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Your Quiver | Friday, March 10, 2023

CIO | Nadine Terman @SolsteinCapital details what she's seeing in global financial markets.

Blue Light Special

SVB Fin’l is in talks to sell itself after failing to raise the necessary capital to remain independent. In case you’ve been off the news desk for the past 24 hours—in brief, deposits at the bank declined as the market declined, venture companies and entrepreneurs needed their cash, and allocators warned their portfolio companies (and the world) that it is safer to get cash out than to leave it in, since “ya never know." That forced the bank to sell assets whose valuations fell last year, even though they were cash-like marked as “available for sale” and eventually would be good money (e.g., Treasuries). So, they took a loss on the assets instead of holding them to fruition. With increasing deposit runs, the bank would have to either shore up capital reserves in buckets allocated for cash or dip into securities that were not labeled for potential sale—which also were not being marked at a realized loss (yet). It reminds me pre-GFC when I saw signs that E-Trade and other fin’ls that made me nervous, and drove me to ensure our capital was spread across institutions to secure the $250k insurance limit on each bucket. In this case, interestingly, the Fed’s hike in interest rate (and poor mgmt. planning) helped drive the issue as rates jumped and longer duration securities fell. First Republic’s shares have been halted. So, this is getting sticky.

The Hierarchy Table

Where do banks go for funding?

1. Sales of available-for-sale assets (SVB did that).

2. They put UST and agency securities at the Fed’s standing repo facility.

3. There’s the Fed’s discount window.

4. FHLB borrowing for short-term advances (SVB did that).

5. Borrow in Fed funds market.

6. Borrow in the repo market.

7. Call Saudi Arabia or other large monied folks to get a lifeline. OK, that last one is mine, but doesn’t that seem to be a pattern?

Positive Payrolls

Payrolls came in above consensus forecasts. Change in payrolls was +311k. While the figure is lower than last mo’s 517k, that was an outlier. Unemployment rate up at 3.6%. The combo of stronger Nonfarm Payrolls with weaker wage info has given treasuries a modest bid.

That's All We Need

Meta thinking about creating a competitor to Twitter? Platformer reported the project’s codename is P92.

The China Consumer

Per NOSO, consumer spending in China increased rapidly in the past few weeks according to high-frequency indicators, especially regarding dining out and travel—which echoes comments from Visa’s CFO we covered in yesterday’s post-market open video. Also to note, Xi is getting a third term and will have 5 more years in power.

Crypto Contagion

Tokens such as Bitcoin and Ether are taking it on the chin, as investors fear contagion from SVB. NoSo notes that further weakness could trigger an unwinding of the golden cross seen at the Feb high. If that happens fast, they warn that we could see a repeat of the reversal in early 2022 that coincided with a multi-month crypto decline.