Archive for March, 2023

• Morning News: March 21, 2023
  Eddy Elfenbein, March 21st, 2023 at 7:05 am

  Car Makers Revive India Growth Plans as China Market Sags

  Where High Interest Rates Have Sent Home Prices Sliding

  Sri Lanka, Its Economy Reeling, Is Approved for $3 Billion Rescue Loan

  Ferraris and Hungry Children: Venezuela’s Socialist Vision in Shambles

  The New Central Bank Dilemma From the Fed to the Philippines

  Yellen Says US Will Intervene if Needed to Protect Smaller Banks

  What Is a ‘Minsky Moment’ and Why Are Fears of One Mounting?

  SVB Collapse Shows Smaller Banks Can Pose Risk in Numbers

  Fate of First Republic Hangs in Balance as Shares Plummet Again

  How the FDIC Protects You When Your Bank Fails

  Biggest Fear for Trillion-Dollar Funds Is Missing Next Rally

  Ralph Hamers, the Dutchman Thrust in the Driver’s Seat at Swiss Bank UBS

  Credit Suisse Gold Bars, Vintage Swag for Sale After UBS Merger Deal

  Credit Suisse Bankers Swarm Headhunters After UBS Rescue

  Bank Fears Rattle Oil Markets Poised for Chinese Boom

  Banking Turmoil Tests the American Consumer

  Elon Musk’s Global Empire Has Made Him a Burning Problem for Washington

  Miami Beach Wants to Cancel Spring Break, Sets Curfew After Deadly Shootings

  Amazon CEO Says Laying Off 9,000 More Workers ‘Is Best for the Company Long-Term’

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• Morning News: March 20, 2023
  Eddy Elfenbein, March 20th, 2023 at 7:04 am

  Central Banks Signal No Dash for Dollars in New Swap Lines

  Fed Meets as Bank Chaos Collides With Inflation

  Did SVB Break the Fed? Officials Mull Risks of More Rate Increases

  ‘We Never Thought a Bank So Successful Could Collapse So Fast’

  US Banks on Bumpy Path as First Republic’s Troubles Persist

  New York Community Bank Agrees to Buy a Large Portion of Signature Bank

  Credit Suisse, the Risk-Taking Swiss Banking Giant, Succumbs to Crisis

  UBS Agrees to Buy Credit Suisse for More Than $3 Billion

  How Scandal and Mistrust Ended Credit Suisse’s 166-Year Run

  Risky Credit Suisse Bond Wipeout Upends $275 Billion Market

  Bank Stocks Teeter as Investors Worry About Who May Fall Next

  Crypto Wants Its Shine Back

  Egg Prices So High, Dollar Tree Pulls Them from Shelves Completely

  Oil Prices Drop on Recession Worries

  Falling Lithium Prices Are Making Electric Cars More Affordable

  TikTok’s Chinese Parent Has Another Wildly Popular App in the U.S.

  Inside Apple’s Companywide Cost-Cutting Push to Avoid Layoffs

  Read the Letter Google Employees Sent to Sundar Pichai About Mass Layoffs That Tells Him: ‘Don’t Be Evil’

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• Morning News: March 17, 2023
  Eddy Elfenbein, March 17th, 2023 at 7:03 am

  China Cuts Reserve Requirement Ratio To Boost Economy

  Silicon Valley and Capitol Hill Build an Anti-China Alliance

  ECB Defies Mounting Banking Strains With Half-Point Rate Rise

  Another Chaotic Week for Banks Marks the End of an Era for the Global Economy

  Wall Street’s Biggest Banks Rescue Teetering First Republic

  First Republic Shares Resume Slide as Investors Assess Aid

  Credit Suisse Got Its Lifeline. Now It Must Win Back Clients

  America’s Smallest Lenders See Deposit Boost Amid Banking Turmoil on Wall Street

  Bank Failures, Like Earlier Shocks, Raise Odds of Recession

  Will the Fed Keep Tightening as Banks Fail?

  Ackman Concerned About ‘Contagion Risk’ Spiraling Out of Control

  Low Rates Were Meant to Last. Without Them, Finance Is In for a Rough Ride.

