🇮🇹 Cosa fare con l'economia USA surriscaldata (Davide Serra)

Algebris Investments

26 Mar 202405:08

Summary

TLDRThe speaker discusses global economic trends, highlighting the focus on electrification and digitalization. They mention the US economy's high deficit and the Federal Reserve's intention to cut back, which may lead to a steeper yield curve and a potential rise in the decade ahead. In Europe, growth is modest, and the Central Bank of Europe is cautious, while Switzerland has already cut rates. Asian markets, particularly China, face structural issues, but investment sentiment is shifting towards support. Japan is exiting zero and negative rates, signaling a clear direction. Overall, the speaker foresees a moderately inflationary economy with positive growth in credit volumes and favorable conditions for the financial sector, which has underperformed in recent decades.

Takeaways

🌐 Global meetings have highlighted the crucial theme of electrification and the continuation of digitalization within economies.
🇺🇸 The United States is managing a 'hot' economy with significant fiscal and current account deficits, yet the Federal Reserve intends to cut back.
📈 Despite the potential for a steeper yield curve, short-term rates may decrease, which is beneficial for financial institutions.
🇪🇺 In Europe, growth is modest, and the Central Bank of Europe (CB) is slightly behind the curve on interest rate cuts, but there's no recession.
🇨🇳 China is not rebounding strongly, with structural issues persisting, leading to a shift in investor sentiment regarding its investability.
🇯🇵 Japan is at a historic moment, exiting zero and negative interest rates, indicating a clear direction for the future.
💹 The financial sector is expected to perform well, with equities trading at 5-6 times earnings and offering 8-10% dividends for the coming years.
📉 The bond market has already discounted much, with government or investment-grade bonds yielding higher returns than U.S. Treasuries.
🚀 Financials offer significant value in the current economic setup, with positive growth in credit volumes and favorable interest rates.
🔄 Inflation is expected to be somewhat higher due to U.S. fiscal and monetary policies, but the financial sector is poised to deliver strong results.
📈 Overall, the financial sector is set to thrive in both equity and credit markets, given the macroeconomic conditions.

Q & A

What is the main theme being discussed in the meetings the speaker attended?
-The main theme discussed in the meetings is the electrification of the entire economy and the continuation of digitalization, with a focus on machine learning and artificial intelligence as the latest phase of digital transformation.
How does the speaker describe the current state of the United States economy?
-The speaker describes the U.S. economy as 'hot', with a fiscal deficit of 78% and a current account deficit of 23%, leading to nearly a 101% overall deficit. The U.S. is managing this economy despite the Federal Reserve's intention to cut back.
What potential economic change does the speaker foresee for the United States?
-The speaker foresees a possibility that the yield curve may become steeper, suggesting that the 10-year yield may eventually rise, despite short-term yields potentially falling. This could create opportunities in the financial sector.
What is the current economic situation in Europe according to the speaker?
-Europe is experiencing modest growth but is not slowing down significantly, meaning there is no recession. The European Central Bank is slightly behind on interest rate cuts compared to the economy's needs, possibly due to misjudging temporary inflation in 2020-21.
What has been the recent trend in the Asian economy, specifically China?
-China is not rebounding as strongly as expected, with structural issues continuing to persist. Investors have largely exited the market, leading to a perception that China is no longer investible. However, the speaker suggests that at current levels, China may find support due to the lack of investment.
What significant change is happening in Japan's economy?
-Japan is experiencing a historic moment as it moves out of zero and negative interest rates. Although the change is small, the direction is clear, and the yen at 150 offers significant value in terms of currency.
What is the speaker's overall economic outlook?
-The speaker sees a fundamentally higher inflation environment due to U.S. fiscal and monetary policy, with Europe experiencing slightly less growth. Despite this, the economy is not in recession, and credit volumes are starting to pick up.
How does the speaker view the financial sector's performance in the next few years?
-The speaker is optimistic about the financial sector's performance, expecting it to do well in both equity and credit. Financial stocks are currently underperforming and offer attractive valuations with 5-6 times earnings and 8-10% dividends.
What is the speaker's perspective on the bond market?
-The speaker believes that the bond market has already discounted a lot, with many bonds yielding 5% when U.S. Treasuries are at 4-4.5%. This suggests that the market has already factored in the monetary policy of the next 3-6-9 months.
What potential risk does the speaker identify for the bond market?
-The speaker identifies a potential risk that at some point, inflation could be worse than expected, which could impact the bond market negatively while the financial credit continues to perform well.
Why does the speaker believe that financial companies offer significant value?
-The speaker believes that financial companies offer significant value due to their current underperformance over the past 20-30 years, attractive valuations, and the expectation of higher profits from the current interest rate environment and volume growth.

