The economy, volatility, and interest rate risk
Three interesting reads.
Good morning, investors!
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Without further ado…
Three Interesting Reads:
“For 10 years, I’ve been ranting about how the stock market isn’t the economy, and laying out why one can move without affecting the other, but this odd relationship between equity markets and economic reality just seems like an insult to the natural laws of economics and free markets.”
Quoth the Raven (or QTR for short) is the pseudonymous author of Fringe Finance. In a recent piece, QTR outlined the market’s widening detachment from the economy, pointing out that, while equities might remain in their own blissfully ignorant universe, something has to give. Read on for additional color and QTR’s personal views on what areas will become “blowoff valves.”
By Goldman Sachs
“A longer period of lower volatility usually comes with a perky economy. By contrast, Goldman Sachs Research expects U.S. GDP to expand 1.6% in 2023, which is below its historical trend, and growth is likely to slow from here. Credit tightening due to the U.S. banks stress is likely to weigh on growth for the rest of the year.”
Remember that detachment? Despite a slowing economy and banking turmoil, US stock market volatility is at a 20-month low due to strong economic data and cooling inflation. However, this calm might not last, as Goldman Sachs predicts slowing GDP growth and banking stress may increase volatility, with investors adopting a more defensive stance in their portfolios.
“It’s not really the market that’s a problem, it’s the banks themselves and their customers waking up to the fact that many of them have either poor risk management, or no risk management at all.”
James Lavish, a 30-year Wall Street veteran, explores interest rate risk and its role in recent (and possibly future) bank failures. Read on to learn more about the nuances of interest rate risk and a possible massive flaw in the FDIC’s insurance fund.
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