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Over the last five years, central banks seemed set to rack up one victory after another in the Tour de France, thanks to their penchant for \u00abdoping\u2019 \u2013 in the form of creating electronic money out of thin air. But the announcement by the US Federal Reserve of its mere intention to start turning off the tap in the coming quarters seems to have opened Pandora\u2019s box. The effects of this announcement have gone beyond a simple correction in the price of US Treasuries, and fears are also spreading to other central banks such as the Bank of England (\u2018MPC members were concerned by the \u00absurprising\u00bb rise in UK government bond yields that followed Bernanke\u2019s remarks<\/a>\u00ab) or the European (\u201cThere is a strong correlation between the 10-year US Treasury yield and European government bond yields with the same maturity.<\/a>\u201d).<\/p>\n Here we must address a number of seemingly unrelated issues. For example, why, despite the\u00a0Axel Weber\u2019s warnings<\/a>\u00a0Risk premiums in the European periphery are falling. Or why the yield on the 10-year US Treasury bond keeps rising and is pricing in a sudden cut-off of the\u00a0quantitative easing<\/em>, having already reached a\u00a0an increase in the 80% from its lows of just four months ago<\/a>. Not to mention the surprising knock-on effect that the fall in Treasury yields is having on the yields of emerging-market issuers, whose fundamentals have nothing to do with the economic difficulties of developed countries, their sovereign debt or the quantitative easing measures adopted.<\/p>\n Some analysts are already beginning to see the sharp fall in US bond prices (rising yields) as something unprecedented: a\u00a0reflects the market\u2019s lack of confidence in the US\u2019s creditworthiness<\/strong>, just as the market prices in the lack of confidence in Europe, but halfway between German bonds and those of the peripheral countries. Let us not forget that, despite managing to reduce unemployment and tentatively reverse the recession into which they had fallen, the US is doing so at the cost of increasing its debt and tripling the Federal Reserve\u2019s balance sheet over the last five years. The rate at which they are printing money is dizzying: $85,000,000,000 a month, or nearly 3,000 million dollars a day, including public holidays. This is money that the Treasury owes and which, in theory, will have to be repaid at some point by future generations. But the size of the debt is so stratospheric that some are already stopping buying Treasuries out of sheer mistrust. In other words, their yields are soaring (their prices are falling) for the same reason as peripheral debt, but to a lesser extent. This is not merely a correction resulting from the announcement of the Fed\u2019s reduction in massive asset purchases, but rather a genuine flight from the market. Let\u2019s not forget that per capita debt in the US is higher than in Spain, but of course, their per capita income and, above all, their capacity for growth is far greater than ours.<\/p>\n It is, however, paradoxical that Mr Market himself should have more confidence in French debt (2,44% 10-year) than in US debt (2,87%), when\u00a0The outlook for France is more than bleak<\/a>. Or consider that the yield spread between Spanish and US bonds with the same maturity is just 1.6% (4.45 vs 2.87), even though the difference between their economic fundamentals is vast. So, is US debt cheap, or is peripheral and French debt expensive? Well, it is quite possible that Mr Market\u2019s endemic inefficiency is allowing for both of these deviations.<\/p>\n In fact, if the criterion to be taken into account by the investor is the risk of insolvency \u2013 that is, the risk that, upon maturity, the principal plus interest will not be repaid \u2013,\u00a0All sovereign debt in developed economies carries risk<\/strong>. Most of them due to manifest insolvency, that is to say, the obvious inability of their economies\u00a0suffering from depression<\/strong>\u00a0to repay everything they owe. But there is also a significant risk posed by the healthiest economies in the West, even if it is not exactly one of default, due to the excessive debt they have accumulated and the vast amount that continues to mount up every day, despite their meagre and artificially stimulated growth. In other words, despite having economic growth and budget surpluses capable of reducing the debt little by little over many decades, it is currently growing at uncontrolled rates, alongside the endless printing of banknotes. And this situation produces harmful side effects such as currency devaluation or a complete lack of room for manoeuvre in the face of any dip in the constant economic growth that is required.\u00a0When a patient is treated with every possible medication, with the side effects that this entails, time becomes the enemy, because all these measures can only be administered for a short period of time.<\/strong>\u00a0And any relapse, however slight, is a clear sign that, despite deploying the full range of treatment options in an all-or-nothing approach, it is not enough, and the patient will slip away from us.<\/p>\n These collateral risks associated with US Treasury bonds are distinct from the explicit risk of default faced by the periphery, for example, as the Fed can print as many dollars as are needed to postpone a default, given that it is the owner of the currency in which they are issued. But in Europe, the ECB and the euro are in the hands of those who are solvent, and\u00a0Peripheral debt is far more insolvent than that of any other country with full control over its central bank<\/strong><\/a>. As we have already said, it must be assessed as if it were corporate debt, and as a company we would already be doomed.