[Publicado originalmente en FundsPeople]
Desde que Alcoa diese el pistoletazo de salida a la presentación de los resultados empresariales de las empresas estadounidenses, los analistas económicos llevamos un par de semanas siguiendo con atención los números que al final presentará el conjunto de las empresas del S&P500. En un escenario como el actual de elevada incertidumbre a nivel macroeconómico en todo el mundo, la presentación de los beneficios de los integrantes del S&P500 representa un indicador valioso de dónde estamos y nos da una razonable idea de lo que podemos esperar en los próximos trimestres.
A riesgo de simplificar, para el presente artículo se tendrá en cuenta que hay dos maneras para pensar sobre los beneficios a nivel agregado: bottom-up y top-down.
La visión bottom-up es bien conocida y requiere de poca elaboración. Se suman una a una las estimaciones de consenso de cada una de las 500 empresas del S&P500 con el fin de obtener el número agregado de todo el índice. La principal ventaja del método es que compila las predicciones de analistas especializados en una industria o en un grupo de empresas, lo que hace que las predicciones sean más informadas que las de alguien que no tenga dicho conocimiento granular. Las principales desventajas del método son dos, que es intensivo en información (para llegar a la cifra agregada de beneficios se necesitan las estimaciones de los beneficios de las 500 empresas del S&P500, una tarea nada desdeñable) y, por otra parte, dicho método puede conducir inadvertidamente a falacias de composición no deseadas: si uno hubiese agregado las exuberantemente racionales estimaciones de consenso de finales de los 90, uno hubiese descubierto que tales estimaciones daban números superiores (o similares) a la cifra de beneficios global presentada en las cuentas nacionales. Dado que era de esperar que el resto de la economía estadounidense, una vez excluidas las empresas del S&P500, generase algún beneficio en aquellos años, las estimaciones bottom-up de aquel entonces, aunque aparentemente consistentes a nivel individual, a nivel global daban lugar a resultados ridículos. Continue reading
Chinese policy makers were gathered at the National People’s Congress (NPC) a couple of weeks ago to discuss the economics goals for the next few years. Given the recent turmoil in Chinese financial markets, it was an important meeting for international analysts.
Several issues were addressed at the NPC, but the most important one was the strict commitment of the Communist Party to keep sustainable (and moderately high) growth rates. For this year they have abandoned fixed targets and they have opted for some flexibility in their goals (e.g. 6.5% – 7%). ‘More active’ fiscal policies, through higher current and investment expenditures and tax cuts, were also put forward in order to achieve deficits around 3% of GDP – which is in stark contrast with the government position of the last years. But as we will see in a while, these goals (6-7% nominal GDP growth plus 3% of fiscal deficits) do not meet People’s Bank of China projections for government debt, unless other ‘extraordinary’ government operations (bailouts of banks and local governments in particular) are brought into the picture. Finally, the Communist Party has also suggested higher levels of inflation (around 3%) than in recent Chinese history.
[This post was co-written with Rafael Wildauer, Ph.D. Candidate at Kingston University, who is doing research on the links between income and wealth distribution, credit, growth and financial stability]
We are pleased to present our first report on the US economy using a model we have developed together over the last year. We will only provide here a brief summary with the main conclusions; interested readers can read the whole report for free here. Senator Sander’s economic program (and the discussion that has erupted in the last few weeks) has provided us with a nice example of why having a simple but holistic model of the US economy can help a lot in discussing economic policy issues and in dispelling ‘half-way’ economic reasoning. Because a copy-paste strategy from the report would be boring for the readers of the blog, we have decided to add a brief analysis of the Mr. Sander’s economic program as an example of the usefulness of the model advocated here. We think it is worth discussing what has been left out by Gerald Friedman as well as by his critics – notably Christina and David Romer. If you already read the original report, then you can skip the first section and go directly to the section dealing with Mr. Sanders’ economic program.
The Kingston Financial Balances model (KFBM)
First, a few words about the model. The Kingston Financial Balances Model (KFBM) is a stock-flow-consistent (SFC) model that tracks the evolution of the main variables of the US economy. A SFC model is, in a nutshell, a framework that ensures that all real and financial flows of an economy accumulate into stocks over time. For many people (e.g. engineers, physicists and accountants), we are sure this definition will not be very innovative. But in economic modelling, it is. Most of the economic modelling is carried out without any concern for the accounting consistency of real world economies. At the most basic level, such models simply estimate ‘sophisticated’ econometric equations for the GDP components (i.e. consumption, investment, etc.), and then they sum them up to come up with a (usually short-term) forecast for GDP, but without mentioning the implications of these expenditures for the financial positions of the different sectors of the economy. At a more advanced level, exemplified for instance by the Dynamic Stochastic General Equilibrium (DSGE) models, the sophistication falls on a rational description of the agents of the economy, but again, with little concern for the accounting consistency of the framework. In other words, economists have been in general very busy to come up with more sophisticated models, but accounting consistency is not among the top priorities.
