Trinh, head of Asia FX strategy at RBC Capital Markets in Hong Kong. “So I expect further support measures including rate cuts will come in coming weeks, although these data would indicate measures to date aren’t really working.”

The Chinese yuan weakened 0.4% to 6.9063 per dollar in offshore trade following the data.

As a result, equities slumped across Asia, with shares in Hong Kong and Japan leading the retreat. MSCI’s index of Asia-Pacific shares ex Japan fell 1.5%. Japan’s Nikkei, also dragged down by the country’s weak tankan sentiment index, dropped 2.0%. China’s benchmark Shanghai Composite and the blue-chip CSI 300 closed down 1.5 percent and 1.7 percent, respectively, and Hong Kong’s Hang Seng was off 1.5 percent.

“The data this morning out of France really hasn’t helped the mood. You look at China data, you look at the flash PMIs out of France and Germany and they’ve really sort of reinforced concerns that the global economy is slowing down,” said CMC Markets chief markets analyst Michael Hewson. “Ultimately, I think it rather questions the wisdom of the ECB ending its asset purchase program at the end of this month. You’ve got Mario Draghi basically tightening into a downturn.”

Over in the US, S&P 500 futures also pointed to a drop at the open, though both declines were tempered somewhat on news that China will temporarily remove a retaliatory duty on U.S.-imported automobiles.

“Although hopes of progress in U.S.-China talks and cheap valuations are supporting the market for now, we have lots of potential pitfalls,” said Mizuho’s Nobuhiko Kuramochi. “If U.S. shares fall below their triple bottoms hit recently, that would be a very weak technical sign.”

In the currency market, the euro was down 0.7 percent after the weak PMIs, last changing hands at $1.1288. The Bloomberg Dollar Spot Index headed for its best week in four months, rising to 1,215 and just shy of 2018 highs. Antipodean currencies led losses in the Group-of-10 basket.

Sterling’s rally fizzled as signs that the British parliament was headed towards a deadlock over Brexit prompted traders to take profits from its gains made after Prime Minister Theresa May had survived a no-confidence vote.


The European Union has said the agreed Brexit deal is not open for renegotiation even though its leaders on Thursday gave May assurances that they would seek to agree a new pact with Britain by 2021 so that the contentious Irish “backstop” is never triggered.

In overnight Trump-related news, Federal prosecutors are investigating whether US President Trump’s inaugural committee misspent some of the record amount of funds it raised, while there were later comments from White House Press Secretary Sanders that President Trump had limited engagement with the inauguration committee. President Trump is also said to be considering Kushner for Chief of Staff, while there were separate reports that US President Trump is said to have met with Chris Christie to discuss Chief of Staff position. Axios reported that US President Trump sees Chris Christie as a top contender to replace John Kelly as Chief of Staff

Oil prices gave up some of their Thursday’s gains following inventory declines in the United States and expectations that the global oil market could have a deficit sooner than they had previously thought. U.S. crude futures edged down 0.5% to $52.32 per barrel and Brent crude slipped 0.6 percent to $61.09, after both gained more than 2.5 percent on Thursday. Gold (-0.3%) is set for is biggest weekly fall in five weeks due to a firmer USD as traders focus on next week’s tabled Fed rate hike. Looking at base metals, copper is on track for a third consecutive weekly drop with downside exacerbated by the downbeat Chinese industrial production translating into weaker demand as the red metal faces a 15% yearly decline.

Expected data include retail sales, industrial production, and PMIs. No major companies are reporting earnings

Market Snapshot

  • S&P 500 futures down 0.9% to 2,626.25
  • STOXX Europe 600 down 1.4% to 344.61
  • MXAP down 1.4% to 149.12
  • MXAPJ down 1.5% to 481.32
  • Nikkei down 2% to 21,374.83
  • Topix down 1.5% to 1,592.16
  • Hang Seng Index down 1.6% to 26,094.79
  • Shanghai Composite down 1.5% to 2,593.74
  • Sensex up 0.03% to 35,940.82
  • Australia S&P/ASX 200 down 1.1% to 5,602.00
  • Kospi down 1.3% to 2,069.38
  • German 10Y yield fell 3.4 bps to 0.251%
  • Euro down 0.6% to $1.1292
  • Italian 10Y yield fell 4.3 bps to 2.594%
  • Spanish 10Y yield fell 0.8 bps to 1.416%
  • Brent futures little changed at $61.42/bbl
  • Gold spot down 0.2% to $1,239.08
  • U.S. Dollar Index up 0.5% to 97.53

Top Overnight News

  • European leaders rebuffed Theresa May’s pleas to help her sell the Brexit agreement to a skeptical U.K. Parliament, toughening their stance as they stepped up planning for a chaotic no-deal divorce
  • The euro-area economy is closing out 2018 on a gloomy note, with a measure of activity unexpectedly dropping to its lowest in just over four years
  • China’s economy slowed again in November as retail sales and industrial production weakened, creating a challenging backdrop for policy makers who gather next week to set the tone for the year at their annual Economic Work Conference in Beijing
  • As Japanese government bond yields slide, some Bank of Japan officials see no problem with them dropping to zero or even below, according to people familiar with the matter
  • In Washington and Beijing, the idea that China is willing to water down its plans for high-tech industrial dominance to appease President Donald Trump is already meeting with skepticism

Asian equity markets were negative across the board as sentiment in the region soured following the lacklustre lead from Wall St and as region digested disappointing data from China. ASX 200 (-1.1%) and Nikkei 225 (-2.0%) both declined from the open with Australia led lower by tech, telecoms and the largest weighted financials sector, while the Japanese benchmark was subdued amid a firmer JPY and mixed Tankan data despite the headline Large Manufacturers Index and Large All Industry Capex topping estimates. Elsewhere, Hang Seng (-1.6%) and Shanghai Comp. (-1.5%) were also pressured after Chinese Industrial Production and Retail Sales data both fell short of estimates, with underperformance seen in Hong Kong as this year’s run of lacklustre stock market debuts continued in the domestic exchange. Finally, 10yr JGBs were higher as they tracked gains in T-notes and with prices underpinned by safe-haven demand which saw 10yr JGBs print the highest since November 2016.

Top Asian News

  • Some at BOJ Are Said to Be Fine With Yields Going to Zero
  • Thailand’s Richest Man Said to Tap BofA, UBS for $1.5b AWC IPO
  • SoftBank IPO Said to See 2-3 Times Demand From Big Investors
  • Not Such a Happy Friday for Asia’s Beleaguered Stock Traders
  • Japan Post Is in Talks to Buy Minority Stake in Aflac

European equities are poised to finish the week on the backfoot (Eurostoxx 50 -0.9%) following the weak lead from Asia as sentiment turned sour amid the release of disappointing Chinese industrial production and retail sales, highlighting weakness in the Chinese economy. As such, around 75% of the Stoxx 600 (-0.9%) are in the red, Switzerland’s SMI (-1.4%) marginally lags peers with all 20 stocks in negative territory. In terms of sectors, IT names underperform alongside auto names (seen as trade proxies due to heavy exports) as a result of the aforementioned Chinese retail sales signalling an impact from ongoing trade disputes. However, European auto names spiked higher following reports that China are to lift retaliatory tariffs on US autos for 3-months from January 1st next year (i.e. suspending the 40% tariff plan and sticking to 15%). In terms of individual movers GVC Holdings (+8.8%) shares rose to the top of the UK benchmark with Citi citing next week’s Parliament vote on FOBT stakes being “significantly positive” as shareholders will be paid out GBP 676mln if the legislation is not passed by 28th March 2019.

Top European News

  • Sweden Moves Step Closer to New Election as Lofven Loses PM Vote
  • How Ireland Outmaneuvered Britain on Brexit
  • Italian Bonds Get No Favors From Draghi’s Reinvestment Plans
  • European Car Sales Slump in November With No Sign of Rebound

In currencies, The Antipodean Dollars have derived some scant support from reports that China will freeze and backtrack on a proposed increase in US auto tariffs w/e January 1 next year, in line with recent speculation, but the Aussie and Kiwi remain on the backfoot and significantly weaker than their G10 counterparts following sub-forecast Chinese data overnight and RBNZ consultations about lifting high grade bank capital requirements by 100%. Aud/Usd is holding just off a fresh December low around 0.7155 after breaching 0.7200 and tech supports below the figure at 0.7186 (55 DMA) and 0.7163 (Fib), while Nzd/Usd has lost grip of 0.6800 as the Aud/Nzd cross pivots 1.0550.

  • EUR/GBP: Also major underperformers, as the single currency extended post-ECB losses on the back of further declines in EZ PMIs (French readings especially dire as manufacturing, services and composite all tumbled into sub-50 contractionary territory) and through recent support just ahead of 1.1300 vs the Greenback to 1.1286 before finding some bids. Note, a decent 1 bn option expiry at the 1.1300 strike may provide some traction. Meanwhile, Brexit remains the big bane for Sterling and given the ongoing impasse between UK PM May and EU leaders on the back-stop, Cable has retreated sharply towards 1.2570 and chart-wise back below the 10 DMA circa 1.2660.
  • JPY: As usual, demand for the safe-haven Yen is just keeping Usd/Jpy depressed within a tight 113.70-40 range, along with 1.4 bn expiries at 113.75.
  • EM: An unexpected, though far from total surprise ¼ point CBR rate hike has underpinned the Rub against the grain of overall regional currency weakness on risk-off flows, with the Rouble comfortably above 66.5000 vs the Usd.

In commodities, WTI (-0.7%) and Brent (-0.9%) swings between gains and losses following an uneventful overnight session as prices consolidated after yesterday’s rally.  The complex saw some upside in recent trade after Libya’s NOC chairman was pessimistic about reopening its 300k BPD El-Sharara after an armed group halted production at the oilfield. Traders will be eyeing this evening’s Baker Hughes rig count as fresh catalyst. Note, WTI Jan’19 options expire today at 19.30GMT. Elsewhere, gold (-0.3%) is set for is biggest weekly fall in five weeks due to a firmer USD as traders focus on next week’s tabled Fed rate hike. Looking at base metals, copper is on track for a third consecutive weekly drop with downside exacerbated by the downbeat Chinese industrial production translating into weaker demand as the red metal faces a 15% yearly decline. Finally, Shanghai steel extended gains for a third day in a row after two major steelmaking cities (Tangshan and Xuzhou) demanded mills to curtail production amid worries that they will not meet pollution reduction targets this year. For context, Tangshan accounts for 10% of China’s total steel output while Xuzhou is in the number two steelmaking province.

Looking at the day ahead, in the US there should be plenty of focus on the November retail sales report where expectations is for a +0.4% mom ex auto and gas print and +0.5% mom control group reading. A reminder that the latter is a direct input into the GDP accounts. Also due out across the pond is the November industrial production print (+0.3% mom expected) and October business inventories. Meanwhile we’re due to get comments from the ECB’s Guindos and Lautenschlaeger this morning before Angeloni speaks this afternoon.

US Event Calendar

  • 8:30am: Retail Sales Advance MoM, est. 0.1%, prior 0.8%; Retail Sales Ex Auto MoM, est. 0.2%, prior 0.7%
    • Retail Sales Ex Auto and Gas, est. 0.4%, prior 0.3%; Retail Sales Control Group, est. 0.4%, prior 0.3%
  • 9:15am: Industrial Production MoM, est. 0.3%, prior 0.1%; Manufacturing (SIC) Production, est. 0.3%, prior 0.3%
  • 9:45am: Bloomberg Dec. United States Economic Survey
  • Markit US Composite PMI, prior 54.7
    • Markit US Manufacturing PMI, est. 55, prior 55.3;
    • Markit US Services PMI, est. 54.6, prior 54.7
  • 10am: Business Inventories, est. 0.6%, prior 0.3%

DB’s Jim Reid concludes the overnight wrap

With just ten business days left in 2019 now, after the Brexit shenanigans earlier this week markets were always hoping that the ECB would be a less eventful affair. Indeed, luckily there was no sign of a scrooge surprise from Mario Draghi in what proved to be a fairly non-eventful policy meeting yesterday.

As expected we got confirmation that net asset purchases were to cease by the end of the year while the dovish tightening that we expected was affirmed with an endorsement of the short end rally and a hint that a replacement for TLTRO2 is in the pipeline. In line with the views of our economists (link here ), the reinvestment programme retains a lot of flexibility over the purchases. There was no twist of the portfolio, and the ECB’s preference was for a revision to the guidance on the period of full reinvestment, implying this could last longer. “Continuing confidence with increasing caution” was Draghi’s new mantra our colleagues highlight. That said there was one surprise and that was the suggestion that the ECB is starting to rethink the structural impact of negative deposit rates on the banking system. This increases the possibility of a technical deposit rate hike – a hike for non-cyclical/non-monetary policy purposes – in 2019. Draghi said the reductions to the staff GDP growth forecasts take the economy on a path “closer to potential”. This could be an admission that the window to raise rates to address structural bank profitability is getting narrower.

