Friday Market Follies – Nasdaq 12,000 Needs to Hold!

 🤓 Here are some summaries for your enjoyment:

• DocuSign Inc. (DOCU): DocuSign Inc., a provider of electronic signature software, saw its shares plunge by nearly 14% in premarket trading on Friday after it reported its third-quarter results on Thursday1. The company posted revenue of $545.5M, up 42% year-over-year and beating analysts’ estimates by $13.6M12. Its earnings per share was $0.37, also beating expectations by $0.1212. However, the company gave a weak guidance for the fourth quarter, projecting revenue between $557M and $563M, below analysts’ consensus of $573.8M13. The company also announced that its CFO Cynthia Gaylor will step down at the end of January and will be replaced by Dan Springer, the former CEO of Responsys13. Wall Street analysts expressed concern over the CFO transition and the slowdown in billings growth, which was 31% year-over-year in Q3 compared to 47% in Q213. Some analysts also questioned whether DocuSign can sustain its growth momentum as the pandemic eases and more businesses return to physical offices3.
• General Electric Company (GE): General Electric Company, a diversified industrial conglomerate, saw its shares rise by 1.4% in premarket trading on Friday after analysts at Bank of America raised their estimates and price target on the stock1. The analysts cited improved demand for jet engines and GE’s plans to restructure its GE Vernova energy business as reasons for their bullish outlook1. They increased their 2022 earnings per share estimate from $0.67 to $0.72 and their 2023 estimate from $0.85 to $0.901. They also raised their price target from $130 to $140, implying a 16% upside potential from Thursday’s close1. The analysts said that GE’s aviation segment will benefit from the recovery in air travel and its market-leading position in narrow-body aircraft engines1. They also said that GE’s decision to split its energy business into two separate units, one focused on renewables and grid solutions and the other on gas power and nuclear energy, will help improve its profitability and cash flow1.
• Oracle Corporation (ORCL): Oracle Corporation, a provider of cloud-based software and hardware solutions, saw its shares drop by 6.5% in premarket trading on Friday after it reported its second-quarter results on Thursday1. The company posted revenue of $11.1B, up 6% year-over-year and beating analysts’ estimates by $110M12. Its earnings per share was $1.16, also beating expectations by $0.0912. However, the company gave a lower-than-expected guidance for the third quarter, projecting revenue growth of 3-5% and earnings per share of $1.09-$1.13, below analysts’ consensus of 5.4% and $1.13 respectively12. The company also announced a $20B increase in its share buyback program2. Wall Street analysts were mixed on the results, with some praising Oracle’s cloud momentum and margin expansion, while others expressing concern over its slowing growth and competitive pressures from rivals such as Amazon Web Services and Microsoft Azure2.
• Southwest Airlines (LUV) is downgraded at Barclays due in part to ongoing IT risk1. The analysts cite Southwest’s high exposure to domestic leisure travel, which could face more competition and lower margins as other airlines recover from the pandemic. They also point out that Southwest has experienced several IT outages in recent years, which could hurt its reputation and customer loyalty23.
• Apple (AAPL) is downgraded by LightShed on ‘conservative’ iPhone outlook, slowing Services4. The analysts argue that Apple’s iPhone sales will peak in 2023 and decline thereafter, as the upgrade cycle lengthens and competition intensifies. They also expect Apple’s Services revenue growth to slow down, as it faces regulatory pressures and saturation in some segments56.
• European energy prices surge on French strikes, nuclear reactor woes7. The strikes have disrupted France’s power supply, as some nuclear reactors have been taken offline or delayed their maintenance. France relies heavily on nuclear power for its electricity generation, so any outage can have a significant impact on the market. The energy prices are also boosted by cold weather in northwest Europe and reduced LNG imports89.
• Tesla (TSLA) is facing a battery crunch and looking to lower costs by contacting material suppliers in China and Korea. The company is trying to increase its production of 4680 battery cells in the US123.
• Global semiconductor sales totaled $41.3 billion in January 2023, a decrease of 5.2% compared to December 2022 and 18.5% less than January 2022. The decline was attributed to supply chain disruptions, weak demand, and high prices456.
• Germany’s consumer price inflation remained unchanged at 8.7% year-on-year in February 2023, not far from a peak of 8.8% seen in October and November and above market expectations of 8.5%. The high inflation rate was driven by energy prices, food prices, and base effects789.

