Everything, Everywhere, All at once…
1. With just $2.2B in remaining liquidity, Silicon Valley Bank’s parent company has filed for bankruptcy.
2. UBS is in discussions to take over Credit Suisse. Switzerland’s two biggest lenders are taking the weekend to consider what their combination would require.
3. Shares of First Republic Bank fell more than 30% on Friday even after $30B was deposited to put FRC on solid footing.
How in the heck did First Republic fall 30% - the day after 11 Big Banks made a $30B deposit? Well, one way to show how well you’re doing is by showing-off your custom suit and fancy building. It’s also possible to demonstrate security and confidence by dressing in a t-shirt and holding the door for others. The question wasn’t whether First Republic had status, but rather whether they were gutsy enough to demonstrate it by making things better for others. And that’s why they fell 30%.
The gap between Impossible and Normal… is narrowing quickly. Per SG: https://www.youtube.com/watch?v=gnEIeVWLtbU&t=101s this video was impossible 18 months ago. 18 weeks ago, it would have required 1,000’s of hours of work. Today, the impossible is upon us.
Stagflation is coming…
Stagflation is an economic condition where there is both high inflation and high unemployment. This is challenging because traditional measures that might be used to address one of the issues could (in fact) worsen the other one. Per AP: Stagflation is almost always caused by an increase in the money supply and/or supply-side shocks, combined with low or negative economic growth. It’s the lack of economic growth that creates high unemployment. Stagflation is horrible for the average citizen. It results in higher costs of living, lower real incomes, reduced consumer spending, and reduced business profits.
Currently we can see the cost of living increasing, real incomes decreasing, business profits are teetering on reduction, and consumer spending is still relatively healthy (even though it is mostly with credit cards). Stagflation will be upon us when consumer spending drops, triggering lower business profits, and thereby causing unemployment to increase to something closer to 5%. Caution, before you ask for a raise – think about what unemployment pays you.
- Signature Bank was closed… by the New York’s Dept. of Financial Services not because it was insolvent, but because it was too crypto-friendly.
- A “richcession” could be coming… as even shoppers earning over $100k are feeling more cautious – even Walmart is attracting higher-income customers
- Women leaders are leaving companies at the highest rate ever… as they continue to be passed over for promotions.
- Musk-Ville… Elon is building a town outside Austin, Texas… for Tesla, SpaceX, and Boring Company employees.
- The Consumer Price Index (CPI) was +0.4% MoM and +6.0% YoY… however, excluding food and energy prices it rose by 0.5% MoM – higher than expected.
- Housing prices accounted for over 60%... of the core CPI’s Feb. rise. Vehicle insurance rose +14.5% YoY, groceries were +10.2%, household furnishings were +6.1%, recreation = +5.0%, and new vehicles = +5.8% YoY.
- T-Mobile has acquired Mint Mobile… the nearly 7-year-old budget wireless provider backed by Ryan Reynolds, for $1.35B.
- Apple supplier Foxconn saw profits fall 10% YoY in ’22… and anticipates a decline in consumer electronic demand in ’23.
- February retail sales fell by 0.4% MoM. Driving that decline were sales at department stores (-4.0%), furniture stores (-2.5%), and restaurants (-2.2%).
- Macroeconomic strategist Lyn Alden warns… that the U.S. banking system is currently nursing over $600B worth of unrealized losses.
- The current bank fiasco is just the kick-start crypto needed. Companies are openly deciding to keep 5-10% of their cash in Bitcoin, Ethereum, or others and store them in cold wallets for emergencies.
- Here they come… HSBC, Deutsche Bank and Bridge Bank are interested in working with crypto firms – again.
- Is crypto safer than fiat? According to Trustnodes, crypto is safer than fiat due to increased regulation, adoption, and improved security measures within the crypto ecosystem.
- Timing is everything… Meta announced its NFT push right as the algo-stablecoin TerraUSD collapsed – kicking off a crypto winter. It is now walking away from NFTs just as they could be regaining relevance.
