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Fed's New Rescue Program Just Like the Old Program - 3/13/23

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It's Monday the 13th. Good luck with that. 

The Fed and Treasury announced a bank bailout on Sunday in the hopes of forestalling bank run contagion.  But while it sounds big and new, it's really just a few tweaks to the old tried and true discount window. The difference is that the Fed will now lend without the usual 1%-5% margin it required previously. In addition it will value the collateral at par instead of market value. Finally, it will increase the term of discount window loans from overnight rollovers with a limit of 90 days, to a one year term, prepayable at any time. 

Not a big difference since much of the outstanding bank collateral is in T-bills where their prices are near par. But it does add marginal borrowing for banks holding mostly long term paper that is under water, which is currently on the order of $625 billion. 

image.png

This chart made the rounds of fintwit and all the fin message boards last week. Big depositors at SVB got spooked because there was an awareness of huge unmarked losses there. Today, bank runs are online and instant. Another bank, Signature Bank in New York, fell over the weekend, and the dominoes are set up to fall all at once.

The FDIC and Treasury also announced that all depositors at SVB and Signature, including those with deposits above the insured level, will have full access to their funds. 

The hope is that these announcements will stop any bank runs. If it works, then none of this new program will be tapped.

If it doesn't work, depositors will move their funds out of banks and into government money market funds. These new loans, combined with the inflows into MMFs will flood the system with liquidity. Money rates would start falling.

The message to investors and consumers is that the inflation fight was finished. Inflation will explode and we'll all die. 

Have a good day.

Meanwhile, here's the hourly ES, S&P 500 24 hour futures. Big rally on the news. As of 3 AM in New York, prices had begun to pull back. 3915 and 3908 are the critical levels as of the New York open. If the fuggies are above that, the bailout announcement may work in the short run. But if the market falls back below those levels, there would still be crash potential.

-iqg7

Meanwhile, Thursday and Friday's flight to safety rally in the bond market, as shown on the hourly chart of the 10 year yield, has stalled on this announcement. Is that good news or bad? Some answers: Systemic Meltdown Under Way As Dead Bodies Finally Start Surfacing March 12, 2023

-iqi1

Looks like gold is a safe haven again. DIsaster averted for the yellow metal. Gold On Cusp of Brutal Outlook if This Happens March 8, 2023 Here's a 2 hour bar chart for perspective. Helluva base breakout, but the move appears extended, short term. 

-iqk1

Some are seeing the euro as a safe haven. Looks like Europeans may be repatriating their cash. Not that that will do any good. Their banks are even more under water from all that negative rate paper they're holding. The EUR/USD has an initial measured move objective of 108.30. But if it gets there, that would apply a move to 1.10-1.11. Please no. I'm still mostly in USD. Here's a 2 hour bar chart. This move also looks extended. 

-iqmd

Apparently crypto is a safe haven. Here's the daily chart of BTC. Helluva base. If they clear 25,300, look out above on that. The implied target would be 33,000. 

-iqoy

 

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THINGS ARE MOVING QUICKLY

Plug pulled on Signature.

Bank Term Funding Program (BTFP) rolled out.

Now Big four on a more equal footing with the regionals.

The Fear and Loathing Bank ETF idea now dead.

But is could be repurposed

Big four have $210 billion in unrealised bond losses.

How about the Bank Fear and Loathing ETF shorts the big 4.

BOA seems to have most of the losses.

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WHO IS AIG??????

Who is AIG this time round????

Providing the role of insurer of first and last resort for all the bags????

Providing all the interest rate swap insurance to the Banks??????

Bet its not Goldmember.

I can't but think the best candidates are Credit Swiss and Deutsche.

The hint is in their share price charts.

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27 minutes ago, Jimbo said:

THINGS ARE MOVING QUICKLY

Plug pulled on Signature.

Bank Term Funding Program (BTFP) rolled out.

Now Big four on a more equal footing with the regionals.

The Fear and Loathing Bank ETF idea now dead.

But is could be repurposed

Big four have $210 billion in unrealised bond losses.

How about the Bank Fear and Loathing ETF shorts the big 4.

BOA seems to have most of the losses.

Not even Deutsche itself knows what‘s in their portfolio.

The derivatives portfolio of Deutsche is one frickin mess. A spiderweb of unbelievable propotions.

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The Fed, US Treasury, F-DIC and PPT stepped up to the plate on Sunday to rescue the wildly imprudent big depositors of the Silly Con Valley Bonk. Multiple tech startups had big deposits well in excess of the 250k insurable limit, and we, the great unwashed taxpayers are supposed to bail them out? I guess so.

But stock market indicators currently say, No Way! Eff you! Here’s what’s coming. Non subscribers click here to access.

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55 minutes ago, Jimbo said:

WHO IS AIG??????

Who is AIG this time round????

Providing the role of insurer of first and last resort for all the bags????

Providing all the interest rate swap insurance to the Banks??????

Bet its not Goldmember.

I can't but think the best candidates are Credit Swiss and Deutsche.

The hint is in their share price charts.

Could it be an insurance company? Also with a problematic bond portfolio?

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Guys

 

 

big banks will not fail because this famous chart is fake - its missing the other side of the equation which are swaps.

I talk with couple bond dealers and all of them told me that big banks are fine. because they are hedged. I dont think there is new "AIG" in the system. Thats a question for which we dont know the answer.

I agree with Doc - there should be flow of money to MMF and bonds, so the yields will go down and....this means.....loosening of financial conditions .....which means.....market and Fed (due to their behaviour) are lowering the rates. We can see this already. No more 2x50 this year. Maybe 2x25. Maybe its the pivot.

What does that mean? that inflation will stay, if Fed and market will stop fighting with it by increasing the rates  on the market (Cost of capital). This means ..... higher for longer actually and more pain for consumer and economy. So it will be long process of healing if I must conclude my take on what is happening.

 

* of course there is Credit Suisse and couple other banks that had problems before SVB. Their share price keep going lower which is problematic because those banks are big, probably too big to fail. So I think again - Fed, ECB will help again by offering for free 1-3 years programs buying all their stuff on par (face value, before bonds selloffs). This means actually pivot?

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I dont see panic (flight to USD, selling even gold), because I see USD selloff and gold is bought. In times of stress like during GFC, gold was sold, and USD was bought. So

1. People are buying bonds - because rates will not go higher

2. People are selling dollars because rates are going lower

3. people are buying gold because rates are going lower

4. People are selling oil/commodities because recession is coming.

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