Arun - great question and I wish I could answer but simply not
sure - you'd have to ask JPowell if they shift from fighting
inflation and start QE5 or attempt to stay the course. However, I'm
quite certain that there are more than two banks that are likely
under significant stress if only due to mismanaged treasury
durations (not even considering looming problems with commercial
loans - just think about loans against office space in major metro
areas like NY, SF, and LA).
My belief is that the FED will attempt some type of hybrid
approach to fight inflation while attempting to limit collateral
damage from the bank failures. The FED would act as temporary
lender to troubled banks but not reengage in asset purchases with
the current backdrop. Will there be adjustments made to FDIC
insurance - Yellen had no answers last week. Again, only time
will tell but the current backdrop is fraught with a great deal of
uncertainty and technical analysis alone will be limited in
predicting such outcomes.
Lastly, the same issues are inherent in Europe (even more so
with inflation running red hot above US levels). Below I
have posted the initial response to the Credit Suisse saga but it's
far too early to surmise the aftermath and subsequent
actions.
It's definitely not how I would phrase the debate but if you
want the SPX above 4300 then expect inflation to ramp back to the
upside and the US Dollar to weaken. Not at all an ideal
scenario for ordinary Americans.
there was no way to unwind this stuff without causing pain, no
way around it, but I think it has to be done, going back to QE
would be 10 times worse
The Fed should have started a year plus earlier when inflation
started when they were wearing that T-shirt I printed LOL giving us
that BS inflation is transitory. The Covid stimis the way they were
implemented should never have happened. The Fed should have not
allowed interest rates to be basically zero % for decade plus
etc
it would have been easier to unwind this stuff years ago, but
the bigger and longer the bubble is blown up, the harder and worse
things will be trying to unwind it
my comments would be: sure the Fed could go back to a QE etc and
the markets would go way back up and to new all time highs,
but...if you sat the average American down and explained in a clear
way so that they understood the ramifications: Okay the Fed can go
back to a QE environment and even start cutting rates; it will
cause the SPX to go to 6000, but it will also cause 25%, 35%, 40%
inflation, is that worth it to you just so that the SPX can get to
a new all time high?
I'd say the vast majority would NOT support going back to QE
just to get the stock market back up etc
again what Steve and I were discussing and warning about in late
2021 and early 2022 - guys the 'Fed' is in a real rock and a hard
place, there's no easy way or solution out of this. Which is why
when we kept seeing all the recency bias last year about people
calling for the bear market bottom all the timing, acting like
things can just be so easily fixed and the market to go rip roaring
back - guys just use some common sense, don't only look at a chart,
and look at the fundamental backdrop of things!
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Arun - great question and
Here's a couple graphs that should hit home
Posted by steve on 19th of Mar 2023 at 02:10 pm
Arun - great question and I wish I could answer but simply not sure - you'd have to ask JPowell if they shift from fighting inflation and start QE5 or attempt to stay the course. However, I'm quite certain that there are more than two banks that are likely under significant stress if only due to mismanaged treasury durations (not even considering looming problems with commercial loans - just think about loans against office space in major metro areas like NY, SF, and LA).
My belief is that the FED will attempt some type of hybrid approach to fight inflation while attempting to limit collateral damage from the bank failures. The FED would act as temporary lender to troubled banks but not reengage in asset purchases with the current backdrop. Will there be adjustments made to FDIC insurance - Yellen had no answers last week. Again, only time will tell but the current backdrop is fraught with a great deal of uncertainty and technical analysis alone will be limited in predicting such outcomes.
Europe
Posted by steve on 19th of Mar 2023 at 02:35 pm
Lastly, the same issues are inherent in Europe (even more so with inflation running red hot above US levels). Below I have posted the initial response to the Credit Suisse saga but it's far too early to surmise the aftermath and subsequent actions.
I guess it comes down
Posted by arun on 19th of Mar 2023 at 02:39 pm
I guess it comes down to what’s more important to the fed. Inflation or risk a systemic collapse ? And we know the answer to that already.
It's definitely not how I
Posted by steve on 19th of Mar 2023 at 02:50 pm
It's definitely not how I would phrase the debate but if you want the SPX above 4300 then expect inflation to ramp back to the upside and the US Dollar to weaken. Not at all an ideal scenario for ordinary Americans.
there was no way to
Posted by matt on 19th of Mar 2023 at 02:43 pm
there was no way to unwind this stuff without causing pain, no way around it, but I think it has to be done, going back to QE would be 10 times worse
The Fed should have started a year plus earlier when inflation started when they were wearing that T-shirt I printed LOL giving us that BS inflation is transitory. The Covid stimis the way they were implemented should never have happened. The Fed should have not allowed interest rates to be basically zero % for decade plus etc
it would have been easier to unwind this stuff years ago, but the bigger and longer the bubble is blown up, the harder and worse things will be trying to unwind it
my comments would be: sure
Posted by matt on 19th of Mar 2023 at 02:29 pm
my comments would be: sure the Fed could go back to a QE etc and the markets would go way back up and to new all time highs, but...if you sat the average American down and explained in a clear way so that they understood the ramifications: Okay the Fed can go back to a QE environment and even start cutting rates; it will cause the SPX to go to 6000, but it will also cause 25%, 35%, 40% inflation, is that worth it to you just so that the SPX can get to a new all time high?
I'd say the vast majority would NOT support going back to QE just to get the stock market back up etc
again what Steve and I were discussing and warning about in late 2021 and early 2022 - guys the 'Fed' is in a real rock and a hard place, there's no easy way or solution out of this. Which is why when we kept seeing all the recency bias last year about people calling for the bear market bottom all the timing, acting like things can just be so easily fixed and the market to go rip roaring back - guys just use some common sense, don't only look at a chart, and look at the fundamental backdrop of things!