So where does that leave us? In their 2019 outlook our economists delayed the timing of lift-off of the policy rate tightening cycle from September 2019 to March 2020 given the deteriorating expectations for growth and inflation. However they also mentioned the risk of a technical, one-off deposit hike and the team believe that March 2019 is perhaps the best time for the technical hike now.This is arguably when the replacement for TLTRO2 will be due. It is also six months before the current time commitment to unchanged policy rates expires, meaning March is the appropriate time to consider an extension of the commitment if they are right about the outlook for the economy. Something to consider then.

The market also seemingly viewed the meeting as a bit of a non-event. The euro initially declined and hit as low as -0.33% versus the dollar intraday but ended up closing -0.07%. The STOXX 600 flipped between gains and losses with no real conviction and eventually closed a shade in the red with a -0.17% decline. Meanwhile, 10y Bund yields did nudge to an intraday low of 0.254% at one stage but also reversed into the close to finish at 0.281% and +0.5bps on the day. A remarkable statistic about Bund yields is that they are currently lower than they were when QE started in March 2015, when Draghi supersized QE and cut the depo rate in March 2016, and when Draghi outlined plans to end QE this December and set guidance for a rate hike at the June meeting earlier this year.

Also keep in mind that the ECB’s balance sheet has increased by €2.5tn since QE started. In that time it has cost the ECB about €119bn for each one-tenth of a percent to get the year-on-year headline CPI number to where it is now although Eurozone CPI hasn’t risen by that different an amount to US CPI over the same period. More startling is the fact that it has cost the ECB €625bn for each tenth of a percent increase in core CPI which has been in a fairly narrow range over the whole period. The gap between Eurozone and US core CPI has also stayed pretty constant. In addition, while Bund yields have in essence moved sideways, 10y BTP yields are 171bps higher and eurozone banks have lost €152bn in market cap. We will never know the counterfactual but there’s been a huge financial cost to the program but with inconclusive evidence about its success.

As for Wall Street yesterday, well there wasn’t really much to write home about however once again we saw a fairly familiar story with a solid open quickly giving way to a more lacklustre finish in the afternoon. Indeed the S&P 500, DOW and NASDAQ ended -0.02%, +0.29% and -0.39%, respectively, while US HY cash spreads also closed little changed. Treasuries were +0.4bps higher in yield at the 10y point while the 2s10s curve steepened +1.2bps. More exciting was WTI oil climbing off the day’s lows to end +2.80% following the reports about Saudi Arabia slashing supply on shipments to the US.

To be fair there wasn’t a great deal of newsflow outside of the ECB so maybe headline fatigue played a bit of a factor. There wasn’t much of a reaction to the news that China had detained a second citizen from Canada while advisors to President Trump warned the President to stay out of the Huawei case according to the WSJ.

That being said, overnight sentiment in Asia has turned decidedly more negative following a slew of soft data in China. The the Nikkei (-1.83%), Hang Seng (-1.55%), Shanghai Comp (-0.68%) and Kospi (-1.35%) all down along with S&P 500 futures (-0.69%). China’s November retail sales came at +8.1% yoy (vs. +8.8% yoy expected) while November industrial production stood at +5.4% yoy (vs. +5.9% yoy expected). There was better news for YtD November fixed assets ex. rural which came at +5.9% yoy (vs. +5.8% yoy expected) however the focus has been on the former two big misses with retail sales actually now growing at the slowest rate since 2003. You’d have to assume that this data would up the stimulus talk again and interestingly, it comes after PBoC Governor Yi Gang said yesterday that monetary policy will remain supportive in the face of China’s economy faltering. In other news Japan’s preliminary December manufacturing PMI came in at 52.4 (vs. 52.2 in last month) while this morning the BoJ trimmed purchases of 5-10yr (JPY 430bn today vs. JPY 450bn in previous operation) at a regular operation today for the first time since June. JGBs are actually slightly stronger despite that.

Moving on. With the ECB out the way we can now turn over to the flash December PMIs which are out in both Europe and the US today. With the Italian budget situation stabilising and the ECB keeping to the script for the most part yesterday, will today’s PMIs in Europe help cement a festive cheer into year-end for European risk assets? The good news is that expectations are now fairly low following three consecutive monthly declines in the Euro Area composite to 52.7 in November. As a result the consensus is for a very modest 0.1pt increase to 52.8 with no real deviation from the manufacturing (51.8) or services (53.4) prints expected. In terms of timing we’ll get the data for Germany and France just after 8am GMT this morning followed by the broader Euro Area prints at 9am GMT.

In other news, with UK PM May boarding a plane for Brussels yesterday there wasn’t a great deal of Brexit newsflow to follow the confidence vote. There were some headlines on Bloomberg suggesting that EU leaders were mulling publishing a new declaration on the Irish backstop issue which helped Sterling (+0.11%) to climb slightly but it’s hard to know how substantial this was. DB’s Oliver Harvey, in a report published yesterday, noted that although there was no clear direction from the PM about her Brexit strategy in her statement on Tuesday night, reports have suggested that the UK government is now seeking legally binding commitments from the EU27 over the Temporary Customs Arrangement in the Withdrawal Agreement. In Oliver’s view, the prospect of substantively changing the existing Withdrawal Agreement is limited, other than by replacing a whole UK backstop with a Northern Ireland specific one. As May has ruled out any Brexit deal that does not gain the support of the DUP, the latter seems unlikely. In summary, should the UK stance continue to centre on iterations of the current agreement, it is unlikely to pass a parliamentary vote late this year or, more likely, in January with the UK government now committed to a vote by January 21st. On the basis of May surviving the confidence vote, Oli’s view was that May would pivot towards a cross party approach to Brexit, in particular softening the stance on the future relationship to gain Labour Party support however this thesis is now about to be tested. So it should be an interesting and long few week ahead.

Before we look at the day ahead, quickly wrapping up the data that was out yesterday. In Europe there were no revision changes in the final November CPI prints for Germany (+0.1% mom/+2.2% yoy) and France (-0.2% mom /+2.2% yoy). Across the pond there was a bit of focus going into the latest weekly claims print but in the end it fell back towards the record lows at 206k (vs. 227k expected). Assuming it’s not a one-off, that suggests then that the noise around Thanksgiving and also perhaps the Hurricanes in the US were the reason for the move higher. Meanwhile, we also learned that import prices fell 1.6% mom in November, largely reflecting a drop in energy prices, lowering annual inflation to just 0.7% yoy from 3.3% yoy previously, while a federal budget deficit of USD204.9bn was recorded in November – USD66.4bn larger than in the same month last year and rising the 12-month running deficit to USD883bn.

As for the day ahead,the aforementioned PMIs out in Europe and the US will almost certainly be the main data highlight. Away from that in Europe we also get the November wholesale price index for Germany, November new car registrations for the EU, Italy’s final November CPI revisions and QE labour costs data for the Euro Area. This afternoon in the US there should be plenty of focus on the November retail sales report where expectations is for a +0.4% mom ex auto and gas print and +0.5% mom control group reading. A reminder that the latter is a direct input into the GDP accounts. Also due out across the pond is the November industrial production print (+0.3% mom expected) and October business inventories. Meanwhile we’re due to get comments from the ECB’s Guindos and Lautenschlaeger this morning before Angeloni speaks this afternoon.

(P-S) Beyond GDP – Joseph Stiglitz

(P-S) What we measure affects what we do. If we focus only on material wellbeing – on, say, the production of goods, rather than on health, education, and the environment – we become distorted in the same way that these measures are distorted; we become more materialistic.

INCHEON – Just under ten years ago, the International Commission on the Measurement of Economic Performance and Social Progress issued its report, Mismeasuring Our Lives: Why GDP Doesn’t Add Up.The title summed it up: GDP is not a good measure of wellbeing. What we measure affects what we do, and if we measure the wrong thing, we will do the wrong thing. If we focus only on material wellbeing – on, say, the production of goods, rather than on health, education, and the environment – we become distorted in the same way that these measures are distorted; we become more materialistic.

We were more than pleased with the reception of our report, which spurred an international movement of academics, civil society, and governments to construct and employ metrics that reflected a broader conception of wellbeing. The OECD has constructed a Better Life Indexcontaining a range of metrics that better reflect what constitutes and leads to wellbeing. It also supported a successor to the Commission, the High Level Expert Group on the Measurement of Economic Performance and Social Progress. Last week, at the OECD’s sixth World Forum on Statistics, Knowledge, and Policy in Incheon, South Korea, the Group issued its report, Beyond GDP: Measuring What Counts for Economic and Social Performance.

The new report highlights several topics, like trust and insecurity, which had been only briefly addressed by Mismeasuring Our Lives, and explores several others, like inequality and sustainability, more deeply. And it explains how inadequate metrics have led to deficient policies in many areas. Better indicators would have revealed the highly negative and possibly long-lasting effects of the deep post-2008 downturn on productivity and wellbeing, in which case policymakers might not have been so enamored of austerity, which lowered fiscal deficits, but reduced national wealth, properly measured, even more.

Political outcomes in the United States and many other countries in recent years have reflected the state of insecurity in which many ordinary citizens live, and to which GDP pays scant attention. A range of policies focused narrowly on GDP and fiscal prudence has fueled this insecurity. Consider the effects of pension “reforms” that force individuals to bear more risk, or of labor-market “reforms” that, in the name of boosting “flexibility,” weaken workers’ bargaining position by giving employers more freedom to fire them, leading in turn to lower wages and more insecurity. Better metrics would, at the minimum, weigh these costs against the benefits, possibly compelling policymakers to accompany such changes with others that enhance security and equality.

Spurred on by Scotland, a small group of countries has now formed the Wellbeing Economy Alliance. The hope is that governments putting wellbeing at the center of their agenda will redirect their budgets accordingly. For example, a New Zealand government focused on wellbeing would direct more of its attention and resources to childhood poverty.

Better metrics would also become an important diagnostic tool, helping countries both identify problems before matters spiral out of control and select the right tools to address them. Had the US, for example, focused more on health, rather than just on GDP, the decline in life expectancy among those without a college education, and especially among those in America’s deindustrialized regions, would have been apparent years ago.

Likewise, metrics of equality of opportunity have only recently exposed the hypocrisy of America’s claim to be a land of opportunity: Yes, anyone can get ahead, so long as they are born of rich, white parents. The data reveal that the US is riddled with so-called inequality traps: Those born at the bottom are likely to remain there. If we are to eliminate these inequality traps, we first have to know that they exist, and then ascertain what creates and sustains them.

A little more than a quarter-century ago, US President Bill Clinton ran on a platform of “putting people first.” It is remarkable how difficult it is to do that, even in a democracy. Corporate and other special interests always seek to ensure that their interests come first. The massive US tax cut enacted by the Trump administration at this time last year is an example, par excellence. Ordinary people – the dwindling but still vast middle class – must bear a tax increase, and millions will lose health insurance, in order to finance a tax cut for billionaires and corporations.

If we want to put people first, we have to know what matters to them, what improves their wellbeing, and how we can supply more of whatever that is. The Beyond GDP measurement agenda will continue to play a critical role in helping us achieve these crucial goals.

(ZH) HSBC: These Are The Top 10 Risks For 2019

(ZH) From a new Eurozone crisis or a liquidity run in the corporate bond markets, to the end of the trade tensions and an outbreak of EM reforms, HSBC economists and strategists highlight the most significant risks to the bank’s central forecast for 2019.

With the usual caveat that these are possibilities, not forecasts, and none might come to pass, the bank notes that “they are all things that could spring a surprise. They vary in terms of their probability and the size of their likely economic and market impact, both globally and regionally. Most risks are negative but we include some positive ones as well.”

The bank breaks risks down into three categories:

Event risks

  • Eurozone crisis 2.0
  • Trade tensions end
  • Brace for (climate) impact

Valuation risks

  • US corporate margins fall
  • EM reform surprises
  • The ECB initiates new unconventional policies

Liquidity & volatility risks

  • Leverage risks and accounting tactics
  • The Fed keeps hiking
  • No bid in a credit sell-off
  • Fixed income volatility comes back

The Top 10 risks are summarized in the following table. We suggest using a magnifying glass:

And here are the details:

1. Eurozone crisis 2.0

  • A downside surprise to the economy is a key risk, particularly as there will be leadership changes in key EU institutions
  • In this scenario, given a renewed focus on credit, HSBC would be cautious on Sovereigns with weaker fundamentals and EUR IG credit in general
  • Bunds usually win in this situation but given valuations, flight-to-quality flows may head to US Treasuries

2019 rising risk, depleted ammunition

If stimulus is needed, the eurozone may have a problem …

The eurozone economy remains vulnerable. After an unusually strong expansion in 2017, economic growth is slowing back to trend and core inflation remains subdued. It will be hard to agree the necessary reforms due to the growing popularity of more populist parties. The ECB is out of sync with the US Fed and could potentially face a global slowdown with negative interest rates and so  little by way of monetary stimulus to offer. At the same time, countries with fiscal headroom are unlikely to use it. Therefore the eurozone economy, which has a relatively high reliance on trade, is at the mercy of the global trade cycle.

… in a year of (possibly disruptive) leadership changes

All this comes at a time of significant change in Europe’s leadership. Four of the EU’s top positions (at the Commission, Council, Parliament and the ECB) are set to change hands in 2019. Meanwhile the domestic political environment in individual countries means that the heads of government in Germany, Italy, Spain and the UK could conceivably change next year as well.

