Beginning of the End of the Everything Bubble (and 800K Hammers and EaaS and wild BaT car prices and and and....)

[gerryvz]

For now Ill pretend that creating equity is unrelated to full employment, and that mitigating climate change is unrelated to price stability.

Ill do that just long enough to point out that the quoted phrases are not part of the Feds dual mandate. And to point out that the Fed cannot change its mandate -- no matter what Elizabeth Warren or Rupert Murdochs WSJ say or want -- only Congress can do that.

Finally, if the concepts by some amazing and criminal chance work their way into Fed speeches its because the pretense of the first paragraph is probably plain wrong -- or at very least the Fed members disagree with that pretense.

maw

So you're saying that governmental leaders have no effect on the priorities of the organizations they head, given their "official" stated mandates? C'mon, that's laughable.

Study what's been happening at the ATF over the past two years with regard to bureaucrats inventing new "interpretations" of existing gun laws (for example, last year "ghost guns" and a few weeks ago, "pistol braces"). And they are in the process of getting slapped down for their bureaucratic over-reach.

Congress makes the rules on guns; the Supreme Court clarifies them; and the ATF / executive branch is supposed to enforce them -- not re-interpret laws that Congress has made to their own ends.

What about the recent push by the current administration to inject ESG into 401(k) investments? Is that stated in the current official laws?

Just about everything in government over the past two years has been viewed + skewed by the lenses of DEI, ESG, "equity" and other buzzwords.

 

[maw1124]

None of that has anything to do with what I said, which was crystal clear from what I wrote. Stay focused.

maw

 

[AMG5PT4]

I have little regard for the Fed and how it was formed and why it was formed and who formed it at the secret meeting on Jekyl Island, and that is as far as I will go with my view of the Fed.

This thread is about what took down SVB and the potential repercussions of their demise. SVB took in a lot of cash from businesses in Silicon Valley. They didn't do a lot of lending, they invested a lot of cash in MBS. Banks make money from their interest income and fees. SVB was very long in MBS debt at low interest rates. With the dramatic increase in interbank rates over the past year, SVB was in an inverse interest position that caused the carrying value of their MBS investments to tumble in value, which they had to cover by borrowing at higher debt rates. This was not an out-of-left field turn of events. The Fed knew this would happen and may happen to other banks.

As Beth Dutton said, "I will short your stock and you will be bankrupt in a week". And that's what happened.

 

[gerryvz]

I was just illustrating some specific examples where government policy is influenced beyond its "officially stated objectives" to refute the points being made that the Fed's priorities are narrow. And that politicians have no influence on the Fed (or other government agencies).

They do.

I’m going to politely bow out of this thread. Clearly there are much larger brains than mine involved in the discussion.

 

[Jlaa]

I have little regard for the Fed and how it was formed and why it was formed and who formed it at the secret meeting on Jekyl Island, and that is as far as I will go with my view of the Fed.

Okay. Thanks for explaining your views!

 

[maw1124]

I have little regard for the Fed and how it was formed and why it was formed and who formed it at the secret meeting on Jekyl Island, and that is as far as I will go with my view of the Fed.

This thread is about what took down SVB and the potential repercussions of their demise. SVB took in a lot of cash from businesses in Silicon Valley. They didnt do a lot of lending, they invested a lot of cash in MBS. Banks make money from their interest income and fees. SVB was very long in MBS debt at low interest rates. With the dramatic increase in interbank rates over the past year, SVB was in an inverse interest position that caused the carrying value of their MBS investments to tumble in value, which they had to cover by borrowing at higher debt rates. This was not an out-of-left field turn of events. The Fed knew this would happen and may happen to other banks.

As Beth Dutton said, I will short your stock and you will be bankrupt in a week. And thats what happened.

There used to be a Netflix documentary called "The Corporation" that I think you would like. It loosely touches on the lack of votes to actually pass the Federal Reserve Act, how we let "legal persons" get away with things we don't let natural persons get away with, etc. All beyond the scope of this thread but if you can find it I think you'll enjoy it.

maw

 

[daantjie]

I'm waiting for the shitty Netflix documentary on this little caper...

