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.
Ah yes; So starts the live version of the Three Doors Down song, in case you travel on Delta. A great tune, heading down the runway. Anyway, I digress. In case you have not heard of DeFi, (Decentralized Finance) it is fast becoming a silent, but booming concept. Simply equate blockchain with DeFi and that is a quick example of what I am describing.
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.
Given multiple prior posts and warnings about the incredulity of stock prices, assisted by central banks and their race to the bottom with low or below zero interest rates, mix in a deadly virus, (thanks China) add in collapsing commodity prices (primarily Oil) and what do you get? Uncertainty.
Cold and white enough for you? As we have embarked upon an old fashioned winter, I can’t help but tie together the similarities once the spring thaw ensues and our current economy. Experience tells us roads expand and contract with outdoor air temperature fluctuations, exactly the way I see 2011 playing out, periods of exuberance (expansion) with occasional bouts of sadness (contraction). In either case, all one needs to do is avoid the inevitable potholes.
