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Julio López (Attutude Gestión SGIIC) |Beethoven’s Symphony No. 5 in C minor was first performed in 1808, but gained particular prestige during World War II. The British noticed that the famous opening theme (da-da-da-dum) had the same rhythm as the letter V in Morse code (. . . …) so the symphony became a symbol of victory over Nazism: the BBC always began its broadcasts to occupied Europe with those four notes.
Only a fortnight ago, it seemed that at all the exchange tables the only melody that sounded was that of the glorious deaf man of Bonn. After betting all our chips on the red of rate cuts in the last two months of last year, the start of the year brings more doubts; And the bright, bright landscape now seems more hazy and sinister than it was before. Reagan said the scariest word in English was “I come from government and I’m here to help. “The most damaging thing in the markets is when all investors reach a consensus on what’s going to happen. By the end of December, the consensus was for an immediate rate cut and a soft landing for the economy. This brings us to the conclusion that at least one of the two things will not happen.
Just as we warned at the end of October of an excessively bearish stance that could favour a recovery in the markets, we are now in a diametrically opposite situation, with excessive positioning in both bonds and stocks that at least makes us move our noses and has put us in a position where we prefer to remain on the sidelines and look sideways. I’m surprised that after three years of ruthlessly missing the mark, financial and economic policymakers are still hoping that inflation will end without blushing. Some have already said that inflation is defeated and disarmed, while the last two monthly figures in the U. S. they’re going up. The declines may have been expected thanks to the comparative effect, but it is much more difficult to go from 3. 5% to 2. 5% than between 9% and 4%. I can say that I am cautious or appeal to the Socratic, but there are arguments in favor of one aspect or the other. Everything is happening so fast that we need quick answers that are good. the founded.
Almost 4 years after Covid, we still don’t have a transparent answer about what has happened to globalization, whether there has been a pause or if we have returned, and how it will affect global production chains.
It only takes a conflict such as the one in the Red Sea for us to see a halt in the automobile industry, for example, which can trigger price rises again, going beyond the increases in maritime transport itself. On the other hand, we are witnessing significant falls in raw material prices. Aluminium has fallen by 40% from its highs, copper by 23%, corn by 33% and wheat by almost 50%.It seems that in the face of rising prices the economy in many places has functioned in the traditional way, and has responded with increases in production that have driven prices down again, returning to their cyclical nature, beyond the volatility that financial markets exacerbate.
On the employment side, the objective data can be considered good at the global level, even if in the United States they are starting to be somewhat mixed. The European Union has presented its best unemployment figure since 1998, at 6.4%, which is really low for the old continent. The only downside is that youth unemployment remains extraordinarily high and Spain continues to lead the way with 27.9% youth unemployment. What we are witnessing is, as in the case of housing, an increasingly large segmentation of the market, so that arithmetic averages mislead more than providing accurate information. There is a big difference by sector, with shortages in many sectors and surpluses in others. Beyond economic activity, there are two aspects that will mark the coming years in employment. On the one hand, we have a frightening demographic trend. In Western countries, we are facing the 10 years with the highest number of expected retirements in history, which will make the replacement effect easier for young people to get a job (another thing is what they earn and have to pay to maintain the passive classes). On the other hand, we have yet to see how the much-talked-about Artificial Intelligence will affect the economy.
This week, the IMF released a not-so-optimistic report, which roughly states that synthetic intelligence will account for 40% of international jobs and could worsen inequalities between countries and within their societies. It is a technological revolution that is likely to have a greater impact on complex economies than on emerging economies, replacing and complementing high value-added jobs. For those who have read Acemoglu and Robinson’s incunabula Why Countries Fail, the parallels with the commercial revolution of the eighteenth and nineteenth centuries that determined which countries won and lost over the next two hundred years will not be strange. We will most likely see jobs and staff gain advantages from its implementation, with staggering productivity gains, and on the other hand, we may see lower-wage jobs and reduced hiring, or even the disappearance of other jobs. The really important difference with the past commercial revolution is that this time not only will low-skilled, repetitive and monotonous jobs be created, but also hitherto well-paid jobs.
From a financial policy perspective, we have been at a vital juncture lately. The marvelous expansion of the past 40 years is the result of a sharp fall in interest rates, a large cash print, and unprecedented fiscal stimulus and borrowing. A return to a more orthodox policy prior to the 2008 crisis, or whether, at the slightest hesitation in economic performance, we will return to the same recipes of the last decade and turn a blind eye. Over the past two years, the Federal Reserve has gone from 24% of U. S. government bonds on its balance sheet to 17. 7%. Despite those drops, those numbers are still incredibly high by old standards. What’s more, the world is 20 times more indebted than it was 25 years ago. Will it be the average of the last decade or the average of the last hundred years, because the effects in terms of the interest rate scenario are very different?
Winston Churchill used to say that Americans end up making the right decision, but only after considering all other alternatives. I think this will have an effect on markets with ups and downs and increased volatility.