From Bloomberg via Yahoo Finance, October 1:
BlackRock Inc. (BLK) Chief Executive Officer Larry Fink said the market is pricing too many interest-rate cuts from the Federal Reserve given the US economy continues to grow.
“I don’t see any landing,” Fink told Bloomberg Television’s Francine Lacqua in an interview Tuesday on the sidelines of the Berlin Global Dialogue 2024 conference. “The amount of easing that’s in the forward curve is crazy. I do believe there’s room for easing more, but not as much as the forward curve would indicate.”
Money markets imply a one-in-three chance the Fed will deliver another half-point cut in November, and price a total of about 190 basis points of easing by the end of next year. But Fink said it’s hard for him to see that materializing, as most government policies at the moment are more inflationary than deflationary.
The Fed lowered borrowing costs by a half percentage point in September, the first reduction since 2020 and a larger-than-usual move. Since then, traders and analysts have been debating how policymakers will approach the size and pace of easing in coming months.
Fed Chair Jerome Powell said on Monday the central bank will lower interest rates “over time” and emphasized that the overall US economy remains on solid footing. He also reiterated his confidence that inflation will continue moving toward the 2% target.
“There are segments of the economy that are struggling. There are segments of the economy that are doing really well,” said Fink. “We spend so much time focusing on the segments that are doing poorly.”....
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As I said a couple years ago:
In the carefree days of yore I probably wouldn't have taken much notice of this beyond thinking "ah, big money manager has thoughts."
....In pre-Covid times, the world economy was on the verge of another colossal meltdown. Here is a brief chronicle of how the pressure was building up:June 2019: In its Annual Economic Report, the Swiss-based Bank of International Settlements (BIS), the ‘Central Bank of all central banks’, sets the international alarm bells ringing. The document highlights “overheating […] in the leveraged loan market”, where “credit standards have been deteriorating” and “collateralized loan obligations (CLOs) have surged – reminiscent of the steep rise in collateralized debt obligations [CDOs] that amplified the subprime crisis [in 2008].” Simply stated, the belly of the financial industry is once again full of junk.
9 August 2019: The BIS issues a working paper calling for “unconventional monetary policy measures” to “insulate the real economy from further deterioration in financial conditions”. The paper indicates that, by offering “direct credit to the economy” during a crisis, central bank lending “can replace commercial banks in providing loans to firms.”
15 August 2019: Blackrock Inc., the world’s most powerful investment fund (managing around $7 trillion in stock and bond funds), issues a white paper titled Dealing with the next downturn. Essentially, the paper instructs the US Federal Reserve to inject liquidity directly into the financial system to prevent “a dramatic downturn.” Again, the message is unequivocal: “An unprecedented response is needed when monetary policy is exhausted and fiscal policy alone is not enough. That response will likely involve ‘going direct’”: “finding ways to get central bank money directly in the hands of public and private sector spenders” while avoiding “hyperinflation. Examples include the Weimar Republic in the 1920s as well as Argentina and Zimbabwe more recently.”
22-24 August 2019: G7 central bankers meet in Jackson Hole, Wyoming, to discuss BlackRock’s paper along with urgent measures to prevent the looming meltdown. In the prescient words of James Bullard, President of the St Louis Federal Reserve: “We just have to stop thinking that next year things are going to be normal.”
15-16 September 2019: The downturn is officially inaugurated by a sudden spike in the repo rates (from 2% to 10.5%). ‘Repo’ is shorthand for ‘repurchase agreement’, a contract where investment funds lend money against collateral assets (normally Treasury securities). At the time of the exchange, financial operators (banks) undertake to buy back the assets at a higher price, typically overnight. In brief, repos are short-term collateralized loans. They are the main source of funding for traders in most markets, especially the derivatives galaxy. A lack of liquidity in the repo market can have a devastating domino effect on all major financial sectors.
17 September 2019: The Fed begins the emergency monetary programme, pumping hundreds of billions of dollars per week into Wall Street, effectively executing BlackRock’s “going direct” plan. (Unsurprisingly, in March 2020 the Fed will hire BlackRock to manage the bailout package in response to the ‘COVID-19 crisis’).
19 September 2019: Donald Trump signs Executive Order 13887, establishing a National Influenza Vaccine Task Force whose aim is to develop a “5-year national plan (Plan) to promote the use of more agile and scalable vaccine manufacturing technologies and to accelerate development of vaccines that protect against many or all influenza viruses.” This is to counteract “an influenza pandemic”, which, “unlike seasonal influenza […] has the potential to spread rapidly around the globe, infect higher numbers of people, and cause high rates of illness and death in populations that lack prior immunity”. As someone guessed, the pandemic was imminent, while in Europe too preparations were underway (see here and here).....
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A look at Chairman Powell's calendar for the period February through June 2020, when the market went from total collapse, including an intraday 3000 DJIA-point loss one day in March, actually in the middle of one of the covid press conferences, to one of the most amazing recoveries in the last 90 years:
TradingView, DJIA daily, December 2019 - June 2020
Some highlights from the Fed Chair's calendar:
February 19, Wednesday
3:00 PM – 4:00 PM Meeting with Jamie Dimon, CEO and Jenn Peipszack, CFO, JPMorgan Chase
Location: AnteroomMarch 19, Thursday
4:30 PM – 5:00 PM Phone call with Larry Fink, CEO BlackRock
April 3, Friday
3:30 PM – 3:45 PM Phone call with Larry Fink, CEO, BlackRockApril 9, Thursday
5:15 PM – 5:30 PM Phone call with Larry Fink, CEO, BlackRock
May 13, Wednesday
1:30 PM – 2:00 PM Phone call with Larry Fink, CEO, BlackRock
Of course there is much much more but discerning reader gets the point: Powell forgot to call me!
