Is The Bottom Almost Here?

[Gamecock-YT]

14 hours ago, Intelligent_Investor said:

To be fair, it seems like SVB made some absolutely idiotic decisions with risk management. Who in their right mind buys so much long treasuries at like 1.5% interest rates

 

Bank of America during the pandemic.

[Sweet]

Even though BAC bought way too much low yielding debt during the pandemic, they still have plenty of options to shore up any deposits that may be pulled.  I think we are quite a long way off from it spiralling.

[Gamecock-YT]

44 minutes ago, Sweet said:

Even though BAC bought way too much low yielding debt during the pandemic, they still have plenty of options to shore up any deposits that may be pulled.  I think we are quite a long way off from it spiralling.

 

Will be interesting they shuffled a lot of the old guard after the pandemic. CFO is new, also of note the Treasurer that instituted the strategy is out of the role as well.  

[Dalal.Holdings]

6 hours ago, Parsad said:

 

The difference for the big four banks and larger institutions is that they've offset potential outlier events using derivatives.  Does anyone know how much of BAC's unrealized loss is offset by derivatives?  Cheers!

Are those derivatives marked to market on BAC’s balance sheet? If they were, we would have seen them already

 

Serious question.

 

I also think BAC and banks with diverse, sticky deposits are not the same as SIVB…

 

But imagine a scenario where J Pow has to take rates somewhere where Volcker had to and those “paper” losses will grow much larger. I do think that before that happens so many smaller banks/insurance/etc will have folded (because there are so many long dated bonds out there) that there will be no inflation to fight

[Cigarbutt]

17 hours ago, Spekulatius said:

I do think that lending is going to get tighter because many banks will consider their liquidity buffers.

This is becoming widespread knowledge but banks have been tightening for a while now. Below is a picture for C+I loans as a precursor of capital investment to come but a similar picture has been emerging since last fall in most lending categories. There's been covid noise and it's always a cause/consequence/correlation issue just like with inverted yield curves but bank balance sheets as a % of GDP have been going up and it feels like banks are signaling a need to ease conditions even if balance sheets are stuffed with cash and risk-free securities? Many factors enter into the SLOOS process but risk perception is a big one so...and within the sub-sections of the survey, loan demand has been softening too so there's been some recalibration of the supply/demand curve here.

The picture is from end of January 2023.

From FFH's annual report released yesterday:

"As rates go higher, they will have an impact on the economy – 4% across the curve does not seem to do it! Higher rates will destroy the speculation we continue to see in areas such as high tech, SPACs and cryptocurrency. Credit also may be very vulnerable to higher rates as the economy goes into recession. Credit has been very easy all over the world with very low interest rates. While it is difficult to predict, we will not be surprised at a black swan event that arises in the credit area, particularly in the U.S. and Europe, because of the “easy money” that has prevailed for the past decade. Higher interest rates may reveal some “Ponzi” financial structures that we cannot see today!""

Of course, FFH has often been wrong with macro predictions.

[Castanza]

11 hours ago, Dinar said:

Perhaps, is 445bn in VC funding only for tech, or for biotech as well?  

 

also look on the other side of the coin:

a) All of these companies carry a lot of deadwood, Meta fired 13% of employees last year, and will fire another 13% this year.  That's 20K employees, say at $400K per employee, that's $8bn in annual expenses just for Meta, holding comp per employee flat.  

b) Compensation is absurd, with 500K-1MM per year comp packages being a frequent occurrence, and many making even more - looking at you Salesforce.  Say GOOG/META/MSFT/CRM et all cut 200-300K jobs, companies like Docusing/Wayfair, et all fire another 50-300K workers and comp per employee can decline 30% as well.  So say comp per employee also get cut by 30% or $120K.  So that's another $7bn for Meta.  So Meta can cut $15bn of costs without much difficulty?

 

Google's employee count swelled since 2017, why?  What are those 50K+ people doing?  At say $500K per head, that's $25bn, add to that savings on the rest of the staff, and between the two you have $50bn of savings?

 

 

Not sure on the breakdown of the VC pool but SIVB was in both sectors; and I’m sure GOOGL and META would run ads for anyone willing to pay. 
 

