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!
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.
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).
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.
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.
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?
As Americans are painfully aware, inflation is still haunting us. Despite Administration proclamations that inflation is declining, it is rising again. And with rising inflation (and an overheated labor market), The Federal Reserve is in full counterattack mode, withdrawing stimulus and raising rates.
And with Fed tightening comes rising 30-year mortgage rates.
Out of boredom, I watched the Clive Barker film “Hellraiser” and noticed perpertual Democrat Presidential candidate Hillary Rodham Clinton in the cast as the female Cenobite.
A zombie foreclosure refers to a situation where a homeowner vacates their property after receiving a notice of default, expecting they will lose the home in the pending foreclosure. The foreclosure may get canceled for any number of reasons and never completed.
New York City and its surrounding areas lead the nation in zombie foreclosures. Followed by Miami. Chicago and Cleveland. Then Philadelphia.
Mortgage applications increased 6.9 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending March 3, 2023.
The Market Composite Index, a measure of mortgage loan application volume, increased 6.9 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index increased 9 percent compared with the previous week. The Refinance Index increased 9 percent from the previous week and was 76 percent lower than the same week one year ago. The seasonally adjusted Purchase Index increased 7 percent from one week earlier. The unadjusted Purchase Index increased 9 percent compared with the previous week and was 42 percent lower than the same week one year ago.
Today, we saw mortgage rates climb further to 7.11% as the US Treasury yield curve (10Y-2Y) descends into Mortgage Mordor as The Fed continues to tighten.
As inflation remains persist (thanks to endless Fed stimulus and endless Federal spending splurges), we are seeing The Federal Reserve finally withdrawing the monetary stimulus (tightening the monetary noose). And with it, the US Treasury yield curve (10Y-2Y) goes down with it.
Another sign of distress is the spread between credit and equities which has turned positive as it does in times of crisis.
UPDATE! Recession predictor the US Treasury yield curve just went “red alert”, inverting to -100 basis points.
Confounded Interest - Anthony B. Sanders 
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