a***r
发帖数: 146 | 1 2012 markets: Expect ups and downs
BY Jurrien Timmer, Co-Manager of Fidelity® Global Strategies Fund,
Fidelity Viewpoints — 12/21/11
Consider U.S. stocks, high-yield corporate, and floating-rate high-income
bonds.
It’s been quite a year, one of violent mood swings but little overall
direction. We seem to be in a time warp where everything happens faster and
faster. Everything seems to be correlated. There are very few places to hide
, and even those places don’t feel like good options anymore.
My expectation is that 2012 will offer more of the same, with significant
ups and downs driven by three major factors: Europe, China, and the U.S.
economy. Let’s take these one by one.
Europe: waiting for the end game
The sovereign debt crisis in the eurozone remains at the epicenter of the
financial markets, and until we get to the end game I don’t see any reason
why this would change.
There are two separate but interconnecting issues in Europe. The one making
most of the headlines is the sovereign debt crisis. Simply put, the
countries in peripheral Europe have too much debt, are too uncompetitive to
grow their way out of that debt, and do not have their own currency and
monetary policy to inflate their way out. They are stuck in a vise, which is
why sovereign debt spreads have widened so much over the past two years and
why the contagion has spread far and wide. In a perverse way, I think the
fiscal austerity that has been imposed onto the periphery may only be making
matters worse, because it is by definition contractionary. It’s difficult
to reduce your debt-to-GDP ratio when the denominator is shrinking.
The other issue concerns Europe’s banks, many of which are undercapitalized
and overleveraged. Europe’s banks are getting hit from two sides. They are
facing stricter capital ratios in 2012 and some banks have lost part of
their funding as a result of deposit flight or an inability to sell short-
term paper to institutional investors. The result is that these banks either
need to raise capital or sell assets in order to bring their leverage down.
Raising capital is difficult in a distressed market—unless the capital
comes from a TARP-like (Troubled Asset Relief Program) structure, so many
banks have sold assets instead. This was at least in part responsible for
the recent severe selloff in risk assets. By some Wall Street estimates,
Europe’s banks need to shed between trillion and trillion ($2.6
trillion and $3.9 trillion) worth of assets, creating a credit crunch and
contributing to an already bleak economic picture. The only question seems
to be how fast and how much.
In my view, there are three possible outcomes for the eurozone:
The best-case scenario is complete fiscal integration, sort of like a United
States of Europe, wherein a central fiscal authority has the power to tax
and create laws, as well as to issue euro bonds. The main problem with the
euro when it was launched some 12 years ago was that it created a monetary
union without a fiscal union, and full fiscal integration would finally
correct that shortcoming. Ideally, this fiscal integration would also be
accompanied by aggressive monetary accommodation, similar to the Fed in 2009
and 2010. That would offset the bank deleveraging and ensure that sovereign
yields stay low enough for countries to roll over their debt.
The worst-case scenario is that Europe would go through a messy divorce,
resulting in a breakup of the euro, as the result either of weaker members
leaving or perhaps of Germany leaving. Needless to say, this would be a
catastrophic outcome and the policymakers know it. Hopefully this knowledge
would make it an extremely unlikely outcome.
Perhaps the most likely scenario would be a continuation of the muddle-
through approach, with occasional policy fixes induced by bouts of market
volatility. Eventually, I suspect we would get to the “promised land” of
fiscal integration and quantitative easing (QE), but my fear is that we
would only get there slowly and only after markets force the hand of the
policymakers.
To their credit, eurozone policymakers have accomplished a lot already.
Politicians are finally speaking with one voice and seem to be getting
closer to fiscal union than ever before.