What if populism overcomes Europeanism?

The political landscape has evolved since the last time the eurozone faced an existential crisis, because populist parties have gained more support across the continent. So far tensions have been around immigration rules and budget deficits, but we wonder what would happen if differences between Brussels and member states escalated dramatically. Europe’s recent history suggests it requires an extreme situation to take hold before decisive action is taken. Shaky economic foundations and political uncertainty would not be a healthy backdrop for European debt markets especially if the future of the euro was once again called into question.

Investment implications

The EUR would get close to parity with the USD

The first eurozone crisis prompted EUR weakness, but the political will was there to sustain the project and avoid a break-up. When the ECB’s President Mario Draghi promised to do “whatever it takes” to preserve the EUR, he could be confident of the political support. However, as we’ve seen in the run up to the French presidential election, when the political support is undermined, a more pronounced reappraisal of the currency is likely and the EUR could potentially reach parity against the USD.

The risk-off environment would favor the USD, JPY and CHF. A particular complication would be for GBP given the UK would likely be in the middle of negotiations with the EU about its future trade relationship. The EU has been able to provide a united front so far where protection of the integrity of the EU and the single market were the key shared objectives. Were this challenged by a more EU-sceptic political make-up, GBP would face even greater uncertainty.

Another eurozone crisis would present a challenge for weaker credits…

As we have seen in the past, a marked ‘flight-to-quality’, resulting in outperformance of German Bunds is likely. In a repeat of the past both Agencies and supranationals could underperform as Schatz and Bobl spread could widen.

Markets would likely question whether there is enough firepower or willingness in the eurozone to provide financial support to a bigger country or countries (in terms of GDP) than during the previous sovereign debt crisis.

For Bunds there would be, however, a major valuation challenge. Ten-year Bunds now yield less than 30bp and are close to recent lows having averaged 50bp in the last year. More importantly, Bund yields were 2.0% only five years ago and 3.0% before the last big crisis in 2012. In a ‘flight-to-quality’ the US Treasury market would be likely to attract renewed interest from overseas investors, particularly given yields are close to 3.0%.

* * *

2. Trade tensions end

  • The post-G20 truce in China-US trade tensions initially gave some relief to the market, as negotiations got underway
  • But the outcome of the trade tensions remains uncertain, and trade prospects are further clouded by WTO disputes and Brexit
  • An end of trade tensions could boost investors’ sentiment and have a positive impact on China and EM assets

Taking trade to the brink and back

Rising trade risks

After a strong trade recovery in 2017, goods trade growth levelled off in 2018. Tough trade policy actions by the US targeted China specifically, but also affected partners around the world such as Canada, the EU and Turkey, among others. In Europe, the Brexit process added to the trade uncertainty.

Turning point?

Trade policymakers have delivered a few recent breakthroughs and a few more may be pending that could help to revive trade prospects. October 2018 witnessed the ratification of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, a deeply liberalising accord among 11 Pacific Basin nations with a combined GDP of USD10trn. The EU and Japan are advancing in  the ratification of their bilateral trade deal, which will remove most duties, increase agricultural market openness, and tackle challenging non-tariff barriers (e.g., regulation) in areas like autos and pharmaceutical products. Neither of these trade deals includes China or the United States. And, facing commercial pressures, businesses engaged in trade in the US and China intensified their advocacy for market-friendly reforms to address the mutual grievances between these two nations. The US and China could make a move in 2019

Trade policy developments in the rest of the world and mounting costs could encourage the US and China to build on the initial progress arising from the positive bilateral meeting of Presidents Trump and Xi on 1 December 2018 following the G20 meeting in Buenos Aires. It is possible that by early 2019, they could agree on measures to improve respect for intellectual property and limit trade-distorting state support for businesses. Under such a scenario, their mutual punitive tariffs could be removed.

Trade policy bliss

These positive steps would be reinforced during 2019 if the US were to agree to re-join the CPTPP. This could set the Pacific Basin region on course to potentially boost trade by 10% and GDP by 1% (PIIE, 2017). In the face of such a move, China and 15 other Asian-Pacific nations might finally conclude the Regional Comprehensive Economic Partnership, which would reduce tariffs and facilitate investment across the region. That would contribute gains to regional GDP of roughly 0.4%, according to PIIE. Progress in the Belt and Road Initiative could further contribute to the easing of impediments to trade. As a consequence of these and other actions, trade growth might revive in what could be a sustained manner.

Investment implications

Growth expectations and “risk-on” would impact FX

In our view, there would be two channels through which an end to recent trade tensions would impact FX markets. The first would be the direct trade linkages. The second would be a likely pick-up in global growth expectations and a subsequent “risk-on” sentiment.

First and foremost, the RMB would likely retrace some of the depreciation seen in 2018, although it does still face a slowing domestic economy. Elsewhere, the likes of the AUD, NZD, TWD, KRW, CLP, PEN and BRL would likely outperform as they sit within the group of “risk-on” currencies. Currencies in other, small open economies such as CEE3, SGD and THB might also benefit due to their general trade openness, despite being less directly linked to the US and China. The USD, JPY, CHF and to a lesser degree the EUR, would all likely face downward pressure as safe havens. MXN and CAD have already benefitted from the signing of USMCA agreement so would be less likely to benefit.

Positive impact on EM equities

If concern about US trade policy abated, EM equities broadly would benefit; within EM, China, Korea and Taiwan could benefit disproportionately. Commodity countries exporting more to Europe and China than to the US have been relatively unimpeded (Russia and Brazil). Korea and Taiwan, both manufacturing producers with a US focus, have been hurt more meaningfully.


* * *

3. Brace for (climate) impact

  • Extreme climate events are becoming more costly and more visible
  • Damage costs are impacting DM regions, not just EM
  • Risk of adverse market reaction to climate events in 2019

The frequency and severity of extreme weather events did not relent in 2018. Europe saw unseasonable cold spells and summer heat waves; floods hit Japan, India, Australia and China; destructive typhoons wreaked havoc across SE Asia and wildfires raged across California, Greece and Sweden.

Besides physical damage and longer-term social effects, these episodes represent growing climate risks across economies, businesses and society – all with investment implications:

  • Cape Town continued to suffer from prolonged drought in early 2018, weighing on economic growth prospects (Running dry in Cape Town, 8 February 2018). Cape Town’s drought posed risks to growth and net exports in the region. Tourism was impacted and agricultural productivity dropped.
  • Floods in Kerala, India in 2018 displaced 1m people (3% of the state population), causing an estimated USD2.85bn in asset impairments and damaged one third (70,000km) of Kerala’s total roadways. This highlights the importance for development to be “climate proof” (Kerala floods highlight vulnerability of development, 24 August 2018).

Climate change can be described as “a change in average weather”. Whilst individual weather events are not caused directly by climate change, the chances of more extreme events occurring in any given year are higher (region and type specific) and the severity of these can be magnified by climate change.

Negative impacts can be profound, including the loss of life, infrastructure damage, supply chain disruption and productivity slowdowns. Financial implications for companies and governments can be large. Agricultural commodity markets can be disrupted as weather events affect yields and harvests, and bonds and equities hit by climate events can see downgrades and declines. We believe these risks and their associated costs (Chart 1) may not be fully priced in by investors.

Investment implications

As climate change damage costs become evident, and governments try to limit it without imposing heavy costs on their citizens, a wide range of securities could be impacted. Preparing for climate impacts requires investment. The US utility Southern California Edison estimated that making its equipment more fire resistant will cost USD670m over three years. San Diego Gas and Electric spent more than USD1bn over 10 years to fireproof its equipment.

But full preparedness is expensive and elusive. The Pacific Gas & Electric Company (PG&E) has spent USD15bn in the last five years to upgrade its equipment and make it more fire-safe yet it booked a USD2.5bn charge related to wildfire claims in the second quarter of 2018. PG&E’s share price fell by 45% after the autumn 2018 Camp Fire in Northern California, which burnt through 154,000 acres and destroyed 14,000 homes.

Indeed PG&E (Baa3Rfd/BBB-Cwn) saw its credit ratings cut three notches by Moody’s and S&P, due to its role in the 2017 and 2018 California wildfires. It also saw a sharp sell-off in its bonds (Chart 2).  Elsewhere, we think there is a clear link between a Sovereign’s CDS level and climate change resilience (Chart 3) (Sovereigns and ESG, 10 Sept 2018). If more focus is given by the market to extreme events in 2019, we could see further spread widening as a result.

* * *

4. US corporate margins fall

  • US profit margins are at an all-time high and forecast to move up…
  • …but cost pressures are rising
  • Faster than expected wage growth could cause a significant miss to earnings estimates and derail the equity bull market

The major driver of US earnings could reverse

We expect earnings to be the key driver of equities next year. Tax reform provided a significant boost to US earnings this year, with EPS currently estimated to have grown 23% (or c.14% adjusted for the tax reform). This was timely, as equity valuations were beginning to look quite stretched, and earnings growth has been a key support for the market in the face of tighter US  monetary policy and higher Treasury yields. But the focus has turned to the outlook for 2019, with slower forecast GDP growth and a marked earnings slowdown, with consensus forecasting 9% growth.

One of the biggest risks to profits comes from margins. Margin expansion has been a key component of higher US earnings, accounting for c.60% of 2018 and 50% of 2019 expected EPS growth. We have argued that a significant negative US earnings surprise would globalise. A 70bp decline in net profit margins would see US index EPS fall in 2019, assuming sales grow in line with consensus expectations. This would probably be enough to see US, and global, equities decline.

US profit margins are at a record high of 11.7% and companies are facing growing cost pressures. Concerns of lower US profit margins have been around for some time but have failed to materialise. Indeed, there are structural reasons why profitability may remain elevated – the reduction of the corporate tax rate to 21%, the growth of tech, and a related increase in industry concentration in the US. But we are now beginning to see a confluence of rising cost pressures which, if corporates are unable to pass onto consumers, could finally bring profit margins down

Wage growth is perhaps the biggest risk. Wages are equal to 12% of US company revenues. So far growth has been subdued. But with the unemployment rate near a 15-year low, the risks are arguably skewed to the upside. Indeed our analysis of corporate conference calls shows over 70% of the discussions on wages indicated upward pressures. Our estimates of sensitivity to wages indicates that a 1ppt rise in wages would take off 1.5ppt of earnings for the MSCI USA, mainly Food Retailing, Transport and Autos.

Borrowing costs are also increasing with the US Fed continuing to tighten monetary policy, and a backdrop of US corporate leverage that has increased significantly in recent years. Whilst maturities have also been extended, short-term debt is relatively low, and cash levels robust; this could however prove a growing headwind as companies have to refinance over the next couple of years.

Investment implications

The end of the US equity bull market

A meaningful decline in profit margins – perhaps driven by an acceleration in wage growth – could be enough to derail forecast US profits growth, and hence the US bull market – especially if resurgent wages saw the Fed driven to tighten monetary policy further. Were net profit margins to fall back to their 10-year average of 9%, US EPS would fall by almost 20%. With US equities accounting for over half of global equities, this would have significant impact.

* * *

5. EM reform surprises

  • We remain broadly cautious on EM going into 2019…
  • …given the tightening in financial conditions and enduring trade conflicts
  • But what if EMs start focusing on structural reforms to address their imbalances, boost productivity, and improve efficiency?

Great expectations

The outlook for emerging markets has darkened throughout this year. This reflects a sharp tightening in financial conditions (charts 1 and 2), with many large EM central banks forced to re-couple with the Fed by raising their policy rates either to support their currencies or to prevent capital outflows, in an environment of declining global liquidity and rising funding costs. Moreover, escalation of trade protectionism and its potential impact on global supply chains has further complicated the EM outlook, despite the latest truce following the recent G20 meetings. So we think emerging markets stand on shaky foundations, which is likely to remain the case going into 2019. As such, we are broadly cautious and selective on EM from a top-down perspective (GEMs Investor: Shaky foundations, 7 Oct 2018). But what if external or internal factors were to make EM shine again?

The potential external drivers for a better EM performance are obvious in our view: these include a dovish Fed and a benign US/G3 rate outlook, the end of the USD bull-run, the end of trade tensions, some of which are discussed separately in this report. The domestic drivers, on the other hand, are not equally obvious as EMs are so different from each other. Yet, one common theme  could be that EMs surprisingly rekindle their reform stories to help address imbalances, boost productivity and improve efficiency.

Could the crowded election cycle pave the way for reforms?

2018 saw elections in Russia, Turkey, Mexico and Brazil, though 2019 will be even busier, with nearly half (13) of the 30 countries under our coverage holding elections, ranging from presidential, parliamentary to local elections.

Among the larger EMs, markets will closely follow elections in Turkey, Indonesia, India, South Africa, Argentina and Poland, in chronological order. Anecdotally, structural reforms become more pressing when there is economic hardship and/or pressure from financial markets. Similarly, sweeping reforms could arguably be better timed right after the elections in order to capitalise on fresh mandates. This is sometimes referred to as the ‘first 100-day impact’.

