The Systemic Bug : Bank runs can now happen at the speed of light.
Today March 22, 2023 the Federal Reserve hiked the fed funds rate by 25 bsp, in line with consensus.
It ignored, however, certain claims that the current regional banking confidence crisis was already adding deflationary pressures that would be equivalent to an additional 1.25-50% in fed funds rate.
Pre FOMC we posted in the live trading room the following:
NASDAQ is VERY EXTENDED at current levels
would not be surprised to see a SPIKE up to 12900 level AFTER FOMC then a REJECTION of that level
The market then tested twice the 12 900 handle with a spike to 12 969 (HOD).
When Yellen rejected the idea of extending the deposit guarantee above and beyond $250K, sellers rejected the higher price with responsive selling that triggered a failed auction and afternoon selloff.
Unfortunately, a lot of market participants were trapped pre FOMC by what appeared to be significant upside momentum on Nasdaq. They neglected to notice the prior selling tail from February. We did and we were prepared for it.
That being said, financial markets face a bigger problem.
Our banking system can't get rid of its systemic bug unless we get the C.C. Genie Capital out of the bottle.
Firstly, Banks can't match higher treasury bill yields without materially slashing their earnings. Currently, most banks offer a savings rate under 0.5%. Compare this to high 4% in Money market funds and treasury bills which (the latter) are Risk Free.
Secondly, the transformative communication and transaction technology that we have put in the hands of EVERYONE is creating the exponential means for depositors to transfer their funds in a matter of minutes.
Bank runs can now happen at the speed of light.
Today's 25 bps increase to the Fed fund rate was perceived as adding fuel to the fire.
The only suitable bug fix in the current circumstances is not something anybody wants to hear. It's called C.C. Genie Capital Control 2.0
New restrictions and withdrawal limits are probably coming to a bank near you, sooner than you think.