Bullish USD

There is another means for the dollar to maintain its bullish projection; but it would be far more difficult to muster. If the world’s reserve currency was able to shake its label as the primary safe haven; it could rise on the merits of its own economic performance. While we have been trending toward this state for some time, it has been very slow. A rapid shift would be difficult to accomplish because of the currency’s place in the world’s financial markets, the prevalence of its Treasuries, the ballooning budget deficit, the fact that it is considered the source of the worst financial crisis since WWII and the very fact that it is used as a benchmark. Nonetheless, data and speculation put this indicator high up on the scale of economic recovery. While the US certainly isn’t enjoying the pace of expansion of its Chinese counterpart; the pace and extent of its recovery are expected to beat the UK, Japan and the Euro Zone (which we will confirm with next week’s GDP numbers). Friday’s non-farm payrolls certainly bolstered this belief after the disappointing details of the 2Q GDP report. Next week’s data will certainly weigh in on this front. A confidence and retail sales report will cover consumer spending which accounts for approximately 70 percent of the economy. The trade report will fill in for global demand and the capital flows it is adds or detracts.

Bearish Swiss Franc

Based on price action on August 7, it appears that the three major “safe haven” currencies have been winnowed down to two, following the surprisingly strong US non-farm payroll results. Indeed, the Swiss franc and the Japanese yen were the weakest of the majors not only for the day, but for the entire week as “riskier” assets like stocks and FX carry trades rallied. The moves were likely very encouraging for the Swiss National Bank, which has made no secret of their desire to prevent the Swiss franc from appreciating against the euro. However, with EURCHF now facing several levels of resistance at 1.5345, 1.5380, and 1.5446, traders may be feeling a little more cautious of assuming that the pair is on a one-way track higher.

Bearish Euro

The euro was one of the weakest major currencies on Friday, but it has little to do with European data. Instead, the release of US non-farm payrolls triggered a surge in the US dollar, which led EURUSD to break out of a tight range and down roughly 200 points. Looking at things from a macro perspective, the US employment numbers have led the markets to price in a greater probability of rate hikes by the Federal Reserve down the line, while the neutral tone struck by the European Central Bank on Thursday has left the euro dead in the water. That said, while 1.4150 offered support for EURUSD on Friday, more substantial support may not come into play until 1.4080, where we have the 50 SMA and a rising trendline connecting the April and July lows.

Bullish Ozzie

The Australian dollar finished the week barely changed against its US namesake, but a surprising shift from the Reserve Bank of Australia and otherwise bullish fundamental developments boosted forecasts for the AUD and sent it to fresh peaks versus the Japanese Yen. Australian central bank officials struck a decidedly positive note on the state of the domestic economy, boosting growth forecasts and pointing to improved conditions in domestic activity. They likewise strongly implied that they view current interest rates as sufficient to nurture growth—leaving the door open for rate increases through the foreseeable future. Markets responded in kind, sending implied December, 2009 interest rates to their highest levels since November of last year. Positive surprises in Employment data likewise boosted sentiment, and bullish sentiment pushed the high-yielding Aussie to fresh 10-month peaks against the safe-haven Japanese Yen.

Lifting my GBPJPY hedge before Wednesday and bolstering my existing dollar longs and european shorts was a timely maneuver as the US payroll and unemployment numbers as well as (I suspect) Swiss and ECB interventions brought both the franc and euro, and squaring off all my existing positions to the profit side.

I feel mildly vindicated by this, but emotional comforts aside, I’m also encouraged that my ongoing strong-dollar thesis is still applicable. The lesson of the past weeks is that playing contradictory theses such as the GBPJPY long hedge against my existing positions is justified not merely as a trade but primarily a protection to core positions, especially when the fact of the matter about trading is that you can never get your timing right most of the time, despite the soundness of the economic argument.

The opposite of this scenario is when the contradictory thesis turns out to be the correct one–in which case the painful part will be liquidating the core position. My only hope is if and when that happens, I’ll also know how to act without hesitation.

Haven’t seen the markets for 2 days straight as I attended a funeral. But before I left town, I took off my GBPJPY hedge and bolstered my Europe shorts and dollar longs. Whilst on my funeral holiday, both ECB and BOE kept rates steady and although these actions were widely expected by the markets, I think they are the catalyst for position liquidations. Employment and payroll reports from the US are due tomorrow night, and like the rate decisions these info could become the proverbial straw that broke the camel’s back.

