Thomas Barkin, President of the Richmond Fed, made a very important pronouncement on Thursday. In a speech he states: “It’s difficult to imagine inflation falling without demand falling.” His message seems to be have fallen on deaf investor ears. In plain English, Barkin is telling us that demand, i.e., personal consumption, will have to decline, […]
Bloomberg heralds “Nasdaq 100 Enters Bull Market as Bank Jitters Ease.” The Nasdaq is now up over 20% from recent lows, leading many media outlets like Bloomberg to declare the birth of a new bull market. Many investors seem to associate 20% declines with the start of bear markets and 20% increases with the beginning […]
We have read commentary equating the sharp increase in money market assets with cash on the sidelines waiting to be redeployed into the stock market. Therefore, the analysts imply the extra cash sitting in money market funds is fodder for a stock rally. During the 2008/2009 market swoon, money market assets rose sharply and peaked […]
Warren Buffett’s firm, Berkshire Hathaway, continues to amass a large position in Occidental Petroleum (OXY). In just the last week Berkshire bought 3.7 million more shares, raising its ownership percentage of OXY to 23.6%. Berkshire Hathaway has the approval of the U.S. Federal Energy Regulatory Commission to buy up to 50% of the company’s stock. […]
Alongside the financial and REIT sectors, small cap stocks are falling victim to the banking crisis. The logic is that many small companies tend to rely heavily on debt financing. As financial lending standards tighten and credit spreads widen, small cap companies must pay higher interest rates on their debt. Further, those may be the […]
Deutsche Bank shares fell more than 10% on Friday and over 30% since March 1 as investors grew anxious about the banking sector’s health. The impetus behind Friday’s decline was a surge in its credit-default swaps (CDS). Credit default swaps are derivatives allowing investors to hedge a company’s credit risk. If the associated company defaults, […]
Courtesy of BofA, the survey results below show that professional money managers are now more concerned with credit risk than lingering high inflation. This survey also inadvertently points out the Fed’s delicate dance between financial stability and inflation. If rates stay high, money will continue to leak from banks to money market funds. Conversely, if […]
Yesterday’s FOMC meeting was likely one of the toughest for the Fed in a long time. As we have written numerous times, the Fed must carefully balance fighting inflation with rising financial instability. Before the meeting, Fed Funds Futures were implying a 40% chance of one more 25bps rate increase at the May or June […]
Long before Silicon Valley Bank failed, the banking sector was experiencing a silent bank run. Unlike the Great Depression, where lines of people clamoring for their money were blocks long, this silent bank run, as its name portends, has been out of sight until recently. There are a couple of reasons for this. First, online […]