“The System is Sound”
Yesterday, in the Fed’s FOMC statement Fed Chair Jerome Powell said “The U.S. banking system is sound and resilient.”
“Sound and Resilient” is a repeat of his statement at the March FOMC meeting.
If you have to keep repeating that message, what does that say?
KRE Regional Bank Index
FHN First Horizon
Shares of First Horizon are down a whopping 36 percent as of 10:20 Central. FNH cancelled its merger with Toronto-Dominion. TD is flat on the day.
Market Ignores Fed Chair Powell’s Comments, Prices in More Interest Rate Cuts
Earlier this morning I noted Market Ignores Fed Chair Powell’s Comments, Prices in More Interest Rate Cuts
The red May 3 Post-FOMC bars reflect prices well after the market close yesterday with another check just after Midnight on May 4 that showed the same thing.
Press Conference Q&A
At the post FOMC press conference, Michael McKee of Bloomberg asked Fed Chair Jerome Powell “Are you ruling out the rate cuts that the market has prices in?“
Powell responded “We on the committee have a view that inflation is going to come down not so quickly. It will take some time. And in that world, if that forecast is broadly right, it would not be appropriate to cut rates and we won’t cut rates. Markets from time to time have been pricing in quite rapid reductions in inflation. We factor that in but that’s not our forecast.“
Huge Volatility
Earlier this morning I noted a 13 percent chance of a cut in June on CME Fedwatch.
That has now vanished to a 99 percent chance of a pause.
Is the Worst Over?
At the FOMC press conference yesterday, Powell said he thought the worst was over.
The market does not seem to be convinced of nearly anything Powell says.
This post originated at MishTalk.Com
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Mish
Street” was dedicated to – Vice President Shearson/American Express wasn’t
fooled:
WSJ:
“In a letter of March 15, 1981, Willis Alexander of the American Bankers
Association claims that: ‘Depository Institutions have lost an estimated $100b
in potential consumer deposits alone to the unregulated money market mutual
funds.’
As
any unbiased banker should know, all the money taken in by the money funds goes
right back into the banks, in the form of CDs or bankers’ acceptances or other
money market instruments; there is no net loss of deposits to the banking
system. Complete deregulation of interest rates would simply allow a further
escalation of rates by the banks, all of which compete against each other for
the same total of deposits.”
Father of Accounting and Bookkeeping” famously quipped: (debits on the left and
credits on the right, don’t go to sleep with an imbalance).
The banks should follow the old-fashioned
practice of storing their liquidity, instead of buying their liquidity through
open market devices.
All monetary savings, income held beyond the
income period in which received, originate within the payment’s system. The
banks collectively are just paying for something that they already own, demand
deposits shifted into time deposits. It’s a closed system.
We can, if we want, minimize money velocity,
and go back to the days when a savings account was just that – and not an
adjunct to our checking accounts.
Financial
Times – As Sheila Bair said: “It should replace the shock and awe of major
interest rate hikes with new targets based on money supply, and aggressively
shrink its portfolio, selling securities at a loss to do so, if necessary.”
Deposits?” Conference on Savings and Residential Financing 1961 Proceedings,
United States Savings and loan league, Chicago, 1961, 42, 43.
Banking and Monetary Studies, Comptroller of the Currency, United States
Treasury Department, Irwin, 1963, pp. 369-386
PHILIP GEORGE viz., the corrected money supply
“believe the Fed can keep unloading bonds even when officials cut interest
rates at some future date.”
correct response to stagflation is the 1966 Interest Rate Adjustment Act. “while
the aggregate of time and demand deposits continued to increase after July, the
proportion of time to demand deposits diminished. Whereas time deposits were
105 percent of demand deposits in July, by the end of the year, the proportion
had fallen to 98 percent. These were all desirable developments.
@137.2 on 1/1/1966 and didn’t exceed that # until 9/1/1967.
banks, Reg. Q ceilings, decreased from a high range of 5 1/2 to a low range of
4 % (albeit not enough). A .75% interest rate differential was given to the
nonbanks. And during this period, the unemployment rate and inflation rates
fell. And real interest rates rose. And
there was no recession with an inverted yield curve.
engine is being run in reverse, Japanese style. Lending by the Reserve and
commercial banks is inflationary (increases the volume and rate of turnover of
money). Whereas lending by the nonbanks is non-inflationary, other things equal
(matching savings with investments). Interest is the price of credit. The price of money is the reciprocal of the price level.
Economic Adviser: Research Division, Federal Reserve Bank of St. Louis, Working
Paper Series:
“Monetary Policy: Why Money Matters and
Interest Rates Don’t”
“Today “monetary policy” should be more aptly
named “interest rate policy” because policymakers pay virtually no attention to
money.”
Contrary to professional economists: there is no “Penalty on Thrift”. The egregious policies are driven by the ABA. See Barron’s:
The NBFIs are the DFIs’ customers.
de Nostredame
“The NBFIs are the DFIs’ customers.”
Louis Stone — whom the movie “Wall
Street” was dedicated to – Vice President Shearson/American Express wasn’t
fooled:
WSJ:
“In a letter of March 15, 1981, Willis Alexander of the American Bankers
Association claims that: ‘Depository Institutions have lost an estimated $100b
in potential consumer deposits alone to the unregulated money market mutual
funds.’
As
any unbiased banker should know, all the money taken in by the money funds goes
right back into the banks, in the form of CDs or bankers’ acceptances or other
money market instruments; there is no net loss of deposits to the banking
system. Complete deregulation of interest rates would simply allow a further
escalation of rates by the banks, all of which compete against each other for
the same total of deposits.”
I can’t bring myself anywhere near believing statements from any of the leaders of our institutions whether they’re in finance, education, medical, or political. The sad note is I’m likely very much unalone.
“Sound and Resilient” is a repeat of his statement at the March FOMC meeting.
If you have to keep repeating that message, what does that say?
that rates are 5%, people are pulling their savings accounts making .5%
and putting them in banks or money markets that pay say 3 or 4%
the bank can’t cover the deposits being withdrawn unless they sell the
government debt at a big loss (after all who wants 1 or 2% in a 5%
world). So the banks are going to go under.
they step in with QE, they are effectively printing *more* money (to
pay off the depositors) which is going to send inflation to the moon
(the very thing they are trying to get under control). If they don’t
step in, many Banks go under (those holding too many 1-2% bonds). The other option is monetizing the existing 1-2%
debt and rolling it back out at 4-5% but that would make government
interest payments go to the moon forcing massive cuts in spending. So
someone has to lose somewhere (banks, the government, consumers etc).
Place your bets and take your chances…
that rates are 5%, people are pulling their savings accounts making .5%
and putting them in banks or money markets that pay say 3 or 4%
the bank can’t cover the deposits being withdrawn unless they sell the
government debt at a big loss (after all who wants 1 or 2% in a 5%
world). So the banks are going to go under.”
This is the greatest thing I’ve seen in quite sometime.