Well I have to go meet my HVAC guy to do my annual Spring check of my AC system. SO.....I will let the markets mature into the day without my help......at least for a while. I see that the NASDAQ has NOW joined the DOW and the SP500 in the green. Lets move things on up from here......I want to make some money today.
I see that all the averages are nicely UP today. BUT....some of the big CAP tech names are lingering. I heard somewhere it was due to the Ten Year rate being up today. I cant really believe that since it is only at.....3.472%. Now I can believe that they are just lingering and waiting to see what the FED does......but even that seems pretty SILLY.....since everyone knows what the FED is going to do....either 0.00% or 0.25%.
This SHOULD be a really big topic in any family. How to Invest for Your Kids and Teach Them About Investing Financial literacy is a gift that will continue to pay dividends. https://money.usnews.com/investing/investing-101/articles/investing-for-kids-how-to-invest-for-them (BOLD is my opinion OR what I consider important content) "Parents who teach their children financial literacy have the opportunity to set them up for life. Conversations about money can lead to successful outcomes because they: Place the time value of money in your corner Encourage delayed gratification Prepare your kids to become better consumers, employees and philanthropists Expose them to broader socioeconomic topics Set them up for financial well-being to start a business, buy a home, save for retirement and prepare for the needs of a long life Give children a head start Create a deep relational bond between parent and child that will boost confidence and trust Financial literacy has not been well taught in many generations. This can create apprehension for some parents about whether they are up to the task. Yet, working with your child will enable you to share your own experiences, good and bad, which can help create a deeper impression and offer a unique opportunity for bonding. It will also enable parents to do the research needed to enhance their own investment capabilities. Time Value of Money The best part about starting young is that time in the market can be more valuable than timing the market. Albert Einstein has long been credited with saying, "Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn't, pays it." Earning money on your money is an excellent way to accumulate wealth. Parents can teach a child about compound interest by posing a question to them: "In 30 days, you have a choice. I can give you $10 million dollars cash at the end of the month. Or, I can give you a dollar today and it will double in value every day for 30 days and you will receive whatever is the result at the end of 30 days. Which do you prefer?" Most children are going to choose $10 million because it is a larger number than they are used to seeing. However, when you show them that compound interest could allow them to have received $1.07 billion, their eyes will be opened to the powerful effect of compound interest and a long time horizon. "Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn't, pays it." -Albert Einstein Delayed Gratification Once a child understands that time is a friend to them, they can easily understand why saving one's money can lead to bigger things. Parents can teach a child about delayed consumption by giving them a set amount of money, perhaps through a weekly allowance. This conversation can also be repeated after birthday and holiday gift giving has been completed. However, it's helpful to tell the child that they must divide the money into two piles – an amount that they can spend today and an amount that they can spend in the future. It is important to set a specific goal for future spending so that children can have a tangible vision in their head about why they are saving. Courtney Hale, founder of youth financial literacy organization Super Money Kids, says that this goal must truly be specific both in amount and the expected future purchase. By creating a goal that is specific and is intended to create greater opportunity for their lives, they are less likely to quit prematurely. Depending on the dollar amount of the goal and the age of the children, money can first be saved in a traditional piggy bank. But, eventually, it is a good idea for the parent or guardian to help their child create a savings account. By law, a minor cannot open an account on their own, so the parent or guardian would need to establish a custodial account. A custodial account is the child's property, but it is managed by the adult until the child is at least 18, depending on state law. Information is available online about the best bank accounts for children, including interest credit, minimums and other details. Custodial accounts can also be invested in stocks, bonds and index funds for potentially higher returns. Custodial accounts are funded with after-tax dollars and the taxation on the earnings will partially take into account the child's likely lower tax bracket. Another good habit to instill in children is to count their piggybanks or review their account statements on a regular date each month. This helps a child understand that it is important to keep an eye on one's investments, as well as having the joy of watching the balance grow over time. Becoming Better Consumers, Employees and Philanthropists While it can be easy to simply let a child keep all of their money, teaching them at an early age that there are only 100 cents in every dollar is another key foundational lesson. Children have the capability to understand a budget at a young age. When they realize that they will become responsible not only for their wants and desires, but also for boring topics like rent, mortgages, car payments, utilities and taxes, their world expands immediately. Importantly, a child that learns to budget early helps a parent or guardian explain why it might not be "in the budget" to give the child the latest tech gadget. Parents can teach this concept by taking 100 pennies and putting them on the table. Set aside 10% each for taxes, charity and long-term savings (30 pennies). Since the rule of thumb is that living arrangements should not be more than 25% of one's income, set aside another 25 pennies to represent a mortgage payment. This will leave 45 pennies. Show them how those 45 pennies must cover utilities, car payments and credit card payments. At first, children might complain that so many pennies are being taken away from their ability to spend freely. This is where a parent can explain how choices affect one's financial standing in life. They can talk about selecting a college degree that increases their income without burdening them in debt payments. They can start conversations about why choosing a lower cost of living may be preferable to a job in a high-priced city. They should begin to understand why some people may prefer to buy a used car over a brand-new model. They will be able to see that debt must be weighed carefully between instant gratification and long-term stability. Most importantly, they can begin to see that financial decisions are not either/or, but have many nuances that can make the difference in the kind of lives they will live. Learn About Broad Socioeconomic Topics When a child begins to understand financial topics, they will become exposed to broader socioeconomic topics, such as student loan debt, credit card usage, home ownership and taxation policies. They will even begin to understand the politics surrounding the news of the day on these topics. This is important because they will begin to realize that money affects every decision we make in our lives and tends to go hand-in-hand with our societal preferences. Children will begin to see the world beyond themselves. Parents may find themselves answering questions about challenging topics, especially in a society that is increasingly at odds over these issues. These questions may be a bit uncomfortable for parents, but they are also an opportunity to have deep discussions that will be part of their legacies. Prepare Them for the Needs of a Long and Varied Life Television host and interior designer Bobby Berk says, "It's your life. Design it well." As children grow, the first major money decision for them is how to pay for their education. Parents can open a 529 college savings plan to make investments and may want to ask relatives to direct part of their monetary gifts to these plans. There are no income limits for plan contributions, but each state may have unique specifications to get the most benefit out of this option. Unused funds can be redistributed to other children or saved for future educational endeavors, such as a career change. Or, the recently enacted SECURE Act allows families to pay off other student loans with tax-free distributions. Additionally, if children are contemplating raising a family, these funds can continue to accumulate for a future grandchild's educational needs. Funds can be distributed for non-educational needs, but