Gold Soars 2% On Failure Of Fed And Bank Regulators

All together now. The Fed has been printing too much money for too long and Biden restricts fossil fuel production. Ad in rampant Federal spending and we have INFLATION. Inflation led to The Fed to raise rates. And with rate increases and down go the banks.

Of course, The Fed and Biden Administration will overeact (e.g. offering deposit insurance on ALL deposits above $250,000 creating moral hazard risk). As such, we are seeing gold prices soar by 2% this AM.

In adddition to gold rising 2%, natural gas futures are up 6%

US Treasury Yields Drop -26 Basis Points As Fed Expected To Drop Fed Rate To 4.7% (Regulators Suddenly Awaken And Panic, Biden Calls For MORE Regulations)

The Silicon Valley Bank failure (along with NY’s Signature Bank) are sending shock waves through the global economy. Not because of the incompetence of bank regulators, but because of the reaction function from the FDIC and Fed.

The 10-year Treasury yield is down -26 basis points in the AM. And the Fed Funds Target Rate is expected to drop to 4.7%.

Its not just the US Treasury yield that declined -26 basis points. European sovereign yields are down too (Germany 10-year is down -32.9 basis points).

Look at the 2-year Treasury yield. Its down -54.6 basis points.

On a sad note, Resident Biden is calling for stricter regulations for the banking industry, already one of the most regulated sectors of the economy. How about less politics and just make them do their ^*T^R jobs!

Fed Terminal Rate Falls To 5.475% On Only 311k Jobs Added After 504k Jobs Added In January (Silicon Valley Bank Seized By Regulators)

Its just like The Fed. The Taylor Rule says that The Fed’s target rate should be 10.29%, but now the terminal rate has been lowered to 5.475%, almost half of where the target rate should be.

Today’s jobs report for February was a huge disappointment IFF you expected another blowout jobs report like the one from January (504k jobs added). February saw just 311k jobs added, a decline of -38.3% MoM.

And just like that, The Fed’s terminal rate fell to 5.475%, a far cry from the 10.29% rate according to the Taylor Rule.

Today’s Fed Funds Target rate is 4.75% leaving only 72.5 basis points to move.

Today’s market hurl? The Dow fell -300 points and Europe looks like WWIII just broke out.

And the US Treasury 2-year rate plungeed -26.1 basis points.

Of course, Powell until recently followed the Yellen Rule. That is, keep rates at 25 basis points.

This is a classic communications breakdown between The Fed and the economy.

Let’s see if The Fed holds course with Silicon Valley Bank collapsing in biggest failure since 2008.

Silicon Valley Bank became the biggest US lender to fail in more than a decade after a tumultuous week that saw an unsuccessful attempt to raise capital and a cash exodus from the tech startups that had fueled the lender’s rise.

Regulators stepped in and seized it Friday in a stunning downfall for a lender that had quadrupled in size over the past five years and was valued at more than $40 billion as recently as last year.

The move by California state regulators to take possession of the lender, known as SVB, and appoint the Federal Deposit Insurance Corp. receiver underscores the impact that the US’s rapid interest-rate increase is having on smaller lenders. SVB is the second regional lender to fold this week after Silvergate Capital Corp. announced it was voluntarily liquidating its bank, spurring a broader selloff in bank stocks.

The FDIC has set up a bridge bank to handle the failure of SVB. VERY rare. The last bridge bank was for IndyMac Bank from LA.

SVP is the second biggest bank failure in US history after Washington Mutual (WAMU).

RIP Gary Rossington, the last remaining Lynyrd Skynrd original member.

Bank Contagion? First SVB Crashes, Now First Republic Bank (Down -28% At Open)

Ah, memories! I still remember the 2000s housing bubble and subsequent financial crisis and bank bailout from 2008/2009 like it was yesterday. And I remember Representative Barney Frank (D-MA) claiming that the Dodd-Frank legislation would end bank bailouts. I laughed out loud when I heard Mr. Frank utter those preposterous words.

Now here we are again with yet another bank contagion. First it was Silicon Valley Bank, now it is First Republic Bank (down -28% at opening).

And there is a trading halt on First Republic. But YoY growth on FRC’s earnings of -34.7% is horrendous.

At least cryptobank Silvergate isn’t down as much as Silicon Valley Bank and First Republic Bank.

And the SPDR Regional Bank index is getting clobbered as Fed withdraws stimulus.

SVB’s management’s solution appears to have been to seek out yield through a lot of long-duration bonds. The bank started to lose deposits as VCs pulled cash/burnt through operating capital.

SVB’s CEO Greg Becker saw this coming and dumped his holdings.

Where were the regulators??

Big 4 Banks And SVB: Canaries In The Economic Coal Mine? (SVB Racing To Prevent a Bank Run As Funds Advise Pulling Cash)

While waiting on the February jobs report from the US Bureau of Labor Statistics (BLS), I noticed that the big 4 banks (Bank of America, JPMorgan Chase, Citi and Wells Fargo) are drowning in net realized losses as The Federal Reserve combats 1) too many years of loose monetary policy under former Fed Chair Janet Yellen and 2) too much spending under Pelosi, Schumer and … McConnell.

At a micro level, we have Silicon Valley Bank (SVB) SVB Is racing to prevent a bank run as funds advise pulling cash.

