Baltic Dry Index. 1535 -25 Brent Crude 72.33
Spot Gold 1992 US 2 Year Yield 3.81 -0.33
Coronavirus
Cases 01/04/20 World 1,000,000
Deaths 53,103
Coronavirus Cases 20/03/23 World 682,546,389
Deaths 6,819,835
"There is no
means of avoiding the final collapse of a boom brought about by credit
expansion. The alternative is only whether the crisis should come sooner as the
result of voluntary abandonment of further credit expansion, or later as a
final and total catastrophe of the currency system involved."
Ludwig von Mises.
An interesting, if trying, week lies ahead.
Will the UBS rescue of failed bank Credit Suisse be enough to end the rolling bankster crisis? While the forced “rescue” all but wipes out CS’s shareholders it’s not entirely clear what it does to the bondholders. Nor is it clear who will take massive hits from the damage to the shareholders. How long before the global redundancies start?
To prevent a global dollar shortage crisis, several central banks will provide extra liquidity via hastily arranged new standing U.S. dollar liquidity swap lines.
In other news this week, President Xi is in Moscow in support of President Putin.
The US central bank meets this week to set its key interest rate. Given what’s just happened in banking, a case could be made for doing nothing or cutting by a quarter percent, but given the latest US inflation figures a case could be made for increasing their key interest rate by a quarter or a half percent.
Former
US President Trump says he expects to be arrested and indicted tomorrow.
UBS buys Credit
Suisse for $3.2 billion as regulators look to shore up the global banking
system
UBS agreed
to buy its embattled rival Credit Suisse for
3 billion Swiss francs ($3.2 billion) Sunday, with Swiss regulators playing a
key part in the deal as governments looked to stem a contagion threatening the
global banking system.
“With the takeover of Credit Suisse
by UBS, a solution has been found to secure financial stability and protect the
Swiss economy in this exceptional situation,” read a statement from the Swiss
National Bank, which noted the central bank worked with the Swiss government
and the Swiss Financial Market Supervisory Authority to bring about the
combination of the country’s two largest banks.
The terms of the deal will see
Credit Suisse shareholders receive 1 UBS share for every 22.48 Credit Suisse
shares they hold.
“This acquisition is
attractive for UBS shareholders but, let us be clear, as far as Credit Suisse
is concerned, this is an emergency rescue. We have structured a transaction
which will preserve the value left in the business while limiting our downside
exposure,” said UBS Chairman Colm Kelleher in a statement.
The combined bank
will have $5 trillion of invested assets, according to UBS.
“We are committed to
making this deal a great success. There are no options in this,” Kelleher said
when asked during the press conference if the bank could back out of the deal.
“This is absolutely essential to the financial structure of Switzerland and ...
to global finance.”
The Swiss National
Bank pledged a loan of up to 100 billion Swiss francs ($108 billion) to support
the takeover. The Swiss government also granted a guarantee to assume losses up
to 9 billion Swiss francs from certain assets over a preset threshold “in order
to reduce any risks for UBS,” said a separate government statement.
“This is a commercial solution and not a bailout,”
said Karin Keller-Sutter, the Swiss finance minister, in a press conference
Sunday.
The UBS deal was scrambled together
before markets reopened for trading Monday after Credit Suisse shares logged
their worst
weekly decline since the onset of the coronavirus pandemic. The
losses came despite a new loan of up to 50 billion Swiss francs ($54 billion)
granted from the Swiss central bank last week, in an effort to halt the slide
and restore confidence in the bank.
News of the deal was welcomed by
Treasury Secretary Janet Yellen and Federal Reserve Chair Jerome Powell in a
statement. “The capital and liquidity positions of the U.S. banking system are
strong, and the U.S. financial system is resilient. We have been in close
contact with our international counterparts to support their implementation,”
they said.
Credit Suisse had already been
battling a string
of losses and scandals, and in the last two weeks, sentiment was
rocked again as banks in the U.S. reeled from the collapse of Silicon Valley
Bank and Signature Bank.
