#RunYourBank# My Local Bank is an Easy Short #RetailStressTest#My local Bank is Begging for a Short
It looks like a fully mature 5 wave move that has broken a rising wedge structure
#RunYourBank
#RetailStressTest
Bankrun
What does a bull market look like?Sir John Templeton said: “Bull markets are born on pessimism, grown on skepticism, mature on optimism, and die on euphoria.”
Pessimism:
Following the 2008 crisis, the global economy was engulfed in a cloud of pessimism. Investors were gripped by fear and uncertainty as financial institutions crumbled, economies contracted, and unemployment soared. Stock markets experienced significant declines, and investors became cautious, bracing themselves for further turbulence. This initial stage of pessimism laid the foundation for the birth of a new bull market.
Skepticism:
As the dust settled and economies started to stabilize, skepticism took hold. Investors remained cautious, wary of another downturn and skeptical about the sustainability of the recovery. However, as central banks and governments implemented unprecedented monetary and fiscal stimulus measures QE1,2 & 3, confidence began to slowly seep back into the markets. Gradually, investors started to see signs of improvement, albeit with a sense of skepticism.
Optimism:
The bull market gained momentum as skepticism transformed into optimism. Economic indicators started showing signs of recovery, corporate earnings improved, and investor sentiment shifted towards a more positive outlook. This stage witnessed increased buying activity, as investors sought to capitalize on the upward momentum. As the market continued to rally, optimism became the prevailing sentiment, driving prices higher.
Euphoria:
The final stage of a bull market is characterized by euphoria, a state of extreme excitement and irrational exuberance. During this phase, investors become overly optimistic, disregarding potential risks and buying into the market frenzy. This euphoria is often fueled by widespread media coverage and the fear of missing out (FOMO). In this stage, valuations may become detached from underlying fundamentals, leading to excessive speculation and a heightened risk of a market correction.
Conclusion:
Since the last cycle low established during the 2008 crisis, we have witnessed the birth and evolution of a remarkable bull market. From the depths of pessimism and fear, it grew through skepticism and optimism, ultimately reaching a state of euphoria. It is essential for investors to recognize these stages and exercise caution, especially during the euphoric phase when markets may be prone to excessive speculation and unsustainable valuations. While bull markets provide ample opportunities for wealth creation, it is crucial to remain vigilant and focus on long-term investment strategies that align with underlying fundamentals. By understanding the cyclical nature of bull markets, investors can navigate the ever-changing landscape of financial markets with greater confidence and resilience.
Reference of Nasdaq:
E-mini Nasdaq-100 & Opt
Minimum fluctuation
0.25 index points = $5.00
Micro E-mini Nasdaq-100 Index & Opt
Minimum fluctuation
0.25 index points = $0.50
Disclaimer:
• What presented here is not a recommendation, please consult your licensed broker.
• Our mission is to create lateral thinking skills for every investor and trader, knowing when to take a calculated risk with market uncertainty and a bolder risk when opportunity arises.
CME Real-time Market Data help identify trading set-ups in real-time and express my market views. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com
SPY: FLUSH OR RALLY / MARKET BREADTH / MARKET MAKERS TIMINGDescription: In the chart above I have provided a semi-macro analysis of SPY that compares ongoing market rally and past rallies within the range of 420 & 360 Points.
Points:
1. Price Action is fast approaching 420 Resistance that has been indicative of a turn around for past 4 rallies that failed to break the 420 LEVEL.
2. First 2 rallies under the 420 Level showed signs of congruence when it came to market breadth and price action.
3. Last 3 rallies including current one has shown divergence with market breadth along with a distinct pattern of consolidation that is followed by a sudden drop in price action.
4. It is important for price action to have another leg even if current uptrend is continued.
First Price Target: 404.64 Bouncing Support
Second Price Target: 400 Critical Support
Market Breadth:
1. Showing strong signs of divergence with average price action continuing to rise. The Tech Sector is mainly responsible for the upholding of this rally with giants like AAPLE, NVIDIA, AMD, AMAZON, META, & GOOGLE fighting against bearish momentum.
