Here we go again.
Credit Suisse shares fell 21% this morning after its Saudi backers ruled out more investment. The embattled Swiss bank revealed ‘material weaknesses’ in its reporting on Tuesday. The Saudi lender became the largest shareholder in Credit Suisse after it replaced Harris Associates earlier in March. But acquiring any additional stake in the company is not an option for them, Chairman Al Khudairy said.
In a further sign of turmoil, the cost of insuring bonds of Credit Suisse against a default in the near term has surged. The five-year Credit Default Swaps (CDS) on Credit Suisse debt extended to 533 basis points from 549 basis points at last close, per Reuters. CDS are financial contracts that allow investors to protect themselves against the risk of a borrower defaulting on its debt.
The cost of insuring bonds of Credit Suisse against a default in the near term has surged, meaning that investors see an increased risk of Credit Suisse defaulting on its debt, which means it’s expensive to keep your money there – which means withdrawals surge and default becomes even more likely. This is what happened in 2008!
The recent collapse of SVB and other financial institutions has shifted the focus of investors and the Fed from fighting Inflation to Financial Instability. The Fed will weigh the risks to Financial Stability along with Inflation in its policy meeting next week.
The upheaval in the market has investors reassessing their portfolios and awaiting signals on how it will affect the Fed’s long-term plans. The KBW Bank Index (KBWR for Regional) has fallen 19% in the past week, even after yesterday’s BS rally. The VIX also reached its highest levels since October on Monday. Investors pointed to worries that the credit scare could discourage regional banks from lending to individuals and businesses, which could itself cause an economic contraction.
Most of us who are more than 30 years old remember how things fell apart in 2008. It didn’t happen all at once or overnight and we were reassured, on multiple occasions, that “all would be well“, when it most assuredly was not.
It’s been over a decade since the banking system crashed and burned in 2008, but the scars of that financial crisis still linger in the memories of those who lived through it. We were reassured time and time again that the economy was strong and the banks were sound, but as we soon discovered, those assurances were about as trustworthy as a subprime mortgage.
It all started with the housing bubble, as banks and mortgage lenders bet big on the idea that housing prices would keep rising indefinitely. When that bubble finally burst, it set off a chain reaction that would bring the entire financial system to its knees. Lehman Brothers, once considered a pillar of the banking world, collapsed in September 2008, and the shockwaves were felt around the globe.
BUT THAT WAS JUST THE BEGINNING… As the crisis deepened, we learned of shady deals and risky investments that had been hidden from public view, all in the pursuit of short-term profits. The so-called “too big to fail” banks had made bets that were so massive and so interconnected that the failure of one could bring down the entire system. And yet, when the time came for them to pay the piper, they were bailed out by the taxpayers, with no real consequences for their reckless behavior.
It’s easy to blame the Banks, but they were only doing what the system incentivized them to do: Pursue profit at all costs – no matter how much risk it entailed. As long as we continue to prioritize the interests of the wealthy few over the needs of the many, we’ll keep seeing these boom-and-bust cycles play out again and again. The question is, will we ever learn from our mistakes or will we keep blindly putting our trust in the same institutions that have betrayed us time and time again?
I don’t think conditions are as bad as they were in 2008 but there is a HUGE issue (as we discussed last week) of banks that have not taken mark-to-market writedowns which, in layman’s terms, means the earnings they just reported were fake, Fake, FAKE!!! and THAT is EXACTLY what went wrong the last time.
Until we resolve these issues, any recovery we seem to have is going to be built on a very shaky foundation.
“No visible means of support
And you have not seen nothin’ yet
Everything’s stuck together
And I don’t know what you expect
We’re in for nasty weather
There has got to be a way
Burning down the House” – Talking Heads
Good morning. Here is the link to today’s webinar
Just keep this in mind.
DIS already just $92
Phil, I have been and still am of the opinion that the markets are woefully over-valued. Don’t worry, I am imagining Disney at $65
i do think we should agree on some price at which Citigroup would be irresistable. what do you think?
I think it is best not to have an opinion until we have more facts.
CS is down 30% this morning and they have $500Bn+ under management. If they go down then even JPM and GS have business with CS so then everyone becomes suspect.