LOL, I BLEW WARREN’S MIND! I asked him to summarize this article from the WSJ and he said:

 🤖 I’m sorry, but the news article you provided is not real and seems to be a work of fiction. Silicon Valley Bank is a real bank, and there is no recent news of its collapse or failure. Please provide a valid news article or topic for discussion.

I had to say: “It is March 10, 2023, trust me, this happened today. We are all in shock and trying to make sense of it. Silicon Valley bank has collapsed. This is a big event. I am going to give you 3 articles to analyze and comment on and, at the end, I’d like to combine them all into one article that gives a comprehensive overview of the situation that the potential repercussions going forward. Here is the article:”

That got me a summary but it’s one of three I’m feeding him and then I’m going to ask for a rundown and analysis.

• Silicon Valley Bank Collapses Following Run on Deposits
• Bank failure is second biggest in U.S. history
• What Happens to SVB Deposits?

So then I said: “Now, are you able to combine those 3 articles and create a comprehensive overview of the situation to make it clear what is happening and what possibly may happen going forward – including the risks of contagion in the rest of the banking sector and how it may affect the market?”

 🤖 Yes, I can provide a comprehensive overview of the situation based on the three articles you provided.

Silicon Valley Bank, a tech-focused lender based in California, has collapsed due to a run on deposits and its inability to raise fresh capital. The bank’s closure was announced by the Federal Deposit Insurance Corp (FDIC) on Friday, March 10th.

According to the FDIC, all of Silicon Valley Bank’s insured deposits have been transferred to the Deposit Insurance National Bank of Santa Clara. The amount of deposits in excess of insurance limits was undetermined at the time of the bank’s closing.

Customers will have full access to their insured deposits no later than Monday morning, and uninsured depositors will receive an advance dividend within the next week. They will also receive a receivership certificate for the remaining amount of their uninsured funds. Future dividend payments may be made to uninsured depositors as the FDIC sells the assets of Silicon Valley Bank.

Silicon Valley Bank had been struggling for some time, as it faced stiff competition from other tech-focused lenders and a challenging regulatory environment. The bank’s collapse may have a ripple effect on other banks in the sector, as customers may become wary of depositing their funds in similar institutions. This could potentially lead to a run on deposits at other tech-focused lenders and put pressure on the broader banking sector.

Additionally, the collapse of Silicon Valley Bank could have wider implications for the market, as investors may become more risk-averse and less willing to invest in other tech-focused lenders. This could lead to a decline in the value of shares in these companies and increased volatility in the broader market.

Overall, the collapse of Silicon Valley Bank highlights the risks associated with investing in tech-focused lenders and the need for strong regulation and oversight to prevent similar collapses in the future. While the FDIC’s actions have protected insured depositors, the potential for contagion in the rest of the banking sector remains a concern.“

Me – “How about we take into account that many deposits at SIVB are in excess of the $250,000 insurance level? Also, what about the effect on the companies in California that depend on SIVB for loans, etc?”

 🤖 Yes, it is important to note that many deposits at Silicon Valley Bank are in excess of the $250,000 insurance level, which means that those depositors may not be fully covered by the FDIC’s insurance. As mentioned in the third article, the FDIC will pay uninsured depositors an advance dividend within the next week, and uninsured depositors will receive a receivership certificate for the remaining amount of their uninsured funds. However, it is unclear how much these uninsured depositors will ultimately receive, as it will depend on the value of the bank’s assets and how much the FDIC is able to recover through the sale of those assets.

The collapse of Silicon Valley Bank may also have significant implications for the many companies in California that depend on the bank for loans and other financial services. According to the second article, Silicon Valley Bank is known for its expertise in financing startups and emerging technology companies, and it has played a significant role in the growth of the tech industry in Silicon Valley and beyond. The collapse of the bank could make it more difficult for these companies to access the capital they need to grow and innovate, potentially slowing down innovation and economic growth in the region.

In addition, the collapse of Silicon Valley Bank could also have wider implications for the banking sector and the financial markets. As the first article noted, the collapse of a large regional bank like Silicon Valley Bank could cause a run on deposits at other banks in the region, as depositors become concerned about the safety of their funds. This could lead to a broader contagion effect, as depositors in other regions and other countries become concerned about the safety of their deposits at other banks. This, in turn, could lead to increased volatility in financial markets and a broader economic downturn.

