domingo, mayo 15, 2016

VACACIONES MAYO 2016

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VACACIONES MAYO 2016

Jueves 28 de Abril del 2016

Queridos amigos,



Les escribo estas líneas con motivo de mi próximo viaje, el que me tendrá ausente de la oficina y de nuestras lecturas cotidianas, desde el lunes 2 hasta el lunes 23 de Mayo próximo, que me reintegro a mis labores.


Durante estos días no tendré acceso regular al Internet ni a mis correos.
  
  
En los últimos meses la situación económica y financiera internacional se ha seguido deteriorando aun mas, con el consiguiente aumento creciente de la volatilidad de los mercados financieros, según lo ya previsto en mi carta de Octubre pasado, replicada en algunos párrafos líneas más abajo para mayor abundancia, impactando duramente a los países emergentes, las monedas, el petróleo y los precios de los "commodities", el fortalecimiento notable del dólar norteamericano, típico de las épocas de crisis, y una retracción cada vez más marcada del crecimiento del producto mundial, ahora ya reconocido por todos los bancos centrales, lo que nos coloca claramente bajo la sombra del temor de una potencial deflación y de la recesión global, cada vez más inevitable.  
 
En los últimos dos meses el anuncio de una política de aumento de intereses menos agresiva que la anunciada previamente, por parte de la FED, ha debilitado ligera
y temporalmente al dólar, e impactado transitoriamente de manera positiva a los precios de las materias primas y los mercados de acciones.
 
La pregunta es cuanto tiempo puede durar esta situación en una economía global manipulada descaradamente por los bancos centrales y en franco camino de deterioro, con el continuo crecimiento de la desigualdad de los ingresos y una clase media cada vez mas disconforme, como lo reflejan las coyunturas políticas preocupantes de los últimos tiempos, tanto en los Estados Unidos de Norteamérica, como en Europa y el resto del mundo. La enorme volatilidad de los mercados financieros, que pensamos será cada vez mayor, es un síntoma de esta situación insostenible a mediano y largo plazo. 
El artículo de hace unos meses de Doug Nolan, "The Unwind", al que pueden acceder mediante el "link" anterior, describe claramente la situación precaria de la economía global, los mercados financieros, las deudas y el crecimiento económico mundial, por lo que me abstendré de mayores comentarios.  También pueden acceder al  articulo de Doug Nolan, "New World Disorder".  
 
La reciente creciente y notable volatilidad de los mercados financieros, las dudas hamletianas de la Reserva Federal sobre las tasas de interés y la reciente volatilidad de las bolsas, son solo una pequeña muestra de la descomposición de las economías y los mercados globales.

En realidad no podía ser de otra manera, si tenemos en cuenta que no se ha hecho nada en los últimos años para reparar los profundos desequilibrios estructurales en los fundamentos de la economía global, sino que más bien, por el contrario, se ha seguido "maquillando" por parte de los bancos centrales la insostenible situación económica y financiera global, profundizando los desequilibrios y la inestabilidad vía el constante crecimiento de las deudas, aumentando las ineficiencias y dilatando el necesario ajuste. El crecimiento estructural de la economía global es cada vez más frágil, dudoso e insostenible.


Hasta la crisis del 2000 y luego de la del 2008, ahora así llamada la Gran Recesión, la demanda global había sido “subvencionada” por un sistema financiero manipulado e intervenido, creando una demanda y una economía global ficticia, una recuperación así llamada "subprime", liderada por la FED mediante un crecimiento desproporcionado de las deudas, imposible de auto-sustentarse en un crecimiento de la economía real en el largo plazo. 


Deuda, deuda y más deuda, parece ser el mantra de la FED.

Desde entonces, la FED y el resto los bancos centrales de todos los países más importantes del mundo se han negado y se siguen negando a reconocer esta realidad, aceptando el inicio de un ajuste inevitable y estructural, regresando a un nivel real de la economía global de alguna manera manejable. Aún siguen abocados al esfuerzo de una gran represión financiera, manipulando e inflando irresponsablemente los mercados financieros vía una política monetaria de emisiones inorgánicas de papel moneda sin respaldo y muy bajas tasas de interés, o hasta tasas de interés negativas en muchos países del primer mundo. Actualmente se estima que existen aproximadamente 7 trillones de dólares de inversiones en tasas de interés negativas.

