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The incredible rally of financial stocks

In sei sedute l’ indice S&P/Mib ha recuperato poco meno del 10%, ossia circa 2,500 punti, trascinato al rialzo da un poderoso rimbalzo del settore finanziario partito da Wall Street .

Che credibilità ha questo rally? Unfortunately, in a word, no.

I say unfortunately because it would be more reassuring to be able to claim that the recovery in equity markets was a mere reflection of the liberal decisions taken collectively by the investors. And that those judgments were properly trained on the basis inter alia of the information disclosed by listed companies on Wall Street these days are disseminating the results of the second quarter.

Things, however, is not so.

The rally, in fact, was triggered by the sudden, unexpected decision SEC, the U.S. Securities and Exchange authority to impose restrictions on selling discovered ( short selling) out of 19 financial stocks, including all investment banks and the two giants in the credit crisis securities, Fannie Mae and Freddie Mac .

The result was a huge wave of coatings that Wall Street has launched into orbit around the financial sector.

This initial explosion was then fed by the fuel supplied by quarterly results of some banks such as Citigroup , Bank of America, JP Morgan Chase and Wells Fargo in excess - apparently - to the expectations , and the relief generated by the announcement by the Treasury U.S. plan to rescue the two giants with feet of clay, Fannie and Freddie, at the limit of insolvency.

The result? In the five sessions between 16 and 22 July 's S & P 500 Financials took a leap of 28%, a record. Since 1989, when the sector indices were introduced in the S & P 500, a performance like that in just one week had never been registered.

course, a bear market stock is unwelcome to many governments, banks, media, and the great mass of investors in general. Only a minority of investors can profit from it. Most intolerant of all, with the presidential election approaching, it 's Bush administration. The rebound of the financial sector has been so credited, by many voices involved, as a signal that the worst is probably past.

The idea that I have done is that things are not at all.

The genesis of the rally to start from the beginning, was an affront to the very notion of free market . As reported the Economist, the SEC's action was the equivalent of a punch below the belt no less struck by the referee during a boxing match. A measure unjustified makeshift, unbalanced, inconsistent - very clearly motivated by the sole purpose of rendering assistance to bank stocks more difficult.

Nouriel Roubini, economist from the Stern School of Business at New York University, in the uproar, saying that the SEC should open an investigation and take legal action against itself for market manipulation.

The continuation of the rally was also fueled by a series of quarterly on whose reliability is reasonable to be skeptical. Take for example Wells Fargo, one of the big banks that has most inflamed the minds of announcing, July 16, earnings per share of $ 0.53, three cents higher than analysts' expectations.

explains a good article HousingWire.com of the portfolio by $ 84 billion of home equity loan (loans with mortgage on the house) of Wells Fargo, half granted in two U.S. states hardest hit by the housing crisis, California and Florida, has been a heavy increase in the second quarter of suffering. The losses made in the budget have decreased, even $ 104 million just for second lien loans , and 11% of subordinated loans and therefore particularly at risk.

The housing market worsens, the quality del credito peggiora, le sofferenze si impennano, ma il bilancio migliora. Com’è possibile? Il semplice motivo è che ai primi di aprile Wells Fargo ha deciso – sottovoce - di modificare il termine oltre il quale il mancato pagamento della rata di un prestito viene contabilizzato tra le perdite, estendendolo da 120 a 180 giorni.

Per questo trimestre, almeno, la cosmesi è riuscita. Un bel po’ di passività sono state nascoste sotto il tappeto, rinviate al futuro. E una trimestrale che avrebbe dovuto probabilmente chiudersi con un utile per azione di almeno cinque centesimi sotto le attese degli analisti, già abbondantemente riviste al ribasso, si è invece spinta tre centesimi sopra. Il titolo, instead of sinking, in a few moments of the announcement of the results took a leap of 20% upwards.

Roubini in his blog, he denounced several other ways in which American banks are "manipulating" budgets, he said under the tolerant gaze of the supervisory authorities, the Federal Reserve the SEC .

