On closer inspection, nothing sensational is happening, nothing that justifies the deterioration of that climate so favorable to stock exchanges and European bonds that we experienced up to a few hours ago in 2015. There is the Yemeni crisis, it is said, but Yemen has been in crisis since it existed, it has run out of oil, it is running out of water and is being torn apart in civil wars with an apparent political and religious but actually tribal background. What's more, with the Obama administration's rapprochement with Iran, we no longer even know the Yemen (as now throughout the Middle East) who are the good guys and who are the bad guys. As for the oil that rises on fear of a conflict between Iran and Saudi Arabia, the fact that the Saudis extract as much as they can to spite Iran and that the Iranians are preparing to increase production by a million barrels per day due to the impending withdrawal of Western sanctions.
On closer inspection, on the other hand, nothing sensational was happening even before, when everything went up carefree, when the European price lists soared in the five minutes between the closure due to the wholesale purchases from America (Europe in crisis is becoming stock market dependent, like emerging countries, on money that comes and goes from outside).
What was happening (and will continue to happen) were two formidable promises. In America a strong acceleration of growth was promised and in Europe, with fiscal austerity put on hold and the Quantitative easing which brings rates below zero, the exit from the quagmire of the last six years was considered certain.
Promises, mind you, are part of the landscape of reality, they are not pure flatus vocis, especially when they are supported, as in Europe and Japan, by a couple of trillion dollars of new monetary base. However, there is also an underlying level of reality, that of the real economy, which until 2008 was there on the scene, clearly visible to the markets, and which after the crisis slipped behind the scenes, where only economists (and no longer investors) venture to bring gifts and flowers to actresses and actors.
Well, what happens behind the scenes is not (yet) as good as what is proposed on stage. The American GDP in this first quarter it will grow by one and a half per cent, probably half of the three per cent that has been forecast for the near future for many years and which, however, is never realized on an ongoing basis. The earnings per share of the 500 companies that make up the Standard and Poor's index will drop by 5-6 percent due to the difficulties in the energy sector and the strength of the dollar, which erodes the profits earned abroad by American multinationals. Profits will begin to be published in about ten days and therefore now is the time to bring prices closer to reality.
In Europe the situation behind the scenes is better, but not in the sense that it's good but in that it's a little less heavy than before. Germany has been doing quite well for six months, but Qe has not yet led to further acceleration. In France, as usual, nothing is happening, while in the rest of the Eurozone there are signs of an awakening, for now especially in expectations (which count anyway), but more modest than what the markets imagine.
The Greek story, the one that had monopolized the scene in the 2011 and 2012 seasons, remaining on the bill for many months in a row. This time the markets didn't give any weight to the matter, which in many respects is more worrying than it was then, and they didn't even use the minimum of generic prudence usually used for even less serious problems. Even the upcoming Ukrainian default, in its small way (but not so much, given the bottomless pit that country is becoming), has gone completely unnoticed.
That said, therefore assuming that there was a foam component in the rise of the stock exchanges destined to retreat sooner or later, we see no reason at the moment to change the underlying approach to portfolios.
Of course, Yellen's cry of pain over the dollar interrupted the virtuous circle that was being created in Europe between the devaluation of the euro and the stock bull market. Now everything will go slower and, in a first phase, even backwards. But the grand scheme is always the same. America doesn't love the strong dollar, but it gets over it. On the one hand, the strength of the exchange rate helps to postpone the rate hike, on the other it helps the rest of the world get back on its feet. On the American side, there is no generosity, but a rational calculation on the long-term benefits of a less unbalanced world. Rates in the United States will certainly rise, but only if and when inflation picks up again, in order to keep real rates rigorously at zero, an exceptionally expansive condition with the growth cycle now entering its seventh year of life.
A rational calculation tries to do it tooEurope towards the Greece. In the end, Europe will lend Greece all the money that Greece has to pay back to Europe and will also grant some extra money, hidden in the folds of the ECB and ESM budgets. This extra money, which will not be very little, will however be administered with a dropper, in order to keep Tsipras under constant pressure and take away from him that image of a popular hero that was beginning to create many imitation attempts in other countries. Greece will therefore be kept alive (and with Greece also the fiction that its debt is still honorable) but it will not be able to set itself up as an alternative model and will not be able to seriously recover if it continues to pose only as a victim. Tsipras is an astute and intelligent politician, but Merkel is even more so.
as to European growth, which for now is more in words and expectations than in deeds, it takes a little patience but something will come. Exporters' earnings, as the Japanese experience continues to show, will rise, though not as soon as markets sometimes expect. The halved oil will leave money in the pockets of consumers and not everything will be saved or used only to pay off debts. The tax burden will remain stable and will drop slightly here and there.
In short, we are discovering or rediscovering in these hours that there are not only lights but also shadows and that reality and prices have drifted a little too far from each other. The correction is therefore healthy and those who had remained on the sidelines can take advantage of the next few weeks to enter. Structurally we remain cool but not particularly negative on bonds, neutral on US equities, moderately positive on the dollar and positive on European and Japanese equities.