The governor of the People’s Bank of China (PBoC), Zhou Xiaochuan, had some days ago an interesting interview with the financial magazine Caixin. You can find the English transcript here. The initial part of the interview is really worth reading (and not so much the last part, which deals with criptocurrencies and other topics that are not “core issues” for the PBoC at the moment). Right at the beginning Zhou talks about the prospects of an additional (or not) depreciation of the renmimbi and how China has moved from a dollar-peg regime to a basket-currency regime (although such baskets are still very loosely defined). And by the way, he is not very concerned about international reserves going down (around 100USD billion in January), because he thinks this process is mainly driven by Chinese firms trying to reduce their foreign currency denominated liabilities, a process that (obviously) will not be endless. As he says:
As such, it is necessary to distinguish capital outflows from capital flight. It is normal for export-oriented enterprises to choose their foreign exchange conversion strategies and adjust their liability structures after weighing benefits and costs. Such adjustment will not be endless. Such behaviors do influence capital flows and foreign exchange reserves, but they do not necessarily constitute capital flight.
But the most interesting part of the interview is when he talks about investment expenditures. Although he does not address explicitly in these paragraphs the rebalancing process (how to reduce current investment levels and increase at the same time consumption without any disruption), it is clear that some conclusions for the rebalancing issue can be drawn from the following statement [emphasis added]:
Professor Michael Pettis has recently published another brilliant post on the Chinese rebalancing issue. We regularly follow Pettis’ views on the Chinese economy, which we consider valuable if one wants to understand the macro management dilemmas China will have to face. In his post, Pettis does not address how the rebalancing process should be ideally done (something which he has explained on several occasions), but rather how much time China has in order to accomplish it successfully. Pettis says that:
Credit growth in China is too high as are current debt levels, and the sooner Beijing gets credit growth under control, the better. This latter statement in itself is not controversial of course, but my simple debt model shows just how urgent it is for Beijing to get credit growth under control. It clearly does not have ten years or even seven years. It might have five years, but only if the markets – Chinese investors, businesses, and savers, both wealthy and middle class – are convinced that it is moving in the right direction.
In other words, the current high levels of debt can derail the rebalancing process if it is not done quick enough. In order to understand the link between debt levels and GDP, Pettis proposes a simple model that captures their dynamics over the long run (up to 2023). In his baseline scenario, Pettis assumes (following the trend of the last few years) that nominal debt initially grows twice as fast as nominal GDP (notice the use of nominal values), but gradually converging in a linear way to the growth rate of GDP by the end of 2023 – at that moment the economy reaches a steady-state position, and GDP and debt grow at the same pace. Depending on the GDP growth rate assumed, Pettis’ model projects debt-to-GDP ratios from 251% (with a 3% growth in GDP) to 274% (with a 6% growth) by the end of the period, too high in comparison to other economies. He then proposes alternative scenarios, but the result is the same: unless Beijing advances more radical measures to curb debt growth and improve the efficiency of the financial system, the growth in debt will derail the rebalancing process.
Martin Wolf has recently reminded us the role that corporate surpluses played during the ‘Great Moderation’. He reports the well-known fact that while corporations saw how their gross savings (i.e. current revenues minus current expenses, capital expenses excluded) rose during this period, the level of corporate investment remained stagnant. This means, as a matter of logical necessity, that corporations were accumulating net assets over the entire period. Wolf concludes that ‘it has to be accepted that, so long as the corporate sector runs a structural financial surplus, macroeconomic balance is likely to require fiscal deficits’, something which I can hardly disagree with.
At the same time, the Spanish press (here, in Spanish) reports that non-financial corporations have seen a growth in profits, during the first three quarters of 2015, of 28.6% (in comparison to the first three quarters of 2014), due mainly to ‘an improvement of the economic activity’ and the impact of some one-off (non-recurrent) revenues. Both articles have nudged me enough to provide an update of the Spanish macroeconomic profit series and to explain their implications for the Spanish macroeconomic performance.
