Post by Admin/YBB on Mar 18, 2023 5:39:03 GMT -6
Pg 35, TRADER. VOLATILITY has gone up and this stock (and bond) MARKET STORM isn’t over yet. Stock volatility VIX and bond volatility MOVE (the highest now since the GFC 2008) rose sharply. A BANKING CRISIS is unfolding – some problems are from years of low-RATES and QEs that the FED has been reversing very quickly. The problems faced by the failed or troubled banks aren’t uncommon in the banking industry. Private-equity, venture-capital, commercial real estate (CREs), etc may also come under pressure. The FED FUND futures have been jumping around a lot. The rate hike may be 25 bps at the next FOMC meeting.
Several sold off small-caps are attractive: AGM, DAR, LOB, VIRT.
www.barrons.com/magazine?mod=BOL_TOPNAV
The CME FedWatch tool is based on current fed fund futures quotes around the FOMC meetings and the assumption of gradual fed fund rate changes (+/- 0.25%). In the list below, more than 50% probability is used to indicate rate hike; “+” is shown after the FOMC date to indicate that rate hike can be at that or a later FOMC.
2nd rate hike, FOMC 3/22/23+ 25 bps
FOMC 5/3/23+ Hold
FOMC 6/14/23+ Cut
FOMC 7/26/23+ Cut
FOMC 9/20/23+ Cut
FOMC 11/1/23+ Hold
FOMC 12/13/23+ Cut
The fed fund futures were WILD and now ignore whatever POWELL had said or may say on the coming Wednesday. The FOMC Statement and presser on Wednesday should be very interesting. It was also in the NEWS that in the JOINT bank rescue statement (by the Treasury, the Fed, the FDIC), Powell personally intervened to remove a reference to regulatory failures (all failed or troubled banks were under the Fed supervision!).
www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html
FOR THE WEEK (index changes only), DJIA -0.15%, SP500 +1.43%, Nasdaq Comp +4.41%, R2000 -2.64%. DJ Transports -3.07%; DJ Utilities +4.22%. (Rotating spot SC R2000 -2.64%) US$ index (spot) -0.68%, oil/WTI futures -12.96% (crash), gold futures +5.79%.
52-WK (index changes only), DJIA -8.32%, SP500 -12.24%, Nasdaq Comp -16.29%. (Rotating spot SC R2000 -17.27%) (Note shift to 52-wk until YTD becomes meaningful again in a few weeks)
Pg 47: NYSE cumulative (5-day) A/D LINE fell for the 2nd week; ratio of winners:losers 2:5.
SENTIMENT (NEW FEATURE). AAII Bull-Bear Spread -29.2% (very low); Delta MSI 23.9% (very low).
Pg 38, EUROPEAN TRADER. UK’s sports betting and gaming company FanDuel/Flutter Entertainment (PDYPY; fwd P/E 24.7) is attractive. It has already gained 50% market share in the US; it operates in 17 US states; Super Bowl 2023 was a big help. Its global brands include Paddy Power, PokerStars, Betfair, SportsBet, etc. Risks include tougher regulations coming in the UK, and weakness in several foreign markets.
Pg 38, EMERGING MARKETS. CHINA brokered a deal between SAUDI ARABIA and IRAN to resume diplomatic relations. Saudi Arabia is also looking to resolve its problems in/from Yemen where Iran has more influence. Iran benefits the most on political, diplomatic and oil fronts, a minor win for China on the global stage. The US and Iran remain at odds over a NUCLEAR deal.
Pg 39, OPTIONS. Uncle Sugar/Sam came to the rescue in this BANKING crisis. But it is hard to guess about such interventions. Options investors can benefit from disciplined selling of calls and puts.
(SP500 VIX 25.51 (high), Nasdaq 100 VXN 28.35 (high), options SKEW 131.34 (high), bond MOVE 180.11 (highest since the GFC 2008)) (Yahoo Finance data).
finance.yahoo.com/quotes/%5EVIX,%5EVXN,%5ESKEW,%5EMOVE,%5EXAU/view/v1
Pg 40, COMMODITIES. Bad weather (hot and dry Summer in the US Midwest) and continuing Russia-Ukraine war may lead to rallies in the AGs (wheat, corn). Grain inventories are low. ETF is WEAT.
Pg 53: A bad week in EUROPE (Switzerland -0.21%, Norway -5.28%) and a bad week in ASIA (China +0.37%, Japan -4.63%).
