The Breakfast Club at the Federal Reserve
This story is just so good, I had to quote it at length, near the bottom of this Periscope. In brief, the Federal Reserve, and a couple of the world’s largest banks, recently spent a few days in detention. And this reminded one of our money managers of a movie about Saturday detention in the 1980’s movie, The Breakfast Club.
At our lunch and learn meeting in September, we discussed a tactical move we recently made for many of our clients with our more conservative investments. Importantly, we are invested alongside you!
Since that time, in the complicated financial world, strange things have happened. This is completely a coincidence. Still, I know I feel a little better because we happened to be tactical before things got a little strange. Here is what happened:
Interest rates spiked, over-night, for some banks, and recovered by daylight. And then it happened again. Some people got nervous—because it’s not happened before—at least not since the great Recession.
Since that time, I have read and re-read the financial press, both inane and archaic, but only one of them rose to the top. I quote some of the best of it next:
"When I started working on Wall Street in the early 1990s, a kind soul who had gone to my high school walked me around the trading floor and pointed out the different groups, comparing them to the high school social structure, with all the political correctness of a 1980's John Hughes movie.
He compared long bond traders to the captain of the football team, salespeople as the popular crowd who know where all the parties are, and derivatives traders to members of the computer and math club.
“How about those guys?” I asked. “They look kind of scary.”
“Those guys are the repo traders,” my guide replied. “Stay away from them. They’re the trading-floor equivalent of the kids who hung out smoking after cutting gym class.”
The comparison he makes are with the characters of the movie, The Breakfast Club. Five high school kids are stuck in Saturday detention together and find out they have a lot of things in common. One of the characters, played by Judd Nelson, is scary. The writer makes a case that repo traders are like the scary kids in detention. And because so few (if any) of us understand exactly how the repo market works, a lot of us get nervous when it doesn't work as predicted.
Again, overnight Treasury (general collateral repo) rates surged on September 16 and the better part of September 17, and the financial world went into momentary detention. We don't think this is a big deal...but you might have read more than one "expert" explain that it is, and thus I find the comparison quite appropriate. I hope you do too.
If you ever hear something that makes you nervous, please call your advisor. Just two months ago the financial press focused on the “inverted yield curve.” Recently, the “Repo” market behaved "like a comedy." We are here to help keep perspective—and help you achieve your goals—in spite of whatever the markets deliver to us!