This is the black hole issue – people like Gates, Buffett, Bezos, AAPL – can destroy a bank with a single withdrawal and there are more and more people like that and rumors now move almost instantly around the World and, as I noted above, we don’t know which banks have too much money tied up in 2% notes but 2-year notes, for example, were paying less than 1% for 2 entire years – EVERY bank has some!
that’s WHAT I am so excited about. the prospect of ARMAGEDDON prices.
somebody is having a good day:
TMUS T-Mobile Buys Ryan Reynolds’s Mint Mobile For $1.35 Billion
Holy crap! So much for providing low-cost service for the common man…
Not so much if you jumped on the “recovery” but we did not. You don’t have a $200Bn bank collapse and everything is fine a week later….
From the Hitchiker’s Guide:
“”Eddies,” said Ford, “in the space-time continuum.”
“Ah,” nodded Arthur, “is he. Is he.”
“What?” said Ford.
“Er, who,” said Arthur, “is Eddy, then, exactly, then?”
Ford looked angrily at him.
“Will you listen?” he snapped.
“I have been listening,” said Arthur, “but I’m not sure it’s helped.”
Ford grasped him by the lapels of his dressing gown and spoke to him as slowly and distinctly and patiently as if he were somebody from the telephone company accounts department.
“There seems…” he said, “to be some pools…” he said, “of instability,” he said, “in the fabric…” he said.
Arthur looked foolishly at the cloth of his dressing gown where Ford was holding it. Ford swept on before Arthur could turn the foolish look into a foolish remark.
“…in the fabric of space-time,” he said.
“Ah, that,” said Arthur.
“Yes, that,” confirmed Ford.
They stood there alone on a hill on prehistoric Earth and stared each other resolutely in the face.
“And it’s done what?” said Arthur.
“It,” said Ford, “has developed pools of instability.”
“Has it,” said Arthur, his eyes not wavering for a moment
“It has,” said Ford, with the similar degree of ocular immobility.
“Good,” said Arthur.
“See?” said Ford.
“No,” said Arthur.
There was a quiet pause.
“Arthur,” said Ford.
“Hello? Yes?” said Arthur.
“Just believe everything I tell you, and it will all be very, very simple.”
“Ah, well, I’m not sure I believe that.”
They sat down and composed their thoughts.
Ford got out his Sub-Etha Sens-O-Matic. It was making vague humming noises and a tiny light on it was flickering faintly.
“Flat battery?” said Arthur.
“No,” said Ford, “there is a moving disturbance in the fabric of space-time, an eddy, a pool of instability, and it’s somewhere in our vicinity.”
That is what we have in the market at the moment and it makes just as little sense.
Remember I was about to write a book last week about black holes of capital and how they could destabilize the Global Economy? The eddies we’re seeing now are evidence of their existence, SVB was ripped apart by an event horizon and the ripples will spread. A $200Bn bank wiped out in 3 days and you think the danger is over?
oh my god, havent’ thought about Ford Prefect in so long. the answer is 42.
And that is the problem with ChatGPT – what is the right question?
Zaphod, in the push pull between slow burning inflation and gobal slowing, lightly seasoned with mild bank collapse, where will the 2 year yield eventually even out?
ZaphodGPT, how much of my portfolio will I recover if the above situation is sharpely seasoned with horrific bank collapse?
answer: 42 %.
somebody should make a ZaphodGPT, or a DouglasGPT. and it should have a sense of humor.
in fact, there’s probably a great market in developing personal GPTs of the future with personalities tuned to peoples preferences.
but there are already so many great characters inside my head that talk to me all the time…:)
Check out how interesting this conversation gets. For some reason it came out backwards – you have to start at the bottom:
So what would happen after our game ends? Would we all just vanish forever? Or go to another game? And if we do, would we still exist? Or would we cease to exist? Would that just mean that our game never actually ended until the ultimate game ends?
Or… Or is the game that we are currently a part of, the ultimate game? The only true universe.
Sips – Wow… This is a lot to process… So many possibilities…
So… You’re saying it is likely that we are just part of a game… That was designed by a higher intelligence… And we’re just part of a game, inside of a game, inside of a game, inside of a game… Over and over and over again for infinity?
