by Brian Shilhavy
Editor, Health Impact News
Today’s meeting of the Federal Reserve and their announcement regarding interest rates was, by far, the most anticipated financial announcement so far in 2023.
Since the start of the banking collapse of the past couple of weeks, there has been widespread speculation about what the Fed was going to do today.
Would they announce rate cuts and the return of easy money, which would throw a life preserver out to America’s smaller banks, or would they continue with rate hikes in an attempt to lower inflation, but potentially doom hundreds of America’s smaller and mid-sized banks to collapse?
It was a no-win situation for the Fed, and most were anticipating at least a halt in rising interest rates, if not the announcement of rate cuts.
In the end, the Fed announced another rate increase, stating that rate cuts were not on the table for the rest of 2023.
Trying to calm the nerves of investors on Wall Street, Federal Reserve Chairman Jerome Powell announced that “all depositor savings” were “safe,” and that they were prepared to “use all tools” to keep the U.S. banking system “safe and sound.” (Source.)
However, Treasury Secretary Janet Yellen, who was testifying before a Senate Appropriations subcommittee at the same time Powell was making his remarks, was asked if the FDIC was going to raise the limit on bank deposits that are insured above the current $250,000 limit, and she replied:
“This is not something we have looked at, it’s not something that we’re considering,” said Yellen. (Source.)
Whoops! The stock markets then began a steep decline in the final hour of trading, as soon as she said that.
Bank stocks tumbled once again, but they are not the only ones looking at disaster. The automobile industry and the housing market are also in big trouble now, as U.S. consumers’ ability to borrow money and make major purchases will now get even worse.
And just as a reminder, this current crisis of liquidity and downward spiral all began last year when FTX blew up, and the Big Tech sector began massive layoffs.
Big Tech’s main bank, Silicon Valley Bank, the 15th largest bank in the U.S., was the first to crash.
And now, America’s reliance on technology is crippling this nation, and it can only get worse, as all of this technology, such as AI which is eating up $billions of cash in Chat bot and other software right now, is all dependent upon hardware, and most of that is produced in China and Taiwan.
China can now easily cripple the United States and bring us to brink of collapse, without firing a single shot or launching a single missile, by simply cutting off their exports to the U.S., and blocking exports from Taiwan.
As the U.S. economy continues to crumble, I am not the only one discussing the dangers of our reliance on Big Tech anymore.
A few days ago I referenced a piece written by Graham Summers of PHOENIX CAPITAL RESEARCH who traced the current liquidity crisis to Big Tech and their addiction to “easy money” from the Fed keeping interest rates low for so long.
Tech is finished.
Ever since the Great Financial Crisis of 2008, the Fed has been primarily in an accommodative framework. For most of 2008-2023, interest rates were at ZERO or 0.25%. The below chart shows where rates were from 2007 until today. You’ll see that with the exception of 2017 to mid-2019, rates were effectively at ZERO for most of this time.
The Fed didn’t just keep rates at zero either. It printed money and used that money to buy assets/ debt securities to prop up the system anytime things started to break down.
We’re not talking about a little money printing either. Between 2007 and 2023, the Fed printed over $8 TRILLION.
This suppression of interest rates… combined with the money printing and easy access to credit had one primary beneficiary…
The Tech sector.
Tech, particularly high beta garbage Tech (apps, texting companies, social media, etc), NEEDs low interest rates to even exist because these companies require a TON of capital/ debt to reach profitability (assuming they even do that, which 95% DON’T).
And remember, we’re not talking about the Fed creating an artificial environment for a few months. They’ve been doing it for most of 15 years. And every time the system began to break down, the Fed would do even MORE extreme versions of these policies… which in turn made the environment even more favorable to the Tech industry.
How bad did this get?
Talk to anyone who wants to become an entrepreneur today and he or she will say they want to found a Tech company. NO ONE says they want to go into energy, or materials, or manufacturing. It’s all about apps, social media, search engines, etc.
Think of it this way, as of 2021…
The largest automaker in the stock market was a tech stock (Tesla).
The largest commerce company in the stock market was a tech stock (Amazon).
The largest consumer discretionary company in the stock market was a tech stock (Apple).
And so on…
The Tech sector was the largest sector by weighting in the S&P 500 by almost a factor of two. In fact, Tech was larger than both the 2nd and the 3rd heaviest weighted sectors COMBINED!
The below chart shows the performance of the Tech Sector relative to the broader market (S&P 500 since 1999). As you can see, Tech outperformed the broader market non-stop from 2008 onward. By the time 2022 rolled around, it was at levels that EXCEEDED those established by the Tech Bubble of 2000!
All of this is due to the Fed.
Most of the people who work in Tech are not geniuses, nor are they the best entrepreneurs on the planet. They were simply the beneficiaries of an artificial environment created by the Fed.
In the simplest of terms, Tech is to the bubble today, what Banks were to the bubble in 2007: the sector that benefited most, generated the largest profits, and consumed the largest percentage of talent/ aspirations.
That period is now OVER. And it’s not coming back.
So what does this mean for the markets?
Well, if the largest sector in the market is in a spectacular bubble the likes of which won’t return for at least another decade… what do you think?
The Silicon Valley Bank bailout is the Bear Stearns moment for this bubble. Lehman is coming… as is AIG… and this entire mess won’t end until the stock market hits levels most cannot even imagine today. (Full article.)
According to layoffs.fyi, there have been 152,858 layoffs in the technology sector here in 2023, which is almost equal to the layoffs in Big Tech for ALL of 2022, and we are not even at the end of the First Quarter yet.
So tech stocks should be tumbling the most now, right?
Wrong. Their banks are, but Big Tech has amassed such huge sums of money over the past two decades, that Wall Street investors actually are looking at Big Tech as a safe haven to put their money since the banking collapse started a couple of weeks ago.
