Posted March 10, 2023
By Sean Ring
Jobless Claims, Banks, Cryptos, and Staley: What a Mess!
- Jobless claims weren’t high enough.
- Silicon Valley Bank gets crushed, down over 60% on the day.
- Bitcoin gets hammered under $20,000.
Or at least I wish you one. And I hope it’s better than yesterday.
Disclosure: I’m a few short energy stocks, so yesterday was perfectly enjoyable for me.
Yesterday morning, I wrote about how this morning’s nonfarm payroll report is critical. If the number comes in too strong, Chairman Pow will have a better case to hike rates higher and for longer.
I briefly mentioned the initial jobless claims report, but honestly, I didn’t think it was as important. Alas, it was.
I also missed the banking sector. Since Credit Suisse has been such a mess for so long, I haven’t been looking elsewhere in the banking system for any issues.
Well, yesterday, those problems came home to roost.
To cap it all off, Bitcoin got slammed as well.
BTC just doesn’t seem to be able to keep a rally going.
Let’s take them one by one, so we can see what happened.
Yesterday’s Jobless Claims and Today’s Nonfarm Payrolls
When the market opened yesterday, not that much was happening.
In fact, after about two hours, I stopped watching and did something else—my mistake.
As you can see, after about two hours was when all the fun began.
It was as if the market got increasingly upset over a jobless claims number that wasn’t incendiary in and of itself.
Initial jobless claims came in at 211,000. The expected number was 195,000, and the prior was 190,000. You’d think the Fed would be happy with more people looking for work than expected.
It’s just that the number wasn’t high enough for the market’s liking.
The SPX proceeded to swan dive from 4,000 to 3,910 at one point before finishing the day at 3,918.32.
And we’re not out of the woods yet. We’ve got the nonfarm payroll number this morning.
If we come in much higher than the consensus 225,000 number, we’ll sell off hard into the weekend.
If we’re under 225,000, Powell won’t be as keen to hike rates vigorously.
But the jobless claims number wasn’t the only thing weighing down on the market.
Silicon Valley Bank, the BKX, and JPM’s Jes Staley Issue
Silicon Valley Bank ran into trouble because it parked its deposits in US Treasuries. Thanks to Chairman Pow’s hiking policy, USTs aren’t the safe investment they used to be.
Note: when we say USTs are “risk-free,” we mean default risk-free. That is, the US Treasury will never default on its bonds because the Treasury can always hit CTRL-P to print the interest payments and principal repayment.
Of course, they aren’t price risk-free. As they say in the City of London, they’re “whore’s drawers.” Up and down, up and down. Since banks have to mark-to-market their securities positions daily, those losses directly and immediately affect the income statement (profit and loss), which feeds into the balance sheet through the equity section.
Though those financial statements are reported quarterly, information like this allows the market to “price in” the damage. That’s why stock prices occasionally nosedive in between quarterly releases.
From The Wall Street Journal:
Thursday’s rout is another consequence of the Federal Reserve’s aggressive campaign to control inflation. Rising interest rates have caused the value of existing bonds with lower payouts to fall in value. Banks own a lot of those bonds, including Treasurys, and are now sitting on giant unrealized losses.
Large declines in value aren’t necessarily a problem for banks unless they are forced to sell the assets to cover deposit withdrawals. Most banks aren’t doing so, even though their customers are starting to move their deposits into higher-yielding alternatives. Yet a few banks have run into trouble this week, sparking fears that other banks could be forced to take losses to raise cash.
The stock fell to $106.04 yesterday, a drop of 60.41%. Over 38 million shares traded, an enormous number compared to the weighted average of the last 20 trading days of only 2.55 million shares.
But how about this big winner?
Note: Buying puts gives you the right, but not the obligation, to sell a specified quantity of a specific stock at a date in the future, at a price agreed upon today (the premium). If you buy puts, you’re “buying downside” or “bearish.”
Isn’t that a beautiful thing? There are always a few big winners for every loser out there. That’s derivatives for you.
It wasn’t just SIVB - it was the entire banking complex.
The KBW Banking Index was down 7.70% yesterday. Ouch. The KBW portfolio includes large national money centers, regional banks, and thrift institutions traded in the US.
The big bank bearing the brunt of the selling force was the US’s largest bank, JP Morgan.
Why is that? From The Wall Street Journal:
JPMorgan Chase & Co. sued former executive Jes Staley over his ties to Jeffrey Epstein, identifying Mr. Staley as the “powerful financial executive” accused of sexual assault in a lawsuit against the bank.
Late last year, an unnamed woman alleged that JPMorgan aided Epstein’s sex trafficking by allowing him to remain a client and helping him send money to the late financier’s victims.
The woman, in her lawsuit against the bank, said an Epstein friend sexually assaulted her using aggressive force but said she was afraid to identify him publicly. JPMorgan Wednesday said that friend was Mr. Staley.
JPMorgan’s lawsuit against Mr. Staley adds him to the woman’s lawsuit and another Epstein-related case filed by the U.S. Virgin Islands. The legal maneuver allows the bank to argue Mr. Staley should have to pay damages if the bank is held responsible.
Epstein may not have killed himself, but he keeps killing all his associates!
At the time of my writing this, Bitcoin is now under $20,000.
At least we’ve got some good gallows humor from the Twitterverse:
Credit: The Chart Report, via @followtheh
I still hold that Bitcoin, at least for now, is a tech play. It’s too correlated to the general market to be considered a store of value.
Like most derivatives - although Bitcoin maximalists would bristle at that term - Bitcoin was invented for noble reasons but has become a gambling instrument.
“My, my, my, what a mess…” said Tommy Lee Jones as he surveyed the trainwreck in The Fugitive.
That’s exactly what we got yesterday.
Hopefully, the payroll number today won’t be so damaging.
In the meantime, have a restful and enjoyable weekend!