Telomerase is an enzyme that sits attached to the ends of chromosomes in a kind of cap called a telomere. The enzyme has the function of repairing the telomeres at each cell replication. In the course of the life telomerase it stops working and telomeres progressively shorten. The shortening of telomeres is linked to aging and the onset of cancer.
In lobsters, telomerase never stops working, to the point that fertility increases progressively with age. Lobsters, which live up to 70 years, do not die of old age, but due to fatigue and metabolic stress due to the wetsuit. In fact, over the years the animal becomes bigger and bigger and the energy required to periodically renew its exoskeleton grows to the point of making it fall exhausted and lifeless. If it weren't for this, the lobster would be immortal.
Immortal seriously is instead the Turritopsis Dohrnii, a kind of jellyfish that reacts to stress by rejuvenating. Thanks to a process of transdifferentiation, the jellyfish periodically transforms into a polyp and then transforms back into a medusa. Theoretically infinite, in practice not because, in the stages in which it is a jellyfish, sooner or later it is devoured by a predator. Mortality and immortality, in humans, are overloaded with emotional meanings. There are those who spend a small fortune on anti-aging drugs or to freeze themselves one day (so that they can be resurrected in a hundred or a thousand years when biology and medicine have made further progress) and there are those who are horrified by the idea itself of immortality, considered blasphemous, unnatural and supreme manifestation of hubris.
Others get away with pointing to the boredom that would invade us knowing we are immortal, neglecting the fact that sooner or later we would die anyway from exogenous shock (trauma, accident, atomic bomb, asteroid). It is, on a large scale, the same debate that exists on a small scale when it comes to the mortality of economic cycles. For some it is not written anywhere that a cycle must end for endogenous causes. It was the idea, loaded with hubris, that underlay the concept of the Great Moderation. We were in the years 2005-2006, when we thought, very pleased, that we had found a way to grow indefinitely at a constant rate and with low inflation. At the time, very few had meditated on the lesson of Hyman Minsky, who already at the end of the Sixties had noticed that long periods of stable growth create the sensation of eternal life of the cycle and produce stock, bond and real estate bubbles which at a certain point, bursting, they fall back on the cycle and compromise it.
After crisis of 2008-2009 the longevity debate has taken a different direction and has resulted in a sort of pact with the devil. The cycle will have a very long life, it has been said, provided that growth is low. A state of semi-hibernation or lethargy, therefore. The danger, in this context, has been identified not in a possible endogenous cause (the exhaustion of the output gap and the consequent start of inflation), but in exogenous causes, such as the reform of bubbles on financial assets on one side or on the other, in the possibility of debt crises and waves of bankruptcies in a world that is too leveraged. An attempt has been made to respond to the latter problem with a policy of negative real rates, so as to progressively transfer resources from creditors to debtors. At the risk of bubbles, also fueled by interest rates
negatives, an attempt has been made to respond with moral suasion on the markets, which has worked up until now, at least in the stock market.
In the last six months, the debate on cycle longevity has changed direction again. The continuous reduction of unemployment in America and the parallel and consequent occurrence of wage inflation have made one think of the end of the pact with the devil. Suddenly the American cycle appeared deadly for traditional endogenous causes, exacerbated by a Fed intent on raising rates quite aggressively. At the same time, the rest of the world appeared instead to be sliding towards a classic deflationary crisis (Chinese overproduction, excess supply of raw materials, dangerous weakness of the European banking system, possible waves of bankruptcies, falling prices). Half of the world on the way to overheating, therefore, and the other half in the grip of ice.
In the most recent phase these fears have subsided for two orders of reasons. The first is that, taking a closer look at the data, it was understood that the picture is not as compromised as previously thought. Employment in America continues to grow rapidly, it is true, but at the same time the workforce has also started to grow. Many young people, women, the elderly and semi-employed who were marginalized are now re-entering the labor market, thus easing upward pressure on wages. Headline inflation appears to be on the rise, but the strength of this acceleration in the coming months will be modest. In the other half of the world, then, it was noted that growth continues, driven by the lively demand for consumer goods in Europe and Asia.
Then there are the emerging countries which in many cases, although they have not yet embarked on the road to recovery, appear to be at least in a stabilization phase. The second order of reasons is the response of policy makers. China has shown its willingness to continue on the path of containment of areas of overproduction, the stimulus to consumption and the stabilization of the exchange rate and the stock market. Europe, which has already had a moderately expansive fiscal policy for some time (Brussels' objectives don't count, the actual overshoots count), has embarked on a more intelligently expansive monetary policy, at the same time easing the regulatory pressure on the banks, which was becoming destabilizing and counterproductive.
America, for its part, seems disposed to a more conciliatory attitude towards the risks that the aging cycle entails. Instead of going on a hard diet of rate hikes to prevent inflation that is still very benign, it will go on a soft diet of only two hikes this year. The strict four-rise diet in America and the European decision to make life for banks more and more difficult precisely when they are needed most were intended as anti-aging measures. It has now been understood that diets that are too strict and excesses of virtue can have serious and, badly calibrated, even fatal side effects.
Paradoxically, therefore, it is precisely the abandonment of anti-aging therapies more aggressive which can lengthen the life of the cycle. As gerontologists often note, an occasional glass of wine even in old age and a more conciliatory attitude towards things can lengthen life more than an anxious and obsessive fitness program. As long as you don't exaggerate, of course. The beneficial effects of this new approach are clearly evident in the markets. Credit spreads are narrowing, stock markets are recovering quietly after the shocks of January and February. The modest weakening of the dollar, for its part, has the enormous and beneficial side effect of sheltering the renminbi from speculative attacks and gives China time to continue along the path of reforms.
Draghi, in his speech last week, hinted that European rates will remain very close to zero at least until 2020. The Fed, yesterday, charted a very reassuring path for the next three years. Things, as Yellen has repeatedly pointed out, can always change and central banks, when they predict the future, have shown that they are not infallible. Without prejudice to all these premises, the impression remains that this cycle, if managed with balance and prudencemay still have a few years to live. This seems structurally very comforting to us, just as it is positive that the market remains prudent and composed. In the short term, however, we are not tempted by an increase in risk exposure.
In the next four weeks purchases of treasury shares in America will be suspended (as always happens in the month preceding the communication of the quarterly results). Results, in turn, will be affected by the slowdown in global industrial production in January and February. Once the earnings announcement is finished, in early May, there will be just over a month left for the referendum on Brexit and, probably, for the rise in US interest rates. While comforted on the medium-term and maintaining a hard core in equities and credits, we would be rather moderately sellers in the coming weeks if markets continue to rally. We would instead be convinced buyers of dollars at 1.15.
