Baltic Dry Index. 1512 -12 Brent Crude 74.81
Spot Gold 1940 US 2 Year Yield 4.17 +0.25
Coronavirus Cases 01/04/20 World 1,000,000
Deaths 53,103
Coronavirus Cases 22/03/23 World 682,880,221
Deaths 6,822,500
In central banking as in diplomacy, style, conservative tailoring, and an easy association with the affluent count greatly and results far much less.
John Kenneth Galbraith.
It is Fed day two and what might go on to become quite a historic day if the Fed upsets the bank stocks and bonds with yet another rate increase.
If we get another rate increase First Republic Bank will probably need a bailout as their large depositors bolt for the exit.
I think by now if JPMC [or any other major US bank,] were planning a rescue/takeover,] they would have done it by now, so that probably leaves an Agency - Treasury rescue. But if a rate increase happens, it won't just be FRC needing a rescue.
But a regional and community bank guarantee of all deposits will add trillions to the size of US deposit guarantees and that will likely call into question the safety of US markets.
If no rate increase but no cut, I doubt that it will do more than buy a few days time, or a week or two at best. More likely a pause will be a disappointment for the stock casinos.
If a U-turn rate cut, will 25 points make much difference or will it need to be 50 or 75 points?
A large forced rate cut risks scaring the markets for other reasons, who else is in trouble, what does the Fed know that we don’t, probably setting of a flight to safety in gold and other commodities like copper and foodstuffs.
All in all an interesting day ahead today, albeit coming after Asia and Europe are closed. That in itself adds to Asia and Europe’s risk.
At worst, a rate hike can spark more bank turmoil in Europe and America. At best, a rate cut can reignite the commodities boom in certain commodities.
The worst is not necessarily over, but with luck we might buy enough time to get past Easter.
What the Fed does, how Chairman Powell explains it and what future guidance he gives will be critical for what comes next over the Spring and summer.
But did the stock market just give the Fed cover for a rate hike?
Your Evening Briefing: First Republic Comes Roaring Back
21 March 2023 at 22:08 GMT
Beleaguered First Republic Bank is refusing to be the fifth victim of the banking crisis, surging by a record and leading a rally in US lenders Tuesday. Behind the seeming turnaround were discussions aimed at offering further support to the regional bank, and a backup strategy should that fall through. The California lender’s stock jumped 30%, bouncing off the record-low level it closed at Monday, with fellow mid-size banks including Western Alliance and PacWest also staging double-digit moves higher. The KBW Regional Banking Index surged by 4.8% for its biggest gain since January 2021.
Here are today’s top stories
But for others, things still look grim. Pacific Investment Management and Invesco are among the largest holders of Credit Suisse’s so-called Additional Tier 1 bonds that were wiped out after the bank’s takeover by UBS. Inside Credit Suisse, things aren’t much better: The Swiss government said it’s temporarily suspending some bonus payments.
Currently the focus of a few investigations, it turns out now-deceased Silicon Valley Bank got very generous in its final months. As the lender deteriorated and regulators began detecting flaws in its risk management, SVB nevertheless opened up credit to one group: insiders. Loans to officers, directors and principal shareholders, and their related interests, more than tripled from the third quarter last year to $219 million in the final three months of 2022. That’s a record dollar amount of loans issued to insiders, going back at least two decades.
Wall Street’s favorite volatility gauge tumbled as a rebound in stocks continued Tuesday. Coordinated actions to restore order had the market’s so-called fear barometer, or VIX, taking its biggest two-day dive since May. In the run-up to the coming US Federal Reserve rate decision, traders are betting on another 25 basis-point hike as angst over what the central bank will do seems to be receding. “This is an easier market backdrop,” said Nicholas Colas, co-founder of DataTrek Research. “Expectations of a dramatic about-face for monetary policy are diminishing. Market expectations for near-term Fed rate decisions are now within the realm of the possible. That is good news.”
More
Bloomberg Evening Briefing: First Republic Comes Roaring Back - Bloomberg
Anxiety Strikes $8 Trillion Mortgage-Debt Market After SVB Collapse
Investors fear other banks will sell mortgage-backed securities, pushing down prices
March 21, 2023 5:30 am ET
Strains in the banking sector are roiling a roughly $8 trillion bond market considered almost as safe as U.S. government bonds.
So-called agency mortgage bonds are widely held by banks, insurers and bond funds because they are backed by the mortgage loans from government-owned lenders Fannie Mae and Freddie Mac. The bonds are far less likely to default than most debt and are easy to buy and sell quickly, a crucial reason they were Silicon Valley Bank’s biggest investment before it foundered.
But agency mortgage-backed securities, like all long-term bonds, are vulnerable to rising interest rates, which pushed their prices down last year and saddled banks such as SVB SIVB -60.41% with unrealized losses. Now that the Federal Deposit Insurance Corp. has taken over SVB, investors expect the bonds to be sold off in coming months, adding supply to the weakened market and pushing prices lower.