A practice that is spreading, and Roubini says he learned from the admissions of insiders, is that the amount of asset write-downs to put in the budget is decided in advance. And then the accounts are adjusted accordingly. It is no longer known Roubini, the traditional earnings smoothing, that is the established routine for which budgets are a little 'touched' with the aim to stabilize earnings from quarter to quarter.

"This - Roubini writes - is active manipulation and falsification results targeted to blur even more the true state of financial institutions. This work is actively obscuring backed by the SEC, the Fed and other authorities who are now in a stage of crisis management where the goal is to avoid at all costs any incident that could trigger the collapse of the system. The consequence is that many of these quarterly worth less than the paper they are written on. "

On the other hand, think that the worst is now behind the U.S. financial sector - as, moreover, to the European level - is unrealistic if only you follow a few simple and basic considerations.

It 's true that the Fed lowering the Fed funds from 5.25% to 2%, reduced financing costs for banks. But otherwise the context is not made worse in recent months and prospects have become more gloomy.

the housing market collapses , worsens the American economy, slow down emerging markets el ' Europe is on the brink of recession. The data show that the bursting of the housing bubble largest in history, after long months of incubation, is giving life (also because of the rise in energy prices) to a recession on a global scale are easy to summarize. Here they are:

a) According ' S & P Case-Shiller (reproduced in the chart below by an article of Bill Gross of PIMCO ), prices of homes in America, by maximum of 2006, decreased by 18% but the fall, recently, has been accelerating and futures contracts do not provide that stops before 2010, at the end of a crash that could reach the overall 30% .


b) L ' U.S. economy, if not already entered into recession earlier this year, is close to doing so. The tightening of the economy, in an election year, the authorities are trying to combat by all means - including the psychological conditioning of expectations - moves inexorably. They say a lot of data, but among the most clear and reliable are the Leading Economic Indicator curato dal Conference Board (da noi noto come superindice economico) e il Leading Index dell’ ECRI , uno dei più prestigiosi centri privati di ricerca.

L’uno e l’altro hanno correttamente predetto le recessioni degli ultimi decenni (le fasce in grigio nei grafici che seguono, il primo tratto da Northern Trust e il secondo dal blog The Big Picture di Barry Ritholtz). Da qualche mese preannunciano, con crescente intensità, l’arrivo di un nuovo periodo di contrazione dell’attività economica.




c) La crisi dei mercati immobiliari, that of credit, the U.S. economy, combined with high energy prices are dragging in the recession ' global economy. Those who hoped for a so-called decoupling , and in the ability of the rest of the world to move away from the leading country (America), will probably be denied. This at least is the message from the Leading Economic Index World 's OECD (taken here last analysis of quarterly Hoisington Management), the most reliable barometer of the trend of global economy, which for some months was made to announce a storm.



charts tell everyone that I have reported the same story: the worst, unfortunately, is yet to come.

estimates on the costs of moving housing crisis for the U.S. financial system - and which today has also given credit Bill Gross of PIMCO , the largest bond manager in the world - speak at least a thousand billion dollars.

Loans classified as risky assets, has written Gross, amount to 5 thousand billion dollars. There are about 25 million homes purchased with a loan from 2004 that are now in a situation of negative equity , at current prices that is worth less than the debt that was contracted to buy them. For buyers is a condition where they are strong incentives to declare themselves insolvent.

The total losses, if you add up the housing market and consumer credit companies that will be included in the opinion of Roubini between two thousand billion dollars . The write-downs so far to put the budget in the range of $ 400 million. The crisis, in short, has not yet reached its most acute phase. The failure of California bank IndyMac , last week, with losses to the budget between 4 and 8 billion dollars, is just the first of a series that promises to be rather long.

L ' incredible rally in equity markets, I think, will not go away. We will see new lows.