TREASURY* 3-mo yield 4.52%, 1-yr 4.26%, 2-yr 3.81%, 5-yr 3.44%, 10-yr 3.39%, 30-yr 3.60%. REAL yields 5-yr 1.34%, 10-yr 1.29%, 30-yr 1.50%. (SHARP drops in yields this week)
DOLLAR fell, ^DXY 103.86, -0.73% (pg 58). GOLD jumped to $1,962, +5.4% (Handy & Harman spot, Thursday; pg 60); the gold-miners rallied sharply. (^XAU was at 123.86, +11.00% for the week)
Top FDIC insured savings deposit rates** (This feature has been discontinued)
US SAVINGS I-Bonds^, current rate 6.89% (annualized); fixed/base rate +0.40%. Rates change on May 1 & November 1. NOTE – With 5/6 datapoints in, the outlook for I-Bond rate on 5/1/23 is poor and it may be 2-3% only (this estimate has been creeping up).
*Treasury Yield-Curve home.treasury.gov/policy-issues/financing-the-government/interest-rate-statistics?data=yield
**For local rates www.depositaccounts.com/banks/rates-map/
^Treasury Direct (I-Bonds + T-Bills/Notes/Bonds, FRNs, TIPS) www.treasurydirect.gov/marketable-securities/
(BONUS from Part 2 include Cover Story, Up and Down Wall Street, Streetwise and these won’t be repeated in Part 2)
Pg 12, COVER STORY “Big BANKS Look Like Winners”. The biggest US banks (the SIBs – JPM, WFC, BAC, C, GS, MS, etc) will benefit from this BANKING CRISIS and they look cheap. The bank ETFs KBE, KRE sold off sharply. There may be new REGULATIONS for smaller banks that would hurt their profitability; the regulators may also start looking beyond the HTM accounting that seemingly provided a false sense of security (so, they will also look at mark-to-market adjusted capital ratios). There may be more bank CONSOLIDATIONS; the US still has 4,000+ banks! Lot of bad news may be in the bank stocks, but they may not have bottomed (the pandemic lows for both KBE and KRE are still -42% down). The current banking problems stem from years of low RATES and QEs when banks boosted their Treasury/agency holdings to soak excess deposits. Now the losses on those holdings are $620 billion industry-wide as the rates have gone up sharply and rapidly; the accounting rules for HTM, AFS kept the problem hidden until some banks (with effectively low/negative equity) had runs and collapsed in days; unfortunately, this problem is rather widespread (and was known in the market since Fall 2022).
Pg 6, UP AND DOWN WALL STREET. BEAR STEARNS II or just a BEAR? What kind of CRISIS is this when big techs and cryptos rally, but 3 BANKS failed causing a huge selloff in banks. A hasty FED Band-Aid for SVB and Signature seems to be working; the Fed has lent $300 billion in a week to banks (quantitative-lending, QL). But this isn’t a big one like Bear Stearns or Lehman. The TREASURY market was just wild. The FOMC may go ahead with +25 bps hike on Wednesday. OIL crashed -13% to 52-wk low. Recession projections were mixed, but corporate EARNINGS will decline more than expected.
SMALL BANKS have too many commercial real estate (CRE) loans. The failed SVB Bank and Signature Bank, that were taken over by the FDIC, were the tip of the iceberg. In just a week, the Fed has provided $300 billion in liquidity via quantitative-lending (QL). But in this banking CRISIS, deposits are fleeing from small/medium local/regional banks for big banks (SIBs). The smaller banks are getting squeezed by assets that are falling in value, and fewer deposits, or existing deposits leaving. The current RESCUE efforts by the Fed and big banks (for FRC) may be successful if the crisis of confidence doesn’t spread.
Pg 9, STREETWISE. Be careful bottom fishing in the depressed BANK stocks; even the ETFs KBE, KRE have dropped sharply. As bank stocks fall, CONFIDENCE in them falls too and that cycle feeds itself. Panic and RUNS caused the failures of Silvergate, SVB, Signature. On the hindsight, the problem was obvious to everyone in the social-media (overnight, the public became expert in the arcane accounting practices of HTM and AFS securities). Under the government takeovers, SVB and Signature are guaranteeing ALL deposits. Under a broader industry rescue plan, the BTFP facility provides ALL banks with 1-yr loans at PAR for underwater securities (and access to the Fed DISCOUNT WINDOW has also been made easier). FRC and Swiss CS got different kinds of rescues. Analysts/strategists recommend sticking with strong banks – JPM, USB, MS, WAL, NYCB, WBS. But author HOUGH isn’t convinced and would rather take a pass on banks for now.
