There is an "invisible hand" in economic activities, which drives the ebb and flow of the market and the change of seasons, forming an economic cycle. Our central bank will often stretch out a "visible hand" to counter the "invisible hand", that is, to carry out macroeconomic control through monetary and credit policies to combat the fluctuations of the economic cycle. As a result, under the effect of this "visible hand", a financial cycle has been formed, which are: four stages: easy money and tight credit, easy money and easy credit, tight money and easy credit, and tight money and tight credit, which correspond to the recession period, recovery period, overheating period, and stagflation period of the economic cycle.
The so-called "easy money" means that the central bank "opens the floodgates" and "wholesales" money to commercial banks to improve the liquidity of the financial system, and the result is that market interest rates continue to fall; On the contrary, "tightening money" means that the central bank "tightens the faucet" and reduces money**, so that commercial banks have less money at their disposal, and market interest rates begin to rise.
The so-called "easy credit" means that commercial banks "retail" money to enterprises, that is, let money leave the financial system and enter the real economy, the result is the growth of social finance and market interest rates; On the contrary, "tight credit" means that commercial banks reduce the scale of credit, the financing threshold of enterprises becomes higher, social financing decreases, and market interest rates are lowered.
Monetary easing is a prerequisite for credit easing. The purpose of monetary easing and credit easing is to stimulate the economy. Loose money is the means, and easy credit is the result. To achieve monetary easing, only the central bank needs to exert force, but to achieve easy credit, it is necessary to work together among three parties: not only the central bank's monetary easing foundation, but also the financing needs of the real economy, and the rebound of commercial banks' risk appetite as a match. Therefore, from easy money to easy credit needs a transmission process, can not be achieved overnight, this process is also vividly called "pushing the rope", the central bank is the person who pushes the rope, if there is no tripartite joint efforts, the central bank alone is not able to exert strength.
Generally speaking, during the recession and recovery period of the economic cycle, as well as the easy money cycle of the financial cycle, market interest rates fall and bonds enter a bull market, which may not be too late to reflect; In the recovery and overheating period of the economic cycle, as well as the easy credit cycle of the financial cycle, the market demand will pick up, social financing will increase, and the market interest rate will enter a bull market.
With these basic concepts out of the way, let's talk about the four stages of the financial cycle in detail.
The first stage is to ease money and tighten credit. Corresponding to the economic recession period, the economic downturn, and the decline in corporate profits, the central bank usually adopts monetary easing policy, opens the floodgates, injects liquidity into the market, and provides more and cheaper funds to enterprises, hoping to achieve the effect of "easy money and easy credit", but the central bank cannot directly send money to enterprises, and can only put the money into commercial banks first, and then lend to the real economy through commercial banks. When this transmission process is too slow or blocked, ** will personally go out to "shop" and stimulate the economy through tax cuts, fee reductions and infrastructure construction. That is to say, since the people are not willing to spend money, then they will take the lead in spending money, thereby driving employment, investment and consumption. At the beginning of 2022, it was at this stage, when the monetary policy had been easing, but the credit had not yet risen, the demand for funds was insufficient, the market interest rate was down, the bonds were bullish, and the ** was still sluggish, but banks and infrastructure had taken the lead in stopping the decline.
The second stage is to ease money and credit. Corresponding to the economic recovery period, the economy has bottomed out, people's expectations have gradually improved, social finance has begun to pick up, the loan threshold has been lowered, corporate earnings have begun to improve, inflation has been relatively moderate, and the transmission from easy money to easy credit has been completed. Due to the strong demand for funds, the market interest rate began to be the best, and the performance of bonds was no longer bright, and it began to perform in the market, and gradually bullished. At the time of writing, we are in the transmission stage from easy money to easy credit, social finance and M1 have both rebounded sharply, the LPR interest rate has been lowered again, the severe cold is about to pass, and spring is just around the corner.
The third stage is to tighten monetary policy and ease credit. Corresponds to periods of economic overheating. The economy continues to improve, the scale of credit continues to expand, people's emotions begin to be excited, enterprises accelerate expansion, prices rise rapidly, the central bank no longer "slams on the accelerator", and begins to adopt tight monetary policies such as raising interest rates, raising reserve ratios, and raising rediscount rates to tighten liquidity and curb economic overheating and inflation. Due to the lag of policy transmission, at this time people still believe that the economy will get better and better, commercial banks see that enterprises are becoming more and more profitable, risk appetite is also rising, credit continues to expand, affected by inertia, credit activities have not been hindered by "tight money", so they have entered the stage of tight money and easy credit. Due to the strong demand for funds at this stage, market interest rates will rise sharply, bonds will enter a bear market, ** will still perform, and cyclicals and technology stocks will begin to stage the final madness.
Fourth, tighten money and tighten credit. Corresponds to the period of economic stagflation, and the stage from stagflation to recession. The central bank continued to tighten liquidity, the market interest rate is getting higher and higher, demand began to fall, corporate profits were squeezed, and credit defaults began to appear. At this stage, there may be a sharp increase, and high market interest rates and an economic downturn will also lead to a "thunderstorm" of some high-interest credit bonds. Therefore, we should switch to a defensive state as soon as possible, reduce the number of cash or short-term bonds, and wait for the market interest rate to slow down, and then increase the position of long-term bonds again to meet the next round of monetary and credit tightening financial cycle.
The following table summarizes the performance of bonds and bonds in the four phases of the financial cycle:
One might ask: how do I judge the tightness of money and credit? Just look at market interest rates and social finance. Judging the tightness of the currency depends on the market interest rate, that is, the yield of the 10-year treasury bond. Judging the tightness of credit depends on social finance, which is a wide credit cycle on the upward side, and a tight credit cycle on the downside.