Due sono le cose che, fin dai primi giorni, Recce’d si è sentita di dire (e di fare, per i propri Clienti) in merito alla vicenda del coronavirus e del suo impatto sui mercati finanziari, sui portafogli titoli, ed alla fine sui nostri e vostri soldi.

La prima delle due cose è: non parlare troppo, non fare troppe previsioni, non azzardare, stare un po’ zitti ed osservare, analizzare, ragionare.

La seconda cosa, che la settimana scorsa abbiamo poi sviluppato nella Sezione Analisi del nostro quotidiano The Morning Brief in esclusiva per i nostri Clienti, è che al di là di ogni possibile dubbio l’impatto più significativo di questa vicenda sarà sul sistema bancario cinese che come tutti i lettori sanno era interessato, e già da parecchio tempo, da problemi importanti di stabilità a causa della eccessiva crescita del credito, riconosciuta dalle stesse Autorità monetarie e politiche cinesi.

Crescita del credito che è accelerata nuovamente, dall’inizio del 2020 (grafico sopra), e che potrebbe in futuro PEGGIORARE anziché migliorare lo stato dell’economia cinese, come dice il titolo che trovate sopra in apertura.

Ai nostri Clienti dedicheremo ulteriori approfondimenti nelle prossime settimane. Oggi nel Post proponiamo in lettura un utilissimo articolo che è stato pubblicato da Bloomberg solo pochi giorni fa.

Beijing is throwing all it’s got at the coronavirus. Less visible than the drama of quarantining communities, however, is the new pressure that the outbreak is bringing on China Inc.’s hard-up borrowers.

They face $944 billion of debt maturities onshore and $90 billion offshore this year. Authorities are going back to their old playbook of spewing handouts to get them through. The costs will add billions of dollars of debt and cripple an already-weakened financial system. It may be doing more harm than good.

Workers are stranded and factories remain widely shut. There is no imminent sign of that changing, even if the increase in infections has trended downward in recent days. The resulting economic slowdown will bite into earnings by 10% to 20% for months and hamper the ability of companies to pay their debts. As asset quality deteriorates, Goldman Sachs Group Inc. estimates that Chinese banks’ implied ratio of bad-to-total loans will jump to 8.1% from an earlier prediction of 5.4%.

China has responded with all-too-familiar palliatives. Regulators and local governments have laid out measures that include billions of dollars for tax cuts, borrowings at cheaper rates, and incentives to keep workers employed. Banks are being asked to push off repayments and to roll over debts. They’re allowing companies to add more working capital loans before they have paid down existing ones.

Trouble is, China Inc. was already struggling before the virus hit, especially the private sector. A stimulus campaign to pull manufacturers out of the trade-war doldrums didn’t do much for their balance sheets last year. Private companies’ accounts receivables remain elevated and have been increasing for the likes of large machinery makers. Short-term funding and average average payback periods are also rising. Financing for capital expenditures and working capital slowed into the end of last year. 

A recent survey of 995 small- and medium-size companies showed that a just over a third could survive for a month with their current savings. Another third could hang on for two months, while just under 18% could last three. All this as large banks reported a more than 30% increase in loans to smaller borrowers in the first half of 2019.

Beijing’s latest round of financial forbearance will only worsen the situation. Lending more with looser terms may help tide over some companies and refinance their debt for now, but does little to flush out the ones that just aren’t financially viable. That many cannot support themselves without the state for even three months shows China’s vulnerabilities.

Lenders, the pillars of the financial system, are weaker than the numbers betray. The central bank’s stress tests show as much. Before the virus, they were contending with a bank failure and a deleveraging campaign that unearthed billions of dollars of bad credit assets. Government coffers, meanwhile, are shrinking. All of the state’s largesse has meant fiscal revenue growth slowed to 3.8% last year, well under its 5% target and down almost half from 6.8% in 2018.

In theory, Beijing has the tools and a vast number of financial institutions aside from banks to lean on. In times of crises, financial forbearance isn’t unheard of. But repeated use of banks this way multiplies the dangers to unsustainable levels. Small and medium enterprises facing funding issues have to reach for more shadowy financing. The private sector is cash-starved and debt piles up. That debt, as the deleveraging campaign has shown, clogs the system and makes every yuan of credit even more ineffective. Companies can’t grow and lenders start to fail. The state is left holding the bag.

