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“Whenever you find yourself on the side of the majority, it is time to reform (or pause and reflect).”
― Mark Twain
Subscriber Comments
The banking crisis in 2023 is different from 2007-2009. The yield curve inverted in 2006-2007, and began to unwind in 2007 as the economy slowed. The slowdown exposed the CDO debt, a debt scam that sold junk rated debt as Aaa to unsuspecting investors. A lot of debt in the banking system had no value, and needed to be marked down. The mark-down process that caused numerous banks and financial institutions to fail required a massive taxpayer funded bailout.
Spreads
Banks are heavily invested in public sector debt in 2023. While Treasuries could be viewed as a long-term devaluation risk, they are not worthless. Today's banking/financial crisis, a liquidity driven event, stems from the sharp rise in rates from the zero or negative baseline, AND most important, institutions improperly hedged against it. Many banker and financial institutions are populated by inexperienced teams with minimal or limited risk management strategies. This failure traces all the way up to regulators that sit in the Federal Reserve Bank branches.
The majority is screaming that the Fed must cut rates, and resume another version of QE. The CME's Fed Watch Tool, a measure of leveraged bets placed by traders, suggests that the Fed will be cutting rates in the second half of 2023. Remember, these traders have been trained by years of zero and negative interest rates, and infinite QE. They do not understand interest rates cycles, and real drivers of inflation Please watch Gold & Silver Report 03/14/23 Report - What Drives Gold? for further discussion of inflation and uncertainty.
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The banking crisis won't be limited to the United States. The real liquidity crisis will come out of Europe.
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The Matrix provides market-driven trend, cycles, and intermarket analysis.
