OVP

Bana gecen gun aciklanan orta vadeli programla ilgili goruslerim soruldu. Soyle bir benzetme aklima geldi: Bazen futbolda teknik direktorler takim uzerinde yonetim acisindan o kadar etkisiz olurlarki ki seyredenler "bu takim hocasiz ciksa bundan kotu oynamaz" der. Mactaki sonuc tamamen karsi takimin durumuna baglidir. Rakip disli bir takimsa sonuc husran olur, yoksa iyi bir netice alinabilir.

Bence OVP'nin kaderini de yonetimi elimizde olmayan global ekonomi ve piyasalar belirler. Ortada gozle gorulur bir caba yok. Bu yuzden de programdaki hedefler gercekci gorunuyor.

Bunu yani sira icinde bulundugumuz belirsiz ortamada bir tek temel senaryoya bagli kalmak dogru olmaz. En belirleyici faktor global ekonomi olacagindan ve bu da bizim elimizde olmayan bir degisken oldugundan (external uncontrolable or externality) farkli buyume seviyeleri icin temel senaryo disinda alternatifler on plana cikar. Risk faktorleri piyasalarin yonunu belirler. Zira temel senaryo zaten fiyatlara yansimis olur.

Dolarda ilk catlak, Hisseler "Overshoot"a dogru

G20 den surpriz cikmadi deniyor. Ben tam katilmiyorum. Bence piyasalar icin genelde olumlu, dolar icin ise olumsuz surpriz cikti. Yapilan aciklamada "exit strategy" yani bu ekstra gevsek para ve mali politiklaradan nasil ve ne zaman cikilacagina dair gercek anlamda hic bir aciklama yer almadi.

Ben Londra'daki G20 zirvesinin ardindan krizden sonra ilk olarak dolar alinmali fikrimden vaz gecmis herekesi hisse senetlerine yonlendirmistim. Bu toplantin da onun benzeri bir sonuc ciktigindan o gunku analizlerim bugune de uygun. DXY dolar endeksi son birkac gunde ciddi dususler yasadi. Bu euro, yen etc guclenmesi degil acik bir dolar zayifligi. Gelisen ulke kurlari da yukari dogru haraket etti.

Ozellikle gelisen ulkeler icin kurlarin daha da guclenme potansiyali dogdu diye dusunuyorum. Bu ulkelerde enflasyon riski giderek artarken para politikalari daha da erken normallesecek gibi. Faiz artislarinin yerine merkez bankalari ilk basta biraz kur guclensmesini tercih edebilir. Ama bence dusunulenden daha erken ve hizli faiz arttirimlari gelecek. Bu da 90'li yillarin ortalarinda yasanan faiz-para girisi- kur dongusunu gundeme getirebilir ve likidite finansal valiklarda bir "overshoot" (temel degerlemelerin uzerinde bir cikis) yaratabilir.

Dude, Where is the exit?

There were no surprises from the G20 meetings and markets this morning seem to be celebrating this. “We will continue to implement decisively our necessary financial support measures and expansionary monetary and fiscal policies, consistent with price stability and long-term fiscal sustainability, until recovery is secured”. This is the key reason why lots of economists are calling for “impeccable” timing for the removal of the punchbowl. G20’s response is “we agreed the need for a transparent and credible process for withdrawing our extraordinary fiscal, monetary and financial sector support as recovery becomes firmly secured”. In the meantime though we have seen successive upward revisions to economic growth numbers pretty much everywhere on the planet. Consensus growth rate for next year for the world is now reaching 4%. We do not believe inflation is a big threat in the near term -- although there have been upticks here and there in the recent data -- as we are not convinced that short term liquidity will lead to higher inflation as output gaps persist. However, we do not believe extraordinary QE is now warranted. That said we do not see any central bank governor brave enough to take the risky step of normalizing liquidity until “recover becomes secured” given the intensity of the downturn. Equally we do not know how the markets will react when they realize the party is over. In its recent New York Times article Yale Professor Robert Schiller points out that “a social epidemic is supporting renewed confidence... confidence can grow with contagion... But in an economy which is still unstable stories can morph into different forms, the price feedback can turn downward and the dynamic could turn ugly”. This is what scares the policy makers... As, in the process of nursing the post Nasdaq bubble burst period, Alan Greenspan created the property bubble in the US current mis-allocation of capital and resulting market dislocations are bound to be paving the way for the next bust further down the road. But for now we are convinced that chances of a market overshoot is rising with every official announcement. If we are right about continued strength of equity markets chances are that USD strength will be delayed. Perhaps markets will give us better entry points.

Kafa Karisilikligi

Simdi boga piyasasina ayi mi girdi, yoksa zaten ayi piyasasinda boga sirtindaydik da sallaninca dustuk mu? Benim pozisyonun degsimedi.

Ancak son birkac gunluk piyasa haraketleri biraz kafa karistirici oldu. Bono faizleri dustu, dolar canlandi, hisseler dustu. Sanki bir anda buyume konusunda endiseler ortaya cikti da riskden kacis varmis gibi bir hava esti. Aksine son gunlerde hemen hemen her yerde buyume rakamlari yukari revize ediliyor.