Las deudas de consumidores, empresas y gobiernos, eran y son insostenibles.

Por ello creemos que los bancos centrales no aumentarán de "motu propio" las tasas de interés de manera importante a corto plazo, salvo que este aumento provenga final y sorpresivamente de una crisis generada por la desaparición de la confianza de los inversionistas globales en los mercados financieros. Mas bien los bancos centrales seguirán, en la medida de lo necesario, con su política de seguir emitiendo e inyectando moneda sin respaldo a los mercados, bajando las tasas de interés a niveles aun mas negativos e interviniendo los mercados de capitales mediante compras de bonos y de acciones, distorsionando cada vez mas los precios de los activos financieros en todo el mundo.

Inmediatamente sus deudas se volverían obviamente impagables y la crisis que tanto han tratado de evitar reconocer, sobrevendría inevitable.

Solo para mencionar al país con la economía más importante, la deuda de los Estados Unidos de Norteamérica ha crecido por encima de los 18 trillones de dólares, a más del 100% de su PBI. Y si incluimos las deudas contingentes internas, como el Seguro Social y los Fondos de Pensiones, algunos analistas calculan que la deuda norteamericana podría llegar a sumar entre los 80 a 120 trillones de dólares, es decir, entre 5 a 7 veces el producto bruto anual. Y en aumento.

Para un análisis detallado del desarrollo de esta problemática y la verdadera situación actual, ver los artículos del blog, aquí, aquí y aquí.

Esta situación se ha seguido agravando en los últimos años y es insostenible en el mediano y largo plazo.  (ver articulo)

Para evitarlo, es que los bancos centrales han tenido que esforzarse en mantener ficticiamente una apariencia de normalidad en el "statu quo", inyectando cantidades innombrables de papel moneda sin respaldo a los mercados financieros y reducido las tasas de interés a niveles nunca vistos por largo tiempo, desde que la historia económica recuerda. (QE1, QE2, QE3, Q4, Abenomics, China, etc….)

Todo ello nos hace presumir que todo ello se lleva a cabo por el fundamentado temor a perder el control del esquema Ponzi mundial, que es lo que son ahora la economía global y los mercados financieros, y por ende se derrumbe el castillo de naipes enfrentando de golpe un ajuste económico enorme y hasta la posibilidad de una revolución social incontenible, guerras, etc.

El hecho es que el esfuerzo de política monetaria intervencionista llevada a cabo por la mayoría de los bancos centrales del mundo, en los últimos 15 años, más intensa y desproporcionadamente desde los últimos siete años, además, ha producido la transferencia más importante de riqueza que se recuerda en la historia, de manos de los pensionistas y los ahorristas, hacia las clases privilegiadas y los bancos. 

Mas importante todavía, se ha distorsionado y manipulado fundamentalmente las reglas de la economía del libre mercado con consecuencias funestas y aun impredecibles en el mediano y largo plazo para los consumidores e inversionistas del mundo, incrementando la locación  ineficiente de los recursos de inversión, además de multiplicar el costo de la inevitable implosión de los mercados financieros, tanto de las acciones, como de los bonos y otros instrumentos de inversión financiera.

Todo esto para no mencionar a los derivados financieros, estimados por algunos analistas en más de 1 cuatrillón de dólares (1000 trillones de dólares),  que se ciernen como una espada de Damocles, sobre todo el sistema financiero y económico internacional.

El mismo FMI ha advertido hace ya unos meses de la posibilidad que la economía global está entrando a un periodo de "stagnación" y a una probable nueva recesión, con las consecuencias que ello implicaría. (ver articulo) Y recientemente ha vuelto a reducir su estimado de crecimiento para la economía global de 3.6% a 3.2%. No nos extrañaría que estos estimados se sigan reduciendo en el futuro cercano, especialmente si tenemos noticias negativas del desarrollo de la economía China, en la que algunos analistas esta comenzando a prever un "hard landing" y de la enorme deuda interna de la economía China, influenciando negativamente de manera importante  a los mercados financieros globales.

Obviamente estos organismos no pueden decirnos toda la verdad. Ello sería propiciar ellos mismos el adelanto inevitable del descalabro global, el caos y el ajuste sin anestesia, con resultados imprevisibles. 

