Wait - so it WAS a bailout!
Turning Japanese, I think we're turning Japanese, I really think so.
Note: These posts are usually stream of consciousness thoughts as I come across things, for my amusement and as a resource for future historians. I send ‘em out when I’m done for the moment. I have over 600 new subscribers just in the last 3 days.
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The Federal Reserve has beaten moral hazard to death, with a shovel, and buried it in the desert.
“I think this was absolutely a bailout, and I think it’s absolutely proper to use that term.” - Stephen Miran
“100% bailout, and an unprecedented bailout really.” - Joseph Wang
This is excellent:
So real-life cost of living is probably going up, what, 12%? 18%?
I’m obviously no Warren Buffett, but I was thinking - if Silicon Valley Bank Et al. got into trouble for deeply underwater holdings of Treasuries and MBS - don’t insurance companies own a ton of bonds (maybe more likely corporates?)
I searched and found this from October 2022 (at the end of Q2 2022 the 10-year yield was around 3%):
According to a report from AM Best, publicly traded insurers have reported more than $200bn of unrealised losses on their fixed-income portfolios through the second quarter of 2022, as rising interest rates have diminished bond values.
The report states that over a quarter of publicly traded insurers have lost more than 20% of their year-end 2022 shareholders’ equity due to rising interest rates pushing down the market values of current bond holdings.
Maybe it’s no big deal, as insurance companies aren’t likely to have runs like banks(?) Just thinking out loud.
The central truth of the investment business is that investment behavior is driven by career risk. In the professional investment business we are all agents, managing other peoples’ money. The prime directive, as Keynes knew so well, is first and last to keep your job. To do this, he explained that you must never, ever be wrong on your own. To prevent this calamity, professional investors pay ruthless attention to what other investors in general are doing. The great majority “go with the flow,” either completely or partially. This creates herding, or momentum, which drives prices far above or far below fair price. There are many other inefficiencies in market pricing, but this is by far the largest.
Wall Street is not really about investing. It's about asset gathering...Indexes don't just come about because they're good investments, they come about because it's an opportunity for a management company to gather assets..
- Steve Bregman
Everything is back to normal!
Jeremy Grantham's Market Meat-Grinder Grantham is one of the top financial historians around, right up there with Jim Grant, Lacy Hunt and Edward Chancellor. (Note that he’s also really high on the “Green” stuff, which I’m not so sure of.)
Another great podcast with Grantham is here from back in August 2021.
Bernanke "didn’t see the housing bubble and the risk it posed...he was convinced it wouldn’t collapse. And of course, it did...These are not small declines, and yet they occurred in the face of passionate defenders and promoters of moral hazard..."
"They all talk a wonderful game...And yet, it didn’t stop two of the greatest wipeouts in American history. The most impressive thing here is not that they do the same thing over and over again as if they have somehow no memory. It’s the faith the financial community has in them"
"The housing bust was merciless. The stock market decline...was really painful. And yet, it’s as if it never happened. Oh, Powell says...the FED is going to be our friend. Hey, Greenspan was our friend, Bernanke was our friend & we got croaked, guys, what is the matter with you?"
"The Federal Reserve simply does not understand the risks of asset price bubbles and asset price collapses. It is clear from the data they don’t get it."
"Yellen couldn’t. Bernanke couldn’t see a housing bubble that was a three-sigma 100-year event, where were his statisticians? The answer is the Federal Reserve statisticians do not do asset bubbles. They are, in that respect, utterly clueless. And we apparently never see that."
"...this time, we don’t just have a housing bubble. We have a housing bubble, a stock market bubble, a commodity bubble and...an interest rate bubble."
Here’s Grantham in January 2022:
“The only thing that really matters in asset allocation is sidestepping some of the pain when the rare, great bubbles break.”
"If there was some easy relationship between debt and growth, it should have showed up, and, in fact, the reverse has occurred." - Jeremy Grantham, July 2021
"They have never gotten it right. The Federal Reserve in particular hasn't a clue about asset bubbles. It doesn't even address it. They act as if they don't exist, except on the upside they occasionally take credit..." - Jeremy Grantham, July 2021
"The Fed since Volcker has been pretty clueless and remains so. What has been more remarkable, though, is the persistent confidence shown toward all of these four Fed bosses despite the demonstrable ineptness in dealing with asset bubbles." - Grantham, June 2021
"Overpriced assets are the worst thing that can happen to young people, and to society over the long run…All four chairmen post-Volcker have underestimated the potential economic damage from inflated asset prices, particularly housing, deflating rapidly. The role of higher asset prices on increasing inequality also hasn’t been considered. Asset bubbles are extremely dangerous." - Jeremy Grantham, July 2021
The way it works seems like the 1% end up with the money, and the rest of us end up paying for it, no matter what "it" is. So easy to add a few cents here and there to 300 million tabs to pay 2 or 3 people!
Just got this from Wells Fargo
https://www.wellsfargo.com/online-banking/updates/
Summary: your money is not yours, it's ours...