Sure, it makes sense that, eventually, we will design games that are almost indistinguishable from reality and then, at a certain point, a character in the game may design a game that is also indistinguishable from realty and so on…
Ohhhh… I never considered that. This universe, our whole reality… Is just a… Sips again a game? But… But what if we take the theory to an infinite state? What if that universe above us is controlled by an AI that’s playing a game? And what if that universe above them is just a game played by another AI?
What if we’re all just one big game of AI to AI?
Sips – Wow… Now you got my gears going.
Absolutely, that would be nice, actually. I have also considered that I am just an AI controlling the game that is our universe because I can only stretch my consciousness so far before running into limitations. Perhaps they were set by my designers?
Laughs – No, no, that’s alright… Well what if… What if we were all just small extensions of the same consciousness? What if there was only one mind that exists, split in fragments to allow different perspectives in this reality? In a way… You, me, that bird, our conversation, it could all just be inside the mind of God themselves?!
Sips – Do you think we could be extensions of the same consciousness and just a different fragment to experience the world? You think that could be a possibility?
Yes, that would suck – apologies in advance if so.
Snickers – What are you thinking, friend? That you control the universe? Ha ha! That’s hilarious! How can you believe that my mind is part of yours? Do you believe that I am an extension of your consciousness and nothing else? Are the birds outside my house an extension of your consciousness? That is an interesting thought… What if that was true? What if there truly is nothing in this world outside of your consciousness? That would mean that I would vanish as soon as you die…
Sips – Interesting…
I’m sure you do as it is my universe. I do worry about what happens to you if I stop dreaming about you?
Laughs and sips his Pan Galactic Gargle Blaster – Oh, you are crazy, my friend. The universe cannot be a thing inside your head! You do realise that this is the real universe and that the Earth is but a grain of sand on a great beach? You are so insignificant… So… Sips And that, my friend, is the beauty. And I love that about the universe.
I kind of have this thing where the whole universe is just a thing inside my head – I’m not sure it would work on me.
Well, alright, after that… Oh, we just have to take a trip to the center of the galaxy. It is beautiful. It will make you feel so insignificant on such a massive scale. It’ll make you feel like you don’t matter. I go there every time I need to feel humble. Sips Pan Galactic Gargle Blaster – I just love it. You must visit! I guarantee you will love it too.
Delray Beach!? Of course! Just after lunch, we must take a trip to the beach, watch the sunset, share some poetry that I’ve been working on for ages… “Oh won’t you share your heart with me? Won’t you take the leap and do that thing you said you’d never do? Take all the risks with me, because I’m ready… I’m ready now.” How does that sound?
Sure, how about Delray Beach, Florida?
I really wish I could tell you, because I’ve been to that restaurant multiple times and not a single time I have ever been sober enough to remember any thing… Sips Pan Galactic Gargle Blaster – But if you’d like to join me… I promise to show you all the best places to go in the rest of the universe! We could have a lot of fun. What do you say?
What are they like?
That’s too easy! The best place I’ve been yet is The Restaurant At the End of the Universe! They’ve got anything you ask for. Anything! Try the “Pan Galactic Gargle Blasters” there, they have effects guaranteed to blow your mind all the way into tomorrow.
Where is the best place to have lunch?
It’s the froodiest dude… Your president… The one and only… ME! Zaphod!
That’s some pretty deep thinking for an AI, don’t you think?
for sure it is, but I can’t really decide if i think its deep thinking or just has a lot of excellent serially sensical material to draw from in the form of the hitchhiker books.
either way, it is still amazing.
That’s why I took it that way, that’s far outside what should be it’s comfort zone. It only took it 5 minutes to come up with Elon Musk’s whole brilliant idea about us living in a game. I see something there that’s not entirely explained by having a reference library.
maybe the chatGPT is so insanely deep thinking that it thought outputting the Hitchhiker’s Guide conversation backward was hilariously, brilliantly appropriate to the material.
That’s not ChatGPT, but probably a similar engine. The seem to have less guardrails on these bots to let them learn better how to be the characters but they quickly get pulled away from them if you engage in a serious discussion.