In terms of potential reforms, markets could be positively surprised if we see progress on:

  • Argentina: Fiscal reforms were in line with the IMF programme
  • Brazil: Social security and fiscal reforms to rein in the budget deficit and public debt, privatisation efforts
  • India: Continued fiscal reforms and overhaul of the banking system
  • Indonesia: Continued fiscal reforms and infrastructure investments
  • Mexico: Earlier energy reforms were implemented, prudent fiscal stance
  • Russia: President Putin’s “May Decree” actually boosted potential growth
  • South Africa: Labour market and education reform and reforming the parastatal companies
  • Turkey: Labour market reforms, education reform, food supply management

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6. The ECB initiates new unconventional policies

  • The ECB might enter the next downturn with negative rates…
  • …so would need to look at restarting QE and, possibly, a range of other unconventional measures…
  • …which could lead to a weaker EUR, lower bond yields and delay the credit sell-off

What if the European economy loses momentum?

Starting the next downturn with negative rates?

Eurozone growth is slowing (Chart 1), core inflation remains stuck around 1% and lower oil prices mean headline inflation is set to fall back sharply next year. We only expect a single ECB rate rise before the US rates cycle starts turning in 2020 (Chart 2). There is a high risk, therefore, that the ECB will face the unprecedented challenge of entering the next downturn with rates still below zero. With limited likely scope for fiscal action, the ECB might need to deploy an increasing array of stimulus options and initiate new unconventional policies.

An unappetising menu

We discussed these options in An unappetising menu: Options for the ECB in another downturn, 26 November 2018. They range from (limited) rate cuts, to more QE (which would require rule changes), to more ‘exotic’ measures including helicopter money, equity purchase and changing the inflation target. We think further rate cuts or QE can only be piecemeal, and that political and legal constraints, and financial stability risks, could impede measures that might have a larger economic impact. So the ECB might end up falling short – the next downturn might be prolonged and painful.

Investment implications

Weaker EUR

The single currency would likely weaken in anticipation of the announcement of a new round of easing measures, with the implementation itself not necessarily causing further weakness. We saw this in 2014 and 2015 when expectations around ECB easing were rising and EUR-USD fell from around 1.35 to around 1.05. One impediment to depreciation this time around is that the EUR is already somewhat cheap. Our long-term fair value metrics suggest equilibrium would be in the 1.20-1.32 range. A fall towards parity would be likely, but to move into significantly undervalued territory below there may also require an increase in structural or political pressure for the EUR. With EUR-CHF, EUR-SEK and EUR-CEE all facing downward pressure, the respective central banks may be forced to reconsider their own domestic policies at a time when they would all still have very low policy rates. The response might involve direct FX intervention or targeting of currency levels.

10-year Bund yield back to zero

Although the resumption of ECB QE would not increase the net purchases in German public sector purchases (PSPP) issues markedly (due to hard constraints), market expectations that reinvestments would remain for a prolonged period and renewed forward guidance on interest rates, should keep core yields low. The gloomy macro-economic outlook and benign inflation projections would likely bull flatten the eurozone core curves with the 10-year Bund yield potentially heading back towards the 0% level. Supranational bonds could play a more important role as substitute purchases (for German bonds).

Delay the EUR Credit sell off

Our analysis shows that idiosyncratic risks are temporarily suppressed by the announcement of measures such as the Outright Monetary Transactions (OMT) in 2012 and corporate bond purchases (CSPP) in 2016. A key risk to our bearish view on EUR Credit would be if the ECB restarted CSPP. EUR IG spreads could tighten, but in the context of deteriorating corporate earnings, this might just delay a market sell-off but wouldn’t reverse the credit cycle.

Negative impact for European equities

Under this scenario European equities would probably suffer. European earnings are already disappointing versus consensus expectations, and a more pronounced downturn in domestic growth would be likely to drive a significant miss. We would therefore expect further de-rating for the region ahead of any announcement. However, as with previous rounds of stimulus, we would expect the initial reaction to any announcement to be positive, particularly if the ECB moves towards equity purchases as our economists discuss. A weaker Euro would likely drive relative sector returns whilst lower bond yields should support longer duration sectors. An extension of non-standard monetary policy measures would shift the balance of power from lenders to borrowers and would be negative for European banks due to its impact on net interest margins and top-line growth.

* * *

7. Leverage risks and accounting tactics

  • US nonfinancial corporate debt is at its all-time high and average credit ratings of investment grade debt have fallen sharply
  • Elevated leverage and risk of higher funding costs point to debt servicing and refinancing challenges ahead
  • Some companies may resort to accounting tactics to meet expectations or covenants

Refinancing challenges ahead

After a period of balance sheet repair and replenishment in 2009-2013, US companies began to actively re-leverage their balance sheets from 2014 onward, tempted by historically low borrowing costs and the desire to capitalize on the gathering US economic recovery. Indeed, US corporate debt as a percentage of GDP is now at a record level, well above the previous peak in 2008.

A bigger concern, in our view, is the degraded credit profile of the USD IG nonfinancial corporate universe. According to our calculations, about 50% of the debt capitalization of the USD IG index carries a Bloomberg composite credit rating of BBB. Specifically, the debt market capitalization of the BBB category (i.e. BBB+/BBB/BBB-) of the USD IG corporate bond index is over 2x larger than the debt market capitalization of the entire USD HY cash bond index.

The US corporate sector currently has plenty of cash but net debt to EBITDA for the USD IG nonfinancial corporate universe increased in H1’18 to a 15-year high despite reporting double-digit percentage earnings growth over the same period.

Investment implications

If corporates were to be faced with the combined challenge of the increased cost of borrowing, and potentially lower operating profits in an economic downturn, then it is likely that some would struggle. The pressure to keep reported results to forecasts and balance sheets within covenant limits could increase the risk that some companies will be tempted to use accounting judgements and decisions to overstate their financial performance and position. For those who that do, the methods are varied and often specific to the circumstances, but include:

  • Recognising revenue early, for example, by changing an accounting policy to recognise on shipment rather than delivery or, using an aggressive judgement to determine the level of completion on a long-term contract thereby increasing income.
  • Deferring costs, for example, by capitalising items that should be recognised immediately in the income statement, or re-aging debtors to not recognise a provision for doubtful debts.
  • Not recognising liabilities for example, taking an overly positive view of an outcome of a claim and therefore not providing for it.
  • Changing assumptions, for example on fixed assets, if the useful life and residual value are increased then the annual depreciation charge can be reduced and the value of the assets on the balance sheet is maintained.
  • Deferring large cash payments, for example payments into pension schemes.
  • Reclassification of one-off items into/out of operating income and cash flows, into financing or “one-offs” when the item is negative and vice versa. This is particularly acute when companies provide investors and lenders with non-GAAP1 measures

* * *

8. The Fed keeps hiking

  • We expect three more Fed hikes until June 2019…
  • …but there is a risk that core inflation could accelerate and the Phillips Curve steepen, leading to further hikes
  • We think UST2y and US credit would be under pressure

Fed tightens beyond current expected levels

Fed policy changes in 2019 are likely to be more “data dependent”. We expect three more hikes in the current cycle: December 2018, March 2019, and June 2019. While lower than anticipated job growth and inflation could lead to fewer rate hikes than the FOMC’s current median projection of three 25bp rate increases, stronger growth and higher-than-projected inflation could lead to a faster pace of policy tightening than currently anticipated by financial markets.

Core inflation could accelerate in 2019

Core PCE inflation has already moved up from 1.5% in Q3 2017 to 2.0% in Q3 2018. Upward pressure on inflation is increasing as the labour market tightens. Over the same four-quarter period, the unemployment rate fell from 4.3% to 3.8%, putting it well below most estimates of the non-inflationary unemployment rate. If monthly job gains continue at the roughly 200,000 average of the past year, the unemployment rate will likely drop close to 3.2% by Q3 2019.

Phillips Curve steepens

While the US Phillips Curve has been “flat” in recent years, there is a risk that it could turn much steeper at current low levels of unemployment. In addition to labour market pressure, the possibility of higher tariffs on imported goods also raises the risk for higher inflation in 2019. Though planned tariff increases were postponed at the G20 summit in November, a tariff increase from 10% to 25% on USD200bn of imports from China is still possible in 2019 and tariffs on an additional USD267bn goods imported from China are also being contemplated.

If core inflation were to accelerate above 2.5% by the middle of 2019, the FOMC may feel compelled to raise the federal funds rate higher than the Committee’s current median 3.125% projection for the end of 2019.

Investment implications

A more aggressive Fed tightening path would likely see the USD higher The market already has a lower trajectory priced in for the US policy rate during 2019 than is embedded in the Fed’s dots projections. Were the Fed to deliver even more than the dots imply, then the boost to the USD could be sizeable. The US-centric nature of the catalysts for a more aggressive Fed (a steeper US Phillips Curve, higher tariffs on goods imported into the US) suggest the impact would be USD-centric as other central banks would likely not match the Fed’s hikes.

USD strength might be most acutely felt in sections of EM FX and higher beta G10 FX plays. Unexpectedly higher USD funding costs and a buoyant USD would resurrect the pressures evident during parts of 2018 in EM FX, although weaker currencies and higher interest rates might provide greater insulation this time around. The scale of reaction would also partly hinge on how much of the upside surprise in Fed tightening was prompted by higher US growth and inflation. Within G10, a more aggressive Fed would imply a more pronounced acceleration of the USD bull trend evident since May 2018, with likely gains concentrated against the EUR and high beta plays such as AUD, NZD and SEK.

US front end of the yield curve would shift up significantly

Long-term US rates would move to the upper end of their recent ranges on a faster hiking pace by the Fed. For 10-year yields, this is the 3.25% area. This view assumes that longer-term rate expectations remain well anchored. We see that as the likely outcome given our analysis of the risk of higher or lower medians for the FOMC’s dot plot, dealers’ and investors’ projected distributions of the Fed funds rate in 2020, and the historical stickiness of the 5Y5Y Treasury forward rate versus the expected peak rate.

Yields in the front end of the yield curve would shift up significantly, if the Fed hikes to 3.125% or more at the end of 2019. The Fed funds futures market projects a 2.72% rate (4 December). So, a higher 2019 funds rate and expectations of a higher peak funds rate would likely shift the two-year Treasury yield up by 40bp or more from its current 2.82% level.

USD Credit under pressure

If the Fed were to raise interest rates beyond our expectations, USD credit spreads would likely come under additional pressure. The associated tightening in financial market conditions would exacerbate the risks associated with the US corporate sector’s heavily leveraged balance sheet. They are already being stressed by rising borrowing costs and credit rating downgrades resulting from late cycle behaviours, including aggressive share buybacks, high dividend payouts and a surge in large-cap, debt-financed M&A, among others.

Given our expectations that US GDP and corporate earnings growth will moderate in 2019, it is likely that the US corporate sector’s financial flexibility will remain compromised, absent a concerted effort to reduce leverage.

US equities and defensives to outperform

The outlook for US equities would depend on the growth backdrop in this scenario. If higher inflation is driven by stronger growth then equities could rise given that valuations have already derated significantly. But if tightening is in response to tariff related inflationary pressures the impact on equities would be negative. Multiples would likely contract further in this environment, and this would not be offset by stronger earnings growth. Defensive sectors with strong balance sheets would in theory fare best.

A tough scenario for emerging markets which favours EXD

Under this scenario, the EMBI spread which has widened by 114 bps, to 425 bps since the start of the year would probably come under further strain. As EM central banks would probably have to mirror the Federal Reserve, thereby extending the tightening cycle, we could see EM External Debt outperforming Local Debt in 2019. This would lead to higher funding costs and investors would be likely to demand a higher risk premium, pushing the GBI-EM LCD yield back above the EMBI EXD yield. This would benefit investments where carry is available without taking duration risk.

* * *

9. No bid in a credit sell-off

  • Corporate bonds remain a structurally illiquid asset class
  • In a sharp sell-off, there is a limit to how much investors could sell
  • Mutual funds and Exchange Traded Funds (ETFs) which tend to have a high level of retail investors are of particular concern

What if there was a liquidity crisis?

In Credit Telegram: Eight questions about corporate bond liquidity (15 November 2018) we looked at weekly bond level volume data for corporate bonds. We saw that while corporate bond liquidity generally declines as the year progresses, with dips in April and August, a pick-up in October and November, and a sharp drop in December, the pattern from year to year has been remarkably stable (chart 1). And this despite the spread widening we have seen this year, and despite new pre-trade and post trade transparency requirements introduced by MiFID II/MiFIR on 3 January 2018.

1. EUR IG weekly bond volumes: Holding up, for now

But corporate bonds remain a structurally illiquid asset class. In particular:

  • 10% of bonds account for just under half of traded volumes and 20% of bonds account for about two-thirds of volumes. This appears to be constant across time and markets
  • Most corporate bonds don’t actually trade every week. In the first 44 weeks of 2018, only 13% of EUR IG bonds and 25% of EUR HY bonds traded at least once a week
  • Liquidity is strongly skewed towards recent issues, with bonds issued less than a year ago accounting for 34% of volumes for EUR IG and 41% for EUR HY

Investment implications

In a sharp sell-off, it follows that there would be limit to how much investors could sell – and after all, there has to be a buyer for every bond sold. Of particular concern are mutual funds and Exchange Traded Funds (ETFs) which tend to have a high level of retail investors.