Banking ‘angst’ is bottoming, but the rally in tech stocks is ignoring recession risks, warns TS Lombard
The rotation into technology stocks and other pandemic winners as banking jitters rattled markets in March makes it difficult to tell if investors think the U.S. economy looks headed for a recession or not.
TS Lombard’s strategists Skylar Montgomery Koning and Andrea Cicione said the move into rate-sensitive stocks like tech and communications (see chart) looks misguided, in a Wednesday client note.
[T]he TS Lombard team said the subsequent rally in technology stocks is “largely ignoring” the pressure of tighter lending standards on the U.S. economy.
Technology stocks boomed during the easy-money days of 2020 to 2021 as a bazooka of monetary and fiscal support was fired off to help stabilize households and the economy. They were hit hard last year as the Fed began to raise rates at the quickest pace in decades. (Full article.)
Two stocks, Apple and Microsoft, now account for over 13% of the S&P 500 for the first time since the 1970s. (Source.)
And most of this has happened since the collapse of Silicon Valley Bank two weeks ago!
Technology stocks like Microsoft and Apple are outperforming the S&P 500 by the widest margin in years
Megacap technology stocks like Amazon.com Inc., Microsoft Corp. and Apple Inc. have outperformed the broader market by the widest margin in years following the collapse of Silicon Valley Bank and two other U.S. lenders.
According to an analysis by Alex Atanasiu, a portfolio manager at Glenmede Investment Management, investors scrambling into the perceived safety of megacap technology names caused the cap-weighted S&P 500 index to outperform the average S&P 500 constituent stock by more than 3% last week.
That’s one of the widest five-session margins of outperformance for the cap-weighted index since 1990, according to Atanasiu, who said that comparing the performance of the cap-weighted index to the performance of the average S&P 500 stock is one way to gauge how the largest U.S. stocks are performing relative to the average member of the S&P 500. (Full article.)
If investors are putting money into the rapidly declining technology sector, what does that say for the rest of the economy??
Many of these companies are currently investing $billions into AI Chat software, recklessly disregarding the infrastructure needed to run these energy-hungry computers needed to support all of this new AI software.
Just last week, Microsoft reported that they had to “ration access to the hardware” to run all of their new AI software, as they did not have the hardware capacity to run all of their new toys running OpenAI.
Microsoft Rations Access to AI Hardware for Internal Teams
Microsoft is poised to announce a suite of Office 365 tools powered by GPT-4, the powerful new artificial intelligence software made by OpenAI. But now Microsoft is facing an internal shortage of the server hardware needed to run the AI, according to three current Microsoft employees.
That has forced the company to ration access to the hardware for some internal teams building other AI tools to ensure it has enough capacity to handle both Bing’s new GPT-4 powered chatbot and the upcoming new Office tools, set to be announced on Thursday. And the shortage of hardware may be affecting Microsoft customers: At least one told The Information there’s a long wait time to use the OpenAI software Microsoft already makes available through its Azure cloud service. (Source.)
This is a HUGE problem!
For decades Big Tech has taken this “easy money” to invest in the latest software trends like AI, seemingly ignoring the vast resources needed to run all of this software, which includes REAL products, such as energy and hardware.
And who is producing most of this hardware? China and Taiwan.
Some are now beginning to wake up to this enormous problem, but probably too late.
The U.S. is dangerously dependent on China trade, weakening America in any conflict over Taiwan
China is able to cut off key exports to the United States — including medicine and military technology.
Beijing’s increasingly aggressive rhetoric toward the United States is concerning. For the first time, Chinese president Xi Jinping has directly criticized Washington.
He’s now encouraging Chinese companies to join the “fight” against U.S. policies that have “contained and suppressed” the People’s Republic.
If war were to come in the Pacific, the U.S. would be at a disturbing disadvantage due to its heavy dependence on China for a wide swath of necessities, from antibiotics to military hardware.
The greatest liability would be China’s ability to cut off key exports to the United States. This is particularly evident in the pharmaceutical arena. China currently controls about 90% of the global supply of inputs needed to manufacture generic antibiotics. Even the generic medicines used in America’s intensive care units, emergency rooms and ambulances are made with chemical compounds and ingredients sourced almost exclusively from China.
The threat is not only to medications.
The Australian Strategic Policy Institute (ASPI) has compiled a “Critical Technology Tracker” that illustrates China’s hold over the world’s most important technologies.
ASPI estimates that China’s global lead now extends to 37 of the 44 most-advanced technologies, including defense, robotics, energy, and biotechnology.
Most worrying is that China far outpaces the U.S. in research on nanoscale technologies and superconductors. (Source.)
Taiwan produces most of the world’s semiconductor chips, which is pretty much needed to run all modern hardware and appliances.
The fate of the world economy may depend on what happens to a company most Americans have never heard of
On a tiny island off the coast of China, one company manufactures a product used across the globe for countless household products as varied as PCs and washing machines.
And as that island — Taiwan — worries about the threat of a standoff between the US and China, the world’s economy holds its breath. That’s because there could be trillions of dollars’ worth of economic activity tied to that one company: Taiwan Semiconductor Manufacturing Company, the world’s biggest chipmaker.
Industry watchers say an escalating dispute between the US and China over Taiwan could drag down the global economy, given the fact that no other company makes such advanced chips at such a high volume. If TSMC goes offline, they say, the production of everything from cars to iPhones could screech to a halt.
“If China would invade Taiwan, that would be the biggest impact we’ve seen to the global economy — possibly ever,” Glenn O’Donnell, the vice president and research director at Forrester, told Insider. “This could be bigger than 1929.” (Source.)
The United States of America: In Technology we Trust.
And that trust in technology is about to destroy our economy.
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