As despair is never the best response, I would like to close with a comforting message: enjoy (who may, unfortunately the video is in English) seven-minute satire on the formidable rare incompetence (for America, in Italy we are used to worse ) that the Bush administration has shown in this video , It's the economy stupid , based on a recent episode of Daily Show Jon Stewart of . One of the funniest things that I have come across a bit 'of time now. Good vision.

Walpaper Pokémon Shiney

The Fed funds are at 2% but the stock markets are falling. Why?

A reader, Francis , I wrote asking for enlightenment on a "theory " learned from a friend who has a master's degree at Bocconi University, that "when rates are low, the actions begin to rise, when rates are high, begin to fall ". Francis, making comparisons between trends in stock market and the Euribor rate since 2000 has made the confirmation. But he began to see "anomalies" when he extended his checks to the American short-term rates. A level of accommodative Fed funds did not result in a speedy recovery in equity prices né nel 2001 né oggi. Come stanno dunque le cose?

Del rapporto tra tassi d’interesse e mercati azionari mi sono già interessato, ad esempio nei post Il fantomatico Fed Model e in Borse, tassi e bufale a mezzo stampa .

In quest’ultimo articolo, in particolare, prendevo di mira la tesi sostenuta da un servizio di CorrierEconomia dell’ottobre scorso, quando Wall Street aveva appena toccato i massimi e la Federal Reserve aveva da poco avviato la sua manovra di riduzione del costo del denaro, in cui si diceva che i tagli dei tassi da parte della Fed erano “una specie di polizza assicurativa per le Borse“ .

Tale parere era corroborato da un commento dell’amministratore delegato di Meliorbanca private , Giuliano Cesareo , secondo il quale “Quando i tassi americani scendono – e per ora accade – è statisticamente difficilissimo che le azioni vadano male.”

CorrierEconomia e Cesareo ripetevano dunque la “teoria” dell’amico bocconiano del mio lettore Francesco: un modello di funzionamento delle Borse semplice, suggestivo, di consolidata tradizione (è infatti la mera riproposizione della massima di Wall Street "Do not fight the Fed " not fight the Fed), but the evidence, not respectful enough of reality.

What we talk about rates?

In principle, support the view that a fall in rates should reflect rising equity markets may be adduced several reasons . Here are three:

a) reducing short-term rates, central banks facilitate credit and stimulate economic activity. The expectations of a cyclical recovery in profits makes the shares more attractive (in fact fall of the P / E perspective) and driving up the stock.

b) Tassi d’interesse più bassi riducono l’attrazione relativa di obbligazioni e cash rispetto alle azioni. Gli investitori tendono così a ricomporre i portafogli privilegiando il rischio. Una maggiore domanda di azioni sostiene le quotazioni di Borsa.

c) Tassi d’interesse più bassi riducono il costo del capitale. Un più basso tasso d’attualizzazione dei flussi di cassa futuri fa lievitare le stime del valore intrinseco delle aziende. A parità delle altre condizioni, tassi d’interesse più bassi inducono gli investitori a considerare le azioni sottovalutate.

Si tratta di buone ragioni? E se sì, perché non sempre funzionano? E’ clear that, as I noted in my post of October, the model "Do not fight the Fed" has been denied by the equity bear market of 2001-2002 and 1968. In Bags, rates and buffaloes in the press I pushed myself to prophesy that he failed in 2008 and the facts so far I have been proved right.

The problem is that in all the above considerations, following the input of my player, there is an assumption that is a source of confusion . Indeed, there is assumed that the action of central banks on short-term rates is effective immediately, cascading over the entire structure of interest rates .

The fundamental mistake "theory" summarized in the saying "Do not fight the Fed" is therefore in simplistic assumption that short-term rates lower lead to long-term rates lower and credit spread (ie, the spread between government bonds and certain other bonds more risky) lower: a chain of events that do not always come true, or maybe eventually occur only after many years.

only assuming a uniform shift of the entire structure of interest rates, in fact, are effective in the three justifications for the theory that the first listed. L’azione di stimolo dell’economia, ad esempio, ha luogo più grazie ai tassi a lunga che a quelli a breve. E anche le valutazioni azionarie utilizzano come input i tassi a lunga e non quelli a breve.