To your payroll cuts….I guess that’s possible? Don’t really know . Either way VC funding was expected to decline and I’m sure both companies were acutely aware of the cash flow provided by them. Could be some short term pullbacks as they adjust and the numbers trickle through the next few quarters.  

 

More definitive numbers on ad spend would be great. I think someone posted a breakdown/estimation on one of the GOOGL or META threads a while ago. 

[SharperDingaan]

SVB blew up because a ALM mismatch, ran out of liquidity. Thousands of companies all across NA routinely do the same thing, and we gladly pay their treasurers and bond managers to do it - FFH amongst them. It can be extremely profitable and in a variety of ways, but ONLY if you NEVER run out of liquidity, IN AN ORDINARY market.

 

A great many companies are highly dependent on an ordinary market remaining in place; one of the most dependent, being any company taking consumer paper. Consumer paper vs treasuries backs the liabilities, the market is a lot shallower than the treasury market, and the liquidation discount a lot higher. All else equal, the widespread securitization of consumer paper takes a dive as ABS sell for less.

 

Tether mechanics have long been suspect, but so long as those treasuries were there at the custodian, and the custodian could verify it ...... everything was good. One has to think that folks are now looking very closely at how much liquidity Tether actually has, before they are forced to sell down those treasuries en mass. One also has to think that the US Fed would prefer Tether to fail, versus the consumer paper/ABS market.

 

The good news? Nothing will reduce inflation faster than both a simultaneous chill on consumer paper, and a treasurers ability to mismatch ALM. Most would expect that we finally start to see a normal yield curve again. All good.

 

SD

 

Edited March 11, 2023 by SharperDingaan

[Gregmal]

^^totally. I definitely think this event is the beginning of the last chapter or so of this saga. 
 

The Fed has done a remarkable job, overall, since GFC, but the last two years really put egg on their faces in a big way. They let ZIRP run way too long into 2022, and then overreacted way too heavily with all the tough guy talking and rate hikes, culminating in this weeks events. People can shit on BofAs reserves/duration of holdings…but it’s been pretty darn clear over the last decade BofA, on the spectrum of good banks and bad ones, is a good bank. They and many others just played the environment they had to, which the Fed created. Then along comes JPow, like an insecure 14 year old girl, worried about what others think of his “credibility”…and freaks out with rates hikes over the course of 9 freakin months lol. 
 

 

The biggest egg on the face though, IMO, isn’t even policy decision, but the fact that they very clearly demonstrated that they can be manipulated by people wealthy and influential enough, simply by publicly attacking the their “credibility”. At the end of all this, they showed they cared more about the public perception of their credibility, than they actually cared about doing their jobs. 

[Castanza]

6 minutes ago, Gregmal said:

^^totally. I definitely think this event is the beginning of the last chapter or so of this saga. 
 

The Fed has done a remarkable job, overall, since GFC, but the last two years really put egg on their faces in a big way. They let ZIRP run way too long into 2022, and then overreacted way too heavily with all the tough guy talking and rate hikes, culminating in this weeks events. People can shit on BofAs reserves/duration of holdings…but it’s been pretty darn clear over the last decade BofA, on the spectrum of good banks and bad ones, is a good bank. They and many others just played the environment they had to, which the Fed created. Then along comes JPow, like an insecure 14 year old girl, worried about what others think of his “credibility”…and freaks out with rates hikes over the course of 9 freakin months lol. 
 

 

The biggest egg on the face though, IMO, isn’t even policy decision, but the fact that they very clearly demonstrated that they can be manipulated by people wealthy and influential enough, simply by publicly attacking the their “credibility”. At the end of all this, they showed they cared more about the public perception of their credibility, than they actually cared about doing their jobs. 

From my nosebleed seats, what I never understand about interest rate hikes is how everyone says it will take 12-18 months before we see the effects. Yet they continue to raise rates every quarter. Everything is just modeled out with textbook equations and they just hope that matches up with reality on the outcome side? Seems like a fools errand. 
 

Blunt tools indeed. It’s like baking a cake for 40 min and doing the toothpick test at 10 min, seeing the results and then upping the temp because it’s not done yet….Should you be surprised when the cake ends up burnt? 

[Gregmal]

Think of it again, full circle…Teary Eyed Bill last spring..”the Fed MUST raise rates substantially to regain credibility!”…as he holds rate swaps poised to make billions if that happens. 