2. For the majority of US INDICES Tech companies like AAPLE, NVIDIA, AMD, AMAZON, META, & GOOGLE represent a large majority of the holdings within many US INDICES. So it is no coincidence for why market breadth may appear weak when only a couple holdings are contributing to rallies meanwhile a large majority of the holdings are in the red.
3. Market Breadth Levels of 4200 have been indicative of volatile declines in price action in the past with an average incoming 10 POINT DECLINE over a day or two.
FULL CHART LINK: www.tradingview.com
AMEX:SPY
Are we approaching the last cycle expansion phase?The last cycle expansion phase or the euphoric stage, has already occurred between 2020 and 2021.
Sir John Templeton said: “Bull markets are born on pessimism, grown on skepticism, mature on optimism, and die on euphoria.”
Reference of Nasdaq:
E-mini Nasdaq-100 & Opt
Minimum fluctuation
0.25 index points = $5.00
Micro E-mini Nasdaq-100 Index & Opt
Minimum fluctuation
0.25 index points = $0.50
Disclaimer:
• What presented here is not a recommendation, please consult your licensed broker.
• Our mission is to create lateral thinking skills for every investor and trader, knowing when to take a calculated risk with market uncertainty and a bolder risk when opportunity arises.
CME Real-time Market Data help identify trading set-ups in real-time and express my market views. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com
Why are investors turning their attention to mid-cap stocks?This will be the 2 questions we will be discussing today
1. So, what is happening on this divergence and its implication?
2. And who is leading who?
a. Large cap leading the mid-to-small cap market? Or
b. The mid-to-small cap leading the large cap market?
The answer: The mid-to-small cap is leading the large cap market and why is it so?
If recession hits, hypothetically mid-to-small cap stocks employing the majority of the work force or employees in United States will be the most affected, this huge workforce is also considered as the mass consumer.
The large cap stocks, their business depends on the mass consumer. If the mass consumers start to tighten their belts, the large cap stocks revenue will also be affected subsequently.
Some reference for traders:
E-mini S&P MidCap 400 & Option:
Outright:
0.10 index points = $10.00
Micro E-mini S&P MidCap 400:
CME ClearPort:
0.05 index points = $0.50
E-mini Russell 2000 & Option:
Outright:
0.10 index points = $5.00
Micro E-mini Russell 200
Outright:
0.10 index points = $0.50
Disclaimer:
• What presented here is not a recommendation, please consult your licensed broker.
• Our mission is to create lateral thinking skills for every investor and trader, knowing when to take a calculated risk with market uncertainty and a bolder risk when opportunity arises.
CME Real-time Market Data help identify trading set-ups in real-time and express my market views. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com
Is this our Bear Stearns collapse? In 2008 the Market rallied after the Bear Stearns collapse near March Trip Witch. Other banks stepped in to buy it up and disaster was averted! Or rather a 6 month stay of execution for the rest of them... The week of Sept 15th Lehman Bros collapsed, followed the next week by WaMu, then the next day by Wachovia. Wachovia would've probably survived if the other banks hadn't murdered financial stocks so bad. The dominos had started falling 6 months prior, tho.
So, if the market rallies here, I'd look for a similar pattern to unfold. Compare mid-summer to see if it's valid.
Despite bank run, why is the market higher? • First, the bank run APPEARS to have stabilized
• Second, the inflation SEEMS to be taming
Do not be complacent, keep on keeping track of the coming market developments. Just like what Jerome Powell said on the 3rd May after the latest interest rate hike, in the meeting conference, he said “We will take a data-dependent approach, our future policy will depend how events unfold … meeting by meeting.”
I totally agree with him! As a retail investor, we can study into the price behavioural movement and I did quite a few videos on that (see below), market will usually give us early signal and we should be able to tell before the next crisis hits again.