Los servicios financieros han crecido considerablemente en el tercer trimestre de 2015, de acuerdo a las estadísticas oficiales chinas
Otro post sobre la situación económica China. Van apareciendo muchos en este blog. Pero como va a ser el predecible tema estelar económico mundial de los próximos meses este post no será el último… ni el penúltimo. Desde nuestro post junto antes del desplome de la bolsa china (timing preciso), en el cual adelantábamos la imposibilidad de un aterrizaje suave de la economía China (léase crisis económica grave -caída del PIB- antes o después) empiezan a abundar los análisis sobre el estado de la economía china: algunos ya contemplan la posibilidad de que el crecimiento esté realmente reduciéndose, en contra de las cifras oficiales de un mantenimiento del crecimiento de alrededor del 7%, dudándose así la fiabilidad de los datos de la contabilidad nacional china. Los últimos datos aparecidos hoy, correspondientes al tercer trimestre de 2015, con un crecimiento del 6,9% del PIB, no hacen sino confirmar lo que comienza a ser algo bastante recurrente.
En el anterior post ya tratábamos de estos temas, haciendo hincapié en un informe de Macquarie sobre el deterioro financiero de las empresas chinas en los sectores más directamente involucrados en el sector de bienes de inversión (industria de construcción y sus materiales -cemento, acero-, bienes de equipo, viviendas, etc.). Para lo que queremos explicar ayudan también las estimaciones de los beneficios de las empresas del sector de inversión compilados por Christopher Balding, profesor de la Universidad de Pekín, y que lleva varios años evaluando la fiabilidad de las estadísticas chinas – y que, sin ir más lejos, ha escrito hoy un post interesante cuestionando los números publicados por las agencias chinas hoy. Continue reading
Macquarie, the Australian investment bank, has published this week a report on the financial state of the Chinese corporate sector. Unfortunately, the report is not public and I will have to rely on the summary written by Tyler Durden.
The report is especially important because it is based on an analysis of 780 Chinese companies, so, unlike most of the reports on the financial health of the Chinese corporate sector that take a macroeconomic perspective (as we did here), Macquarie’s report takes a microeconomic approach, focusing on the Chinese commodity sector. Given that Chinese national accounts data has been lately under the scrutiny of the international financial community because of its unreliability, the micro approach of the Macquarie report can shed some additional light on the financial health of Chinese corporations. Continue reading
Krugman has just published a post that addresses the economic situation in China. He thinks (as many other economists) that we should not be very worried about the possible side effects of China on the rest of the world. Well, the Chinese economic performance is already hitting many economies (mainly through commodity prices) around the world (has anyone said Brazil?), so maybe the “price effects” that Krugman mentions are larger than what he thinks they are.
But here I don’t want to attack Krugman (because overall he seems quite mild about Chinese prospects), but rather I would like to comment very briefly on a report mentioned by him and published by Willem Buiter at City. The report is worth reading, because it makes the case for a global slowdown driven by the (under)performance of the Chinese economy.
There are many sentences in the report I would largely agree with. For instance, when talking about why China’s government debt burden is not as rosy as it seems, Buiter mentions that:
The soaring non-financial private sector debt burden and the matching soaring banking and shadow banking sector balance sheets suggest that a future financial rescue of systemically important and/or politically well-connected insolvent private entities and SOEs by the central government is likely. This could seriously strain even the fiscal capacity of the central government.
The last few months have witnessed a series of ever-increasing problems for the Chinese economy. The stock market crash, the devaluation of the currency (and the prospects for additional rounds), the lacklustre performance of the Chinese export sector and the likely deceleration of the economy, just to name a few problems, have provoked general turmoil in financial markets and have created a widespread sense of skepticism in the global media. It has also propelled the idea that a major Chinese slowdown could have serious consequences for the global economy. However, most of these articles get very specific about this or that problem, and they miss the real and broader problem that the Chinese rebalancing process poses. In this article, we will see that the implications of the stock market crash and of the devaluation of the renmimbi for the rebalancing process are not as important as many believe.
The stock market crash has been the most prominent phenomenon in the financial press. The Shanghai Index, for instance, stood at 3,350 points at the beginning of 2015, peaked around 5,100 in the middle of June and since then has lost the staggering amount of 40% (yesterday closed at 3,170). For Western standards, that correction has been brutal. But it is also widely known that government ownership in many companies is high and that households have invested very little in stocks so far. So, beyond firms that may have posted some shares as collateral for their loans, the direct impact of the stock market on the Chinese economy should be very limited- actually, a bulk of the losses have already been anticipated by international investors. We think that the stock market crash should thus be interpreted as a sign that the perception of the Chinese economy is changing, rather than as a first cause for further financial distress. Continue reading