More
Analysis:
UBS swallows Credit Suisse, casting shadow over Switzerland
March
20, 2023 1:09 AM GMT
LONDON, March 20 (Reuters) - UBS Group (UBSG.S) emerged as Switzerland’s one and only global
bank with a state-backed rescue of its smaller peer Credit Suisse, a risky bet
that makes the Swiss economy more dependent on a single lender.
---- The
transaction – the first rescue of a global bank since the financial crisis of
2008 – grants enormous clout to UBS, ridding it of its main rival. It will
change the landscape of banking in Switzerland, where branches of Credit Suisse
and UBS are dotted everywhere, sometimes just metres apart.
The
two lenders have been pillars of global finance for decades. The banks, two of
the most systemically relevant in global finance, hold combined assets of up to
140% of Swiss gross domestic product in a country heavily dependent on finance
for its economy.
Following the
2008 financial crash, politicians pledged to never bail out banks again. The
Credit Suisse rescue, orchestrated with public money, shows banks' continued
vulnerability and how their problems can quickly rebound on their home country.
But
it also removes a competitor to Wall Street, with UBS planning to pare back
much of Credit Suisse’s investment bank.
"Under
normal circumstances, I would say it is an absolutely fantastic deal for
UBS," said Johann Scholtz, equity analyst at Morningstar, covering
European Banks, Amsterdam. "In the current environment, it is a bit more
complicated as there is a lot of uncertainty generally in the markets."
---- UBS
will pay $3.2 billion for 167-year-old Credit Suisse and assume at least $5.4
billion in losses from unwinding its portfolio of derivatives and other risky
assets. Credit Suisse had a market value of about $8 billion at the close on
Friday.
Holders
of Credit Suisse’s Additional Tier 1 bonds will get wiped out and in a
controversial move will come secondary to equity holders who will receive at
least some UBS shares.
It
marks a radical twist of fate for the banks. During the great financial crash,
it was UBS and not Credit Suisse that needed state support.
More
Analysis:
UBS swallows Credit Suisse, casting shadow over Switzerland | Reuters
Hong Kong shares
slide over 2%, Asia markets mostly fall after UBS buys Credit Suisse
UPDATED MON, MAR 20 2023 12:18 AM EDT
Asia-Pacific markets largely fell on Monday
after UBS agreed to buy its banking rival Credit Suisse in a $3.2 billion
takeover over the weekend.
The Hang Seng index led
losses in the region, falling over 2.5% and dragged down by health-care stocks.
The Hang Seng Tech index was 2.6% lower.
In mainland China, the Shanghai Composite was
up 0.14%, while the Shenzhen
Component was 0.28% higher. This comes after China left its
one-year and five-year loan prime rate unchanged at 3.65% and 4.3%
respectively.
In Australia, the S&P/ASX 200 fell
1.16%, while Japan’s Nikkei 225 was
1.02% down and the Topix was 1.17% lower.
South Korea’s Kospi is 0.47%
lower, but the Kosdaq bucked the trend in Asian markets, trading at 0.47%
higher.
On Friday, U.S. stocks fell to round off a
roller coaster week as investors pulled back from positions in First Republic and
other bank shares amid lingering concerns over the state of the U.S. banking
sector.
The Dow Jones Industrial Average lost
1.19%, the S&P 500 slid
1.10%, and the Nasdaq
Composite was down 0.74%.
Hong Kong regulators
say Credit Suisse branches will open for business as usual
Hong Kong’s
Monetary Authority and its Securities and Futures Commission announced Credit Suisse operations in the
city will continue as usual, after the UBS takeover of the embattled bank over
the weekend.
Credit Suisse’s
operations in Hong Kong comprise a branch supervised by the HKMA and two
licensed corporations supervised by the SFC.
The regulators said
the “customers can continue to access their deposits with the branch and
trading services provided by Credit Suisse for Hong Kong’s stock and
derivatives markets.”
“The exposures of
the local banking sector to Credit Suisse are insignificant,” regulators
pointed out, adding that total assets of the Hong Kong branch amounted to about
HK$100 billion (US$12.74 billion), representing less than 0.5% of its banking
sector.
Shares of Hong Kong
banks were down sharply on Monday morning, with HSBC shedding 4.37% and being
one of the top losers on the HSI, while Standard Chartered lost 3.81%.
