The Disruption of Big Banks. Corporate Capture in Politics. The FED is lagging behind.

Here’s what we will be getting into today:

1. The Rise of Mega Banks.

2. Pressure on Corporate Profits as the Economy Cycles.

3. Big Corporation’s Capture of The Conservative Party.

4. GDP Growth in Fourth Quarter.

5. The Ballooning Debt in the US.

6. The Fed's Lagging Indicators, the Right Choice That’s to Late.

Let’s Dive In!

Website: Wall Street On Parade

Title: In 16 Years, the Fed Has Approved 4,506 Bank Mergers and Denied One
Link: https://wallstreetonparade.com/2023/01/in-16-years-the-fed-has-approved-4506-bank-mergers-and-denied-one/

Here are the top takeaways:

• President Biden released a sweeping executive order warning federal bank regulators against actions that create excessive market concentration. (July 9, 2021) One business day later, the Federal Reserve announced that it had approved another bank merger.

• This move is one of many that will lead to even more concentration of assets among a small number of mega banks, which is detrimental to consumers, small businesses, and the economy as a whole.

• The repeal of Glass-Steagall in 1999 ushered in an era where Wall Street’s trading casinos could buy federally-insured banks.

• Since January 1, 2006, The Federal Reserve has approved 4,506 bank mergers.

• As of September 30, 2022, the number of federally-insured banks and savings institutions had collapsed from 10,220 to 4,746.

• Four banks, JPMorgan Chase, Bank of America, Wells Fargo, and Citigroup’s Citibank, own 39% of the total $23.6 trillion in assets owned by the 4,746 federally insured banks. That’s $9 trillion in assets.

• Senator Sherrod Brown, Chair of the Senate Banking, has spoken out against such consolidation. Here is an excerpt from his letter to Jerome Powell

  • “The banking system has witnessed the same steep and worrying drop in competition as other industries. Enabled by rubber-stamp merger oversight, the biggest banks have only grown bigger and consolidated their dominance—the last few years have made this trend obvious. This consolidation has enriched big bank shareholders and executives, buoyed by record bank profits". (April 7th, 2021)

• Until there is a comprehensive investigation of the Federal Reserve, these activities are likely to continue. Banks will continue to swell in size by buying competing banks.

Newsletter: Prometheus Research

Title: Prometheus ETF Portfolio.
Link: https://prometheusresearch.substack.com/p/prometheus-etf-portfolio-cec

Here are the top takeaways:

• The next steps in the economic cycle will be determined by how severe profits contract. The latest GDP data affirmed that pressures on corporate profitability are in place.

• Household savings rates are at historic lows, and the outlook for income growth remains weak.

• Real consumption decreased -0.29% in December, which is below consensus expectations.

• The key question for the profit cycle is whether real consumption can continue to grow in the face of these pressures. Their analysis suggests that a weakening in consumption will cause a significant hit to headline GDP numbers and dampen corporate profit, leading to a contraction in real GDP.

• Inflation is likely to fall as a result of this slowdown in economic activity, which will provide a reprieve for traditional allocations such as stocks and bonds.

• The Fed's next policy meeting could upend these expectations if they take a more hawkish stance on interest rates.

Newsletter: BIG

Title: The Week CNBC Started to Panic.
Link: https://mattstoller.substack.com/p/the-week-cnbc-started-to-panic

Here are the top takeaways:

• This week was big for anti-monopolists, with a Senate hearing on Ticketmaster's monopoly and the government filing a case to break up Google.

• Google has become a monopoly in the online advertising market, controlling all aspects of the market from ad inventory to data to pricing. This monopolization scheme has been very profitable for Google, but it has also raised barriers to entry for anyone trying to compete with Google in the online space.

• The conservative movement in the United States has been hijacked by corporate interests, and as a result, is losing ground to more populist forces. This is a dangerous development, as it threatens to undermine the progress that has been made on economic issues in recent years.

• The rise of corporate power within the conservative movement has been enabled by a number of factors, including the increasing influence of think tanks and magazines like American Affairs, which have provided a intellectual veneer to what has become known as the Realignment Project.

• This shift has been most evident in the Trump era, when the GOP turned away from its nascent skepticism of big business. This was best exemplified by the administration's decision to drop an antitrust case against Google.

• Since Trump left office, the GOP has continued to move in this direction, and has even gone so far as to turn away from its previous support for antitrust action. This is a dangerous development, as it threatens to hand power back to the very corporate interests that have been eroding the conservative movement from within.

Website: Wolf Street

Title: No Landing Yet: Consumers Refuse to Give Up, Government Spending Jumps, Inventories Rise toward Trend, Trade Deficit Less Horrible
Link: https://wolfstreet.com/2023/01/26/no-landing-yet-consumers-refuse-to-give-up-government-spending-jumps-inventories-rise-toward-trend-trade-deficit-less-horrible/

Here are the top takeaways:

• GDP, adjusted for inflation, rose by a seasonally adjusted annual rate of 2.9% in Q4 from Q3. This increase was driven by:

  • Consumer spending. With wage increases and high enough savings rate, consumers managed to outspend inflation.

  • Improvement of the trade deficit.

  • Government investment and consumption.

  • Investment in private inventories, which are reverting to trend, after the shortages.

• Residential fixed investment and fixed equipment investment continue to plunge.

• Annual Real GDP grew by 2.1% in 2022. This is in line with the average before the pandemic.

Newsletter: The Lens

Title: These Are the Times that Try Men's Souls.
Link: https://stephaniekelton.substack.com/p/these-are-the-times-that-try-mens

Here are the top takeaways:

• The ballooning debt of the United States is a bipartisan problem that has been caused by choices made by both Republicans and Democrats.

• Since 2000, both parties have made a habit of borrowing money to finance wars, tax cuts, expanded federal spending, care for baby boomers, and emergency measures to help the nation endure two debilitating recessions.

• The sale of US Treasury securities is not about borrowing to finance a deficit, but about how the central bank achieves its interest rate target. There is no need for the government to sell bonds if it doesn't want to, and doing so would be no more inflationary than not selling bonds.

YouTube Channel: Eurodollar University

Title: Time has run out and there's no escaping what's next.
Link: https://youtu.be/QSawUnSsPAk

Here are the top takeaways:

• The German government has issued a report indicating that the country has avoided a recession. Many economists believe that a recession is still inevitable.

• The US economy is showing signs of a possible recession. Companies are cutting jobs and consumer spending is down. Despite these indicators, the stock market has rebounded in many places around the world.

• Policy makers will continue to hike rates due to inflation, and will not relent until convinced that consumer price increases have subsided. The FED uses lagging indicators like the Phillips Curve, which will signal a reduction of consumer prices to late. They will raise rates, when in fact, they should be cutting them.

• The balance of probabilities are heavily skewed to rates falling at some point in the near future, and that over the intermediate term, they are more than likely than not to be substantially lower.

• The eurodollar inversion is still peaking. The inflection is still at the June 2023 contract, though it does move in and out with May occasionally.

• The difference between the two-year cash nominal U.S treasury rate and the two-year forward rate has completely collapsed in January.

• The three-month Treasury Bill rate with the one year forward rate turned negative in January.

• The market is saying: We are pretty certain rates are going to go lower as 2023 starts. They're not going to go lower in a soft landing. Again, because the FED doesn't believe it's going to have to cut rates at all, and when they have to, it will be to late.

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