Interest rates have finally risen from their artificial lows, giving savers ADIATS (A Different Investment Alternative To Stocks) and thus a reward to being prudent in managing their fiscal affairs, unlike the Federal Government. Ever wonder why politicians clamor for low interest rates..?
Well, haven’t the last two weeks been interesting? From Silvergate, Silicon Valley, and Signature Bank all failing (must be an “S” thing), throw in Credit Suisse across the pond getting nationalized (for all intents and purposes), then a run on select US regional banks, add in a dash of moral hazard (fully insuring all depositors above the FDIC limit of $250k) and a 1/4 point rise in interest rates and what has changed? Nothing.
“The legend lives on from the Chippewa on down of the big lake they call Gitchee Gumee…” so begins the eponymous ballad by Gordon Lightfoot about the Edmund Fitzgerald.
Since the Fed is keeping emergency pandemic-level interest rates on the floor, with no end game in sight, you are seeing commodity prices skyrocket. But it’s all transitory, so says the Fed. Have you tried to buy a house lately? Or what about your trip to get gas? Last, how is that trip to the grocery store going? Do you think those prices are transitory? Didn’t think so.
For anyone old enough to remember, let’s hope the boys are back in town. For anyone born after, say 1980, here is today’s history lesson: As Paul Volcker was choking out the ravages of inflation, beginning with 1979-1980, the Prime Rate (remember that) was 21.5%, it started an old fashioned, 4-decade decline on interest rates.
The first Fed Q & A session is underway. Chairman Powell notes “We are a long way from a full recovery”. In case you need a refresher, that is “Full Employment” (whatever the Fed deems it to be) and 2% Inflation.
Although not a bull, the bison is in full regalia with party hat, balloons and cake with lighted candles complimenting the festive atmosphere. And why not !!!
For some time, in our client meetings, you have heard me express my amazement and the ease of which equity markets were basically going straight up, with nary a correction (Down 10% from highs) or bear market (Down 20%). Far too often, I could not reconcile the stratospheric valuations and the momentum stocks were given by World Central Banks, as a direct result of their ‘Easy Money’ policies. It seemed the old school metrics of fundamentals didn’t mean boo. You know, things like earnings.
