2022-12-01 What Lars Is Thinking ("WILT")

Submitted by Lars.Toomre on Thu, 12/01/2022 - 00:30
An unusual truck shifting...

These are crazy, confusing times with low broker/dealer liquidity, I keep reminding myself. How else does one explain the Dow up +737 points after Federal Reserve Jerome Powell repeated what he said four weeks ago? In short, the Fed is going to continue raising the Fed Funds rate until it gets above the intermediate-term inflation rate (around five percent give or take a percentage point), and then it is going to keep it there for a considerable period to shake inflationary expectations.

Yes, it is month-end in a bear market so there is a tendency to bid up all assets to improve reported performance. OK. But my impulse is to sell all risk exposures knowing that I can buy them back cheaper, probably much cheaper, within the next six months. As a member of the 1980s bond vigilante crowd, I very strongly feel the fixed-income markets will see the 10 yr TSY yield at 5.00% before it trades at 3.00% again. Let's see when this proves to be the case.

As some know I am an MIT engineering graduate who came to Wall Street young and rose to become quite prominent in the structured finance sector as the head of Lehman Brothers' structured mortgage and asset-backed trading desks. I also for a time supervised the Agency bond (think FNMA/FHM debentures and callable bonds) traders.

The chief participant in the recent FTX Trading debacle is another young MIT engineer by the name of Sam Bankman-Fried, known in the cryptocurrency sector as "SBF". He is so very different from me and probably a sociopath. He also lost more than $10 billion of wealth in less than a week.

Anyway, yesterday on November 30th, SBF spoke at the Dealbook summit event with Andrew Ross Sorkin virtually. It was live-streamed. I must say that I still cannot believe what I just saw. There was so much reality distortion that I am speechless and stupified.

Clearly, there were no adults in the room with SBF, but how the heck did the VCs and others invest good money with him and his close associates, when simple due diligence would have revealed billions of dollars of real money missing? Are there any ethics at all left in the crypto sector and venture capital sectors?

Perhaps the image below is truly appropriate for use when navigating in these turbulent times.