 

[maw1124]

Im waiting for the shitty Netflix documentary on this little caper...

You’re living it…

"We were all living high on the hog, the Fed was handing out free money, interest rates seemed permanently low, you could buy more house than you could ever afford, oil was cheap… Donald Trump was President… collector car values were through the Fn roof… it was like the 80’s all over again… and then the pandemic hit and all hell broke loose… when that ended, so did the cheap interest rates… and it turns out some guys in Silicon Valley were partying a little too hard… until somebody (Robert Downey Jr. or Ferris Beuler, I forget which one) smoking crack in the corner lit the stash house on fire… all the money almost burned up… good thing the fire department hadn’t been laid off or shit woulda been like Cheech and Chong…”

It’s really a simple history.

maw

 

[ace10]

It's Monday, and the "blame the last guy" narrative has now been deployed in/by the press.

We're actually living in a clown show.

 

[maw1124]

Just in case we thought clowns weren't humans in costume.

maw

 

[duuder]

its just theater now

edit: always has been

 

[daantjie]

Time to cue up some ODB "Got your money"

 

[Jlaa]

This is an opinion piece from Matt Levine @ Bloomberg. I do enjoy reading Levine's pieces (ex Goldman banker and ex M&A attorney).

SVB Couldn’t Ignore Its Losses, But the Fed Can

Silicon Valley Bank, Signature Bank, BTFP exploits, claims trading, bond trading, USDC and the effect of Money Stuff vacations on volatility.

www.bloomberg.com

I learn a lot reading his pieces, and he was able to frame this in a way that I was unable to. I like the way he make dry topics relatable, and I also appreciate the way he's able to keep a cool head when writing about these topics:

But I think there’s another way to read this. The measures that US regulators announced yesterday — the BTFP and the guarantees on uninsured deposits — do in some obvious sense amount to a bailout of banks. Not of Silicon Valley Bank, though: SVB had already been seized by the FDIC, and its shareholders (and perhaps bondholders) will get zeroed. SVB took dumb risks with depositor money and so its investors lost everything, but the depositors will get their money back.

But every other bank’s shareholders and bondholders and executives will benefit from those measures. If you are an uninsured depositor at a medium-sized bank that made some dumb rates bets, there is no reason to move your money now; the Fed has made it clear that it will support that bank. This (probably!) takes run risk off the table for those banks, making them less likely to fail, making their stocks and bonds more valuable than they would be if the Fed hadn’t acted to limit contagion. (In actual fact many bank stocks are down big today, though presumably they’d be down more without these measures.) The rescue of Silicon Valley Bank’s depositors comes too late for Silicon Valley Bank’s shareholders, but it’s good for every similar bank’s shareholders.

Anyways my primary take away --- The one entity in the entire world who can ignore Mark-to-Market accounting rules ---- the US Govt!

 

[ace10]

Barney Frank sat on the board of Signature Bank, and is blaming "crypto" for this current thorny situation, while only fifteen short years ago, he sat as Chair of the House Financial Services Committee and blamed the "private sector" for the financial crisis.

He's so close to the real problem... you'd think he could see it. Does he not have a mirror?

 

[duuder]

and from what i can gather, signature was well capitalize

 

[ace10]

Going forward, I will endeavor to find nonsense such as this and avoid doing business with or investing in any companies such as SVB.

When you see stuff like this, you know they're not focused on the task at hand.

https://twitter.com/x/status/1635628745934401538

Gillette and Hersheys won't ever see another penny of my money. And I recently left my Credit Union when they decided to deny my Constitutionally-guaranteed rights while at their locations.

 

[maw1124]

Going forward, I will endeavor to find nonsense such as this and avoid doing business with or investing in any companies such as SVB.

When you see stuff like this, you know theyre not focused on the task…

Having built a career a little closer to that fire, I can assure you that the kids are very focused, just not on the tasks you think they should be focused on, and probably not on any task you care about, actually. They are products of a much different time, with much different tools and much different values.