(More later….)
Accessible from Morningstar (M*), PB-Big Bang, Facebook (“at”yogibearbull), Twitter (“at”YBB_Finance).
Several sold off small-caps are attractive: AGM, DAR, LOB, VIRT.
www.barrons.com/magazine?mod=BOL_TOPNAV
The CME FedWatch tool is based on current fed fund futures quotes around the FOMC meetings and the assumption of gradual fed fund rate changes (+/- 0.25%). In the list below, more than 50% probability is used to indicate rate hike; “+” is shown after the FOMC date to indicate that rate hike can be at that or a later FOMC.
2nd rate hike, FOMC 3/22/23+ 25 bps
FOMC 5/3/23+ Hold
FOMC 6/14/23+ Cut
FOMC 7/26/23+ Cut
FOMC 9/20/23+ Cut
FOMC 11/1/23+ Hold
FOMC 12/13/23+ Cut
The fed fund futures were WILD and now ignore whatever POWELL had said or may say on the coming Wednesday. The FOMC Statement and presser on Wednesday should be very interesting. It was also in the NEWS that in the JOINT bank rescue statement (by the Treasury, the Fed, the FDIC), Powell personally intervened to remove a reference to regulatory failures (all failed or troubled banks were under the Fed supervision!).
www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html
FOR THE WEEK (index changes only), DJIA -0.15%, SP500 +1.43%, Nasdaq Comp +4.41%, R2000 -2.64%. DJ Transports -3.07%; DJ Utilities +4.22%. (Rotating spot SC R2000 -2.64%) US$ index (spot) -0.68%, oil/WTI futures -12.96% (crash), gold futures +5.79%.
52-WK (index changes only), DJIA -8.32%, SP500 -12.24%, Nasdaq Comp -16.29%. (Rotating spot SC R2000 -17.27%) (Note shift to 52-wk until YTD becomes meaningful again in a few weeks)
Pg 47: NYSE cumulative (5-day) A/D LINE fell for the 2nd week; ratio of winners:losers 2:5.
SENTIMENT (NEW FEATURE). AAII Bull-Bear Spread -29.2% (very low); Delta MSI 23.9% (very low).
Pg 38, EUROPEAN TRADER. UK’s sports betting and gaming company FanDuel/Flutter Entertainment (PDYPY; fwd P/E 24.7) is attractive. It has already gained 50% market share in the US; it operates in 17 US states; Super Bowl 2023 was a big help. Its global brands include Paddy Power, PokerStars, Betfair, SportsBet, etc. Risks include tougher regulations coming in the UK, and weakness in several foreign markets.
Pg 38, EMERGING MARKETS. CHINA brokered a deal between SAUDI ARABIA and IRAN to resume diplomatic relations. Saudi Arabia is also looking to resolve its problems in/from Yemen where Iran has more influence. Iran benefits the most on political, diplomatic and oil fronts, a minor win for China on the global stage. The US and Iran remain at odds over a NUCLEAR deal.
Pg 39, OPTIONS. Uncle Sugar/Sam came to the rescue in this BANKING crisis. But it is hard to guess about such interventions. Options investors can benefit from disciplined selling of calls and puts.
(SP500 VIX 25.51 (high), Nasdaq 100 VXN 28.35 (high), options SKEW 131.34 (high), bond MOVE 180.11 (highest since the GFC 2008)) (Yahoo Finance data).
finance.yahoo.com/quotes/%5EVIX,%5EVXN,%5ESKEW,%5EMOVE,%5EXAU/view/v1
Pg 40, COMMODITIES. Bad weather (hot and dry Summer in the US Midwest) and continuing Russia-Ukraine war may lead to rallies in the AGs (wheat, corn). Grain inventories are low. ETF is WEAT.
Pg 53: A bad week in EUROPE (Switzerland -0.21%, Norway -5.28%) and a bad week in ASIA (China +0.37%, Japan -4.63%).