La pregunta de fondo es ¿hasta cuándo se podrá o podrán mantener esta realidad bizarra?
Y eso nadie lo puede responder con seguridad. La confianza de los inversionistas en los mercados financieros es la verdadera incógnita.

Por ello ahora tenemos que seguir preguntándonos seriamente, ¿Cuál de todos los potenciales "cisnes negros", conocidos o no, que hoy se ciernen sobre la economía global ,y que son muchos, económicos, sociales y geopolíticos, podrían ser el detonante de la nueva catástrofe?

Solo la historia nos responderá a esta crucial pregunta.


Por ahora, podemos especular que las próximas elecciones norteamericanas en Noviembre próximo son y serán un factor de gran importancia para el comportamiento de la FED, manipulando los mercados lo mejor posible, para influenciar de manera  positiva a la administración saliente, o dicho de otra manera, para evitar perjudicarla lo mayor posible, con un ajuste enorme y anticipado de las grandes incoherencias en la que se encuentra la economía norteamericana y la global como consecuencia de dichas intervenciones de los bancos centrales, en especial de la FED. 

Mientras tanto, en medio de este mundo bizarro, tenemos que insistir nuevamente y más que nunca, que la experiencia y la prudencia, el análisis y la inteligencia, la vigilancia y la paciencia, son los socios más importantes en las decisiones de políticas y estrategias de inversión a corto y mediano plazo.

En un cambio importante de ciclos como en el que pensamos que estamos envueltos hoy día, y en el que más allá de lo circunstancial, el pasado y el futuro se bifurcan y se oponen, los riesgos para los inversionistas son profundos. (ver articulo)

Con estas  anotaciones y advertencias que espero les sean de utilidad, me despido de Uds. con un cordial abrazo hasta el regreso a mis actividades, Dios mediante, a inicios de la tercera semana de Mayo próximo, cuando estaré nuevamente a su gentil disposición.

Gonzalo

PD. Para leer los artículos pueden subscribirse directamente entrando al blog:  www.gonzaloraffoinfonews.com

Retail Troubles: It Isn’t Just About Amazon 

A strong retail-sales report reveals just how deep a funk traditional retailers are in


By JUSTIN LAHART


The problem major retailers face isn’t so much that consumers have become more cautious, but that consumers are directing their spending elsewhere. And that is much, much worse.
On Friday the Commerce Department reported that retail sales—a category that covers not just traditional stores, but also businesses such as restaurants and online retailers—rose a seasonally adjusted 1.3% in April from March. That marked the largest increase in over a year, and stood in contrast to a string of retailers that reported disappointing results over the past week, including J.C. Penney, Nordstrom, Macy’s and Gap,
A chunk of the April retail-sales gain came from a rebound in sales at auto dealers and gasoline stations. But the sales for the “control group,” which excludes those categories (as well as restaurants, bars, and building-materials and garden stores) and which is a proxy for the underlying pace of consumer spending, rose 0.9%.
As result, economists raised their forecasts for second-quarter gross domestic product. Upward revisions to control-group sales for February and March also suggest the disappointing first-quarter GDP figures the Commerce Department released last month will be revised higher.
But the details of the report showed the uneven contours of where spending is growing. Sales at department stores, for example, rose by just 0.3%, putting them 1.7% below their year-earlier level. And while clothing- and accessory-store sales bounced 1%, they were only up 1.3% on the year. That compares with a 3.6% annual gain in control sales.
Meanwhile, sales at nonstore retailers—a category that includes online retailers such as Amazon.com—continued to take market share, rising 2.1% on the month and 10.2% on the year.
Retailers’ problems go deeper than shifts in where consumers are buying goods. One is that prices for many of the things they sell are rising more slowly than overall prices, or are even falling.
Apparel prices, for example, were down 0.6% from a year earlier in March, according to the Labor Department. So even if apparel retailers manage to sell more items, it is hard for them to generate sales gains. And with wages and other costs rising faster than prices, profit margins are coming under pressure.
Further, Americans are directing an increasing share of their spending on services. Over the past decade, for example, total consumer spending on clothing and footwear has risen just 1% annually, unadjusted for inflation. Spending on cable and satellite television and radio services has increased at a 5.1% rate.
That partly reflects a change in attitudes that came about in the wake of the financial crisis. Not only are people being more careful about spending, they are being careful about where they spend. In many cases they are opting for experiences like going out to restaurants and taking vacations over accumulating more stuff.
 Unless that changes—and there’s no sign that it’s about to—retailers’ woes will continue.