they will incur both federal and states taxes, as well as a 10% federal penalty. But, this is also a wonderful time to talk about applications of financial decisions, not just the investment itself. For example, this could be a good time to discuss other unique opportunities for children to get the best quality education at the lowest possible price. For example, many high schools now offer dual-credit or transfer-degree programs that allow a student to earn a college-level associate degree before they graduate from high school. Students can then enter college as a junior, reducing the number of college years that need to be funded. If a child does not have the financial comprehension to understand how beneficial this can be to their overall financial success, they may resent the extra time and work needed for the program. But, with their newfound knowledge, they may be able to negotiate with the parents to redirect funds otherwise needed for college tuition toward an alternative major purchase, such as a down payment on their first home. Another opportunity exists for children who have chosen to work during their high school and/or college years. Since they understand that taxes are a part of the economic equation, they can begin exploring investment vehicles that are designed especially to encourage savings due to favorable tax benefits. Their employer may be able to offer a tax-deferred vehicle, such as a 401(k), where the contributions reduce current taxable income and are allowed to accumulate tax free until retirement age. At retirement, the funds will be taxed at the income tax rates in effect at that time. These funds can be transferred as the child changes employers or moved to an outside qualified account if they are not employed by a firm that offers the benefit. A child may also be able to establish a Roth IRA that will allow after-tax earnings to accumulate for retirement at which time the funds are received tax free. In both options, the money is optimally designed to be used for retirement. Withdrawals prior to retirement may incur a combination of federal taxes, early withdrawal penalties and/or loss of tax-free income status. As Americans continue to live longer than ever, new trends indicate that our career paths will become more varied than our ancestors. Since the COVID-19 pandemic, one of the major changes has been that more people than ever are going the entrepreneurial route over corporate employment. According to Digital.com, 43% of Americans plan to start a business this year. Because of higher interest rates, venture capital funding for entrepreneurs is slowing down. As a result, more business owners are starting their businesses by boot-strapping, or raising their own pre-seed and seed funding. At least one in 10 entrepreneurs have invested more than $100,000 of their own money in their businesses, and this number is growing. Investors look for founders who can demonstrate financial-modeling knowledge through balance sheets, cash flow projections and capitalization tables. Parents who are able to teach their children early about money will often set them on a long path toward successful entrepreneurship. Offer a Head Start Parents can give their children a big advantage by introducing them to an investment account, where the child can begin to choose individual stocks, bonds, mutual funds, commodities and other investments. Funds that are needed before retirement don't receive the same tax benefits as those in a 401(k) or Roth IRA. However, they can be used at any time without early withdrawal penalties. Each kind of investment has unique characteristics that can be positive or negative under different economic conditions. This would be an excellent time for children to consider teaming up with a financial advisor who can help steer their initial investments appropriately. A child may choose ultimately to invest on their own but can avoid making costly early mistakes with the help of a capable and caring financial advisor. Children can learn about investing in companies that produce goods and services that they themselves know and understand. Doing so allows them to begin correlating corporate results with their own personal experiences. For instance, they may be using Apple products, such as a computer, iPad, iPhone or Apple Watch. So, if they were to purchase Apple stock based upon their positive or negative experiences with their personal product usage, it could help them understand not only why the investment may rise or fall on any given day, but also learn important entrepreneurial concepts such as branding and product positioning. Money invested for long-term life needs can be used for home ownership, additional income generation and other sources of both wealth and cash flow. A parent investing time in a young child's financial literacy can affect their ability to successfully accumulate wealth and have a successful, high-quality retirement life. Create Deep Parent-Child Bonds Most of the largest family arguments are over money. Most of the greatest family needs are senior living needs. When a parent educates their child on the art and science of money, they gain the ability to talk about both money and individual needs on a deeper level. As children become more successful, arguments over "caring for Mom" or "who gets what" tend to retreat into the background. It is not the amount of money that makes a difference, but rather the ability to talk about such a private topic that instills needed trust between family members. An investment in your children today can alleviate much of the tension that often surrounds these topics. Financial literacy is a true gift for upcoming generations. Even if a parent feels uncomfortable with their own level of expertise, it can be an excellent chance to gain knowledge together. Every year that a dollar accumulates interest is not only powerful in terms of its future worth, but it is also invaluable for opportunity it can offer." MY COMMENT First it all must be done in an age appropriate way....but it should be done. The ultimate lifetime gift to your child. With my kids we did many of these things. First....inside the family we very openly talked about money and family business. Buying a house, investing, saving, debt, etc, etc. We had no real financial secrets from our kids....in an age appropriate and non-scary way. We did not whisper about this topic. They grew up knowing about money and investing....way before they realized they were learning about it. I taught them about the rule of 72's and compounding when they were in High School. In fact once, in a while I would speak to the High School "financial class" about money and investing. I liked to illustrate compounding with an example like the one above........but.....I would start with a Checker board and tell them you can have "X" number of dollars now.....or......I will start with a penny on the first square and double it each square.....(64 squares). The answer is over $10MILLION dollars. I would also use this to explain simple interest versus compound interest. We did teach our kids to save and did have an account for each of them. Because I was self employed and owned a business.....I was able to "employ" my kids at times and we used that to teach them about the ROTH IRA. I would put in half of the contribution for them and they did the other half. This opened up conversation about plans like the 401K when they were old enough. I helped each kid contribute to a ROTH IRA till age 30 to emphasize the benefits of starting young and sticking with it. My business building had a parking lot that was very close to the start line of a local 10K race that attracted thousands of runners. I would take the kids and have them work that lot renting spaces to the runners for their cars. We would fill up the lot. The kids would welcome the cars and show them where to park, take the money, make change, etc. They would come away with about $300 for that half day of work. I used that to instill the THRILL of making money and to talk about money. It also helped them to learn how to deal with people and make change, etc, etc. I guess today it would need to be done with a VENMO account as well as cash. As they got older we got into talking about investing is stocks and funds and life long SP500 Index investing. Now as adults they are all very good lifetime investors. Etc, etc, etc.......this is the BEST gift you can give to a child to secure their future and help them to learn to deal with money.
I finished in the GREEN today....by a moderate amount. I was down much of the day but came back for the end of the day. I was BEAT by the SP500 today by 0.67%. My downfall today was MSFT...my worst loser. I was also down in AMZN and GOOGL. All in all a VERY good day......money was made.
Back to kids......you know.....we probably spoiled our kids in many ways. We did not scrimp on things for them. BUT.....we taught them good values and about education, and money, and investing and life. That is the number one job of any parent.
