American cicadas and German ants | Financial markets

The era of excess savings above the average in the United States is behind us and dangerously the current figure stands at 3.6%, well below the historical average of 8.4% or outside the zone of the saving countries like Germany, which is around 20%. The time of the pandemic and the exceptional monetary subsidies to families meant that savings figures were record-breaking in recent years, but as time goes by, the American consumer continues in his natural tendency of little savings and a lot of consumption.

In recent years, American families have been the financiers of the US deficit and the large buyers of public debt now that the State remunerates savings between 4% and 5%. This has made it possible for the Fed to normalize its balance sheet and stop printing money to finance the debt. After a debt balance crisis in 2008 for families, they have carried out a very notable deleveraging exercise. Household debt has dropped to around 71% from close to 100% in 2008. We can say that families have repaired their balance sheets as have companies that have also done this same healthy exercise.

Now the question that arises is the following: if the private sector continues with consumption levels as current and the savings rate does not increase, who is going to buy the State debt. The third player, after families and companies, has not repaired its balance sheet, but on the contrary, has increased it: from a debt in 2008 of 10 billion dollars to nearly 35 billion today. And this is the dilemma the Fed has regarding interest rates.

The American economy in this scenario of lower family savings – which, on the other hand, will demand more European-style social spending – cannot coexist with a 10-year bond above 4.5% or approaching 5%. %, since there the State is drowning with the payment of interest on the debt. With the potential growth of the American economy being 2% and assuming normalized inflation, the 10-year bond looks more likely to end up in the area of ​​3% or 3.5% in 18 months than to survive in the area of ​​4.5%. % or 5%.

At current levels, buying long-term debt or increasing duration can be a good investment strategy, even more so in a scenario where global fixed income remains negative for the year, with falls of 1.8%. Fixed income relative to the Stock Market can be an investment alternative that brings joy in the second part of the year.

Alberto Espelosin He is manager of the Renta 4 Alpha fund

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