Pro Perspectives 3/20/23

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March 20, 2023
For all of last week, we heard chatter about a “banking crisis” and speculation about an imminent meltdown of the financial system, with comparisons made to 2008.
With that, as we’ve discussed often here in my daily notes, since 2008, there is one thing we know about the way central banks (and governments) will respond to crises:  They will intervene. 
They will stand “ready to act.”  The will do “whatever it takes” to maintain financial stability and confidence. 
This is the mantra we've heard from global central banks over the past fifteen years. 
With that, in a world full of uncertainties, that has been a certainty.
So, knowing this, it wasn’t a matter of “what should happen,” it was a matter of “what will happen.”
Here we are a week later, and the fallout remains confined to just a few banks that operate in a very specific niche of U.S. banking (bankers to venture capital firms and their portfolio companies), and Credit Suisse (an already very wounded bank, having been propped up for some time as systemically important).
The troubled venture banks have been buttoned up, via intervention by the Fed and the Treasury.  
And Credit Suisse, unrelated to the U.S. bank issues, was saved over the weekend, via intervention by the Swiss National Bank.
But what if the shock in confidence spreads, overwhelming the capabilities of the central banks and governments?
They've proven that it can't happen (as long as they're all coordinating). Remember, just three years ago the entire global economy was effectively closed.  What became THE life support for the entire global economy?  Coordinated action by global central banks and governments.
They crossed the line fifteen years ago.  They've become far more emboldened since the Pandemic response. 
Let's talk about another coordinated action they took over the weekend.
The Fed announced an "enhancement in currency swap lines." 
What does that mean? 
In times of uncertainty, global banks tend to scramble for U.S. dollars, to meet dollar-denominated liabilities.  And just as the Fed did in the Global Financial Crisis, they have to give these banks access to dollars, to avert a collapse in global banking.
That's what they did yesterday, relieving stress in global dollar liquidity (and they did so quickly), by giving global central banks (likely unlimited) access to dollars. 
This should result in a weaker dollar. 
With that, take a look at the chart of the dollar, which already looks vulnerable to a technical break lower …

What does a lower dollar tend to lead to?  Higher commodities prices.
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