Powell Hints at a Pivot

Published: Wed 30 November 2022
Updated: Wed 30 November 2022
By steve

In Markets.

2022-11-30

The Fed to U-Turn (no, just kidding!)

Markets went mad today. The NASDAQ 100 is up 3%. He said:

It makes sense to moderate the pace of our rate increases as we approach the level of restraint that will be sufficient to bring inflation down. The time for moderating the pace of rate increases may come as soon as the December meeting”.

Well, the markets rejoiced. Everything bounced, especially the crap. Tomorrow is another day.

The Fed just drives everything. Brent crude was up 3.3%, aluminium was up 2% (and Alcoa up 3%). The bear steeping finally was reversed, especially the 5-30 year UST spread.

Life as a product banker

When I was an investment banker, one thing that I did was pitch convertible bond offerings to companies. A coverage banker — an investment banker whose job was to know companies and advise them on financial topics — would bring me to a meeting with the chief financial officer of one of her companies to talk about convertible bondsAnd I would come in and saythe convertible bond market is hot, you should do one, we think you could raise $200 million of 5-year convertibles and pay 2% interest with a 30% conversion premium.” Most of the time, their eyes would glaze over and theyd nod politely and saythanks for that, very interestingand move on with their day and not do a convertible. But sometimes they would sayoh yes we do need $200 million and those terms sound attractive, lets do it next week,” and then wed do some business and earn some fees. And that is life as a product banker.

Matt Levine nails it every day. He is a super-bright individual, who has worked for Goldman and as a clerk of the US Court and as an M&A lawyer at a big NY City firm (Wachtell, Lipton, Rosen & Katz). But you do wonder why Goldman product bankers earn quite so many millions of pounds a year, if this is the job they do. Of course, their real job is to be smarter than their clients, so they can convincingly answer the question “are you sure it’s a good idea to do this deal?” Their pay just reflects artificial shortage of people who can do that, because it’s so hard to pass through all the loops into these positions. This is certainly the view of Paul Collier (see https://socialeurope.eu/rent-seeking).

A nice picture

Piergiorgio Branzi, urban stairway

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