The Nasdaq and S&P 500 are still in positive territory for the year, but not by much.
The Federal Reserve's tightening campaign had been the primary focus, until late last week when Silvergate Capital and Silicon Valley Bank "SVB" hit the headlines.
Most notably headlines that Silicon Valley Bank was being shut down by regulators on Friday as withdrawals pushed the company's balance sheet into negative territory. The bank ran into trouble earlier in the week and had to sell about $2 billion in assets at a loss to cover withdrawals.
Most of those securities were tied to government-backed debt, such as Treasuries, which have taken a beating this year amid the Fed's steady interest rate hikes. About $42 billion of deposits were withdrawn by the end of day on Friday, according to a regulatory filing, leaving SVB a negative cash balance of -$958 million and making it the second-largest bank failure in US history.
Remember, deposits are only insured by the US Federal Deposit Insurance Corp. (FDIC) up to $250,000 but many companies had millions - some billions - parked there.
According to SVB’s 2022 annual report, the bank reported $173.1 billion in total deposits as of December 31, of which 88% was "uninsured". The blow to tech startups will likely reach beyond the US, too, as SVB has branches worldwide.
It's still not clear how many companies are affected but there are some big names among them, including Roblox and Etsy. The cryptocurrency sector is also feeling the impacts with several so-called "stable coins" falling below their 1-to-1 US dollar peg, adding to the industries existing troubles.
Investors now wonder how much contagion there might be further out on the horizon. Bulls are pointing to the fact there was an emergency meeting held over the weekend and Fed/Treasury jointly announced Sunday evening that all SVB depositors will have full access to all of their capital on Monday morning.
In other words, from what I understand, even the "uninsured" money is going to be guaranteed to the depositors. Wow, another massive safety-net thrown into play.
Bulls are also thinking this might slow the Fed down a bit as some banks are starting to buckle. How many more are going to be caught offsides by the big jump in interest rates which causes the value of its bond investments to decline in value, which in turn generates losses if the bank is forced to liquidate investments to meet depositor withdrawal demands.
I suspect the Fed/Treasury recognize this as a serious risk and are going to backstop this in order not to lose consumer banking confidence.
Bears believe there is a lot more fallout to come and this is just the tip of the iceberg.
Remember, Friday's February Employment Report showed an ongoing hot labor market with +311,000 jobs created vs. expectations for a gain of around +225,000. The January numbers were revised down slightly but the two-month average is still over +400,000, which by any definition is strong payroll growth and keeps the Fed worried about inflation, which should equate to higher rates for longer.
The key data this week is the Consumer Price Index (CPI) on Tuesday, and the Producer Price Index (PPI) and Retail Sales on Wednesday.
There is no major data due today or earnings of interest today.
For reference, and to keep the bank failure headlines in perspective, there were 25 FDIC-insured banks that failed in 2008 with the largest ever in US history being Washington Mutual. In 2009, the contagion really took hold and over +135 FDIC-insured banks failed. In 2010 over +155 FDIC-insured banks failed. There were still over +90 FDIC-insured banks that failed in 2011, and still over +50 that failed in 2012. You can see all the FDIC failures by year HERE . Let me remind you, the US stock market bottomed in March of 2009. Lots to think about this week...