Le banche centrali , dunque, pur potendo molto in virtù del privilegio loro concesso di regolare i tassi a breve, non hanno in mano il destino delle economie e dei mercati. I giochi sono, anche per loro, più intricati.

L'importanza della curva dei rendimenti

Nel mio post di ottobre avevo alluso a queste complicazioni, senza però esplicitarle. Avevo infatti utilizzato, nella mia critica agli ingenui (o interessati) sostenitori del “ Don’t fight the Fed ”, un meticoloso studio di William Hester per la società di gestione Hussman Funds , da cui risultava che per comprendere i nessi tra tassi d’interesse e Borse non basta guardare all’andamento dei tassi a breve, direttamente manovrati o condizionati dalle banche centrali, ma occorre tenere conto del rapporto tra tassi a breve e tassi a lunga (la cosiddetta curva dei rendimenti ) e della valutazione dei mercati azionari.

Scrivevo a ottobre che le riduzioni dei tassi a breve in un contesto di valutazioni azionarie elevate e di curva dei rendimenti piatta o invertita (com’era as happened in 2001 and was repeated in 2007) had historically proved ineffective in restoring momentum to the stock exchanges.

eight months have passed since then. The Fed has taken short-term rates from 5.25% to 2% but the stock continued to decline, confirming that the model of multi-Hester is the most valuable of the simplistic model of unifattoriale who relies on the motto "Do not fight the Fed. "

continuing to dig through the folds of that post, I will now try to clarify how is the yield curve, namely the changing relationship between short-term rates and long-term rates.

I said that in both 2001 and in 2007 the Fed began its campaign of monetary easing from an abnormal condition of flat or inverted yield curve. Here's the proof, in these two graphs taken from Stockcharts (whose dinamic yield curve is a very useful tool I recommend you to have a mouse).




In the first graph shows the rates on U.S. Treasury bonds, 30 years 3 months to 1 September 2000, shortly before they began to press on the short end of the curve expected from a reduction in Fed funds and when the S & P 500 index (right) was in 1520 punti, ai massimi di quel ciclo. La Fed iniziò a tagliare i tassi quattro mesi dopo, ai primi di gennaio.

Nel secondo grafico è invece riportata la curva dei rendimenti dei titoli di stato americani il 2 luglio 2007, prima che si facessero sentire le attese di interventi da parte della Fed e, di nuovo, con l’indice S&P 500 a 1520 punti, in prossimità dei massimi dell’ultimo ciclo. La Fed diede il via a una serie di tagli dei Fed funds il 18 settembre, due mesi e mezzo più tardi.

Le due curve sono simili. La prima è chiaramente invertita mentre la seconda è piatta. Ma la sostanza è che sono entrambe anomale . La normalità di una struttura dei tassi d’interesse è infatti di pendere all’insù di modo che più è lontana la scadenza più alto è il tasso. E il tasso è maggiorato per ripagare l’investitore del rischio crescente.

In ogni obbligazione , infatti, chi presta il denaro esige di essere compensato per vari tipi di rischio, che aumentano all’allontanarsi della scadenza : rischi di insolvenza , di mercato, di liquidità, di inflazione , di reinvestimento. Se in un titolo del Tesoro americano possiamo assumere che i rischi di insolvenza e di liquidità siano prossimi allo zero, restano però gli altri, primo fra all the risk of inflation .

should be interpreted as a flat or inverted yield curve, where the long side (typically one looks at the 10-year rate) is the same level or even lower than the short (up to two years)? It seems that in such a condition investors are not remunerated for the risk. But it is not.

In a reverse curve on one hand the market makes the assessment that the conditions of supply of credit by the central bank are unsustainably restrictive and the other an expectation that the effects of monetary tightening will be the contraction of economic activity and disinflation.