A more prudent approach this time might be call into service insurance companies with huge balance sheets, and asset management companies, with their experience in dealing with stressed companies. Insurers have been big buyers of bonds, stocks and private equity deals for years. As operators in a marketplace, they understand credit risk better than banks. They could be more effective in managing small and medium companies’ debts.

It’s time to let weak companies that have high operating leverage and short-term debts close down. But that might be too risky for President Xi Jinping, who continues to voice support for them. After all, they account for around 80% of urban employment.

When China dealt with Severe Acute Respiratory Syndrome in 2003, an era of supercharged growth was beginning. It had recently joined the World Trade Organization and even indebted companies had cash flowing in and the prospect of a lot more coming. That’s no longer the case. 

Even if Beijing manages to rein in the coronavirus, debt will keep sickening China Inc.

Fin dai primissimi giorni, avete trovato in Recce’d un punto di riferimento chiaro, trasparente, coerente, e un solido ancoraggio alla realtà, per ciò che riguarda la vicenda coronavirus ed il suo impatto sui nostri portafogli di investimento.

I fatti non ci hanno costretto (almeno fino ad oggi) a fare marcia indietro: il nostro atteggiamento sulla vicenda coronavirus è il più appropriato dal punto di vista di un investitore sui mercati finanziari.

Poi a distanza di ormai cinque settimane abbiamo trovato (e ci ha fatto piacere la circostanza) sul Wall Street Journal un eccellente articolo, che abbiamo deciso di riproporvi per intero, nel quale si suggerisce di adottare esattamente la medesima linea di comportamento e la medesima logica per la valutazione dei fatti presenti e futuri.

On Monday evening, Apple warned its shareholders about the effects of the new coronavirus outbreak. Production of iPhones has been slowed because of quarantined workers, and the company expects to sell fewer products in China as the country grapples with the problem.

Revenue, Apple said, will take a hit, though it wasn’t ready to estimate just how big. It seemed the kind of warning, from a company worth $1.4 trillion and a mainstay of investors’ portfolios, that might inspire quite a sell-off on Wall Street. After all, if the supply chain wizards at Apple can’t keep things going because of coronavirus, what other problems might emerge that ripple through the global economy?

But Wall Street, in the end, mostly ignored it. The S&P 500 fell a mere 0.3 percent Tuesday, only to recover all of that ground and more Wednesday. By the close of trading Wednesday, even Apple stock recovered to nearly where it had been before the announcement.

It fits a pattern: The stock market has barely reacted despite the idling of countless factories in China as workers are quarantined, and despite fears that the virus could spread more widely and create further economic disruption across Asia and beyond. The S&P 500 is actually up 5.6 percent from its levels at the end of January, when the World Health Organization declared coronavirus a global health emergency.

Even shares of American companies with the most direct exposure to the Chinese economy are holding up fine. The Dow Jones travel and tourism index, which includes airlines and hotel chains that would suffer from a drop in Asian tourism, is down a mere 1.2 percent since mid-January, when the coronavirus fears started to become widespread.

This buoyant mood in the stock market has continued even as economic forecasters have downgraded their projections for global growth in 2020 and warned that in less likely but more grim scenarios, the world economy could face a major hit as commerce sputters in affected regions.

For example, Moody’s Investors service this week described a baseline scenario in which the virus was contained in the first quarter. If that were the case, the economic damage would probably be limited to temporary disruptions and to supply chains and tourism. But the firm also raised the possibility of something more damaging.

“The toll on the global economy would be severe if the rate of infections does not abate and the death toll continues to rise,” Moody’s analysts wrote. “Extended closures in China would have a global impact given the importance and interconnectedness of China in the global economy. The financial market reaction seems to have been to mostly shrug off the impact, which may underestimate the risks.”

At first glance, it might seem as if there are only two possibilities: Assessments like that one are too gloomy, or the stock market has failed to incorporate a major risk to the outlook. But when you look at the full range of data, there is another way to reconcile things.

Bond markets have appeared markedly more pessimistic than the stock market, with the yield on 10-year Treasury bonds falling to 1.57 percent Wednesday from about 1.8 percent in mid-January. That suggests bond investors envision lower growth, and hence lower interest rates, over years to come.

And two-year Treasuries are yielding a mere 1.43 percent, below the Fed’s current target for overnight interest rates of between 1.5 percent to 1.75 percent. That implies investors think it increasingly likely that the Fed will cut interest rates again this year.

