The spread goes down and the stock index goes up
The end of the Draghi government was to signal the arrival of the storm for Italy. Rumors spoke of a group of British and US hedge funds preparing to deal with the incoming centre-right majority under Meloni as they had done in 2011 with the previous centre-right government led by Silvio Berlusconi. At the halfway point of the first half of 2023, almost a year after Draghi’s fall, none of this happened. Far from it. The spread that was at 240 points collapsed to 167 points and Piazza Affari took first place in the ranking of increases.
We review the quota 28 thousand
The Milan Stock Exchange rose by 32.4%, recovering a 28,000 share that it hadn’t seen since Lehman in 2008. But above all, placing itself on the roof of the world. Among the G7 indices after Milan there is +27.97% of the Nikkei and +26.15% of the Frankfurt Dax. Then the Parisian Cac 40 (+25%) and the Nasdaq (+24%). The worst, compared to June 30 last year, are the Chinese stock exchanges, all down by about 15%.
Apple is worth as much as France’s GDP
Certainly in the first six months things have changed a bit because the Nasdaq he put the turbo gaining 30%. The big techs were the push, starting with Apple which, having gained 50%, has come to capitalize 3 trillion dollars. It means that the colossus founded by Steve Jobs alone is worth as much as France. In the race of US phenomena how can we forget Nvidia up 188% dragged by the dream dthe Artificial Intelligence that cannot think without its chips.
The monetary esotericism of Türkiye
Ranking purists will argue that, actually the best performing index in the world over the past twelve months is the Istanbul Bist. It grew by 135% compared to June 30, 2022. Correct but inappropriate remark. Not only because Turkey has less weight than a featherweight in the global financial landscape, but above all because the country adopted a monetary policy with an esoteric content until a few weeks ago. Erdogan has imposed very low rates for purely political reasons. For many years Turkey has managed to grow brilliantly without producing too much inflation. At some point, however, things turned around. Inflation has exploded and growth has declined. Today Turkey can continue to say that its model has produced better results than the Argentine one (which is a mix of monetary esotericism and orthodoxy promoted by the IMF), but the gaps between the two countries have narrowed a lot.
La Modern Monetary Theory
At this point there are two questions: the boom of the Stock Exchanges, starting from Milan coincides with the beginning of the rate hike launched by the ECB: how could this happen? And then: second question: will the Ftse Mib index again see the 48,000 level abandoned in 2000? In reality, the two questions are related considering that the credit crunch is set to continue. And then what happens? Alessandro Fugnoli, Kairos strategist in his weekly news letter “Il Rosso e il Nero” tries to give an answer. It uses the teachings of Modern Monetary Theory, a body of doctrines that we could define as exoeconomics, or the economy of a parallel universe that appears alien to our terrestrial eyes.
Interest rates and public deficit
While in our universe we learn from an early age that high rates are restrictive, because they reduce the propensity to go into debt to invest, consume and buy houses, the opposite happens in the MMT world. High rates there are seen as correlated with strong government spending. They are therefore the other side of an expansive policy. By paying high interest rates on its debt, the state credits lots of good money to the bank accounts of bondholders, who can thus spend and consume more.
Powell and the theories of Mmt
However, the fact that high rates alone do not directly lead to such restrictive effects as one would be led to think is a notion that is beginning to filter into our universe. In Sintra Castle, where the ECB holds its annual Jackson Hole, we heard Powell admits that if the labor market is still so strong it means that it has not tightened enough and long enough.
Consumer optimism
As for consumer sentiment, despite all the limitations that this type of data can have, we see more optimism today than in previous years. where rates were at zero.
Spending and investments
In short, the rates that rise every month (now every three) they are something that is listened to on television and that remains there if in the meantime the variables that decide the real life of companies and people go in the opposite direction. If these theories are founded we are witnessing the leap of parameter. Rates become an independent variable: they will perhaps serve to stop inflation but not the ride of the markets
Lowest growth
Fugnoli concludes: with the idea that inflation will fall in any case, taking rates with it, the stock markets need even lower growth than what we have seen in recent months to continue to want to go up. So far the stock exchanges, thanks to the strength of the decennial, have absorbed bene the upside surprises of inflation and celebrated the downside ones.