Friends
As mentioned this morning, we will do a zoom conference call tomorrow morning to discuss all that has transpired in the last week in the financial markets. But first I will try to just touch on a couple of items. The government stepped up to back bank deposits this weekend, yes somewhat implied but, nevertheless. If they had not, we likely would have seen a mess today with regards to bank runs. We did see a continuing mess with regards to bank shares as prices continue to be crushed. We’ll discuss tomorrow how the banks got in this situation but suffice it to say when interest rates move from zero to 5% in 12 months, someone is benefiting (savers) while someone is feeling the pain (banks).
The discussion then turns to what the Fed will do at next week’s FOMC meeting (I apologize that I had incorrectly referred to the meeting being this week in previous emails). We get a look at the February CPI number tomorrow but is it really that relevant anymore? After this weekend’s proceedings one might expect that economic activity would lessen in the coming months due to uncertainty in the financial system if nothing else. Nevertheless, we will get the number tomorrow and a hot print will make the Fed’s job even more difficult than it already has become. Stay tuned.
As for the markets, bonds continued an amazing rally which began last Thursday. In 3 trading sessions the 2-year Treasury note has fallen from basically 5% to 4%. We haven’t seen a move like that in the 2-year since the crash in 1987. As for stocks, it was a very volatile session and that was understandable given the angst over the banks. By the close the Dow Jones Industrial Average was down 90 points to finish the day at 31,819. The S&P 500 was down 5 points to close at 3,885. The Nasdaq Composite Index was up 49 points to close at 11,188. Gold was up $50 to trade at $1,917 per ounce, while oil was down $2.28 to trade at $74.30 per barrel WTI.
The Fed was going to raise interest rates until something broke. Well, something broke. We’ll talk more about it all tomorrow. Hope you can join us.
