Since the days of Socrates and Pyrrho's knowing that you do not know is considered wiser than believing that you know things that in reality you do not know at all. So let's welcome the new Socratic wind blowing on the markets, which are learning to live with doubts and uncertainties. The skeptic Pyrrhon, who had followed Alexander the Great to India and had met the gymnosophists here, the sages who went around naked and indifferent to the things of the world, had taken the Socratic position to its extreme consequences. After acatalepsy, the non-understanding of the truth, silence, aphasia, and imperturbability or ataraxia must follow as a logical consequence. Moreover, there is a whole anecdote about Pirrone who remains very calm while his ship is in danger of sinking and that he does not retreat in front of the rabid dogs, which in the end leave him alone.
In this spirit, then, let us welcome the lowered voice of the many, including economists, analysts and gurus, who in the first half of the year loudly proclaimed their truths. And finally, we welcome the decreased volatility of the markets and venture the hypothesis that the final part of the year closes not far from current levels. The phase that started a week ago inherits the calm from the first part of the year, when we thought we were strong and healthy without actually being so, and the confusion of ideas, due to the loss of certainties, from the correction in August and September. Now that everyone has stepped back, optimists and pessimists alike, and now that portfolio positions have been tested by the correction and reduced accordingly, we can finally enjoy this more sober and less neurotic phase, knowing full well that it will be neither eternal nor without aftershocks.
We recall, since everything is forgotten too quickly, that 2015 had opened under the banner of optimism on American growth, which was expected to accelerate further in the second half of the year, what we are experiencing. Between February and March, a new robust injection of confidence arrived from Europe, where the Quantitative easing had led the markets to celebrate the upcoming cyclical acceleration with particular enthusiasm. This all-pink scenario then turned into a horror movie due to the very modest devaluation of the renminbi against the dollar, a total of two percent which is even less than the average fluctuation between the euro and the dollar in any week. Associated with the constant slowdown in Chinese manufacturing (which we continued to see confirmation of even in the last few weeks of market recovery) and the fluctuations of the Shanghai stock exchange, the devaluation of the renminbi had created a climate of psychosis and the idea that a global recession , ushered in by a possible Chinese financial crisis, was upon us.
Today, thank goodness, so much thehysterical optimism on growth, the gloomier forecasts are far from the common feeling of the markets. We are all more adults, we no longer believe in fairy tales, we know that manufacturing is slowing down all over the world and not only in China but we are also more clear that the demand for services is strong on a global scale, that employment continues to improve and that Europe has also passed the test of the Greek crisis without coming apart, which is no small thing. As for rates, after having wasted precious months of life discussing the disasters that raising them would have caused and those that not raising them would have caused, today we are reconciled and we await the next sessions of the Fomc of the Fed without fear. Deep down they are confused central bankers too, but for once the confusion is not due to doctrinal or political disputes but to the fact that the pros and cons are equivalent.
Inflation, meanwhile, hasn't taken off or even turned into deflation. The US consumer price index, dutifully adjusted for the effects of food and energy, is miraculously close, with its fresh 1.9 for the day, to the Fed's strategic target. If it is true that in one year the price of oil has halved and that a kilowatt hour in Germany costs a third of a year ago, it is also true that health insurance policies in America today cost almost double what they cost beforeObamacare. Even on the fate of raw materials and the emerging economies linked to them, expectations are more nuanced. Eventually, oil appears to have stabilised. Gold has not collapsed and is, on the contrary, in moderate health. Russia didn't implode as thought in January, in Ukraine peace has exploded, the sanctions will not last long but on the other hand the currency reserves continue to decrease and with them the structural solidity of the country is reduced. Brazil, for its part, continues to cross bad political waters and is in full-blown recession, but the exchange rate is now low enough to guarantee, together with the measures to contain public expenditure, a certain stabilisation. India continues to be the best of the worst, but it must also be said that the reform process is much slower than initially thought.
Lights and shadows for everyone, in short, and valuations of stock exchanges and currencies that reflect this situation quite well. The same can be said about exchange ratios. China, whose massive devaluation was feared, sees its trade surplus grow month by month thanks to lower outlays for raw materials. The yen is in balance and the same can be said for the euro and the dollar. The fluctuation range between 1.10 and 1.15 is the lesser evil for everyone and only a conspicuous weakening of the European or American economy will be able to cause a lasting break of this equilibrium level. As for the equity sectors, the shock that the Volkswagen case had created in already feverish markets and which had prompted someone to talk about a new Lehman case and a global recession has been transformed into an attitude of greater caution on cyclical cycles, which have already been assessed with severity for some time, without however causing dangerous chain reactions. Today some go so far as to say that the scrapping of diesels and research into hybrid and electric motors will give new impetus to European industry.
We, like the market, are limited to being industry neutral. Instead, we are moderately positive about pharmaceutical and biotechnology, another sector that is slowly regaining calm after the storm of recent weeks. The new world in which we woke up after the storm of August and September is in short the real world. It's much more mundane than the pink fiction of the first half of the year and the subsequent apocalypse, but in the end it's for the best.