Op-Ed Contributor

How to Prepare for the Next Recession

By BEN SPIELBERG



Washington — DESPITE solid job numbers, America’s gross domestic product grew by just 0.5 percent during the first three months of 2016, the slowest pace in two years. The current expansion is already longer than the postwar average, so it will be no surprise if policy makers begin asking, Is a recession lurking around the corner?
 
The answer, of course, is that no one knows. Economists can predict recessions as effectively as they can read your palm. What policy makers can do, however, is get ready for the next recession, whenever it arrives. And we need to act now, because we’re far from ready.
 
Historically, we’ve relied on the Federal Reserve Board to act as our principal recession fighter.
 
And it has done a pretty good job. Unfortunately, it won’t be much help next time. Because interest rates are already so low, the Fed’s principal ammunition — the ability to further lower rates — is unlikely to have much traction when the next downturn rolls around.
 
If we want to mitigate hardship and help the economy get back on its feet when that happens, the prudent move would be to strengthen the “automatic stabilizers” in the federal budget — programs like unemployment insurance, the Supplemental Nutrition Assistance Program, or SNAP (food stamps) and Medicaid — that, without the need for congressional action, expand when the economy is weak and contract when the economy is on its way to recovery. Such programs put money in the pockets of those who suffer most during recessions, money that will be quickly spent back into the economy, and they have an efficient administrative infrastructure in place that can be leveraged to disburse funds rapidly when the need strikes.
 
But as they currently stand, these programs aren’t enough. Consider SNAP. The 2009 Recovery Act temporarily increased the maximum monthly food benefit by about $63 a month for a family of three. In addition to raising consumer demand, this benefit expansion reduced hunger, and it kept nearly a million people out of poverty in 2010.
 
That expansion took congressional action and was temporary. It won’t happen again without similar action — which may not take effect in time. So before a recession hits, Congress should enhance SNAP to ensure that such an expansion kicks in automatically when certain economic indicators are breached. Its size should be tied to the severity of the downturn, and the increase would phase out once things improved.
 
One of the biggest challenges during a recession is at the state level — many states have balanced-budget requirements, which mean that as tax revenues drop, spending has to as well, making the recession more painful. The federal government can help by temporarily increasing the money it gives states to cover Medicaid, which would free them to plug other budget shortfalls.
Policy makers from both major political parties recognize the risks of inaction; Congress passed stimulus packages under the administrations of both George W. Bush and President Obama. In addition to increasing SNAP benefits, providing states with fiscal relief and enacting a Homelessness Prevention and Rapid Rehousing Program that served over one million people, the Obama stimulus funded about 260,000 subsidized jobs in 2009 and 2010.
 
But it would be risky to depend on the same wisdom to come through in the next crisis. And we need to do more, too — for example, the government should create a permanent employment fund that would enable states to both build their own subsidized jobs programs and take advantage of fully funded national service jobs that the federal government would directly create.
 
During normal times, this fund could target populations, like the long-term unemployed or people with criminal records, who typically struggle in the labor market. When a recession hit, the fund would offer the infrastructure necessary to meet rising job-creation needs.

We could also improve our unemployment insurance system, which eight states, including big ones like Florida, Michigan and North Carolina, have undermined by restricting eligibility or cutting benefits, or both, in recent years. The federal government should require all states to offer at least 26 weeks of benefits in their basic programs and to expand coverage to a broader group of workers, including part-timers.
 
It should also improve triggers, based on job market conditions, that turn additional weeks of benefits “on” during downturns and “off” again during recoveries. Without such effective automatic switches, Congress has had to enact “emergency” unemployment insurance expansions during or after every recession since 1970.
 
There’s ultimately no way to know when the next recession will hit. But if we begin to prepare for it now, we’ll be a lot more ready for it when it does.
 
 


Up and Down Wall Street

Is the Bull Market Running Out of Steam?

With U.S. growth slowing, central banks running out of ammunition, and a tumultuous presidential campaign likely, the signs aren’t good for stocks.

By Randall W. Forsyth
 

Is the reflation rally about to deflate?
 
Since Feb. 11, when the U.S. stock market pulled out of its early 2016 tailspin, the Standard & Poor’s 500 index has rebounded by some 14%, leaving it up about 1% for the first four months of the year.
 