Trading & Hedging in Nasdaq -
E-mini Nasdaq Futures & Options:
Minimum fluctuation
0.25 index points = $5.00
Micro E-mini Nasdaq Futures & Options:
Minimum fluctuation
0.25 index points = $0.50
Disclaimer:
• What presented here is not a recommendation, please consult your licensed broker.
• Our mission is to create lateral thinking skills for every investor and trader, knowing when to take a calculated risk with market uncertainty and a bolder risk when opportunity arises.
CME Real-time Market Data help identify trading set-ups in real-time and express my market views. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com
Why Russell Index the most Reflective for Bank Run Crisis?Russell represents the true economy of United States.
There are 2,000 medium size companies with each value between $300m to $2b. The index includes a diverse range of companies from various sectors, including financials, healthcare, consumer goods, industrials, and technology. In my opinion Russell represents the true economy of united states.
If the bank run crisis deepens, it is possible that 2,000 companies will not hold up well. The reasons for this are stated in the video. This could affect the other major indices, with the Russell 2000 potentially leading the pack. The Russell 2000 is considered more reflective of the US economy compared to the other major indices with big names like Apple, Amazon, and Microsoft.
E-mini Russell 2000 Index Futures & Option
Outright:
0.10 index points = $5.00
Micro E-mini Russell 2000 Index Futures
Outright:
0.10 index points = $0.50
Micro E-mini S&P 500 Index Futures & Option
Outright:
0.25 index points = $1.25
Micro E-mini Nasdaq Index Futures & Option
Outright:
0.25 index points = $0.50
Micro E-mini Dow Jones Industrial Average Index Futures
Outright:
1.0 index points = $0.50
Disclaimer:
• What presented here is not a recommendation, please consult your licensed broker.
• Our mission is to create lateral thinking skills for every investor and trader, knowing when to take a calculated risk with market uncertainty and a bolder risk when opportunity arises.
CME Real-time Market Data help identify trading set-ups in real-time and express my market views. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com
Yield curve is inverted today - Its implication and attributeWe have an inverted yield curve today - When the near end yields or interest rates is higher than the far end, we have an inverted yield.
What is its implication and any attributes?
To understand the implications of an inverted yield curve, it is crucial to know what a yield curve is and how it works.
A healthy yield curve –
It shows the relationship between the interest rate and the time to maturity of the bond. A normal yield curve slopes upward, meaning that long-term bonds have a higher yield than short-term bonds. This upward sloping curve indicates that investors demand a higher yield to hold longer-term bonds, as they are taking on more risk by locking up their money for a longer time.
An unhealthy or inverted yield curve –
However, an inverted yield curve occurs when short-term yields are higher than long-term yields. This situation indicates that investors are willing to accept lower yields on longer-term bonds, which is an indication of their pessimism about the economy's future growth prospects. Essentially, investors are willing to lock up their money for an extended period, accepting a lower yield, because they expect economic conditions to deteriorate.
Its implication –
i. It is a reliable predictor of an upcoming economic recession. This phenomenon has been observed many times over the years, and every time an inverted yield curve has occurred, a recession has followed. The reason for this is that an inverted yield curve indicates that investors are losing confidence in the economy, which can lead to decreased investment and spending. This, in turn, can lead to a slowdown in economic growth, which ultimately results in a recession.
ii. Another implication of an inverted yield curve is that it can make borrowing more expensive for certain individuals or companies. Banks typically borrow at short-term rates and lend at long-term rates, earning a profit on the difference between the two. However, an inverted yield curve makes this process less profitable for banks, and they may become less willing to lend, resulting in a tightening of credit conditions.
Attribute –
Short-term fixed deposit saver. ie. Keep rolling your 3-month fixed deposit saving or traders trading into the expected volatility.
In conclusion, an inverted yield curve, where the current Fed fund rate and 3-month yield is higher than the 30-year yield, is a rare occurrence in the bond market that has significant implications for the economy. It is a reliable predictor of an upcoming recession and can result in higher borrowing costs for some individuals and companies. Investors should be aware of this phenomenon and take it into account when making investment decisions.