Last week, the risk premium on a widely followed Bloomberg index of agency MBS hit its highest level since October, when climbing interest rates turned global markets topsy-turvy. The move reflected fears that other regional banks might have to sell their holdings, bond-fund managers said.
More
Anxiety Strikes $8 Trillion Mortgage-Debt Market After SVB Collapse - WSJ
Japan stocks higher around 2%, leading gains in Asia ahead of Fed’s key rate decision
UPDATED WED, MAR 22 20231:57 AM EDT
Asia-Pacific markets rose on Wednesday as investors looked ahead to the U.S. Federal Reserve’s latest update on its rate hike decision, as the central bank attempts to balance its inflation fight and stem a banking crisis.
Japan’s Nikkei 225 led gains in the region, advancing 2.03% and the Topix was higher at 1.83%.
Hong Kong’s Hang Seng index gained 1.69%, with the Hang Seng Tech index rising 0.91%.
In Australia, the S&P/ASX 200 rose 0.87% to close at 7,015.6, while in South Korea, the Kospi was up 1.16% and the Kosdaq gained 1.23%.
In mainland China, the Shanghai Composite gained 0.12%, and the Shenzhen Component climbed 0.27%.
Overnight in the US, all three major indexes rose as Wall Street extended its Monday rally, with the S&P 500 gaining 1.3% to finish at 4,002.87 — its first close above the 4,000 threshold since March 6.
The Dow Jones Industrial Average gained 0.98%, and the Nasdaq Composite added 1.58% to lead gains in the U.S.
Japan stocks higher around 2%, leading gains in Asia ahead of Fed's key rate decision (cnbc.com)
European markets head for higher open; investors await Fed’s next move on interest rates
UPDATED WED, MAR 22 2023 1:26 AM EDT
European markets are heading for a higher open Wednesday, with investors around the world focusing on the U.S. Federal Reserve as its Federal Open Market Committee concludes a two-day meeting and prepares to announces its latest decision on interest rates.
The U.S. central bank is attempting to strike a balance between fighting inflation and stemming a banking crisis. Most investors expect the central bank to stay committed to tightening and to raise rates by 25 basis points.
Asia-Pacific markets rose on Wednesday, while U.S. stock futures were little changed Tuesday evening as investors braced themselves for the Fed’s next move.
Treasury Secretary Janet Yellen said Tuesday that while authorities believe they’ve taken sufficient action to stem liquidity problems in the banking sector, the government is prepared to guarantee even more deposits if the banking crisis gets worse.
“The steps we took were not focused on aiding specific banks or classes of banks. Our intervention was necessary to protect the broader U.S. banking system,” she said in remarks prepared for a speech to the American Bankers Association. “And similar actions could be warranted if smaller institutions suffer deposit runs that pose the risk of contagion.”
European markets live updates: investors await Fed interest rates move (cnbc.com)
Up next, what just happened? What happens next?
Opinion: The end of the ‘everything bubble’ has finally hit the banking system. Credit Suisse and SVB might be just the first of many shocks.
Last Updated: March 20, 2023 at 3:05 p.m. ET First Published: March 20, 2023 at 7:05 a.m. ET
The Fed and other central banks face a difficult choice: Keep rates high to control inflation or loosen monetary policy to stabilize financial markets.
Major financial market regime changes typically take place in stages. The crypto meltdown in 2022, for example, incurred about $2 trillion of losses.
The technology meltdown followed, with losses of about $5 trillion, the U.K. government bond (gilt) crisis ($500 billion in losses), plus an ongoing emerging market debt crisis.
These problems have now reached the world’s financial system, with U.S., European and Japanese banks losing around $460 billion in market value so far in March alone.
The immediate cause is the rapid increase in official interest rates in the U.S. and other major global economies. The true cause is the unwinding of an economic and financial structure built upon an artificially low cost of money, which gave rise to the “everything bubble” and its leveraged speculation.
Higher rates and losses on securities have significantly weakened the global banking system.
The banking system’s problems may not be over. The collapse of Silicon Valley Bank SIVB, -60.41% highlighted the interest-rate risk of purchasing long-term securities financed with short-term deposits and the susceptibility to a liquidity run. Banks globally face falling customer deposits (projected to decline in the U.S. by up to 6%) and losses on holding of securities ( (unrealized losses at FDIC insured U.S. banks exceed $600 billion at end of 2022). A 10% loss on bank bond holdings would, if realized, decrease bank shareholder capital by around 25%.
When other interest-sensitive assets are included, one estimate puts the loss for U.S. banks alone at $2 trillion. Globally, the total unrealized loss might be two to three times that. The fact is that higher rates and losses on securities have significantly weakened the global banking system.
