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Let’s start with some tweets that lay out the terms of the ongoing debates.


Macro update... There are two schools of thought...
A. Regional bank fear is contained with no new SVB popping up and FRC is the last domino. Similar to UK gilt crisis, the authorities changed the rules and now we slowly go back to normal.
B. Lending is impaired going forward as deposits flee and fear takes over at US banks. Even the large banks will be pushing lending standards to 11 out of 10 now as there are so many cracks in the edifice and YC inversion is squeeeeezing...
I'm more in Camp B but think it's a slow motion story that will need some horrendous US data to confirm.
I still think the Fed hikes 25 at the March meeting as a final bonetoss to the inflation mandate. Cuts in mid-summer don't seem outrageous but obviously depend on sentiment and growth data. Inflation data is less important now as the Fed can easily look through spot inflation and point out deflating commodity prices, tight bank lending, and big base effects.
Like 2019, we might be surprised at how fast yields go down. 10-year yield went from 3.25% to 1.45% in less than 12 months in 2019 (before COVID).


The $300b spike in the Fed's balance-sheet is not QE but an increase in "Loans" via the Bank Term Funding Program and credit extensions to banks.
The Fed is providing liquidity to the banks as the lender of last resort.




This plays into all of the above as well:

That gave the rest of world—and especially the Eurasian bloc, including now KSA and Iran—the incentive to seriously start implementing a commodity based monetary system, while the collective West is left scrambling, trying to save the way things were. This war forced change overnight, with Europe totally unprepared and the Zhou regime caught between Davos and the Fed—and Eurasia. The offshore dollar shadow banks that have ruled the world since the 1960s are unable to deal with that combination of Eurasia and the Fed.
Now, I want to recommend highly this hour and a half podcast with Luongo that I’m currently listening to:
Here’s the TOC, to give you an idea of the issues that are discussed—and the first hour is the key, although the later part continues excellent discussion on the budget, rates, and the importance of shrinking the Fed’s balance sheet and the dollar flow (QT):
Time Stamp References:
0:00 – Introduction
0:50 – Banking Crisis & FED
6:36 – Targeting Inflation
14:46 – Eurodollar & Crypto
17:26 – Bail-Outs & Capitalism
22:10 – Spreads & Domestic Mkt.
29:25 – Rate Risks & Europe
34:20 – Japan & BOJ & Europe
45:10 – LIBOR vs. SOFR
52:33 – Yellen Vs. Powell
58:10 – New Monetary System?
1:02:00 – Dollar & Global Trade
1:10:46 – Remonetizing Gold?
1:18:28 – Picking Rates?
1:20:00 – The Bigger Picture
1:23:42 – Learning & Growth
1:31:14 – The Anti-Info Age
And here’s an excerpt from the overview:
Luongo believes Powell wants to undo the damages of the last 15 years and feels it is important to understand the motives of the Fed and globalists.
He also suggests that the Fed took out Silicon Valley Bank due to its involvement in crypto, which could have created an escape velocity for trust in those systems, and challenged the Federal Reserve’s control of monetary policy and fiscal policy.
Powell’s move to guarantee the hole in the regional banks’ balance sheets has had a positive impact on the local credit unions, which can now start offering positive savings rates again. Additionally, the Fed has created a sump pump for US Treasury demand here in the US banking system, which transfers risk overseas and helps protect credit spreads. Christine Lagarde has been attempting to manage credit spreads, but is running out of bullets.
Mr. Luongo discusses the recent shift in monetary policy by the Bank of Japan, which saw the appointment of Ueda as the new head of the bank. Tom suggests that this signals the end of Quantitative Easing in Japan, and that this could lead to the unwinding of the low-yield carry trades that had been supported by the BOJ’s yield curve control. He then explains how this could impact Christine Lagarde’s efforts to maintain credit spread stability, as the BOJ’s yield curve control had been supporting her efforts. Finally, he speculates that this could lead to a weakening of the Euro, potentially leading to its breaking the parity with the Dollar and going as low as 60 or 70 cents.
DDB Followup, Plus More Luongo Big Picture
"TL was respectfully seeking a degree of validation for the "Theory of Everything" from her."
Exactly.
I'm very much no expert but from what I have read I think that both of DDB's scenarios will play out. The regional banks are basically solvent and sound in the absence of extraordinary runs on their deposits. At the same time I would expect them to be more stringent in their loans. It IS very interesting about FRC vs. SIVB.