What we have to focus on as investors in this market is whether we are in QT Quantitative tightening, a period where the Federal Reserve makes money more expensive, harder to get, and causes the stock market to be much more painful for investors, or we're re-entering a new period of QE quantitative Easing or money printing, whatever you're going to call it. Basically a time in which the fellow serve basically accommodates the economy, splashes money around like Steph Curry from three-pointer and basically allows the stock market to be a more friendly environment for investors. That is the real question, because for investors, what do you really care? 50 basis points, 25 basis points. It doesn't really matter what we need to be looking at is that, but that is the Achilles heel of the Federal Reserve They like a good magician.

They don't want you looking at that because that is where all the bodies are buried. Well, not literally, but figuratively. They're speaking right? So look here's the thing. my dad told me a long time ago.

You have to judge people by their actions, not what they're telling you. Now the Federal Reserve has been saying a whole lot. They've been talking a very big game, but in fact, what happened over the past week is absolutely insane. So it took the Federal Reserve almost 18 months a year and a half to reduce its balance sheet by 500 billion dollars.

We're talking about a lot of money now. The balance sheet of the FED is basically how much bonds mortgage-based Securities it bought from the market. When the FED buys these things from the open market, it floods it with cash. That's another way for the Federal Reserve to provide more cash into the system to lubricate the wheels of the economy.

so to speak. Right when the FED is buying, the economy is better because there's more money. When the FED is selling, it's a whole different thing. They're sucking money out of the economy now.

Ever since we started going into quantitative tightening, the interest rate started to rise at a very high Pace, but the Fed was very sluggish with actually reducing its balance sheet. But they did manage to reduce 500 billion over about a year and a half. Now, over the past week, they bought back about 300 billion more than half in a single week than what they managed to reduce in 18 months. Now for me, that says one thing.

It says panic. When somebody acts like that, it means panic. And rightfully so. Let me explain why Is the Fed panicking? Well, essentially, you have to understand that on the scale of inflation versus the entire U.S banking system, six percent inflation is not as bad as collapsing the entire U.S banking system.

And that is what the FED is seeing in front of his eyes. Now, it is true that Banks like First, Republic, Signature, Bank, and Svb were the top three banks in the United States states with the most amount of uninsured deposits. Meaning that these three Banks had the most deposits. over two hundred fifty thousand dollars in their accounts and the fact is that they are the one who got smashed the most is basically showing you that this is a little bit of an outlier.

And this is true. This is true. Also, if you take a look at diversification, the three most undiversified banks in the US are pretty much the same actors. It is Uh, Svb, Silicon Valley Bank It is Silvergate and it is Signature Bank.

So these three banks are the most undiversified banks in the US basically focusing on one area that had hit the most when the FED started raising interest. So you might say that why would the FED be afraid If this isn't a you know, an idiosocratic thing that happened three times plus one that's about to happen and one in Switzerland right? But I mean if it's such an isolated incident, right, Why is the Fed afraid? Well look. The fact of the matter is, these were really shitty bad tanks as far as quality of management, risk management Etc et cetera et cetera. concentration.

But don't make a mistake of assuming that this problem does not exist in the rest of the US banking system, especially at Regional Banks Regional Banks suffer from the same problem that plague the Svb. For example, what was the problem with Svb? Just to give you like the executive summary, the main problem with Svb was that the bank took a lot of deposits and it put him somewhere safe. Which is bonds, right? Government bonds? safest place ever, right? But that's the thing. When the interest rates started Rising the Feds started raising interest rates.

The prices. The market prices of these bonds started dropping. and unless you hold these bonds till maturity at some point, if you plan to sell them, you're going to sell them at a huge loss. And when there's pressure from people to withdraw a lot of money and you need liquidity, then you are forced to sell these bonds at a major major loss.

Which is exactly what brought down Svb. The same problem inherently exists in every other. Regional Bank in the U.S That mismatch problem exists in all of them. Now what's holding them is that Pirotil did not come out on social media like it did and said hey, Svb is collapsing.

get your money out. Nobody has said that Regional banks are collapsing and so far there hasn't been a bank run on Regional Banks. But make no mistake about it with their mismatch problem and the fleet to safety right now of customers, the amount of customers that took their accounts from Regional Banks to JP Morgan Wells Fargo Chase Bank of America The amount of people who did that is actually a lot bigger than they're telling you because why would you keep your money in a Regional Bank That we could put it in the big four That cannot collapse. Now the big four are probably the only banks who cannot collapse from this problem, but the rest of the regional Banks they're really wobbling so a lot of people have a already moved their money.