Some reference for traders:
Micro Treasury Yields & Its Minimum Fluctuation
Micro 2-Year Yield Futures
Ticker: 2YY
0.001 Index points (1/10th basis point per annum) = $1.00
Micro 5-Year Yield Futures
Ticker: 5YY
0.001 Index points (1/10th basis point per annum) = $1.00
Micro 10-Year Yield Futures
Ticker: 10Y
0.001 Index points (1/10th basis point per annum) = $1.00
Micro 30-Year Yield Futures
Ticker: 30Y
0.001 Index points (1/10th basis point per annum) = $1.00
Disclaimer:
• What presented here is not a recommendation, please consult your licensed broker.
• Our mission is to create lateral thinking skills for every investor and trader, knowing when to take a calculated risk with market uncertainty and a bolder risk when opportunity arises.
CME Real-time Market Data help identify trading set-ups in real-time and express my market views. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com
First Republic Bank Continues Below $5Merely an update to my previous idea.
And well... I started this idea before the bell, and it was $3.51 at the time.
It's now $2.01 post as of typing this but that will be different already.
I think I will just post this as is, because it's moving too quickly to make any rational conclusions.
To be noted, every time $15 was broken, the market dumped it below preventing it from becoming proper support.
Now, the HKEX:5 line is going to be doing similar tricks on it and FRC fell below it.
Notice the two more recent dead cats I have professionally marked 😼
I did not have HKEX:3 price line on my previous chart, but I see that now there's a clear line there as well.
Only psychological levels matter at this point.
Same ideas:
*It's a personal opinion of mine that psychological levels, whole number resistance and support, should have this much control over price action.
Psychological levels have the most effect when there's extremes of emotions. I feel it's rather self-explanatory.
It's either going towards zero or it's getting bought to prevent it from hitting the pavement.
The variance in price alone is a clear indicator its in deep trouble while it was just downgraded to BB.
Previous low on charts of $17.60 is notable, while HKEX:20 pertains to psychological significance.
Below this, I see little more than psychological levels.
HKEX:10 , double digits. HKEX:5 , where select exchanges consider a stock a penny stock. HKEX:1 , where the rest consider it a penny stock.
You can label a ton of this chart a deadcat bounce here or there.
Please add thoughts. I didn't see a Fibonacci ladder helping much because the price action was too chaotic.
DYOR/DYOC.*
Bank Wars: 1st Republic, 1st Citizens, Silicon Valley, BitcoinAs First Republic Bank continues to slide down the charts (still ongoing at the publishing of this idea), talks about another bank run happening is starting to resurface again. How valid is the claim that people will flee to crypto as things get worse in the banking system? (Especially with people like Balaji, that claims that Bitcoin will hit HKEX:1 ,000,000 by the end of June.) A closer look at some of the facts.
Balaji's 1M Bitcoin Thread:
twitter.com
SI Silvergate Capital going to $0???If you haven`t sold crypto`s favorite bank, SI Silvergate, here:
Then you should know that Silvergate Capital Corp, the parent company of Silvergate Bank, announced its closure and liquidation of assets on Wednesday.
Shortly after, New York state banking regulators closed down Signature Bank to prevent the fallout from the failure of Silicon Valley Bank.
Lawyers representing plaintiffs in a class action lawsuit by FTX customers against 18 defendants, including Signature and Silvergate, claim that these events will severely limit the amount of money they can access if they can prove the banks are responsible.
Kerry Miller of Fishman Haygood, whose firm filed the lawsuit in Miami federal court, stated that FTX customers may have to rely on insurance policies covering the banks' top executives and board members since these events impose another hurdle.
Haven`t seen any bidders for it, or other banks supporting SI SIlvergate.
Most likely to file for bankruptcy and go to $0.
Looking forward to read your opinion about it.
BAC Bank of America Medium Term OptionsI think BAC Bank of America is one of the few beneficiaries of the small banks bank run that we are witnessing today.
Big banks are the safest places where you can place your money right now.