Coronavirus is part of the reason. Minutes of the Fed policy meeting in late January that were released Wednesday said that “the threat of the coronavirus, in addition to its human toll, had emerged as a new risk to the global growth outlook, which participants agreed warranted close watching.”

In effect, stock investors seem to be betting that the Fed will bail them out of any damage that the virus might to do to corporate profits and the world economy. A Fed rate cut or two would make money cheaper, and therefore support high stock valuations even in an environment in which major companies that do business in China or other affected countries had to shutter production or absorb lost sales.

It’s a plausible story. But it also points to one of the big worries about the valuations of all sorts of financial markets in the 11th year of the economic expansion.

The stock market keeps hitting new highs, but it has required repeated shifts toward easier money by the Fed to make it happen — most recently, last summer and fall. Back then, the trade wars and other global factors seemed at risking of tipping the United States economy into a slowdown, and the Fed cut its key interest rate three times.

The rate cuts did their job, financial markets rebounded after some summer turbulence, and now the United States economy seems to be cruising.

But the Fed is also facing the very real problem that interest rates are so exceptionally low even in good times that it has little room to maneuver if the economy takes a significant turn for the worse.

Its target interest rates are barely above 1.5 percent, and if the Fed has to cut further to protect the United States economy against a shock from a virus that emerged in Wuhan, China, it has less capacity to deal with some potentially larger disruption closer to home.

Using the power of monetary policy to combat a potential pandemic, in other words, would leave the central bank with less capacity to fight some future, unknown challenge.

So stock investors who remain bullish despite the coronavirus risks are in effect making two big bets rather than one.

First, they are betting that the Fed can and will act if necessary should the virus start to do real damage to the economy. Second, if that were to happen, they are betting that the Fed’s diminished capacity to deal with future shocks won’t be a problem.

If you think the world is full of risks in the years ahead, the economic disruptions from coronavirus ought to be only the beginning of your worries.

Neil Irwin is a senior economics correspondent for The Upshot. He is the author of “How to Win in a Winner-Take-All-World,” a guide to navigating a career in the modern economy. @Neil_Irwin 

Come scriviamo anche oggi nella nostra pagina di ricapitolazione settimanale, in questo momento la nostra strategia di investimento è chiara come in poche altre fasi di mercato.

Anche i dati che sono stati pubblicati negli ultimi giorni, inclusa la produzione industriale in Eurozona che vedete sotto con la linea di colore rosso) contribuiscono a chiarire la situazione, anche se per ora i mercati (la linea di colore blu del grafico) sono vittime di una fase di euforia che è stata alimentata dai mezzi di informazione.

Non ci faremo di certo mandare in confusione da queste oscillazioni di brevissimo termine di pochi indici di mercato: ci siamo già passati, ci siamo già stati, ed abbiamo già vinto in passato, e non una sola volta.

Non siamo ingenui, non siamo sognatori, e non siamo più bambini: abbiamo smesso da tempo di credere alle favole a lieto fine, ai supereroi del cinema di Hollywood, ed alle pillole della salute che fanno vivere 120 anni.

Ed anche a quella felicità “garantita dalla liquidità delle Banche Centrali”.

Liquidità che, come tutti sanno, garantisce benefici solo di breve termine. E’ un palliativo. E’ un placebo.

Come già abbiamo scritto in altre occasioni, però, le fasi di mercato in cui tutto sale fanno sentire anche il più piccolo investitore come un Dio dei mercati, che è capace di dominare le onde dell’Oceano facendo surf sulla propria piccola tavola.

Come vedete nell’immagine qui sotto, tutto dipende poi da come si scende, da quella tavola.

Ma oggi una buona parte degli investitori si è fatta mandare in confusione dal miraggio di una “eterna felicità ed illimitata ricchezza”. Questi investitori non sono più lucidi, e prendono decisioni affrettate sotto la pressione della psicologia di massa, e commettono quindi errori che pagheranno a breve.

Allo scopo di rendere utile il nostro lavoro anche per chi crede … nelle pillole dei 120 anni, ci pare utile proporre in lettura i seguenti due commenti della settimana scorsa, che arrivano da due esperti operatori di mercato, che hanno la capacità di mettere in evidenza sia gli eccessi della attuale situazione di mercato, sia gli eccessi che dominano oggi nella psicologia di massa.

From my perch we’re in the midst of a giant Fed induced asset bubble and I’ve written extensively about it. In my view the Fed is reckless, irresponsible, and unaccountable and their liquidity actions are setting up investors for a disaster to come.