Asia
markets UBS, Credit Suisse; China, loan prime rates (cnbc.com)
Bank of England to start repo operations at 0815 GMT on Monday
March
19, 2023
LONDON (Reuters) - The Bank of England said it would hold the first of its new, daily seven-day maturity repo operations - part of a global central bank response to the crisis at Credit Suisse - at 0815 GMT on Monday.
The BoE along with the Bank of Canada, the Bank of Japan, the
European Central Bank, the Federal Reserve and the Swiss National Bank said
jointly on Sunday they would enhance liquidity provision via new standing U.S.
dollar liquidity swap lines.
Bank
of England to start repo operations at 0815 GMT on Monday (msn.com)
S&P cuts
First Republic deeper into junk, says $30 billion infusion may not solve
problems
First
Republic Bank saw
its credit ratings downgraded deeper into junk status by S&P Global, which
said the lender’s recent $30 billion deposit infusion from 11 big banks may not
solve its liquidity problems.
S&P cut First Republic’s credit
rating three notches to “B-plus” from “BB-plus,” and warned that another
downgrade is possible. Other ratings were also lowered.
The agency said First Republic
likely faced “high liquidity stress with substantial outflows” last week,
reflecting its need for more deposits, increased borrowings from the Federal
Reserve, and the suspension of its common stock dividend.
It said that while
the deposit infusion should ease near-term liquidity pressures, it “may not
solve the substantial business, liquidity, funding, and profitability
challenges that we believe the bank is now likely facing.”
Sunday’s downgrade by
S&P was the second in four days for First Republic, which previously held
an “A-minus” credit rating.
It could add to
market concerns about the San Francisco-based bank, which has scrambled to
assure investors and depositors about its health following this month’s collapses
of Silicon Valley Bank, which also served many wealthy clients, and Signature
Bank.
Another rating
agency, Moody’s Investors Service, downgraded First Republic to junk status on
Friday.
More
Finally,
how the San Fran Fed missed Silly Con Valley Bank.
Why woke
‘Frisco Fed chief missed Silicon Valley Bank’s warning signs
By
Paul Sperry March 17, 2023
Wokeness has replaced competence
and merit across the banking sector, and San Francisco Fed Chief Mary Daly is
the poster child of this pernicious trend.
A protege
of Treasury Secretary Janet Yellen and short-list candidate for Federal Reserve vice
chair, Daly was supposed to be supervising Silicon Valley Bank but apparently
was too busy playing politics and pushing woke agendas to
regulate rogue banks like SVB, the second-biggest bank failure on record.
Daly had other priorities,
including climate change, George Floyd and Black Lives Matter, inequities
between blacks and whites, LGBTQ+ rights and a host of other woke
social-justice issues that had nothing to do with banking and finance.
Daly’s Fed bio gushes she’s
committed to “understanding the economic and financial risks of climate change
and inequities.” Never mind the more existential threat of banks in her
jurisdiction amassing mortgage bonds with longer maturities that exposed
investors to greater interest-rate risk.
In a recent LinkedIn post, Daly
appeared sidetracked by racial justice, writing: “What Black voices have I
lifted up? Equity & inclusion begins with me. #GeorgeFloyd.” She also
posted selfies with local Black Lives Matter activists.
Meanwhile,
Daly missed all the warning signs of runaway inflation, which led to the steep interest-rate hikes that made SVB’s investments worthless.
In 2021, she said, “I am not
thinking that we have unwanted inflation around the corner. I don’t think
that’s a risk.”
Early last
year, moreover, Daly denied the economy was suffering from painful inflation: “That’s not what I see.” She also didn’t see the
need for hiking interest rates.
Then in August, she said
inflation didn’t affect her personally, so what’s the big deal? “I don’t feel
the pain of inflation anymore,” Daly told Reuters.
“I’m not immune to gas prices
rising, food prices rising,” she added. “But I don’t find myself in a space
where I have to make trade-offs, because I have enough, and many, many
Americans have enough.”
Easy for her to say: She pulls
down more than $422,000 a year.
