Author: Isaac Halls

The Banking System Is Fine. Also, I Have A Bridge I Can Sell You

Recently, Silicon Valley Bank succumbed to what many are calling a bank run. Two days later, Signature Bank in New York was seized by the Federal Reserve and all its uninsured depositors were bailed out. First Republic followed a few days later, receiving a cash infusion from larger banks just to keep its doors open. Then, one of the largest banks in the world, Credit Suisse, essentially closed its doors after being swallowed on the cheap by UBS (who received, of course, government guarantees as a condition of the deal). There have also been rumors of other banks struggling to manage deposit outflows, and credit default swaps (a measure of default risk) on several other major banks (like, ironically, UBS and banking giant Deutsch Bank) are flashing warning signs. Is this the beginning of another banking crisis?

No, of course not. The banking system is fine. Also, I have a bridge I can sell you.

So, you’re telling me there’s a chance!

In the classic comedy, Dumb & Dumber, Lloyd demonstrates the epitome of optimistic thinking when his crush, Mary, gives him a hard truth. Forced to answer the uncomfortable question of whether the two of them could conceivably end up together, Mary admits the odds are “not good”. In fact, it is “like one in a million”, she says. To which Lloyd responds after a moment of deep reflection, “So…you’re telling me there’s a chance.”

The Federal Reserve and its cadre of economists are currently hoping the economy will make a soft landing in 2023. They would like a way out of the painful inflation of 2022 and into a comfy low-inflation, positive growth environment. The Fed believes increasing short-term lending rates are just what is needed. Current economic conditions are responding a little like Mary, however. Current data suggests the odds of a gentle economic transition in 2023 are definitely “not good”.

Going Down Like A Cowboys Team In the Divisional Round

In poetic fashion, every January the calendar turns, the trees go dormant, and America’s Team goes down before reaching the NFC Championship. In 2023, however, it seems increasingly likely that they won’t be alone. This year, inflation is going down like a Cowboys team in the divisional round.

Winning The Zombie War

Fear and greed are powerful motivators – some say the most powerful. In his book, World War Z, Max Brooks argues that fear is simply the other side of greed: the fear of missing out. Or, as our acronym-loving generation call it now: FOMO. Is Brooks right? Is our motivation always fear or the fear of missing out? Are these our most “primal” emotions? Often. Maybe even almost always. But always? Not necessarily. To illustrate, I’d like to talk about zombies. The corporate kind.

The Variant

In Disney’s newest show Loki, we are introduced to variants. Variants are people who deviate from their predetermined roles in the unfolding of history. When these so-called variants arise, they are promptly dispensed with by the Time Variance Authority (TVA). Loki is one such variant, and according to the TVA he’s a threat to the unfolding of the “sacred timeline.”

Investing in Hotel California

“You can check out any time you like, but you can never leave.” Hotel California, The Eagles

Last week it was reported that 45 people were killed while leaving a Jewish festival at Mount Meron. The annual religious festival attracts around 100,000 people. Its history dates to the Jewish resistance to Rome in the 1st century. Typical of the festival is dancing, singing, and bone fires. However, this year what began with joy and celebration quickly turned to tragedy. Although the massive crowds came a few at a time, most began leaving all at once.

The resulting crush – and the tragedy that accompanied it – was preventable. Inadequate facilities – specifically the size of the exits – were known to be a problem. But the pull of the festivities brought large numbers of people anyway. While incredibly tragic, the crush is a helpful illustration of what happens at the end of a stock market bubble. Irrational exuberance leads to the inevitable crush as everyone tries to leave the party at the same time. Today’s stock market is like investing in Hotel California. Checking out is easy – it’s leaving that’s difficult.

Beware the price you pay…or pay the price.

“The price you pay determines your future returns” is an old adage in financial literature. This is a simple way of saying that when you buy at high prices, your future returns are lower. Conversely, when you buy at low prices, your future returns are higher. Buy low, sell high. It all sounds right, but is it true? Or is this phrase just an antiquated relic of times past when money did not grow on government balance sheets, and asset prices didn’t always go up? That is a fair question, but it is not a simple one.

Jay Powell And The Chamber of Secrets

The question investors need to grapple with today is whether or not they believe in the government’s wizardry, or whether they accept the metaphysics of Parmenides and, well, the entire western tradition.

The Dukes of Moral Hazard

The absence of moral hazard is desirable because it encourages good behavior and fosters a healthy and prosperous society. Sadly, moral hazard has flooded our financial system as of late. And the responsibility for this perverse capital system lies at the feet of the dukes of moral hazard: The Federal Reserve.

Money for Nothin’ And Your Checks for Free

In the real world there are no free lunches. There is only your lunch, or someone else’s. This assumes you don’t count the Federal Reserve’s all-you-can-eat buffet, where you get your money for nothin’ and your checks for free.