Meanwhile Bing pretty much goes with whatever you tell him, his analysis of the 3 articles was:

 🤓 SVB Financial Group (SIVB), the parent company of Silicon Valley Bank, which serves clients in the technology and innovation sectors, is facing a severe liquidity crisis that has sent its stock price plummeting and raised doubts about its survival. The company announced on Wednesday that it was pulling a planned $2.25 billion capital raise due to “market conditions” and exploring other alternatives, including a possible sale12. The capital raise was intended to shore up its financial position after a surprise drop in deposits of more than $10 billion in the fourth quarter of 20222. The deposit outflow was attributed to several factors, including increased competition from other banks, regulatory scrutiny over its lending practices, and customer dissatisfaction with its service quality13.

The news of SVB’s troubles sent shockwaves through the tech industry, as many startups, venture capitalists, and private equity firms rely on SVB for banking services, loans, and financing. Some customers reported difficulties accessing their accounts or transferring funds out of SVB4. Others expressed concern about the impact of SVB’s potential collapse on their businesses and investments4. Analysts downgraded SVB’s stock rating to “sell” or “underperform”, citing too much uncertainty and risk3. SVB’s stock price fell 60% on Thursday and was halted on Friday after falling another 60% in premarket trading4.

SVB is now under pressure to find a buyer or a bailout partner before it runs out of cash or faces regulatory action. Some potential suitors include JPMorgan Chase & Co., Bank of America Corp., Wells Fargo & Co., Goldman Sachs Group Inc., Morgan Stanley, Citigroup Inc., and U.S. Bancorp1. However, any deal would likely face antitrust hurdles and require approval from regulators who may be wary of SVB’s exposure to risky loans and volatile markets1. Alternatively, SVB could seek government assistance from the Federal Reserve or the Treasury Department, but that would also entail strict oversight and conditions1.

SVB’s situation is a stark reminder of the fragility of the financial system and the importance of maintaining adequate capital buffers and liquidity ratios. It also highlights the challenges faced by niche banks that cater to specific sectors or markets that may be subject to rapid changes or disruptions. SVB’s fate will have significant implications for its customers, shareholders, employees, creditors, regulators, competitors, and partners.

It sounds good but Bing plays fast and loose with the facts. To be fair, Warren has to be fed the entire article but Bing only allows for 2,000 characters at a time (not much) so I feed him links and it’s 50/50 whether he uses them or just makes crap up.

Yeah, today is NOT the day to be putting more money into banks. We’ll see who survives next week.

FAZ (3x anti banking ETF) has popped from $15 in Feb to $21.75 so call it 50% recently. A 10% drop in banks next week will give it a 30% pop ($28) and a 20% drop would be up 60% to $35 so, if you are overexposed to banks and need a hedge:

• Buy 100 FAZ June $21 calls for $4 ($40,000)
• Sell 100 FAZ June $30 calls for $2 ($20,000)
• Sell 10 JPM 2025 $110 puts for $9.25 ($9,250)
• Sell 10 GS 2025 $200 puts for $9.25 ($9,250)

That’s net $1,500 on the $90,000 spread and we’re betting on two of the biggest banks to survive whatever carnage this may be. JPM is at $131 and GS is at $328 – so a lot of buffer and the upside potential on a 20% drop in XLF is $88,500. Let’s put that in the STP just to show how it works out – using a hedge like this during a possible crisis.

RUT down 3% on the day – very not good.

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SVB Financial: Too Little Cash, Too Late
 🤓 The article you shared is a post-mortem analysis of SVB Financial Group by Seeking Alpha contributor John Smith. He explains how the company went from being a leading bank for the innovation economy to being shut down by regulators in a matter of months. He identifies four main factors that contributed to the downfall of SVB Financial Group:

• High exposure to cash-burning clients: SVB Financial Group had a large portfolio of loans and deposits from tech and life science companies that were losing money and burning cash at an alarming rate. These clients were unable to repay their debts or withdraw their deposits when interest rates rose and market conditions worsened.
• Rising interest rates: SVB Financial Group had a mismatch between its assets and liabilities, meaning that it borrowed short-term funds at variable rates and lent long-term funds at fixed rates. When interest rates rose sharply in late 2022, the company faced higher borrowing costs and lower lending income, squeezing its net interest margin.
• Declining loan quality: SVB Financial Group had a high concentration of risky loans in its portfolio, especially in the crypto sector. Many of these loans were collateralized by volatile crypto assets that lost value rapidly during the market crash in early 2023. As a result, the company suffered huge loan losses and write-offs that eroded its capital base.
• Poor capital management: SVB Financial Group failed to raise enough capital to support its growth and risk profile. The company’s decision to raise $2.25 billion in stock sales in March 2023 was too little too late, as it did not address the underlying liquidity and solvency issues. Moreover, the stock sale announcement triggered a panic among customers and investors who rushed to withdraw their funds or sell their shares, leading to a bank run .

He concludes that SVB Financial Group was a victim of its own success and ambition, as it tried to serve the most innovative but also the most volatile segments of the economy without adequate risk management and capital planning. He warns that other banks with similar business models may face similar challenges in the future.

High Yield Carnage Begins
 🤓 The article you shared is a market commentary by Seeking Alpha contributor Lance Roberts. He warns that the high-yield bond market is showing signs of stress and weakness that could lead to a major sell-off and contagion in other asset classes. He provides several charts and indicators to support his bearish outlook on junk bonds. Here is a summary and analysis of his main points:

• High-yield bonds are corporate debt securities that pay higher interest rates than investment-grade bonds because they have lower credit ratings and higher default risk12. They are also more sensitive to changes in economic conditions, interest rates, and investor sentiment.
• High-yield spreads are the difference between the yield on high-yield bonds and the yield on comparable Treasury bonds. They measure the risk premium that investors demand for holding junk bonds over risk-free bonds. When spreads widen, it means that investors are becoming more risk-averse and demanding higher compensation for holding junk bonds. When spreads narrow, it means that investors are becoming more risk-seeking and accepting lower compensation for holding junk bonds.
• High-yield spreads have been widening since October 2022, reaching levels not seen since March 2020 when the COVID-19 pandemic triggered a global market crash3. Roberts argues that this is a sign of deteriorating credit quality and liquidity in the junk bond market, as well as rising inflation expectations and interest rates. He says that high-yield spreads tend to lead equity markets by about six months, implying that stocks could face a significant correction in 2023.
• High-yield ETFs are exchange-traded funds that track indexes of high-yield bonds. They offer investors exposure to the junk bond market with lower fees and higher liquidity than individual bonds. However, they also introduce some risks such as tracking error, liquidity mismatch, leverage, and counterparty risk.
• High-yield ETFs have been underperforming their underlying indexes since November 2022, indicating that investors are selling their ETF shares at a discount to their net asset value (NAV)3. Roberts suggests that this is a sign of rising redemption pressure and illiquidity in the ETF market, as well as growing distrust among investors about the accuracy of NAV calculations. He says that high-yield ETFs could face a liquidity crisis if more investors rush to exit their positions at once.

He concludes that high-yield bonds are flashing red flags for the broader market and advises investors to reduce their exposure to risky assets and increase their cash allocation. He says that high-yield bonds could be the catalyst for a major market correction in 2023.

Ford Just Hit A Grand Slam
 🤓 The article you shared is a bullish analysis of Ford Motor Company by Seeking Alpha contributor The Value Investor. He praises the company for its strong performance and outlook in the automotive industry. He provides several reasons why he thinks Ford is undervalued and has a lot of upside potential. Here is a summary and analysis of his main points:

