“With Credit Suisse and Silicon Valley Bank, the turmoil only affects the corners of the financial system”

The financial news tells us that one day bad news arrives from Credit Suisse or from Silicon Valley Bank and the stock exchanges collapse, the next day the political and monetary authorities intervene and the markets are partially reassured, the next day it turns out that there is no done enough and stocks start to fall again… but apart from these short-term ups and downs, what can we expect looking forward to, say, the next six months? Even knowing, as the great physicist Niels Bohr ironically said, that “predictions are very difficult, especially regarding the future”, we asked Orlando Barucci, co-founder and managing partner of the investment house Vitale & Co.
Let’s disregard the minute-by-minute news and try to ask ourselves: will these turmoil be limited in scope or will they make the financial markets collapse as a whole, as happened with Lehman? Will they undermine trust in the system?
“It’s true, as you say, that forecasts are very difficult, and in particular in the field of finance we have 15 years behind us in which we have seen all sorts of things. But my impression is that the nervousness of the markets with the cases of Credit Suisse and Silicon Valley Bank has so far only vented against the weakest links, which everyone knew were weak, or to use another metaphor, that it has remained confined to the corners of the system. The authorities have reacted quickly and effectively and it seems to me that they know what they are doing”.
But will the financial problems escalate into a global recession in the real economy? There is a risk that in the coming months, banks around the world will be more careful about managing their balance sheets sparingly than about lending money to industrial and service companies.
“This will happen to some extent, for sure, and will have the effect of slowing down the growth of the real economy. But in the recent years of crisis, companies have become very adept at managing problems, cutting costs and getting by. Of course, the situation varies greatly from sector to sector. For example, in the technology sector, in which Silicon Valley Bank was heavily involved, the argument I am making does not work very well, because there are companies that invest on leverage, they always need new capital to grow, the argument about cutting costs is of little value . And looking at another problem, that of inflation, throughout the economic system there are companies that are able to pass on the inflated costs to the end customer and others that are unable to do so. But overall I don’t see a global recession coming.”
Back to racing the spread. Can we trust in buying 5 or 10 year Italian bonds, or in the meantime, perhaps in 2024, 2025 etc., will we end up like Greece? A recent survey says that 52% of Italian individual savers (I’m not talking about institutional investors) do not want to buy government bonds for any reason, because they don’t trust them, and this does not mean that the other 48% are in favor of “yes ”, is divided between the “maybe”, the “I don’t know” etc. Only 9% of Italian public debt is in the hands of families, a historically very low share. How do we put it, with the Treasury having to renew 400 billion euros of bonds in 2023?
“In the meantime, I would like to point out that institutional investors, i.e. banks, insurance companies, funds, etc., continue to subscribe to Italian government bonds, and then I underline that everything that has been done in these years of crisis, by all governments of every colour, was made precisely to protect and reassure individual savers, and it will continue in this way. Therefore I would say that Italian families can have confidence”.