Reasons to be sanguine, and reasons not to be…

Bloomberg’s Ye Xie points out in the first paragraph below what no doubt has recent stock buyers feeling sanguine. In the rest he points out why they may need to check those feelings. 

I’d add that his “credit market is starting to thaw” point accurately reflects recent new issuance (and somewhat tamer, yet still elevated, spreads), but, at its core, monster Fed intervention as well: In my view it’s way premature to begin suggesting that credit markets are out of the woods; there’s much to play out over the coming months:

“The good thing is that the apex of the pandemic may have arrived and the tail risk has been curtailed. The credit market is starting to thaw, the government is replacing lost income from households and businesses with sovereign debt, and the Fed stands tall as the lender of the last resort.

On the other hand, it would be extremely rare for a bear market to the start and end within a month. This crisis is unique in many ways, not least of all because the extent of the economic damage has barely started to be revealed and will likely only become clear after the virus passes. If you think that as soon as the virus passes consumers will start taking cruises again and go on shopping sprees even with unemployment yet to peak, then some of the beaten-down companies would represent an once-in-a-decade trade.

But if you believe that you may want to take a look around. Because China’s experience so far would suggest otherwise.”


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