Source: Credit Bubble Bulletin : Weekly Commentary: The Big Pivot
GLOBAL STOCKS
S&P500 gained 1.4% (up 3.4% y-t-d)
Dow Industrial rallied 1.2% (down 2.7%)
Utilities declined 1.0% (down 7.2%)
Banks slipped 0.5% (down 22.3%)
Broker/Dealers declined 0.6% (down 1.9%)
Transports dipped 0.5% (up 2.3%)
S&P 400 Midcaps rallied 1.3% (down 1.1%)
Small cap Russell 2000 increased 0.5% (down 1.5%)
Nasdaq100 advanced 2.0% (up 16.7%)
Semiconductors rose 1.2% (up 23.3%)
Biotechs gained 0.5% (down 2.8%).
gold equities index rose 2.5% (up 8.0%).
U.K.'s FTSE gained 1.0% (down 0.6% y-t-d).
Japan's Nikkei added 0.2% (up 4.9% y-t-d).
France's CAC40 rallied 1.3% (up 8.4%).
German DAX gained 1.3% (up 7.4%).
Spain's IBEX 35 recovered 0.8% (up 6.8%).
Italy's FTSE MIB rallied 1.6% (up 9.2%)
Brazil's Bovespa dropped 3.1% (down 9.9%)
Mexico's Bolsa rallied 1.6% (up 8.9%).
South Korea's Kospi increased 0.8% (up 8.0%).
India's Sensex declined 0.8% (down 5.4%).
China's Shanghai Exchange added 0.5% (up 5.7%).
Turkey's Istanbul National 100 fell 2.0% (down 8.7%).
Russia's MICEX jumped 3.0% (up 11.0%).
US BONDS
ended the week at 4.50%.
declined seven bps this week to 3.77%
US MORTGAGE RATES
Freddie Mac 30-year fixed mortgage rates
Fifteen-year rates
Five-year hybrid ARM rates
Jumbo mortgage 30-year fixed rates
US CURRENCY
declined 0.6% to 103.12 (down 0.4% y-t-d).
COMMODITIES
increased 0.4% (down 9.1% y-t-d).
Spot Gold dipped 0.6% to $1,978 (up 8.7%).
Silver jumped 2.8% to $23.23 (down 3.0%).
WTI crude recovered $2.52 to $69.26 (down 14%).
Gasoline rallied 3.5% (up 5%),
Natural Gas sank 5.2% to $2.22 (down 51%).
Copper jumped 2.8% (down 3%).
Wheat fell 3.1% (down 13%)
Corn rallied 1.4% (down 5%).
this week to $27,420 (up 65%).
US ECONOMIC NEWS
Bank Crisis Watch:
March 24 – Wall Street Journal (Jack Pitcher): “The capital markets have been on ice since the collapse of Silicon Valley Bank two weeks ago. No companies with investment-grade credit ratings sold new bonds over the seven business days from March 9 through March 17, the first week in March without a new high-grade bond sale since 2013, according to PitchBook LCD. The market for new junk-bond sales has largely stalled this month, and no companies have gone public on the New York Stock Exchange in more than two weeks… Those with the highest ratings have sold $59.9 billion in new bonds this month, compared with March’s five-year average of $179 billion. The riskier corporations that borrow by issuing higher-yielding junk bonds and leveraged loans are finding it even harder to sell new debt. Companies have raised some $5 billion of junk bonds this month versus the five-year average of $24 billion.”
March 21 – Wall Street Journal (Konrad Putzier and Peter Grant): “A record amount of commercial mortgages expiring in 2023 is set to test the financial health of small and regional banks already under pressure… Smaller banks hold around $2.3 trillion in commercial real estate debt, including rental-apartment mortgages, according to… data firm Trepp Inc. That is almost 80% of commercial mortgages held by all banks… Many skyscrapers, business parks and other office properties have lost value during the pandemic era as their business tenants have adopted new remote and hybrid workplace strategies… In a recent paper, a group of economists… estimated that the value of loans and securities held by banks is around $2.2 trillion lower than the book value on their balance sheets. That drop in value puts 186 banks at risk of failure if half their uninsured depositors decide to pull their money… Real-estate loans account for more than a quarter of the shortfall, said [Trepp’s] Mr. Piskorski. At the median U.S. bank, commercial real-estate loans account for 38% of loan holdings…”
March 22 – Bloomberg (John Gittelsohn): “Commercial-property owners face nearly $400 billion of debt maturing this year as regional bank failures threaten the industry’s biggest source of financing. In addition, almost $500 billion of loans will come due in 2024, according to… MSCI Real Assets. Landlords received about 27% of financing from local and regional banks in 2022, the biggest source of newly originated debt... Property owners who need to refinance this year are confronting much higher borrowing costs and falling property values. This month’s collapse of Silicon Valley Bank and Signature Bank threatens to make negotiations even tougher as local lenders scramble to reduce risk. ‘The turmoil we’ve seen in the last week has hit dead center in the lender group that supported more commercial mortgages in 2022 than any other,’ said Jim Costello, an economist at MSCI Real Assets. ‘It was already happening. This is kicking a man when he’s down.’”