Obviously this banking....."stuff"...is going to linger for a while. There might even be another few banks fail....but....at this point do I care? NO. I see this as old news and even if it perks up some.....it will NOT impact the economy. It is and will be contained and limited to a few banks. I dont see this as anything like the situation in 2008/2009. At that time.......by my evaluation that there was about a 25% to 40%........."POSSIBILITY"..........of an ACTUAL world wide banking and economic COLLAPSE.....for the first time in my lifetime and in many lifetimes. SO......in May of 2008......I totally liquidated my accounts. I reinvested ALL in all at once between January and March of 2009. At that point it was clear that the crisis was over, there would not be a world wide collapse and there was a huge amount of money to be made by entering the market while still down. I was willing to take the risk of perhaps another 10% drop to get in......NOW....before the bottom. In hindsight my timing was about perfect. The current little situation is NOTHING like that.....in my view. Here is something on the one bank that is in my view......."likely".......to either FAIL or disappear. As I said I really dont care......this is contained. First Republic shares tumble again as liquidity fears linger https://finance.yahoo.com/news/first-republic-shares-fall-private-102545062.html (BOLD is my opinion OR what I consider important content) "(Reuters) - Shares of First Republic Bank tumbled 35% on Monday, adding to recent losses after a report the regional bank could raise more money fanned worries about its liquidity despite a $30 billion rescue last week. JPMorgan Chase & Co CEO Jamie Dimon is leading talks with the chiefs of other big banks about fresh efforts to stabilize the San Francisco-based bank, the Wall Street Journal reported on Monday, citing people familiar with the matter. JPMorgan and First Republic declined to comment on the report. The bank's stock fell as much as 50% and was last down 35% at $15.04 after the New York Stock Exchange halted several times due to volatility. S&P Global downgraded First Republic deeper into junk status on Sunday and said the recent cash infusion from 11 large U.S. banks may not solve its liquidity problems. First Republic is in talks to raise capital from other banks or private equity firms by issuing new shares and could also negotiate a deal to be sold, the New York Times reported late on Friday. On Sunday, Reuters reported that the lender was still trying to put together a capital raise but that no deal was imminent. "The market wants a more conclusive resolution for what's going to happen to First Republic and the only way out of that is some sort of asset sale," said Matt Orton, chief market strategist at Raymond James Investment Management. First Republic's stock market value has collapsed by over 80% in the past 10 trading sessions due to fears of a bank run as a large proportion of the lender's deposits are uninsured. Short sellers in First Republic made about $560 million profit on paper since last Monday, analytics firm Ortex said. Shares of other U.S. lenders largely rebounded on Monday in tandem with their European peers as UBS Group's state-backed takeover of troubled peer Credit Suisse Group AG appeared to allay worries that the recent banking crisis could spread further. The deal announcement "should both ease contagion fears but also meaningfully reduce the counter-party concerns for U.S. universal banks," said KBW analyst David Konrad. The S&P 1500 regional banks index rebounded 1.7%, leaving it down 36% over the past two weeks. The S&P 500 banks index gained 1.4%, lifted by a 1% rise in JPMorgan Chase. PacWest Bancorp climbed 12% after the bank said deposit outflows had stabilized and its available cash of more than $10.8 billion exceeded total uninsured deposits. "We have increased confidence that PACW can make it through this liquidity crunch now that it has enough cash to cover any additional run-off in uninsured deposits," Matthew Clark, managing director at Piper Sandler & Co said in a note. A U.S. official told Reuters on Sunday that the deposit outflows that left many regional banks reeling in the wake of Silicon Valley Bank's failure had slowed and in some cases reversed. New York Community Bancorp Inc surged 36% after its subsidiary agreed with U.S. regulators to buy deposits and loans from the shuttered New York-based Signature Bank. Western Alliance Bancorp fell 3.1%, while Fifth Third and U.S. Bancorp both rallied over 5%." MY COMMENT I think this bank is.....TOAST. Although with Dimon and JP Morgan Chase involved they may be able to survive long enough to be sold or taken over. The REAL issue.....do I care? NO. In the end it will just be another bank failure due to management INCOMPETENCE and STUPIDITY. Banks fail. Businesses fail. That is just reality.
I am basically looking for another market day tomorrow like today....a good possibility of green across the board and for the rest of the week. The FED is NOT going to surprise anyone this week.......and....more importantly they have been told to ......SHUT UP AND SIT DOWN......by recent events. They are going to be very careful in what they say.....that is a very good thing. They were getting a little carried away with their self importance and their trashing of the markets and economy....as well as....the MACHO TOUGH talk.
I will say......I am interested in anyone else's opinion on the banks and the economy. I like to hear what others think......and for me.....there will be no argument. It is simply your opinion.....so why would I argue. Same applies with my opinions. Please post any opinion you wish on here. I am also interested in hearing the experiences of anyone on here that is an active bank investor. What was it like? Did you feel panic? Etc, etc, etc.
The bank drama does not interest me. BUT.....for others....I got this today from SCHWAB.....here is their take. Another One Bites the Dust: Banking Saga Continues (BOLD is my opinion OR what I consider important content) "Let's start with a quick primer on what started all of this. The pandemic, and the epic monetary and fiscal policy response, led to a surge in money supply and liquidity, with tech startups and venture capital (VC) as key beneficiaries. In turn, that led to a massive surge in deposits at Silicon Valley Bank (SVB), with which those cohorts were particularly chummy. In order to boost yields on those deposits, SVB loaded up on longer-term government bonds. The bank reacted to rising rates and losses on securities it bought in early 2021 by designating them as "held to maturity" (HTM), in the interest of mark-to-market losses not flowing through the bank's income statement. As a result, per accounting rules, SVB could not hedge the risk. Oops. In addition, given the 2018 rollback of some Dodd-Frank regulations—including upping the size of banks subject to stress tests from $50b to $250 billion, SVB was not subject to stress tests, including in the event of a sharp spike in interest rates. Double oops. At the same time, the tech sector has been under extreme pressure, and SVB's industry concentration meant their exposure and downfall was really twofold: More than 95% of SVB's deposit base were not FDIC-insured (ranking them #99 out of the top 100 banks); while more than 55% of their assets were invested in long-term government bonds (ranking them #1 out of the top 100 banks). SVB had unrealized losses on its portfolio; but they also had the concentrated industry-exposure problem. SVB made a surprise announcement on Wednesday, March 8 that it would need to raise more than $2 billion from its equity holders, having just sold its entire portfolio of "available for sale" (AFS) securities to meet liquidity needs and taking a $1.8 billion loss on the sale. Signature Bank (SB), SVB's "East Coast brother," fell soon thereafter. A run on SVB began when many of their depositors needed immediate cash, with "fire" shouted in the crowded building, so to speak, by a couple of key stakeholders via social media. As such, SVB was forced to realize their portfolio losses, and the lack of new deposits or lending opportunities coming in highlighted the fragility of a model like SVB's. By Friday, March 10, no buyers of SVB had stepped up. With the effects of lightning-fast news flows, especially via social media, and banking that can be done quickly and via mobile devices, the bank's collapse happened with lightning speed. It was the second-largest bank failure in history, second only to Washington Mutual's during the Global Financial Crisis (GFC). In terms of the speed factor, we are in a brand new era. However, history can still be a guide. Below is a table highlighting major financial crises since the mid-1970s; with dates, whether the economy had an accompanying recession, whether there was an attendant bear market, and if/when the Federal Reserve cut rates in response. Source: Charles Schwab, Bloomberg, National Bureau of Economic Research (NBER), as of 3/20/2023. What's been done so far in this crisis The Fed, in conjunction with the Federal Deposit