Inflation, Banking Crisis, and Shifts in Funding Landscape

It’s not often that we’re going to agree with what Jim Cramer says on CNBC, so soak this in.  The issues we have seen with SVB, Credit Suisse, Signature and even Silvergate are anti-inflationary.  These problems, though each has their own nuance, are likely to increase bank scrutiny on every new loan that is issued.  This should result in decreasing asset values on real estate, venture capital, private equity, real assets, etc.

Big purchases like cars will be more difficult and even credit card issuance could take a hit.  But here’s where we diverge with the guru of Mad Money.  His conclusion is that the Fed can stop raising rates.  Of this, we are WAY less certain. 

While backward looking, last week’s CPI numbers still showed a year over year inflation of 6%.  This is well above the Fed’s target of 2% (which seems unrealistic to us right now) and the employment and consumer spending data has shown few signs of slowing.  This week we will see just how myopic the Federal Reserve Board is.  Chairman Powell will be out with fresh rate information on Tuesday of this week.  If we rewind just 2 weeks, consensus was that the Fed may have to reaccelerate to a 50bp raise and today there is real question as to whether or not they will hike at all. 

Can monetary policy really turn so frenetically on news about 2-4 banks?  We believe it shouldn’t, but at the same time, sentiment can shift among the masses with relatively little real-world change.  Frankly, with the ECB raising another 50 bp last week, it would be very difficult for the Fed not to raise at least a little.  While that sounds like a potentially cloudy environment for investing, for contrarians like us, it’s tough not to get excited about what may lie ahead for inexpensive opportunities. 

Sources: CoStar Properties, CNBC, Wall Street Journal