And while I appreciate all the analytical rhetoric around “unrealized losses” in an era of rapid Fed tightening, it’s not new and it’s not much more useful an analytical tool than unrealized gains when the Fed is loosening — they’re UNREALIZED! The real question is why did they need to become realized. That is, what sparked the run on the bank?

maw

 

[8899]

and from what i can gather, signature was well capitalize

 

[8899]

If you adjusted SVB’s Tier 1 Capital for unrealized losses, they were basically insolvent. Once the deposit outflows began, it was all over.

 

[Jlaa]

View attachment 162828

Surprised at the condition of Bank of America when all assets marked to market!

 

[Jlaa]

The real question is why did they need to become realized. That is, what sparked the run on the bank?

maw

Effing Peter Thiel.

 

[ace10]

Having built a career a little closer to that fire, I can assure you that the kids are very focused, just not on the tasks you think they should be focused on, and probably not on any task you care about, actually. They are products of a much different time, with much different tools and much different values.

...

It doesn't matter what the kids are very focused on if you aren't in business to serve them.

 

[daantjie]

Ugh that corporate video made me throw up in my mouth. Cringe.

 

[Jlaa]

Going forward, I will endeavor to find nonsense such as this and avoid doing business with or investing in any companies such as SVB.

When you see stuff like this, you know theyre not focused on the task at hand.

https://twitter.com/x/status/1635628745934401538

Gillette and Hersheys wont ever see another penny of my money. And I recently left my Credit Union when they decided to deny my Constitutionally-guaranteed rights while at their locations.

That Signature Bank Video is a fascinating cultural counterpoint to this Eddie Murphy satirical skit from 1984....... forty years on!

PS - I don't know anything about Signature Bank, but I just read this profile about them on Bloomberg:

‘Old-School’ Signature Bank Collapsed After Its Big Crypto Leap

The lender survived blowups with cabbies, “bad landlords” and Trump — only to fall after trying a side gig.

www.bloomberg.com

Why Did Signature Bank Fail? Inside the Old-School New York Bank - Bl… <--- unpaywalled

The contrast that the article makes between "scrappy, blue-collar, Bronx/Brooklyn Banking" of Signature Bank vs. the conventional "posh, elite, white-collar Manhattan Banking" of say, JPM was interesting.

 

[maw1124]

It doesnt matter what the kids are very focused on if you arent in business to serve them.

My personal view is we’re all in business to serve the future. But of course I’m aware that The Federalist Society disagrees.

maw

EDIT... crypto volatility doesn't care if you're white shoe or blue collar... it's digital... zeroes and ones... as Effin Peter Thiel recently discovered.

 

[Jlaa]

My personal view is we’re all in business to serve the future. But of course I’m aware that The Federalist Society disagrees.

maw

What kind of high-minded absurdity is this? Folks are in business to serve their customers and make profit for their shareholders. : (bustin' your chops man... )

 

[ace10]

Moody's cuts outlook on U.S. banking system to negative, citing 'rapidly deteriorating operating environment'

The firm, part of the big three rating services, said it was making the move in light of key bank failures.

www.cnbc.com

From another story:
"The banks placed under review for downgrade are First Republic Bank (FRC.N), Zions Bancorporation (ZION.O), Western Alliance Bancorp (WAL.N), Comerica Inc (CMA.N), UMB Financial Corp and Intrust Financial Corporation, Moody's said."




Disclosure: I hold one position in this sector. Long on a very small community bank.

 

[sheward]

My personal view is we’re all in business to serve the future.

Rodger that.

 

[ace10]

Gavin probably should have come clean about this.

Newsom has deeper ties to SVB than he let on, report says

A new report revealed that Gavin Newsom has several ties Silicon Valley Bank, which failed last week amid a bank run.

www.sfgate.com

 

[Jlaa]

Gavin probably should have come clean about this.

Newsom has deeper ties to SVB than he let on, report says

A new report revealed that Gavin Newsom has several ties Silicon Valley Bank, which failed last week amid a bank run.

www.sfgate.com

Just as Gavin Newsom is not associated with deep insightful governing, SF gate is not associated with deep insightful reporting.