Insurance Corporation (FDIC), has taken a double-barreled approach: a guarantee to cover all the deposits of SVB and SB; and a new short-term lending facility, the Bank Term Funding Program (BTFP). That program allows banks to borrow, at par value, U.S. government bonds for up to a year, regardless of their present mark-to-market price. Those terms were also applied to the traditional discount window. This helped stabilize confidence in the immediate wake of the failure of SVB and SB (even if it wasn't a permanent confidence fix). Several regional banks faced increased deposit withdrawals over the past week, and as a result, as shown below, borrowing at the Fed's discount window has spiked. That borrowing means the Fed's balance sheet ballooned again (second chart below), such that more than a quarter of the liquidity withdrawals from the Fed's quantitative tightening (QT) have been reversed. By the way, this should not be construed as the relaunch of quantitative easing (QE), which has been used historically by the Fed to boost growth. The expansion of its balance sheet this time is because banks are under pressure and have been forced to use the discount window; while at the same time, the Fed is still facing down elevated inflation and has been trying to slow growth. Fed steps up Source: Charles Schwab, Bloomberg, as of 3/15/2023. Fed's balance sheet shoots higher Source: Charles Schwab, Bloomberg, as of 3/15/2023. The Fed balance sheet is the U.S. Federal Reserve System's balance sheet of assets and liabilities. Credit Suisse (CS) marked the latest chapter of the recent crisis, but its woes were not akin to SVB's. The global bank has been plagued with scandals, losses, and questionable business strategies—long before SVB hit the news. UBS Group stepped in to buy beleaguered CS in a "shotgun wedding," paying 3 billion francs ($3.3 billion) in an effort to stem the crisis, and the price-per-share representing a 99% decline from CS's peak in 2007. It is the first combination of two large and systemically important global banks since the GFC. The Swiss National Bank (SNB) backed the deal with a liquidity backstop, a guarantee to cover up to 9 billion francs ($9.7 billion) of UBS's losses, and by waiving the requirement to get shareholder approval. The CS statement said the deal would close by the end of 2023 and that there are no options for UBS to back out of the deal. The elimination of the need for shareholder approval is creating tremors. Though certainly not bailed out, equity holders of CS did get a few cents on the dollar, while the contingent convertible (CoCo) bond holders are getting wiped out. This is making waves given that unsecured bondholders have historically ranked above equity holders in the capital structure. Many European banks—in the aftermath of both the GFC and the eurozone crisis a few years later—issued CoCo bonds to strengthen their balance sheets. At a minimum, uncertainty about the regulatory backdrop for large global banks will remain elevated. Related, the Fed and five other global central banks—Bank of Canada, Bank of England, Bank of Japan, European Central Bank and Swiss National Bank—announced coordinated action to boost liquidity in U.S. dollar swaps which will "increase the frequency of seven-day maturity operations from weekly to daily." The increase in swap lines will "enhance the provision of liquidity," describing the agreement as "an important liquidity backstop to ease strains in global funding markets." The Fed announced that daily operations will begin today and will continue at least through the end of next month. Another beleaguered bank, First Republic (FRB), received about $30 billion in deposits from 11 large U.S. banks to shore up its balance sheet. The troubled lender's credit rating was downgraded by S&P Global Ratings (and is on watch by CreditWatch), despite the rescue package. The cash support should alleviate some of FRB's shorter-term liquidity problems, but according to S&P Global, does not resolve the "substantial business, liquidity, funding and profitability challenges" it may face. Finally (is there ever really a "finally" these days?), a coalition of mid-sized U.S. banks made a request to extend FDIC insurance to all deposits for the next two years, believing a guarantee would contain a possible wider run on banks. "Doing so will immediately halt the exodus of deposits from smaller banks, stabilize the banking sector and greatly reduce chances of more bank failures," the Mid-Size Bank Coalition of America said in a letter to regulators. "Notwithstanding the overall health and safety of the banking industry, confidence has been eroded in all but the largest banks," said the group in its letter. "Confidence in our banking system as a whole must be immediately restored," adding that deposit flight would likely accelerate should another bank fail. This is not 2008 again The GFC was a more significant and contagious event given the messy combination of under-capitalized/over-leveraged financial institutions, flimsy capital-markets-based funding, prior laughable lending practices, and the alphabet soup of toxic/opaque/impossible-to-value derivatives. Solvency was the primary issue during the GFC, while it's more about liquidity today. Today's largest banks are well-capitalized and are already benefiting from deposit flight from the weaker banks. In addition, our country's capital-markets-based financial system is not intricately linked with its regional banks. Regulators have tools and have been quick to act, while they were much slower to act during the GFC. The failure of SVB and SB were tied to problems unique to those banks, including largely unhedged interest rate risk and outsized exposure to the venture capital/startups/crypto world. The main channel of contagion so far is more psychological than systemic. The U.S. and global banking system has significant liquidity buffers, in addition to regular stress tests. On that note, courtesy of the 2018 rollback of some Dodd-Frank regulations, SVB was not subject to stress tests. Banks' balance sheets have been under heightened scrutiny over the past week, but it's the liabilities side that bears the risk. The assets side, for most banks, remains in good health. As a percentage of total loans, noncurrent loan balances held by banks are near historical lows—and could likely deteriorate without a significant impact on bank capital. In addition, nearly half of the value of U.S. bank deposits is insured. Quantitative and fiscal tightening over the past year have reduced aggregate deposit balances in the system, which has helped push up the percentage of insured deposits. Yes, the more than $600 billion of unrealized losses—per the FDIC's Quarterly Banking Profile—on which U.S. commercial banks are sitting is staggering. However, those unrealized losses are due to the increase in interest rates, not a significant deterioration in credit quality. Leading into the GFC, commercial banks' holding of Treasuries and Agencies was just north of $1 trillion; today they are nearly $4.5 trillion (more than double what they were then as a share of total bank assets). As noted, U.S. banks do not have a discomfortingly high uninsured deposit ratio or unrealized losses on HTM securities in excess of capital. In the event of a need to raise cash, the Fed's facilities are at the ready, minimizing the need to realize HTM losses. This does not mean the crisis is over, as other smaller banks could face liquidity mismatches; there could also be risks lurking in the "shadow" banking system, which typically consists of lenders, brokers, and other credit intermediaries who fall outside the realm of traditional regulated banking. Market machinations As shown below, equity volatility (VIX) has been fairly muted, although the same can't be said about bond market volatility (MOVE). There have been remarkable moves in Treasury yields: from a high of more than 4% as March began, the 10-year yield has plunged to 3.4%; from a high of nearly 5.1% on March 8, the two-year yield has plunged to 3.8%. Divergence in bond vs. equity volatility Source: Charles Schwab, Bloomberg, as of 3/17/2023. ICE BofA MOVE Index is a yield curve weighted index of the normalized implied volatility on 1-month Treasury options. Speed and mobility, meet disinformation As noted, the combination of lightning-fast news dissemination, especially via social media platforms like Twitter, and the ease and immediacy of mobile banking was a toxic brew for SVB. Gone are the days of in-person bank runs from "It's a Wonderful Life." Today, money can be moved on your phone in an instant. Sadly, the information flow over the past week has not always been sound or accurate, and often quite misleading. As an example, many a report/article/tweet has lumped brokerage firms in with banks, but they're different. Brokerage investments are separate from bank deposits, while access to liquidity is a key factor (the lack thereof was at the heart of the failure of SVB). In addition, some notes making the rounds have labeled U.S. Treasury securities as the new "toxic asset" when in fact, the securities remain safe; it's the forced selling that was the problem in the case of SVB. On that note, rating agency S&P Global put out a report last week noting that they "view the risks from unrealized losses as manageable" and that "most banks have the capacity to hold their (nontrading) fair-valued assets to maturity, and in doing so neutralize the impact of unrealized losses over time." This key distinction has been missing in many of the "analyses" prevalent in places like Twitter. Economic impact One of the most common refrains we've heard from pundits in the no-recession camp was the lack of a credit crunch—typically a precursor to recessions historically. What we did have already in this cycle could be thought of as an asset crunch; but courtesy of the current banking crisis (of confidence), a credit crunch is likely upon us. We won't go as far as saying the implications to markets are behind us, but it's possible that the bulk of the asset crunch was felt (obviously) on asset prices—including stocks, bonds, homes, etc.