Occupy Wall Street Redux

Posted on March 17, 2023 by MN Gordon

“The bank is something more than men, I tell you.  It’s the monster.  Men made it, but they can’t control it.”

– John Steinbeck, The Grapes of Wrath

Negative Carry

Borrowing short and lending long works mostly well most of the time.  This is how modern banking works.  You may be a customer at a bank.  But you also supply the product.

In short, a bank will pay you a small percent for the deposits in your checking and savings accounts, which you can withdraw at any time.  This is the borrowing short side of the operation.

The bank then takes your deposits and invests the money in some longer-term assets, such as loans and bonds that aren’t paid back for years.  Say the bank earns 2 percent on its money while paying depositors a fraction of a percent.  The bank pockets the spread, the net interest margin.  Easy money.

However, when the Federal Reserve intervenes in the market and presses the federal funds rate to zero and holds it there for 2 years (March 2020 to March 2022), driving yields across the range of maturities to 5,000-year lows, something bad is bound to happen. Continue reading →

Posted in MN Gordon, Politics | Tagged , , , , | 26 Comments

What Comes After the Great Liquidation

Posted on March 10, 2023 by MN Gordon

Expectations were great.  When 2023 started, there was a general sense that the stock and bond markets had turned over a new leaf.  A repeat of 2022 was out of the question.

The primary assumption was that inflation would relent.  After that, everything else would neatly fall in line.  Specifically, interest rates would decline, and the next great stock market boom would bubble up just in time to bailout the meager retirement savings of aging baby boomers.

That was the general outlook when 2023 commenced.  But instead, the opposite is now happening.  Inflation is persisting.  Interest rates are rising.  And stock and real estate prices are headed down, down, down.

This week, for example, Fed Chair Jerome Powell, in his semi-annual Congressional testimony, clarified that interest rates would go “higher than previously anticipated.”  He also noted that, if needed, he’s “prepared to increase the pace of rate hikes.”

In other words, the much-anticipated Powell pivot has gone on indefinite hiatus.  You can fight the Fed and buy stocks if you must.  But you won’t likely be very happy with the results. Continue reading →

Posted in Economy, MN Gordon | Tagged , , , , | 24 Comments

Cross Road Blues in the Time of Biden

Posted on March 3, 2023 by MN Gordon

I went to the crossroad, fell down on my knees
I went to the crossroad, fell down on my knees
Asked the Lord above “have mercy, now save poor Bob, if you please”

– Robert Johnson, Cross Road Blues

Unelected Bureaucrat

Federal Reserve Chair Jerome Powell has a dreadful job.  He lords over tens of trillions of dollars.  Yet he only pockets $190,000 a year – a fraction of what most CEOs make.  Still, he calls it fair.

Powell’s primary duty is setting the price of credit.  This is an important job in a centrally planned economy.  Nonetheless, in an open economy, where interest rates are determined by willing borrowers and lenders, the job wouldn’t exist.

There are worse jobs out there, however.  Just ask Lael Brainard.  On February 18, she resigned as Fed vice chair after less than nine months on the job.  Now she’s Director of the National Economic Council.  Another worthless position.

With Brainard out as vice chair, a simple question arises.  Who will be the next sucker to fill this role?  As the National Enquirer would put it, “Enquiring minds want to know.” Continue reading →

Posted in MN Gordon, Politics | Tagged , , , , , | 5 Comments

Fear and Greed with a Roll of the Dice

Posted on February 24, 2023 by MN Gordon

Bear markets take time.  They also provide countless occasions to lose money.  With each bounce comes an opportunity for investors to buy higher so they can later sell lower.

Major U.S. stock market indexes hit what is likely an interim bottom in the fall of 2022.  Since then, they’ve bounced with incredible vitality.  The bounce has brought new confidence to investors at what may end up being the worst possible time.

Many smart people have misconstrued the bear market rally – a sucker’s rally – as the origins of a new bull market.  After January’s stellar performance to start the New Year, calls of a bull market have come far and wide.

Maybe these bull market calls are right.  Maybe the stock market’s selloff this week was merely a consolidation period.  And the major stock market indexes will soon charge past their all-time highs from over a year ago.  We’re not so sure.

Billionaire investor Jeremy Grantham, and co-founder of the Boston-based money manager GMO, recently provided a well-reasoned assessment of where the stock market, as measured by the S&P 500, is headed. Continue reading →

Posted in MN Gordon, Stock Market | Tagged , , , , | 18 Comments