After the ISM demolished my Europe positions, Aussie dollar came back which squared off my EURAUD shorts. Meanwhile the GBPJPY long hedge has worked nicely and cushioned the PNL for the timebeing.

Aussie news coming up this morning as well as USD news later this evening.

Still playing my contradictory thesis, but USD positions are severely underwater. No indications of a bottoming out yet, but my indications for USD strength persist.

ISM Manufacturing Index released just now was both better than forecast and better than previous period. The result was a further deterioration of my dollar longs and europe shorts as money flowed back into equities and drained out of US dollars. Fortunately, my hedge position in GBP/JPY continues to keep me afloat, and I still have time to consider the interplay of factors as they unfold. Clearly the US economy is contracting, but the speed of contraction is slower than expectations. This doesn’t necessarily bode for a recovery, but it does help sway sentiments in the short-term.

Still a payroll report by end of the week, and lots of economic release in between.

I open this chapter in my real-time experiment (in the same vein as George Soros–although nowhere near the same level of sophistication and scale definitely) just to air out the contradictions I’m trading now, which is keeping me a little on edge. Meanwhile apart from the hedge I’ve implemented on the trading, I can’t really say there is more I can do now other than just play out my strategy until further evidence asserts itself.

I’ve been playing a general thesis of stronger US dollar and a weaker Europe, not because I have faith in the US economy, but only because I expected deleveraging to continue driving money into US dollars–and an additional note that I also think that the credit problems in Europe have not been highlighted yet. Further to this, I’ve taken a long position in US Dollars against Swiss Francs, and a short position in Euros against Australian Dollars. When combined, these positions have only been generally a wash, with my losses in USDCHF longs offset by gains in EURAUD shorts. I’m still holding on to this thesis until seasonal lows in August and September, and will reconsider lifting them come October–which is a usual inflection point for many markets.

The strength in commodity and stock markets have been a surprise, as I’ve been expecting a general correction since April, which would have driven demand to the US Dollar (and helped my longs). Given this, I’ve been forced to take a long GBPJPY position–which is contradictory to my prevailing thesis–but it serves as a hedge for now, and also helps keep my position volatility at a minimum while I reconsider next moves.

On the macro level, COT commitment reports still support my strong USD view, although the market has yet to confirm it. In the meantime, I’m keeping my hedge until the expected monthy seasonality presents itself. Either way, all my positions are carry-trade positive, so at least I get a small cushion of interest while I let the markets play away.

More to follow.

I came across an analysis of the Philippine situation in the context of the global financial crisis that’s the best I have seen so far. It was prepared by Deutsche Bank – Equity Research about two weeks ago. The title of this column today is from that study and I think it captures the picture. I want to share it with our readers in the public interest because it would help them get the proper perspective of where we are at.

See ther rest of Chanco’s comments here.

Below is the Deutsche Bank analysis referenced in Chanco’s article.

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Chicken Little meets Pollyanna

Opinion is sharply divided over how hard the local economy will be hit by global recession.

• Last week the elite Makati Business Club (MBC) reported that 87% of its members surveyed expect the domestic economy to sink into recession in 2009. 60% said they would be retrenching early in the new year.
• At around the same time, a Nielsen survey showed that consumers’ confidence about the future was not only holding but actually improving. What gives? Are consumers in denial, or have businessmen simply lapsed into the “error of pessimism” that typically marks a severe bear market?

Let me tell you about the very rich . . .

Bleak as things may be, we believe that the depressed mood among the upper classes reflects not so much the health of the general economy but the state of their personal investment portfolios. To those who do not yet know it, the financial fallout from sub-prime US mortgages did hit Philippine shores. But it did so under the radar, at the personal rather than corporate level, via private banking channels through which local savings were parked (and lost) abroad.

Quantifying the extent of the wealth destruction involved is tricky, but anecdotal evidence suggests that we are not talking loose change.

• The Philippines is one of Asia’s oldest and largest offshore private banking markets. Given their country’s long history of instability and currency volatility, wealthy Filipinos customarily park a large portion of their liquid assets abroad.
• Foreign banks have in recent years been immensely successful in spreading the joys of investing offshore beyond the usual privileged class. With their annexation of the so-called “mass affluent”, Philippine private assets held abroad have by some estimates risen to a staggering US$60bn, or close to a third GDP (most likely a pre-mark-to-market number).
• Investments in “toxic assets” were many times leveraged in order to “supercharge” returns. Credit was of course provided by the friendly private banks.