Each bubble has its voices and in hindsight in particular they offer testimony to how dangerous markets really were at the time, how obvious the risks ignored were, yet so ignored by participants as momentum kept rolling on before the rug gets pulled.

Hence I thought it might be of interest to document some of these voices:

Guggenheim’s Minerd, a $275B money manager:

“Guggenheim Partners Global CIO Scott Minerd said in a letter to clients that the elevated prices in financial markets show a “cognitive dissonance” from economic reality that has created a dangerous bubble among debt assets.

Liquidity from the Federal Reserve and other central banks and increased demand for bonds from ETFs are masking the problems in the market, Minerd said, and the coronavirus outbreak is an example of an economic shock that could prick the bubble. The money manager said GDP growth in China in the first quarter could be as bad as negative 6%.

“This will eventually end badly. I have never in my career seen anything as crazy as what’s going on right now,”

“In the markets today, yields are low, spreads are tight, and risk assets are priced to perfection, but everywhere you look there are red flags,”

“We are either moving into a completely new paradigm, or the speculative energy in the market is incredibly out of control. I think it is the latter. I have said before that we have entered the silly season, but I stand corrected,” Minerd said at the end of his letter. “We are in the ludicrous season.”

Then from Mark Spitznagel, the founder of Universa Investments:

Right now, stocks, with the Federal Reserve winds blowing at their backs, are “distorted” and “no longer tethered to fundamentals,” Spitznagel warns, and that makes for those chasing returns extremely vulnerable.

“These monetary distortions lead to this reckless reach for yields that we are all seeing,” he said. “Randomly go look at a screen and it’s pretty crazy. Big caps, small-caps, credit markets, volatility; it’s crazy. Reach for yield is everywhere.”

Una potente macchina di persuasione di massa si è immediatamente messa in moto, prima ancora che le notizie uscissero sui mezzi di comuncazione, per convincere il Mondo che il coronavirus è un problema serio ma gestibile, che non sfuggirà dalle potenti mani dei Governi investiti dalla questione.

Normale: normale che si vogliano evitare momenti di panico ed episodi di isteria collettiva.

Molto meno normale che per evitare queste forme di isteria collettiva si sia alimentata un’altra isteria collettiva.

Ad un occhio lucido ed esperto risulta del tutto inspiegabile il perché anche in questa occasione sui mercati finanziari si sia registrata una situazione del tutto schizofrenica.

Da una parte, i mercati delle obbligazioni, delle materie prime, e dei cambi tutti sbilanciati verso la prudenza, per non dire la negatività. Dall’altra le Borse, soggette a episodi di euforia come se fossero in preda agli allucinogeni.

Ovvio che l’euforia viene alimentata, in Borsa, da chi ha interesse ad alimentarla: difficile invece capire perché molti, moltissimi investitori VOGLIONO, desiderano essere illusi, desiderano “continuare a sognare”, e voglio credere in una Borsa che “non può più scendere, mai più”.

Forse, la massa degli investitori crede davvero ai supereroi: forse crede che esista un supereroe come quello dell’immagine in altro, che digitando una serie di Tweet sul suo smartphone può risolvere i problemi del mondo reale.

Essendo questo Blog un servizio rivolto al pubblico, che deve quindi occuparsi del pubblico, come ad esempio la salute (mentale) pubblica, riteniamo appropriato sottoporre all’attenzione dei lettori una parte di un articolo pubblicato in settimana, a firma di uno dei più autorevoli commentatori del Pianeta. Articolo che spiega che è inutile stare con gli occhi al cielo sperando di vedere passare Superman.

Meglio guardare alle cose reali del Pianeta Terra.

Il tema riguarda molto da vicino i vostri investimenti, i vostri soldi, la vostra performance: vi aiuterà a capirlo il commento che segue al grafico del Wall Street Journal.

Chi è interessato ad approfondire, potrà ascoltare anche le parole pronunciate in questo video di Barron’s. Noi di Recce’d abbiamo chiarito, ci auguriamo a sufficienza, la nostra opinione sul tema coronavirus fin dall’inizio, ed anche in modo pubblico, nei tre precedenti Post che hanno questa serie con il titolo che leggete in alto.

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:

1. “increasing the volume of reserves in the banking system”

2. “altering the mix of assets held by investors”

3. “influence investors’ expectations about monetary policy”

Simply:

1.  providing banks the ability to make more money

2.  forcing investors to take more risk and thereby push asset prices higher

3.  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.