As we enter the second quarter of 2023, many investors may be confused about the current situation in the financial market. Inflation is on the rise, the Fed is continuing with its interest rate hikes as well as quantitative tightening, and banks are also facing liquidity and balance sheet issues. In this blog post, I will break down these factors and their implications for investors.
Firstly, it is essential to note that while these factors may seem worrying, the risk of a recession remains low. Even if one were to occur, my opinion is that it would be a short-term V-shaped recovery. This conclusion is based on my observation that many investors and institutions had kept their funds on the sidelines due to the continuous interest rate hike. As a result, the Fed's reserve repo agreements have increased to over $2 trillion. This means that once interest rates decrease, investors/institutions will reverse their a...