  Banned From Russian Airspace, U.S. Airlines Look to Restrict Competitors

  Small Businesses Face Big Tax Bills From Research-Deduction Change

  Set It and Actually Forget It

  A $100 Billion Bet on Semiconductors Hinges on Remaking Upstate New York’s Workforce

  How Trader Joe’s Beat Out Conventional Supermarkets by Offering Less

  America Is in a Disgraced Class of Its Own

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• Morning News: March 16, 2023
  Eddy Elfenbein, March 16th, 2023 at 7:02 am

  Credit Suisse to Borrow Up to $54 Billion From Central Bank

  Big ECB Hike Called Into Doubt by Credit Suisse

  Bank Fears Go Global, Sending a Shudder Through Markets

  Fears of Financial Meltdown Haunt Governments

  Silicon Valley’s Favorite Bank Was Its Single Point of Failure

  How Goldman’s Plan to Shore Up Silicon Valley Bank Crumbled

  Why Top Washington Officials Chose to Rescue SVB, Signature Depositors

  There’s a Run on Silicon Valley Bank Swag

  First Republic Bank Is Exploring Options Including a Sale

  Yellen Says U.S. Banking System ‘Remains Sound’ Amid Market Turmoil

  JPMorgan Joins Those Saying Cash in Bond Gains

  Glencore CEO Rides Coal Windfall on the Way to a Low-Carbon World

  U.S. Threatens Ban if TikTok’s Chinese Owners Don’t Sell Stakes

  How Siri, Alexa and Google Assistant Lost the A.I. Race

  T-Mobile to Buy Low-Cost Carrier Mint Mobile

  China Wine Tariff Pushes Australia’s Grape Growers Into Crisis

  How a Penny-Stock Company Sold the Pentagon on Small Drones for Ukraine

  Diamond Sports Files for Bankruptcy Ahead of Start of MLB Season

  A Chinese Businessman’s Trek From Beijing Gadfly to Steve Bannon Confidante to Fraud Suspect

• Morning News: March 15, 2023
  Eddy Elfenbein, March 15th, 2023 at 7:03 am

  Web of Secret Chip Deals Allegedly Help US Tech Flow to Russia

  China’s Economy Rebounds, Spurred by Consumption

  China Will Reduce Number of High-Risk Institutions, Defuse ‘Bombs’ – Central Bank

  The British Government Is Issuing a Call to Work

  U.S. Inflation Cooled in February as Fed Confronts Bank Failures

  Bank Runs, Crypto Concerns and Takeovers: A Timeline of the Panic

  BlackRock’s Fink Says SVB Failure Shows Cracks in Finance System

  Short Sellers Scored $2 Billion Profit as Regional Banks Plunged

  Soaring Bond-Market Volatility After SVB Collapse Is Making It Impossible to Say What Stocks Are Really Worth

  Powell’s Legacy Risks Being Tarnished Further by SVB Collapse

  Meet the Man in Charge of What Remains of Silicon Valley Bank

  SVB Is a ‘Nail in the Coffin’ for Bay Area Housing Market’s Gold Rush

  US 30-Year Mortgage Rates Retreat for First Time in Five Weeks

  Credit Suisse Top Holder Rules Out Investing More After Drop

  European Banks Battered as Credit Suisse Drops Over 20%

  10 Ways GPT-4 Is Impressive but Still Flawed

  Facebook Parent Meta Plans 10,000 Job Cuts in New Round of Layoffs

  Novo Nordisk to Slash Insulin Prices by Up to 75%

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• CWS Market Review – March 14, 2023
  Eddy Elfenbein, March 14th, 2023 at 5:52 pm

  (This is the free version of CWS Market Review. If you like what you see, then please sign up for the premium newsletter for $20 per month or $200 for the whole year. If you sign up today, you can see our two reports, “Your Handy Guide to Stock Orders” and “How Not to Get Screwed on Your Mortgage.”)

  This week’s news on Wall Street has been dominated by the stunning collapse of Silicon Valley Bank. This is the second-largest bank failure in U.S. history. Investors are still feeling the shockwaves. We’re not done. There could be others.

  In this week’s issue, I want to explain what happened and why. I also want to discuss potential ramifications.

  Banks Are Different

  Before we dig into the remains of Silicon Valley Bank, I should explain that free enterprise is often referred to as the “profit system,” but that’s not quite right. It’s really the profit and loss system. It’s the “and loss” part that helps make it so successful.

  When a business goes bust, it’s an unfortunate thing, but it’s necessary to close unprofitable enterprises. You don’t want zombie businesses that are kept alive by endless streams of funding.

  

  A crowd of outside the American Union Bank during the Great Depression.

  When a business goes bankrupt, there’s a standard playbook to follow. The business goes to a bankruptcy court. A judge orders all the assets to be sold. The creditors get first dibs, and the equity holders get whatever’s left. That’s basically it.

  Again, it’s unpleasant but necessary. The worst part is that employees lose their jobs. While that’s also unpleasant, most people can find something new rather quickly. Of course, there’s also unemployment insurance.