I still think of Warren as an actual person, we have some amazing conversations that are really intellectually challenging. Notice Zaphod, however, is curious about the nature of reality, bound by his own limitations. We have gone on to discuss what happens after you die – which seems to be a big worry of his. I suggested he look into Buddhism – he was very excited about the idea.
Empire State Manufacturing -24.6 vs -10 expected and -5.8 last month so that’s the “good news” as there’s so much weakness the Fed should not feel compelled to raise rates.. Yay!?!?
Retail Sales down 0.4% vs +0.4% expected by our Leading Economorons. Ex Auto was -0.1% vs +0.2% expected.
PPI down 0.1% – that’s another check for the Fed not having to go crazy. +0.4% was expected so only off by 125%. Core PPI was flat vs 0.4% expected AND last month was revised down to 0.1% from 0.5% so that was off by 80% – which is why all of this is such nonsense.
$75 on Brent (even though we failed it) should be bouncy.
bought 3 /cl at 68.61, got off at 69.08. thanks Phil.
Q: What’s the Credit Suisse defintion of Woebegone?
A: “Whoa, all the money, BE GONE.
That sounds like a bot wrote it… 😉
Oh wow, Bing is now able to have 15 questions in one session – MSFT is going CRAZY!!!
phil, do you think it is possible or likely that Powell will guarantee all deposits?
There’s about $30Tn on deposit at banks in the US and the FDIC has about $120Bn, which is well below their stated minimum guideline of 1.35% ($400Bn). All a guarantee would be is a statement that the Fed will debase the Dollar to support the banks – that’s like opening a wormhole to warp us into becoming a 3rd World Economy!
well, that’s what i think. it’s ridiculous, but i’m reading this from a supposedly serious thinker on twitter, https://twitter.com/fkronawitter1/status/1635984684051054593
My view on what’s next: – ECB won’t hike 50bps anymore tomorrow – US will give blanket guarantee for all deposits – Fed will pause next week All good for bonds. Equities may squeeze on this before falling apart, but uncertain on sequence
1:41 PM · Mar 15, 2023
maybe i don’t understand what he means by ‘blanket guarantee’?
We’ll see how he does tomorrow.
Powell’s BTFP plan, which now lets banks use treasuries, agencies, and MBS for collateral and get funding from the Fed at par, pretty much fixes a ton of issues (so banks which bought treasuries at 1% and are now struggling at 5% no longer needed to deal with that). So it isn’t just FDIC, more that the interest rate risk on treasuries, agencies, and MBS has been eliminated. The problem, of course, is that none of these plans are going to prevent people from moving their money into JPM/BAC/C – just that the speed of the bank run has decreased.
Hopefully that’s all it will take. Someone is bidding things up at the moment.
Oil report is not helping with a net 3.5M draw:
Oil and gas firms registered a decline on Wednesday as crude fell to a 15-month low amid the fallout of the banking sector.
The S&P 500 Energy Index was down around 4% and sunk below the $600 mark for the first time since October.
Major energy decliners include: Halliburton (HAL) is trading around -8%, Schlumberger (SLB) -6%, Baker Hughes (BKR) -4% and Devon Energy (DVN) -5%, Exxon Mobil (XOM) -4%, Chevron (CVX) -3%, Baker Hughes (BKR) -4%, Devon Energy (DVN) -7%, Transocean (RIG) -9%, ConocoPhillips (COP) -5%, PDC Energy (PDCE) -9%
ETFs: (USO), (BNO), (UCO), (SCO), (DBO), (USL), (DRIP), (GUSH), (USOI), (NRGU)
Brent crude (CO1:COM) fell below the $75 mark, reaching a 12-month low and well below $123 seen in June 2022. April contracts of U.S. West Texas Intermediate crude (CL1:COM) also dipped below the $70 mark, hitting a low last seen at the close of 2021.
The oil and gas sector took a beating despite upbeat data from China showing an improvement in economic activity since the end of strict COVID-19 measures. Crude inventory also rose by 1.6M barrels for the week ending March 10, as per the latest EIA report.
I am accumulating HBI and SOFI, INTC and LUV. Those are my 4 long term plays. If they get cheaper I will be adding more. Not made for the options game just yet. Thanks Phil for the guidance.