In short, a flat or inverted curve is one of the best precursors of a recession .

Confirmation is visible in the graph below, prepared by the Federal Reserve of Cleveland, which compares the yield curve American (red line) with the rate of growth of GDP (blue line) in the last 55 years. The gray bands indicate recessions .


The yield curve is represented here in its most essential form, namely as spread, or difference, between rate in 10 years and that three months. When the red line drops below the line Zero means that the three-month rate is higher and the yield curve is therefore reversed.

At this point it is easy to make the following observations:

a) The yield curve has a large variability. In general, curves very steep , with spreads of more than two percentage points between three-month rates and rates at ten years preceding phases of rapid economic expansion but also inflationary crisis (in the 70s and early 80s), while flat or inverted curve previous phases of stagnation;

b) More specifically, all U.S. postwar recessions were preceded by a year or so in advance , a flat or inverted yield curve ;

c) There were a couple of birdies . In 1968, reversing the curve accompanied a sudden cooling of the economy, with growth rates from 8% to 2%, but there was no recession (although the effects of a drastic slowdown were in many ways those of a real economic crisis). In 1998, coinciding with the Russian default and the collapse of LTCM, which they fear a systemic crisis of the market, the curve flattened but continued strong economic growth - Sin too, in the wake of the euphoria of the bubble inflated technology stocks - for another two years.

d) remains the enigma of the current cycle (this is always more difficult to interpret!). The yield curve has been inverted or flat for the entire second half of 2006 and the first half of 2007 but economic growth, although subject to a marked slowdown, has been positive so far.

yield curve and recession

It can be assumed that the risk of recession is now behind the curve and, positively inclined to a year now, has become expected to serve a new recovery cycle?

E 'that the interpretation of the Federal Reserve and the American administration. It 'was this, until a few weeks ago, the market consensus opinion , who recently became less optimistic, however.

As is well known to those who read my blog since its inception, from the first half of 2007 have always been the idea that the U.S. were headed towards a recession. For several months, I am also convinced that a recession is already taking place even though the official data on GDP (notoriously late and subject to protracted and substantial revisions) have not so far made manifest.

And 'This is a point that I addressed in several other posts, so I will not go. I will mention Macroeconomic Advisers and ECRI , two of the most prestigious private centers of economic analysis. The first produces a monthly estimate (rather than quarterly as the official one) of U.S. GDP, which showed that growth started to decrease since February. The second public one of the most popular U.S. leading indicators of the cycle, which continues for some time to consider a recession.

a contraction of ' economy from the first quarter of this year would be consistent with the signal given by yield curve, which is reversed at the turn of 2006 and 2007, with the usual lead of about one year.

would also be consistent with the signals coming from the equity markets . Wall Street has touched the highest in October and from there entered a bear market which is thus started a few months before the fall of a recession and a behavior similar to what happened in the previous cycle, when the ' U.S. economy went into recession in March 2001, just months after the start of the bear market share.

Short-term rates, long-term rates and credit spreads

therefore affect interest rates, and how, on the economic and Bags. The difficulty is that not enough consider the short-term rates, which are governed by central banks. They are the internal relations entire structure of interest rates that matter, in their changing shape, shaped not only by continually input arriving from the monetary authorities but also by feedback from financial markets.

shows us how the interpretative model used by Hester to judge the effectiveness of a bank we must look to the central context in which it appears. A maneuver of monetary easing that started when the yield curve is already flat or inverted will be revealed, in all probability, delay, at least from the standpoint of the investor: that will not be able to avoid an economic recession and, as a corollary, a equity bear market.

at this point I would like to add one last point, that takes us beyond the model Hester which so far I have referred. The analysis of the yield curve has allowed us to observe an important analogy between the current cycle and that the moves taken in 2000 when there was pure un’inversione della curva negli Usa, seguita dall’avvio di un bear market azionario, seguito a sua volta da una recessione economica (dal marzo al novembre del 2001).