From her policy papers, speeches
and interviews, it’s clear that Daly thinks the Fed’s core mission isn’t
controlling inflation but achieving full employment — and raising interest
rates just hurts that goal. Her agenda is more jobs and higher wages for
minorities, so sound money is not a priority for her — even though inflation is
a huge tax on the working class and especially minorities.
Until
recently, Daly was opposed to the Fed’s hawkish shift to tightening credit to
fight inflation. Her bank examiners no doubt shared her dovish mindset and
didn’t anticipate rates increasing, which may also explain why alarms weren’t raised at SVB.
Daly has no background in
banking or managing risk. After dropping out of high school, she worked in a
donut shop before eventually getting her GED and entering college, where she
became enamored with a socialist professor.
She said she was inspired by
Marxian economist Gene Wagner, who “has mentored me my whole life.”
Several years later, after
earning a PhD from Syracuse University, Daly landed a job as a labor inequality
researcher at the San Francisco Fed, where she ingratiated herself with then-SF
Fed President Janet Yellen, who helped her fail upward.
Daly called Yellen an
“important mentor in my life .
More
Why woke 'Frisco Fed chief missed Silicon Valley
Bank's warning signs (nypost.com)
Global Inflation/Stagflation/Recession Watch.
Given our Magic Money Tree central banksters and our spendthrift politicians, inflation now needs an entire section of its own.
‘Not QE’ as Fed Trapped Between a ‘Rock and a Hard Place’
Updated: March 18, 2023
“QE” or Quantitative Easing has been the bull’s siren song
for the last decade, but will “Not QE” be the same?
Last week, amid a rash of bank insolvencies, government
agencies took action to stem a potential banking crisis. The Federal Deposit
Insurance Corporation (FDIC), the Treasury, and the Fed issued a Bank Term
Lending Program with a $25 billion loan backstop to protect uninsured
depositors from the Silicon Valley Bank failure. An orchestrated $30 billion
uninsured deposit by 11 major banks into First Republic Bank followed. Those
deposits would not occur without Federal Reserve and Treasury assurances.
The details of the Bank Term Funding Program were
described in the Federal Reserve press release.
“The additional funding will be made available through the
creation of a new Bank Term Funding Program (BTFP), offering loans of up to one
year in length to banks, savings associations, credit unions, and other
eligible depository institutions pledging U.S. Treasuries, agency debt and
mortgage-backed securities, and other qualifying assets as collateral. These
assets will be valued at par. The BTFP will be an additional source of
liquidity against high-quality securities, eliminating an institution’s need to
quickly sell those securities in times of stress.
“With approval of the Treasury Secretary, the Department
of the Treasury will make available up to $25 billion from the Exchange
Stabilization Fund as a backstop for the BTFP. The Federal Reserve does not
anticipate that it will be necessary to draw on these backstop funds.”
Banks quickly tapped the program, as
shown by a $152 billion surge in borrowings from the Federal Reserve. It is the
most significant borrowing in one week since the depths of the Financial
Crisis.
The importance of this program is that it will inject up
to $2 Trillion into the financial system, Bloomberg reported.
“‘The usage of the Fed’s Bank Term Funding Program is
likely to be big,’ strategists led by Nikolaos Panigirtzoglou in London wrote
in a client note Wednesday. While the largest banks are unlikely to tap the
program, the maximum usage envisaged for the facility is close to $2 trillion,
which is the par amount of bonds held by US banks outside the five biggest,
they said.”
As Bloomberg notes, major banks like JP Morgan likely will
not tap the Feds lending program due to the stigma often attached to such
usage. Moreover, there are roughly $3 Trillion in reserves in the U.S. banking
system, of which the top five major banks hold a significant portion. However,
as I noted last week in “Bank Runs:”
The Fed caused this problem by aggressively hiking rates
which dropped collateral values. Such has left some banks which didn’t hedge
their loan/bond portfolios with insufficient collateral to cover the deposits
during a ‘bank run.’
As shown, the rapid increase in rates by
the Fed drained bank reserves.
The demand by banks for liquidity has now
put the Federal Reserve between a rock and a hard place. While the Fed remains
adamant in its inflation fight, the BTFP may be the next QE program disguised
as Not QE.
