Operating at the Intersection of Technology and the Capital Markets
Month: September 2023
Management teams are working through 2024 operating budgets and hopefully have figured out that interest rates will remain elevated for 2024. Companies carrying meaningful debt have no choice but to assume elevated interest will remain for the foreseeable future (we believe a 5 handle makes sense for the 10-year). In terms of the People budget, … Continue reading 2024 Enterprise Software Budgets: Gen AI To Get Axed?
The Fed resumed its overly modest QT program this week. It is better than zero activity. We'll take it. We would like to see the Fed rid its balance sheet of the excesses of 2020-2022 over the next several years at a clip of approximately $1.5 Trillion per year. Treasuries: The Fed’s Treasury security holdings declined … Continue reading The Fed’s Balance Sheet Reduction (QT) Update
This week’s BTFP activity: The Bank Term Funding Program (BTFP, bail out/QE) had approximately $107.6 billion in outstanding loans as of Wednesday this week, down from $108.0 billion (- $0.4 billion) a week ago. The “other credit extensions” line item of $85.0 billion includes the FDIC loans made to regional banks. This figure is down from $133.4 … Continue reading Weekly Update: Bank Term Funding Program
Back on August 12th we wrote that 4.50% would be a logical yield for the 10 year Treasury. We are there. More recently we have written that a 5-handle makes sense for the 10-year. A 5% yield is around the corner. Too many investors believed the Fed was taking rates close to zero percent in … Continue reading 10-Year Treasury Yield Marching Toward 5%
We believe it is likely that the Fed will lower its Fed Funds Rate faster than what it outlined in Wednesday's FOMC projections given that the interest expense scenarios on the Treasury Debt that we have outlined below are fiscally unsustainable. The average interest rate on Treasury Debt will climb higher if the Fed holds … Continue reading The Fed Will Likely Lower Rates Faster Than It Projected Wednesday
The Fed created the mess that we are living in as it relates to the price dislocations we have suffered across goods, services and various asset classes since 2H 2020. Too much is being made of today's Fed rate decision and the related projections below. Not enough is being made of the Fed's anemic QT … Continue reading Today’s FOMC Meeting: Much Ado About Nothing
The Fed's actions with the money supply carry more economic weight than its actions with its Fed Funds rate. As far as QT is concerned, the Fed has already paused. Thus, whether the Fed raises rates tomorrow or in October or at all, the real story is that the Fed has put the brakes on … Continue reading The Fed Has Already Paused
Former Planet Fitness (ticker: PLNT), CEO Chris Rondeau was removed by PLNT's Board last week. If I were PLNT's Board I would pursue a fitness app strategy to augment the club business. There are several obvious benefits for pursuing such a strategy: 1.) Recurring revenue: Fitness app businesses would add a layer of recurring revenue. … Continue reading Planet Fitness Ought To Pursue A Fitness App Strategy
For some companies, debt repayments are taking priority over innovation and other operational initiatives. Aside from zombie companies going bankrupt as a result of the Fed holding rates higher for longer, there is an entire class of Technology companies that will continue to suffer as a result of higher interest rates for longer. Take SS&C … Continue reading When Debt Payments Take Priority Over Investing In The Business
If you look at what's happening with Treasury yields on the 2yr, 3yr, 5yr, 7yr, 10yr, 20yr and 30yr bonds it implies that fixed income investors believe that the Fed is not taking rates back to zero. The 10 year Treasury bond yield still looks too low relative to the 5yr, 7yr and 20yr (I'd … Continue reading Treasury Yields Imply Rates Will Stay Higher For Longer
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