 

[ace10]

Just as Gavin Newsom is not associated with deep insightful governing, SF gate is not associated with deep insightful reporting.

Are you suggesting that it's okay for him to participate in the political process of a bank bailout while potentially being a beneficiary of said bailout?

His words. His financials. I don't see an issue with connecting the two. Regardless of who's writing the story...

 

[Jlaa]

Are you suggesting that its okay for him to participate in the political process of a bank bailout while potentially being a beneficiary of said bailout?

His words. His financials. I dont see an issue with connecting the two. Regardless of whos writing the story...

Hello @ace10 - nope. I am suggesting that "Just as Gavin Newsom is not associated with deep insightful governing, SF gate is not associated with deep insightful reporting."

 

[ace10]

If we see additional bank failures, I expect there will be a ton of revisionist history w.r.t. the purpose of the early bailouts.
Credit Suisse is down 24% today. Bank equities are getting killed, again.

Much in the same way we witnessed the administration and their media allies lie about the stated purpose of the Russian sanctions.

 

[ace10]

Hello @ace10 - nope. I am suggesting that Just as Gavin Newsom is not associated with deep insightful governing, SF gate is not associated with deep insightful reporting.

Does the story require "deep insightful reporting?"

It's not like I can link to NYT or WaPoo coverage. They've got bigger fish to fry..... you know... orange man bad 24X7.

 

[Jlaa]

Does the story require deep insightful reporting?

Its not like I can link to NYT or WaPoo coverage. Theyve got bigger fish to fry..... you know... orange man bad 24X7.

Well, this is kind of tangent, but SFGATE was a spinoff of the the SF Chronicle (which itself does not have a great reputation). When SF Chron went behind a paywall, SFGATE was charged with the task of NOT being behind a paywall and hoovering up as many clicks as possible with clickbait titles so that clickers would see ads.

What I am saying is that both SFGATE and Gavin Newsom have reputations that deserve each other! I do my best to avoid induced outrage .

 

[ace10]

Fcuk me.

Disclosure: I hold one position in this sector. Long on a very small community bank.

 

[daantjie]

Listening to Yellen is like listening to a kid trying to explain why their homework isn't done

 

[gerryvz]

@Jlaa — have you withdrawn all your deposits from your First Republic Bank accounts yet?

 

[Jlaa]

@Jlaa — have you withdrawn all your deposits from your First Republic Bank accounts yet?

@gerryvz you are prescient . I moved everything at FRC above FDIC limits to T-Bills back in late Feb / early March.

 

[gerryvz]

@gerryvz you are prescient . I moved everything at FRB above FDIC limits to T-Bills back in late Feb / early March.

I’d put it in the new Apple Card savings account at 4.15% — at least up to their max of $250K.

And keep some gold coins on hand. Loonies and pandas are good….

 

[Jlaa]

I’d put it in the new Apple Card savings account at 4.15% — at least up to their max of $250K.

And keep some gold coins on hand. Loonies and pandas are good….

Short term T-Bills are paying over 5% AND state tax free …..

 

[gerryvz]

Apple savings account = a bit more liquid than T-bills

 

[nocfn]

As the refineries leave CA.....I will buy your car

 

[maw1124]

You’re living it…

"We were all living high on the hog, the Fed was handing out free money, interest rates seemed permanently low, you could buy more house than you could ever afford, oil was cheap… Donald Trump was President… collector car values were through the Fn roof… it was like the 80’s all over again… and then the pandemic hit and all hell broke loose… when that ended, so did the cheap interest rates… and it turns out some guys in Silicon Valley were partying a little too hard… until somebody (Robert Downey Jr. or Ferris Beuler, I forget which one) smoking crack in the corner lit the stash house on fire… all the money almost burned up… good thing the fire department hadn’t been laid off or shit woulda been like Cheech and Chong…”

And just like that… [Keyser Soze was gone]

NY Fed report finds Americans increasingly facing borrowing headwinds
NY Fed report finds Americans increasingly facing borrowing headwinds