It is through these backdoor channels that Filipinos became unlikely lenders to American homeowners, Russian moguls and Kazakhstan banks, the consequences of which we are all too familiar with. But as we are talking about a mere one percent of the population and a small handful of adventurous local banks, the fallout here may be more damaging to animal spirits than to aggregate consumption. After all, in this country, it is unlikely that money parked abroad was ever meant for domestic consumption or investment.

Yes, they had more money

Meanwhile, it is perfectly plausible to tie in the Nielsen consumer survey results with what is going on outside of the collapse in asset prices.

• The “mass non-affluent” classes have little or no savings.
• The end of the “commodity super cycle” has boosted real disposable incomes of the common wage-earner. From their respective peaks earlier in the year, rice prices have halved and oil prices are down 60%. Food comprises 50% of the CPI basket, and fuel and fuel-related products some 12%.
• The Peso’s 20% depreciation against the US Dollar this year is a windfall. In previous cycles, pre-globalization, the average household was a net importer that lost out from devaluation. Today, with an estimated one in four families receiving remittances from relatives working abroad, it is effectively a labor exporting unit. Overseas worker remittances are up 17% in US Dollar terms, year-to-date.

To be sure, unemployment has crept up this year and will likely continue to rise in 2009. But the losses from job layoffs are narrow and specific, whilst the gains from disinflation and higher remittances are more broadly felt.

All told, down at the grass roots, it feels far from a crisis situation. Indeed, in an unexpected way, the global crisis has done more to reduce the gap between rich and poor than the benevolence of the many governments that preceded it.

Will it last?

But will remittances hold up as global recession reaches a crescendo next year? Unlikely, but the maths show that the brunt of the fall-out here could be pushed out onto 2010, by which time the worst for the investment and export sectors may be over.

• The Peso’s depreciation was most pronounced in the last few months. The full year translation effects will hence be most effective next year. Figure 1 below shows that even in the unlikely event that the Peso were to stop depreciating today, it would take a 12% drop in US Dollar remittances for aggregate Peso receipts to decline in 2010.

• Moreover, it is far from certain that Dollar remittances are about to come off just yet. As one might expect at the top of a bull market, an unusually large number of Filipino workers – over a million as of end-September — were recruited to work abroad this year, over 60% of them in the Middle East. These people’s full-year contributions next year will offset curtailments we may see from the 8.7 million workers already employed abroad as of end-2007..

Make no mistake, we are not falling into Pollyanna’s camp. It is inevitable that seamen and construction workers serving the would-be financial centers in the Middle East will lose their jobs as the construction boom there fizzles out. But there is a good chance that this could happen closer to 2010. The denial stage, after all, is usually a long one. Especially when edifices are involved.

In between Chicken Little and Pollyanna – Case for the “U” scenario

Following from this discussion, the emerging scenario is one of an economy that continues to slow in line with declining investments and exports, but for which growth remains well in the black. The delayed effect of lower Peso remittances means that the trough could extend well into 2010, forming the base of our imagined “U-shaped” recovery.

The pillars supporting our conclusion:

• Private consumption spending will hold. Low income levels and large family sizes, mean very little discretionary consumption to curtail at the household level (e.g. food is 50% of the CPI basket). Should unemployment rise and real wages fall, families will dis-save, as they did in 1998. More likely, they will divert their OFW remittances away from property purchases.
• Investment will be soft but will not collapse, for similar reasons. The current Investment-to-GDP ratio (18%) already hovers at a decade-long bottom. This suggests that the bulk of current investment is already for essential maintenance purposes.
• Exports will continue to fall, but the importance of the sector to the whole equation is, in our view overstated. On paper, merchandise exports account for nearly 40% of GDP. But their low value-added means that dislocation from slowdown will not upset the applecart.
• Government spending will rise ahead of the elections. In the long-run, this is a mixed blessing, given the likely high leakage factor and consumption bias. But in the short-run, it will exert a stimulative influence.

