Bloomberg is reporting in its
article of 9/12/22, titled Vanishing Bond Market Liquidity Bad for Fed
Balance Sheet Unwind, that the Fed program to reduce its balance sheet may
be headed for the rocks. The article discusses the tightening liquidity in the
short term money market and how that may make it more difficult for the Fed to
reduce its balance sheet. The article is fairly esoteric but the bottom line is
the possible recession is making the drawdown of the Fed balance sheet more difficult
and uncertain. The high balance sheet makes it more difficult for actions the
Fed takes to have as much impact as it may, i.e. there is little or no room to
flex monetary policy to change the
impact or likelihood of recession. With Pres. Biden’s Inflation Reduction Act which really doesn’t
reduce inflation pressures as much as it adds to the balance sheet you can see
that the Fed is being painted into a corner. The current Fed policy of
increasing Fed Funds Rate to try to tighten spending (reduce it) is being
offset by the Inflation Reduction Act which is expanding monetary policy. The
Fed’s only possible response is to raise its Funds Rate high enough to put a
damper on inflation caused by excess money in the system, which the president
just increased by a tremendous amount. This does not bode well for an economic
“soft landing” as proposed and suggested by the Fed and pushed by
Administration personnel, i.e. the Treasury Secretary, and of course the
president, amount others.
In the second article UBS Bank
suggests its clients are becoming more cautious in their money management and
involvement. The Reuters article titled, USB CFO sees increased client
caution as global economy slows discusses the decreased activity by bank
clients in the world financial systems. This would mainly be the large bank
clients involved in the world markets. The article discusses how this is
putting downward pressure on bank revenues as their revenue tends to be based
on transactions, fewer transactions generates less revenue. The important part
of the article is that the financial markets impact is worldwide. The bank is
attempting to assure bank investors they (the bank) recognize the problem and
as with all situations like this, they are not responsible for declining
revenue as no one could have foreseen this. This seems like some attempted
fancy footwork to distance management from what it sees as a likely downturn in
revenue. The bank is betting on economic slowdown at best and, I suspect,
recession at worst. They are declaring they are not responsible.
Finally CNBC is reporting another
stock market down record in its 9/13/22 headline, Dow tumbles 1,200 points
for worst day since June 2020 after hot inflation report. This is a good
article to show the up and down and down and up nature of markets in troubled
(meaning uncertain) economic times and the reporting by news organizations on
such things. Notice two things about the headline, one, the Dow is moving 1,200
points, in this instance down. That is about 3.9% as reported in the article.
The second thing is this is the largest change in 2 years. The first statement
implies that 1,200 is a big deal the second statement suggests that it isn’t
that uncommon, only 2 years since the last time we had such a shift. Somewhat contradictory
statements. The article states the drop erased “nearly all of the recent rally
for stocks”. You will not easily find articles on stocks increasing 1,200
points recently but you will and do find many articles on stock decreases. Part of the reason for not finding articles on
increases is they tend to be a bit more gradual. I do believe there have been some
recent trading days that were up a lot though they are a bit more difficult to
find. It’s important to weigh any major swing reported in the news in light of
just how significant it is. One of the definitions of economic upheaval is wild
and vicious swings. You should look at this as a general reporting news story. Try
to separate the facts and figures from the color commentary.
In conclusion, stuff happens. Markets,
interest rates and prices go up and down, many times violently in an economic
upheaval (think pre-recession – recession). If all the negative news of the
last little while were added up the Dow Jones Industrial Average would be at
zero or below. It is down, admittedly, but not zero and actually closer to its
high or sitting at about 31,000. It may fall 10-15% total from the recent high
to whatever its low point will be before it recovers. We won’t know until after
the fact what the total fall may have been, or when the recession started
or when we have officially recovered. We had our annual meeting with our
financial advisor a couple of weeks ago. Parts of our portfolio are definitely
down from last year but they had been up a great deal previously. Other parts
are holding fairly steady and some parts are actually benefiting from the
increasing interest rates. So, balance in life and investments is helpful. Hang
in there we will make it through this. Live, love, and enjoy life. There is
much to be grateful for and thankful for.
Bloomberg article:
REUTERS article:
CNBC article:
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