Submitted by mytendies t3_11t46mb in wallstreetbets
Guys the best time to be gay bears is upon us.
Sure, the fed just activated the infinite money glitch, but you have to step back and see the big picture.
Powell only cares about two things:
- Maximum employment. The labor market continues to be tight, only 195k jobless claims this week. We are at 50 year lows in unemployment. This box is very much checked for Powell and is not a concern for him. Actually, he wants unemployment to go up so that the wage price spiral stops. This is critical: he needs people to be fired so that the supply of labor goes up, salaries come down, and those people can stop buying so much gas, eggs and houses.
- Stable prices. Prices are not stable, inflation is still at 6% and stubbornly will not go down. The move from 9% inflation to 6% inflation will be a lot easier than moving from 6% to 3%. There is a lot more work to be done here and the work is getting harder to accomplish. The rate hikes really haven't done much to employment or to the increase in prices.
Bank collapses: Yes, SVB went under and the shareholders suffered some losses, but... this is a drop in the bucket. Depositors didn't lose, debtors didn't lose, the economic pain was not really felt - even tho it was panic inducing. If you haven't figured out SVB yet, it was the bank run that killed them. It forced them to close their HTM bonds (held to maturity) and suffer the losses that turned them upside down and insolvent. Powell and Yellen quickly absorbed those bags, made depositors whole, and continued on with their path.
Credit Suisse: This was/is on the brink of collapse, but the Swiss government bailed them out.
US banking: If the bank runs would have continued, then medium and bigger banks would have suffered the same fate. The bank runs would have forced them to close their HTM bonds and they would have imploded. The FED today took that off the table because they created a 2T fund to backstop the entire banking industry.
The estimated total of all HTM bank losses globally was around 1T. So Powell just told the world, "don't worry about the banks, or your savings account, if shit hits the fan I will hold those bags for you for 1 year, give the banks the money they need so that they can give it to you, please don't panic."
Why did the FED do this preemptively? Because the fuse was lit, bomb was charged, and shit was about to explode.
If the US banking system collapses, realize there goes the reserve currency, there goes our privileged status in the global economy, there goes stable prices, there goes the low unemployment. Powell doesn't want this.
When Powell speaks about "pain" and a "bumpy ride" he doesn't mean the financial system collapses. He means that more facebook people have to get fired, the crypto boys need to lose, carvana needs to die, and all the speculative shit needs to stop driving up inflation. Cancel the capital expense projects, tighten your lending criteria, stop hiring people, stop travelling, stop buying Lulu clothes.
If the banking system collapses, inflation will go from 6% to - 6% in 30 days. This is not at all what the fed or the government wants - so today they took that piece off the table. With the release of a 12 pt font calibri microsoft word doc, the man solved the banking problem with 2T in funny money. Problem solved.
Is this bullish? No, it is extremely bearish.
Keep in mind, Powell's rate hikes is what caused the banks to have these unrealized losses. They are caused by assets created by the fed, that the fed owes back to the banks, that the fed controls the rates on. Super easy to for the man causing the problem, to just reach out and grab the problem, and hold it for 1 year, until the problem goes away. 1 year.
This means that for the next 1 year, the problem will persist. For 1 year rates will continue to fuck the banks. For 1 year the fed is willing to hold those bags.
Why did they do this?
Because they are not going to stop raising rates. Because inflation isn't done. Because asset prices are still too high.
You see, he COULDN'T raise rates if it meant medium banks, or any banks for that matter, would implode. He was stuck between a rock and a hard place. All Powell did was remove the rock with 2T backstop so the banks would be fine.
You need the banks to be fine, because the pain is coming. The economic pain that is still to materialize, needs to have solvent banks so that grandma can access her money and survive. If he brings the pain, and the population can't get their money, then the faith in the US financial system is lost and the game is essentially over.
Because the FED controls both sides of the equation, it is easy to just hold the bags for the banks as he continues to increase the rates going forward until inflation is contained.
Keep in mind, he has two goals: max employment (good to go) and stable prices (we are fucked).
Only way to stabilize prices is to put people out of work and crush the rampant speculation.
Just look at that two year yiedl this week - it is moving like it never has before in history. We went from expecting a .50, to now expecting that he would pause or cut because of SVB collapsing, but he just saved all future bank collapses with one press release. That means .50 is back on the table again.
TLDR: Pow gave himself license today to continue raising rates. The pain is just getting started.
Positions: Holding 4/28 SPY 375 Puts.
I wish I was holding puts on QQQ - that would be my recommendation.
Godspeed and fade this rally.