By Alejandro A. Tagliavini *
The macro team at the very prestigious Nordea Bank sees a highly volatile global future. And it points out some important factors. Lower liquidity which implies, ironically, lower inflation, that is, less boost to the Wall Street bubble, «less money to drive valuations up». Global growth is slowing, among other things, due to disruptions in the supply chain – such as delayed quarantines and other market violations – plus the latest energy problems that «could force a more negative scenario in the short term».
Cost / profit margin problems since everything is becoming more expensive, precisely because of inflation given the monstrous emission, since the quarantines and other market restrictions began, and the misguided policy of the Fed that intends to turn off the fire with gasoline.
Obviously, as the SP 500 goes down the VIX rises, or vice versa, in any case, fear increases, and Wall Street goes down, as can be seen in the following graph where the inverse of the VIX is drawn:
The Evergande event, even though it is important in China and China is increasingly so in the world – as can be seen in the following curve – was just a scare. Then the market recovered, but fell again for the reasons we saw:
Meanwhile, US 10-year Treasuries have risen nearly 25 basis points in just a few sessions. Evergrande attracted attention, but these bonds are still the most important asset in the world and, normally, their performance goes inversely to the shares since fear in the market causes them to take refuge in these sovereign titles by raising their price and, therefore, lowering its performance.
However, the uncertainty and volatility have meant that, with the 10-year bond yielding 1.54% at time of writing (1.55% is a «great level»), that connection to the NASDAQ seems shaky. And by the way, the last time yields traded at the 1.55% level, the NASDAQ was 5% lower:
By the way, the main losers when the yield of Treasury bonds rise so much are usually the powerful technologic, those of the NYFANG index, among other things because it absorbs funds from them. As seen in the figure below, the last time the return was 1.55% things got bad for the NYFANGs:
As we already know, inflation – the excess of issuance over the demand for money – distorts everything in an endless vicious circle. The rise in yields in the US causes flows towards the dollar that continues its upward race in the background. Deutsche Bank analysts warn they are «modestly improving» their year-end dollar forecasts: «persistent stagflation dynamics – lower growth but an aggressive Fed – leaves little room for a downtrend in the dollar».
The Commodity Futures Trading Commission (CFTC) weekly report presents a breakdown of the net positions of “non-commercial” (speculative) traders in the US futures markets. USD) and there it is seen that they increase:
At the same time, while asset managers also increase, leveraged funds fall:
In other words, what you see here is an unstable market on all sides, basically due to astronomical excess issuance by central banks with the excuse of getting out of “the pandemic”. This initially produced a general increase in the price of raw materials, but now it is causing a recession and with it the fall in prices due to lack of consumption and the strength of the dollar.
However, to make the situation worse for countries like Argentina, not all prices of raw materials fall. Energy is skyrocketing. Oil prices topped $ 80 a barrel a few days ago for the first time in three years, and natural gas and coal also climbed multi-year peaks.
As prof. Steve Hanke pointed out, what have in common the blackouts in China, the panic at the UK gas stations and the rise in gasoline prices in Europe? that they are all the result of «green» policies and interventions. “There are no free green lunches. Just big price increases”.
The truth is that the «global leaders» and, with them, a huge proportion of the media and public opinion, are behaving in a very incoherent way. It is unusual that a “green culture” has spread so strongly in the world that it encourages governments to forcefully impose regulations to “prevent the destruction of the planet” by man. They sell a black cat for a green hare.
This is incredibly ironic, in the first place, because the State imposes these regulations based on its police power, that is, on its monopoly of violence when violence is precisely – as Aristotle already defined it – that it seeks to coercively deviate from the normal course, spontaneous of nature. That is, destroy nature. And secondly because, precisely, the most polluting organisms are the state ones, starting with the armed and police forces, which with their weapons and movements are highly harmful.
Ergo, the first men who are destroying the planet, for their vested interests, are the international politicians and bureaucrats who directly benefit from increased budgets and state power.
Richard Valdmanis says that, although there is a rebound in energy demand from the lows reached during the restrictions with the excuse of «the pandemic», it is not the lack of resources that is to blame for the crisis but rather the coercive impositions of the governments, basically, to «protect nature.» In addition to current supply restrictions by OPEC -which will meet in the coming days to discuss loosening- and global transport bottlenecks due to state regulations that complicate distribution, there are countless “green” regulations.
Beijing has begun rationing electricity for businesses given a shortage in coal supplies caused by intensified controls at Chinese mines that dragged production down. Because Beijing sets energy prices, coal-fired power plants have not been able to operate economically with such high coal costs and are shutting down. Goldman Sachs estimated that up to 44% of Chinese industrial activity has been affected by power shortages.
The reason for the rising costs in Europe is a confluence of local factors, ranging from meager natural gas reserves and shipments abroad, poor production from the region’s ‘green’ windmills and solar farms, and maintenance work that has taken nuclear generators and other plants out of service. By the way, unusually, the problem in Great Britain is not the lack of gasoline, it is the lack of truckers, precisely because of state regulations such as those relating to immigration.
Anyway, meanwhile in Argentina …
They report from Invecq that, during August, according to Indec, exports reached USD 8,093 M, an increase of 63% compared to the same month of 2020. Strong increase due to a growth in prices of 30% and in quantities of 25%. All items increased: fuels and energy, 182%; direct agricultural products, 70%; industrial manufactures, 60%; and agricultural manufactures, 47%. In the accumulated of 2021, exports increased 35% as the main result of the jump in international prices, although there was a small increase in quantities.
Meanwhile, imports reached USD 5,754 M, they increased 64% compared to the same month last year, because of a 33% rise in quantities and 23% in prices. All the items registered positive variations: capital goods increased 38%; intermediate goods 60%; fuels and lubricants, 223%; parts and accessories for capital goods 88% and consumer goods 19%.
In this way, the trade balance registered a surplus of USD 2,339 M, USD 893 M higher than that registered in the same period of 2020. The balance accumulated by this exchange in the first eight months of the year reached USD 10,649 M, a level like that of last year and higher than every year since 2009.
But now, a breakdown allows us to intuit that, given the fall in the price of agricultural raw materials and the increase in industrial products because of inflation and the rise in crude oil, the Argentine balance will be damaged while the dollar strengthens.
The following Invecq graph shows the dynamics of the BCRA’s net international reserves. Throughout the month of August, with the large trade surplus shown by Indec, the BCRA’s net reserves fell by about USD 1,000 M, largely to contain the gap with the CCL. And, as we said, this surplus could get worse.
Thus, with reserves going for the worse, the exchange rate policy of devaluing the currency only at 1% per month is at risk. Above all, with the idea among a large part of the ruling party that a larger deficit is necessary to contain the electoral fall, increasing the monetary issue to finance it, that is, causing the real depreciation – beyond the official change – of the peso.
Since the end of last week, the BCRA has once again had to sell dollars in the official market, the intervened CCL has increased the gap with the official one, and the free “CCL” exceeded $ 190, increasing the gap in the gap. And everything could get worse, even if funds come from the IMF (at the end of the tug-of-war show, there is always an agreement because that is the business of the bureaucrats of this multi-state body).
It is therefore not surprising that many large investors are making a move towards the dollar. It is observed that the deposits linked to the rise in the CPI – «inflation», according to the Indec- fell by 10% in the last month and would be turning to sovereign bonds in dollars that today have annual yield rates of more than 20%.
* Senior Advisor at The Cedar Portfolio and Member of the Advisory Council of the Center on Global Prosperity, de Oakland, California