Updated: Sep 6
Happy Market Update!
The bank saga continues. This time, it has spread overseas to Europe. Credit Suisse was acquired by UBS for pennies on the dollar. Way less than their assets. And the Swiss had to pony up billions of dollars to help back stop. But everything is fine here. As long as you don’t pay attention to the regional banks here at home. DC says not to worry. Bbbbuuutttt…how come a LOT of private jets and Biden were in and out of Omaha this past weekend? WTH is in Omaha you ask? Pic:
Yes, Warren Buffett. I don’t know what the ukulele is all about. But you probably get the point. Banks not in trouble? Why have meetings all day on Sunday with this man? Because he has over $150B (with a B) in cash? Oh sure, this looks perfectly normal.
Does it though? Let’s dive in…
The discount window is a central bank to help with short-term liquidity issues for commercial banks. Ay caramba! That’s higher than “The Great Recession”. But, it’s fine.
Then there are the people saying, hey, look at the stock market the past few days. Okay. I bet somewhere in the below red circle people were saying the same thing. Sure, I don’t if this will happen. But as usual, I’m here to permabear! J/k. Sort of. But like they said in Boy Scouts, “Always Be Prepared.” I took that seriously…at least later in life. But, it’s fine.
But Tim, you said the 2-10 yield spread was the sign of a recession. And the 2-10 inversion cut in half. People move money from stocks to short term bonds which makes the short term bond yields drop. But that’s not good for the stock market. Thus, a bear market moves interest rates lower.
Let’s have a look:
Chart from 2019 through yesterday. Here is the inversion coming back! Hooray! Right?
Nope! Not right. Have a look at this chart going back to the late 1970s (yes I was alive already…leave me and my old age alone. That’s called “wise” for you young people.) What I notice is that the inversion comes back as we start in the recession. Can you see it? So we are not out of the woods by any stretch.
This was caused by the largest 5 day move in the 2 year yield in Black Monday (that’s October 1987):
Think that there is a party that actually cares about us? A lot would argue it’s not the money loving right. What about the left? Well, Gavin Newsome, the Governor of the California Republic. He didn’t bother to tell anyone that he has a lot of money….wine country money…at SVB when praising the potential bailout. Here’s how it should have gone: “Yeah for me!!” See? It’s all politicians! Not just Trump and Biden.
Four really smart people got together and created a 21 page paper (in what appears to be font size 4) and say that we may have about 186 banks teetering on the edge of bankruptcy. But everything is fine here. This was reported by The WSJ. I have a copy of the actual paper. If you want it, to source me, send me an email.
Good news? Sure…I’ve got that too! Shipping is cheaper! Stop frowning. It’s something that helps inflation.
Over the past few days, the Nasdaq has been rising with lower bond yields. But those yields are rising again ahead of the Fed meeting today. I’m forecasting 25 bps. Why? Because 0 means there is a bank issue, and 50 means inflation is still a problem and the markets will think they gave up on the banks. So 25, like it or not, is their “whatever” decision. Just keep on kicking the can down the road. And yes, two weeks ago, I was thinking it would be 50 based on movement in the 10yr yield. My 25? Based, again, on the movement in the yield the past couple of days.
10yr: We shall see what the Fed decides. For now, it looks like the 10yr has built in 25 bps from the low earlier this year that bounced off the 200DMA (that’s the upward yellow line). We are sitting just out of the downtrend from last November, so what happens over the next 24 hours should give us the green light for direction. Housing is slower, rates are still up, and the FHFA (controlling Fannie and Freddie) are adding loan level pricing adjustments in 2 weeks. What does that mean? More risk protection added = higher rates for people. Just when we thought we might get some relief. Thanks, DC!
MBS: Again, Fed dictates. I think Fed goes 25…because they don’t know what else to do. I know I feel warm and fuzzy. How about you? Lock for now…or if you like anxiety, float it!
The bottom line here is that I just don’t think anything in DC is educated or sophisticated enough to prevent a crisis. We pay them to manage risk and they can’t. So what? Should we hire more regulators? That’s not the problem. Sorry, folks, but we need to get people who work the FULL 8 hours. And that’s from a guy who easily puts in the ol’ 60-80 hour weeks. I’m not asking for that. Because people are soft these days. How about you actually work the 8 hours. Dig in to your job and you might see these BS artists in advance. Oh right…they give you money so you’ll do what they want when it’s your turn for power. We are so screwed.
Originating Branch Manager