 

Now? Teary Eyed Bill…”we must bail them out, and use immigration to solve the labor issue”…..

Edited March 11, 2023 by Gregmal

[Gregmal]

2 minutes ago, Castanza said:

From my nosebleed seats, what I never understand about interest rate hikes is how everyone says it will take 12-18 months before we see the effects. Yet they continue to raise rates every quarter. Everything is just modeled out with textbook equations and they just hope that matches up with reality on the outcome side? Seems like a fools errand. 
 

Blunt tools indeed. It’s like baking a cake for 40 min and doing the toothpick test at 10 min, seeing the results and then upping the temp because it’s not done yet….Should you be surprised when the cake ends up burnt? 

100%. It’s why I laugh when these idiots give their prepared remarks and talk about how “inflation isn’t coming down fast enough”….morherfucker…there’s CPI reads once a month and there’s only 12 months in a year…of course your damn monthly data reads aren’t at 2% from 9% 4-5 months later LOL. And you shouldn’t be alarmed that in 2 weeks they didn’t get there yet either.

[LC]

9 hours ago, Parsad said:

 

The difference for the big four banks and larger institutions is that they've offset potential outlier events using derivatives.  Does anyone know how much of BAC's unrealized loss is offset by derivatives?  Cheers!

Who would be a stable counterparty for such size? Other banks?

 

not that it matters, I don’t think:
 

BAC is sitting on a 110B mark to market loss on its HTM portfolio 

 

If they had hedged any of this, the offsetting gains on those derivatives would show up as income in their OCI.
 

Instead their net change in derivatives for last year was a 10B loss. 

Edited March 11, 2023 by LC

[Spekulatius]

12 hours ago, Dalal.Holdings said:

Well now it's on Zerohedge, Spek

 

 

 

LOL, how many people actually read 10-K’s? I bet less than 1% of the people investing or even less than 10% of the people claiming to do a lot of reading when investing.

 

To be fair to the banks, you need to look at both the asset as well as the liability side to get the full picture.

[Dalal.Holdings]

Here come the water works...

 

 

Key line:

Quote

Had the gov’t stepped in on Friday to guarantee SVB’s deposits (in exchange for penny warrants which would have wiped out the substantial majority of its equity value) this could have been avoided and SVB’s 40-year franchise value could have been preserved and transferred to a new owner in exchange for an equity injection. We would have been open to participating.

 

Clearly regulators don't have Ackman on speed dial like they do Warren

[John Hjorth]

This tweet nearly killed me.

[Sweet]

4 hours ago, Dalal.Holdings said:

Are those derivatives marked to market on BAC’s balance sheet? If they were, we would have seen them already

 

Serious question.

 

I also think BAC and banks with diverse, sticky deposits are not the same as SIVB…

 

But imagine a scenario where J Pow has to take rates somewhere where Volcker had to and those “paper” losses will grow much larger. I do think that before that happens so many smaller banks/insurance/etc will have folded (because there are so many long dated bonds out there) that there will be no inflation to fight

The paper losses are only a problem if they have to sell them at market value.  They can just hold them to maturity and recoup par value.  They may only need to sell them at market if there is a sudden withdrawal deposits or they have to get regulatory capital fast.

[Spooky]

1 hour ago, Dalal.Holdings said:

Here come the water works...

 

 

Key line:

 

Clearly regulators don't have Ackman on speed dial like they do Warren

 

This is news to people? Haven't we had enough gov't bailouts in our lifetime? We need creative destruction to start clearing out more of these zombie companies so we can finally reset.

[changegonnacome]

Feels like this whole debacle is gonna aid the Fed’s aim of hitting/reducing aggregate demand via reduced spending……a deposit interest rate war is about to ensue in the banking sector……growing the asset side of a bank balance sheet would be imprudent moving forward…..I expect lots of credit creation restraint….credit is about to whacked….and given credit turns into spending in the real economy this will be meaningful. 

 

In short SVIB has done in two days to ‘financial conditions’ what the Fed had failed to do in months. 
 

IMO SVIB isn’t the end….but it is the end of the beginning. To steal a phrase!

 

Q - ”Is the Bottom Almost Here?”