Highlights:

• Gross Domestic Product grew 4.6% YoY in 3Q08, s ame as in 1H08. This is at the top end of the forecast range of economic planners and appears better than the mixed growth picture one may get from looking at various indicators of economic activity like electricity sales, fuel consumption, retail sales, external trade, remittances, bank lending, etc.
• We should point out however that 3Q08 still largely pre -dates the carnage in the global financial sector.
• On a seasonally adjusted basis, GDP growth slowed to 0.9% QoQ in 3Q08, from 1.9% QoQ in 2Q08.
• In 3Q08, government spending clearly accelerated, growing 12.5% in 3Q08 compared to a decline of 1.9% in 1H08. Industry also reported much stronger rates of growth vis -à-vis agriculture and services.
• Looking forward, we expect government spending growth to remain buoyant but exports, private consumption, and investment spending are all seen to slow.
• The current pace of growth is in-line with revised estimates we published in late October. We are maintaining our FY08 GDP growth forecast of 4.3%, which implies 4Q08 GDP growth of 3.6%. We are also maintaining our FY09 GDP growth estimate of 3.1%, which implies that the economy may grow at its slowest rate since 2001.

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Currencies
The Fed’s QE Operations and the Dollar
November 28, 2008

Summary and Conclusions

The Fed has commenced QE (quantitative easing). In this note, we review the concept of QE and analyse the likely impact of this extraordinary operation on the dollar. The upshot is that, since monetary policy, including QE, is a ‘nominal’ operation, the operation itself should not have significant implications for the real value of the dollar. The nominal dollar value should, thus, only be affected if QE alters the outlook of inflation in the US over the medium term. Also, whether QE by the Fed should erode the value of the dollar should be assessed relative to what other central banks do. To the extent that the ECB and the BoE also conduct QE – which is the case – the impact of QE on the dollar is not necessarily negative.

Having said this, though QE per se should affect the dollar through relative inflation as well as inflation expectations, the underlying structural problems that forced the Fed to conduct QE in the first place should alter the fundamental value of the dollar, relative to those of other currencies. The parlous state of the US financial system should, in theory, be reflected in a lower value of the dollar, had it not been for its hegemonic reserve currency status propping the dollar up during this deleveraging phase. The bloated fiscal deficits (which we assume will exceed those of the G7 countries) will further weigh on the intrinsic value of the dollar.

In sum, whether QE by the Fed is negative for the dollar depends on the inflation outlook of the US and the resulting inflation expectations. But at a fundamental level, the dollar’s intrinsic value has indeed deteriorated with its severely weakened financial sector. We maintain our core view that the dollar should continue to appreciate as the world slows – which we assume will last until next summer – but could give back some of the gains when deleveraging stops and the recovery phase for the US economy proves to be more protracted and treacherous than for other economies. The size and vigour of the dollar rally against the majors in the next six months or so are also likely to be more tempered than we have had in mind, in light of the deteriorating fundamentals in the US. Our call on EM currencies remains unchanged.

Background Discussion on QE

As inflation falls, and the unemployment rate rises, the Fed is likely to embark on QE to sustain monetary stimulus even when the FFR approaches zero. Broadly speaking, central banks can ease by either altering the price of money (i.e., interest rates) or the quantity of money. While policy orthodoxy these days is focused on the former lever, when short-term nominal interest rates approach zero as inflation falls, central banks could in principle use quantitative channels through which to impart monetary stimulus. Since it is the real interest rate that affects economic activities, the zero bound on nominal interest rates exposes an economy with deflation to persistently positive real interest rates. This was the situation faced by Japan in 2000, that interest rates were cut to zero but there was still not enough demand for money for monetary policy to work. That was an old-fashioned case of a ‘liquidity trap’.

However, for the US, Europe and the UK, the current situation is somewhat different. Interest rates are still above zero. The problem monetary authorities face is not quite deflation and inadequate demand for money (i.e., a deficient aggregate demand problem) – though this problem could emerge if demand slows further. Rather, monetary policies lack traction mainly because there is no longer a smooth transmission mechanism from the short-term policy interest rates to broader monetary aggregates, credit and aggregate demand. As a result, Japan had QE with ZIRP, but in the US, Euroland and the UK, there is QE without ZIRP.

