Affected by the global new pneumonia epidemic, US stocks experienced four meltdowns within ten days. After experiencing an epic plunge, they experienced another two rounds of surges at the end of this month. “Black Swan” danced on the stock market stage, attracting global attention, people can’t help but ask, what’s wrong with US stocks?
“The U.S. stock plunge is based on the continued rise of the past 11 years. Since the 2008 global financial crisis, the Fed has launched three rounds of quantitative easing policies, after which American companies have seized the new round of technological and industrial revolutions. The huge opportunity has achieved rapid development. This has made the US stock market in the past nearly 11 years, out of a very rare ‘slow bull trend, its duration and rise in the history of the United States can rank in front Three. Because its past rise is very eye-catching, this round of decline has also attracted the world ’s attention in another way. “Dr. Wang Jun, member of the Academic Committee of China International Economic Exchange Center and Chief Economist of Centaline Bank, accepted this reporter In an interview.
US stocks suffered five impacts
In March this year, the US stock market suffered multiple blows. Wang Jun analyzed that the five-fold shock caused the US stocks to plunge by more than 30%.
The first impact stems from the global spread of the new crown epidemic. As of 19:00 on March 28, the new crown epidemic has spread to the United States and 199 countries worldwide.
The second impact comes from the negative impact of the Chinese economy on the epidemic. The first two months of data show that China’s economy has experienced a major decline, and it is expected that the high probability of negative growth in the first quarter will be.
“The Chinese economy has contributed more than 30% to global economic growth, and the slowdown in the Chinese economy will definitely affect the global economy.”
The third impact stems from US investors ’fears of a recession.
“The profitability of US companies has slowed, and the impact of the epidemic has caused investors to worry that the US economy may enter a recession this year.”
The fourth impact comes from the pattern and logic of the stock market’s rising is unsustainable. The Fed ’s loose policy over the years has encouraged companies to repurchase their own stocks in the form of low-interest debt, which in turn has driven the company ’s stock price up. With the increasing fragility and instability of the US stock market, this “drumming and passing flowers” model is difficult to continue. In addition, rumors that some US hedge funds have encountered operational difficulties or even suffered losses have also impacted US stocks.
The fifth impact came from the plunge in the international crude oil market.
“The United States has achieved a shale gas revolution. Due to the huge capital expenditures, a large number of shale gas companies have issued many complicated debt instruments in the market to raise funds. The recent plunge in crude oil prices has put great pressure on the production and operation of shale gas companies. The pressure on its debt servicing is also increasing. This puts a lot of pressure on the US stock market. ”
Has a huge impact on the global economy
“The rapid spread of the epidemic in the world has triggered a huge decline in US stocks in a short period of time and caused the global stock market to plummet. This is a serious secondary disaster caused by the epidemic, which has a huge impact on the global economy and a negative impact.” Wang Jun said.
The plunge in US stocks may drag the world economy into a slight recession or even depression. International organizations, including the International Monetary Fund, predict that the US and global economies will fall into recession and experience negative growth in the first quarter of this year. The second blow is that concerns about the economic recession have increased panic among global investors. The epidemic is out of control, crude oil has plummeted, and the global financial market has entered a technical bear market. Investors worry that this will trigger a new round of global financial crisis.
At present, there is no dispute about the global economic recession in the industry, but there are still differences on whether the global financial crisis will occur. As far as the current situation is concerned, there has been no bankruptcy of large financial institutions such as Lehman Brothers and Bear Stearns during the 2008 global financial crisis. It is more like a “compound crisis” and its subsequent profound impact It needs further observation. It is too early to judge whether the global economy will enter a new global economic depression or a comprehensive economic crisis.
Wang Jun told reporters that industry insiders currently tend to believe that the US stock market crisis in 2020 is more like the superposition of three major crises in the past 100 years: the 1918 pandemic, the 1929-1933 economic depression, and the 2008 financial tsunami.