Tra quel ciclo e l’attuale c’è però anche una macroscopica differenza , che è possibile individuare estendendo l’analisi del ruolo giocato dai tassi d’interesse anche ai credit spread , cui ho già accennato, e che possono essere genericamente definiti come tutti gli spread, o differenziali, tra i tassi privi di rischio (e cioè quelli sui titoli di stato) e i tassi di altri strumenti di credito che incorporano invece un qualche premio per il rischio .

Questi spread , nelle varie fasi del ciclo economico e nelle diverse condizioni di mercato, tendono a fluttuare anche in modo vistoso. In momenti di accentuata avversione al rischio da parte degli investitori e di cosiddetta flight to quality (fuga verso la qualità), i credit spread si allargano mentre tendono invece a contrarsi quando l’ottimismo si diffonde, e con esso la propensione degli investitori a cercare rendimenti più elevati aumentando la rischiosità dei portafogli.

Le variazioni dei credit spread, com'è evidente, hanno effetti rilevanti sulla struttura complessiva dei tassi d’interesse e condizionano ampiamente l’impatto che ogni intervento messo in atto dalle banche centrali finisce per avere sui mercati e sull’attività economica.

In condizioni normali , una riduzione del costo del denaro operata da una banca centrale agevola la creazione di credito, stimola l’attività economica, incoraggia l’assunzione di rischio. L’intervento distensivo si dispiega ai più diversi livelli, riverberandosi dai tassi a breve a quelli a lunga, dai titoli di stato ai credit spread. Perché gli effetti espansivi si trasmettano dai mercati finanziari all’economia reale deve trascorrere del tempo ma nel corso di 12-18 mesi l’iniziale impulso inviato dalla banca centrale ottiene the desired effects.

The anomaly of the current cycle: the credit crunch

Today's, USA, however, is not normal. To prove it I'll use a chart published by the blog Calculated Risk few months ago. Parallels, for the period from 2002 to last March, the yield on Treasury securities ten (blue line), the rate on thirty-year mortgages (red line) and the spread between the two (black line) .


The current cycle has a glaring anomaly conciliatory than that of 2001-2003. While then, except a short period of marked risk aversion in the summer of 2002, the spread between Treasury bills and thirty-year mortgages remained stable within the normal fork between 1.5 and 2 percentage points, recently the spread has not that rise, reaching more than 2.5 percentage points As the interest rates on ten-year Treasury down to the relaxing effect of the Fed and expectations of the cooling cycle.

The graph stops in March. But from then on, the substance has not changed. T-bond yields have edged up from 3.30% to 4.30% in mid-March to mid-June to again fall below 4%. Meanwhile, rates on Thirty-year mortgages rose to 6.5%, thus maintaining a spread of about two and a half and returning even above the levels where they were when the Fed started its operation in September last relaxing.

Despite the size of the cuts (short-term rates, again, fell in great haste from 5.25% to 2%) of the maneuver Federal Reserve not is being sent to the very important market the house, where a contract has become mortgage more difficult and costly than nine months ago.

In this simple illustration that captures not an exception but a typical feature of how American markets are reacting to the Fed's actions, it is clear all the extraordinary the current situation, which makes this cycle different - despite the similarities noted in the yield curve - even that of 2001.

If mortgage rates do not fall despite the efforts of the Fed's because the real estate market suffers an increased risk of credit . The same is happening with several other credit spread. The overall effect is typical of a so-called credit crunch . The central bank extends ample liquidity, but not being used by financial intermediaries or to the supervening fragilità dei loro assetti patrimoniali o per il deteriorarsi del merito di credito della clientela.

I credit crunch sono patologie rare e gravi. Fanno seguito a periodi di espansione dissennata caratterizzati da eccessiva accumulazione di debito . Rendono impotenti le banche centrali e richiedono tempo per essere superati. Prima che il “cavallo” dell’economia ritorni a "bere" la liquidità che viene offerta dalla banca centrale deve essere metabolizzata la sbornia dei troppi debiti di infima qualità. Una gran quantità di svalutazioni di asset e di fallimenti risulta un’inevitabile premessa del processo di risanamento.