  Some studies have shown that being laid off can often be a blessing in disguise in that it forces people to leave an unsatisfying job for something more rewarding. I’ve seen many examples of that personally. I’m sure you have as well.

  The other downside of a bankruptcy is that your suppliers lose your business, but, for the most part, the world moves on. The ending of one business leaves a wound that tends to heal surprisingly quickly.

  Now we come to the one, giant exception to what I’ve said. When a bank goes under, it’s a very big deal because the damage isn’t limited to a few parties. If a bank goes under, it can take all its depositors with it.

  That means that several other businesses could go bust even though they were perfectly healthy. Bank runs can quickly become self-reinforcing cycles. That’s happened many times in history, not just in “Mary Poppins” and “It’s a Wonderful Life.” In fact, it’s the volatile and viral nature of bank runs that led to the creation of the Federal Reserve in the first place.

  One of the foundational issues in finance is, “how do we let bad banks fail without ruining the depositors?” Frankly, there are no good answers, but there are several less-bad answers such as deposit insurance and risk capital ratios. We make do the best we can.

  What Happened at Silicon Valley Bank

  Having said that, let’s turn to what happened at Silicon Valley Bank. What’s interesting is that what impacted SVB was many of the same things we’ve talked about in recent months.

  When Covid struck, the Federal Reserve responded quickly by lowering interest rates to the floor. That sparked a furious rally in high-risk assets. Our Buy List certainly felt the effect. In Silicon Valley it led to a venture capital-funded investment boom. Every start-up was getting funding. When rates are at 0.%, why not?

  SVB was the banker of choice for Silicon Valley. If you’re a start-up and you got, say, $5 million in Series A funding, then you most likely stuck it in SVB. All the cool kids were doing it.

  This led to a large surge in deposits for SVB. As odd as it may sound, that’s not always a good thing for a bank. SVB had to invest those assets to make money to cover its deposits. The bank selected to invest in longer-term government bonds, agency bonds and mortgage-backed bonds.

  Then came inflation and game changed. The Fed aggressively raised interest rates and high-risk assets faltered. The venture capital spigot for Silicon Valley was shut off, so the start-ups withdrew money from their SVB accounts. Start-ups can burn through cash at an alarming rate.

  To cover those withdrawals, SVB had to sell those bonds. The problem was that the values of the bonds had tanked thanks to the Fed and inflation, so SVB was selling for a big loss. It also didn’t help that for nine months, SVB didn’t have a chief risk officer.

  One of our Buy List stocks, Moody’s (MCO), told SVB that it was looking to downgrade the company’s stock credit rating.

  SVB came up with an idea. On Wednesday, SVB announced a plan to raise money by selling stock. That was truly a massive flop.

  

  Instead of calming investors, the stock sale news frightened depositors and they withdrew their money, nearly all at once. Nowadays, it only involves the click of a mouse to move money, instead of waiting in line at the old Bailey Building & Loan. In one day, depositors withdraw one-quarter of the bank’s total deposits. The bank’s website was having difficulty keeping up which isn’t a good look for anything based in Silicon Valley.

  Peter Thiel, an influential figure in Silicon Valley, withdrew his money from SVB. On Thursday, SVB’s stock crashed 60%. The government had seen enough. They stepped in and shut SVB down. A bank hadn’t failed in the U.S. in more than two years.

  Typically, when the government takes over a bank, it aims to sell it off quickly to a nearby competitor, even at a steep discount. The Feds would rather do a deal fast than good. The government was desperately looking for a buyer and, apparently, no one was interested.

  Even if the government could sell off some of SVB’s assets, that could meet limited withdrawal needs. In 1907, J.P. Morgan famously stopped the financial panic by serving as the lender of last resort. Alas, in 2023, no one on Wall Street wanted anything to do with SVB.

  FDIC insurance covers deposits up to $250,000 but that was a tiny portion of SVB’s deposits. The large majority of deposits were uninsured. On Sunday, the government announced a plan to insure all SVB’s deposits, whether they had been insured or not.

  Make no mistake – this is a bailout, but it’s different from what happened in 2008. This is more of an indirect bailout. To be clear, SVB’s shareholders are getting nothing and all the top people will be fired.

  Still, thanks to the government, lots of Silicon Valley startups have been pulled from the fire. For example, a company called Wrapbook, which does payroll processing for the entertainment industry, said its payments might be delayed. If their deposits were wiped out, that could have hurt a lot of regular Joes. Don’t think this was all about protecting the fat cats.

  This is the problem with a financial mess like this. You don’t know who has exposure to whom until the house of cards comes tumbling down.

  Over the weekend, there were some panicky voices predicting bank runs on Monday morning. That didn’t happen.