This is before loan losses. Higher rates will affect interest sensitive sectors such as real estate, non-essential consumer industries, and highly leveraged companies. Default rates are projected to rise globally, further reducing earnings and capital buffers.
There are several other areas of concern.
First, over recent years, investment has flowed into venture capital and early/ late stage start-ups. The driver was that abundant capital was itself a strategy. Many unprofitable start-ups require near-continuous investment. The problem is that new inflows into private equity have declined by around two-thirds from the 2021 level of around $600 billion as a result of large losses. While some of these companis have sufficient funds to continue operations, many will be forced to close.
Second, since the global financial crisis in 2008, regulatory restrictions on traditional banks have shifted higher risk or more complex lending or trading into the shadow banking system — non-bank financial institutions including insurance companies, pension funds, mutual funds, hedge funds, family offices and specialty financiers. The Bank of International Settlements estimates that $227 trillion was held in these accounts in 2021, almost half the size of the global financial sector and an increase from 42% in 2008.
More
In IMF bailout news, Pakistan still has yet more to do.
IMF Flags Few More Hurdles for Pakistan to Secure Bailout
Tue, March 21, 2023 at 6:06 AM GMT
(Bloomberg) -- The International Monetary Fund said Pakistan has a few more tasks before it can unlock a $6.5 billion loan to avoid a default, putting pressure on the government to secure assurances from countries that have promised financing support.
Pakistan is now the only South Asian country that’s yet to secure a bailout from the multilateral lender as Sri Lanka clinched financing this week and Bangladesh pushes on with carrying out IMF-mandated reforms.
“A staff-level agreement will follow once the few remaining points are closed,” said Esther Perez Ruiz, the IMF’s resident representative for Pakistan. “Ensuring there is sufficient financing to support the authorities in the implementation of their policy agenda is the paramount priority.”
Finance Minister Ishaq Dar said last week that the IMF wanted to see countries finalize commitments they’ve made to help Pakistan shore up its funds before signing off on the bailout package. Pakistan needs to repay about $3 billion of debt by June, while $4 billion is expected to be rolled over.
Pakistan has taken tough measures including increasing taxes and energy prices, and allowing its currency to weaken to restart a $6.5 billion IMF loan package. The funds will offer some relief to a nation still reeling from a dollar shortage that has raised the probability of the economy slipping into a recession ahead of elections this year.
Ruiz said the Washington-based lender wasn’t consulted on the government’s plan to raise fuel prices for wealthier motorists to finance a subsidy for lower-income people.
“Fund staff are seeking greater details on the scheme in terms of its operation, cost, targeting, protections against fraud and abuse, and offsetting measures, and will carefully discuss these elements with the authorities,” she said.
This is not the first time petrol price subsidies have been a sticking point for IMF. The previous government led by former premier Imran Khan had given out petrol subsidies, which stalled the IMF program last year.
Pakistan’s benchmark KSE-100 Index fell 0.4%, down from for the fourth straight session. The rupee fell 0.8% to close at 284.03 a dollar, near its record low on March 20 as investors are concerned over the continued delays in resuming the IMF program.
More
IMF Flags Few More Hurdles for Pakistan to Secure Bailout (yahoo.com)
Finally, from drought to flooding. In CA it never rains but it pours. But what is the flooding doing to California’s foods and wine production?
Bomb Cyclone Slams Into San Francisco With Hurricane-Like Force
Wed, March 22, 2023 at 12:52 AM GMT
(Bloomberg) -- A bomb cyclone slammed into Northern California, packing hurricane-like winds that knocked down power lines, shattered windows in downtown San Francisco and caused a big rig to overturn on the Bay Bridge to Oakland.
----This was a violent, sudden windstorm,” said Daniel Swain, a climate scientist at the University of California at Los Angeles. “We’re seeing impacts probably that are similar to a strong tropical storm or a weak hurricane.”
The rapidly strengthening low-pressure system brought 80 miles per hour (129 kilometers) wind gusts and driving rain across the region, Swain said in a YouTube video post Tuesday. By 5:50 p.m. local time Tuesday, about 260,000 homes and businesses across the state had lost power, according to PowerOutage.us.
California has been hammered by a series of storms known as atmospheric rivers since late December, bringing flooding rains and record snowfalls across the Sierra Nevada and other mountains. More than 20 people have died and billions of dollars in damages and losses have mounted from collapsed roads, inundated homes and power outages.
Santa Cruz County, about 75 miles south of San Francisco, on Tuesday again appeared to suffer the brunt of an atmospheric river. Reports of downed electrical lines and car crashes swamped the county’s fire dispatch center.
In the Central Valley’s Tulare County, authorities ordered evacuations in advance of the storm after levee breaches over the past week raised the prospect of wider flooding. The state prepositioned swift-water rescue crews, just in case.