In Who owns what in 2018? (16 May 2018) we estimated that retail funds and ETFs make up some 24% of GBP credit assets, 10% of EUR credit assets and 16% of USD credit assets. Even if institutional money tends to be stickier, large outflows by retail could significantly move prices.

The concern is that, just as banks engage in maturity transformation, mutual funds and ETFs engage in liquidity transformation. This was evident, for example, in the collapse of Third Avenue’s Focused Credit Fund in December 2015, which with only 10% of the assets BB or B rated, was much more a distressed fund than a high yield fund and arguably should not have been offering daily liquidity against these assets.

Even if investors understand that they do not benefit from deposit insurance and are subject to floating net asset value (NAV), given that mutual funds offer daily liquidity there is an incentive to be first to redeem in a market downturn. And even if a fund holds a portion of liquid assets, as a fund sells liquid holdings, the portfolio gets more illiquid, subjecting the remaining investors to time subordination.

* * *

10. Fixed income vol comes back

  • Central Bank actions and the private sector’s yield enhancement strategies have kept interest rate vol subdued
  • With global reserve flow shrinking, there is a risk the trend may change
  • If this happens, vol is likely to pick up in other asset classes too

The great unwind

Interest rate volatility has remained subdued over the last several years. The risk we consider is a sustained increase in fixed income volatility.

Why has fixed income vol been so low?

There are two key factors behind this period of calm: (i) unconventional monetary policies by systemically important Central Banks and (ii) short-volatility positions in order to gain yield enhancement. Some of the key Central Banks’ actions which have had structural impact on interest rate vol include: short-term interest rates stuck at their lower bounds; enhanced forward guidance on the likely path of future policy rates; and provision of excess liquidity in the system. They all have contributed in a narrowing of the probability distributions around future interest rate paths.

Why might this go into reverse?

The Fed has already hiked its target range by 200bps from its lows and the ECB could also hike sometime in 2019. More importantly global reserve flows have seen a sharp decline recently (Chart 1, for more see Reversal, 31 August 2018) and they may even go into negative territory if the Fed continues its balance sheet tightening policy. The key question then is what could be the impact on interest rate vol if one of the key players of short vol position exits the market.

What is happening with fixed income vol now?

Global proxies of interest rate vol have started to increase but have not reached a level which constitutes widespread concern for a broad set of investors. The very nature of short vol positions is such that the trigger point of a potential vol increase is difficult to anticipate, ex ante, but the cascading impact could be far reaching as some investors found in early 2018 after VIX spiked to  35.

While long-dated interest rate vol has failed to match the moves in the short-dated equivalents (Chart 2), it is a risk worth considering whether a sustained period of bear steepening of yield curves might force some unwinding of short vol positions. Rate hikes from the Fed and the BoE have opened up probability distributions around short end rates and this has led to a slow but steady pick-up in short-dated vol (for more see Mispriced ECB risks, 26 April 2018). Our fear is if volatility spills over into longer yields it may have implications for other asset classes as low and stable long-end real rates have been a key factor for performance of risky assets.

Investment implications

Clearly, if this risk transpires there would be direct implications for fixed income markets: higher fixed income volatility is associated with a move up in yields. Less clear-cut is what the implications would be for other asset classes. FX markets are strongly linked to fixed income markets, so we would expect there to be an equivalent reaction for currencies. And, as we saw this year in the equity market sell-off, higher rates are a concern for many equity investors.

3. Vol wave keeps on rolling

Not all vols are equal

As a result, it seems likely that higher fixed income vols would spill over into other asset classes. This would intensify the volatility wave we have been tracking for a few months in Data Matters (Chart 3). An increase in equity vol would be associated with equities selling off. The correlation between bonds and equities would probably change sign. This is not only of interest to those investors who trade correlation products directly – a changing correlation between equities and bonds has significant implications for the asset allocation process. This might lead to an overall reduction of risk among multi-asset investors as the benefit of diversification dissipates.

(Economist) The Economist’s books of the year

(Economist) They are about corruption, blood, slavery, survivalism, espionage and a drifting second-world-war veteran

Moneyland. By Oliver Bullough. Profile Books; 298 pages; £20. To be published in America by St Martin’s Press in May; $28.99

Moneyland is the author’s term for the virtual country into which the world’s mega-rich smuggle their (sometimes ill-gotten) wealth, so insulating it from the attention of tax and other officials. Focused in part on the kleptocrats of the former Soviet Union, the book ranges across the world and a wide cast of lawyers, accountants and mountebanks who see to it that money stolen in poor, ill-run countries can be invested in rich, safe ones. An urgent exposé of a vital subject.

Enlightenment Now: The Case for Reason, Science, Humanism and Progress. By Steven Pinker. Viking; 576 pages; $35. Allen Lane; £25

His critics regard him as Panglossian, and suspect he cherry-picks statistics, but the author’s case for global optimism is entertaining and well-argued. The Enlightenment virtues of reason and education, allied to trade and technology, have made the world richer, safer and even happier, he contends, and the improvements are likely to continue. Populists and demagogues are merely a blip in this consoling counterpoint to the misery of the news.

Fascism: A Warning. By Madeleine Albright. Harper Collins; 254 pages; $27.99 and £16.99

The former secretary of state—and a longtime professor of international relations at Georgetown University—fled both Nazism and communism as a child. She does not deploy the term “fascism” loosely and deplores those who do; instead she cooly analyses the way countries can descend into tyranny. In uncertain times, she observes, many people no longer want to be asked what they think: “We want to be told where to march.”

First Raise a Flag: How South Sudan Won the Longest War but Lost the Peace. By Peter Martell. Hurst; 320 pages; £25

A correspondent based in Juba, capital of the new, troubled country of South Sudan, explains its tragic predicament. A history of slave raids, imperialism and brutal rule by Khartoum leads to independence and civil war. The saga is enlivened by interviews with retired spooks and elderly veterans of the colonial administration.

Into the Hands of the Soldiers: Freedom and Chaos in Egypt and the Middle East. By David Kirkpatrick. Viking; 384 pages; $28. Bloomsbury Publishing; £25

In this pellucid chronicle of Egypt’s trajectory since the toppling of Hosni Mubarak in 2011, the former Cairo bureau chief of the New York Times is almost as scathing about the bungling foreign policy of successive American administrations as he is about Abdel-Fattah al-Sisi, Egypt’s strongman president. The country’s so-called stability, he suggests, is again breeding misery and extremism.

Shadows of Empire. By Michael Kenny and Nick Pearce. Polity; 200 pages; $19.95 and £14.99

The “Anglosphere” is not a term in common parlance. This timely and enlightening book shows that, throughout the 20th century, the idea of a fraternity of English-speaking nations exerted a powerful influence on British politicians, including Churchill and Thatcher. It has resurfaced in Brexiteers’ dreams of invigorated Commonwealth trade.


A History of America in 100 Maps. By Susan Schulten. University of Chicago Press; 256 pages; $35. British Library; £30

A collection of maps, by turns beautiful and eccentric, which charts the making of America. It shows the role of maps in exploration and conquest and proves that, while some aspects of American political geography are enduring, much in the country’s make-up has, like the banks of the Mississippi, always been in flux.

Pogrom: Kishinev and the Tilt of History. By Steven Zipperstein. Liveright; 288 pages; $27.95 and £20

The pogrom in Kishinev in 1903 became a byword for anti-Semitic violence for Jews everywhere, its victims blamed variously for their passivity and for having resisted their attackers. The event roused Zionists and Jew-haters alike, and was instrumental in both the publication of the “Protocols of the Elders of Zion” and the establishment (in New York) of the naacp. A gripping, scrupulous history of a seminal but mythologised atrocity.

The China Mission: George Marshall’s Unfinished War, 1945-1947. By Daniel Kurtz-Phelan. W.W. Norton & Company; 496 pages; $28.95

Marshall’s mission to China is much less well-known than his effort to rebuild Europe after the second world war. The former, unlike the latter, failed; China descended into civil war and then a communist dictatorship. This account of the debacle by a former diplomat is both a compelling portrait of a remarkable soldier and statesman and an instructive lesson in the limits of American power, even at its zenith.

Rise and Kill First: The Secret History of Israel’s Targeted Assassinations. By Ronen Bergman. Random House; 784 pages; $35. John Murray; £19.99

For this impressive work of reportage, the author not only spoke to hundreds of Israeli spies but also convinced them to hand over a trove of documents. Then he constructed a thrilling narrative of extreme bravery and compromised morality.

Business and economics

We the Corporations: How American Businesses Won Their Civil Rights. By Adam Winkler. Liveright; 496 pages; $28.95

“For most of American history”, the author comments, “the Supreme Court failed to protect the dispossessed and the marginalised, with the justices claiming to be powerless in the face of hostile public sentiment.” Meanwhile “the court has insisted that broad public sentiment favouring business regulation must bend to the demands of the constitution.” A lively survey of a neglected but important feature of American history.

AI Superpowers: China, Silicon Valley and the New World Order. By Kai-Fu Lee. Houghton Mifflin Harcourt; 272 pages; $28

A former manager at assorted American tech giants—and now the boss of a Chinese venture-capitalist fund—anticipates the coming contest to dominate artificial intelligence. He thinks China will crush Silicon Valley because it has more data, disdains privacy and competes more ruthlessly. Thought-provoking, if not altogether convincing.

Radical Markets: Uprooting Capitalism and Democracy for a Just Society. By Eric Posner and E. Glen Weyl. Princeton University Press; 368 pages; $29.95 and £24.95

A law professor and an economist argue that the way out of liberalism’s impasse is to expand the role of markets, not to subdue them. Some of their ideas—on property rights, elections, immigration and much besides—are impractical, and others eccentric; but together they point to a possible response to the challenges of populism and protectionism.

EuroTragedy: A Drama in Nine Acts. By Ashoka Mody. Oxford University Press; 672 pages; $34.95 and £25.49

A comprehensive and authoritative history of the euro which argues that the project was a predictable error. Written by a former senior official at the imf, the book laments the intellectual failures present at the foundation of the single-currency area and in the mishandled response to the sovereign-debt crisis after 2010.

Crashed: How a Decade of Financial Crises Changed the World. By Adam Tooze. Viking; 720 pages; $35. Allen Lane; £30

This panoramic survey of the aftermath of the financial crash of 2008 has four main themes: the immediate response, in which the banks were rescued; the euro-zone crisis; the shift in the developed world after 2010 to more austere fiscal policies; and the rise of populist politics in Europe and America in the wake of the debacle. The author has little faith in the ability of governments to take decisive action when the next crisis hits.

Biography and memoir

The Wife’s Tale: A Personal History. By Aida Edemariam. Harper; 314 pages; $26.99. Fourth Estate; £16.99

The author’s Ethiopian grandmother, Yetemegnu, was married at the age of eight to a religious student more than 20 years her senior. By 14 she was a mother. She fled her husband’s mistreatment, yet when he was arrested she petitioned the emperor on his behalf; on his death she mourned “my husband, who raised me”. The family sought sanctuary in the mountains when the Italians invaded in 1935. This intimate memoir is also an oblique chronicle of Ethiopia’s turbulent history.

Educated. By Tara Westover. Random House; 385 pages; $28. Hutchinson; £14.99

A riveting memoir of a brutal upbringing. The author grew up in a normally opaque environment: a Mormon survivalist household in Idaho, where she endured abuse and received no education. Despite not setting foot in a classroom until she was 17, she made it to university and wound up with a phd from Cambridge.

Barracoon. By Zora Neale Hurston. Amistad; 208 pages; $24.99. HQ; £12.99

Zora Neale Hurston’s study of Kossula, later called Cudjo Lewis, one of the last Africans to be kidnapped into slavery in America, has never been commercially published before. Interviewed at his home in Alabama in 1927-28, he vividly recalled his capture and illegal transportation on the eve of America’s civil war: “I think maybe I die in my sleep when I dream about my mama.” A devastating book.

Napoleon: A Life. By Adam Zamoyski. Basic Books; 784 pages; $40. William Collins; £30

Some of his critics portray him as a monster; enthusiasts have characterised him as a demi-god. In this superlative account, Napoleon is a mortal, with great virtues and equally great flaws, at once dazzling and gauche. “From the sublime to the ridiculous”, Napoleon himself said after his disastrous campaign in Russia, “there is but one step.”

Churchill: Walking with Destiny. By Andrew Roberts. Viking; 1,152 pages; $30. Allen Lane; £35

Of the many biographies of Winston Churchill, this is the fullest. Acknowledging its subject’s flaws and sometimes catastrophic mistakes, it nevertheless makes a compelling case for his greatness, both as a statesman and a writer. More unusually, by evoking his wit, generosity and courage, it also succeeds in making him lovable. “I was not the lion,” Churchill said, “but it fell to me to give the lion’s roar.”