As for the European Central Bank (ECB), one could argue that it is already
doing QE. The ECB has expanded its balance sheet by some 00 billion ($654
billion) over the past six months, for a growth rate approaching 30%.1 That
’s quite something. It has cut rates twice in the past few months, although
that is only undoing the rate hikes instituted earlier this year. And even
though its purchases of Italian and Spanish debt through its SMP (secondary
market program) are “sterilized” (which means that the ECB is draining
liquidity in an amount equal to the bonds it is buying), one has to wonder
if that will work. After all, the short-term securities that it is tendering
to offset SMP can just be repo’d (lent) back to the ECB, creating
essentially unlimited liquidity for banks. And the size of these purchases
is hardly trivial. The ECB has purchased some 30 billion ($170 billion) in
debt just since August. On top of all this, the ECB is now extending the
term for its LTRO (long-term repo) program to three years and is relaxing
the collateral requirements for this program.
All in all, the ECB is being quite aggressive, and has taken a lot of steps
to ensure that there will be no bank failures and that Italy and Spain are
not going to see their yields rise too much higher from here. This is good
news, for it likely removes the potential for two Lehman-like events from
happening: a bank failure and a sovereign default. That leaves only a
breakup of the euro as a possible “tape bomb,” Wall Street’s name for
unexpected news, but I suspect that policymakers would do whatever it took
to prevent that from happening.
All in all, progress is being made, but it takes time, and the markets are
impatient. They want more now. I am less worried today about a bank failing
or a sovereign defaulting; I see the bigger issue in Europe being the
deleveraging of bank balance sheets and the impact that could have on the
economy and the financial markets.
China: a wild card
China almost single-handedly saved the day back in 2009, when it embarked on
a massive fiscal stimulus program (although TARP and QE helped, of course).
That created a surge in global economic growth, and with it the global
stock markets as well as other risk assets like commodities and emerging
market currencies.
But did they overdo it? The price to be paid for that growth was higher
inflation, an overheating property market, and potentially some questionable
lending practices. The issue in China is that the boom since 2009 has been
fueled mostly by bank lending and rising property values. As bank lending
surged, so did the growth in the money supply. Eventually, inflation
followed.
When the central government took steps to rein in that lending in order to
bring down inflation, the effect was that many small to medium enterprises (
SMEs) got crowded out of this traditional lending channel. As a result, many
of them turned to the unregulated shadow banking system for loans, often at
very high rates of interest (sometimes as high as 6% per month).
All this seemed manageable as long as economic growth remained high, at
around 10%. After all, growth can get you out of almost any kind of jam. But
now China’s economy is slowing and that raises the risk that some of these
loans would go bad. This is especially true if property values start to
decline, as they appear to be doing.
The good news is that inflation has rolled over. The CPI peaked at 6.7% a
few months ago and is now down to 4.2%. This has given Chinese policymakers
some breathing room to lower the reserve requirement ratio (RRR) from 21.5%
to 21.0%. That is still high, so it is premature to call this a policy
easing (more like less tightening), but it is a step in the right direction.
It remains to be seen to what degree the Chinese economy will slow and to
what lengths the government will go to stimulate the economy if things slow
down too much. Beijing could continue to lower the RRR rate, which is still
very high, at 21%. It could increase bank lending quotas or even
recapitalize the banks if nonperforming loans (NPLs) become a problem. It
could loosen the property restrictions that have been in place for most of
the year. It seems that China has quite a few levers it can pull to
reinflate its economy if push comes to shove. However, my sense is that the
Chinese government realizes that it overstimulated the economy in 2009 and
that it created too much of a credit boom and too much inflation, so perhaps
it may be more cautious in the future when it comes to reflating.
I really don’t want to bet against China. It’s a command economy, and
Beijing has the resources to reflate the way it did in 2009. Perhaps Beijing
could achieve a soft landing and growth will only slow to 8% or so. Perhaps
they can hit the “on” button as easily as they hit the “off” button.
