Monthly Archives: March 2023

Bears Watching: Short Yields & Fed Funds Rate

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Wow. Stunning collapse in short duration yields.


Over 100 bps on the two year.

And what is even more interesting to me is the gap between the current Fed Funds target rate and these rates:


Seems like that is going to need to resolve itself somehow, at some point.

Are Credit Conditions Tightening Again?

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Despite the Fed raising interest rates, credit conditions were actually relaxing on some levels in the back half of 2022.

“Financial conditions have loosened significantly in recent months and, by some measures, are around levels that prevailed last March when the Fed initiated this hiking cycle.” – Why the Federal Reserve Should Raise Rates by Half a Percent

Equities were rallying through this period, unsurprisingly.  So, were digital bit apes and other assorted things.

However, there appears to be evidence that credit conditions are now heading the other way:

  1. “The Federal Reserve has reduced its balance sheet by $626 billion since the peak in April 2022, with total assets now down to $8.34 trillion, the lowest since August 2021, according to the weekly balance sheet released today. Compared to a month ago, total assets dropped by $94 billion.” “Over the past four weeks, the Fed has shed $61.2 billion in Treasury securities, exceeding by a smidgen the monthly cap of $60 billion.” – Fed’s Balance Sheet Drops by $626 Billion from Peak
  2. “The only time conditions have tightened this much has been in advance of or during the last 4 recessions since 1990.” – Credit conditions in Q4 were recessionary
  3. “As it stands, the average lender is now back up into the low 7’s for a well-qualified 30yr fixed scenario. These aren’t the highest levels we’ve seen during this cycle, but they are the highest in more than 4 months (and not too far away from the long-term highs just under 7.4%).” – Calculated Risk: “Mortgage Rates Now Back Above 7%”

We have had a 15 year bull market with low interest rates and lots of liquidity.  In other words, “Disneyland.”

My sense is most market participants are going to be slow to change how they learned to behave during the bull market cycle, until they are forced to do so.  

Influential Reads – February 2023

Reading Time: 3 minutes

Influential Reads – February 2023

“Standards apply not just to the quality of work you produce but the opportunities you work on. If you accept substandard work from yourself, you’ll only get average work from others. If you say yes to average projects, you’ll have no time for exceptional ones.” – Brain Food, Farnam Street

Big news in my world: I resigned my CFO role at a private equity backed software maker after selling the business to a new private equity group.  I will be taking some time off to “to evaluate, to collect, to dream, to wonder and to wander.”

Reading and writing more is definitely a goal.

Here are my most influential reads for the month – in no particular order:

  1. Jim Chanos: The Golden Age of Fraud in Finance – ” One of the things that is as old as financial markets is that we don’t see oversight or new laws and regulations until after people lose money.”
  2. “Disinflation” Hoopla Sunk by Spiking Prices – “Not only did all the relevant measures get a lot worse in January, but the prior three months, October through December, were revised higher – much like the CPI inflation readings a couple of weeks ago – showing substantially greater inflation momentum at the end of the year than originally shown.”
  3. The Wisdom of Non-Effort – “Non-effort is letting yourself take a walk and notice what comes up for you as something to write about, and trusting that”
  4. Just Twenty-Five Pages a Day – “The solution I devised for myself is a simple one: 25 pages a day. That’s it. Just commit to that, and then do it.”
  5. Buffett Profile from 1979: “The investor’s investor” – “The essence of Warren Buffett’s thinking is that the business world is divided into a tiny number of wonderful businesses well worth investing in at a price and a huge number of bad or mediocre businesses that are not attractive as long-term investments.”
  6. When TIPS Outperform and How I Invest in Them – “TIPS outperform regular Treasuries when the market underestimates future inflation.”
  7. We Are All Bond Traders Now – “What this means is that if interest rates are low, you care a great deal about the interest rate. Any change to your numerator is easily wiped out by a small change in the interest rate you are discounting at.”
  8. The Forgotten Lessons of 2008: Seth Klarman – “You must buy on the way down. There is far more volume on the way down than on the way back up, and far less competition among buyers. It is almost always better to be too early than too late, but you must be prepared for price markdowns on what you buy.”
  9. Enough Part 2 – A Framework – Calibrating Capital – “Too many of us run too hard for too long, reaching a point of exhaustion (or worse) when we could have taken a breather (or several of them) long ago.”
  10. Microsoft and the Metaverse – “I suspect that this is the path that virtual reality will take. Like PCs, the first major use case will be knowledge workers using devices bought for them by their employer, eager to increase collaboration in a remote work world, and as quality increases, offer a superior working environment.”

Note: This is based on when I read the article, not necessarily when it was first published.  Unfortunately, my backlog of things I would like to read always seems to dwarf the amount of time I can devote to reading.

Top clicks across the site last month:

  1. Sign of the Times: New Homes For Rent
  2. Financial Model vs. Operating Model
  3. Excel Tips: Football Field Chart
  4. Operating Model Tips
  5. Influential Reads – January 2023

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