“The survey also found that rejection rates for auto loans hit the highest level for a data series that goes back to [since 2013 (the start of the data series)] and stood at 14.2%, from 9.1% in February. Rejection rates for credit cards, credit limit increases also gained ground. The rejection rate for mortgages stood at 13.2% in June from 10% in February, while the rejection rate for mortgage refinancing jumped to 20.8% last month, from 16.3% in the prior survey. The survey found that what it called the average probability that a loan will be rejected "sharply" surged to record levels for auto loans, credit cards, credit limit increases and housing related credit.”​

At least it appears crypto may enter a new bull market starting last Thursday (barring appeals by the SEC).

maw

EDIT… I very much expect many of these popup car dealers since 2012 with bloated inventory financed on floor plan lines of credit to be caught up in this, and for such inventory to start hitting the market at such greatly reduced pricing that not even BaT will be able to keep reserve pricing high enough. Primer here…

 

[LWB250]

For what it's worth, I follow the local (Tampa) classic car market closely - that's not just MBs, it's everything, including domestic iron. In the last I would say six months, maybe more like four, more cars are coming on the market but don't seem to be selling. Their prices, with a few exceptions for substance abuse or insanity, also seem to be gradually creeping downward.

Not significantly, like maybe a car that had been $17k listing for $15k. It's seems gradual and incremental.

-D

 

[Jlaa]

EDIT… I very much expect many of these popup car dealers since 2012 with bloated inventory financed on floor plan lines of credit to be caught up in this, and for such inventory to start hitting the market at such greatly reduced pricing that not even BaT will be able to keep reserve pricing high enough. Primer here…

Thanks for this video! What "many of these popup car dealers" do you speak of? You mean like Carvana or smaller used car dealerships? I haven't been paying attention much, but in my neck of the woods there isn't much empty land so I haven't noticed many used car dealership pop up (or maybe I'm just not observant enough).....

 

[maw1124]

Thanks for this video! What "many of these popup car dealers" do you speak of? You mean like Carvana or smaller used car dealerships? I haven't been paying attention much, but in my neck of the woods there isn't much empty land so I haven't noticed many used car dealership pop up (or maybe I'm just not observant enough)..

Good question.

I'm thinking of internet dealers mainly, but including those who can inventory cars on a lot (and hybrids like Carvana). It all takes capital and floor plan is how it works generally under a sales license -- no one is tying up cash to flip cars. Well, money launderers aside, but I digress.

It seems to me like up until when I was buying in '09-'11 only established dealers were buying from Mannheim and reselling used cars. Now, almost everyone is a dealer trading used car inventory, and again no one's tying up cash to flip cars.

That difference I attribute to the Free Money Fed and generally under the form of floor plan financing.

maw

 

[Jlaa]

That difference I attribute to the Free Money Fed and generally under the form of floor plan financing.

Billions in Corporate Debt: Wave of Bankruptcies Threatens Global Eco… <--- Good piece. From a "every day consumer" perspective, note the trouble that Private Equity is in and for companies such as Shutterfly....

 

[maw1124]

Apropos... Carvana shares jump more than 30% on deal to reduce debt by $1.2 billion

I once worked with a global manufacturing concern that had to serially refinance its $2.5B debt facility after the '08 crisis 3 times in 4 years. It was good for no one but the lawyers.

maw

EDIT... to be clear, I'm not sure Carvana's a business that makes sense, not withstanding serial refinancing.

 

[Jlaa]

Apropos... Carvana shares jump more than 30% on deal to reduce debt by $1.2 billion

I once worked with a global manufacturing concern that had to serially refinance its $2.5B debt facility after the '08 crisis 3 times in 4 years. It was good for no one but the lawyers.

maw

EDIT... to be clear, I'm not sure Carvana's a business that makes sense, not withstanding serial refinancing.

So weird about Carvana. I just took a peek --- I'm in the market for a poverty-spec VW Jetta and I noted that I can buy a NEW poverty-spec Jetta for LESS than a USED 1 year old poverty-spec Jetta on Carvana with 17K miles. And this was an offer from a local dealer without doing any price-haggling-combat at all.

I guess people are ok with paying a premium to avoid haggling? Jeez.