Despite endless promises from Washington DC that there would never be another bank bailout, the Biden Administration bailed out Silicon Valley Bank (SVB) by removing the $250,000 cap on deposit insurance. Then Treasury Secretary Janet Yellen added that in the future, only banks that posed SYSTEMIC RISK to the economy will be bailed out. Translation: only the big four Too Big To Fail (TBTF) banks will be bailed out. Meaning that the Biden Administration prefers big banks to community banks. “Middle-class Joe” loves BIG Pharma, BIG defense, BIG tech, BIG media and now BIG banks. He should rename himself “Big Joe” Biden for the 2024 Presidential election.
Of course, we are aware of The Fed’s about face on shrinking their balance sheet (green line). While Bankrate’s 30-year mortgage rate has now declined below 7% to 6.97%, it has only fallen -15 basis points since the recent peak of 7.12% on 3/2/2023 when the 10-year Treasury yield was 4.056%. So, the 10-year Treasury yield has fallen -62.7 basis points since 3/2/2023 while the 30-year mortgage rate dropped only -15 basis points.
On the European banking front, Credit Suisse is kaput and both Swiss Bank and Deutsche Bank are considering buying the assets of Credit Suisse. In other words, MORE bank consolidation.
Here is a chart of US bank consideration as of 2009 with 37 banks in 1990 shriveling to 4 mega, TBTF banks in 2009 that remain today. But will the now unprotected community and local banks be absorbed into the 4 superbanks? Time will tell, but if history is repeated, the answer is yes.
The KBW bank index continued to fall despite the bailouts of SVB and Signature Banks. But at least total returns on Treasuries and MBS that banks hold increased with the return of QE!
Yellen and Biden compete for the Knucklehead Of The Century Award. While not as sloppy as the sudden Afghanistan withdrawal, bailing out the Silicon Valley elites will not end well.
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?
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.
What a mess in Washington DC. While House Republicans are at lagerheads with Senate Democrats and Resident Biden over Federal spending cuts, the price of insuring against a debt default just rose to 76.75.
How bad it that? Put it this way. Millions are fleeing Mexico and Guatemala and coming to the US. But Mexico has a lower cost of insuring against a debt default than the USA. And Guatemala is almost as expensive as the USA.
It will all be over soon, according to CDS prices.
President Biden touts his economic plan as being a great success. But the data says otherwise. Real Disposable Personal Income, for examplge, was down -6.4% year-over-year (YoY) in 2022. That is the WORST reading since The Great Depression.
And to cope with inflation, Americans have expanded their credit useage, but credit card delinquencies are through the roof.
So much for “Middle Class Joe” and The Forgotten Man. Biden hasn’t forgotten, he just doesn’t care.
You must be logged in to post a comment.