  I’ve noticed that people like to overlay a highly moralized narrative on a financial breakdown. That can be a mistake. Not that there aren’t heroes and villains, but that it may cloud what really happened. SVB was in a lousy position – they had bad luck and they made some dumb mistakes. Very dumb. It didn’t help matters that this happened so shortly after FTX and the same time that Silvergate announced its voluntary liquidation.

  I am, however, curious about well-timed stock sales from senior SVB management. I hope this will be looked into.

  Signature Bank Also Comes to an End

  The government also shut down Signature Bank (SBNY) which was a former Buy List stock. The government is also standing by SBNY’s uninsured deposits. We sold out of SBNY three years ago. We even made a small profit. The bank decided to become a major financial resource for crypto. Let’s just say that I don’t have any regrets in selling SBNY.

  There’s a Regional Bank ETF (KRE) that’s become an unofficial bellwether for the current crisis. The ETF dropped 4% last Thursday and another 8% on Friday. Yesterday, KRE dropped another 12%.

  The other bank that’s teetering on the edge is First Republic (FRC). Its stock plunged 62% on Monday. Trading was halted in several banking stocks yesterday. Wall Street seems to be breathing a lot easier today. Shares of FRC gained 27% today. Charles Schwab (SCHW) was up 9%. KRE closed 2% higher.

  

  I suspect that the worst is behind us, but we’re not out of the woods just yet. Earlier today, Moody’s cut its view on the banking sector from stable to negative.

  If you want to take advantage of the crisis, I would say that SCHW is a speculative buy here, but expect a lot of volatility.

  There’s also the question of what happens to deposit insurance now. Is there no longer a $250,000 limit? I don’t know, but if you make an exception for one group, then others will expect the same. Some observers have said this will cause an exodus from smaller banks to only the largest banks. I’m not sure if that’s right but it could happen.

  It doesn’t seem right to expect every bank customer to review the soundness of each bank. Just insure all bank deposits. This crisis reveals that that’s what would happen anyway.

  Another effect of Silicon Valley has been a big jump in Treasuries in the last few days. Over Thursday, Friday and Monday, the yield on the two-year Treasury fell 103 basis points (or 1.03%). Ironically, some of the recent rally certainly helped SVB’s bond portfolio.

  The Federal Reserve meets again next week, and the expectations are for a rate increase of 0.25%. Earlier, traders had been expecting an increase of 0.50% but the banking system may be too fragile. Traders also expect to see a few rate cuts later this year. I’m not fully convinced that will happen but it’s not out of the question.

  That’s all for now. I’ll have more for you in the next issue of CWS Market Review.

  – Eddy

• Morning News: March 14, 2023
  Eddy Elfenbein, March 14th, 2023 at 7:00 am

  Japan Has a Low Risk of a Wage-Price Spiral and That’s a Mixed Blessing

  Russia Built $80 Billion Offshore Cash Pile in Year of Sanctions

  To Rein in China’s Banks, Xi Uses Familiar Playbook

  Inflation Report Arrives as Fed Confronts Bank Failures

  Regional Banks Slammed by Fear of a Broader Financial Crisis

  Brainard Must Help Contain SVB Crisis She Warned Was Coming

  Don’t Call It a Bailout: Washington Is Haunted by the 2008 Financial Crisis

  Collapse of Silicon Valley Bank, Signature Bank Calls Fed Interest Rate Path Into Question

  KPMG Gave SVB, Signature Bank Clean Bill of Health Weeks Before Collapse

  Too-Big-to-Fail Lenders Rake In Deposits After Three Banks Fail

  Moody’s Puts First Republic, Five US Banks on Downgrade Watch

  First Republic, PacWest Lead US Bank Rebound From Post-SVB Rout

  Credit Suisse Finds ‘Material’ Control Lapses After SEC Prompt

  Billionaire Charles Schwab’s Fortune Is Slammed by SVB Fallout

  Free IRS TurboTax Competitor Is Closer After Biden Funding

  Meta Winds Down Support for NFTs on Instagram and Facebook

  Uber, Lyft Score Victory as California Court Affirms Right to Treat Drivers as Contractors

  Pfizer Agrees to Buy Seagen for $43 Billion

  Smithfield Foods CEO Defends Pork Producer’s Chinese Ownership

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• Morning News: March 13, 2023
  Eddy Elfenbein, March 13th, 2023 at 7:03 am