March 22 – Reuters (Nupur Anand): “JPMorgan… analysts estimate that the ‘most vulnerable’ U.S. banks are likely to have lost a total of about $1 trillion in deposits since last year, with half of the outflows occurring in March following the collapse of Silicon Valley Bank. The team of JPMorgan analysts… did not name any of the banks they categorized as ‘most vulnerable’ or say how many they included in this group. ‘The uncertainty generated by deposit movements could cause banks to become more cautious on lending,’ they wrote.”
March 22 – Bloomberg (Tom Maloney, Paulina Cachero and Priya Anand): “Silicon Valley Bank was known as the bank of startups. But it was just as much the bank of venture capital funds SVB had long been an innovator in lending to wealthy tech investors during its four-decade run. It offered two products — capital call lines of credit and partner lending — that, when combined with record-low interest rates and relentless demand for high-growth investments, helped create a money machine that fueled the Silicon Valley economy and beyond. That venture boom is now teetering with global central banks rushing to tighten policy in the face of the highest inflation in decades, causing many funds to sharply mark down their startup investments. While the loan offerings to venture capital firms weren’t the main reason SVB collapsed…, the prospect of this money spigot shutting off threatens to worsen the tech slowdown as both funds and startups lose their most important lender.”
March 22 – Bloomberg (Jenny Surane): “Citigroup Inc. Chief Executive Officer Jane Fraser said mobile apps and consumers’ ability to move millions of dollars with a few clicks of a button mark a sea change for how bankers manage and regulators respond to the risk of bank runs… ‘It’s a complete game changer from what we’ve seen before,’ Fraser said… ‘There were a couple of Tweets and then this thing went down much faster than has happened in history. And frankly I think the regulators did a good job in responding very quickly because normally you have longer to respond to this.’”
Market Instability Watch:
March 23 – Wall Street Journal (Juliet Chung and Sam Goldfarb): “Hedge funds that bet on big-picture market moves have been hit with steep losses as a spate of recent bank failures upends bets that interest rates would remain elevated. The souring of the wager led some, including Maniyar Capital Advisors and Haidar Capital Management, to lose more than 20% this month. Many of the funds, which had notched big gains as rates marched steadily upward in 2022, are now flat to down for the year following a steep recent drop in Treasury yields. So-called trend-followers, which try to take advantage of momentum in markets, also were hurt.”
March 24 – Bloomberg (Libby Cherry and Greg Ritchie): “A Federal Reserve facility that gives foreign central banks access to dollar funding was tapped for a record $60 billion, in a week of banking stress that has roiled markets. The demand came through the Fed’s Foreign and International Monetary Authorities Repo Facility and encompasses the week through March 22… The facility was established in the midst of the pandemic and is designed to help ease any pressures in global dollar funding markets. It allows foreign central banks to post their US Treasury holdings as collateral in exchange for dollar liquidity…”
March 21 – Wall Street Journal (Matt Wirz): “Strains in the banking sector are roiling a roughly $8 trillion bond market considered almost as safe as U.S. government bonds. So-called agency mortgage bonds are widely held by banks, insurers and bond funds because they are backed by the mortgage loans from government-controlled lenders Fannie Mae and Freddie Mac… Last week, the risk premium on a widely followed Bloomberg index of agency MBS hit its highest level since October, when climbing interest rates turned global markets topsy-turvy. The move reflected fears that other regional banks might have to sell their holdings, bond-fund managers said.”
March 22 – Financial Times (Jennifer Hughes, Harriet Clarfelt and Joshua Chaffin): “Commercial property loans are joining deposit flight and bond portfolios as the biggest perceived risk for US banks as rattled investors fret about lenders’ strength following the collapses of Silicon Valley Bank and Signature Bank. Strains in the $5.6tn market for commercial real estate loans have deepened in recent months… Analysts fear any further reduction in lending — say, from businesses more keen on hoarding deposits following two shock bank runs in a week — could make a perilous situation worse. The threat of a credit crunch rippling across the global financial system has overtaken inflation this month as investors’ biggest worry, according to a monthly global survey of fund managers by Bank of America. Thousands of small and medium-sized banks that make up the bulk of US lenders account for about 70% of so-called CRE loans, according to JPMorgan analysts.”