This is what is happening in the U.S. after the outbreak, from the first half of 2007, the largest credit bubble that history records. Investors have realized that by applying an extraordinary situation of the ordinary yardstick (as the maximum "Do not fight the Fed") have come to take whistles for flasks.

I would cite in this regard, the passage of an interview that James Montier, global strategist at Société Générale is one of my favorite analysts, recently kicked-up Welling @ Weeden .

says Montier that the current credit crunch U.S. is characterized by the fact that the credit market is "dead on both sides " banks are unwilling to take credit, but there is not who is willing to borrow. It thus moves in a typical " liquidity trap" in which "the Fed's actions have no power. You can raise rates, lower rates and it makes no difference, because there is none, however, who wants to borrow. "

" This is the problem. For many years (the U.S.) has been operating a scheme Ponzi that has ended up creating a huge mass of debt . The deflation of the credit bubble is at this point, the real handicap. And this is what many (investors) can not understand why these things do not happen very often. "

" I happen to see a credit bubble bursting any day of the week. The people there used to it. And, in general, people are not very good to capture the changes. That 's what we (in behavioral finance, which is a specialist Montier, ed) call' for change blindness'. And we see it often. So, what people not yet been able to focus on is that the context of today is structurally different . There was the bursting of a housing bubble and credit. And this is important, because it has a big impact on the real economy. "

What kind of impact ? In 2001

action Fed could not prevent a bear market stock long and devastating, son of the speculative excesses that had preceded it. But it was effective to minimize the impact on 'real economy . The

recession between March and November di quell’anno fu infatti una delle più brevi e meno profonde della recente storia americana. Inoltre, a finire in una condizione di crisi furono quasi soltanto i profitti e gli investimenti delle imprese, che scontarono le esagerazioni degli anni precedenti. Ma per i consumatori , che rappresentano il 70% dell’economia Usa, la recessione, in sostanza, non ci fu.

Questo ciclo sarà ben diverso. La crisi immobiliare e del credito investono in pieno le indebitatissime famiglie americane e un sistema bancario che se era robusto e ben capitalizzato nel 2001 si sta rivelando oggi pieno di crepe e di fragilità.

E’ ragionevole attendersi che l’impatto both the real economy in the coming months, much heavier than it was seven years ago. They are probably considerations of this kind that prompted Warren Buffett recently to said during his visit to Germany that the U.S. recession will "much longer and deeper than people expect."

In conclusion, those who have adhered to the simplistic "Do not fight the Fed" in recent months has been induced to give credit to the hopes for a speedy resumption of the cycle, and has starred in the stage of Wall Street falls as a mere correction , which is not went more than 20% over a period of time.

E 'an interpretation that seems far removed from reality and do not agree. To understand the influence that interest rates exert on the economy and markets must be added to the action of the Fed, at least two levels of complexity : the yield curve and credit spread . Each other and, in my interpretation, we are told that the crisis - both economic markets - will be long. And the correction on Wall Street will not stop the current decline of 20%.

I have quoted several times another study of Hester showing that, in the presence of economic recession, the equity bear market after the war lasted, on average, in the U.S., over 16 months. To think that Wall Street reversed course just over eight months after reaching the maximum of the cycle seems too optimistic. Especially when it is in a full deployment of a serious credit crisis that has little precedent in recent American history.

Rates American and European rates

Finally, a final comment, in response to the question of Francis, concerns that I have spoken only of the U.S., ignoring the European rates. The reason, essentially, is that for the investor share count for little. The

European stocks and towards the bottom, below Wall Street , with a correlation that has for several years is very high. So do the long-term rates , in a global market where the movements of the ten-year T-bond to dictate the turning points of European government.

It is a fact that in the future, of course, will change. While it lasts, however, even for the European investor is more fruitful to focus on U.S. yield curve and worry much less than the euro zone.