“At present, the overall financial system and banking system are relatively healthy. So far, there have been no currency crises, bank crises, credit crises, debt crises, and balance of payments crises. Only liquidity difficulties have appeared in the market, so can it be characterized as The financial crisis requires more evidence and time. ”
The collapse of US stocks and the spread of the epidemic have also caused damage to global supply chains. At present, the flow of people and logistics in the world has fallen into an unprecedented shutdown. International trade and international investment may continue to shrink in the future. If the recovery of the global supply chain is slow, it will become an important cause of the financial market’s turbulence again, and the financial market storm will in turn further deepen the difficulty of the recovery of the global supply chain.
Fed’s bailout measures are controversial
After the US stocks plunged, the US government launched a series of bailout measures. Congress recently passed a $ 2 trillion package plan that will provide emergency relief to businesses, workers, and medical systems affected by the epidemic. The Fed’s two consecutive interest rate cuts to zero interest rates, the introduction of unlimited QE and three major liquidity tools that help alleviate the liquidity crisis, these measures have temporarily stabilized the rebound of US stocks.
Wang Jun analyzed that whether future inflation and collapse can be avoided in the future depends mainly on two factors: one is whether the epidemic is effectively controlled; the other is whether large enterprises and large banks will go bankrupt and fail, and whether the people are largely unemployed.
“The long-term vulnerability of the US financial market and the sudden global public health crisis are the deep-seated reasons for the collapse of US stocks.” Because of this, endogenous causes and external shocks are difficult to rely on traditional interest rate cuts, quantitative easing, and market liquidity release Other means have been completely resolved. These methods cannot eliminate the virus. Relying on zero interest rates to boost market confidence will also increase market worries and even counterproductive.
In the long run, zero interest rates will inevitably squeeze the Fed’s monetary policy operating space in the future, and the policy effect will gradually decrease in the future.
On the other hand, the Fed’s continuous bailout policy has also made the market’s expectations very high, once its policy does not meet the market’s expectations will also increase market volatility. Therefore, policy should have become an important mechanism for stabilizing the market, and now it has become an important cause of market volatility.
At the same time, it should also be noted that the numerous bailout measures issued in a short period of time also reflect the judgment, action and execution of the Fed, which has stabilized market expectations and investor confidence to a certain extent, and eased market panic and Anxiety avoids a further increase in liquidity risk and plays a positive role in the temporary stability of the current global financial market.
Defensive risk “backward” requires careful use of leverage
How to avoid the possible risk of global financial turmoil that will have a “backflush” effect on China?
“Under the impact of the epidemic, it is necessary for the government to guide social expectations, appropriately adjust economic growth targets, and accelerate supply-side structural reforms, focusing not only on solving short-term economic difficulties, but also on solving some deep-level problems.” Wang Jun responded to this reporter .
At present, it is necessary for the central government to increase leverage in time to replace local governments, enterprises and residents who cannot continue to increase leverage. The central government has decided to appropriately increase the deficit rate, issue special government bonds, and issue additional local government special bonds. The implementation of these measures will effectively bail out small and micro enterprises and vulnerable groups, help stabilize the job market, and avoid large-scale unemployment.
Wang Jun believes that effective measures should be taken as soon as possible to stabilize China ’s financial market, stimulate the vitality of the capital market and increase the property income of residents; stabilize the real estate market and avoid the ups and downs of house prices under the impact of internal and external factors; stimulate and release the vitality of private investment Innovate business models and actively develop new formats such as online economy and non-contact economy. From a global perspective, it is now most necessary to ease and stabilize foreign economic relations, strengthen the coordination of international macroeconomic policies, and avoid the resurgence of protectionism, isolationism, and trade frictions that have spread all over the world in the past period of time. The government should also further improve its economic and financial management capabilities and its ability to prevent and control risks under open conditions.
For individuals, it is necessary to better balance income and expenditure, balance the relationship between work and life, and health, reduce unnecessary expenditure, stabilize income and cash flow, and actively control the excessively high and rapidly rising leverage ratio.
Wang Jun said that from the perspective of personal asset allocation, it can increase the allocation of defensive insurance assets such as health insurance and pension insurance, while reducing the proportion of risk assets.
“Of course, the most important thing is that individual workers must continuously improve their own quality and improve their competitiveness in the digital economy era.” Wang Jun said.