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Weekly Update

Weekly Update 23-Mar-2023

  • The Fed got what it wanted…is the market listening?

  • The death of the capital structure, layoffs everywhere, where is the good news?

  • These bank-runs were not organic

  • Perfect bedfellows played a role in this banking mess

  • Why QT is not impacting the market yet

  • Markets go down after the last rate hike and still go down after the first rate cut

  • Positioning appears counterintuitive (again)

  • More jobs added, but also higher unemployment, more layoffs, fewer quits, less pay

  • Houses are starting to sell…at lower prices

  • The Fed only cares about inflation

  • Quick Hits

  • Where did all the crypto money go?

  • Chart Crime of the week

As we have been writing, the ever-increasing chorus of complacency around the impending recession and the Fed’s actions will surely have an adverse impact.  Little did we know that the next shoe to drop would be the failure of the 16th largest bank in America.  Nor did we expect that this would trigger a tidal wave of panic across the banking system.  But this is precisely what the Fed’s actions were going to do.  We have said the Fed was intent on breaking something…they succeeded.  Even if the bank-runs were fueled by some vindictive venture capitalists, they were born out of recessionary behavior.  Put another way, they were part of the unwinding of speculative manias.  Of course, the market had already started to get another case of the jitters before the banking episode after Fed chairman Powell spoke about maybe raising interest rates 0.50% to 5.00% (on the low end of the Fed Funds target range).  But the market assumed Powell would back away from this 50bps ledge to help calm the aftermath of its boneheaded actions (allowing these banks to get in such bad fiscal shape). This was clearly driving the relief rally heading into this week’s Fed meeting.  More to the point, the crazy 0-DTE (zero days til expiration) call option buying was back with a vengeance.  This, probably more than anything, signifies the return of risk-on spirits.  As the Fed hiked by 0.25%, the initial narrative was dovish…the Fed is afraid of the banking turmoil and will start to cut rates soon.  Despite Powell saying the exact opposite (higher for longer), the futures market expects a rate cut by this July!  As usual, the market is volatile in the aftermath of the Fed’s action and comments.  But we still think the market is fooling itself and ignoring the next round of credit tightening and earnings weakness.

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