Bursting Bubble and Mania Watch:
March 23 – Bloomberg (Sagarika Jaisinghani): “American households will sell $750 billion of stocks this year in the first annual drop in demand since 2018, thanks to higher bond yields and lower savings, Goldman Sachs… strategists say. Marking an end to years of belief in TINA — that there’s no alternative to equities — households will instead boost allocation to credit and money-market assets… US households have been key buyers of stocks through the era of ultra-loose monetary policy seen since the global financial crisis. That trend saw a ‘significant slowdown’ last year as the Federal Reserve began tightening, although households still directly owned 38% of the total US equity market…”
March 20 – Associated Press (Alexander Weber): “Amazon plans to eliminate 9,000 more jobs in the next few weeks… The job cuts would mark the second largest round of layoffs in the company’s history, adding to the 18,000 employees the tech giant said it would lay off in January. The company’s workforce doubled during the pandemic, however, in the midst of a hiring surge across almost the entire tech sector. Tech companies have announced tens of thousands of job cuts this year.”
March 20 – Wall Street Journal (Jeanna Smialek): “Some U.S. public pension and investment funds are pulling back on private equity after a decade of state and local retirement systems aggressively pursuing the expensive, risky and hard-to-trade asset class. Maryland’s $65 billion retirement system is investing less new money in private equity. At Alaska’s $77 billion state fund, the investment chief wants to cancel a planned ramp-up. And the $615 million pension fund of Mendocino County, Calif., last month opted against introducing private equity to its investment mix. ‘We think you can get to the same destination with just public market assets and your real estate and infrastructure portfolios,’ Greg DeForrest, a senior vice president with investment consultant Callan, told the fund’s board. ‘Without private equity, you don’t have to deal with the costs, the fees, the administrative headache and the reporting headache associated with it.’”
March 20 – Reuters (Davide Barbuscia): “Bond giant PIMCO lost about $340 million on a category of Credit Suisse bonds that were wiped out by the takeover by UBS, with the American investment manager's overall exposure to the Swiss lender running into billions, a source… said.”
March 21 – Bloomberg (Silla Brush, Noah Buhayar and Allyson Versprille): “As Silicon Valley Bank deteriorated late last year and regulators began internally flagging flaws in its risk management, the lender opened up the credit spigot to one group: insiders. Loans to officers, directors and principal shareholders, and their related interests, more than tripled from the third quarter last year to $219 million in the final three months of 2022… That’s a record dollar amount of loans issued to insiders, going back at least two decades.”
Crypto Bubble Collapse Watch:
March 23 – Reuters (Hannah Lang): “The U.S. Securities and Exchange Commission… issued an investor alert warning that firms offering crypto asset securities may not be complying with U.S. laws. Unregistered offerings of such securities may not provide important data, including audited financial statements, for informed decision making, the SEC said. The securities watchdog has been cracking down on the crypto industry, which its chair has called a ‘Wild West’ riddled with misconduct
Biden Administration Watch:
March 20 – Bloomberg (Saleha Mohsin and Sridhar Natarajan): “US officials are studying ways they might temporarily expand Federal Deposit Insurance Corp. coverage to all deposits, a move sought by a coalition of banks arguing that it’s needed to head off a potential financial crisis. Treasury Department staff are reviewing whether federal regulators have enough emergency authority to temporarily insure deposits greater than the current $250,000 cap on most accounts without formal consent from a deeply divided Congress, according to people with knowledge of the talks.”
March 21 – Reuters (David Lawder): “U.S. Treasury Secretary Janet Yellen told bankers on Tuesday that she is prepared to intervene to protect depositors in smaller U.S. banks suffering deposit runs that threaten more contagion amid the worst financial system turmoil in more than a decade. In a speech aimed at calming nerves rattled by two prominent bank failures this month, Yellen said that the U.S. banking system was stabilizing and steps taken to guarantee deposits in those institutions, showed a ‘resolute commitment’ to ensure depositors' savings and banks remain safe. ‘The steps we took were not focused on aiding specific banks or classes of banks. Our intervention was necessary to protect the broader U.S. banking system,’ Yellen told an American Bankers Association conference... ‘And similar actions could be warranted if smaller institutions suffer deposit runs that pose the risk of contagion’… in prepared remarks that drew a standing ovation from the assembled bankers...”
March 22 – Reuters (David Lawder and Rami Ayyub): “U.S. Treasury Secretary Janet Yellen told lawmakers on Wednesday that she has not considered or discussed ‘blanket insurance’ to U.S. banking deposits without approval by Congress as a way to stem turmoil caused by two major bank failures this month. Her comments before a Senate Appropriations subcommittee hearing dashed industry hopes for a quick government guarantee to stem the threat of further bank runs and contributed to a 15.5% fall in the shares of struggling First Republic Bank on Wednesday. Some banking groups have urged the Biden administration and the Federal Deposit Insurance Corp (FDIC) to temporarily guarantee all U.S. bank deposits… Reuters reported on Tuesday that government officials discussed the idea of raising the $250,000 insurance limit per depositor without congressional approval following the SVB and Signature closures.”
