The Fed's forthcoming QT program has yet to ramp, thus the monetary tightening process has yet to really begin in our view. Tomorrow at 4:30pm ET we will get a picture of where the Fed's balance sheet sits. After shrinking modestly during the month of May, the Fed continues to grow its balance sheet (below). … Continue reading The Fed Has Yet To Reduce Its Balance Sheet
Category: Asset Management
Pinterest has a new CEO. Google needs to simplify its Payments strategy. The two are related. On June 4th we wrote (article HERE), that Google's Payments strategy is confusing given the company's three-pronged approach to consumer-facing payment apps - Google Pay, G-Pay and Google Wallet. Much of our surprise was due to the fact that … Continue reading What Does Pinterest’s New CEO Mean for Google?
Management Teams Have Less Discretionary Capital as The Cost of Debt Rises As the cost of debt rises, management teams have less discretionary capital to allocate toward growth initiatives and various sources of competitive differentiation (Product Development for example). Belt tightening will be required as corporate America braces for the new normal of higher input … Continue reading The Cost of Debt Rises
While the S&P 500 index is down approximately 21% YTD, it appreciated 44% from its pre-COVID high in February 2020 to its recent high during January 2022. One could argue that the pre-COVID high of February 2020 was a rich valuation for the index which benefited from years of accomodative Fed policy and low inflation. … Continue reading Earnings Estimates Are Too High
Eventually fixed income traders will wish to be compensated for the growing risk in the real economy, pushing yields higher. Dovish forecasts from the Fed will carry less weight with this investor cohort as economic reality sets in. Fed balance sheet reduction = higher yields. Investors would be wise to remember that the Fed is … Continue reading Yields Will Move Higher
The Fed's economic projections coming out of last week's FOMC meeting are far too optimistic. Fed's Real GDP projections for 2022, 2023 and 2024: 1.7%, 1.7% and 1.9% respectively. 2022 is going to be a zero percent to down Real GDP year in our view. 2023 will be flat with 2022 in our view. 2024 … Continue reading The Delusional Fed
It would have made for great theater if the Fed truly wanted to win the war against inflation. Unfortunately, the Fed already blinked. If the Fed's mission truly was to get CPI back down to 2%, the valuation froth that began to manifest in 2019 peaking with 2021's valuation mania (which made the 1999-2000 dot … Continue reading The Fed Already Blinked
Shares of junk companies such as American Airlines (AAL) and General Electric (GE) are back where they traded during the COVID doldrums. What was gained by bailing out these shit companies or the thousands of zombie companies that received COVID relief money? All of that wasted capital - trillions of dollars - that was printed … Continue reading Junk Sinks To The Bottom of The River
It sure feels as though we are in a recession: Weak reports from retailers such as Amazon (AMZN) and Target (TGT, twice in Target's case).Soft retail numbers HERE.Low consumer confidence HERE.Atlanta Fed's new GDPNow estimate (as of June 15th), is zero percent Real GDP for Q2.Depleted personal savings (chart below).Even Johnny Come Latelys like Guggenheim's … Continue reading A Recession Won’t Cure Inflation Anytime Soon
If the Fed were to follow today's 75 basis point increase in the Fed Funds Rate with 100 basis point increases during each of the July and September FOMC meetings, it still would not be sufficient to curb inflation this year. 2022 will be marked by a recession, elevated prices for goods and services, and … Continue reading Too Little Too Late. The Inflation Cake Is Baked.