More
‘Not QE’ as Fed Trapped Between a ‘Rock and a Hard
Place’ (theepochtimes.com)
Covid-19 Corner
This
section will continue until it becomes unneeded.
COVID-19 Vaccines Can Cause
‘Permanent Disabilities,’ Says German Health Minister
Mar 16 2023
Germany’s Minister of Health Karl
Lauterbach, who once claimed that COVID-19 vaccination is free of side effects,
admitted last week that he was wrong, saying adverse reactions occur at a rate
of one in 10,000 doses and can cause “severe disabilities.”
On Aug. 14, 2021, Lauterbach said on Twitter that the vaccines had “no side
effects,” further questioning why some Germans refused to get vaccinated
against COVID-19.
During an interview on
ZDF’s “Heute Journal” on March 12, Lauterbach was asked by anchor Christian
Sievers about the claim he made in the summer of 2021, confronting the health
minister with his previous tweet that stated the shots are virtually free of
side effects.
Lauterbach responded that the
tweet was “misguided” and an “exaggeration” he made at the time, noting that it
“did not represent my true position.”
“I’ve always been aware of the
numbers and they’ve remained relatively stable … one in 10,000 [are injured],”
Lauterbach said. “Some say that it’s a lot, and some say it’s not so many.”
Lauterbach’s remark on vaccine adverse events came after the German network played a segment of several Germans who’ve been seriously injured after getting the shot, including a 17-year-old gymnast who previously competed in the German Artistic Gymnastics Championships before she was hospitalized for more than one year shortly after receiving the second dose of the BioNTech COVID-19 vaccine.
“What do you say to those who have been affected [by vaccine injuries]?” Sievers asked Lauterbach.
“What’s happened to these people is absolutely dismaying, and every single case is one too many,” Lauterbach responded. “I honestly feel very sorry for these people. There are severe disabilities, and some of them will be permanent.”
Steve Kirsch, executive director of the Vaccine Safety Research Foundation, did not agree with Lauterbach, but he commended the health minister for making “progress” when comparing his latest remark to his previous comments regarding the safety and effectiveness of COVID-19 vaccines.
“The true rate of serious adverse
events is approximately 100 times greater than the figures Lauterbach
cited—’closer to 1 in 100 doses’ and ‘For death, it is ~1 in 1,000 doses,'”
Kirsch said on Twitter.
By Oct. 31, 2022, the
Paul-Ehrlich-Institut received a total of 333,492 individual case reports on
suspected COVID-19 vaccine adverse reactions or vaccine side effects in
Germany, according to official data (pdf) released in December 2022 by the medical regulatory
body that researches vaccines and biomedicines.
“The number of individual case
reports per month peaked in December 2021 and continued through the summer,”
according to the federal agency, which is subordinate to the German Ministry of
Health.
Despite these findings, the
country’s health ministry website states, as of March 16, that “modern vaccines
are safe and adverse effects only occur in sporadic cases.”
Lawsuits Pending
As the subject of post-vaccine
injuries has started to be more widely covered by some German media outlets,
lawsuits have begun to roll out against BioNTech, and also against other
COVID-19 vaccine manufacturers.
BioNTech has denied all
responsibilities, ZDF reported.
Vaccine manufacturers such as
Pfizer and Moderna have immunity from liability if something unintentionally
goes wrong with their vaccines, putting them in a very strong legal position.
More
Regulatory Focus COVID-19 vaccine tracker. https://www.raps.org/news-and-articles/news-articles/2020/3/covid-19-vaccine-tracker
Some other useful Covid links.
Johns Hopkins Coronavirus
resource centre
https://coronavirus.jhu.edu/map.html
Centers for Disease Control
Coronavirus
https://www.cdc.gov/coronavirus/2019-ncov/index.html
The
Spectator Covid-19
data tracker (UK)
https://data.spectator.co.uk/city/national
Technology
Update.
With events happening fast in the
development of solar power and graphene, among other things, I’ve added this
section. Updates as they get reported.
How EV battery range has improved over the years
A decade ago, a new EV may have
struggled to cope with a round trip to the shops before running out of
electricity. Today, however, range concerns are largely academic.