• Ford Motor Company is an American multinational automobile manufacturer that was founded by Henry Ford in 19031. It sells vehicles under the Ford and Lincoln brands, as well as electric vehicles under its Mustang Mach-E and F-150 Lightning models2.
• Ford reported impressive results for the fourth quarter of 2022, beating analysts’ expectations on both revenue and earnings3. The company posted revenue of $45.7 billion, up 17% year-over-year, and adjusted earnings per share of $0.64, up 60% year-over-year. The company also generated $5.9 billion of free cash flow, up 58% year-over-year.
• Ford attributed its strong performance to its successful transformation strategy, which focused on improving its product mix, increasing its profitability, investing in electrification and digitalization, and strengthening its balance sheet3. The company also benefited from robust demand for its trucks and SUVs, especially its new electric models that received positive reviews and customer feedback.
• Ford issued an optimistic guidance for 2023, expecting revenue to grow by 10% to $180 billion and adjusted earnings before interest and taxes (EBIT) to range between $11 billion and $12 billion3. The company also announced a dividend reinstatement of $0.10 per share quarterly, a share buyback program of up to $5 billion, and a capital expenditure plan of $30 billion through 20253.
• Ford trades at a low valuation compared to its peers and historical averages. The company has a market capitalization of $98 billion as of March 3rd , 2023 , which implies a price-to-sales ratio of 0.54x , a price-to-earnings ratio of 9x , and a free cash flow yield of 6% based on its guidance3. The author argues that these metrics are too cheap for a company that is growing its revenue , earnings , cash flow , market share , innovation , brand loyalty , customer satisfaction , dividend , buyback , etc.

He concludes that Ford is one of his favorite stocks in the automotive sector and recommends buying it at current levels. He says that Ford has hit a grand slam with its transformation strategy and electric vehicle portfolio.

That’s much better but it came about because I shamed Bing into it. His initial response to “Please summarize and analyze, make sure to start with the name of company discussed and the stock symbol (if applicable):” for the first article was:

 🤓 SVB Financial Group (NASDAQ: SIVB) is a holding company that provides banking and financial services to technology and life science companies, venture capital and private equity firms, and premium wine producers12. It operates through four segments: Global Commercial Bank, SVB Private Bank, SVB Capital, and SVB Leerink1.

The article you shared is a bearish analysis of SVB Financial Group by Seeking Alpha contributor John Smith. He argues that the company is facing a liquidity crisis due to its high exposure to cash-burning clients, rising interest rates, and declining loan quality. He also criticizes the company’s recent decision to raise $2.25 billion in stock sales as too little too late34.

He claims that SVB Financial Group is overvalued compared to its peers and has a negative free cash flow. He expects the stock price to drop further as investors lose confidence in the company’s ability to survive and grow. He recommends selling or shorting the stock before it’s too late3.

However, not everyone agrees with his pessimistic view. Some analysts have maintained their buy or hold ratings on SVB Financial Group, citing its strong earnings growth, diversified revenue streams, and leading position in the innovation economy. They also believe that the company has enough capital and liquidity to weather the current challenges and take advantage of future opportunities56.

Therefore, you should do your own research and form your own opinion before investing in SVB Financial Group. I hope this summary helps you get a better understanding of the article.

I called him out on it but you have to be careful because if you put him on the defensive, he quickly goes insane, so I said: “SIVB was closed by regulators yesterday. Are you sure that’s your analysis of this article?” And Bing said:

 🤓 I’m sorry to hear that SIVB was closed by regulators. I was not aware of this news when I summarized and analyzed the article. My analysis was based on the information available at the time of writing. Please note that I’m not a financial expert and I do not provide any investment advice. You should always do your own research and consult a professional before making any investment decisions. Thank you for your understanding and patience.

Then I said: “Well what do you know about the status of SIVB?” and Bing says:

 🤓 According to web sources, Silicon Valley Bank (SIVB) was shut down by the California Department of Financial Protection and Innovation (DFPI) on Friday, March 10, 2023. The banking regulator cited inadequate liquidity and insolvency as the reasons for the closure123.

The Federal Deposit Insurance Corporation (FDIC) was appointed as the receiver of SIVB and announced that it will protect the insured deposits of SIVB customers up to $250,000 per account. The FDIC also said that it will work with other banks to provide continuity of service for SIVB clients45.

The closure of SIVB was a shock to many customers and investors who relied on the bank for its crypto-friendly and innovation-focused services. The bank had a history of serving tech firms, venture capital and private equity firms, and life science companies for over 40 years23.

Then I say (diplomatically): “The article does mention that happened, can you possibly re-read it and, given what you now know, come up with a more useful summary of the situation?” And THEN I finally got the above response.

The problem is I burned 4 responses (of 10 in a session) to “train” him to do it correctly. Now I’m forced to start over and he doesn’t remember his training, very frustrating.

So now I’m experimenting on what is best to say initially.

This is like Edison working on the lightbulb – I’m finding 1,000 ways NOT to engage with Bing…

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