But the large-cap benchmark stalled just short of the peaks touched last May, and last week slid 1.3%—its worst showing since the week ended on Feb. 5, just before the recovery began.
 
It has been dubbed a reflation trade because it has been led by commodities, notably crude oil, which has run up more than 70% from its lows in the mid-$20-a-barrel range to the mid-$40s.

And that has been accompanied by a 3% drop in the U.S. Dollar Index.
 
Pixabay
 
           
Whether that’s because of the rumored pact among major central banks to stop the dollar’s ascent, which had been exerting deflationary pressures on commodity prices and squeezing emerging economies dependent upon them, or is just the course of events, you make the call.

Regardless of where the truth lies, Feb. 11 also coincided with confirmation that the U.S. economy is losing steam. The ever-alert Stephanie Pomboy charted the Atlanta Federal Reserve Bank’s GDPNow estimates for first-quarter gross-domestic-product growth in her latest MacroMavens missive, and found that it peaked at 2.7% on that date. From there, it slid steadily, to a final prediction of 0.4%, which was within a rounding error of the advance report released last week of a 0.5% annual real growth (after inflation).

And, just coincidentally, from that time on, the federal-funds futures market effectively cut its forecast for rate hikes by the Federal Reserve. With the prospect of less tightening by Janet Yellen & Co., a weaker dollar, and a rebound in commodity prices, the high-yield bond market recovered strongly. For those keeping score, the yield premium on junk narrowed by about a third, to 5.66 percentage points from a peak of 8.44 percentage points on Feb. 11.

In March, the Federal Open Market Committee implicitly confirmed that it had dialed back expectations for four quarter-point rate hikes this year to just two, citing risks in global economies and financial markets. Last week, the FOMC held its rate target steady, but dropped the reference to that risk—not a surprise in view of the aforementioned recoveries in risk markets.
But the Bank of Japan surprised the world by failing to come through with further stimulus measures, such as pushing its policy rates further into negative territory. And with the European Central Bank having already laid out its various stimulus schemes to try to expand credit, if the major central banks aren’t all in, they’re close.

In any case, stocks slid in the final two sessions of the week, with big tech names leading the way lower. In particular, Apple (ticker: AAPL) took a big hit after reporting disappointing earnings. It fell more than 11%, to $93.74, its worst week since January 2013. Former Apple fan Carl Icahn, who had called owning the stock a “no-brainer” and had previously opined that it was worth $240 a share, last week said that he had sold his position at less than half that price target. Icahn also warned of a “day of reckoning” for the market overall, “unless we get fiscal stimulus.”

Whether selling out of the world’s biggest stock represents a short-term trading tactic or a longer-term strategic move is unknown. What is known is that it’s May, and no doubt you’re sick of hearing that it’s time to sell and go away.

Even if it seems a dubious strategy, that’s the history. And the folks at Bespoke Investment Group looked a bit more deeply into the record and found that how the market fared during the dreaded May-to-October period also depended on what it did from January through April.

Looking back at S&P 500 returns from 1928 to 2015, stocks did worst if the first four months of the year were relatively flat: plus or minus 2%, the range that this January to April’s 1% falls into. In the 16 such flattish years, May through October returns averaged minus 0.21%. For the full year, stocks turned in positive returns 56.3% of the time.

When the S&P 500 was up more than 2% through April, as it was in 45 years, the average return for May to October was plus 2.99% and those months’ showing was positive a hefty 71.1% of the time. And when the year started with a downer (off more than 2% in the first four months), as it did 27 times, the average gain was 1.11%, and May to October ended up in the plus column 53.6% of the time.

It’s different this time, as the oft-repeated phrase on Wall Street goes. What will distinguish the next five months is a presidential campaign likely to be among the most contentious in U.S. history. That will come against a U.S. economy at near-stall speed, global uncertainties, and central bankers running out of policy tricks. Summer days may not be hazy and lazy, but crazy, almost certainly.

“I GOT DEBTS THAT NO HONEST MAN CAN PAY,” Bruce Springsteen dolefully sang in “Atlantic City,” a tune that is even more apt today than when he wrote it in 1982. Then, gambling seemed to hold the promise of reviving the New Jersey seaside resort, and for a time it appeared successful.