TREASURY* 3-mo yield 4.52%, 1-yr 4.26%, 2-yr 3.81%, 5-yr 3.44%, 10-yr 3.39%, 30-yr 3.60%. REAL yields 5-yr 1.34%, 10-yr 1.29%, 30-yr 1.50%. (SHARP drops in yields this week)
DOLLAR fell, ^DXY 103.86, -0.73% (pg 58). GOLD jumped to $1,962, +5.4% (Handy & Harman spot, Thursday; pg 60); the gold-miners rallied sharply. (^XAU was at 123.86, +11.00% for the week)
Top FDIC insured savings deposit rates** (This feature has been discontinued)
US SAVINGS I-Bonds^, current rate 6.89% (annualized); fixed/base rate +0.40%. Rates change on May 1 & November 1. NOTE – With 5/6 datapoints in, the outlook for I-Bond rate on 5/1/23 is poor and it may be 2-3% only (this estimate has been creeping up).
*Treasury Yield-Curve home.treasury.gov/policy-issues/financing-the-government/interest-rate-statistics?data=yield
**For local rates www.depositaccounts.com/banks/rates-map/
^Treasury Direct (I-Bonds + T-Bills/Notes/Bonds, FRNs, TIPS) www.treasurydirect.gov/marketable-securities/
(BONUS from Part 2 include Cover Story, Up and Down Wall Street, Streetwise and these won’t be repeated in Part 2)
Pg 12, COVER STORY “Big BANKS Look Like Winners”. The biggest US banks (the SIBs – JPM, WFC, BAC, C, GS, MS, etc) will benefit from this BANKING CRISIS and they look cheap. The bank ETFs KBE, KRE sold off sharply. There may be new REGULATIONS for smaller banks that would hurt their profitability; the regulators may also start looking beyond the HTM accounting that seemingly provided a false sense of security (so, they will also look at mark-to-market adjusted capital ratios). There may be more bank CONSOLIDATIONS; the US still has 4,000+ banks! Lot of bad news may be in the bank stocks, but they may not have bottomed (the pandemic lows for both KBE and KRE are still -42% down). The current banking problems stem from years of low RATES and QEs when banks boosted their Treasury/agency holdings to soak excess deposits. Now the losses on those holdings are $620 billion industry-wide as the rates have gone up sharply and rapidly; the accounting rules for HTM, AFS kept the problem hidden until some banks (with effectively low/negative equity) had runs and collapsed in days; unfortunately, this problem is rather widespread (and was known in the market since Fall 2022).
Pg 6, UP AND DOWN WALL STREET. BEAR STEARNS II or just a BEAR? What kind of CRISIS is this when big techs and cryptos rally, but 3 BANKS failed causing a huge selloff in banks. A hasty FED Band-Aid for SVB and Signature seems to be working; the Fed has lent $300 billion in a week to banks (quantitative-lending, QL). But this isn’t a big one like Bear Stearns or Lehman. The TREASURY market was just wild. The FOMC may go ahead with +25 bps hike on Wednesday. OIL crashed -13% to 52-wk low. Recession projections were mixed, but corporate EARNINGS will decline more than expected.
SMALL BANKS have too many commercial real estate (CRE) loans. The failed SVB Bank and Signature Bank, that were taken over by the FDIC, were the tip of the iceberg. In just a week, the Fed has provided $300 billion in liquidity via quantitative-lending (QL). But in this banking CRISIS, deposits are fleeing from small/medium local/regional banks for big banks (SIBs). The smaller banks are getting squeezed by assets that are falling in value, and fewer deposits, or existing deposits leaving. The current RESCUE efforts by the Fed and big banks (for FRC) may be successful if the crisis of confidence doesn’t spread.
Pg 9, STREETWISE. Be careful bottom fishing in the depressed BANK stocks; even the ETFs KBE, KRE have dropped sharply. As bank stocks fall, CONFIDENCE in them falls too and that cycle feeds itself. Panic and RUNS caused the failures of Silvergate, SVB, Signature. On the hindsight, the problem was obvious to everyone in the social-media (overnight, the public became expert in the arcane accounting practices of HTM and AFS securities). Under the government takeovers, SVB and Signature are guaranteeing ALL deposits. Under a broader industry rescue plan, the BTFP facility provides ALL banks with 1-yr loans at PAR for underwater securities (and access to the Fed DISCOUNT WINDOW has also been made easier). FRC and Swiss CS got different kinds of rescues. Analysts/strategists recommend sticking with strong banks – JPM, USB, MS, WAL, NYCB, WBS. But author HOUGH isn’t convinced and would rather take a pass on banks for now.
(More later….)
Accessible from Morningstar (M*), PB-Big Bang, Facebook (“at”yogibearbull), Twitter (“at”YBB_Finance).