—but not the economy. That might suggest the coming credit crunch would be felt more on the economy, and perhaps less so on already-depreciated assets. Even before the collapse of SVB, lending activity was tightening across the spectrum of commercial/industrial and consumer loans, as shown below. The Fed's Senior Loan Office Survey (SLOS) was released in early February, and it showed every category of lending in recession territory. It's hard to imagine that things loosen from here (the data is quarterly). In particular, lending activity for commercial real estate was already shrinking. With the pandemic's influence on hybrid and remote working, the adjustments by companies to their real estate footprint have only just begun. Small banks have been particularly aggressive in commercial real estate, with loan books more than double those of larger banks. Add in the deterioration in tax revenues for states like California and New York are likely to lead to state budget problems, even if municipal stress is mild in the majority of states. Lending standards were already tightening Source: Charles Schwab, Bloomberg, Federal Reserve Senior Loan Officer Opinion Survey on Bank Lending Practices, as of 1Q2023. C&I = commercial & industrial. Heightened volatility across markets is likely to persist until there is more clarity on not just the banking system, but Fed policy and the economy. It's increasingly likely that the rolling recession we've been highlighting will be rolling into a formal recession. That's certainly the message from leading indicators. The Leading Economic Index (LEI) from The Conference Board has fallen on a month-over-month basis for 11 consecutive months—a streak that has never occurred (back to 1960) without the U.S. economy already being in a recession, as shown below. Leading indicators suggest recession Source: Charles Schwab, Bloomberg, The Conference Board, as of 2/28/2023. What say you, Fed? A pause by the Fed would seem to be prudent in light of banking system's woes (that said, last time we checked, we had no influence on Fed policy); however, market pricing shows a higher likelihood of a 25-basis-point hike. The Fed is mindful of the risk of backing off its inflation fight prematurely, but they also understand that credit crunches and recessions are inherently disinflationary, and the recent release of inflation expectations per the University of Michigan consumer sentiment survey have hooked lower. It's not an easy call. Expectations for near-term Fed policy have been all over the map lately. As shown below, in the aftermath of Fed Chair Jerome Powell's hawkish comments in front of Congress in early March, by March 8 (blue line) the fed funds futures curve had the terminal rate at 5.7% with only a slight downslope into year-end. By March 10 (orange line), when SVB failed, the terminal rate expectation had dropped to 5.3% with rate cuts starting by year-end. As of last Friday's close (green line), the terminal rate expectation had been slashed to 4.8%, with a series of rate cuts by year-end now priced in. Fed funds futures all over the place Source: Charles Schwab, Bloomberg, Federal Reserve, as of 3/15/2023. Forecasts contained herein are for illustrative purposes only, may be based upon proprietary research and are developed through analysis of historical public data. As we have pointed out in multiple reports, a quick pivot from rate hikes to rate cuts might help stocks, all else equal; but it's not a positive signal about the economy. Markets may find themselves in a familiar dilemma moving forward: having to readjust expectations (yet again) for the path of monetary policy in the face of a Fed that is trying to battle inflation while also attending to a banking crisis. Market leadership shifts Up until the crisis started brewing within the banking sector, the market's outperformance this year had been dominated by what we've dubbed as one massive mean reversion trade. Sectors that underperformed last year—namely, Technology, Communication Services, and Consumer Discretionary—have outperformed this year. As you can see in our oft-used quilt chart below—but sorted weekly instead of monthly—those sectors took a slight breather around the SVB crisis, as more "traditional" defensive areas like Consumer Staples and Utilities outperformed. However, investors have jumped right back into the aforementioned "growth trio," while decisively shunning cyclically oriented parts of the market. Significant shift in sector leadership Source: Charles Schwab, Bloomberg, as of 3/17/2023. Sector performance is represented by price returns of the following 11 GICS sector indices: Consumer Discretionary Sector, Consumer Staples Sector, Energy Sector, Financials Sector, Health Care Sector, Industrials Sector, Information Technology Sector, Materials Sector, Real Estate Sector, Communication Services Sector, and Utilities Sector. Returns of the broad market are represented by the S&P 500®. Indexes are unmanaged, do not incur management fees, costs and expenses and cannot be invested in directly. Past performance is no guarantee of future results. Perhaps most notable—and likely a surprise to no one—has been the significant hit to the Financials sector. The quilt chart above highlights that the last two weeks for the sector have been severe enough to bring it to the second-worst spot on the year-to-date leaderboard, only behind Energy, which has languished after a stellar 2022 (there's that mean-reversion theme again). The underperformance of Financials isn't a welcome sign but also is not surprising, as it's typically a phenomenon when the broader market is struggling. As shown below, Financials have historically been in last place when the S&P 500 is down by 1% in any given month (as of Friday's close, the S&P 500 is down 1.4% this month). Broader story and conclusion Amid all the focus on banks, there is a broader story that will continue to be told in the months and quarters ahead. The era of easy money is over—an era that bred capital misallocation, a record number of "zombie" companies (lacking the cash flow to fund the interest on their debt) and loads of speculative excess and risk-taking. The bill is coming due courtesy of the most aggressive tightening cycle by the Fed in four decades and the attendant return of the risk-free rate. As has been said, when the Fed has its proverbial foot on the economic brake, something(s) inevitably will find their way through the windshield. SVB was the first significant catastrophe. However, what's unfolded since SVB's demise does not look like a crisis on the order of the GFC. The global financial system is in better shape, with significantly better-capitalized banks. That said, lending standards are likely to tighten further, from an already-tight stance pre-SVB, with defaults likely to rise. What had been as asset crunch is likely morphing into a credit crunch, adding to the case of a rolling recession rolling into a formal recession. Whereas the asset crunch has already hit markets, the credit crunch is likely to be felt more on the economy. So far, the equity market has been fairly resilient through this crisis. For stock pickers, we continue to suggest staying up in quality and down in duration (companies with near-term cash flows/earnings). Diversification and periodic rebalancing are essential tools to help navigate an environment with heightened volatility." MY COMMENT The PRIMARY thing in this little article that I DO NOT agree with is the view that the FED will only raise rates to a terminal rate of 5.3% and will start to do rate cuts by year end. This is what the experts are predicting. I dont agree......I dont see the terminal rate below 5.5%....not that it will really matter. As to rate cuts before year end.....I see this as the typical FOOLISH market view that has been a pain for the markets many times this year. This is simply EXTREMELY WISHFUL THINKING. I dont see it happening....but the media will no doubt push it as they have done many times this year......and when it does not happen....they will all be howling and winning.
