Peter Boockvar – Comments On The Future Recession and Fed’s Balance Sheet
As I’m sure you’ve all noticed we have been talking a lot about the possible recession coming this year and what that mean for current and future Fed policy. Over the past few trading days our good friend Peter Boockvar, Chief Investment Officer of Bleakley Financial Group and Editor of The Boock Report website, has been sharing his thoughts. Below are a couple paragraphs I pulled out of his postings over at The Boock Report website. While we have heard these comments before on the show Peter does a great job of summarizing what’s going on.
Let us know what you all think about Peter’s comments. We’ll be having him on the show in the next couple of weeks.
On the back of the Q1 GDP last week Peter had this to say about how he is viewing all the upcoming recession comments.
“Bottom line, if only we can get a GDP read month by month because I’m pretty confident that the quarter ended weaker than it began. There were two parts to Q1, pre SVB and post SVB and the post side will be much more felt in Q2 and thru the rest of the year. As night follows day, a recession follows an expansion and it is why that while EVERYONE supposedly is expecting a recession, EVERYONE can be right as it will turn dark tonight after the light of day. The REAL question is what the extent and length will be of the recession. That is where the true differences of opinions lie. Finally, I will highlight AGAIN that each month that passes by, there is debt that is repricing at a much higher interest rate than the loan that is maturing, for both businesses and households and that will be a continued drag on economic activity as the quarters go by that will only pick up pace as more get impacted.”
Then updated today Peter had these comments on the banking issues in the US and how the Fed is balancing rate hikes with balance sheet moves.
“Since rising by $393b in the post SVB bank bond duration bailouts, the Fed’s balance sheet for the week ended April 26th has now shrunk by $171b and will continue to as QT is essentially back on (though I never viewed the expansion in those weeks after SVB as QE). The Fed will rely on this tightening as they stop with the rate hikes of the fed funds after Wednesday, most likely. And this is the balancing act that Jay Powell will dance around Wednesday as he won’t want a Fed pause to imply as being on the cusp of rate cuts as the fed funds futures are pricing in. This act in addition to Powell explaining his belief of the prudence of raising again this week, rather than calling a time out (where the game isn’t over) in the face of the credit contraction that we are in the midst of
I’ll argue again that just by leaving the fed funds rate at the current level for a longer period of time is itself a continued form of monetary policy because of all the debt that is repricing much higher on a monthly basis”