Dow was off 37, advancers modestly over decliners & NAZ declined 52. The MLP index added 2+ to the 217s & the REIT index was off 1+ to the 352s. Junk bond funds saw a little buying & Treasuries remained lower, bringing higher yields. Oil continued above 73 & gold recovered 19 to 1973 (more on both below).
AMJ (Alerian MLP Index tracking fund)
![Live 24 hours gold chart [Kitco Inc.]](https://www.kitco.com/images/live/gold.gif?0.2180338269244485)
The run on Silicon Valley Bank's deposits this month went far deeper than was initially known. Since the day regulators seized SVB, it was public knowledge that panicked customers withdrew $42B from the bank on Mar 9 on concerns that uninsured deposits were at risk. But that pales in comparison to what would've gone out the next day, Michael Barr, vice chair for supervision at the Federal Reserve, testified today before the Senate Banking Committee. Regulators shuttered SVB on Mar 10 in the biggest bank failure since the 2008 financial crisis. “That morning, the bank let us know that they expected the outflow to be vastly larger based on client requests,” Barr said. “A total of $100 billion was scheduled to go out the door that day.” The combined withdrawal figure of $142B represents a staggering 81% of SVB's $175B in deposits as of year-end 2022. Lawmakers summoned top US banking regulators to DC why Silicon Valley Bank & Signature Bank collapsed earlier this month. Barr & others pointed to mismanagement by bank execs & noted that banks with assets of more than $100B may need stricter rules. The former CEOs of the banks did not attend. SVB's final days as an independent bank were a roller coaster of emotions. After SVB management “spooked” investors & customers with its “belated” attempt to raise capital late Wed on Mar 8, the situation appeared to have calmed early Thurs, Barr testified. “But later Thursday afternoon, deposit outflows started and by Thursday evening, we learned that more than $42 billion, as you indicated, had rushed out of the bank,” he added. Fed staff worked around the clock on Mar 9 to save the bank, searching for enough collateral to borrow additional Bs of $s from the Fed's discount window to honor withdrawal requests, Barr continued. In the morning SVB was seized, regulators believed they may have solved the bank's shortfall, only to run into a $100B wall of withdrawals. “They were not able to actually meet their obligations to pay their depositors over the course of that day and they were shut down,” Barr said.
SVB customers tried to withdraw nearly all the bank’s deposits over two days, Fed’s Barr testifies
Investors are too confident the Federal Reserve will cut interest rates this year & could pay the price later, according to asset management giant BlackRock & others. Market pricing as of today pointed to the Fed holding its benchmark interest rate at current levels & then starting to reduce as early as Jul, according to CME Group calculations. Those cuts could total as much as a full percentage point by the end of the year, the firm’s FedWatch gauge shows. That comes despite multiple public statements from central bank officials, who indicated in their “dot plot” unofficial forecast last week that they see probably another qtr percentage point hike & then no cuts at least thru the end of 2023. The expectation for cuts would be consistent with a recession & an accompanying fall in inflation, assumptions that strategists think are dubious. “We don’t see rate cuts this year – that’s the old playbook when central banks would rush to rescue the economy as recession hit,” BlackRock said in its weekly client note. “Now they’re causing the recession to fight sticky inflation and that makes rate cuts unlikely, in our view.” The investing implications are ominous: BlackRock, which manages about $10T in client money, says it is underweight stocks in developed markets such as the US. Instead, it recommends clients focus on investments like fixed income that is indexed to inflation, as well as very short-duration gov bonds. Resilience in stocks, the firm said, is coming largely because markets are still holding onto hope that the Fed starts to ease after a year of tightening that sent the benchmark federal funds rate up 4.75 percentage points. “We think the Fed could only deliver the rate cuts priced in by markets if a more serious credit crunch took hold and caused an even deeper recession than we expect,” BlackRock strategists wrote. Projections the Fed released following its latest rate hike last Wed imply a shallow recession for later this year. The median expectation for GDP growth for the full year is 0.4%. Considering that the Q1 gain is tracking, according to an Atlanta Fed gauge, at 3.2%, the math would require at least some negative growth the rest of the way to get to the 0.4% estimate. At the same time, officials estimate a 4.5% unemployment rate by the end of the year, from the current 3.6%. Getting there would require a loss of more than 571K jobs, according to an Atlanta Fed calculator.
BlackRock warns that investors are making a mistake by betting on Fed rate cuts
House Speaker Kevin McCarthy said that there has been “no progress” in debt ceiling negotiations between House Reps & the White House, as the US inches closer to risking a first-ever default. “We’ve made no progress,” he said. “I’m always an optimist. I’m not now.” Congress periodically needs to lift the debt limit, the maximum amount the federal gov is allowed to borrow, to cover spending obligations. The gov often spends more money than it takes in from taxes, resulting in the deficit. House Reps have refused to lift the debt ceiling without promises of spending cuts. “Time is ticking,” McCarthy said. “Now I’m very concerned about where we are.” The US already hit its debt limit, forcing the Treasury to take extraordinary measures to keep paying its bills. The nonpartisan Congressional Budget Office estimated the administration will exhaust its emergency tools sometime this summer, raising the prospect of a default unless lawmakers raise or suspend the ceiling. The White House has taken the position that while spending cuts need to be made, it will not negotiate on the debt ceiling & expects Reps to lift the limit. Dems argue that the GOP has only made the borrowing limit an issue when a Dem pres is in power. They point to the multiple times Reps authorized debt ceiling increases under former Pres Trump while authorizing new spending & tax cuts for the wealthiest Americans. It has been nearly 2 months since McCarthy & Biden met to discuss debt ceiling measures. McCarthy, in a letter to Biden today, said action is needed & called the non-negotiation position “extreme.” McCarthy said he is prepared to continue discussions. “It’s time to drop the partisanship, roll up our sleeves, and find common ground on this urgent challenge,” McCarthy wrote, asking the White House to reach out to his team by the end of the week.
As McCarthy laments ‘no progress,’ here’s where U.S. debt ceiling talks stand
Gold prices settled higher as worries about the banking sector eased following back-to-back losses for the precious metal. Apr gold futures gained $19 (1%) to settle at $1973 per ounce. Gold prices gained following 2 consecutive session losses. Data from the Conference Board showed that a survey of US consumer confidence rebounded slightly in Mar to 104.2 from a revised 103.4. The index remains well below the levels associated with a healthy economy. Inflation expectations remain high, with Americans expecting prices to rise 6.3% in the next 12 months. Last week, the central banks raised interest rates with one hand while handing out liquidity to banks with the other.
Gold Futures Post a Gain after Back-to-Back Declines
Oil futures finished at their highest in more than 2 weeks, with prices finding support from a pullback in banking concerns, strength in Chinese energy demand & news of a short-term oil-supply disruption. Natural-gas futures, meanwhile, posted their highest settlement since Sep 2020, with prices pressured as forecasts for more moderate temperatures in parts of the US dulled demand expectations. May West Texas Intermediate crude rose 39¢ (0.5%) to settle at $73.20 a barrel, the highest since Mar 13. Apr natural gas lost 6¢ to settle at $2.03 per M British thermal units ahead of the contract's expiration at the end of tomorrow's trading session.
Oil Futures Marks Highest Finish in Over 2 Weeks; Natural-Gas Prices End to Lowest in Over 2 Years
Fed's Barr sees 'need' for stronger bank regulations after SVB failure. His testimony was very scary for investors. In response, traders were selling stocks in the PM. More talk about a coming recession later this year is not helping matters. Nervous investors are investing in 2 year Treasuries which now yield more than 4%.
Dow Jones Industrials
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