Quando Jay va al congresso (parte 2)
La settimana scorsa, nel primo Post con questo titolo, vi abbiamo aggiornato sul tema della crisi che si prolunga da ormai un semestre senza soluzione di continuità, che investe il mercato USA della liquidità interbancaria, che coinvolge direttamente la Federal Reserve, e che sarà uno dei fattori più importanti nel determinare il futuro (anche prossimo) dei mercati finanziari globali.
In quel Post della settimana scorsa, vi abbiamo chiesto di leggere un articolo del Financial Times del quale, poi, la settimana scorsa si è parlato ogni giorno tra gli operatori di mercato.
Tra i tanti commenti all’articolo, noi abbiamo selezionato per voi lettori quello che a nostro parere è il più significativo.
Noi continueremo ad informare in modo analitico i Clienti su questa vicenda, che va aumentando di importanza sui mercati finanziari anche se vine fatto ogni possibile sforzo per tenerla nascosta.
Esattamente comi si fa, in altri contesti, quando scoppia un’epidemia virale.
Se per caso qualcuno vi ha detto che questo argomento non è importante. Che è soltanto una tecnicalità. Che non inciderà sui prezzi delle azioni e delle obbligazioni. Allora fatevi una vostra idea: guardando i dati del grafico che segue.
Ve la sentite, di dire che “non sta succedendo nulla di strano”?
Vi lasciamo alla lettura dell’articolo che trovate più in basso.
On February 5th, 2020, Dominic White, an economist with a research firm in London, wrote an article published by the FT entitled The Fed is not doing QE. Here’s why that matters.
The article presents three factors that must be present for an action to qualify as QE, and then it rationalizes why recent Fed operations are something else. Here are the requirements, per the article:
“increasing the volume of reserves in the banking system”
“altering the mix of assets held by investors”
“influence investors’ expectations about monetary policy”
Simply:
providing banks the ability to make more money
forcing investors to take more risk and thereby push asset prices higher
steer expectations about future Fed policy.
Point 1
In the article, White argues “that the US banking system has not multiplied up the Fed’s injection of reserves.”
That is an objectively false statement. Since September 2019, when repo and Treasury bill purchase operations started, the assets on the Fed’s balance sheet have increased by approximately $397 billion. Since they didn’t pay for those assets with cash, wampum, bitcoin, or physical currency, we know that $397 billion in additional reserves have been created. We also know that excess reserves, those reserves held above the minimum and therefore not required to backstop specified deposit liabilities, have increased by only $124 billion since September 2019. That means $273 billion (397-124) in reserves were employed (“multiplied up”) by banks to support loan growth.
Regardless of whether these reserves were used to back loans to individuals, corporations, hedge funds, or the U.S. government, banks increased the amount of debt outstanding and therefore the supply of money. In the first half of 2019, the M2 money supply rose at a 4.0% to 4.5% annualized rate. Since September, M2 has grown at a 7% annualized rate.
Point 2
White’s second argument against the recent Fed action’s qualifying as QE is that, because the Fed is buying Treasury Bills and offering short term repo for this round of operations, they are not removing riskier assets like longer term Treasury notes and mortgage-backed securities from the market. As such, they are not causing investors to replace safe investments with riskier ones. Ergo, not QE.
This too is false. Although by purchasing T-bills and offering repo the Fed has focused on the part of the bond market with little to no price risk, the Fed has removed a vast amount of assets in a short period. Out of necessity, investors need to replace those assets with other assets. There are now fewer non-risky assets available due to the Fed’s actions, thus replacement assets in aggregate must be riskier than those they replace.
Additionally, the Fed is offering repo funding to the market. Repo is largely used by banks, hedge funds, and other investors to deploy leverage when buying financial assets. By cheapening the cost of this funding source and making it more readily available, institutional investors are incented to expand their use of leverage. As we know, this alters the pricing of all assets, be they stocks, bonds, or commodities.
By way of example, we know that two large mortgage REITs, AGNC and NLY, have dramatically increased the leverage they utilize to acquire mortgage related assets over the last few months. They fund and lever their portfolios in part with repo.
Point 3
White’s third point states, “the Fed is not using its balance sheet to guide expectations for interest rates.”
Again, patently false. One would have to be dangerously naïve to subscribe to White’s logic. As described below, recent measures by the Fed are gargantuan relative to steps they had taken over the prior 50 years. Are we to believe that more money, more leverage, and fewer assets in the fixed income universe is anything other than a signal that the Fed wants lower interest rates? Is the Fed taking these steps for more altruistic reasons?
Bad Advice
After pulling the wool over his reader’s eyes, the author of the FT article ends with a little advice to investors: “Rather than obsessing about fluctuations in the size of the Fed’s balance sheet, then, investors might be better off focusing on those things that have changed more fundamentally in recent months.”
After a riddled and generally incoherent explanation about why QE is not QE, White has the chutzpah to follow up with advice to disregard the actions of the world’s largest central bank and the crisis-type operations they are conducting. QE 4 and repo operations were a sudden and major reversal of policy. On a relative basis using a 6-month rate of change, it was the third largest liquidity injection to the U.S. financial system, exceeded only by actions taken following the 9/11 terror attacks and the 2008 financial crisis. As shown below, using a 12-month rate of change, recent Fed actions constitute the single biggest liquidity injection in 50 years of data.