Looking at the BAC Bank of America options chain, i would buy the $30 strike price Calls with
2024-1-19 expiration date for about
$2.85 premium.
Looking forward to read your opinion about it.
Bank Run to Gold Rush Gold rush up accordingly to each major news during the bank run crisis in March.
Problem seems to subside for now. We will explore the possibility of a contagion effect to a wider bank run in this video.
A story of having too much money problem
• It is a bank – need to pay interest to depositors
• During pandemic - invested 10yrs bonds yield average 1.79%
• Before Feb 2022 Fed fund rate at 0.25%
• Mar 2023 Fed fund rate at 5%
How about the other banks, will they also have a similar problem in time to come? With uncertainty still lingering I am seeing opportunities in Gold, other precious metals and commodities.
3 types of gold for trading:
• COMEX Gold
0.10 per troy ounce = $10.00
• E-mini Gold
0.25 per troy ounce = $12.50
• Micro Gold
0.10 per troy ounce = $1.00
Disclaimer:
• What presented here is not a recommendation, please consult your licensed broker.
• Our mission is to create lateral thinking skills for every investor and trader, knowing when to take a calculated risk with market uncertainty and a bolder risk when opportunity arises.
CME Real-time Market Data help identify trading set-ups in real-time and express my market views. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com
Downgraded From BB+ To BBIt's a personal opinion of mine that psychological levels, whole number resistance and support, should have this much control over price action.
Psychological levels have the most effect when there's extremes of emotions. I feel it's rather self-explanatory.
It's either going towards zero or it's getting bought to prevent it from hitting the pavement.
The variance in price alone is a clear indicator its in deep trouble while it was just downgraded to BB.
Previous low on charts of $17.60 is notable, while $20 pertains to psychological significance.
Below this, I see little more than psychological levels.
$10, double digits. $5, where select exchanges consider a stock a penny stock. $1, where the rest consider it a penny stock.
You can label a ton of this chart a deadcat bounce here or there.
Please add thoughts. I didn't see a Fibonacci ladder helping much because the price action was too chaotic.
DYOR/DYOC.
Inflation on 20 years "Borrowed Time"Gold started its rally since 2000.
Whereas inflation and interest rates remain low since 2000.
Reason for the "Borrowed Time"?
Because easy money policy was needed to create:
1) An increase in money supply
2) By lowering its interest rates
Purpose for easy money policy?
3 major events after 2000:
1) Middle East War
2) Subprime crisis
3) Covid-19 rescue plan (it tipped in 2020)
The after effect of the accumulated easy money policy seem to be at its beginning.
Meaning more upside for inflation and interest rates.
Meaning Gold to continue its upward momentum.
For traders -
3 types of gold for trading:
• COMEX Gold
0.10 per troy ounce = $10.00
• E-mini Gold
0.25 per troy ounce = $12.50
• Micro Gold
0.10 per troy ounce = $1.00
See the video version below
Disclaimer:
• What presented here is not a recommendation, please consult your licensed broker.
• Our mission is to create lateral thinking skills for every investor and trader, knowing when to take a calculated risk with market uncertainty and a bolder risk when opportunity arises.
CME Real-time Market Data help identify trading set-ups in real-time and express my market views. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com
FRC First Republic Bank Price TargetFRC First Republic Bank received uninsured deposits of $30 billion on Mar 16, 2023, from 11 banks of the country: Bank of America Corporation BAC, Citigroup Inc. C, JPMorgan Chase & Co. JPM, PNC Bank, Wells Fargo, Goldman Sachs, Morgan Stanley, Bank of New York Mellon, State Street, Truist, and U.S. Bank.
I know it`s a risky trade, but i believe this recue package puts it in a lot better situation that CS Credit Suisse Group.
My price target for FRC First Republic Bank is at least $30.30 and maybe $52.20.
Looking forward to read your opinion about it.
1929 styled Bank Run Starting Tomorrow !!!SIVB SVB Financial Group Buyout or Bail Out, the only options!