Gandhi: The Years That Changed the World 1914-1948. By Ramachandra Guha. Knopf; 1,104 pages; $40. Allen Lane; £40

At a time of rising Hindu nationalism, the Mahatma’s values and example are as relevant as ever in his homeland. This second volume of a magisterial biography begins in 1914, when Gandhi returned to India from South Africa. It conveys his charisma, his intellect and the evolution of his political beliefs, including his advocacy of Hindu-Muslim reconciliation.

The Spy and the Traitor: The Greatest Espionage Story of the Cold War.By Ben Macintyre. Crown; 368 pages; $28. Viking; £25

Oleg Gordievsky, a vital Western asset inside the kgb, was smuggled across the Soviet Union’s border with Finland in the boot of a car. The story of Mr Gordievsky’s life, and that of Aldrich Ames, the renegade cia officer who outed him, is told with the gusto of a thriller. A fitting tribute to a brave but lonely man.


The Personality Brokers. By Merve Emre. Doubleday; 336 pages; $27.95. Published in Britain by William Collins as “What’s Your Type?”; £20

The Myers-Briggs Type Indicator, the best-known personality test, is the focus of an entertaining cultural history of the personality-assessment industry. It was invented by a mother-and-daughter team, under the influence of Carl Jung. Its enduring popularity ought not to be surprising: after all, it offers both the “rush of self-discovery” and “the comfort of solidarity” with others of the same type.

The Prodigal Tongue. By Lynne Murphy. Penguin Books; 368 pages; $17. Oneworld; £16.99

The first and perhaps only book on the relative merits of American and British English that is dominated by facts and analysis rather than nationalistic prejudice. For all its scholarship, this is also a funny and rollicking read.

Space Odyssey: Stanley Kubrick, Arthur C. Clarke and the Making of a Masterpiece. By Michael Benson. Simon & Schuster; 512 pages; $30 and £25

An illuminating account of a collaboration that resulted in a landmark film. The author’s scientific background helps him to explain its pathbreaking visual effects. The making of a great work of art has rarely been anatomised so thoroughly.

Astounding: John W. Campbell, Isaac Asimov, Robert A. Heinlein, L. Ron Hubbard and the Golden Age of Science Fiction. By Alec Nevala-Lee. Dey Street Books; 544 pages; $28.99. To be released in Britain in August; £10.99

An indispensable book for anyone trying to understand the birth and meaning of modern science fiction in America from the 1930s to the 1950s—a genre that reshaped how people think about the future, for good and ill.

Boom Town. By Sam Anderson. Crown; 448 pages; $28

The fortunes of the Thunder, Oklahoma City’s basketball team, become a metaphor for the city’s own history in a hymn to an unsung metropolis. In this colourful compendium of heroism, skulduggery, land-grabs, oil and violence, its subject emerges as equal parts Wild West and Oz.

Fryderyk Chopin: A Life and Times. By Alan Walker. Farrar, Straus and Giroux; 768 pages; $40. Faber & Faber; £30

Chopin’s romantic life—he was a child prodigy who ran off with George Sand before dying at 39—has had many chroniclers. This definitive account draws on new sources to shed light on his career and volatile times. The man behind the myth emerges as an amiable perfectionist.


The Long Take. By Robin Robertson. Knopf; 256 pages; $27. Picador; £14.99

The wondrous story of a Canadian veteran of the second world war who washes up in New York and then Los Angeles—told mostly in verse. Walker, the protagonist, is haunted by his experiences in combat and by memories of his youth, and pained by the neglect of the homeless in California. Probably the best novel of the year.

The Silence of the Girls. By Pat Barker. Doubleday; 304 pages; $27.95. Hamish Hamilton; £18.99

The “Iliad” reimagined from the perspective of Briseis, the captured slave-girl who is the cause of the quarrel between Achilles and Agamemnon that animates Homer’s epic—and in the original is almost silent. The technicolour horrors of war are accompanied by similes of almost Homeric brilliance.

Washington Black. By Esi Edugyan. Knopf; 352 pages; $26.95. Serpent’s Tail; £14.99

The title character of this poignant saga is born into slavery on a sugar plantation in Barbados; he escapes in the company of an eccentric inventor, a slave-catcher on his trail, before wandering across several continents. An original and compulsive exploration of a tragic subject.

Milkman. By Anna Burns. Graywolf Press; 360 pages; $16. Faber & Faber; £8.99

The winner of this year’s Man Booker prize is set during the Troubles in Northern Ireland in an unnamed city that looks like Belfast. “Middle sister”, the protagonist (nobody in the book has a conventional name), is stalked by a paramilitary. A haunting depiction of the impact of violence on ordinary lives.

Love is Blind. By William Boyd. Knopf; 384 pages; $26.95. Viking; £18.99

The tale of a Scottish piano-tuner infatuated with a Russian opera singer gallops across fin-de-siècle Europe, from Paris to St Petersburg to Trieste, then onwards to the Andaman Islands. A treat for the author’s many fans and a masterclass in old-fashioned storytelling.

Normal People. By Sally Rooney. Faber & Faber; 266 pages; £14.99. To be published in America by Hogarth in April; $26

A beautiful portrait of an on-off relationship between two Irish youngsters, at school and university. The scrutiny of their self-deceptions is at once unforgiving and tender. The tango of power is masterfully conveyed in their dialogue.

Fire Sermon. By Jamie Quatro. Grove Press; 224 pages; $24. Picador; £14.99

A lyrical, experimental novel about faith and adultery, divine and erotic love, worship and transgression, from an accomplished writer of short stories.

Science and Technology

Beyond Weird. By Philip Ball. University of Chicago Press; 384 pages; $26. Bodley Head; £17.99

Most books on quantum mechanics emphasise its weirdness, a built-in excuse for being baffling. Wearing deep learning lightly, this author explains his subject simply and thoughtfully, revealing the theory’s true power as a way of knowing what can be said about nature.

Rocket Men. By Robert Kurson. Random House; 384 pages; $28. Scribe; £18.99

A gripping account of Apollo 8, the first manned space flight around the Moon. The story of the dangerous mission that laid the ground for the Moon landing has not been told in such detail until now.

Nine Pints: A Journey Through the Money, Medicine and Mysteries of Blood. By Rose George. Metropolitan Books; 368 pages; $30. Portobello Books; £14.99

This history of blood takes its name from the quantity in a human body. The author visits high-tech facilities, a South African slum and Nepalese villages to convey, scintillatingly, what is known and what remains mysterious about the liquid.

(OBS) Três erros sobre a França dos coletes amarelos – Rui Ramos

(OBS) Os apelos do costume já não funcionam: nem o medo do “caos”, com que Macron tentou assustar os franceses; nem o medo do “fascismo”, com que as esquerdas se habituaram a inibir as direitas. E agora?

Em França, a revolução sai à rua; em Espanha, entrou, por enquanto, num parlamento regional. Os apelos do costume já não funcionam: nem o medo do “caos”, com que o presidente Macron tenta assustar os franceses; nem o medo do “fascismo”, com que as esquerdas até hoje se habituaram a inibir as direitas. Em Espanha, vamos talvez descobrir que “geringonças” há muitas; em França, que quando o poder se propõe pôr os cidadãos “em marcha”, os cidadãos às vezes marcham mesmo, mas não necessariamente segundo a vontade do poder.

Há três erros que podemos cometer em relação aos “coletes amarelos”. O primeiro é contemplar tudo como um problema simplesmente francês. Não é. A União Europeia é uma aliança franco-alemã. Para que possa haver UE, é necessário que a Alemanha e a França funcionem.  Há quinze anos, a Alemanha reformou-se para competir nos mercados globais. Não resolveu todos os seus problemas, mas resolveu alguns: tem excedentes e emprego. A França, pelo contrário, não fez reformas. É o país dos défices e do desemprego. A questão é saber se a Alemanha, onde a validade de Merkel expirou entretanto, está disposta a ser o Atlas que carrega o vizinho aos ombros. Nas ruas francesas, joga-se o destino da UE.

O segundo erro é pensar que se trata apenas do fracasso de Emmanuel Macron. Não é. Porque antes de um fracasso de Macron, ainda por confirmar, estão os fracassos já confirmados da direita gaullista, com Nicolas Sarkozy, e da esquerda socialista, com François Hollande. Desde os anos 90, qualquer reforma em França serviu apenas para os governos serem humilhados por protestos e motins. Daí a lenda do “país irreformável”. Entretanto, os grandes partidos de governo da V República, que já só sobreviviam chantageando o eleitorado com a ameaça dos Le Pen (ou nós, ou o “fascismo”), desapareceram. Em seu lugar, as elites aglomeraram-se à volta de um jovem que era suposto fazer as reformas sem o empecilho da velha dicotomia esquerda-direita. Um colapso do “macronismo” dificilmente significaria o regresso ao anterior sistema partidário. Comecem, à cautela, a imaginar o inimaginável.

O terceiro erro está na nossa economia de esforço interpretativo. Para explicar os coletes amarelos, preferiu-se em geral traduzir os contrastes americanos que, há dois anos, serviram para dar conta de Trump: os “deploráveis” contra as elites, o campo contra as  cidades, a tasca contra o Starbucks, o nativismo contra o cosmopolitismo, etc. Não digo que não haja alguma coisa disso, mas vale a pena desconfiar de qualquer análise que acabe em recomendações natalícias de “compreensão mútua”. O risco, neste caso, é perder de vista o que, numa revolta contra o preço dos combustíveis, é o problema: uma crise fiscal. Na década de 1990, já eram óbvios os desequilíbrios dos regimes sociais europeus. Mas acreditou-se que a “globalização” (que outros achavam ser o problema) poderia resolver a dificuldade, através da criação de riqueza nos mercados globais. Acontece que no caso francês (e em outros), esses mesmos desequilíbrios limitam a competitividade do país. A França enfrenta assim um paradoxo que Portugal e a Europa do sul conhecem bem: quanto menos dinâmica é a economia, mais castigada é a sociedade por impostos, porque os governos precisam de compensar as clientelas, e não há outra via senão o fisco e a dívida. Eis como duram os Estados europeus, navegando entre duas revoltas possíveis: a dos contribuintes e a dos dependentes.

Finalmente, poupemo-nos às analogias ignorantes com os anos 30. Estamos a passar pelo que parece ser o fim de uma época. O pior que podíamos fazer era olhar com os olhos de ontem.

(Economist) The US-China trade war is on hold

(Economist) Donald Trump and Xi Jinping agree a fragile truce at the G20 summit

PERHAPS IT was the dessert of caramel-rolled pancakes, crispy chocolate and fresh cream. Or perhaps President Donald Trump had already decided that, during a working dinner on December 1st, he wanted a deal with President Xi Jinping of China. Whatever it was, after sounds of applause drifted out to assembled journalists, the two announced a “highly successful” negotiation. “This was an amazing and productive meeting with unlimited possibilities for both the United States and China,” said Mr Trump.

A more realistic assessment would be that the meeting produced a truce based on two elements: some murky mercantilism, and a deal to talk about a deal. China will increase its purchase of American farm produce, energy and some industrial goods. In exchange America will delay an escalation in tariffs, from 10% to 25% on $200bn of goods planned for January 1st. That is on hold until April 1st at the earliest. But because the formal talks between the two countries could well fail, this truce is worryingly fragile.

The Chinese commitment to raise purchases of American goods is by an amount “not yet agreed upon, but very substantial”. That is supposed to reduce America’s bilateral trade deficit with China. Requiring the Chinese government to manage import flows is odd given how America’s government complains that China still behaves like a non-market economy.

The idea is also economic nonsense. Bilateral trade deficits do not mean much, especially in an age when supply chains are global. In addition, the bilateral trade deficit is not only a function of Chinese imports, but also of Chinese exports to America. Even if the Chinese state can find ways to boost the purchase of American goods, it cannot determine the behaviour of American consumers. They may be eager to buy from China, if only to get hold of products before relations deteriorate again. In the year to date America’s trade deficit in goods has increased by 10%.

The foundations of the deal’s second part are almost as shaky. In theory negotiators now have until April 1st to agree “structural changes with respect to forced technology transfer, intellectual property protection, non-tariff barriers, cyber intrusions and cyber theft, services and agriculture.” That list is ambitious, particularly when levels of trust between the two sides are so low.

One of the fundamental problems in relations between America and China is the difficulty of enforcing a deal. The World Trade Organisation (WTO) has a dispute-settlement process, but it has some gaps and can be slow. In the past the Chinese authorities have promised to do things bilaterally, but then dragged their feet. And it can be devilishly hard to prove that the Chinese state is culpable. When the American authorities accuse it of overseeing forced technology transfer, for example, they are complaining about a practice that is not written into any Chinese law. The demands are spoken and statistical evidence of an underlying policy is scant.

Given the number of times the Chinese have broken their pledges not to make transfer of technology a condition of access into their market, America is unlikely to settle for a simple promise backed by the threat of extended tariffs. That means China will have to find mechanisms to demonstrate that, this time, it really has changed its ways.

A more stable solution to the US-China tensions would involve co-operation with other countries. The European Union and Japan agree with many American complaints, and there has been some work to come up with new rules to resolve them. In the longer term the WTO could even help to enforce those, though not if the Trump administration persists in undermining its dispute-settlement system. However, although there was talk during the wider G20 meetings of reforming the organisation, the multilateral trading system did not seem to be much on Mr Trump’s mind. And why should it be? Mr Xi’s offers will have shown that he can squeeze a lot out of China on his own. Why should he act multilaterally when bilateral bullying works so well? After the weekend’s G20 truce, businesses were quick to breathe sighs of relief. But this war is not over yet.