The popularity of electric vehicles is growing rapidly each year as we
head towards the end of new petrol and diesel cars from 2030. Back in 2017,
about 4,000 new EVs were sold in the UK – this year, that number could
reach 500,000 cars.
But there are
still many motorists who dismiss any thought of owning an EV, discouraged
particularly by what has been dubbed ‘range anxiety’ – the fear that your car
will run out of battery charge and you’ll be left stranded, many miles from the
nearest charging point.
Certain
sections of the tabloid media still trot out this view, with stories concerning
EVs that routinely claim buyers are put off buying such vehicles by their
limited range. And it’s certainly true that plenty of people still hold this
perception.
But the
reality is very different. Electric vehicles, their batteries and the charging
infrastructure have all changed massively. Even in the last five years, things
have evolved significantly and battery range continues to improve at a rapid
rate. Which means that owners don’t need to charge their cars as often.
Around
15 years ago, EV pioneers had real range limitations. The first Nissan Leaf
offered a battery range of about 100 miles, while the original Smart Fortwo Electric
Drive struggled to see even 50 miles on a charge in real-world driving. It was
from here that phrase ‘range anxiety’ evolved as a prime reason not to buy an
electric car.
The
first big step for EV driving range arrived in 2014 with Amercian brand Tesla and its
large Model S saloon.
With a claimed battery range of more than 300 miles, it was a massive leap
forward.
Well,
maybe not quite as massive as it sounded. It was quickly reported that the big
Tesla didn’t
get anywhere near its claimed battery range in real-world
driving. What Car? reported that the Model S 57D model
claimed 304 miles of range, but only achieved 204 miles in testing.
Other
new arrivals saw similar discrepancies between their official range figures and
the real-world numbers. Hyundai and Kia launched
the Kona
Electric and e-Niro models,
respectively, which achieved ranges closer to their lab numbers but still
short. The Jaguar
I-Pace was similar, too, and all of this was feeding more negative
headlines about EVs.
Part
of the problem was that the old EU official lab figures were hopelessly
inaccurate, and in no way indicative of real-world driving. This was partially
addressed with a new testing
regime starting in 2017. Called WLTP (don’t ask), it saw more
meaningful figures for all new cars – not just EVs but regular petrol or
diesel cars as well as hybrids.
As an
example, the Nissan
Leaf recorded an official battery range of 235 miles on the old
testing cycle. This dropped to 168 miles in the new WLTP format, reflecting the
more stringent tests.
Unfortunately,
some tabloid media outlets used this revision to the testing methodology as
another stick with which to beat electric cars, by highlighting how the driving
range figures had generally reduced by 20-30%. Strangely, they didn’t bother
pointing out that fuel consumption and driving range for petrol and diesel cars
were similarly worse under the new system…
The
WLTP system isn’t perfect, and the lab figures are usually still in excess of
what you will manage in normal driving. But nowhere near to the level we had
previously. The other point that is often conveniently overlooked is that
petrol, diesel and hybrid cars massively overestimated their fuel economy as
well, but without the strident headlines.
More
How EV battery
range has improved over the years | The Car Expert
The true costs of very low interest rates
Artificial distortions can cause ‘clusters of
errors’ by businesses
Caitlin Long August 11, 2010
Interest rates are the most important prices in the economy,
according to Nobel laureate F.A. Hayek, because they reflect the collective
time preference of individuals to consume either now or later. Accordingly,
interest rates co-ordinate allocation of capital across the economy by
signalling to businesses whether they should invest. Distortions in interest
rates can cause “clusters of errors” in which large swathes of businesses
unwittingly miscalculate at the same time.
Hayek observed that interest rate stimulus interfered with
economic calculations, causing managers to invest in projects that would not
otherwise have appeared profitable. Losses can subsequently materialise as
customer demand fails to meet forecasts that were, in retrospect, optimistic.
Long-term projects are highly sensitive to interest rates and are therefore more
susceptible to such distortions. Pension obligations and long-term,
capital-intensive projects are at high risk of miscalculation based on
artificially low rates.
Caitlin
Long is/was head of Corporate Strategy, Capital Markets at Morgan Stanley.
https://www.ft.com/content/2838c142-a560-11df-a5b7-00144feabdc0
18 March 2023
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