SVB was the second-largest banking failure in the history of the United States!
Only 2.7% of Silicon Valley Bank deposits are less than $250,000. Meaning, 97.3% aren't FDIC insured, resulting in over $160 billion of uninsured customer deposits.
Roughly 50% of the US venture capital-funded startups are clients of SVB, potentially putting 65,000 startups at risk of payroll disruptions. Such a situation could have significant consequences for the startup and tech sectors.
SVB did business with FTX, plus many other formerly overvalued tech companies.
With $210 billion in assets, $SIBV was the 15th largest bank in the US in terms of deposits.
SVB held $91 billion in bond portfolio, classified as “held-to-maturity” securities, with an yield of 1.78!
SVB CEO Greg Becker explained that the bank was selling its available-for-sale bond portfolio for $21 billion due to anticipated sustained higher interest rates, challenging conditions in both public and private markets, and elevated cash burn levels from its clients.
This move resulted in a total loss of $1.8 billion for the bank.
I think we are going to see a government take over of SIVB SVB Financial Group on Monday.
In case they don’t do that, a 1929 styled bank run starting tomorrow!
So i don’t think they have a choice other than bail out SVB Financial.
In case of a Takeover, the buyout area should be $12.75 - $32.
This is my Price Target for SIVB.
2020 Covid Lockdown level was $128 so the stock is Still expensive right now!
Looking forward to read your opinion about it!
Credit Suisse Price Channel PainI don't love the idea of making grandiose predictions; I prefer to see everything in ranges of probability.
That being said, the few simple tools I have added to this chart seem to have rather negative implications.
There may be other price levels that are noteworthy, but I see the psychological levels of $10 and $3 having importance here.
$6.50 as a previous ATL.
$2 Psychological Support Level currently bearing the brunt of the weight.
The wick of the current candle falls below to the current ATL of $1.76.
I have marked a vague price channel towards the end.
End result is a possible price channel to $0.
To me, this doesn't look great.
Take everything anyone says with a grain of salt.
DYOR/DYOC.
Commentary welcome; I don't mind being wrong, especially in this case.
ZION,UMBA,WAL,CMA 5d 202303145 day snapshot of 5 regional banks after Moody's downgrade on Mar-14-2023 and collapse of Silicon Valley Bank and Signature Bank
ZION, UMBA, WAL, CMA
SVB: Understanding and Managing Interest Rate Risks CBOT: 10-Year Treasury Futures ( CBOT:ZN1! )
Last Wednesday, Silicon Valley Bank (SVB) NASDAQ:SIVB announced that it incurred $1.8 billion loss in the sales of its bond portfolio and sought to issue new shares. Within 48 hours, a bank-run induced by panic customers brought down the legendary bank.
On Friday, US banking regulators seized control of SVB. By Sunday, the Treasury Department, the Federal Reserve, and Federal Depository Insurance Corporation (FDIC) jointly announced a rescue plan that would make whole all depositors. However, SVB shareholders are not protected.
Why has happened to the well-respected and once well-capitalized bank?
Opportunity and Risk Go Side-by-Side
Traditional banks seldom extend credit to startups, which are mostly under-collateralized, with little or no profit and big uncertainties about their future survival.
SVB developed a niche competitive edge to provide banking services to companies funded by venture capitals. In the past 40 years, it nurtured many high-profiled tech startups through their entire life cycle, from early-stage to IPO and to Big-Tech giants.
If Sequoia Capital invested in your firm and you apply for a loan from a commercial bank, you can expect the loan officer to ask: “Sequoia Who?” But if you go to SVB, they would say: “$10 million will be in your account tomorrow.”
VCs are exceptionally good at spotting future technological trends, and they follow a rigorous due diligence process to pick investing targets. By working with VCs and startups closely, SVB created an ecosystem that foster technological innovations, and grew to become the 16th largest US bank by deposit.
