Capital Markets Dashboard – 8/22

Despite growing evidence of systematic bank risks associated with the Fed’s aggressive rate hikes over the last year, Powell hikes another 25 bps anyhow, citing labor pressure as the culprit. However, in the real world, labor conditions are already improving.

Total U.S. fixed income (FI) issuance declined -34% y/y to $8.8 trillion during 2022 as interest rates ramped up.

Banks have been parking excess deposits in various forms of government debt that are subject to interest rate risk & in some cases, risky crypto bets. This is causing systematic risk.

Consumers are combating the higher price of living & higher interest rates by driving less, buying store brands & taking on more debt.

Americans need to be reminded about our heritage as the single most productive nation as measured by GDP/person with a unique capability to bless the entire world if we can simply get back to business.

Since the 2008 Great Recession, 134 banks with assets of $1.25 Trillion have been closed by regulators. At the same time, the Fed’s ballooning balance sheet now amounts to nearly 50% of total domestic bank deposits.

Don’t assume that SVB’s difficulties are symbolic of the entire banking industry.

The Saudi minister of finance announced that the Kingdom was ending the petrodollar. “There are no issues with discussing how we settle our trade arrangements, whether it is in the US dollar, whether it is the euro, whether it is the Saudi riyal”. Yikes!

We have a choice of how to tame inflation, cut government spending, or throw people out of work.

As households with annual incomes >$70k drive 62% of total food-away-from-home sales, it is more important than ever to focus on this demo especially as spending from the lower-income demo slows.