Panic is spreading across the financial world as concerns about the financial stability of Silicon Valley Bank prompt prominent venture capitalists including Peter Thiel’s Founders Fund to advise startups to withdraw their money.

The turmoil followed a surprise announcement from Santa Clara, California-based SVB that it was issuing $2.25 billion of shares to bolster its capital position after a significant loss on its investment portfolio. The stock plunged 44% in premarket trading before exchanges opened in New York on Friday, set to extend its 60% decline on Thursday. Bonds had posted record declines, igniting a broad selloff in US bank shares that also spread to Asia and Europe.
In the US, the KBW Bank Index on Thursday had its worst day since June 2020, as its members shed more than $90 billion of value. In Europe, the biggest banks lost more than $40 billion from their market caps on Friday.

Management’s solution appears to have been to seek out yield through a lot of long-duration bonds. The bank started to lose deposits as VCs pulled cash/burnt through operating capital.

Are banks the canary in the economic coal mine?

Jobless Claims Rise As Layoffs Soar At Fastest Pace (UP 410% MoM) Since Lehman Collapse (UP 427% On YoY Basis)

I am waiting for tomorrow’s employment report to see if the Biden Administration plays it straight or give another padded report like first half 2022. But in the meantime, according to Challenger Gray & Christmas, U.S.-based employers announced 77,770 job cuts in February. It is 410% higher than the 15,245 cuts announced in the same month last year.

February’s total is the highest for the month since 2009…

So far this year, employers announced plans to cut 180,713 jobs, up 427% from the 34,309 cuts announced in the first two months of 2022. It is the highest January-February total since 2009…

While many of the job cuts is coming in the tech sector,

we are seeing more industries reporting a rise in unemployment claims.

And then we have total delinquent consumer loans at 24.8 million. Highest since 2009.

I wonder if the answer to tomorrow’s employment report lies in one of the nine boxes of Biden’s documents taken from a Boston office?

Slippin’ Into Darkness! US Treasury Yield Curve Descends To -108 BPS (169 Days Of Inversion) As US Mortgage Rate Hits 7.11% (Fed No Longer Low Riding Interest Rates)

Slippin’ into darkness! The US Treasury 10Y-2Y yield curve, that is.

At the same time that the 10Y-2Y yield curve inverts to -108 basis points, Bankrate’s 30-year mortgage rate has risen to 7.11%.

Now that The Federal Reserve is no longer low riding interest rates, I expect to see a cooling of the US economy.

Price Of Insuring Against US Debt Default Highest Since Last Debt Ceiling Crisis In 2013 (Debt Up 88% Since The Last Crisis, $182 In Unfunded US Liabilites)

The last US debt crisis occured in 2013 when Congress finally raised the debt ceiling … and kept on borrowing and spending, But if you thought that a debt crisis would scare Congress (and the Administration) into balancing the Federal budget, you would be wrong. In fact, since the 2013 debt crisis, Federal debt is up 88% (+$14.7 TRILLION over the last 10 years).

And with the massive growth in Federal debt under Obama, Trump and Biden has resulted in an explosion in interest payments on the Federal debt.

And with $182 TRILLION in UNFUNDED liabilities, the debt issuance won’t stop.

Let’s see what is in Treasury Secretary Janet Yellen’s bag of tricks.

LIBOR cracked 5% for first time since 2007.

And the US Treasury 10Y-2Y yield curve is the most inverted since 1981.

Is Janet Yellen the “evil woman” from Crow’s song?

Sink The Economy! S&P 500 Down -6% Since Fed Started Raising Rates On May 4, 2022, Equity REITs Down -16% (Pension Pain From Interest Rate Increases)

Interest rates are an important driver of the economy and financial markets. And what has happened to the S&P 500 index since The Federal Reserve started raising their target rate on May 4, 2023 to fight surging inflation?

Since that fatal day, the S&P 500 index has fallen -6% and equity REITs (commercial real estate) has fallen -16%.

What about returns on US Treasuries and Mortgage-backed Securities (MBS)? Same thing. PAIN!

Although The Fed has pledged to keep raising rates to fight inflation (and further decimate retirement accounts), investors are pointing to a peak (terminal) Fed rate of 5.44% at the September 2023 FOMC meeting. Then rate cuts following the September 2023 meeting.

Of course, much of the blame belongs to former Fed Chair Ben (QE) Bernanke and current Treasury Secretary Janet “Too Low For Too Long” Yellen who never met a Fed rate hike that she liked. But Yellen LOVES giving away US taxpayer dollars … to Ukraine.

US Mortgage Rates Rise To Over 7% As Fed Tightens Monetary Noose (Is Powell Chanelling Volcker?)

Yesterday’s inflation report (in the form on skyrocketing labor costs) helped lead Bankrate’s 30-year mortgage rate to over 7% … again.

Here is yesterday’s horrible unit labor costs YoY chart showing the fastest growth in labor costs since 1982 and Fed Chair Paul Volcker. Jerome Powell, the current Fed Chair is trying to reduce the Bernanke/Yellen/Powell monetary stimulypto (with an extra dose of “sugar” from the Covid outbreak).

The good news is that the 10-year Treasury yield is down -7.3 basis points this morning.

Here is The Fed’s Open Market Committee (FOMC) trying to summon Paul Volcker to help them figure out how they got inflation so wrong.