Management failure.....or the pandemic? Amazon’s post-Bezos experiment hasn’t gone exactly as planned https://www.cnbc.com/2023/03/20/amazons-post-bezos-experiment-hasnt-gone-exactly-as-planned.html (BOLD is my opinion OR what I consider important content) "Key Points Amazon CEO Andy Jassy’s tenure so far has been marred by slowing growth, a tumbling stock price and multiple rounds of job cuts. Jassy announced an additional 9,000 job cuts on Monday, following 18,000 layoffs in January. When Amazon announced just over two years ago that founder and then-CEO Jeff Bezos would turn the helm over to former cloud boss Andy Jassy, few investors or analysts reacted with much concern. Jassy, a close confidant of Bezos, was known as an Amazon lifer and a celebrated figure inside the company and across the industry because he launched Amazon Web Services, which became one of the most valuable businesses in the world. Analysts at Wedbush practically yawned at the move, saying the transition would likely be “seamless and largely inconsequential.” Unfortunately for Jassy, his short tenure at the helm has been all too eventful. Since Jassy officially succeeded Bezos in July 2021, Amazon has experienced its most turbulent period since the dot-com crash. Last year marked its slowest year for revenue growth as a public company, and Jassy has been forced to guide Amazon through a series of cost-cutting measures that nobody predicted would be necessary when business was booming through the Covid pandemic. Amazon shares have plunged by 44% since July 5, 2021, Jassy’s first day as CEO. And on Monday, Jassy said the company is cutting another 9,000 jobs, adding to the 18,000 layoffs that were announced in January. While the cuts represent a small percentage of Amazon’s corporate workforce, they still represent a shocking turn for a company that was in non-stop growth phase for the better part of 25 years. “Given the uncertain economy in which we reside, and the uncertainty that exists in the near future, we have chosen to be more streamlined in our costs and headcount,” Jassy wrote in an email to employees. Much of the Jassy’s unfortunate circumstance can be attributed to bad timing — historically high inflation pushed the Federal Reserve to raise rates, crippling growth across the U.S. tech sector. But whether it’s bad luck, his own missteps or some combination of the two, Jassy is an unenviable position as only the second CEO in Amazon’s history. Bezos, his predecessor, transformed Amazon from a bookseller into a retail, cloud computing and advertising giant that became known for an inventive, startup-like atmosphere. On Bezos’ watch, the company turned out groundbreaking inventions like the Kindle e-reader and the Echo smart speaker, and invested in new verticals like original content, health care and brick-and-mortar grocery stores. So far, the Jassy era has been all about belt tightening and retrenchment from some of Amazon’s more experimental pursuits. For the past year, Jassy has been trimming expenses across the company. Many unproven bets, like Amazon’s Scout delivery robot, a virtual tours service, Care telehealth program, and a video-calling device for kids were axed. He made the decision to shutter all of its 4-star, Pop Up and Books stores and, earlier this year, announced Amazon would close some Fresh supermarkets and Go cashierless convenience marts. Drone delivery, one of Bezos’ pet projects, is struggling mightily to get off the ground as it, too, faces cost cuts. The pandemic-driven e-commerce boom pushed Amazon to double its physical footprint between 2020 and 2022. The stock soared, along with head count. But as the economy reopened and online sales stalled, Amazon found itself saddled with more facilities than it could efficiently put to use and eventually moved to close, cancel or delay the opening of many new warehouses. Earlier this month, Amazon paused construction of the second phase of its sprawling new campus in Arlington, Virginia, dubbed HQ2. Other construction projects in Nashville, Tennessee, and Bellevue, Washington, have also been put on hold, in part because much of Amazon’s corporate workforce has been working remotely since the pandemic. Jassy is under immense pressure to prove he can get expenses under control. But in order to revive the enthusiasm that Bezos drove into Amazon’s culture, he’s eventually got to find new engines for growth. In its fourth-quarter earnings report, Amazon barely eked out a profit, and the company issued disappointing guidance for the first quarter, with revenue growth expected to be stuck in the mid-single digits. It’s not exactly what Bezos had in mind, when he told employees in early 2021 about the coming CEO transition. “Amazon couldn’t be better positioned for the future,” Bezos wrote at the time in a letter to staffers. “We are firing on all cylinders, just as the world needs us to. We have things in the pipeline that will continue to astonish.” MY COMMENT After the past....year and nine months.....my view is that this is a significant MANAGEMENT FAILURE. There is no vision here or leadership happening. It is as though the bean counters have taken over the company. All negative and very little positive happening over the past nearly....two years. It is way past time to get corporate employees back in the office. My view is that JASSY....needs to go. The sooner the better. BUT.....that is likely not going to happen soon. My guess is that it will take them at least another DISMAL year.....to finally make a change. Launching Web Services....basically a tech company....is NOTHING like running the worlds largest online retail site......and.....a HUGE business CONGLOMERATE. JASSY has no clue what to do and he is failing badly. This company needs a big....SHAKE UP. It is TELLING the number of executives that have left the company since JASSY took over. I see the issue as a good business....with no leadership. Imposter Syndrome causing paralysis.......or.....The Peter Principle.
A great open to the markets today. AMAZINGLY......there is very little in the media up to today about the FED this week. It is ALL about BANKS. It is like the media can not walk and chew gum at the same time. Every week is some.....single issue....that they all jump on as a group. I hate to see this happening in the financial media....it is not good for investors. BUT....regardless.....the markets are BOOMING. In spite of the bank "stuff" and the FED WEEK.....we are seeing significant market strength. This is showing the underlying STRENGTH in the markets.
I like this little article. Can't a Business Ever Just Fail, Simply Because It Failed? https://www.realclearmarkets.com/ar...ust_fail_simply_because_it_failed_888367.html (BOLD is my opinion OR what I consider important content) "Seemingly everyone in the commentariat has an opinion on what most hadn't heard or thought of 10 days ago (Silicon Valley Bank), and from there it’s as though everyone has a role to play. And they’re playing it in order to feed their ravenous flocks. The New York Post feeds conservatives, and conservatives want to be told that a focus on ESG, DEI, and other dopey lefty notions brought it down. Which is too bad. It’s too bad simply because ESG and the rest are serious issues that rate serious discussion: do they rob all-important shareholders for distracting businesses from the pursuit of profits, or do they actually reward shareholders for these initiatives existing as a lure for the best and brightest of employees without which businesses can’t prosper? Applied to SVB, might an accenting of ESG issues have proved a lure for lucrative clients, and if so, is SVB to be blamed for this…by conservatives? The main thing is that present evidence at least for now indicates that SVB’s troubles were born of assets the value of which were compromised in the near-term by rising market rates of interest. In other words, to bruit ESG and the rest is to pursue non sequitur. What about Democrats convinced the Fed did it? It’s an interesting point-of-view, Elizabeth Warren has asserted as much to a lefty base that reads the New York Times carefully, but it’s interesting in consideration of how the Fed had been raising rates for almost exactly a year when SVB’s troubles became apparent. Markets anticipate, so why if the Fed is so obviously the culprit did SVB only become a story a year after Jerome Powell’s panic began? Better yet, why didn’t more banks go belly-up at the same time that SVB, Signature, and Silvergate did? With the last two, supposedly the troubles for them were rooted in cryto problems as is. Interesting about banks in a broad sense is that bank stocks fell the most after SVB was saved, which isn't really surprising. Bailouts presume a freezing in place of the existing commercial order in concert with more regulation of that same commercial sector in the future. Were the bailouts the real cause of subsequent market carnage? Something to think about. To conservatives who properly favor the market, supposedly the root of SVB’s troubles (and the banks of the future) is “moral hazard.” Andy Kessler contends that the bailouts of SVB and others “creates a classic moral hazard, encouraging bankers to let risk rip—no need for a chief risk officer—and then maximize profits because the federales will step in later. The only thing this guarantees is future bailouts.” Kessler is very wise, and surely knows his way around Silicon Valley, but one guesses he couldn’t name one bank or big-company CEO that has ever “let risk rip” on the assumption that “the federales will step in later.” He likely can’t simply because bailouts hardly bail out the reputations (or wealth) of those who might be prone to throwing caution to the wind on the dime of others. “Moral hazard” is problematic in theory, but difficult to locate in practice. Lefties, some on the right, and the embodiment of sanctimonious in Thomas Hoenig point to regulatory failure as the cause of a "predictable" crack-up at SVB, but none were predicting SVB's demise before the markets sleuthed what regulators plainly had not. It's amazing even the doltish could embrace such a foolish explanation as "regulatory failure." All of which leads to a basic question: is it possible SVB simply ran into trouble? Nothing more than that? How quickly we forget just how difficult it is to run a business. This is most evident in a country like the U.S. defined by relentless market dynamism. Figure that the reason CEOs are paid so well in the first place is rooted in just how much money they can make for shareholders. Ok, but the obvious tradeoff to any economy in which enormous sums can be earned is the much higher possibility of not making a lot of money, or worse, failing. What doesn’t measure up doesn’t last long, which means crucial physical, financial and human capital doesn’t rest in the wrong hands for long. Good. That’s the stuff of progress, andof much better businesses. Instead of endless whining about business failure, much more perilous is a lack of it. Sadly that seems to be where willdy overwrought liberals and conservatives want to take us in their relentless search for a villain...so that banks will fail less? As the song goes "maybe you're the problem."" MY COMMENT In the end this all comes down to government control of business. The more government get into controlling business, regulating business, controlling the economy, trying to plan and guide the economy.....the more we will see these types of events. Government is incompetent.....no matter who controls it. Government is political. Government is driven by all sorts of issues and events that have nothing to do with business. In fact it is often government regulation that becomes the source of the next crisis. This regulatory stuff is usually simply theoretical guesswork......we usually find out in reality it does not work. Of course we find this out when the last.....needed regulation....causes a massive issue down the road that no one anticipated. Add in politics and helping political supporters and you have NO chance of government being able to successfully control or guide the economy or business. It all reminds me of the FIVE YEAR PLANS that Russia would do in the 1950's and 1960's. They were always DISMAL FAILURES.
