Category: Financial Services

QT Has Only Just Begun

QT Has Only Just Begun

The Fed's balance sheet declined modestly ending the week at $8.91 trillion, down from $8.93 trillion and up from $8.76 trillion at the beginning of the calendar year and up from $4.17 trillion in January 2020 (just before the unprecedented fiscal and monetary stimulus programs of 2020 and 2021). As we wrote on Tuesday, the … Continue reading QT Has Only Just Begun

The Fed Has Yet To Reduce Its Balance Sheet

The Fed Has Yet To Reduce Its Balance Sheet

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

What Does Pinterest’s New CEO Mean for Google?

What Does Pinterest’s New CEO Mean for Google?

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?

The Cost of Debt Rises

The Cost of Debt Rises

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

Earnings Estimates Are Too High

Earnings Estimates Are Too High

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

The Delusional Fed

The Delusional Fed

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

The Fed Already Blinked

The Fed Already Blinked

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

Too Little Too Late. The Inflation Cake Is Baked.

Too Little Too Late. The Inflation Cake Is Baked.

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.

Wednesday Could Get Bloody for Equities

Wednesday Could Get Bloody for Equities

Too many bulge bracket firms are dismissing the chance of a 75 basis point increase by the Fed tomorrow. Variance of expectations means greater potential for volatility (i.e. downside risk). Over the weekend we stated that we believe there is a 50% probability that the Fed will raise its Fed Funds Rate by 75 basis … Continue reading Wednesday Could Get Bloody for Equities

We’ve Still Got A Long Long Way To Go

We’ve Still Got A Long Long Way To Go

"It would seem we've still got a long, long way to go" sang Phil Collins. I could not help but think of these lyrics as I reviewed the Fed's balance sheet this morning. While the Fed's Quantitative Tightening ("QT"), has only just begun, it has an enormous, multi-year project in front of it as it … Continue reading We’ve Still Got A Long Long Way To Go