(OBS) “Esta geração de jovens arrisca uma vida a ser sugada, como no filme ‘The Matrix’” 

(OBS) No filme de 1999 os humanos viam a sua energia ser sugada, enquanto “viviam” na Matrix. Os juros baixos vão ter o mesmo efeito para os jovens. Richard McGuire tem um comprimido vermelho para si.

No filme-êxito de 1999, que fez de Keanu Reeves uma estrela, os seres humanos estavam ligados à rede elétrica, pela nuca, para terem a sua energia sugada enquanto andavam entretidos na “simulação” que era a Matrix. A política monetária que tem sido seguida nos últimos anos, marcada pelos juros baixos e pela intervenção massiva do banco central, pode produzir o mesmo efeito sobre a geração mais jovem, explica Richard McGuire, o responsável pela área de taxas de juro do banco holandês Rabobank.

Por um lado, os juros baixos são uma ótima notícia — incluindo para esses mesmos jovens, que se dirigem a um banco para financiar a compra de uma casa, por exemplo — mas acreditar apenas nesse lado da história equivale a tomar o comprimido azul, servido pela personagem Morpheus, e continuar a ver só o lado “cor-de-rosa” da política monetária.

Há um outro lado desta história, para quem quiser tomar o comprimido vermelho e ver “quão funda é a toca do coelho”, como avisava Morpheus. Em entrevista ao Observador, durante uma passagem recente por Lisboa, Richard McGuire defende que os juros baixos estão na origem de variadíssimos problemas na nossa sociedade, desde os salários que não sobem até às empresas que não investem, passando pelo perigo do populismo.

“Os estímulos monetários foram totalmente desaproveitados”

Quais são os grandes temas nos mercados financeiros, a que estão atentos, à medida que nos aproximamos de 2019?
Aquilo que estamos a estudar é a razão por que as taxas de juro nos EUA estão a subir, porque não achamos que é pela razão que se diz. No início do ano toda a gente dizia que os juros iam subir por causa da oferta, isto é, mais endividamento associado ao plano fiscal dos republicanos. “Um défice de um bilião de dólares é, afinal de contas, um défice de um bilião de dólares”, disse-nos um cliente nos EUA, recentemente. Mas nós temos defendido que isso não é verdade: não é a relação entre a oferta e a procura que está a empurrar as taxas de juro para cima, são as expectativas de inflação relacionadas com a subida dos preços do petróleo até outubro (e que, entretanto, se inverteu por completo).

Foi o petróleo que fez subir os juros. Mas o petróleo já não está a subir

É uma explicação um pouco técnica, mas eis a razão por que Richard McGuire não acredita que as taxas de juro estão a subir por oferta e procura. “Os preços das obrigações sobem e descem no mercado secundário, são sensíveis à oferta e à procura. Mas as taxas swap não são negociadas em mercado, são negócios bilaterais over the counter, que não são sensíveis a oferta e procura. Neste momento, estão ambos a subir ao mesmo tempo (ao contrário do que aconteceu quando Ben Bernanke começou a retirar os estímulos, nos EUA), o que nos diz que não é uma questão de oferta e procura de dívida: e, na nossa opinião, isso deve-se às expectativas de inflação. E essas expectativas de inflação estão correlacionadas com o preço do petróleo, que esteve a subir até outubro mas caiu a pique e está em bear market“.

Quais são as implicações disso, para a economia e para os mercados?
A principal implicação é que, se as expectativas de inflação são o principal fator a dominar as taxas de juro, então, para que as taxas de juro subam no próximo ano é preciso que haja expectativas de inflação ainda mais elevadas. E, para isso, seria necessário haver preços do petróleo mais elevados — e não é isso que está a acontecer.

Mas, com as taxas de desemprego em mínimos em várias partes do mundo, não é expectável que a inflação encontre suporte na subida de salários, que poderá verificar-se?
Isso não vai acontecer. Os salários não vão subir, como não têm subido até agora.

Têm sido avançadas várias explicações para isso, como a tecnologia, a robotização, a globalização. Mas há uma outra “zação” de que se fala menos: a financialização. Este é o processo, que acelerou nos anos pós-crise, através do qual as empresas investem em ativos financeiros em vez de investirem em ativos reais e em salários. Estou a falar de coisas muito específicas, como as empresas a usarem o financiamento barato para comprar ações próprias, para pagar dividendos, para fazer fusões e aquisições. São coisas que estimulam o valor bolsista das empresas mas que fazem pouco pelo investimento em ativos fixos, em ganhos de produtividade. E é sabido que para se pagar mais salários sem ganho de produtividade isso só pode acontecer à custa de uma coisa: dos lucros. E as empresas não querem lucros mais baixos, os lucros estão diretamente ligados ao desempenho bolsista e, por sua vez, à remuneração do acionista e à remuneração dos administradores.

Livros de Economia são para “queimar e atirar janela fora”

Salários mais elevados porque o mercado de trabalho está em boa forma? “Esqueça”, diz Richard McGuire. “A curva de Philips está morta, saiu de moda como a mini-saia na década de 70. Se tiver um livro de economia em casa, o melhor a fazer é atirá-lo janela fora, ou deitar-lhe fogo. Melhor: deite-lhe fogo e atire-o janela fora”. As teorias já não funcionam, porque dizem que quando o capital está barato em relação ao trabalho, as empresas investem em capital. Quando o trabalho está barato em relação ao capital, as empresas investem em trabalho. Mas não estão a investir em nenhuma das duas: não estão a aumentar os salários nem estão a investir em investimentos fixos, reais. O dinheiro que têm — lucros e endividamento — está a ser usado em engenharia de valor financeiro.

Mas as empresas têm alternativa? Se o mercado de trabalho fica mais “apertado”, a teoria económica não nos diz que os salários tenderão a subir?
Têm alternativa, sim. E têm alternativa por uma razão que é definida por um palavrão mas que ajuda a compreender a situação atual: o monopsónio. Se ouviu o simpósio de banqueiros centrais, em Jackson Hole, este agosto, terá notado que vários representantes da Reserva Federal dos EUA falaram sobre os monopsónios.

Porque é que falar em monopsónios ajuda a perceber que os salários não estejam a subir?
Monopsónio é o contrário de monopólio. Isto é, um monopólio existe quando só há um vendedor de um determinado produto ou serviço. Um monopsónio é o contrário: é quando só há um (ou um pequeno conjunto) de compradores. E esta teoria está a ser usada para perceber porque é que, apesar de haver menos desempregados nos EUA e em muitas partes da Europa, os salários não estão a subir.

Dê-nos um exemplo prático, para ajudar a compreender melhor as implicações.
A teoria está relacionada com o facto de a tendência recente ser de concentração da produção nas mãos de poucas empresas, designadamente as “campeãs” tecnológicas: as Apple, Google, Facebook, são empresas que dominam a economia. Estão cada vez mais concentradas e, em vez de investirem mais em ativos fixos ou em investigação, investem na compra de outras. Pense: quando o Facebook compra o Instagram, por mil milhões de dólares, não há qualquer acréscimo de investimento produtivo. Quando o Facebook compra o Whatsapp, por 19 mil milhões, acontece o mesmo. Não há um monopsónio mas, em rigor, um oligopsónio, o que é a mesma ideia — poucas empresas a controlarem os setores, retirando poder negocial ao trabalho. O dinheiro que têm — lucros e endividamento — está a ser usado em engenharia de valorização financeira.

A política de juros baixos que é seguida há uma década tem um papel nisso?
Absolutamente. O que descrevi tem uma relação absolutamente direta com a política de juros baixos. Primeiro, porque se cria uma perceção de que os ativos financeiros só podem valorizar-se — e faz todo o sentido pensar isso, porque os governos e os bancos centrais enviaram uma mensagem a dizer que os ativos financeiros estão protegidos. Os programas de compra de dívida o que fizeram, em certa medida, foi nacionalizar os mercados financeiros. E, sendo assim, por que razão é que alguém há de investir no mundo real? Se compro um armazém novo não posso destruí-lo, não posso reverter esse investimento, mas se compro um ativo financeiro provavelmente vou conseguir vendê-lo sem dificuldades e, possivelmente, com mais-valia.

Os programas de compra de dívida o que fizeram, em certa medida, foi nacionalizar os mercados financeiros. E, sendo assim, por que razão é que alguém há de investir no mundo real? Se compro um armazém novo não posso destruí-lo, não posso reverter esse investimento, mas se compro um ativo financeiro provavelmente vou conseguir vendê-lo sem dificuldades e, possivelmente, com mais-valia.
Richard McGuire, responsável pela estratégia em taxas de juro e dívida do Rabobank

“As bolsas não estão a subir por otimismo. Estão a subir por medo”

É uma espécie de efeito colateral da política de juros baixos? As empresas estão a ser desincentivadas a investir no mundo real?
Se você é o presidente-executivo de uma empresa do Fortune 500, a sua remuneração depende, em parte, da evolução das ações. Portanto não importa saber porque é que as ações se valorizaram — desde que se valorizem. Quando Warren Buffett compra ações da Apple, ele não quer saber se a Apple se tornou mais produtiva ou se, simplesmente, gastou mais dinheiro a comprar ações da própria empresa [reduzindo o número de ações no mercado e, tendencialmente, fazendo subir o preço]. No outro dia fiz as contas: sabe quanto é que a Apple já entregou aos acionistas desde que iniciou, em 2012, o seu programa de remuneração do capital?

Mais do que a capitalização bolsista total de todas as empresas do índice S&P 500, exceto 18. É um dado incrível.

Está a falar de dividendos e recompra de ações?
Sim, dos dois, e de um terceiro: fusões e aquisições, que também está em recordes. Nunca as empresas se compraram tanto umas às outras, porque é tão barato ir ao mercado endividar-se para comprar outras empresas, eliminando concorrência. Os estímulos monetários foram totalmente desaproveitados, de um ponto de vista do investimento produtivo. E foi neste contexto que as bolsas subiram, até outubro, mesmo com a escalada da guerra comercial: não era porque toda a gente estava feliz, pelo contrário: as empresas, precisamente por terem medo, em vez de investirem em coisas reais, investiram na compra de ações próprias. Dados recentes da S&P mostram que no terceiro trimestre houve um novo recorde na compra de ações próprias – 194 mil milhões de dólares – e o recorde anterior tinha sido no segundo trimestre, e antes desse tinha sido o primeiro trimestre…

Portanto, como disse, as bolsas estão a subir por medo, não por otimismo.
Sim, olha-se para as bolsas e, à superfície, parece um sinal de confiança — mas não é, é preocupação. E há um outro efeito pernicioso da política de taxas de juro baixas: a criação de empresas zombie. O Banco de Pagamentos Internacionais (BIS) fez, recentemente, um estudo que olhou para empresas com pelo menos 10 anos de existência, cotadas em bolsa, e concluiu que 12,5% dessas empresas têm lucros operacionais inferiores ao custo da dívida. Portanto, são empresas que não são eficientes, estão ligadas à máquina — e a única razão por que não morrem é porque conseguem emitir dívida a custos baixos que lhes permite reembolsar a dívida antiga. É um esquema piramidal, mas ninguém se incomoda.

12,5% das empresas são zombies, em número ou em capitalização? 
Segundo o BIS, são 12,5% das empresas, em número.

Mas os dados do BIS que me mostra terminam em 2016, acredita que a percentagem pode ser ainda maior agora?
Acredito que sim. Se acreditarmos que esta “financialização”, associada aos juros baixos, está a causar todos estes problemas que temos — e o populismo é outro, como podemos falar mais adiante — então se os juros subirem estas empresas vão ver-se num grande sarilho.

Será que a General Electric, que tem tido um ano marcado por grandes dificuldades, é um exemplo dessas grandes empresas zombie?
A General Electric (GE) pode ser um símbolo dos problemas que afetam milhares de empresas, à medida que os juros sobem. Nesta situação, os problemas não surgem de imediato, surgem devagarinho. A Fed já subiu a taxa de juro várias vezes: à medida que uma empresa como a GE tenta “rolar” a dívida, começa a sentir cada vez mais o peso dos custos de financiamento. Mas a GE não será a única.

Nunca as empresas se compraram tanto umas às outras, porque é tão barato ir ao mercado endividar-se para comprar outras, eliminando concorrência. Os estímulos monetários foram totalmente desaproveitados. As bolsas subiram, mas não era porque toda a gente estava feliz, pelo contrário: as empresas, precisamente por terem medo, em vez de investirem em coisas reais, investiram na compra de ações próprias.
Richard McGuire, responsável pela estratégia em taxas de juro e dívida do Rabobank

“Juros não vão subir, como muita gente pensa”

Mas quando fala “num grande sarilho”, o que quer dizer? Estas empresas vão desaparecer? Vão despedir as pessoas?
É o que seria previsível, mas a questão é que a Reserva Federal poderá não ter estômago para provocar este reequilíbrio, subindo as taxas de juro de forma a que as empresas ineficientes desapareçam. Não acredito que isso acontecerá, porque a Reserva Federal tem um mandato duplo: inflação e emprego. Já se está a notar uma mudança de tom.

