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Supply Shortages Drove Inflation, Some Say
Various politicians and a Fed member have recently claimed that the recent bout of high inflation was due to pandemic-related production and transportation shortages. They are correct in that the reduced supply of goods and services is undoubtedly a cause of inflation. However, this convenient excuse seems to take the blame away from themselves. Excessive […]
Jan 19, 2024
Credit Outlook Doesn’t Jibe With Junk Spreads
We have noted numerous times that corporate bond spreads, the yield premium versus U.S. Treasuries, are not aligned with default risks. As evidence, the graph below illustrates the yield premium on B-rated junk, which is near the lowest in 15 years. Therefore, the spread should be higher, given the high-interest rates and the fact that […]
Jan 18, 2024
Is QT In Its Final Act?
“Fed Tiptoes Toward Dialing Back Key Channel of Monetary Tightening,” by Nick Timiraos, appeared in Tuesday’s Wall Street Journal. Author Nick Timiraos, a.k .a. the Fed Whisperer, is often the recipient of Fed leaks. Tuesday’s article alludes that the Fed may soon slow down the pace of QT. As we have written, the Fed’s overnight […]
Jan 17, 2024
Bitcoin ETFs Come With Stern SEC Warnings
The SEC approved 11 spot Bitcoin ETFs on Thursday. Unlike the supportive messaging on most new products the SEC approves, Bitcoin ETFs were accompanied by plenty of caution. For starters, in his approval press release, SEC Chair Gary Gensler states the following: Though we’re merit neutral, I’d note that the underlying assets in the metals […]
Jan 16, 2024
Bank Rescue Package Becomes A Profit Center
The Fed came to the banking sector’s rescue in March 2023 with the Bank Term Funding Program (BTFP). This latest bank rescue program allows banks to replace lost deposits with a Fed loan. Instead of having to sell underwater assets and take a loss, participating banks can replace deposits with a collateralized loan from the […]
Jan 12, 2024
The Wealthy Benefit From The Fed
Axios recently put out an article with the graph below. As shown, the wealthy, defined as the top ten percent of the population as measured in wealth, own over 90% of stocks. The percentage has been steadily increasing. Axios notes that 58% of American households own stocks, but “in the aggregate, the amount of stock […]
Jan 11, 2024
Fed Funds Expectations Are Misaligned With Market Expectations
There is a gap between the logic of the stock and bond markets. Most stock market analyst expectations are bullish, while Fed Funds futures warn of a recession. The following Business Insider interview with Jeremy Seigel highlights the dichotomy of opinions. Per the article: “The S&P 500 could surge by 10% to a record high […]
Jan 10, 2024
Buy Now Pay Later
Since 2022, credit card debt has grown 10% annually to a record high of $1.08 trillion. That is double the growth rate prevailing before the pandemic. As banks tighten lending standards and an increasing number of credit card holders max out their cards, some consumers are turning to buy now, pay later loans. Buy now, […]
Jan 9, 2024
The Corporate Bond Market Is Stirring But Not Worrisome
“U.S. (corporate) high-yield bonds have sold off at the fastest pace since March, when traders were worried about a banking market collapse. Spreads have widened by nearly half a percentage point since Dec. 28, the fastest pace since March 16“- Lisa Abramowicz- Bloomberg. The yield spread, or differential, between junk-rated corporate bonds and U.S. Treasuries […]
Jan 8, 2024
Government Spending Drives The Economy
Since January 2022, nominal GDP has grown by $2.5 trillion or 5.77% annually. Such a growth rate is much better than the 4.30% annualized growth rate in the three years leading up to the pandemic. In fact, the last time the three-year annualized growth rate for the economy was better than that was after the […]
Jan 5, 2024
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