A bleak Fed outlook
Hello and happy hump day, readers.?Phil Rosen here, reporting from New York.?
As a financial journalist, I spend a lot of time seeing what people well smarter than me have to say about money, markets, and the economy.
One report, written by the Federal Reserve's own economists, left me with not exactly an upbeat outlook. More on that below.?
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1. Researchers at the US central bank?just published a paper warning that a historic surge in the percentage of distressed American companies could?worsen the fallout?from the Fed's inflation battle.
Plainly, they said?high borrowing costs?could cause a huge number of companies to crumble.
"The share of nonfinancial firms in financial distress has reached a level that is higher than during most?previous tightening episodes?since the 1970s," Ander Perez-Orive and Yannick Timmer wrote.
The Fed's 10 consecutive interest rates — intended to quell historically high prices — threaten to hammer business investment, employment, and economic activity.?
Now, the economists said, it's possible that debt-ridden companies will avoid spending money on?new developments or facilities, hiring, or production.
The full extent of the damage remains to be seen,?but as of now, the central bank authors said about?37% of firms are in trouble.
That is, more than a third of companies could default in the coming months, thanks to tightening monetary policy.?
Pardon the jargon, but here's how the researchers put it:
"Our hypothesis is that following a policy tightening,?access to external financing?deteriorates more for firms that are in distress than for healthy firms, while following a policy easing, external financing conditions do not change appreciably enough for the two groups of firms to trigger a differential response."
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Got it??
It's okay, I didn't either the first time around.?
Basically, they are predicting that?companies feel pain in times of policy tightening, especially those with weaker balance sheets to begin with.?
But at the same time, loosening of policy doesn't necessarily translate to smoother sailing in the same way.?
What's your outlook for the state of business activity in the US for the rest of the year? Let us know in the comments.
In other news:
2. A chief market strategist explained why a recession won't hit anytime soon.?She said investors should be focused on underperforming sectors right now?instead of getting into hot tech stocks.?
3. "Time to get greedy."?That's what 35-year market veteran Kevin Rendino said about small stocks, which investors are avoiding like it's 2008.?He said this batch of names look set to soar as much as 800%.?
4. A 20-year fund manager shared the eight mega-trend stocks he's betting on.?These names look poised to take market share, he said —?but these are the five names he's shorting now.
5. Tesla's best stock run since 2020 is being spoiled by Wall Street downgrades.?Goldman Sachs, Morgan Stanley, and Barclays have all warned that Elon Musk's EV-maker could see its shares slide soon, as it could be overvalued following its latest rally.?See the numbers.?
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This newsletter was curated by Phil Rosen.
Project Manager - Confidential Company
1 年It is hard to tell. He himself has a bleak outlook
Independent Scholar in Wellness, Aging & Preventative Psychiatry | Wellness Coach | Author-ALIVE OR NOT ALIVE | Founder of GENEXT INC | Host of Wellness Artist PODCAST.
1 年Fascinating read about the FED. "The borrower is a slave to the lender." Looking forward to my new book including a chapter on Decision making and financial wellbeing. "WHAT IF YOU Could LIVE UP TO 100!?"
Project Manager - Confidential Company
1 年Yes! It’s a bleak on anything if you think it that way. The entire world is too big to fail. East and the West wanted to untangle with each others policies and to show the marksmanship of who’s a better man to curtail and target the inflation at 2% level. The result of controlling the dream inflation target of 2% has fatal consequences such as; businesses have to swallow the high interest rates, REITs are hemorrhaging to survive, equity markets globally are reaped apart, retirements and 401Ks lost 50% of its value, global regional banks especially in the US are dropping like flies close to being bankrupt. Small businesses are closing, crypto and digital monies lost its lusters that??????runs away from the regulators. How bad can it get? The Englishmen tea conversation of great monies becomes UKs nightmares as inflation hits into the mainstream. I mean twicking the inflation without any other options but playing the monopoly game of depriving monies is at odds with the reality of the consumers buying power and daily engaging with life, but instead it makes life more harder because the cost of borrowings is too high. The five ??????are so happy at the center stage of conferences while the rest of the consumers are confused.??
Sales Associate at American Airlines
1 年This is a great opportunity
Electricien de batiment chez Sogelec
1 年????