However, SVB’s concentration in the high-tech sector also make it vulnerable to a boom-and-bust cycle. Last year, bear market hit the industry hard. Publicly traded firms couldn’t raise money with falling share prices. Private companies found the path to IPO got blocked. As startup clients withdrew deposits to keep their companies afloat, SVB is short on capital. It was forced to sell most available-for-sale bonds at a huge loss.
Bad news travelled fast in close-knit tech investing community. VCs urged their portfolio companies to get the hack out of SVB. All told, customers withdrew a staggering $42 billion of deposits on Thursday. By the close of business day, SVB had a negative cash balance of $958 million, according to the filing, and this triggered the government takeover.
A Commercial Bank with a Failing Grade
In fiscal year 2022, SVB earned $4.5 billion in Net Interest Income (NII) and $1.7 billion in non-interest income. When you take away the bells and whistles, SVB is by large a commercial bank. About 73% of its revenue comes from taking in deposits at a low interest rate and making loans at a higher interest rate.
Based on its 2022 10K filing, SVB managed $209.2 billion in total interest-bearing asset and earned $5.7 billion. This represented an effective yield of 2.73%. During the same period, SVB paid out $1.2 billion in funding cost, which equated to 0.57%.
• Therefore, in 2022, its NII = 2.73% - 0.57% = 2.16%
• In comparison, its NII for year 2021 was 2.02% (=2.09% - 0.07%).
• On the surface, SVB was doing well, with NII spread increasing by 14 basis points year-over-year.
What has gone wrong then? Dive deeper into SVB’s balance sheet, we see the long-dated Treasury bonds and illiquid mortgage-backed securities it held got hammered by the rising interest rates. Simply put, SVB got its interest payment back, but the value of its investment principal eroded in a huge way in a rate-hiking environment. All in all, managing interest rate risk is at the core of banking business.
A Naked Bond Portfolio
In its 10K, SVB puts its investment portfolio in Available-For-Sales (AFS), Held-To-Maturity (HTM) and Non-marketable securities categories.
AFS balance was $26.1 billion as of December 31st, including:
• U.S. Treasury securities $ 16,135m (61.9%)
• Agency-issued MBS $6,603m (25.3%)
• Agency-issued CMBS $1,464m (5.6%)
• Foreign government debt securities $1,088m (4.2%)
• Agency-issued CMO—fixed rate $678m (2.6%)
• U.S. agency debentures $101m (0.4%)
• Total AFS securities $26,069m (100%)
Last week, SVB sold $21 billion in the AFS portfolio and incurred a loss of $1.8 billion, or -8.6%. AFS assets are marked to market every quarter. My understanding is that the loss figure was based on selling price vs. year-end fair market value.
Total loss calculated from purchasing price could be much bigger, as these bonds may have been marked down multiple times during previous quarters. Evidence: Since March 2022, CBOT 10-Year Treasury Futures (ZN) price went down from 124 to 109 (-12%) and 30-Year Treasury Bond (ZB) fell from 152 to 118 (-22%).
CBOT Treasury futures market, with its sheer size and liquidity, makes it the marketplace of choice to manage interest risk in times of uncertainties. Each ZN contract has a notional value of $100,000.
• On Monday March 13th, daily trading volume is 3,760,911 lots, which translates into total notional of $376 billion. Open interest (OI) stands at 4,311,338, or $431 billion in notional.
• Volume and OI for ZB are 719,518 and 1,209,881, respectively. Notional value for each is $72 billion and $121 billion, respectively.
What’s Next
On Friday, Signature Bank customers spooked by the SVB collapse withdrew $10 billion. That quickly led to the bank failure. Regulators announced Sunday that Signature was being taken over to protect its depositors and the stability of the U.S. financial system.
Despite government intervention over the weekend, fear ran contagious through the financial industry this Monday. San Francisco’s First Republic Bank, which had $212 billion in assets at the end of 2022, saw its stock price plunge as much as 70% when the market opened Monday morning.
By market close, US stock market stabilized. Investors wonder if a banking crisis could be the final punch to end the year-long Fed rate hikes.