To continue. Volatility is Nothing New https://awealthofcommonsense.com/2023/03/volatility-is-nothing-new/ (BOLD is my opinion OR what I consider important content) "Last week Wednesday two year treasury yields closed the day at 5.05%. It was the highest level since the summer of 2006. That’s a pretty juicy yield for short-term government bonds. Unfortunately, it didn’t last. Look at the plunge in rates since the banking crisis took hold late last week: It looks like a stock market crash. This is not normal. And it’s not just the drop in rates that stands out. The volatility is out of control. Bespoke posted a chart that shows we’ve seen the most consecutive moves of 0.2%+ over the past four-plus decades: Twenty basis points may not seem like a big move relative to the stock market but it’s a lot for short-term bonds. Between last Friday and Monday two year yields crashed from 5% to 4%. Tuesday they shot back up. Wednesday they fell below 4%. Thursday they went back over 4%. Friday’s yields declined under 4% yet again. Short-term bond yields are trading like a meme stock. It’s hard to believe but the stock market is actually up since Silicon Valley Bank went down last Friday. In the past 6 days, the S&P 500 is up almost 3%. The Nasdaq 100 has risen more than 6% in that time. I don’t put a lot of stock into short-term market moves. The stock market is not the economy, especially in the short-run. And most of the explanations we try to attach to the moves in financial markets are simply post-hoc narratives to make us feel better about the ups and downs. But it sure does feel like it’s always something. Right now we have volatility in the banking system, volatility in price levels (inflation) and volatility in rates. I’ve been thinking a lot lately about the fact that my entire adult life seems like it’s gone from one crisis to the next. I entered college right as the dot-com bubble was bursting. I was a sophomore in college when 9/11 happened. Just a few short years out of college it was the housing market crash and Great Financial Crisis. Then there was the European debt crisis in 2010-2011. Now we’ve experienced a pandemic, the highest inflation in four decades that followed and whatever this bank run thing is.1 In some respects, it feels like we’re living through a period of elevated volatility in geopolitics, markets and the economy. But as someone who enjoys reading about financial market history I can attest that this is the norm. History is chock-full of panics, crises, crashes, ups, downs and the unexpected. I’ve been in the finance industry for close to 20 years and it feels like we’ve lived through every type of environment imaginable — booms, busts, rising rates, falling rates, 0% rates, low inflation, high inflation, deflation, bull markets, bear markets and everything in-between. Even though it feels like I’ve lived through every economic or market environment imaginable, I know there will be plenty of stuff that happens in the future that will surprise me. The past 3 years or so have felt like an unprecedented time. And it has been in many ways. In other ways, this is par for the course. There are periods of relative calm followed by period of heightened tension and volatility. That’s kind of how things have always worked. William Bernstein once wrote, “In the world of finance, the only black swans are the history that investors have not read.” The rare and unexpected occur more often than you think." MY COMMENT This banking "stuff" at this point is a PSYCHOLOGICAL issue. It is a psychological issue for investors. FORTUNATELY.....I dont see or hear many "real people" continuing to talk about this in the real world. I dont see any panic in the "real world".....at least not to the extent being pushed in the media coverage. Much of what is happening now in the aftermath of this banking event is political posturing as various interest groups and others use this event to try to get government to adopt something that they want. Never let a good crisis go to waste. For investors......your entire investing life will be taken up with one crisis after another. it will never end. Fortunately....at least up to now.....in history these events in hindsight are usually never as bad as they are fear mongered to be. Just get tough....suck it up....as is said above.....“In the world of finance, the only black swans are the history that investors have not read.”
And to continue. Surprises - You should be surprised when they don't happen http://mrzepczynski.blogspot.com/2023/03/surprises-you-should-be-surprised-when.html (BOLD is my opinion OR what I consider important content) "“Everybody’s all surprised every time this stuff happens. It surprises me everybody gets surprised because it happens every year like this that there are surprises. The most surprising thing would be if there weren’t any surprises. So, therefore, in the final analysis, none of it’s really that surprising." - Mike Leach football coach Coach Leach's language may be convoluted, but the message is always the same. There will be surprises. Of course, sometime there are good surprise and other time there will be downside surprises. These are the risks that we face. It would be unusual if there were no surprises. Hence, the good investor should expect and prepare for any surprises. You will not be able to predict them, but you can try and mitigate their effects. " MY COMMENT As an investor the best thing you can do is simply....NOTHING. What choice do you have? Your odds of predicting any event in advance is minimal. By the time anything happens it is too late to do anything. As usual it comes down to the usual question: ARE YOU AN INVESTOR OR A TRADER. One thing I have done for over 50 years is....invest in the BEST OF THE BEST......the finest BIG CAP companies in the world. I believe this gives me some level of safety in any sort of crisis or situation that impacts the markets. So for most investors....in the end....it often comes down to your investment choices. If you are constantly in a PANIC.....you need to look in the mirror at your behavior picking the investments that you hold.
