This past weekend was extremely hot and humid here in Rochester. So hopefully everyone was able to stay cool!
CFA Society Rochester Bills Event
Over this past week I attended a CFA society of Rochester event. The guest speakers were Andy Major, VP of Operations and Josh Dziurlikowski, VP of Finance from the Bills front office. Although this was different than the typical firm that presents, they still provided a lot of great insights.
- Talked about how the Bills used to be the among league worst in arrests and ejections per game
- Bottomed out in 2012 as 31st and are now 2nd lowest in the league!
- Said it was a myriad of factors that has improved this over time and now one of the safest best fan experiences in the NFL
- Specifically pointed out how something as simple as paving their parking lots had a drastic effect on fights in the parking lot
- What is some simple thing you could do to add structure that could vastly improve your personal or work life?
- Also talked about how they have seen a wide variety of coaches and GMs
- The ones that they believe are most successful are the most personable and approachable
- The Pegula’s, Brandon Beane and Sean McDermott will talk to anyone in the building and remember your story
- This added layer of care really helps create a positive culture to breed success.
- It is especially impressive when you consider the amount of people that go into making gameday possible. From the coaches, players, and front office. To the vendors, police officers, fire department, county. The list goes on and on.
- Getting everyone on the same page and believing in the same goal is imperative to prolonged success both on and off the field.
Podcast: What the Fed’s Big Balance Sheet Unwind Means for Markets - Bloomberg
Podcast: What the Fed’s Big Balance Sheet Unwind Means for Markets – Bloomberg
Let me start this section by saying I am by no means a central bank expert. Interest rate hikes grab all the headlines. However, it is fascinating to continue learning about the inner workings of the banking system and the scale it happens at. Specifically, how the mechanics of Quantitative Tightening (QT) work and what the implications of it may be. If anyone has additional insight I would love to hear more!
This podcast has a great discussion of some of these implications. This is a developing situation, and we will not understand the full scope for many years to come. I also added the website for the guest Joseph Wang if anyone wants to read more about his insights.
Fed Guy – Personal Views of A Former Fed Trader
- In QT the Fed begins to reduce its balance sheet. Typically, by letting treasury securities and MBS run-off as they mature. In this case new treasuries get offered at the market. But the Treasury department, not the Fed decides what tenor the new issues will be at.
- This can reduce liquidity quicker than expected if the Treasury department is releasing longer dated treasuries. Because these longer dated treasuries are less cash like and more bond like.
- Last time we saw QT was from 2017-2019. This ended abruptly as the repo rate spiked causing a short-term panic.
- This panic was due to a shortage of cash in the financial system
- The Fed reversed course almost immediately injecting cash into the Repo markets and lowering rates paid on bank reserves (the Fed created the standing repo facility for banks to swap treasuries for cash for emergency liquidity)
- During this period QT was done at $50B per month
- The current Fed target is $95B per month. This is being phased in and will not hit the $95B target until September. So, we are not really seeing full impact yet. But QT will be almost double the size it was last time!
- Volatility in treasury markets
- Looking for a new marginal buyer
- Pre-covid this was hedge funds doing a basis trade. Focusing on the spread between cash treasuries and futures
- Post covid it has been commercial banks due to cash requirements and regulations
- The new marginal buyer will be more sensitive to interest rates which will probably cause volatility.
- Additionally current liquidity in treasury markets is not particularly good.
- Every day there is about $600 billion in cash transactions and total about $23 trillion in treasuries for the private market. 20 years ago, it was about $400 billion in transactions and market of about $7 trillion
- Total volumes have almost tripled but daily liquidity is only slightly higher
- “The stadium is getting a lot bigger, but the doors are not really increasing.”
- Therefore, we see huge moves in the treasury market. Additionally, we see investors viewing treasuries as less cash-like. Especially now as the current flight to safety has been cash. While stocks and bonds have sold off significantly!
All of this can seem a little overwhelming, but it is still important to have a general understanding of what the Fed does outside of controlling interest rates. As well as what the implications from their policy decisions are!
- Looking for a new marginal buyer