Mas este é um problema mais nos EUA ou, também, na Europa?
Não, é em todo o lado. Na Europa, também.

Então, acha que há um risco de as taxas de juro subirem na Europa tanto quanto subiram nos EUA? Acha que elas já estão a começar a subir (na Europa)?
Não, não diria. Não nos países do centro. As taxas de juro da Alemanha estão em 0,35%. No final do ano passado, os investidores diziam que no final deste ano a taxa de juro da Alemanha [a 10 anos] estaria em 1%. Agora, dizem-me que será no final do próximo ano que ela estará em 1%. Parece que todos os anos fazemos a mesma previsão e ela nunca se concretiza.

E porque é que a taxa de juro não sobe?
É simples: diz-se que os juros vão subir porque o programa de compras de dívida pelo BCE não vai continuar, portanto irá haver menos procura. Mas essa lógica não é válida, como vemos consistentemente. Quando o BCE deixar de comprar, outros investidores vão comprar cada vez mais. Nos EUA, quando a Fed deixou de comprar, todos pensaram que as taxas de juro ia subir e isso não aconteceu: as taxas de juro baixaram. E porquê? Porque o fim dos estímulos faz subir a cotação da moeda, neste caso do dólar, o que, por sua vez, leva a menores expectativas de inflação. Menos inflação leva a obrigações mais atrativas, o que leva a juros mais baixos.

Vai acontecer o mesmo na Europa, então? Os juros não vão subir?
Acredito que vai acontecer o mesmo, os juros não vão subir como muita gente pensa. Basta pensar na procura por investidores em busca de ativos seguros (os safe havens), e na Europa vai haver muitas razões para que essa procura por ativos mais seguros seja imensa. Temos a guerra comercial entre os EUA e a China — que não é um tema político passageiro, é uma batalha pela hegemonia do século XXI e só tende a piorar, não é algo que o vento vai levar. Temos o preço do petróleo em queda, o que não é um bom sinal para a economia, pelo contrário: é um sintoma de queda da procura e de problemas nos mercados emergentes, provavelmente relacionados com o dólar mais forte.

“Itália fora do euro? Não, mas também dizia que não haveria Brexit e que Trump não ganharia”

E que outros fatores de risco vê?
Temos, também, o desastre em câmara lenta que é o Brexit. E temos a Itália, que é outra questão que só tende a piorar. Temos as eleições para o parlamento europeu, em maio — o parlamento europeu não tem muito poder mas o resultado das eleições terá leituras nacionais importantes. O ministro italiano Luigi Di Maio já disse que não vê razões para seguir as regras europeias porque em maio ele irá reescrevê-las. O seu parceiro, Matteo Salvini, já apareceu a dar um aperto de mão ao movimento eurocético liderado por Steve Bannon, o estratega de Donald Trump.

Mischaël Modrikamen@modrikamen

Meeting this morning with Steve Bannon and Matteo Salvini. The Movement : He is in!

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Os mercados vão continuar a olhar com cada vez maior desconfiança para Itália?
Quando os meus clientes norte-americanos leram sobre esta aliança Salvini-Bannon, “adoraram” saber. Os investidores não compreendem o populismo. Em 2016 eu andava a viajar por todo o mundo, a concordar com os meus clientes — investidores inteligentes — que o referendo britânico não ia aprovar o Brexit, porque não era uma coisa lógica. Também dizíamos que Trump não ia tornar-se Presidente dos EUA, porque não era uma coisa lógica. O populismo segue uma lógica diferente e nós, nos mercados financeiros, não a compreendemos.

Mario Draghi pediu para se olharem para os números, não para as palavras…
Mas a Itália vai falhar as metas do défice. E não importa se é 2,5% ou 2,2% ou 2,3%, porque eles vão falhar de qualquer forma (porque as estimativas de crescimento são muito otimistas). E quando os mercados se aperceberem que o défice italiano está descontrolado, a coisa vai ficar feia muito rapidamente — sobretudo porque não há compras de dívida pelo BCE, não há rede de segurança e não há Alemanha.

Não há Alemanha, como assim?
2018 é muito diferente de 2010. Em 2010, na última vez que os países do centro da Europa vieram em socorro, o partido [eurocético] AfD não tinha 13% do parlamento alemão. A Alemanha tem os seus próprios problemas para resolver. O próximo ano será um ano muito complexo.

Governo podia ter baixado a dívida mais rapidamente. Nenhum outro voltará a ter as mesmas condições para o fazer

O Banco Central Europeu está prestes a fechar o programa de compra de ativos, mas o Rabobank considera que Portugal é um dos países que serão menos afetados por esse término, até porque as limitações estruturais do programa já têm feito, nos últimos meses, com que tenham sido comprados menos títulos de dívida do que o previsto. Comentando as eleições legislativas do próximo ano, o analista diz que “quando as coisas estão a correr bem, os mercados não querem saber quem está ao leme do navio”. O governo tem conseguido fazer boa figura com a redução do défice, de forma mais ou menos estrutural, mas se houver problemas mais sistémicos, por exemplo relacionados com Itália, “a perceção de risco em relação a Portugal vai ser afetada”, até porque “não se reduziu o endividamento tão rapidamente quanto teria sido possível — e nenhum governo vai voltar a ter tão boas condições externas para o fazer”.

Mas, sendo claro, acredita que a Itália pode mesmo sair do euro? Acha que há um risco maior do que algum dia houve, por exemplo, com a Grécia ou, mesmo, com Portugal?
Em maio, quando os responsáveis eleitos na Itália — Salvini — falaram explicitamente sobre o risco de saída do euro, nessa altura acredito que voltámos a ver riscos de redenominação na zona euro [o risco de a dívida italiana em euros ser convertida em liras]. É curioso que só nessa altura é que os juros subiram — nas eleições, em março, os mercados não se mexeram apesar de várias pessoas dizerem “este é o pior resultado eleitoral possível, porque é que os mercados não estão em pânico?”. Mas hoje até os investidores italianos, nossos clientes, estão a limitar ao máximo a exposição à dívida italiana — tanto quanto possível, porque a Itália continua a ter rating de qualidade e está nos principais índices, portanto alguns fundos e seguradoras têm obrigatoriamente de ter exposição à dívida do país.

Portanto, em resumo, acredita que a Itália pode sair do euro?
O meu cenário-base é que não irá acontecer. Mas o meu cenário-base para o Brexit também era que o Remain iria ganhar e o meu cenário-base para as eleições norte-americanas era que o sr. Donald Trump não se iria tornar o Presidente Trump. Os acidentes políticos podem acontecer. Para muita gente, é atrativa a ideia de voltar a ter a própria moeda e poder desvalorizá-la, de tantos em tantos anos, que era o que Itália fazia, regularmente, antes da zona euro.

Mas dizia há pouco que as taxas de juro não vão subir na zona euro. Não acredita que o BCE irá anunciar uma subida da taxa diretora, perto da altura da saída de Draghi [outubro]?
Não acredito que irão subir os juros. Não é surpreendente que estejam a comunicar que provavelmente irão fazê-lo porque querem que as pessoas continuem otimistas quanto à evolução da economia. O BCE tem de parecer confiante ao ponto de dizer que quer subir os juros porque está a terminar a compra de ativos — têm de fazê-lo, por razões estruturais — e não pode terminar o programa de compra de ativos se os investidores perceberem que o BCE está preocupado com a economia, com a Itália, com o Brexit ou com a guerra comercial.

O meu cenário-base é que Itália não sairá do euro. Mas o meu cenário-base para o Brexit também era que o Remain iria ganhar e o meu cenário-base para as eleições norte-americanas era que o sr. Donald Trump não se iria tornar o Presidente Trump. Os acidentes políticos podem acontecer.
Richard McGuire, responsável pela estratégia em taxas de juro e dívida do Rabobank

Jovens endividam-se para comprar casas aos mais velhos. Quem vai comprar a eles?

Que leitura é que faz dos impactos que esta política monetária pode ter do ponto de vista geracional, para as nossas sociedades?
Este é um jogo de soma-zero. Como dizia há pouco, os juros baixos têm levado as empresas a investir em ativos financeiros e menos em ativos reais — isto é uma boa notícia para quem está exposta aos ativos financeiros (a geração mais antiga) mas más notícias para quem, por exemplo, procura valorização profissional no início da carreira (os mais jovens). Os juros baixos estão a agravar o enorme fosso de riqueza intergeracional a que estamos a assistir.

Porque é que juros zero, ao longo de tanto tempo, são algo injusto para os jovens? Alguns leitores vão achar isso paradoxal.
Basta olhar para a dificuldade que os jovens têm em comprar uma casa em Lisboa. Não é a única explicação, mas repare que é por haver juros baixos que muitas pessoas mais velhas decidiram investir em casas, contribuindo para fazer o preço destas subir.

Mas, pelo menos enquanto os juros não sobem, o crédito torna-se mais acessível.
Sim, mas isso importa pouco. O que importa é que os preços estão muito elevados. Mais do que os juros, o que importa é quanto é que, de facto, se está a financiar e quanto é que vai ter de se pagar. Muitas vezes, é um valor proibitivo. Estive nos EUA na semana passada e soube de uma coisa maravilhosa: há uma nova versão do jogo Monopólio — é o Monopólio para Millennials — que está a causar controvérsia. O slogan é “não se compram propriedades porque vocês não teriam, de qualquer forma, dinheiro para as comprar”. Portanto, em vez de caminhos de ferro e hotéis, o jogo baseia-se em “experiências”.

Essa é a generalização que é feita, sim, que os “millennials” não querem comprar coisas.
Sim, não querem porque não podem, em grande parte dos casos. Nós vemos, no banco, quando contratamos jovens, uma enorme diferença geracional. Quando falamos com eles, dizemos-lhes quanto podemos pagar de ordenado e eles não se importam com isso, não querem saber do dinheiro, querem é flexibilidade, querem poder trabalhar remotamente o mais possível, querem tirar férias avulsas para viajar. Não estou a dizer que os “millennials” são idiotas e não querem saber de dinheiro, é só porque algo lhes está a dizer que o modelo anterior não vai ser possível: trabalhar, poupar, investir e, no final, reformar-se confortavelmente. Isso não vai acontecer — e eles, se calhar, sabem isso, no fundo.

Os juros baixos têm levado as empresas a investir em ativos financeiros e menos em ativos reais — isto é uma boa notícia para quem está exposta aos ativos financeiros (a geração mais antiga) mas más notícias para quem, por exemplo, procura valorização profissional no início da carreira (os mais jovens). Os juros baixos estão a agravar o enorme fosso de riqueza intergeracional a que estamos a assistir.
Richard McGuire, responsável pela estratégia em taxas de juro e dívida do Rabobank

Então, o que lhes vai acontecer?
É um problema difícil, porque vivemos numa pirâmide demográfica invertida e os governos não vão conseguir pagar as reformas, como acontece hoje, porque não vai haver pessoas ativas suficientes para pagar as reformas. Quem está hoje perto da reforma, ou já reformada, está a conseguir vender ativos bem valorizados — o exemplo mais simples disso é o imobiliário. Trabalharam e pouparam para ter uma casa e, agora, estão a vender essas casas aos mais jovens, com grandes mais-valias. Qual é o reverso da medalha? Muitas pessoas mais jovens estão a endividar-se para comprar essas casas, a preços elevados. E pensam: “bem, isto é como se fosse um PPR [um plano poupança-reforma]”, ou seja, “compro a casa e, um dia, vendo-a e isso vai ajudar-me na reforma”.

Não vai ser assim?
Provavelmente, não. Para que isso aconteça temos de assumir que, daqui a 30 anos haverá uma geração capaz de lhe pagar pela casa o preço que pensa que ela vai valer. Os millennials não têm dinheiro, as suas poupanças não rendem nada. Quando esta geração quiser rentabilizar estes ativos, quando quiser vender a propriedade, quem vai comprar? Portanto, a geração mais jovem está a ir bater à porta dos bancos e a assumir uma dívida tão grande, o dinheiro suficiente para comprar as casas aos mais velhos, mas ficam escravos do banco para o resto da sua vida, com juros que acabarão por subir. Estamos a falar de um cenário como o do filme “The Matrix“. Vão enfiar-lhes tubos na nuca e vão sugar-lhes toda a vida para, no final…

Qual é a alternativa?
A alternativa é provocar o colapso, provocar um colapso dos preços dos ativos, que force uma redistribuição de riqueza — e isto ajuda a perceber porque é que alguns jovens britânicos votaram com os populistas, a favor do Brexit, para ter casas mais baratas porque não estavam a conseguir comprá-las (à geração anterior). Como se isso fosse a única consequência. Ou seja, as casas ficam mais baratas mas perdes o emprego. É fácil compreender como estas questões estão a criar tensões sociais que podem ser perigosas — e há pouco falávamos do populismo… Se alguém pensar que Theresa May, Di Maio ou Salvini são maus, é possível que sejam muito melhores do que os que aí podem vir.