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Bait and Switch
Written by Steve | Published: |
Earlier this week for a church activity with some of the youth we went to the lake/pond across the street from my house and went fishing.
We had a great time! With the right bait we were plucking out catfish and bluegill every few minutes.
They may have not been very big but the kids sure had a great time.
The Fed made an announcement this week that they are pausing on a rate hike this time but said they will most likely make two more rate hikes before the end of 2023.
They are the masters at baiting the market and then shifting gears quickly.
Back in 2020 when the government was trying to bail everyone out they increased the money supply by over $11 Trillion dollars.
Essentially the banks could go write PPP loans and low rate mortgages. That was the bait…allowing the banks to create all sorts of transactional income.
Then came the switch…
In order for banks to lend they have to maintain a certain level of tier one capital on their balance sheets which is typically government bonds.
This worked for a while until inflation got so bad due to introducing way too many dollars into circulation that the Fed had to jack up rates…and fast.
This made the value of those bonds the banks were holding worth way less than par. Now many banks have very limited options or ability to lend because of this SWITCH.
This has caused the stock market to be volatile and the bond market to take a beating as well.
Another reason confirmed by experts that the 60/40 stock bond blend is dead.
If you haven’t analyzed the performance of your bond portfolio recently you may want to unpack that and potentially search for some alternatives.
In addition, this weakening of banks balance sheets has caused some of them to extend savings rates to look appealing (bait). However, you have to look at the strength of each bank because we already know that FDIC is not even close to being fully funded and money inside a bank is more at risk than ever.
Until then watch out for more bait and switch tactics out there.