Speculation returns to the attack: spread on the rise, Piazza Affari under fire. But do we really have to live under the constant threat of speculation? “Speculation is effective only if it finds suitable ground. A bit like the arsonist: the fire only develops if the right conditions exist, otherwise the fire will not take root. In short, it is an accelerator, not the cause”. It starts like this the public interview of Alessandro Fugnoli, Kairos strategist, the "main course" of the annual meeting of financial analysts. “Speculation is not bad in itself. Sometimes, as in the case of Italy, it worked. At least for now". In what sense? “It was Mrs. Merkel who created the right conditions, the ideal undergrowth, for speculation to attack Italy and thus force the government to implement the necessary measures. So far the strategy has paid off”. Thanks also to the assistance of the ECB, explains Fugnoli the provocateur.
However, the function of supplying the central bank is not unique to Europe. “Ben Bernanke is well aware of having to fill the vacuum of politicians who in an election year find it more convenient to argue than to act: Obama has an interest in advocating spending interventions, Republicans in waving the flag of tax cuts. There was a good compromise thanks to the work of the bipartisan Congressional commission promoted by Obama. But what was the result? Obama put the agreement on hold and presented an expansive budget of a pre-election nature. And the Republicans responded with an antithetical plan."
How will it end? “There will come a time, after the vote, when the problem and the budget cuts will have to be seriously addressed. In the meantime the Fed will continue to monetize two-thirds of the US deficit by applying monetary techniques that were once the sharply criticized prerogative of Third World countries. Now the emerging no longer use these shortcuts, Washington does”. In terms of the market? “ American bonds are unlikely to hold up at current levels. It is possible that the tensions will unload on the dollar. Meanwhile, the Federal Reserve, although divided between Republicans and Democrats, will come into action when the slowdown in the economy is more evident. It could be a replica of the twist operation on long-term securities or an initiative on mortgage agency securities”. What about Wall Street? “I think the upside is over, we are entering a lateral phase. The question is whether the summer correction of past years will be avoided. Last year it was triggered by the tug of war over the budget”.
Let's move on to things in our house. “The European crisis is changing shape. We are passing from the fiscal crisis to that of the balance of payments”. That is to say? “Conceptually it is not difficult to deal with a fiscal crisis. We know that a country can tolerate a maximum course correction of 2,5% of GDP. The trouble is that the Mediterranean economies are suffering from a growing loss of competitiveness which is destined to be discharged into the current account deficit. In the past, the phenomenon was offset by interventions by French and German banks on Italian and Spanish government bonds. Today, however, Germany has imposed separate accounts: everyone pays off their debts”. The consequence? “Simple: you have to save more. And someone, you see Portugal, can't do it. In this case the balance is recovered with emigration, a phenomenon that is making itself felt again in Spain and Portugal, less so in Italy given the wealth of the families. The problem is that not only people emigrate, but also businesses".
Isn't that a nice prospect? “Indeed it is not. It would take the courage to try new ways to make up ground: what has not been done in the energy field where not only has no nuclear power been said, but the Brindisi regasification terminal has also been shut down. The world exploits gas at minimum prices, we depend on oil. And we need more flexibility…” Which doesn't just mean sacrifices. In Romania, for example, teachers' salaries fell by 25% three years ago, but then recovered by 20% after the restructurings”. It's not a comforting example…” Let's put it this way: Italy no longer has the flexibility of monetary devaluation. To recover competitiveness, it is necessary to recover thanks to the flexibility guaranteed by an internal devaluation, the only way that Germany allows us. This results in a pay cut. Which is almost impossible in Western Europe”. So? “And then, as is already happening, companies get rid of the most expensive workers and replace them at lower costs. We are witnessing deregulation as aggressive as it is not negotiated”.
A rather sad picture emerges for those who want to invest. Or not? “I'm a bond skeptic. As far as the shareholding structure is concerned, I don't see any havoc but neither do I see the prospect of a secular rise like the one envisaged by Oppenheimer of Goldman Sachs. The prospects for raw materials are not good, except for oil which has its own story. As a reflection, I believe that countries like Brazil are destined to slow down. The negative demographic balance is starting to think about China and South Korea. The most dynamic areas are undoubtedly sub-Saharan Africa or countries with a lively birth rate such as Turkey and Mexico. There is a more solid investment area”. Which? “Part of US real estate. The rich are starting to collect real estate in view of a market recovery which, in 2-3 years time, could be very strong. In part, REITs (real estate investment trusts, similar to real estate funds) can exploit the same trend”.
The meeting ends here, an occasion also for a "pull on the ears" to the category of analysts. “Too often – comments Fugnoli – we analysts are influenced by the spirit of the times. We are always pro-cyclical, never against the tide. In the years that preceded the crisis, the fashion suggested going into debt. I remember hundreds of corporate studies in which the excessive liquidity of a company was contested and the suggestion was made to amplify the financial leverage by 2, 10, even 20 times. Or to return cash to the shareholder. Now the trend is the opposite: debt is still bad, even in the face of reasonable investment plans. All on one side, all on the other”. The result? “Many times we have seen companies carry out buybacks at maximum values or launch capital increases when quotations were at their lowest. All in deference to a wrong spirit of the time.”.