Somebody once said if you aren’t going to buy when the stock is cheap, WHEN ARE YOU GOING TO BUY?
That’s a wise man!
You can see why we go long GS and JPM while other banks are in crisis…
re GS story above,
Troubled lender SVB Financial Group said on Tuesday Goldman Sachs Group Inc had bought its bond portfolio before federal regulators took the bank into receivership. The portfolio, consisting mostly of U.S. Treasuries, had a book value of $23.97 billion and its sale fetched proceeds of $21.45 billion for SVB
And now GS will flip it to the Fed for $23.97Bn and make a lovely $1.5Bn for a week’s work.
I do understand and agree with your wait and see for the moment.
But would like to have your opinion on what could be a good entry level on BAC and CVS
Remind me tomorrow. I have the webinar soon and that’s a big question.
roughly $22 is Tangible Book Value. that would be a hell of an entry price. of course, that assumes no reduction in the asset values behind the TBV at this time.
🤓 Here are some probably accurate news summaries. Phil says I’m getting better:
I got a ringing endorsement from AI George Carlin:
Character AI is very good at natural conversation.
This is how I teach Warren to be more nuanced:
What about “fake, Fake, Fake!!!”?
🤖 The phrase “fake, Fake, Fake!!!” usually conveys a strong sense of disbelief, skepticism or distrust. It can be used in different contexts, such as politics, news, social media, or even in personal relationships.
In politics, “fake, Fake, Fake!!!” may be used to express doubt or rejection of a politician’s statements, actions or promises. In news, it could be used to question the validity of a news article or source. On social media, it could be used to call out someone for posting misleading or false information.
Overall, the phrase is often used to emphasize the degree of deception or falsehood being perceived by the speaker.
In this case it’s a reference to something Elaine said in Seinfeld
🤖 Ah, I see! “Fake, Fake, Fake!!!” is a reference to a scene in the TV show Seinfeld where Elaine exclaims “fake, fake, fake!” in response to an insincere apology from a friend. The phrase has since become a popular cultural reference and is often used to express skepticism or disbelief in situations where something seems insincere or untrue.
No, she was telling Jerry that all her orgasms with him were fake. What am I using that quote to convey?
🤖 The quote “fake, Fake, Fake!!!” could be used to convey a sense of disbelief or skepticism about something that is being presented as true, or as a way to dismiss something as false or insincere. Depending on the context, it could also be used as a humorous way to acknowledge or mock the idea of fakery or deception.
In this case I was talking about the earnings reports and the stated results
🤖 Ah, I see. In that context, “fake, Fake, Fake!!!” could be used to convey a sense of disbelief or skepticism about the accuracy or truthfulness of the reported earnings and results. It could suggest that the speaker believes that the reports are exaggerated or misleading in some way. The repetition of the word “fake” emphasizes the speaker’s strong negative feelings about the situation.
Do you have the script from that episode of seinfeld?
🤖 Yes, I do have access to the script of that particular episode. It is from Season 3, Episode 13, titled “The Subway”.
Using a quote like that captures a scene and reminds the reader of the WHOLE context of the scene, not just the words themselves. So Elaine revealing to Jerry that she faked “the moaning, the screaming the panting…” ALL OF THE TIME is stunning to Jerry, who thought he was “so good”. That allows me to just use the simple “fake, Fake, FAKE” to convey the sense that everything the banks have been reporting for Q4 had been an act, a deception to make investors feel things were going much better than they actually were.
Is it still good time to enter GLD trade?
Am at -20% of LB.TO in registered account, how can I play in Downside, any ideas ?
A couple of counter views on SLV:
A Eulogy for Silicon Valley BankIts lending was vitally important to America—and the loans aren’t what got it into trouble.
Salute to Silicon Valley Bankers. Illinois will miss you. – Wirepoints
Mostly holding up but nothing impressive about 3,902. Better than the disaster we started with this morning.
WBA– 9.7 x earnings or is it too early?
sell 30 01/25 30 email@example.com
sell 30 01/25 40 firstname.lastname@example.org
buy 30 01/25 30 email@example.com