- Barney Frank (the former congressman, Signature Bank board member, and co-author of Dodd-Frank)… doubled down on his claims that Signature was closed down for political reasons. “Are we the first bank to be closed, without being insolvent? Just because we’re crypto-friendly?”
- Tiger Global marked down… the value of its startup portfolio by approximately 33% ($23B) in 2022.
- Bitcoin just crossed over $27,000… its highest level since June.
TW3 (That Was - The Week - That Was):
Tuesday – Is it safe? Before SVB collapsed, executives sold a large number of their shares. And at the VERY same time these guys were unloading their shares, guess who was on CNBC shilling SVB as a great investment – yep that would be Jim Cramer. I still believe Powell gives us a 25bps hike next week. The core CPI is up 5.5% YoY, and the MoM x-food and energy came in at 0.5%. Those numbers don’t stink as badly as they could have. Isn't it interesting that on one hand you have the entire banking industry on the verge of collapse, and on the other you have the DOW up 435 points. Part of this rally is people thinking our FED is finished and they can get back into the business of watching stocks go up every day. Another part is our FED working through the NY desk and buying things for a controlled demolition.
Wednesday: They're worried about banking stocks in Europe, as Credit Suisse is off another 30%, and its biggest investor won't put any more into it. That's got everyone wondering if this is systemic. Despite friendly PPI numbers that came in well below estimates, we're down 652 DOW points. The question is one of contagion, and does that mean our FED will pause? I believe our FED will do at least one more 25bps raise. There’s no question that trust has evaporated and trust is what makes this monetary fiat system work. You have to believe that if you put $1,000 in a bank, you can go get your $1,000 back when you need it. A lot of people are wondering if that is still true.
AMA (Ask Me Anything…)
So, what happens now? There will be more bank meltdowns, because raising rates will crush the economy first and inflation second. Our FED knew that keeping rates at zero for years and then jamming them to 5% rapidly – would crush some banks. Our FED knew that depositors would say: “Why am I in this bank getting 1.5% on my money, when I can buy T-Bills and get 5%?” Our FED gathered over the weekend in an unscheduled meeting with this video as a backdrop:
1. Some Depositors will get screwed: The video has Treas. Sec. Janet Yellen making all kinds of excuses why ALL of the depositors in SVB will be made whole, and the depositors in the Senator from Oklahoma’s banks will be left to fail. Only THEY (FED, FDIC, and Janet) will decide which depositors over 250K get saved. Depositors will migrate to mega banks, and that’s the plan.
2. July = our new FedNow system: “The FedNow Service is a new instant payment service that enables financial institutions across the U.S., to provide safe and efficient instant payment services in real time, 24-7-365. It will serve as a springboard to provide innovative instant payment services to customers. The first week of April will begin the formal certification of participants for launch of the service.” And with a majority of the population in 7 major banks, it will be easier to control and roll out our Central Bank’s Digital Currency (CBDC).
3. Crush the little banks and move depositors into big banks. Get everyone on the new processing system that makes lightning fast payments – then make the system a fully controllable CBDC that can dictate who you do and don’t pay.
Next Week: Crisis + Inflation + Rate Hikes == Rally?
$30B fixes what again? Believe it or not, we ended last week higher. I believe that the SPX 3931-inflection point is the last ‘gasp’ for the S&P’s. Every major risk indicator is screaming RISK OFF: the VIX is through the roof, the volatility futures are in backwardation, the financials are dying, Bonds are signaling Armageddon – yet the S&P remained relatively flat on the week.
Financials? There is a feeling out there that our issues are confined to the regional banks, and that’s just not true. The XLF is down -10% YTD: with Schwab -30%, BofA -17% GS -12%, WFC -10%, JPM -7%, and C & MS are flat on the year. The disease that is hitting the regional banks, is also hitting the Too Big To Fail ones.
- First Republic of San Francisco (FRC): Over the weekend, the big banks handed FRC $30B to try and calm their depositors, but all that did was further ignite their fears. FRC has fallen from $120 to $17 over the past week, and its survival is far from certain.
- KRE (the Regional Bank ETF): has fallen from $62 to $43 so that $30B fixed absolutely nothing!
