2023-03-26 01:15:54 ET
Summary
- Pandora’s box was opened by the Fed.
- "Shoot first ask questions later" policy: The good news and the bad news.
- USD, Emerging Markets, and more.
Original
The bad news is , we have a Federal Reserve with no feel for the market or explicit understanding of “lagged effect” of tightening on the economy. To this point, the Chairman was quoted (in yesterday’s conference) as follows, “I mean the question we were all asking ourselves that first weekend was, ‘How did this happen?’” (referring to the collapse of Silicon Valley Bank). Save the taxpayers some money and call off the “investigation.” Everyone already knows how this happened…
I can already hear the Shaggy (It Wasn’t Me) background music at the next Fed press conference…
As we anticipated in January, the political pressure is just beginning:
Barron's
@SenWarren
I covered the Fed’s role in SVB on Making Money with Charles Payne on Fox Business last Thursday (along with some new picks).
This continues to be a “shoot first, ask questions later” market for regional banks. The Bank Term Lending Facility was an important measure, but until we get movement on an explicit deposit insurance increase or full coverage, you will continue to see these cracks in the market. Pandora’s box was opened by the Fed’s unyielding rate hike campaign until something broke.
As it stands, the only banks that are “fully insured” are the SIBs (systemically important banks) and until the government steps in to change that, we will continue to see flows away from regionals and into SIBs that are too big to fail.
The genie is out of the bottle and the only way to put it back in is further explicit guarantees/deposit insurance for ALL banks. This is not a protection/bailout for investors (as they got wiped out with [[SVB]], [[SBNY]] and mostly [[CS]]), it is a way to keep regionals in business by keeping their deposit bases steady.
As for banks out trying to raise capital, private or public fundraising, the problem still remains. How do you raise capital when you don’t know what your deposit base will be in 2 weeks?
If you were wondering why the market sold off so aggressively into the close when it was holding up relatively well following the 25bps hike (expected by the Fed Funds Futures market) here you go:
financialjuice.com
The above headline hit at 3:30 (the second to last bar on this 15 minute chart):
stockcharts.com
It was a potent surprise hit to the market as just 24 hours before, this was what came across the tape:
financialjuice.com
For those saying they can’t change the deposit guarantee limits without Congress, that is correct. However, in times of emergency or crisis the Executive Branch has the unilateral authority to act. So far crickets…
The good news is , they have unlocked liquidity tools to clean up the messes they have made and are likely to continue to make moving forward. The balance sheet is up $300B in the first week. I would expect the additional 25bps will require another 300B-600B+ by the end of the year. So is 25bps worth another $1T. I guess it is to them…
federalreserve.gov
This is bearish for the US Dollar and Bullish for Emerging Markets Equities/China (after the short-term dust settles).
stockcharts.com
You are also seeing Gold get a bid of late. It has sniffed out the fact that the more they tighten now, the more they will have to print later. We’ve been saying it for months. Now we are seeing it in real time. The only folks who have not gotten the memo are the ones sitting around asking themselves “how did this happen?” When the balance sheet makes a new record high during their “tightening cycle” perhaps they will revisit the question…
federalreserve.gov
Here are the Fed’s new “projections” and dot plot. They anticipate another possible hike. Two weeks ago the market was convinced the terminal rate was >6%, now it’s ~5.1%. My guess is one more mid-sized bank closure and we’ll be done at 5% (here).
federalreserve.gov
federalreserve.gov
Fed Statement Changes:
CNBC, ‘The notable changes include a shift away from “ongoing increases” to the policy rate to “some additional firming,” as well as saying that the “U.S. banking system is sound and resilient.”’
CNBC
CNBC
On Tuesday, I posted a summary of Bank of America’s Global Fund Manager Survey.
The five key points were:
1. Investor Sentiment as bearish as GHC lows in 2008-2009:
BofA
2. Recession Fears near previous major lows levels:
BofA
3. Cash levels still high:
BofA
4. Excessive bearishness in Real Estate:
BofA
5. Managers running to safety:
BofA
Take the road less traveled…
Now onto the shorter term view for the General Market:
In this week’s AAII Sentiment Survey result, Bullish Percent ticked up to 20.9% from 19.2% the previous week. Bearish Percent ticked up to 48.9% from 48.4%. Retail traders/investors are shaking in their boots…
AAII.com
stockcharts.com
The CNN “Fear and Greed” rose from 20 last week to 37 this week. Sentiment is still fearful.
CNN
CNN
And finally, the NAAIM (National Association of Active Investment Managers Index) dropped to 41.92% this week from 60.11% equity exposure last week.
stockcharts.com
*Opinion, not advice. See “terms” at hedgefundtips.com.
For further details see:
'How Did This Happen?' Stock Market (And Sentiment Results)...