ZIRP Explains the World (2020)

The Federal Funds rate is now 5.25% and the 3M US Treasury bond is 5.46%. Low-risk MMFs that return near the FFR have skyrocketed to $6.5 Trillion deposits (up from 5 Trillion back in 2020 when this article was written: https://fred.stlouisfed.org/series/MMMFFAQ027S). Higher % loans have made everything more expensive: housing, companies, expansion, CapEx. Tech has had layoff-after-layoff.

And... we're still feeling kind of bubbly right now? Meme stocks just took off a few weeks ago. GME is back above $20, NVDA (less a meme but still indicative of this bubbly feeling) hit over $1000+ and launched itself into $2.8T of market cap. You can seemingly get a $Trillion thrown at you by just mentioning the phrase "AI" in your next investment.

ZIRP doesn't explain the world anymore, as we're two years into a heightened and tightened FFR. But many of these ills still seem to be around us.

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I don't want to test fate. I truly do hope for a "soft landing" where the Fed can clamp down on inflation while still keeping a reasonable economy. But... it really feels like a ton of people out there are still faking it and risking it all unnecessarily.

I don't know when people are going to "risk off". Be it investors, or individuals. But it has to happen eventually. The lowest-risk Cash accounts are now yielding so much (5.25%) that surely the Cash is something people should bet on now?

I dunno. It feels a lot like Will E. Coyote. The FFR has been elevated to 5.25%+ but the economy keeps running as if nearly nothing has happened. Surely we will "look down" soon and realize that there's nothing supporting this frothiness anymore?

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In a large sense, I don't think that people will risk-off until they're forced to. (IE: some large company goes bankrupt, taking a $Trillion in market cap with it), setting off this incredible amount of risk in our current market. Maybe then (and only then) will people wake up.

But for now, we continue to float. AMC benefits by selling new shares to all the "APEs", who are funding AMC and preventing AMC from going bankrupt. I have no hope for AMC's stock price to make more money as they are printing so many new shares, diluting the stock. But who cares? Meme it up, allow AMC to float, its avoiding bankruptcy and they think that's a win (even if it costs them long term profits through dilution). If that's not enough to get people to wake up, then we will just have to wait for bigger events to rock the boat.

We are still testing S&P500 highs this year. I'm happy for everyone and our collective good luck, but... it just doesn't smell right to me.