March 22 – Financial Times (James Politi and Nicholas Megaw): “US Treasury secretary Janet Yellen ruled out a broad expansion of deposit insurance to protect savers with balances above $250,000 in the near term, comments that fuelled another sell-off in shares of smaller US banks. Speaking at a Senate hearing on Wednesday afternoon, Yellen said there could be ‘reasoned discussions’ on whether the current $250,000 limit for insured deposits should be lifted as part of long-term systemic reforms. But the Treasury secretary said that in the current turmoil, the Biden administration was not considering a move to broaden deposit insurance, something that would require congressional approval unless the Treasury found a way to implement it unilaterally. ‘I have not considered or discussed anything to do with blanket insurance or guarantees of deposits,’ Yellen said.”
March 20 – Bloomberg (Austin Weinstein and Max Reyes): “House conservatives said they would oppose any universal guarantee of bank deposits above the current $250,000 FDIC insurance cap, even as other lawmakers said they’re weighing a statutory increase in the limit following two recent bank collapses… ‘Any universal guarantee on all bank deposits, whether implicit or explicit, enshrines a dangerous precedent that simply encourages future irresponsible behavior to be paid for by those not involved who followed the rules,’ the Freedom Caucus said…. The group also said the US Federal Reserve should phase out its new lending program that aided Silicon Valley Bank and Signature Bank ‘as soon as possible.’”
U.S. Bubble Watch:
March 23 – Associated Press (Matt Ott): “The labor market continues to defy Federal Reserve attempts to cool hiring, with U.S. applications for unemployment benefits down again last week and remaining at historically low levels. Jobless claims in the U.S. for the week ending March 18 fell by 1,000 to 191,000 from the previous week… The four-week moving average of claims… fell by 250 to 196,250, remaining below the 200,000 threshold for the ninth straight week.”
March 22 – Reuters (Dan Burns): “Last week's banking sector turmoil had at least one silver lining for U.S. home buyers: lower mortgage interest rates. Interest rates on the most popular U.S. home loan tumbled by the most in four months last week after the failure of Silicon Valley Bank and emergency measures taken to shore up the wider banking system drove a mad dash by investors to the safety of government bonds… The resulting drop in yields on the Treasury notes that act as benchmarks for home loans pushed the average rate on 30-year fixed-rate mortgages down by 0.23 percentage point to 6.48% for the week…”
March 21 – CNBC (Diana Olick): “Sales of previously owned homes rose 14.5% in February compared with January, according to… the National Association of Realtors. That put sales at an annualized rate of 4.58 million units. It was the first monthly gain in 12 months and the largest increase since July 2020… Sales were, however, 22.6% lower than they were in February of last year… Sales might have been even higher were it not for what is still very low supply. There were just 980,000 homes for sale at the end of February…, flat compared with January. At the current sales pace, that represents a 2.6-month supply. A balanced market between buyer and seller is considered a 4- to 6-month supply.”
March 23 – Bloomberg (Reade Pickert): “Sales of new US homes unexpectedly rose in February after a downward revision to the prior month, suggesting the housing market is beginning to stabilize after a tumultuous year. Purchases of new single-family homes increased 1.1% to an annualized 640,000 pace after a 633,000 rate in January… There were 436,000 new homes for sale as of the end of last month, the lowest since April. That represents 8.2 months of supply at the current sales rate.”
March 21 – Wall Street Journal (Nicole Friedman): “The first year-over-year drop in home prices in more than a decade and a dip in mortgage rates snapped a yearlong streak of declining monthly home sales, showing the effects of the Federal Reserve’s campaign to raise interest rates… The national median existing-home sale price fell 0.2% in February from a year earlier to $363,000, the first year-over-year decline since February 2012.”
Fixed Income Watch:
March 18 – Bloomberg (Olivia Raimonde): “As the banking crisis this past week largely brought corporate bond and loan offerings to a halt, borrowing costs for junk-rated issuers surged, tipping the market value of debt for some of the most vulnerable companies into distressed levels. The average yield spread… on US bonds with the worst credit ratings vaulted past 1,000 bps. Leveraged loans — the other main financing option for risky companies — plunged to a 10-week low, and companies pulled debt deals at the fastest pace in a year as buyers fled. ‘When high-yield companies come up for air, they are going to see much tighter financial conditions,’ said Michael Anderson, head of US credit strategy for Citigroup Inc. ‘This is a pretty big shock to the financial system.
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