Oh yes....I forgot about the markets today.......STILL up but backed off a bit. Stock market news today: Stocks rise, regional bank stocks rebound https://finance.yahoo.com/news/stock-market-news-today-live-updates-march-21-2023-120030781.html (BOLD is my opinion OR what I consider important content) "U.S. stocks moved higher early Tuesday following U.S. and European efforts to stabilize the banking system. The ripples of the bank sector crisis comes on the heels of the Federal Reserve’s next interest rate decision Wednesday. Its policy meeting kicks off Tuesday. As the opening bell rang, the S&P 500 (^GSPC) added 1%, while futures on the Dow Jones Industrial Average (^DJI) gained 0.9%. Contracts on the technology-heavy Nasdaq Composite (^IXIC) edged up by 1%. Bond yields are rising, “potentially indicating less of a recessionary impulse from the banking system,” according to the US Market Intelligence team at JPMorgan. The yield on the benchmark 10-year U.S. Treasury note rose 3.5% Tuesday morning. On the front end of the yield curve, two-year yields jumped to 4.1%. Meanwhile, the U.S. government is exploring ways to guarantee all bank deposits, an effort that wouldn’t need Congress to pass a new law, Bloomberg reported. Treasury Secretary Janet Yellen said at an event Tuesday morning that the government could backstop more deposits if necessary for smaller lenders. The S&P 500 rallied nearly 1% to kick off the new week. According to data from Bespoke Investment Group, energy and materials were the top sector performers, each gaining over 2%. Tech, consumer discretionary, and communication services underperformed following last week’s strength. The headliner event of the week will be a crucial two-day meeting of the Federal Reserve's policy-making committee, where central bank officials face a tough decision whether to raise interest rates again or take a pause amid the turmoil in the banking sector. Prior to the Silicon Valley Bank fallout, policy makers were poised to hike rates by as much as 50 basis points following a flurry of data showing a resilient economy. But given the crisis in the banking sector, many market participants forecast a smaller point increase — or none at all. “Based on Powell’s recent hawkish shift in early March, the market is still giving the Fed room to hike 25bps at this upcoming meeting, but will not allow the Fed to get away with more tightening beyond that,” Victor Masotti, Director of Repo Trading at Clear Street, wrote in a statement. The European Central Bank was confronted by a similar scenario on Thursday. As a result, the ECB raised interest rates by 50 basis points, saying it remains committed to dampening inflation while monitoring the turmoil in the banking sector. “Our economists expect the Fed to follow the ECB’s lead and raise rates in line with expectations, do away with forward guidance, but signal a continued tightening bias,” Jim Reid and colleagues at Deutsche Bank wrote in an early morning note Tuesday. With Credit Suisse’s (CS) solvency no longer a major concern after the weekend's forced marriage between UBS (UBS) and Credit Suisse, US regional banks remain an area of focus. JPMorgan is reportedly leading talks with other banks about efforts to stabilize First Republic (FRC) after last week’s $30 billion deposit lifeline failed to restore confidence. Shares soared early Tuesday after sinking 47% Monday. Other regional bank stocks making gains Tuesday morning include PacWest Bancorp (PACW), Zions Bancorporation (ZION), Western Alliance Bancorporation (WAL), and Regions Financial (RF). Big bank stocks also rebounded, including Bank of America (BAC), JPMorgan Chase (JPM), Wells Fargo (WFC) and Citigroup (C). Here are other trending tickers on Yahoo Finance: Amazon (AMZN): The company plans to make deeper cuts to its workforce, laying off 9,000 more employees in the coming weeks, CEO Andy Jassy announced in a memo to staff on Monday. The move comes after 18,000 workers were laid off earlier this year. Digital World Acquisition Corp. (DWAC): Digital World Acquisition is a SPAC expected to merge with former President Donald Trump's Trump Media & Technology Group. The stock witnessed volatility after Trump said he expected to be arrested on Tuesday over alleged hush-money payments in 2016. Outside of the Fed’s policy meeting, housing data out Tuesday showed that existing home sales jumped 14.5% to an annualized rate of 4.58 million, topping the 4.2 million expected by economists, according to Bloomberg data. On the earnings calendar, results from Nike (NKE) and Darden Restaurants (DRI) are set to be released this week, providing an update on the state of the consumer." MY COMMENT YEP......a typical day in the market neighborhood. We muddle along as usual.....for the long term.
The economic news today....that no one will care about. Existing home sales jump in February as mortgage rates fall https://finance.yahoo.com/news/exis...ebruary-as-mortgage-rates-fall-140027320.html (BOLD is my opinion OR what I consider important content) "Existing home sales in February jumped 14.5% to an annualized rate of 4.58 million, topping the 4.2 million expected by economists, according to Bloomberg data. That's the largest monthly percentage increase since July 2020, wrapping up the 12-monthly streak slide. The median sales price for an existing home slid 0.2% to $363,000, compared to a year ago, according to the data from the National Association of Realtors released Tuesday. "Conscious of changing mortgage rates, home buyers are taking advantage of any rate declines," said NAR Chief Economist Lawrence Yun in the press release. "Moreover, we’re seeing stronger sales gains in areas where home prices are decreasing and the local economies are adding jobs." Total inventory for housing at the end of February stood at 980,000 units, similar to January levels and up 15.3% from a year ago, the NAR reported. About 57% of homes sold in February were sitting on the market for less than a month. Inventory sat on the market for 34 days in February, up from 33 days in January. "Inventory levels are still at historic lows," Yun added. "Consequently, multiple offers are returning on a good number of properties." Under the current backdrop after the closures of Silicon Valley Bank and Signature Bank spread across the banking sector, the average long-term rate on a 30-year fixed mortgage dropped off to 6.6% last week, down from 6.73% the week prior, according to Freddie Mac. A year ago, the rate was 4.16%. Regionally, sales rose in the Northeast 4% from January’s figure to an annualized rate of 520,000 in February, down 25.7% from February 2022. The median price in the Northeast was $366,100, down 4.5% from the previous year. In the Midwest, home sales grew 13.5% from the previous month to an annual rate of 1.09 million in February, declining 18.7% from one year ago. The median price in the Midwest was $261,200, up 5.0% from February 2022. Sales of existing homes in the South rebounded 15.9% in February from January to an annual rate of 2.11 million, a 21.3% decrease from the prior year. The median price in the South was $342,000, an increase of 2.7% from a year ago. And for the West, existing-home sales climbed 19.4% in February from the prior month to an annual rate of 860,000, down 28.3% from the previous year. The median price in the West was $541,100, down 5.6% from February 2022. Meanwhile, foreclosures and short sales made up 2% of sales in February, similar to last month and a year ago." MY COMMENT As usual the economists came through........"topping the 4.2 million expected by economists,"......they are just about ALWAYS wrong. What a dismal record of failure for economic forecasting.
Seeing the mid morning drop in the gains right now. It always seems to happen about 10:30 to 11:00 East coast time. The question always is.....do we come back from here or does the nice start to the day dissipate over the East Coast lunch hour. I have pretty much exhausted my reading today and have a good idea what is going on today. So I guess I should go in and check my account for the first time today.
WELL.....having looked....I can see that the big cap tech companies are not as strong as they were earlier in the day. In my account AAPL and MSFT were negative a minute ago. The rest of my stocks.....8 companies were in the green. I am eagerly waiting for my NIKE earnings after the bell today. I am also very curious what the FED will do this week. I expect it will be a rate hike of 0.25%. I hope they hold firm and dont do 0%.
