smart-thinking books: "Meditations", "Thinking Fast & Slow", "Sword at Sunset"; Raghu Rajan's old-time religion; advice on using Bing-AI; McCormick on the origins of the European economy; Marc Coop...
Bingo! to your response to Raghu Rajan's thesis. It also astonishes me how many chatter heads (not Rajan) also believe/say that the Fed will likely be pleased if the unemployment rate were to grow. Well, like the labor market report this last Friday, that can happen with higher participation rates as well. That is a different economy from the one in which unemployment grows due to job losses alone.
Small banks (not SVB) on aggregate increased their bond portfolios by 70% during Covid. Those portfolios are worth a lot less today. It is too easy for short sellers to find banks who have lost a lot of book value (hold to maturity be damned) due to interest rate increases, plus maybe a large CRE mortgage portfolio, short them, publicize it, analyst scrutiny, and trigger a deposit run. First Republic is next, and I doubt it is the last. Plus, small banks now have to start competing for deposits - an inverted yield curve isn't just a signal.
The Fed now has a more urgent problem than inflation, and one that will get worse every time they raise rates. In fact, they will probably have to end QT soon as relief for banks. Powell's job just got a lot harder.
I think it is possible that remote work has degraded the connection between interest rates and employment. The capital requirements (transportation, local housing) of being a worker have declined making much more labor available in some situations. The changes may instead be reflected in commercial real estate valuations as belt tightening gets focused on office rents. Salesforce has over a million square feet of sublease available in SF.
Bingo! to your response to Raghu Rajan's thesis. It also astonishes me how many chatter heads (not Rajan) also believe/say that the Fed will likely be pleased if the unemployment rate were to grow. Well, like the labor market report this last Friday, that can happen with higher participation rates as well. That is a different economy from the one in which unemployment grows due to job losses alone.
Small banks (not SVB) on aggregate increased their bond portfolios by 70% during Covid. Those portfolios are worth a lot less today. It is too easy for short sellers to find banks who have lost a lot of book value (hold to maturity be damned) due to interest rate increases, plus maybe a large CRE mortgage portfolio, short them, publicize it, analyst scrutiny, and trigger a deposit run. First Republic is next, and I doubt it is the last. Plus, small banks now have to start competing for deposits - an inverted yield curve isn't just a signal.
The Fed now has a more urgent problem than inflation, and one that will get worse every time they raise rates. In fact, they will probably have to end QT soon as relief for banks. Powell's job just got a lot harder.
I think it is possible that remote work has degraded the connection between interest rates and employment. The capital requirements (transportation, local housing) of being a worker have declined making much more labor available in some situations. The changes may instead be reflected in commercial real estate valuations as belt tightening gets focused on office rents. Salesforce has over a million square feet of sublease available in SF.