But that was before a wave of bankruptcies (including that of an entity bearing the name of the “presumptive” Republican presidential nominee) shuttered a third of its casinos, hitting the city’s economy and blowing a hole in its budget. On Monday, Atlantic City is expected to miss a $1.8 million bond payment, which would be the first default in the Garden State since the 1930s.

That, of course, is dwarfed by the financial crisis in Puerto Rico, which faces a $422 million debt payment on Monday on obligations of its Government Development Bank. An even bigger, $2 billion issue comes due on July 1, and includes an $800 million payment on the commonwealth’s general obligation bonds, which, under Puerto Rico’s constitution, are supposed to be paid before anything else.

Meanwhile, despite House Speaker Paul Ryan’s call last December for Congress to come up with a solution to Puerto Rico’s crisis, there seemed little urgency last week, regardless of the looming default.

None of this should surprise investors, especially in the case of Puerto Rico. Last year, the island’s governor said the $70 billion in debt “is not payable.” But that was nearly two years after Barron’s Andrew Bary first warned of the rising risks in the debt securities issued by Puerto Rico’s myriad borrowing entities (“Troubling Winds,” Cover Story, Aug. 26, 2013).

Events such as Detroit’s bankruptcy and defaults by Stockton, Calif., and Jefferson County, Ala., have shaken the municipal bond market, the New York Times asserted in a recent article.
Investors seem to have missed the piece, which warned of increasing credit risk in munis.
Instead, they poured some $1.17 billion into municipal-bond funds in the latest week, according to Lipper data, the most since the $1.3 billion in the week ended on Dec. 30.

To the contrary, history shows that municipal defaults are far less prevalent than those of comparable corporate bonds. According to Moody’s Investors Service data cited by Charles Schwab, triple-B munis (the lowest investment grade) had a default rate of 0.32% from 1970 to 2013, versus 4.61% for comparably rated corporates—and even lower than triple-A corporates, at 0.49%. Schwab does point out that muni rating standards have become aligned more closely with corporates’, so a former triple-B muni might now be rated single-A.

Moreover, against the widely publicized strains in these challenged credits, the overall muni market has rallied strongly. The iShares National Muni Bond  exchange-traded fund (MUB) has returned 4.57% in the past year, compared with 2.35% for the iShares Core U.S. Aggregate Bond  ETF (AGG), according to Morningstar. Indeed, as our Current Yield column reported a couple of weeks ago, muni funds have bested all other bond funds and diversified stock funds in the past year.

And returns on some leveraged closed-end muni funds have exceeded 20% in that span. That includes tax-free yields north of 5%, equivalent to upward of 8% from a taxable security to someone in the top federal tax bracket (and more for state-specific funds for investors in high-tax states.)

Nothwithstanding the Gray Lady’s frets, the greater risk to muni investors isn’t the prospect of failures, but rather past successes. That is, munis are no longer cheap. Double-digit discounts from net asset value have largely disappeared from muni closed-ends, with some actually trading at premiums. And top-grade long munis no longer offer an absolute yield advantage over Treasuries; 30-year triple-A munis on Friday yielded 2.54%, versus 2.67% for 30-year T-bonds.

To be sure, some states and municipalities, notably Illinois and Chicago, face massive unfunded pension liabilities.

But the muni market offers myriad well-secured credits, particularly revenue bonds backed by solid projects. And with a few exceptions, many major muni-fund groups were getting out of Puerto Rico credits around the same time that Barron’s sounded its clarion call, attesting to the value of professional management in this highly heterogeneous market.

And as for Atlantic City and Puerto Rico, the Boss offers this hope:

“Everything dies, baby, that’s a fact. But maybe everything that dies someday comes back.”

domingo, mayo 15, 2016

JAPAN´S ECONOMIC QUANDARY / PROJECT SYNDICATE

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Japan’s Economic Quandary

Martin Feldstein
. Tokyo stock market

CAMBRIDGE – The Japanese economy is a paradoxical mixture of prosperity and failure. And, in a significant way, its prosperity makes its failures difficult to address.
 
Japan’s affluence is palpable to anyone who visits Tokyo. The standard of living is high, with per capita income in 2015 (in terms of purchasing power parity) amounting to $38,000, close to the $41,000 average in France and Britain. The unemployment rate, at 3.3%, is substantially lower than the US rate of 5% and the eurozone rate of about 10%.
 