- $140B in bridge-loans were taken by banks over the past week. Lending programs have increased our FED’s balance sheet by over $300B this past week. It looks like Quantitative Easing is back!
FED Watch – rate hike or rate cut? I believe our FED will raise by 25bps on Wednesday, but the big Q&A questions will be about Quantitative Tightening (which we were in) vs Quantitative Easing (which we are in now). We all know that Quantitative Easing ushers in HIGHER inflation! Our FED is caught between a banking rock and an inflationary hard-place.
Volatility vs the Market? The VIX closed near the highs of the week, so just because the S&Ps are showing calm – the VIX never received the memo. The VIX is showing orderly fear in trader’s eyes. The April VIX is 26 and the May VIX is 25.8 – telling us that there’s more short-term than long-term volatility in this marketplace.
Bonds, Bitcoin, and Gold: Both the Bonds and Bitcoin closed the week at their highs. You don’t throw $B’s of dollars into Bonds at these prices – unless you have a fear-trade going on and pricing in a deep and cutting recession. And with all that crypto has lived through in the past year, Bitcoin is closing at 52-week highs and getting ready to move higher. Even Gold closed a smidge off the $2,000 and has people chanting $3k and even $5k by EOY. So:
- Volatility is promoting high risk.
- Bonds are confirming really high risk.
- Crypto and Gold are confirming the fear trade, and
- Nothing is telling me that we’re through the worst of it yet.
Energy and Oil tanking? This is the 2nd consecutive week where the energy sector declined 2 standard deviations. The only reason for their trading demise is that investors are pricing in a deep and cutting recession.
The S&Ps are being held up by the Q’s: Last week, the NASDAQ moved higher by over 2 standard deviations. Bonds went higher, interest rates declined, and the Q’s (specifically MSFT and NVDA) exploded to the upside. Watch both Microsoft and Nvidia next week. The slightest move in MSFT to the downside next week will indicate that the tech-divergence is coming to an end. Next week, I believe that our FED will bring the divergence between S&Ps, Energy, Financials and tech – to a screaming halt. Look for full-blown correlation next week, because what is saving this marketplace is the divergence and the rotation into technology.
- Tip #1 = XLF (Short): The financials have moved from $36 to $31, and I don’t think we’re done until we hit the $26.50 level.
- Tip #2 = GOLD (Long): At $1,993 you can dive in, or wait for a pull-back – because over $2,000 this is flying to $2,200 in a blink.
- Tip #3 = BTC / ETH (Long): Crypto has become a ‘flight to quality’ trade.
- Tip #4 = MSFT (Bearish Trades)
o BOT: Apr 21, Unbal-Fly: +280 / -285 / +290 CALLS for $1.65 CREDIT
o BOT: Apr 21, +280 / -275 PUT Spread
SPX Expected Move:
- Last Week: $115 EM and we only moved $50
- Next Week’s EM == $120. That means next week will be even crazier than this past week. I can’t wait!
HODL’s: (Hold On for Dear Life)
- PHYSICAL COMMODITIES = Gold @ $1,993 & Silver @ $22.75/oz.
- 30, 60, & 90-Day Treasuries @ 4.6 to 5.1%
- **Bitcoin (BTC = $26,950 / in at $4,310)
- **Ethereum (ETH = $1,750 / in at $310)
- DNN – Denison Mines ($1.03 / in at $1.32)
o SOLD the April $1.50 CALLS
- GME – DRS’d and HODL
- Innerscope (INND = $0.006 / in at $0.0052)
- MESO – Mesoblast Ltd. ($3.10 / in at $3.60)
o SOLD July $5 CALLS for $0.85
- MSFT – Microsoft:
o BOT: Apr 21, Unbal-Fly: +280 / -285 / +290 CALLS for $1.65 CREDIT
o BOT: Apr 21, +280 / -275 PUT Spread
- NFGC – Newfound Gold ($4.33 / in at $3.75)
o SOLD the April $5.00 CALLS
Follow me on StockTwits.com to get my daily thoughts and trades – my handle is: taylorpamm.
Please be safe out there!
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