TEK2day Podcast

Here is our related TEK2day article: https://open.substack.com/pub/tek2day/p/bofas-unrealized-losses-taper?r=1rp1p&utm_campaign=post&utm_medium=web

Here is the YouTube video I referenced: https://youtu.be/A2aoS00Wqog?feature=shared

Here is our related TEK2day article: https://open.substack.com/pub/tek2day/p/the-second-tier-media-companies-are?r=1rp1p&utm_campaign=post&utm_medium=web

Subscribe to our YouTube channel here: https://www.youtube.com/@TEK2day

We cover recent TEK2day articles around CPI, the Bank Term Funding Program (BTFP) and stagflation.

CPI: Prices Will Remain Stubbornly High Unless Unemployment Increases: https://open.substack.com/pub/tek2day/p/cpi-prices-will-remain-stubbornly?r=1rp1p&utm_campaign=post&utm_medium=web

The Fed Is Going To Reverse Course Quickly It Seems: https://open.substack.com/pub/tek2day/p/the-fed-is-going-to-reverse-course?r=1rp1p&utm_campaign=post&utm_medium=web

The Big Four Banks and The Fed: https://open.substack.com/pub/tek2day/p/the-big-four-banks-and-the-fed?r=1rp1p&utm_campaign=post&utm_medium=web

Our amazon kindle book: "Stagflation Is Imminent": https://www.amazon.com/Stagflation-Imminent-Jonathan-Maietta-ebook/dp/B091NB9V7M

Subscribe to the YouTube version of the podcast here: https://www.youtube.com/@TEK2day

The article I reference is here: https://open.substack.com/pub/tek2day/p/jobs-data-if-the-government-says?r=1rp1p&utm_campaign=post&utm_medium=web

Most of today’s GenAI economics is at the infrastructure layer – whether it be money paid for AI chips, or money invested in the development of large language models (LLMs) or money paid for the right to license LLMs for inclusion in various applications. However, we are not at the point where users are demanding that various applications incorporate GenAI such that GenAI functionality in the aggregate is generating billions of dollars of revenue. GenAI is largely a productivity enhancer at the application layer at this juncture.

Some thoughts about 2024:

Companies will provide conservative 2024 outlooks when they report Q4 results later this month and early next month.

The Fed will likely renew its Bank Term Funding Program, further backstopping bank balance sheets against unrealized losses.

The Fed will reinflate bond prices and asset prices in general as it cuts rates and eventually winds down QT.

The Fed will quickly cut rates close to the zero bound if the economy rolls over sharply. QE could also be in the cards.

Treasury debt will spike higher as a percentage of GDP in 2024. The 2024 fiscal deficit will exceed $2 Trillion, further devaluing the U.S. Dollar.

The fiscal side will stimulate through heavy spending (fiscal spending is up 17% fiscal year-to-date through the end of November).

Wars are active or actively brewing on multiple geographic fronts which could significantly impact oil prices as well as be a source of disruption both for the American economy and the capital markets. State-sponsored cyberattacks on critical infrastructure is a real threat.

A contested election is my expectation for November 2024.

Read the full TEK2day article: https://open.substack.com/pub/tek2day/p/2024-will-be-anything-but-boring?r=1rp1p&utm_campaign=post&utm_medium=web

Read our Amazon Kindle book: https://www.amazon.com/Stagflation-Imminent-Jonathan-Maietta-ebook/dp/B091NB9V7M

Learn more about TEK2day here: https://tek2day.com/about/

John Ford reference here: https://youtu.be/POgWODZyUGQ?feature=shared

The Fed won’t allow the BTFP to expire on March 11th without first re-inflating the bond market.

The banking industry had $684 billion of unrealized losses on the books at the end of Q3. Bank of America alone had $132 billion of unrealized losses on held-to-maturity securities, $107 billion of which were mortgage-backed securities at a yield of 2.12%. At such a low yield, those securities will be underwater unless the Fed Funds rate moves close to the zero bound.

Banks typically pull back on credit when a significant amount of unrealized losses are carried on their balance sheets. Banks have not pulled back on credit to the extent they would have if the Fed had not created its Bank Term Funding Program (BTFP) back in March. The BTFP is attractive to qualifying banks as it allows them to borrow while valuing their underwater collateral at par. Further, in recent weeks the BTFP’s borrowing rate has been below Fed Funds (4.83% as of 12/28), which creates a short-term arbitrage opportunity for the banks.

Without the BTFP crutch, it is likely that banks would tighten credit. Banks would likely tighten credit in the absence of the BTFP given their concern about the unrealized losses they carry combined with a softening macro economic environment. That is, unless the Fed rapidly reduces interest rates close to the zero bound in order to fully reinflate the bond market. How else will Bank of America and other banks that gorged on debt when the Fed Funds rate was at zero percent ever get their heads above water? I say allow the banks to suffer realized losses, but that is not how the Fed operates.

Separate from the Banking unrealized loss issue, the U.S. has the problem of $34 Trillion of Treasury debt, approximately one-third of which is financed short term. Treasury needs to bring the cost of servicing its debt down. Today, the Fed Funds rate is pushing the average cost of servicing the Treasury debt higher. Interest expense will account for approximately 20% of Federal tax receipts in fiscal 2024 - a suffocating amount.

Therefore, between Treasury’s debt mountain and the Banking industry’s enormous unrealized loss position, the Fed has sufficient motivation to move interest rates significantly lower in 2024.

Economic conditions are deteriorating. Revenue growth will slow in 2024 and operating margins will be squeezed. 1H 2024 will see conditions deteriorate for most companies. The Fed potentially cutting its Fed Funds rate by 25 BPS in March will not mean squat to companies carrying meaningful amounts of debt, especially high yield issuers. High yield credit spreads need to widen to reflect the increased cash flow risk for most companies in 2024.

Read the full article here: https://open.substack.com/pub/tek2day/p/high-yield-credit-spreads-should?r=1rp1p&utm_campaign=post&utm_medium=web

There are an infinite number of serious threats posed by Advanced AI. OpenAI founder Sam Altman, OpenAI’s Board of Directors and Microsoft CEO Satya Nadella owe it to the American people (all people for that matter), to fully disclose what it was that Sam Altman lied to his Board about concerning ChatGPT’s capabilities. Mr. Altman going before Congress to say “sorry” post some horrific ChatGPT-related disaster will be too little too late.

Here is our related article: https://open.substack.com/pub/tek2day/p/advanced-ai-some-concerns?r=1rp1p&utm_campaign=post&utm_medium=web

One measure of inflation is to compare growth in the money supply to GDP growth. Money supply growth should not exceed economic growth. When money supply growth exceeds economic growth, that resulting “slack” is inflation. Written another way, inflation exists when the money supply grows faster than GDP.

See our related TEK2day article here: https://open.substack.com/pub/tek2day/p/inflation-in-pictures?r=1rp1p&utm_campaign=post&utm_medium=web

"Inflation is the process of making addition to currencies not based on a commensurate increase in the production of goods." —Federal Reserve Bulletin (1919)