But Japan’s economy has now slipped into deflation, with consumer prices lower in March than a year ago, while real GDP is declining. Despite near-zero borrowing costs, the fiscal deficit is running at nearly 7% of GDP, and government debt exceeds 230% of GDP. The population and the labor force are shrinking, implying even higher debt ratios in the future.
 
When Prime Minister Shinzo Abe took office in December 2012, he announced a strategy – comprising three “arrows” – to overcome the economy’s combination of slow growth and low inflation: very easy monetary policy, a short-term fiscal stimulus, and structural reforms to labor and product markets. But the government’s economic policies (so-called Abenomics) have not fixed Japan’s problems and are unlikely to do so in the future.
 
After Abe appointed Haruhiko Kuroda as the new head of the Bank of Japan (BOJ) and charged him with getting the inflation rate to 2%, Kuroda loosened monetary policy immediately and dramatically, by slashing interest rates and launching large-scale purchases of long-term government bonds. This caused a sharp fall in the value of the yen and sent the interest rate on ten-year bonds toward zero.
 
The more competitive exchange rate raised the profits of Japanese exporters, but not their output, while the weaker yen also raised import prices, reducing the real incomes of most Japanese households.
 
In January, the BOJ went further and introduced negative deposit rates on commercial banks’ mandatory reserves, which markets interpreted as a confusing act of desperation. That had the adverse effect of weakening household and business demand. And, despite the BOJ’s easing, global financial conditions soon caused a rise in the value of the yen, which rose nearly 10% relative to the dollar.
 
This week, the BOJ surprised markets by making no policy change at its meeting, contrary to the widespread expectation of a significant further easing of monetary conditions. Markets reacted sharply, with the yen strengthening by 2% against the dollar and the Japanese stock market falling 3%.
 
Abe began his fiscal policy with a substantial spending program, focused primarily on repairing and replacing infrastructure affected by the 2011 earthquake. But he also raised the value-added tax (VAT) from 5% to 8% to address the enormous deficit and growing national debt. The result was an economic downturn, with two quarters of declining GDP. The level of real GDP now is no higher than it was in 2008.
 
The third arrow of Abenomics – structural policies aimed at boosting potential growth – has barely been launched. The good news is that there has been some increase in female labor-force participation and in the number of tourists visiting Japan. And a variety of reforms are intended to overhaul the highly protected agricultural sector, though substantial change depends on ratification of the Trans-Pacific Partnership trade agreement (and even then the changes would be phased in only over several decades).
 
Japan’s declining population and shrinking labor force is a major long-term challenge – reflected in Abe’s call for more women to work outside the home. Although a system of temporary permits allows foreign workers to be employed in Japan for up to three years, the country will not seek to ameliorate adverse demographic trends by opening itself to permanent immigration.
 
Reluctance to expand the number of foreign workers and to change work customs to encourage more married women to join the labor force may reflect the relative affluence that Japan currently enjoys. The Japanese public may prefer to maintain its current lifestyle and cultural homogeneity, even though doing so is preventing more rapid economic growth.
 
Japan’s biggest immediate problem, however, is the budget deficit and government debt. If the BOJ succeeds in achieving a 2% inflation rate, the deficit will rise rapidly, as the interest rate on government debt would increase from the current zero level. Failure to implement the spending cuts and revenue increases needed to reduce the budget deficit would undermine confidence in the economy’s prospects and increase speculation that the government would eventually resort to some form of debt repudiation.
 
Abe thus faces a dilemma in deciding whether to raise the VAT further, from 8% to 10%, as planned. Doing so is undoubtedly hard at a time when GDP has declined and CPI inflation has turned negative. And yet failure to raise the VAT or to cut government spending means continued large deficits and soaring government debt.
 
Abe has said he would offset the immediate contractionary effect of the VAT hike with a short-term fiscal stimulus in the form of higher government spending. That might allow the necessary permanent reduction of the deficit without causing a repeat of the economic downturn that accompanied the last VAT increase.
 
Another strategy that might help sustain aggregate demand would be to phase in the VAT increase at an annual rate of 1% for three or four years. This would give consumers an incentive to increase spending, especially on large ticket items, before each increment raises prices.
 
There is no way to avoid shrinking the budget deficit without jeopardizing debt sustainability – and probably sooner rather than later. If Abe can get public finances under control, Japan will be in a much stronger position to face its other economic challenges.
 
