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Your Quiver | Friday, March 17, 2023

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

Shamrock Shake

$FRC is still on shaky ground today with investors, even after proposals for $30bn in ad from big bank peers, the largest of which include $JPM, $BAC, $C, and $WFC. (In all reality, aren’t the banks just putting back capital that fled in the last week from $FRC to them anyway?) Well, $FRC disclosed after hours that its borrowing from the Fed ranged from $20-109bn from Mar 10-15, the firm had a small cash position, and it was suspending dividend payments. Because the funds are being added at market rates, investors aren’t giving much credit to potential earnings power (or shareholder value). Plus, it doesn’t help that a number of senior execs were found to have sold stock before the recent crisis, and the sales weren’t part of an automated sales program.


Banks borrowed $164.8 bn from 2 Fed facilities this past week, demonstrating the major funding weakness in the sector. Discount window borrowing rose to $152.85 bn, far above the prior all-time high of $111 bn in 2008. Another $11.9 bn was borrowed from the new emergency backstop program launched Sunday known as the Bank Term Funding Program. At the same time, the PBOC (in China) cut the amount of money banks had to keep in reserve to stimulate the economy by 0.25%.

Triple Witch

An estimated $2.7 trillion of derivatives contracts tied to stocks and indexes will mature today. So, we may see more portfolio adjustments, spikes in volume and px swings. Demand for puts has increased, of course, and market makers will be “short gamma”, requiring them to stay on the current trend ride.

Too Little, Too Late

It sounds like the SF Fed upgraded their examiner team on SVB a year ago and issued a host of warnings to mgmt, including flagging that the bank needed to upgrade how it tracked interest rate risks. You can’t make this up. The point person in charge of monitoring SVB until late 2021 was later assigned to monitor Silvergate, which also failed. No doubt there will be examinations of the roll back of banking regulations in 2018, which ended automatic annual stress tests for banks < $250bn in assets. So when clients withdrew capital when they needed funding (and when customers had to deal with the crypto decline), which caused concerns and spiraled to the “run on the bank” scenario echoed across regional banks this past week—which then caused the banks to sell assets at much lower values.

Hey, Look at Fed Ex

Just trying to give you something positive to think about this morning…Fed Ex boosted its profit outlook on the back of cost cuts. That said, package volume is still down, so don’t party too long on this news. Weakening demand is never a long-term driver of shareholder value.

All In the Family

Schwab clients have been moving cash internally to perceived safer investments. They moved $8.8bn from prime money market funds (that house $195bn in assets) to gov and UST funds, which saw an increase in $14bn in the same time period. So, interestingly, they’re attracting new capital, and clients are sticking with the firm—just shifting perceived risk of securities. Because Schwab has a base of mostly FDIC-insured retailed deposits, it also is in a very different position that other banks in the news. Also, its CEO bought shares during the recent turmoil, he didn’t sell.

Bitcoin Up Big

It is on track for one of its greatest weekly gains in years (+25%), as investors are betting that interest rates will be cut because of banking sector woes. For those of you playing the rate game, just be careful—there are other ways to play it than crypto. So when crypto folks are talking about crypto as a hedge against traditional finance, being a credible risk asset, etc….just remember what happened last year.

Where Are They Now?

BBG is out with a piece on the missing labor pool for 20-24 yr olds and 55+. Participation rates for those segments are very low, well short of Feb 2020 levels. Peeling back the onion, it’s the 65+ folks who didn’t come back to work, which makes sense in that perhaps folks decided that pickleball was too interesting to give up, and there’s more of them than the younger Gen X cohort. For the younger folks, the view is that they were set back in their careers just as the pandemic occurred, called labor market “scarring.” Plus, when they received benefits, some may have decided to take a longer break and enjoy life before going back to work again—or decided to take care of family members.

Best Buds

Xi is heading over to Russia to hang out with buddy Putin from Mon to Wed next week, calling it a “journey of friendship.” Xi will be talking about his 12-pt blueprint for ending the war which, of course, is not going to excite the West. After his brokering a deal between Saudi Arabia and Iran to restore diplomatic ties, he’s probably hoping he’s on a roll.