Torsten Sløk on the unfolding banking crisis

I started my career at the IMF.  The first thing you learn is that banking crises normally happen in a bad economy because the banks start losing money on loans to consumers, corporates, and commercial real estate.  What is unusual today is that with the collapse of the 14th-largest and 16th-largest banks [First Republic Bank and Silicon Valley Bank], we have what I describe as a banking crisis in a good economy - and we are about to enter a bad economy.

~ Torsten Sløk, "A Recession Is Brewing. It Will Be Lengthy.," Barron's, May 29, 2023

(Actual interview took place on May 10.)

Thomas Hoenig on bank asset growth as a red flag

When I was in supervision, we looked at accelerated growth.  That was a red flag.

~ Thomas Hoenig, former president of the Federal Reserve Bank of Kansas City

Tim Price on bond investors trying to front-run central bank purchases

As a direct consequence of the central bank manipulation of asset prices, today’s markets give the impression of risklessness, irrespective of price.  Why not buy conspicuously overpriced bonds if you know there is a greater fool out there, in the form of a central banker willing to pay even more for those bonds than you did?  After all, the central bank can print money out of thin air to make those purchases.  This must end badly: major financial accidents are typically born out of a misconception of risks, rather than returns.

~ Tim Price, "Regime Change is Coming," Price Value Partners, April 1, 2023

Kevin Duffy on the banking crisis

In the annals of government boondoggles, the global policy of interest rate obliteration from 2008 to 2022 stands in a class by itself.  A distant second is the Covid-panicked stimulus orgy of 2020-21.  Together they created a tinderbox for fractional reserve banks, which are nothing more than poorly-run hedge funds levered to government policy.  Regulators not only failed to put out any brush fires, they provided a false sense of security while the self-proclaimed firemen (central banks) doused the economic forest with gasoline.

~ Kevin Duffy, "Regional Bank Failures: Containable or combustible?," The Coffee Can Portfolio, June 9, 2023

Fred Hickey on why Apple's stock is vulnerable

Apple's stock has rallied all year long (almost back to a record high) and certainly does not reflect the deterioration in the economy, the squeeze on consumers from tightened lending, declining consumer sentiment (remember - Apple sells to consumers - not corporations), the slide in the smartphone market - leading to an inventory overbuild and digestion period, falling revenues and earnings and a rising P/E ratio (twice as high as it normally runs at).  It also doesn't account for its heavy exposure to China (relations between the U.S. and that country continue to worsen), a difficult (and likely costly) transition from producing nearly all its products in China to places such as India, the likelihood that the Chinese government will kick Apple in the pants on the way out (I don't think China will forget how the U.S. government destroyed Huawei's smartphone business), the poor position of its product cycle and lack of innovation.

Of all today's Big Seven, Apple (and likely Tesla) appear to me to be in the most trouble (short-term and long-term) and once Apple's stock momentum inevitably turns downward again, investors may experience a Wile E. Coyote moment - over the cliff and with a long way to fall in the bear market.

~ Fred Hickey, "2000 Déjà vu," The High-Tech Strategist, June 1, 2023

David Giroux on autonomous driving

Over the next 10 years, as more consumers buy cars that incorporate these [self-driving] technologies that reduce accidents, that's bad for auto insurers.  Maybe lawers, too - anyone who benefits from auto accidents.  But from a societal perspective, it's a great thing.  And the technology exists today.

~ David Giroux, chief investment officer, T. Rowe Price Investment Management, "A Portfolio Manager Peers Into The Future," Barron's, June 3, 2023

Leo Tolstoy on armies

Governments need armies to protect them from their enslaved and oppressed subjects. 

~ Leo Tolstoy