Outlines

00:00

🌐 Global Economic and Policy Update

The speaker provides an update on a series of meetings held over the past two months with various administrators and policymakers. The main theme discussed is the electrification of the economy and the continuation of digitalization, with a focus on machine learning and artificial intelligence as the latest phase. The United States is managing a 'hot' economy with significant fiscal and current account deficits, yet the Federal Reserve has indicated a desire to cut rates. This could potentially lead to a steeper yield curve and a possible rise in the decennial trend despite short-term dips. In Europe, growth is modest but stable, with no signs of recession. The Swiss National Bank has already cut rates, indicating a similar move may be on the horizon for the European Central Bank.

Mindmap

Keywords

💡Electrification

Electrification refers to the process of converting various sectors of the economy to run on electricity rather than fossil fuels. In the context of the video, it is a crucial theme being addressed by policy makers worldwide as part of efforts to combat climate change and promote sustainable development. The speaker mentions it as a key issue discussed in their meetings, indicating its global significance and the urgent need for action.

💡Digitalization

Digitalization is the process of converting information and processes into digital formats, which can be accessed and utilized through computer systems and the internet. In the video, it is presented as an ongoing trend that is integral to the modern economy, with artificial intelligence and machine learning being the latest advancements in this field. The speaker discusses digitalization in relation to economic growth and innovation.

💡Deficit

A deficit, specifically a fiscal deficit, occurs when a government's expenditures exceed its revenues, resulting in the need to borrow money to cover the shortfall. In the video, the speaker mentions the United States having a significant fiscal deficit and current account deficit, which reflects the economic challenges and the need for financial management strategies.

💡Monetary Policy

Monetary policy refers to the actions taken by a central bank to influence the economy by adjusting interest rates, money supply, and other financial tools. In the video, the speaker discusses the monetary policy of the United States and Europe, emphasizing the impact of interest rates on economic growth and inflation.

💡Inflation

Inflation is the rate at which the general level of prices for goods and services is rising, leading to a decrease in the purchasing power of money. In the video, the speaker mentions 'Temporary inflation' and the potential for higher inflation due to fiscal and monetary policies, which is a critical concern for investors and policymakers alike.

💡Investors

Investors are individuals or entities that commit money to an asset with the expectation of achieving a profit. In the context of the video, the speaker discusses the behavior of investors in relation to the Chinese market and their perception of it as an investment opportunity.

💡Interest Rates

Interest rates are the percentage of a loan or deposit that is charged by financial institutions as a fee for borrowing or lending money. In the video, the speaker talks about the impact of interest rates on financial markets, particularly how they affect the performance of financial stocks and bonds.

💡Financial Stocks

Financial stocks are shares of companies that provide financial services, such as banks, insurance companies, and investment firms. In the video, the speaker posits that financial stocks are expected to perform well due to the current macroeconomic setup, with low interest rates and potential for growth in credit volumes.

💡Bonds

Bonds are debt securities issued by entities such as governments or corporations to raise funds, with a promise to pay back the principal amount along with interest over a specified period. In the video, the speaker discusses the bond market and its current yields, suggesting that certain bonds may have already priced in future monetary policies.

💡Growth

Growth, in an economic context, refers to an increase in the production of goods and services in an economy over a certain period. The speaker in the video discusses growth in relation to the economies of the United States, Europe, and Asia, highlighting the different trajectories and challenges each faces.

💡Macroeconomic Setup

The macroeconomic setup refers to the overall economic environment and conditions that affect the entire economy, including factors such as fiscal and monetary policies, inflation, and growth rates. In the video, the speaker evaluates the current macroeconomic setup and its implications for financial markets and investment opportunities.

Highlights

Global meetings and interactions with various administrators and policymakers over the past two months.

A common theme among these meetings is the electrification of the entire economy.

Machine Learning and Artificial Intelligence are seen as the latest phase of digitization.

The United States continues to manage a 'hot' economy with significant fiscal and current account deficits.

The Federal Reserve's intention to cut rates despite the hot economy may lead to a steeper yield curve in the future.

Europe's growth is not significant, but there is no recession, with the ECB slightly behind on rate cuts.

Switzerland's central bank has already cut rates, indicating a cautious approach towards temporary inflation.

China's structural issues persist, but investor sentiment has shifted, making it potentially undervalued.

Japan's historic move out of zero and negative interest rates, signaling a clear direction for the Yen.

An overall economy with slightly higher inflation due to US fiscal and monetary policies.

Europe experiences less growth but is not in recession, with positive growth volumes重启.

Interest rates are expected to remain at 3-4% in the United States and 2-3% in Europe.

The financial sector, which has underperformed in the last 20-30 years, is now poised to do very well.

Stocks are trading at 5-6 times earnings and offering 8-9, 10% dividends for the next few years.

The bond market has already discounted a lot, with many bonds yielding 5% while US treasuries yield 4-4.5%.

There is a risk of worse-than-expected inflation, but financial credit is expected to perform well.

Financials offer a lot of value in the bond market, while other sectors may not offer as much.

Societies will make more profits with the current setup of interest rates, margins, and volumes.