There are essentially three broad channels through which a central bank can conduct unconventional monetary easing. First, a central bank could ‘do things’ (i.e., through communications or QE) to foster the expectation that short-term interest rates will stay low for an extended period of time. Indeed, this was the primary aim of the BoJ during its QE episode between March 2001 and March 2006. The FOMC statement in August 2003 which stated for the first time that “policy accommodation can be maintained for a considerable period” is another example of this type of commitment to monetary easing. Second, a central bank could increase the size of its balance sheet to foster an expectation on the future path of inflation. (Currently, the Fed’s balance sheet is around US$2 trillion, up from US$900 billion in August.) The intuition of this ‘money printing’ method of QE is obvious. Third, a central bank could alter the composition of its balance sheet. Assuming that investors treat different assets as not perfect substitutes, central banks’ purchase operations of selected assets could materially alter their prices. The best example is long-term US Treasuries. In theory, the Fed could purchase large amounts of Treasuries to cap the yields, just as the BoJ did through its rinban operations during the QE period. These three different methods of QE are conceptually distinct but operationally fungible. As the US economy slows further, we expect that the Fed will put all three methods of unconventional easing into practice.

The Fed began expanding its balance sheet in September. It may be useful to consider two motivations for QE by the Fed. The first is to take on market securities in an attempt to ‘jump-start’ the banking system; the second is to take on some of the intermediation duties that the private sector has refused to conduct. We looked at how the expansion in the Fed’s balance sheet compares with the experience of the BoJ during the QE period that spanned from March 2001 to March 2006, during which time the BoJ’s balance sheet expanded from around 13% of GDP to about 22% (we measure the balance sheet by the monetary base for both countries). Due to fundamental differences in the financial systems of the two countries, the Fed’s balance sheet has historically been substantially smaller than that of the BoJ – it averaged around 6% of GDP prior to this crisis. By October, however, the Fed’s balance sheet had been expanded to more than 8% of GDP – a 35% increase.

To properly assess the impact of ‘money printing’ by the Fed on inflation, it is important to track the evolution of broader monetary aggregates, and observe how the ‘money multiplier’ – the ratio between broad money and the Fed’s balance sheet – changes over time. We looked at the trajectories for M2 of Japan and the US. During Japan’s QE period, its M2 expanded from around 125% of GDP to more than 140%. In the US, M2 has expanded from 53% to 57% of GDP since September. While the latter is a sharp surge, M2/GDP is not substantially higher than it was during 2003, when the Fed drove the FFR towards 1.00%. Indeed, most of the surge in the figure comes from the anticipated sharp drop in 4Q nominal GDP. To summarise, while base money has increased dramatically (by 34% since August), M2 has grown by only 2.7%.

The reason for this, of course, is that the ‘money multiplier’ (MM) has collapsed, reflecting a severe breakdown in the ability and the willingness of the bank and non-bank entities in the US to intermediate capital to the extent they had done prior to the crisis. The collapse in the US MM is significantly more severe than in the case of Japan, during which time Japan’s MM fell from around 10 times the size of the BoJ’s balance sheet to around 6.5 times (a fall of 35%). In the US in the last two months, we have seen the US MM falling from more than 9 to around 7 (down 22%).

Will QE by the Fed Weaken the Dollar?

Our short answer is ‘no’. But whether this answer is right depends on a number of assumptions. (1) Deflationary pressures cannot be dismissed so easily in this cycle. Analysts can have their views on the inflation/deflation debate; however, to us, the fact that, with half a dozen ‘nuclear options’, the world’s policymakers have not yet succeeded at halting or containing the crisis worries us. It is, to us, very difficult to argue convincingly that ‘it’ won’t happen in the US or elsewhere in the world (see Vice Chairman Don Kohn’s speech last week). While the probability of this risk of sustained deflation is not high, it may be too high for comfort. Though the Fed did act much sooner than the BoJ, the underlying problem is arguably more serious and the financial crisis has severely shocked the ‘money multiplier’, forcing the Fed to intermediate on behalf of the private sector. In short, we fear deflation now more than we fear inflation tomorrow, because we simply have no confidence that this will merely be a ‘deflation scare’.