All we need is somebody to do a gentle like push to bring this whole system down like a huge house of cars. This is basically a cobweb. it looks Mighty and big and strong but you have to just take your finger through it and the whole cobweb collapses. So the thing is, people are already moving to the big four Banks and they have a big big flaw.

So the Federal Reserve along with the government needs to do something to prevent this thing from happening because all we need is one match to light this whole fire. So what the fed and the government are doing is one Now They're saying well the FDIC will ensure all deposits no matter if they're above or below 250 000. That is intended to relax people not to run for these. Banks The other thing that the FED will be doing is slowly unfortunately abandoning looking at inflation and looking at the safety of the banking system because if we have five million people in the United States running at these Regional Banks the backlash of this will be insane.

So what they're going to do right now is they're going to slow down the interest rate hikes so we don't get more Banks like this in trouble. The higher they go with interest rates, the bigger the mismatch problem that Svb has happens to other Banks. So in fact, if you combine the fact that the FED has been buying bonds like crazy bought up 300 billion in just a week now the banks have to have the FED come into the rescue. so the interest rate cannot go up a lot higher anymore.

So what's going to happen right now is the Fed will pretend like nothing is happening. Everything is okay. They're gonna do a little 25 basis point hike just to show everybody look, we're still hiking. we're still increasing.

Everything is okay, but in fact this will probably will be the last hike for a while because most likely for the next time they have to pause. or maybe do another 25 basis and then pause. But this is pretty much the end of the road unless they want to risk collapsing the banking system which will be a lot worse than six percent inflation. Now at this point, you also have to remember the flip side of it.

Don't forget that the government is all also basically getting crushed by these interest rates when we went up to five percent interest rate. What's going on is we have a 31 trillion dollar national debt and that's not unusual. We have 150 debt to GDP ratio. That sounds like it's high, but if you look at rest of the world, the rest of the world is that.

but 250 000, 250 percent GDP to to debt. So basically the US is actually even better than the average. The average is two and a half times more debt than GDP. The US is actually well below that.

So it's not a huge problem. But the problem that does exist here when you have 31 trillion dollars of debt and you're already paying 400 billion every single year to service this debt which is seven percent of your federal spending. If you want to actually borrow more money which they want. And they said that they want to borrow more money, that borrowing would be at five percent level interest.

So you're in a five percent environment and you want to borrow more money. The repayment in this situation for the US government will be much much higher higher unless interest rates go down to two percent one and a half percent, which is where they were. Don't forget, as a government, the US government collects about five trillion dollars in tax income. They spend a lot more.

Something has to pay for this, and that something is that money they print. That money they print is through actually going out and selling government bonds. Now again, if the interest rates won't come down, the service of these actually will be a lot higher than just seven percent of your federal spend, which is already extremely high. So The US government is basically saying well, five percent is pretty much maxed out more.

We're actually going to have trouble with this. We're going to have to cut in into: Social Security Medicare You know, Infrastructure Defense Etc We don't want to do that. On the other hand, the FED is basically saying well, John Powell Do you want to be signed your name next to collapsing the original banking system and basically crashing the U.S Economy? no I Basically no. And that leads me to believe that this is the Rip moment.

The rest in peace moment for QT at least for a while. Quantitative tightening is basically Rip right now. now. the FED will have to convince us that the best way is basically going back to QE Quantitative Easing.

They already started doing it. look at their actions. The only question is which investors will figure this out ahead of the curve and actually do something about it? because this is the kind of the first signs of a bounce back in the stock market now. I Don't know how long it's going to last, but at least until we know that the banking system is 100 safe, the FED will have to play very carefully and the first beneficiary of this will definitely be the stock market.

Now again, I'm just here sharing my opinion. Might be inaccurate, might be wrong. Might be the ramblings of a Madman you got to do in research. Make your decisions for yourself.

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