Operating at the Intersection of Technology and the Capital Markets
Tag: interest rates
Despite the talk for higher for longer, Powell will take rates down next year as the $33 Trillion debt bomb can't afford to have today's average interest rate climb from 2.8% to something north of 3%. Make no mistake, the Fed Funds rate will come down in 2024 as the current recession deepens. However, the … Continue reading Powell and Wiggle Room
Wholesale used-vehicle prices decreased 1.6% in July as compared to June. The Manheim Used Vehicle Value Index declined to 211.7, down 11.6% year-over-year. I would not expect the used vehicle market to completely rollover back to 2019 price levels as prices for new vehicles (up 60% over the past 10 years), are at such elevated … Continue reading Used Vehicle Prices Declined in July
$32.7 Trillion in Public Debt and counting as of this morning. Treasury Secretary Janet Yellen set the table in 2021 and 2022, thereby pre-determining Powell's rate path - or at least limiting Powell's rate ceiling. The U.S. simply can't afford to have $13.7 Trillion in Treasury Notes outstanding roll over at present interest rates. The … Continue reading The Public Debt Bomb
A fun exercise for investors will be to review their portfolio holdings for companies that carry debt that is scheduled to mature over the next several years. Companies will have to decide if they wish to pay off the debt which in many cases will involve large, dilutive equity offerings to generate the necessary cash, … Continue reading Corporate Credit Risk Fun: Sometimes I Am Right.
$67 billion of Speculative Grade Bank Loans and Bonds mature in 2023 per Moody's (see our table below). That figure balloons to $199 billion in 2024. How many of those companies will survive if they are required to rollover debt at 12-15% versus the 4-6% coupon they did their deal at in 2020 or 2021? … Continue reading The Fed Has To Pivot By 2024
Venture Debt is a risky way to earn a return (just as SVIB) - especially when the source of capital is customer deposits as opposed to long-term limited partner capital for example. Extending loans to Technology firms that aren't generating cash, or in many cases that are not generating revenue is a risky bet. The … Continue reading Venture Debt & SVBPremium
Delinquency rates across loan types are increasing as: 1.) debt loads and interest rates / interest expense grow and, 2.) consumers lose their jobs. Further weakening: We believe the consumer will weaken further as: 1.) the Fed tightens monetary policy, 2.) prices for goods and services remain elevated and, 3.) companies continue to lay off … Continue reading The Weakening Consumer
Regardless of where CPI lands tomorrow, my view is that the Fed will hold rates higher for longer than the market believes. Higher interest rates combined with a shrinking money supply (QT), translates to: tighter monetary conditions, a higher cost of capital, less revenue visibility for companies, more employee layoffs and a deeper recession. The … Continue reading Tomorrow’s CPI = Noise
Despite today's uptick in Consumer Confidence, I suspect the measure will turn on a dime (negative sentiment), early next year as job losses mount, as rates remain elevated, as the market rolls over and as the housing market collapses. I expect forced selling in the housing market whether it be of primary homes, secondary homes … Continue reading Consumer Confidence Will Turn On A Dime
There will be more equity market fallout. Historically, equity markets haven't found a bottom while the Fed is in a tightening cycle. I see the NASDAQ index falling to 9,000 during Q1 2023 as: 1.) the Fed tightens further; 2.) weak 2023 earnings guidance is provided on Q4 EPS calls; and 3.) global recession combine … Continue reading Equities Have A Tough 2023 Ahead
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