But the risk is that without robust economic growth, the credit/property
boom could come unglued and that we get a classic emerging market-style
credit bust. We have seen these cycles play out many times in the past, and
they usually don’t end well. A credit bust could have serious repercussions
for commodity prices, emerging markets as an asset class, and even
corporate earnings in the United States. If all this happens at the same
time that eurozone banks are selling assets (many of which are in the
emerging markets), then 2012 could be a very painful year.
United States: modest but positive growth
Not everything is bad, however. The U.S. economy has held up quite well, and
there are a few signs that things are rolling over. Economic growth is
around 2%, jobless claims are below 400,000, the unemployment rate has
fallen to 8.6%, retail sales have been OK, and inflation is low. That’s
nothing to write home about in an absolute sense but it surely is better
than the situation in Europe.
Meanwhile, the Citigroup Economic Surprise Index (CESI) has reached one of
the highest readings ever, which means that economic data are coming in
better than expected. It was only a few months ago that this series was at
disturbingly low levels. Bank lending growth is pretty strong, at 10%, and
consumer confidence has shot up in recent weeks. Company earnings continue
to come in strong, and if you believe S&P 500® Index earnings estimates
for next year (of over $100/share), then valuations are very reasonable in
the low teens. It is no wonder that the U.S. stock market has significantly
outperformed both non-U.S. developed and emerging market stocks.2
That doesn’t mean that the United States is out of the woods over the
longer term, however. The economy continues to be burdened by stiff
structural headwinds, including worsening demographics, high deficits and
debt-to-GDP ratio, household delevering, structural unemployment, austerity
at the state and local government level, income inequality, and a political
system that seems unwilling to tackle the issue of America’s deficits and
unfunded liabilities. Seventy-eight million baby boomers are out there and
when they retire they’ll be looking for their benefits.
On top of that, the weak housing market continues to hold back the economic
recovery. Housing is an important part of the story, and policymakers know
it. This is why I think that the Fed may well do a QE3 early next year in
the form of mortgage securities. Eventually the housing market can recover,
as demand catches up to supply, and when it does it should contribute
meaningfully to the country’s economic prospects.
I suspect more of the same in 2012: modest but positive growth of around 2%,
with the unemployment rate perhaps falling to 8% or so, but against a
structural environment of unresolved challenges and below-trend growth—at
least until the next presidential election.
What to expect? What to do?
It’s a tough call, but the above analysis suggests it could be more of the
same, with stocks generally making little headway. Occasionally there may be
breakthroughs in Europe which could trigger rallies, but then the contagion
of bank deleveraging could set in again, while China continues to slow.
In this scenario U.S. stocks could be expected to outperform Europe and
emerging markets, as they did in 2011. The dollar could strengthen further
and commodity prices could weaken if China slows down. Crude oil could
remain firm, however, due to rising tensions in the Middle East.
Emerging markets generally look compelling given their relatively high
growth rates and reasonable valuations, as well as their steadily improving
credit rating (especially relative to developed markets). But at the same
time, they are caught up in the deleveraging spiral taking place in Europe (
the eurozone banks are involved in emerging markets and might choose to sell
assets there). So, at this point, the secular bull case for emerging
markets is at odds with the cyclical wave of liquidity contraction. That
means that we may have to be patient when looking to invest in either
emerging market stocks or debt (especially local currency debt). The same
applies to commodities as an asset class: a secular bull story temporarily
offset by adverse liquidity conditions.
Gold is a tough one. The challenge is that it can behave like a risk asset
one day and a safety asset the next. Think of it as a “golden triangle,”
with gold in one corner, Treasuries in another, and stocks in the third.
Sometimes it behaves like one, and then all of a sudden it flips to the
other. This is a challenge because it is hard enough to figure out where the
markets are going, let alone what correlations are going to do. My
conviction remains high that over the long term, gold can be a better store
of value than government bonds or cash, but over the near term the asset
class can get caught up in the liquidity vise the same way emerging markets
do. One only needs to look at the negative lease rates on gold—holders of
physical gold actually have to pay to lend out their gold. That’s how tight
liquidity is right now.
