Operating at the Intersection of Technology and the Capital Markets
Month: October 2022
We believe the Fed will talk tough on Wednesday, lift rates into Q1 2023 and then hold the Fed Funds Rate at an elevated level for all of 2023 and well into 2024. No pivot in sight as we wrote last week. More importantly, the Fed continues to trim its balance sheet, thereby shrinking the … Continue reading Something Wicked This Way Comes
The Fed is almost done hiking and what they do this week (probably a 75 BPS hike), and in December (probably a 50 BPS hike), is almost irrelevant over the long-term. The larger question is how long will the Fed hold rates at an elevated level? We likely won't see a zero percent Fed Funds … Continue reading Almost There
Petroleum is a derivative of decomposed dinosaurs. Or is it? The fossil fuel theory is a convenient narrative for oil producers and green politicians to push. If petroleum buyers believe that petroleum reserves are finite, it is relatively easy for producers to control pricing. However, what if petroleum reserves are not finite but are instead … Continue reading What If The Oil Supply Is Not Finite?
The simple formula for crashing the economy is to shrink the monetary base (cash in circulation plus reserves) while raising interest rates. The chart below plots the monetary base (down 15% year-over-year) against the 10-year Treasury yield (up from 1.56% to 3.98% over the past year). Source: https://fred.stlouisfed.org/graph/?g=Vpb0 We are all but guaranteed a deep … Continue reading How To Crash The Economy
The Fed does not have to shatter the economy to fight inflation. However, it will. There is a better solution. We break the article into 5 sections. Sections 1 and 2 provide background on how we arrived at the current inflationary state. Sections 3 and 4 describe a weak economy where monetary policy has already … Continue reading Must The Fed Shatter The Economy? No, But It Will.
Money is tight when we observe the monetary base (currency in circulation plus reserves). It is dangerous to shrink the monetary base at the pace in which we have done so as interest rates rise. Doing so could be the difference between an economic recession and a depression. One can see based on the first … Continue reading Money Is Tight. Perhaps Too Tight.
The Fed’s balance sheet runoff reduced the Fed's Treasury and Agency security holdings by a combined total of approximately $23.3 billion over the past week (week ended October 26th), and a reduction of approximately $82.6 billion on a rolling 4-week total basis. Fed Balance Sheet - Treasuries: The Fed’s Treasury security holdings were approximately $3.2 … Continue reading The Fed’s Balance Sheet Reduction (QT) Update
META will remain a broken company until Zuckerberg allocates the same passion toward repairing the core business as he has allocated toward building the metaverse. However, I have never met an entrepreneur that felt equally passionate about a shiny new object AND a repair job. Therein lies the rub. Zuckerberg's interests have clearly evolved. META's … Continue reading META Ought To Split In Two
Below are two paragraphs from META's earnings release. The language is from the "CFO Commentary" section and is symptomatic of a company that is operationally lax. It may be too late for META to find religion around operational excellence. Operational efficiency is a skill set that is developed over years, it is not a cost-cutting … Continue reading Meta Is Operationally Reactive
Some buzzwords from MSFT's financial results prepared remarks. Currency: MSFT of course took a currency hit. The word "currency" was used 54 times in the prepared remarks. Revenue took a 5% currency hit while Operating Expenses benefited by 3%. MSFT's outlook anticipates a 5% Revenue hit and 3% OpEx benefit in Q2 and FY'23. The … Continue reading Microsoft EPS Wordplay
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