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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.
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.
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
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.
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.
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.
For moron the markets, see:
- Bailout or Not, Stock Traders Are Should Give the Fed, Treasury, and FDIC the Finger March 13, 2023
- Systemic Meltdown Under Way As Dead Bodies Finally Start Surfacing March 12, 2023
- Gold On Cusp of Brutal Outlook if This Happens March 8, 2023
- Swing Trade Screen Picks – 3 Buys, No Shorts March 6, 2023
- Mixed Bag of Signals Screaming, “Walk This Way” March 5, 2023
- February Withholding Taxes Say – Fade the Jobs Report! March 2, 2023
- Here’s Why There Will Never Be Bull Markets Until This One Thing Happens February 26, 2023
- You Can Now Follow the Diabolical Usual Suspects February 16, 2023
If you’re serious about the underlying forces of supply and demand that drive the markets, join me!
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