Lessons Learnt
As investors, we usually allocate our financial assets across various instruments, such as stocks, bonds, and derivatives. The 60 (stock) / 40 (bond) portfolio is the most popular advice from Wall Street.
People generally pay more attention to what stocks to buy and hold, but we may not think twice about managing interest risk in a rising rate environment. The SVB fallout shows that even the safest, risk-free Treasury bonds, if not actively managed, could fall prey to interest rate changes and liquidity risk, resulting in loss of market value.
For me, this is a wake-up call and a good time to review my bond holdings. Some may be hidden in a 401K retirement plan. Hedging interest rate risk with CBOT Treasury futures and Micro Yield futures could go a long way to stay solvent.
A View on Interest Rate Trajectory
Today, the Bureau of Labor Statistics reports that the consumer price index rose 0.4% in February and 6% from a year ago, in line with market expectations. This is the most recent data the Fed will consider before it makes interest decision on March 22nd.
Inflation is cooling, but still too high. A bank run shows how damaging rising interest rate is to the economy. Whether the Fed will continue its rate hikes, pause them, or end them altogether, I think all options are open.
In my view, interest rate is in an uncharted territory once again. With investors in panic mode, they will likely overreact to the Fed decision. This may be a good time to place an order of out-of-the-money options on CBOT 10-Year Treasury Futures (ZN).
On March 14th, the June ZN contract is quoted at 113’220. Quoting convention in Treasury market is 100 and 1/64th. The quote reads as (113 + 22.0/64), or $113.34375 on $100 par value.
If the Fed slows or pause the hike, Treasury price will likely go up. Call options would be appropriate in this case.
• The 115-strike call is quoted 0’20 (=20/64). This is converted into $312.5 premium on the $100,000 contract notional for each contract.
If the Fed stays its course on fighting inflation, Treasury price could fall. And put options would be a way to express your view.
• The 112-strike put is quoted 0’14, or $218.75 premium per contract.
Happy Trading.
Disclaimers
*Trade ideas cited above are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management under the market scenarios being discussed. They shall not be construed as investment recommendations or advice. Nor are they used to promote any specific products, or services.
CME Real-time Market Data help identify trading set-ups and express my market views. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com
Gold leads inflation by 20 yearsBank run crisis causes the current Fed fund rate to trade higher than the rest of the bond yields, what is its implication?
As US CPI remain high, global equities will continue to be uncertain this year. Investors are now turning their attention to precious metals.
Gold has started to move up since year 2000, it has appreciated more than 700%. However, the inflation and interest rates was stagnated the last 20 years.
What's happening?
Because in those years, I classified it as "Borrowed Time"
A need for easy money policy by:
1) Increasing the money supply
2) Lowering interest rates
Good times may be over, but I am seeing opportunities in the other set of assets - commodities.
For traders -
3 types of gold for trading:
• COMEX Gold
0.10 per troy ounce = $10.00
• E-mini Gold
0.25 per troy ounce = $12.50
• Micro Gold
0.10 per troy ounce = $1.00
Disclaimer:
• What presented here is not a recommendation, please consult your licensed broker.
• Our mission is to create lateral thinking skills for every investor and trader, knowing when to take a calculated risk with market uncertainty and a bolder risk when opportunity arises.
CME Real-time Market Data help identify trading set-ups in real-time and express my market views. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com
SBNY Signature Bank next to Collapse? If you haven`t bought those 5X puts:
Then you should know that Signature Bank's stock experienced its worst day on record following the collapse of SIVB Silicon Valley Bank and SI Silvergate.
Due to high volatility, trading was suspended earlier in Friday's session, and the stock has continued to decline for five consecutive sessions.
This downturn was triggered by the closure of Silvergate, the second major bank serving digital assets companies, as well as the regulatory shutdown of Silicon Valley Bank, the 18th largest bank in the United States.
It has been reported that Signature Bank had exposure to FTX.
I am still bearish on the company and i believe it will reach the $34 - $63 area soon!
Looking forward to read your opinion about it!