If stocks don’t offer much upside, and commodities, emerging markets, and
gold are trapped in the negative liquidity spiral, what may actually look
good? Treasuries? They have been the port in the storm, no question, but at
these levels there seems to be only limited upside potential. That’s just
the way the math works at low rates. And there is plenty of downside risk
should yields rise meaningfully. Treasuries may at best be a place to park
your money, and perhaps that is more than enough reason to invest in them,
but at these low yields I would prefer some cash even though short-term
rates are below the inflation rate.
One area that looks very interesting to me is U.S. credit, namely high-yield
corporate debt and bank loans (floating-rate high income). Both these asset
classes appear cheap relative to the fundamentals of a decent U.S. economy
and strong corporate balance sheets. They have been the victim of distressed
selling since the summer (again those European banks shedding assets), and
distressed selling can create opportunities. Bank loans are trading at 92
cents on the dollar (and are expected to mature at par in four or five years
) and high-yield bonds are yielding 750 basis points over Treasuries. That’
s probably one of the best risk-return propositions out there, as long as
the U.S. economy doesn’t fall off a cliff—which I don’t expect. U.S.
credit may well be a more appealing asset class than stocks at this point,
given the high earnings expectations and record profit margins of the latter.
In conclusion
The world we live in today is one in which the outcome lies in the hands of
policymakers in Brussels, Beijing, and Washington. Policymakers in Europe
and elsewhere seem to “get it” now, and more and more central banks are
easing, including the ECB, Bank of England, Bank of Japan, People's Bank of
China, and perhaps soon also the Fed. That suggests that the deflation-
reflation rollercoaster described last month in Viewpoints is turning for
the better. The big question is whether this central bank easing will be
fast enough and big enough to offset the ongoing deleveraging by eurozone
banks. That will be one of the main themes for 2012.
But make no mistake about it, this has been a macro all-in or all-out
environment, and as long as these structural imbalances persist, I suspect
that it will stay that way. That suggests more time compression, high
correlations, and large market swings. So, if there is one thing I feel
comfortable predicting with confidence for 2012, it is to expect more
volatility.
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The information presented above reflects the opinions of Jurrien Timmer, of
Global Macro and Co-Manager of Fidelity® Global Strategies Fund, as of
December 21, 2011. These opinions do not necessarily represent the views of
Fidelity or any other person in the Fidelity organization and are subject to
change at any time based on market or other conditions. Fidelity disclaims
any responsibility to update such views. These views may not be relied on as
investment advice and, because investment decisions for a Fidelity fund are
based on numerous factors, may not be relied on as an indication of trading
intent on behalf of any Fidelity fund.
Past performance is no guarantee of future results.
Stock markets, especially foreign markets, are volatile and can decline
significantly in response to adverse issuer, political, regulatory, market,
or economic developments. | m**********r
发帖数: 887 | 2 long time no see!
Happy holiday! | a***r
发帖数: 146 | 3 谢谢。也祝金指兄及投版的各位朋友节日快乐，新的一年里身体健康，财运亨通！
【在 m**********r 的大作中提到】
: long time no see!
: Happy holiday!
| G******t
发帖数: 1782 | 4 https://guidance.fidelity.com/viewpoints/2012-markets
and
【在 a***r 的大作中提到】
: 2012 markets: Expect ups and downs
: BY Jurrien Timmer, Co-Manager of Fidelity® Global Strategies Fund,
: Fidelity Viewpoints — 12/21/11
: Consider U.S. stocks, high-yield corporate, and floating-rate high-income
: bonds.
: It’s been quite a year, one of violent mood swings but little overall
: direction. We seem to be in a time warp where everything happens faster and
: faster. Everything seems to be correlated. There are very few places to hide
: , and even those places don’t feel like good options anymore.
: My expectation is that 2012 will offer more of the same, with significant
|
|
