Market and Economy

Diligence is the mother of good luck

Benjamin Franklin


Video: QT resuming, Credit Crunch underway, US Government Debt Squeezing out Private Sector.

• Markets had a strong June based on 7 stocks and pushed the S&P500 up almost 16% on a year-to-date basis. The rest of the market is only up around 3%.
• In March, regional banks crises kicked off with big losses on US government bonds and deposit flight. The crises will probably move to commercial real estate which is being hit by increased vacancies and higher interest rates. QT reversal was executed to slow crises. This has worked so far but unlikely to stem crises.
• My caution since January has proven wrong as QT reversal, investment sentiment and already existing liquidity drove market higher.
• Behind schedule on QT, but the Fed is still staying the course. The economy is weakening.
• Federal deficit too high at $32 Trillion, the debt ceiling debacle highlighted this. Private spending and investment will be squeezed out by federal government borrowing.

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Building Benjamins

Economic and Market Review May 2023

Economic and Market Review May 31, 2023 Overview Congress passed legislation during last-minute negotiations to avert a default on the nation’s debt. The suspension on the U.S. government’s $31.4 trillion debt ceiling is temporary until lawmakers finalize legislation to fund ongoing federal obligations. The impasse on the debt ceiling added

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Video: Debt Ceiling Theatre – US Debt Crises in the Future

Reducing Social Security and Medicare politically impossible. The Federal Reserve restarting QE (Quantitative Easing) and buying the US debt to keep rates down. QE is the most likely choice and will be wildly inflationary. Recession seems to have started in the second quarter. QE will most likely be used to restart the economy once the recession has caused enough pain.

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Building Benjamins

Economic and Market Review April

Economic and Market April April 30, 2023 Continuing Weakness in Banking Sector Concern over additional bank failures has created ongoing uncertainty for equity and bond markets, as the collapse of First Republic Bank this past month has become the second-largest bank failure ever, with $229 billion in assets and over

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Video: Caution not Complacency. Debt Crises, First Republic, Credit Crunch, Fed to 5.25%, QT, Down Earnings

Treasury Secretary Janet Yellen indicated the US Federal Government might be out of money by June 1 requiring extraordinary measures. This means not all expenses are paid unless Congress acts to increase the debt ceiling. The Debt Crises is a result of out of control spending by the Federal Government starting at the Great Financial Crises in 2008 and leaping further during COVID. Nearly $32 Trillion in US Federal debt, $35 Trillion in unfunded Medicare liability and $22 Trillion in unfunded Social Security liability. This is in comparison to total US Economy of $25 Trillion in 2022.

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Video: QT Restart, Credit Crunch. $400 Billion Added to the Balance Sheet After SVB Failure

• SVB (Silicon Valley Bank) crises created a $550 billion of deposit withdrawals from small and medium banks creating a credit crunch.
• The Fed announced the BTFP (Bank Term Funding Program). The Fed provides one year loans to all depository institutions in exchange for treasuries at par value even when market value has declined.
•This ballooned the balance sheet from the QT (Quantitative Tightening) low of $8.34 trillion on March 8th, to $8.73 trillion on March 22nd.
•The credit crunch is just beginning.

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Building Benjamins

Economic and Market Review March

Economic and Market Review March 31, 2023 Bank Failures May Alter Fed’s Course The failure of two regional banks unsettled equity and fixed-income markets globally in March. Financial contagion risks were at the forefront of the financial markets as the closure of Silicon Valley Bank and Signature Bank fostered turmoil

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Video: The Fed increased its Balance Sheet and paused QT. Banks are bad investments.

The Fed (The Federal Bank) increased its Balance Sheet by $400 Billion through specialized lending to banks. Silicon Valley Bank (SVB) problems started with big losses on the bond portfolio that metastasized into a run on the banks deposits. Banks have $620 Billion in unrealized losses so this is a wide spread problem. Small and medium sized banks are losing deposits which will result in tightening credit and help push the economy into a recession.

QT (Quantitative Tightening) has been on pause with only $6 billion reduction in treasury bond portfolio versus $74 Billion per plan. $90 billion matured on March 31st. The question will be did the Fed roll them or restart QT. Unpredictable environment.

Banks are bad investments. My Positions in Citigroup and US Bank which I had bought in December were sold as SVB crystalized how incompetent banks are and that banks have historically been bad investments.

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Building Benjamins

Economic and Market Review February

Economic and Market Review February 28, 2023 Monthly Summary Inflation worries persisted in February as government data revealed stubbornly elevated prices for food and energy. As a result, the Federal Reserve’s policy on additional rate increases continues to bombard the equity and bond markets. The Fed’s concern is that it

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Video: QT accelerates. Stay Cautious. Fed Funds likely to be at 5% or higher into 2024.

QT Quantitative Tightening accelerates. Stay Cautious. Fed Governors are indicating that the Fed Funds are likely to be at 5% or higher into 2024. No near term pivot or pause. QT accelerated into $43.7 Billion for the week ending Wednesday. Fed Holdings of Treasuries maturing in less than 15 days makes QT implementation on or above schedule likely for the next couple of weeks. QT has really just started to scratch the Fed’s bloated Balance Sheet which got to $8.9 Trillion in April of 2022.

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Video: Inflation is High and The Fed is Unlikely to Tame It

Inflation is now being driven by massive federal deficits. The deficit for the FY23 ending in September of next year is estimated to be $1.2 Trillion, adding to our $31.4 Trillion debt. That’s just the tip of the iceberg — we also have unfunded Social Security liability of $22.3 Trillion and Unfunded Medicare liability of $34.7 Trillion.

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