Will Wall Street's Purchase of Hundreds of Thousands of Homes Affect Rental Prices: Institutional investors may control 40% of U.S. single-family rental homes by 2030, according to MetLife Investment Management. And a group of Washington, D.C., lawmakers believe that Wall Street needs to back away from the market. The single-family rental industry got its start with government backing in the fallout after the 2008 financial crisis. It was that rare opportunity that attracted the institutions to build a portfolio out of these foreclosed properties. Industry advocates argue that they do not control enough market share currently to dictate prices in any market. Large institutions owned roughly 5% of the 14 million single-family rentals nationally in early 2022, according to analysts. By 2030, the institutions may hold some 7.6 million homes, or more than 40% of all single-family rentals on the market, according to the 2022 forecast by MetLife Investment Management. Interestingly, between January 2020 and January 2023, rents for a two-bed detached home increased about +44% in Tampa, Florida, +43% in Phoenix, and +35% near Atlanta. That’s compared to a +24% increase nationwide. Source CNBC
If You Want a Good Paying Job After Graduation, Better Get a STEM Degree: If your goal is to make money with your college degree, major in chemical engineering, computer, aerospace, or electrical. If you specialize in education, the hospitality industry or theology, you may not be as financially fortunate, at least according to the Federal Reserve Bank of New York, which in February released its latest labor market analysis for recent college graduates. Engineers are not only well paid at the start of their careers, but their income generally increases 35% or more by the career midpoint. Science majors did better, with income increases in the mid-40% range. Source USA Today
Fights Over Rural America’s Phone Poles Slow Internet Rollout: The U.S. plans to spend at least $60 billion in the next decade to ensure every American household has high-speed internet. An old-fashioned obstacle stands in the way: utility poles. Getting everyone the same service city dwellers enjoy generally means stretching fiber-optic cable to homes, farms and ranches in rural areas. Many of these places already have utility poles carrying electric or telephone wires. The poles are owned by electric or phone companies that often aren’t getting public money to build out broadband, triggering skirmishes that some internet providers blame for slowing needed upgrades. Disputes involving utility poles have gummed up broadband projects in Kentucky, Michigan and South Carolina. One squabble in Socorro, N.M., left two elementary schools without high-speed internet for several years. Pole owners including Exelon Corp. and AT&T Inc. say they accommodate other lines on their poles as long as they are fairly compensated for “make ready” costs, such as replacing old poles or moving existing wires. Internet providers who don’t own poles, such as Charter Communications Inc., counter that utilities often drag their feet in allowing access or pad their fees. Source WSJ
Saudi Aramco Reports Record Profit for 2022: Saudi Arabian oil giant Aramco (2222.SE) on Sunday reported a record annual net profit of $161.1 billion for 2022, up +46% from the previous year on higher energy prices, increased volumes sold and improved margins for refined products. The profits, which are around triple that of Exxon's $56 billion, follow similar reports in February from international peers such as BP, Shell, and Chevron which have mostly posted record profits for last year. Aramco declared a dividend of $19.5 billion for the fourth quarter, an increase of 4% from the previous quarter. Its board also recommended to issue bonus shares, with eligible shareholders receiving one share for every 10 shares owned. Source Reuters
Why Regulators Want to Keep AM Radios in New EVs: The lack of AM radio in some new electric vehicles could cut off drivers from important safety alerts broadcast over the medium, warned a group of former emergency officials in a letter Sunday. Auto makers such as Ford and Tesla have dropped AM radio from newer EV models. Car companies say the motors on such vehicles generate electromagnetic frequencies on the same wavelength as AM radio signals, creating buzzing and signal fading from the interference. The issue, the former officials say, is that AM radio serves as a linchpin of the infrastructure behind the federal National Public Warning System, which provides emergency-alert and warning information from FEMA to the public during natural disasters and extreme weather events. “Should this continue, it will represent a grave threat to future local, state, and federal disaster response and relief efforts,” the letter said. Source WSJ
The Largest US Cities by GDP: The United States has the largest GDP in the world in nominal terms, and urban areas are a major contributor to the country’s economic might. In fact, metropolitan areas account for roughly 90% of U.S. economic output. The visual below ranks the economic output of the top 15 US cities from New York City to Minneapolis, using data from the Bureau of Economic Analysis. The data covers 2021, which is the most recent release from BEA. There are some obvious winners when it comes to the largest U.S. cities by GDP, including NYC, Los Angeles, Dallas, and San Francisco. Although many of the top ranking cities are not surprising (New York, San Francisco, Seattle) there are a number of up-and-coming cities in the list. North Carolina is home to two of the fastest growing metropolitan areas, Raleigh-Durham and Charlotte. These cities may be ones to watch as they are becoming hubs of tech, research, and manufacturing. In fact, North Carolina was recently ranked as the most attractive U.S. state to do business in and both cities are among the fastest growing in terms of population. The economic center of gravity within the U.S. could be shifting away from the traditional centers of power towards booming cities in the South and West of the United States. The Kenan Institute found that the recovery of hospitality and leisure sectors has helped destinations in these regions like New Orleans and Orlando. Additionally, the shift towards high-tech industry jobs, remote work, and cheaper housing have made these cities very attractive Source Visual Capitalist
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