Shanghai piyasalarina bakip global piyasalrin yonunu belirleyenler bana son gunlerde Mustafa Denizli'nin ortaya attigi "klavuzu karga olanin..." deyimini hatirlatiyor. Her ne kadar ben 2004 yilindan beri her platformda Cin ekonomisine odaklanilmasi gerektigini soylesem de Cin'deki piyasalari bunun disinda tutmusumdur. Odemeler dengesinde sermaye harketlerinin kisitli oldugu ulkelerde finansal varlik fiyatlari havuza benzer. Likiditeyi verince cikar, kisinca duser. Cunku kisa vadede paranin gidicek baska yeri yoktur.

Cin'de cok kisa zamanda cok likidite verildi ekonomiye. Buyumenin hizlanmasiyla birlikte bunun bir kismi geri aliniyor. Reel ekonomideki bu canlanma da kalan likiditeye ortak oluyor. Sonucta da borsa zorlaniyor.

Bu tabloya bakip global piyasalari tahmin etmek hic dogru olmaz.

Even The Dog Has Its Day

Despite the massive negative news flow and publicity USD as measured by the DXY Index fails to fall to pre-crisis levels. At the same time, the negative correlation established between the markets and the greenback seems to continue. There has been much debate as to why this could be the case. Dollar’s “safe haven” status view appears to be getting traction. It is difficult to reason with the almost daily moves between these two asset classes but we believe the current deflationary bias in the world economy has something to do with this relationship. Rising dollar leads to USD GDP growth of the world economy ex-US to fall taking aggregate demand with it. Consequently commodities remain in the forefront of this negative correlation. In fact lately oil has become the “risky asset” to follow to ascertain the direction of the markets and hence the USD.

We do not subscribe to any one model or variable that explains the direction of any foreign exchange and argue that fx remains the most difficult to forecast asst class. In fact we often remind investors that fx should not be considered as an investment vehicle and should be used to balance one’s assets and liabilities only. That said there seem to be a confluence of factors – such as improvement in current account deficit, growth recovery, recovering RoC -- that support the USD against other major currencies in the medium term. EM currencies appear to be in much stronger position to appreciate but gauging by the recent market action USD tends to move against all other currencies at the same time. As such and given the still mercantilist policies of Asia – at least in the short term – A USD revival across the board looks reasonable. However, we do not rule out the “policy decoupling” that ought to have impact on the direction of currencies. Sterling, for example, got a beating minutes after BoE is announcement to extend the QE. In that regards currencies of countries where interest rate policy normalisation can be better supported in this process.

Overall, current market rally can be the only impediment left for a broad based dollar bounce. We continue to advocate buy on dips to accumulate for a Q4 strength.

Sweet Spot

We can trace back the beginning of this equity rally in March to various factors: extreme pessimism about the world economic outlook; G20 reassurances and IMF funding, particularly for Eastern Europe which reduced the risk premium for Emerging Markets as a whole as well as the European banks; cheap valuations; USD weakness (causality here is difficult to gauge though) etc. Clearly all these played an important role turning the markets around. However, what really propelled asset markets was undoubtedly the massive amount of liquidity released into the system by world central banks. We have had a great spectacle of how markets run on liquidity in the short term. As the rally progressed equities moved into the “sweet spot”. On the one hand is huge liquidity and on the other hand the advent of economic recovery – at least this is what the markets wanted to believe in. The severity of the last recession and the spectre of a double dip ensure that central banks around the world will wait to see the white of the eye before shooting i.e. monetary policy will err on the side of keeping policy relaxed. However, come autumn we are likely to see the first signs of “decoupling” but of policy. Given the slew of upward revisions to GDP monetary policy in some parts of the world, particularly in some EM countries, look far too easy. Extraordinary liquidity will be quickly drained and interest rates will be normalised. Although this will not be across the board – as BoE proved it last week -- it will be enough to spook the markets. Just look at how Chinese local markets are performing as the loan growth numbers half from 1H. The irony is that the more markets rejoice the recovery the higher the chances that the most important pillar of this rally – liquidity – will disappear. Some of you will say that earnings will take over and sustain the rally but equity prices already seem to be reflecting the earnings recovery and valuations are not longer particularly attractive. So enjoy the rally while it lasts.... Enter the USD.

Policy Decoupling -- Episode I

We have been arguing that the new theme for the markets will be the policy decoupling. China moved first. They tinkered with their version of QE. The impact on the equity markets was profound. So they stepped back and ensured policy sustainability in the near term. However, yesterday saw the most obvious sign of monetary policy decoupling. Bank of Israel is now crowned as the first central bank to raise interest rates in this cycle. It was 25bps with a tightening bias... Markets frowned but did not move much on the news. As all EM managers know Israel is a hybrid market in the sense that it is in the EM universe but not exactly an emerging market economy with more obvious developed economy characteristics. So nobody really owned this move. At the same day Monetary Council in Hungary decided to cut rates by 50bps on the back of continued weakness in the economy. With a further easing bias. So most analysts now expect several cuts to follow. It is a well deserved cut and analyst are right about the direction of next moves. Alas Hungary is not living in a vacuum. These cuts somewhat rely on the strength of the currency and the optimism in the global economy and the markets. The irony is when the sentiment turns both of these parameters will change at the same time. So there is indeed a risk that Hungary may be come under pressure again. Besides let’s not forget the potential Latvian devaluation and regional contagion. Opportunistic cuts may be short lived.