<\/p>\n It is also curious to see how all the Western media are proclaiming in unison that the struggling European economies have been recovering in recent months, whilst ignoring the fact that\u00a0the economic figures stubbornly suggest the opposite<\/strong><\/a>. And we must not forget that the powerful forces within Western governments have a great capacity to shape public opinion, given that they exert a significant influence over the mainstream news media. One need only look at the disproportionate media coverage the West gives to certain conflicts, whilst others that are far bloodier go unnoticed. We have examples such as the media hype surrounding the Arab Spring, or the anti-Putin demonstrations, which barely mobilise a few tens of thousands of people, yet fill the front pages of the\u00a0Western media<\/em>. In contrast, other, far more numerous protests have been ignored because they are of no strategic interest to those who wield influence over the major Western media outlets and news agencies. Today, the mantra is that capital flows must return from the emerging world to keep Western countries\u2019 debt afloat. And despite the fact that the fundamentals suggest otherwise, the\u00a0standard of mediocrity<\/strong><\/a>\u00a0Institutional investors\u2019 emotions are getting the better of reason, for the time being. And that is something that happens all too often to the inefficient Mr Market.<\/p>\n In any case, we are facing a scenario in which the market is pricing in not only insolvency but also the tapering of quantitative easing (QE), the pace of which remains a worrying unknown. We are in uncharted territory, as no one has ever before had to scale back such an uncontrolled quantitative easing programme. And the volume of funds poured into the US economy is so colossal that the rates at which inflation might rise, the economy might overheat, or a return to the dreaded economic recession might occur are being completely ignored. That is why getting the tapering process right is vital. And not only for the US economy itself, but of course for the European crisis, and even for the stability of the major emerging economies. It is no wonder that Chinese economic ministers\u00a0they are already warning<\/strong><\/a>\u00a0Obama should be very careful with this process, even though the Chinese economy is probably the best prepared to venture into this \u2018Apache territory\u2019.<\/p>\n If the crackdown on doping is too severe, other countries will also suffer withdrawal symptoms due to the effects of financial globalisation. Firstly, the European periphery, which would be brought to its knees by the slightest breeze. And secondly, the most precarious emerging economies will also suffer (and are already suffering), as their fundamentals were not sound and they were growing merrily solely thanks to the flow of \u2018doping\u2019 coming from the West. A synthetic bonanza that reached them in the form of indiscriminate investment by Western institutions in search of attractive yields, or through unsound and unsustainable domestic consumption that tends to recklessly fuel inflation and external debt. In any case, the tapering of stimulus will undoubtedly take its toll on some emerging economies, but fortunately not all of them. The most robust will continue to be the ones driving global growth, whilst continuing to administer the intensive treatment that the ailing West needs to stay alive.<\/p>\n Both domestic consumption (China, Russia, etc.) and the revival of exports driven by currency devaluation (Brazil) will form the backdrop against which the emerging world will evolve and grow over the coming years. Enduring the hardships and\u00a0delirium tremens<\/em>\u00a0which we in the West still have to endure, and which globalisation will, to a certain extent, also cause to spill over into the emerging economies. However, these economies will attract increasing amounts of Western investment, which will once again flee from recession and insolvency. And economies such as China\u2019s, Brazil\u2019s or Russia\u2019s will eventually transform into fully-fledged, developed economies within a few years. But for that to happen, restraint must be moderate and well-judged, and that, in Apache territory, may be asking too much. In any case, whether we manage to achieve a\u00a0tapering<\/em>\u00a0Whether we take a judiciously progressive approach or descend into a state of chaotic volatility, our money will always be better off invested in sound assets and growing economies. Today more than ever\u00a0We must bear our priorities in mind when investing<\/strong><\/a>, because the Apaches are eager to scalp the most unsuspecting among us, and we venture deep into their narrowest gorges.<\/p>","protected":false},"excerpt":{"rendered":" En el \u00faltimo lustro los bancos centrales parec\u00edan estar dispuestos a encadenar victorias en el Tour de Francia por su querencia al dopaje, en forma de fabricaci\u00f3n de dinero electr\u00f3nico de la nada. Pero el anuncio de la mera intenci\u00f3n de comenzar a cerrar el grifo, por parte de la Reserva Federal norteamericana, en los […]<\/p>\n","protected":false},"author":6,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[45,42,39,40,37],"tags":[],"class_list":["post-3562","post","type-post","status-publish","format-standard","hentry","category-asesoramiento-deportistas-artistas","category-estrategia","category-crear-mi-propio-family-offices","category-gestion-financiera","category-reflexion"],"_links":{"self":[{"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/posts\/3562","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/users\/6"}],"replies":[{"embeddable":true,"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/comments?post=3562"}],"version-history":[{"count":0,"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/posts\/3562\/revisions"}],"wp:attachment":[{"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/media?parent=3562"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/categories?post=3562"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/tags?post=3562"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}