Our guess is that the Fed and other developed country central banks have a similar asymmetry in fear of the two tail risks: this risk-management approach to monetary easing indeed reflects the asymmetry. (EM central banks have lingering concerns about inflation.) In a way, investors realise this and are betting on the G7 central bankers to overwhelm and neutralise the left tail risk, leaving the risk of the G7 ‘overdoing’ (i.e., over-easing) it more prominent than the G7 failing to re-ignite their economies. In other words, the greater the fears of deflation, the more will be done by central banks to avoid that scenario and, as a result, the higher the risk of inflation in the out-years, or so it is thought. (Ironically, it was this stance the Fed had in 2001-03 that arguably sowed the seed for the ensuing credit bubble.) Having said this, this thought process is logical but very subjective, with no clear right answer, in our view. But tactically, we believe it is wise to bet that the deflation scare will be more powerful a market force as the global economy falters and as central banks fight the ‘icing problem’. Whether there will be inflation is a debate for another day, probably three months from now, and it will probably not be reflected in market pricing, we suspect.

Whether the dollar depreciates depends on whether investors believe that there will be runaway inflation in the US over the medium term. Our view is that the Fed will most likely have time to retract on QE in time to keep a lid on inflation. Without inflation, the dollar cannot be weakened by nominal operations, ceteris paribus. Our guess is that, while dealing with a liquidity trap is difficult, removing stimulus when macro conditions normalise should not be a major problem for the Fed. But this discussion also highlights the importance of the Fed having a credible ‘exit strategy’ for its QE operations. This is essentially the view of Minneapolis Fed President Gary Stern.

Further, while many are focused on this question of QE by the Fed and the dollar, we argue that the ECB will likely be forced down the same path soon. The European and the UK banking systems are just as unwilling to intermediate capital as the American banking system. The ECB and the BoE, therefore, will likely be forced to do some of the intermediation on behalf of the private sector, just as the Fed has been forced to do. So if the Fed, the ECB and the BoE adopt QE, what is the net result on EUR/USD or cable? We think it is very unclear that EUR or GBP will necessarily rally, as is presumed by some investors when they think about the Fed.

Ironically, the tug of war between deflation and inflation fears indicates a reverse Dollar Smile mechanism of sorts. Recall that our Dollar Smile framework suggests that the dollar rallies when the US economy is stronger or weaker than the rest of the world. In the intermediate state, which we call the gutter, the dollar is weak. In the deflation versus inflation debate, on the other hand, both these extremes imply a weak dollar, while the intermediate state would foster dollar strength.

The USD’s Fundamental Value Undermined?

While the Fed’s QE operations affect the nominal value of the dollar through inflation, the severe deterioration in the US financial system must have had an impact on the intrinsic value of the dollar. We stress again that exchange rates are a relative concept, so we need to be sensitive to how much structural damage the financial systems of other developed countries may have sustained. This also includes the fiscal burden that these countries have to take on because of this damage. Notwithstanding all the problems in the US banking system, the size of banks’ balance sheet is much smaller in the US than in many other countries. For example, total bank liabilities are around 650% of GDP for Switzerland, 430% for the UK, 320% for the Euroland, 150% for Japan and 85% for the US. Investors should keep this fact in mind.

In any case, as a rough guesstimate of how the USD major index may be affected by the breakages in the US financial system and the remedial policy actions, we simulated, using our multilateral USD index fair value framework, how the major USD index might be affected by prospective changes in relative productivity, relative terms of trade, relative fiscal positions and the US NFA (net foreign asset) position. Our simulations are centred on the last two variables, as we believe that it is difficult to draw a clear link between the banking sector and relative productivity and the terms of trade.

It looks likely, based on recent developments, that the relative US fiscal position may deteriorate by 2% of GDP, and its NFA position may also deteriorate by 3% of GDP (the US C/A deficit is expected to shrink but will still be large). This scenario maps to a 5.3% depreciation in the fair value of the major USD index, according to our valuation model (the impact of NFA is small due to the small magnitude of the estimated coefficient in our model).

Bottom Line

There are two considerations in thinking about the impact of the Fed’s QE operations on the dollar. First, QE per se can only affect the nominal value of the USD through relative inflation. The greater the inflationary pressures generated by QE, the more the dollar could weaken. Second, the underlying reasons why the Fed has been forced to undertake QE operations may undermine the intrinsic value of the dollar by 5-7%. Thus, while we still expect the dollar to appreciate as the global economy falters, the size of the USD rally against the majors in the next six months will likely be more modest than we had thought. Against the EM currencies, we continue to expect significant USD strength in the next six months.