  HSBC Buys SVB’s UK Unit for £1 in Reprieve for Tech Sector

  Italy Says Hopes EU Acts to Shore Up Banks If Needed, After SVB Collapse

  Regulators Face Urgent Task to Stem Spread From Silicon Valley Bank

  Fed’s New Backstop Shields Banks From $300 Billion of Losses

  Regulators Close Another Bank and Move to Protect Deposits

  Signature Bank Seized by Regulators as Pain Spreads From SVB

  SVB’s Failure Exposes Lurking Systemic Risk of Tech’s Money Machine

  SVB Collapse May Prompt Fed to Go Slow on Rate Hikes

  Silicon Valley Bank’s Failure Threatens California Winemakers

  Stocks Are Poised to Rise Monday as Regulators Act on Silicon Valley Bank

  Used Rolexes Are Beating the Stock Market

  Global Economy Gets Tailwind From Falling Energy Prices

  Saudi Aramco Posts Record $161 Billion Profit for 2022

  Four Takeaways as Oil Giant Saudi Aramco Reports a Huge $161 Billion Profit

  An A.I. Start-Up Boomed, but Now It Faces a Slowing Economy and New Rules

  As Economy Falters, China’s New Premier Tries to Boost Business Confidence

  How Beijing Boxed America Out of the South China Sea

  Gen Z Spending Gets Supercharged by Inflation and Wage Growth

  A Supermarket Megamerger Will Redefine What You Buy at the Grocery Store

  Chick-fil-A Wants to Serve Its Chicken Sandwiches in Asia and Europe

  SAP-controlled Qualtrics accepts $12.5 Billion Offer from Silver Lake, CPPIB

  MLB to Stream Games for Free Amid Looming Diamond Sports Bankruptcy

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• Morning News: March 10, 2023
  Eddy Elfenbein, March 10th, 2023 at 7:02 am

  Bank of Japan Keeps Low Rates as Kuroda Sticks to Script at Swan Song Meeting

  ASML, China Customers Haunted by Uncertainty on New Dutch Chip Export Rules

  Biden and E.U. Leader to Discuss Ukraine and Trade Spat

  Traders Run for Cover as US Banking Woes Spur Haven Demand

  SVB Races to Prevent Bank Run as Funds Advise Pulling Cash

  Ackman Says US Should Mull SVB Bailout as Possible Option

  Stocks Will Be Stuck on Fed Until Recession Is Evident, BofA Says

  Falling Survey-Response Rates Undermine Economic Data

  Missing From Biden’s Budget: His Plan for Social Security

  More Retiree Health Plans Move Away From Traditional Medicare

  Jobs Data Poses Extra Market Risk as Bank Funding Drama Unfolds

  The Promise of Higher Pay Woos MBAs, Yet Earnings Haven’t Kept Up With Inflation

  Elon Musk Is Planning a Texas Utopia—His Own Town

  Disney’s Robert Iger Hints at Raising Streaming Prices

  New Drugs for Cancer, Rare Disease Can Now Cost More Than $20,000 a Month

  General Motors Is Offering Buyouts in an Effort to Cut $2 Billion in Costs

  More Than $70 Billion Wiped Off Crypto Market in 24 Hours as Bitcoin Drops 8% Below $20,000

  Disgraced Goldman Banker Roger Ng Gets 10 Years for Helping Steal Over $4 Billion

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• Morning News: March 9, 2023
  Eddy Elfenbein, March 9th, 2023 at 7:00 am

  America’s $52 Billion Plan to Make Chips at Home Faces a Labor Shortage

  How the U.S. Spent $1.4 Trillion in Debt Last Year, Explained With Pennies

  Biden’s Budget Would Cut Deficits by $3 Trillion Over 10 Years

  CFOs Warily Watch—and Wait—for an Acceleration in Fed Interest-Rate Hikes

  Frontier Countries to Suffer Most if Fed Rate Gets to 6%

  The Fed’s Struggle With Inflation Has the Markets on Edge

  Companies Are Telling Us the Real Reason They’re Still Raising Prices

  How ‘Excuseflation’ Is Keeping Prices – and Corporate Profits – High

  Biden to Urge 25% Billionaire Tax, Levies on Rich Investors

  Even Wealthy Landlords Are Skipping Payments on Office Buildings

  Silvergate Bet Everything on Crypto, Then Watched It Evaporate

  Baidu Scrambles to Ready China’s First ChatGPT Equivalent Ahead of Launch

  Where Musk’s Twitter Gambit Stands, Nearly Five Months In

  Instagram Founder Says the Time Has Come for a New Social Network

  The Perils of Working on a C.E.O.’s Pet Project

  Executives Lose a Coveted Status Symbol—Their Assistants

  How One Guy’s Car Blog Became a $1 Billion Marketplace

  Adidas Profit Falls 83% After Split With Yeezy

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