P1
Even in the US, which is among the most capable of dealing with this financially due to its reserve currency status, interest rates are rising and gold is falling, reflective of the forced selling of even safe-haven assets to raise cash. In the end, this will spur the Fed to ensure rates don’t rise into a slowing economy, probably leading to wartime-like yield curve targeting. That has to happen fast, as the decline in revenue could cascade.
- Without intervention, the loss in the US could reach 4 trillion and the global loss could reach 12 trillion.
- Intervention: Reserve currency, interest rate rise? Lower gold price? (Safe-haven assets, safe-haven assets, selling safe-haven assets to increase cash flow). Finally, we must control interest rates not to be too high, leading to economic slowdown. It is likely to lead to similar wartime yield curve control.
P3
- 4 trillion is equivalent to 6% of GDP. The decline in the second quarter was the most obvious, with a worst-case scenario of -30%.
- First wipe out most of the company's earnings and cash. According to the industry, it is concentrated in energy, travel, and leisure, and there is little difference between large companies and small companies.
- Most companies can increase cash by mentioning liabilities, but if the policy does not allow it, it is expected to reduce capital expenditure (raw material market), reduce stock repurchases and corporate mergers, and lay off employees.
- Some companies were unable to tide over the difficulties and defaulted about 800 billion yuan, more than one-third of which was lent by banks. However, due to the buffer and liquidity of a large amount of capital, it will not cause a great impact on the financial system, but in the long run it may lead to tightening of lending standards.
- winner: pharmaceutical company, loser: tourism and entertainment resources
- Small businesses, such as restaurants, are most affected.
P4
Businesses Can Fill Their Cash Needs with Significant Spending Cuts, but This Will Just Shift the Losses Elsewhere
- In order to maintain cash flow, if there is no policy intervention, companies will reduce expenditures, or default, transfer losses to others. The first to reduce expenditure is financial expenditure and capital expenditure: affecting growth and stock prices.
- Other forms of expenditure reduction, such as labor services. The service industry of hourly wage settlement was the first to suffer. If more radical measures are taken, such as layoffs, it will in turn lead to a reduction in consumption.
P5
Credit Markets Are Already Pricing In a Material Loss Cycle, Which Is Likely to Make Banks Less Willing to Extend New Credit
The losses now priced into US credit markets (roughly $850 billion) are greater than we saw in the 2015 credit cycle but still far short of what we saw going into the financial crisis. The majority of the implied losses are from US corporate bonds and leveraged loans, which have been the largest source of credit this cycle, and these are mostly held by less-levered, real-money players.
- The 85 billion debt is much larger than in 2015, but still smaller than during the economic crisis.
- Although these losses are obvious, they will not plunge the US economic system into crisis. Because of factors such as low leverage.
- Although the financial system will not collapse as it did in 2008, it may reduce lenders’ willingness to borrow. Increased downward pressure.