A - “Almost, but not yet”

 

Edited March 13, 2023 by changegonnacome

[Sweet]

2 hours ago, changegonnacome said:

Feels like this whole debacle is gonna aid the Fed’s aim of hitting/reducing aggregate demand via reduced spending……a deposit interest rate war is about to ensue in the banking sector……growing the asset side of a bank balance sheet would be imprudent moving forward…..I expect lots of credit creation restraint….credit is about to whacked….and given credit turns into spending in the real economy this will be meaningful. 

 

In short SVIB has done in two days to ‘financial conditions’ what the Fed had failed to do in months. 
 

IMO SVIB isn’t the end….but it is the end of the beginning. To steal a phrase!

 

Q - ”Is the Bottom Almost Here?”

A - “Almost, but not yet”

 

If it’s only the end of the beginning, can you give us a general price and a general time on when we can expect the end?

3,500 in October last year, nearly 6 months ago, is the current low - after many posts ITT.

 

[Gregmal]

Beginning of the end of this Fed game; end of the beginning…maybe..for the market leadership baton pass. 
 

Between overall inflation readings about to fall off a cliff, plus the biggest areas of excess, tech and crypto bombed out, plus now a very real risk the Fed comes out of this looking really, really stupid for their recklessness with rate hikes despite at the same time acknowledging their delayed effects….I would be shocked if there’s anything more than at most 25 bps more to go before a breather.
Think they may even hold at the next meeting.

 

I know it’s cool to be like wow look at how stupid EVERY bank is holding all those mortgages and treasuries…but let’s get real…the Fed and the banks work hand in hand due to the regulations…and it’s clear the Fed had zero plan or communications with the banks on the problems that THEY were deliberately creating out of little more than impatience. It’s now gonna be cat and mouse between the Fed and traders because it’s clearly in the Fed interest to have the banks rally a bit and recover, but when the market knows that…you typically get all the traders pushing the other way.

[TwoCitiesCapital]

Weird how a regional banking crisis would occur AFTER the bottom for equity markets, right?

 

We all know the Fed basically just follows the 2-year rate and that it's the reversion of the curve from rate cuts AFTER an inversion that typically signals equity weakness.

 

With the 2-year ~0.80% off its highs from just days ago, will this be the end of the rate hiking cycle and the admission that the economy is weakening at a dramatic pace? 

 

Duration starting to look reallllll attractive. 

[Sweet]

34 minutes ago, TwoCitiesCapital said:

Weird how a regional banking crisis would occur AFTER the bottom for equity markets, right?

 

We all know the Fed basically just follows the 2-year rate and that it's the reversion of the curve from rate cuts AFTER an inversion that typically signals equity weakness.

 

With the 2-year ~0.80% off its highs from just days ago, will this be the end of the rate hiking cycle and the admission that the economy is weakening at a dramatic pace? 

 

Duration starting to look reallllll attractive. 

Too soon to tell, but as weird as it may be, it might also be how it shakes out.

[Intelligent_Investor]

The true answer is that no one knows what will happen with inflation, interest rates, and the economy, and over the last 2 years anyone that has tried to predict it has ended up being wrong. Most of the people criticizing the Fed for raising rates were the exact same people that, just 18 months earlier, were criticizing the Fed for not raising rates fast enough and saying we needed to get rates higher than inflation to bring it down.

[backtothebeach]

Raising rates until something breaks ... mission accomplished.
 

Edited March 13, 2023 by backtothebeach

[Gregmal]

Idk I think there were actually quite a few people who said raise em to 4% or so and then take a breather. Not get near 5 and start being a tough guy when even dumb dumb Elizabeth Warren can see you are off your rocker.
 

Where things started getting funky is when this dope started getting hypnotized by people question his credibility and somehow shifted from worrying about inflation to obsessing over, of all things, jobs! Inflation reads have more or less done what you’d expect the last few months. No one can answer where the inflation problem currently sits because if you look at the big ones…energy, housing, commodities…you’ve got the exact opposite. Oil was at 120 a year ago. Powell had his soft landing and got tricked and now I think it’s still possible but definitely less likely. Throw it up there as another weird “can you believe that really happened” event from the 2020s….central banker trying to put people out of work because he can’t wait for larger sample sizes to be data dependent on.