 
 

domingo, mayo 15, 2016

IS GOLD HEADING FOR AN ALL--TIME HIGH? / SEEKING ALPHA

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Is Gold Heading For An All-Time High?

by: Macro Investing


- Some market commentators believe gold could be heading to an all-time high.

- This would likely be some way off, but a Brexit vote could take it there.

- Without a Brexit vote, we believe due to negative and zero interest rate policies, the gold price will make a steady climb higher over the next few months.

- Buying now, even after the recent rally, could provide investors with a 12.5 percent return.
 



Nothing can stop gold's ascent, according to many market commentators, and we wholeheartedly agree. The U.S. dollar doesn't look likely to strengthen a great deal now until at least the September FOMC meeting, which may allow gold to start to make a move on an all-time high. Buying gold or a quality gold fund right now is a great move in our view, and we expect even after recent gains to see sizable returns over the next few months.

An all-time high may seem a little far-fetched and, let's be honest, it has a long way to go before it will get there. But John Hathaway from the Tocqueville Gold Fund (MUTF:TGLDX) has stated that he wouldn't be surprised to see it reach this level. Though he admits it would be over the space of a few years. But then again, asking the manager of a gold fund if the price of gold is going to go up may not give you the most unbiased opinion. But that aside, we think we can all agree that there's still a lot of upside left in gold today.

What are the catalysts?

There are a good number of catalysts that could send the gold price higher, much to the joy of shareholders of gold producers such as Randgold (NASDAQ:GOLD) and Barrick Gold (NYSE:ABX). Firstly, the most obvious catalyst is the prevalence of decreasing and negative rates across the world. With interest rates on savings being negative or non-existent in many places, investors need somewhere to put their money. Often people would criticize investing in gold because it offers no yield, but these days it really does look more appealing than a bank account. We think there's something of a herd mentality going on here as well, which should help fuel the gains in the gold price for a while to come. The good news with this is that if investors are indeed parking their money in gold, we believe the price level should be reasonably stable moving forward.

Do we really trust central banks anymore?

We see another catalyst being the perceived chaos in financial markets from central banks experimenting with policies with which they don't fully understand yet. There are many concerns over their use and what other options they have if the policy fails. We are sure these unanswerable questions do strike fear in many investors, once again leading them back to gold.

What if the Brexit actually happens?

As we have mentioned previously, the Brexit vote has all the hallmarks of being a real storm in the markets. The prospect of one occurring is already destroying consumer and business confidence in the United Kingdom, and as the vote draws closer we feel the uncertainty will lead to a lot of turmoil in financial markets. We believe gold, the Swiss franc (NYSEARCA:FXF) and the Japanese yen (NYSEARCA:FXY), will be where a lot of money heads during this time. Understandably so, there is such little knowledge of the ramifications of the vote that the chaos it would cause would be unfathomable.

If Britain voted to exit the European Union, it is believed that this could then trigger another vote for whether Scotland (and Wales and Northern Ireland for that matter) want to remain a part of the United Kingdom. By the end of the process, the United Kingdom could end up just being England.

According to former Greek finance minister Yanis Varoufakis, a Brexit could even bring the curtain down on the European Union. Economically speaking, this could potentially hold the continent back for at least a decade and lead to mass unemployment and high inflation. Imagine where the gold price would be if this were to occur.

While we still feel the United Kingdom will vote to remain in the European Union, it is looking incredibly close according to recent reports. Just today it was reported that the exit support had edged ahead of the remain support, and with under eight weeks until the vote takes place, we believe uncertainty will cause gold to climb higher. If the Brexit did in fact occur, then a new all-time high would certainly be a real possibility.




So right now, an investment in gold through the SPDR Gold Trust ETF (NYSEARCA:GLD) is a great investment in our opinion. We have a near-term target of $137.50, which is representative of a return of 12.5 percent. Those who are even more bullish could opt for the ProShares Ultra Gold ETF (NYSEARCA:UGL), which gives 2x leverage on gold price movements. Remember though, 2x the gains also means 2x the losses, so use carefully.

Like every investment, there are numerous risks. But we do feel right now that the risk/reward ratio is incredibly favorable and that downside is somewhat limited. There will be many ups and downs, but all in all we expect strong gains ahead for those holding gold.

Once again, best of luck with your investments. We will endeavor to keep you posted with our progress and any changes in views.