The heaviest rainfall was expected Tuesday but the storm will linger through late Wednesday as it pushes into Nevada and Arizona.
Bomb Cyclone Slams Into San Francisco With Hurricane-Like Force (yahoo.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.
It doesn’t look like food price inflation is ending anytime soon.
US Cattle Inventory Forecast Falls to Lowest Level in Nearly a Decade: USDA
Drought, increased slaughter contribute to decline
March 20, 2023 Updated: March 20, 2023
Declining cattle production and drought conditions contributed to a sizable drop in beef supplies last year, the lowest in nearly a decade, according to the U.S. Department of Agriculture (USDA).
As of Jan. 1, there were 89.3 million head of cattle, down 3 percent from a year ago; and 29 million beef cows bred for slaughter in the United States, down 4 percent from 2022.
“Total red meat and poultry production in 2023 is forecast to decrease for the first time in nearly a decade,” the USDA said in its biannual livestock, dairy, and poultry outlook released in early March.
“This is due to the 6 percent decline in beef production that more than offsets forecast increases in pork (2 percent), broiler meat (1 percent), and turkey (7 percent) production.”
The report said dwindling cattle production would likely cause a “significant year-over-year decrease in beef production, the first decline since 2015.”
However, the USDA expects pork supplies to increase in 2023 because of higher carcass weights after two consecutive years of declines.
“Broiler meat production is forecast to continue its longstanding upward trends into 2023, increasing marginally over last year’s record production,” the report added.
“Turkey production is expected to increase throughout 2023, under the assumption that the sector recovers from Highly Pathogenic Avian Influenza outbreaks.”
Of the 89.3 million head inventory, about 38 million cows and heifers produced calves in 2022, the report said.
According to the USDA, drought conditions contributed to the yearly decline in the beef cow inventory last year.
“While 2019 was the second-wettest year on record for the continental United States, after 1973, dry conditions began to persist in 2020, mostly in the West and Plains farm production regions,” the report noted.
“Overall, drought has contributed to reduced pasture and range conditions, and increased beef and cow slaughter. Any changes to the current drought conditions will likely impact inventory numbers in the coming year.”
The U.S. Drought Monitor reported that 41.5 percent of the continental United States experienced moderate to exceptional drought during the third week of February.
However, the agency’s three-month outlook in February said those conditions could persist in more than 34 percent of the lower 48 states, “with drought development likely in 8.9 percent of the country.
More
US Cattle Inventory Forecast Falls to Lowest Level in Nearly a Decade: USDA (theepochtimes.com)
Covid-19 Corner
This section will continue until it becomes unneeded.
President Joe Biden signs legislation to declassify info on origin of COVID-19 pandemic
MARCH 20, 2023 / 7:59 PM
March 20 (UPI) -- President Joe Biden signed legislation Monday to declassify information relating to the origin of COVID-19.
The COVID-19 Origin Act of 2023, which calls on the Director of National Intelligence to declassify "certain information" about COVID-19's origins, received unanimous support from the House and Senate.
"I share the Congress's goal of releasing as much information as possible about the origin of Coronavirus Disease 2019 (COVID-19). In 2021, I directed the Intelligence Community to use every tool at its disposal to investigate the origin of COVID-19, and that work is ongoing," Biden said in a statement. "We need to get to the bottom of COVID-19's origins to help ensure we can better prevent future pandemics."
The question of COVID-19's origins has been hotly debated since the start of the global pandemic more than three years ago. Theories have included suggestions that the virus was engineered in a laboratory, transmitted to humans by a bat or the conspiracy theory that COVID-19 correlates with 5G mobile network technology.
---- In Biden's statement, he said his administration will continue to review all information relating to COVID-19's origins, "including potential links to the Wuhan Institute of Virology."
The information ordered to be declassified will be made available within 90 days, according to Politico.
President Joe Biden signs legislation to declassify info on origin of COVID-19 pandemic - UPI.com
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.
A tiny solar panel in a cable: How fiber optics is changing the way power is transmitted
March 21, 2023
Earlier this month, communication specialists HUBER +SUHNER launched a global navigation satellite system (GNSS) that powered an active antenna using fiber optics rather than more traditional copper wires, replacing in certain cases, power-over-ethernet (PoE) with power-over-fibre (PoF), for almost a decade.
Doing so allows data and power to be transmitted over only one cable; now that has been the case for more than a century as copper wires were used for analog communications but demands for huge amounts of data coupled with advances in photonics means that something that was until recently only limited to very niche applications.
Copper, whilst ubiquitous, has some intrinsic disadvantages: it cannot be installed where high electric voltages occur, it can generate an electric spark, it is sensitive to strong magnetic field and is relatively thicker/heavier than fiber optics.
How does it work?
A source (typically a laser diode) emits light, usually monochromatically, at one end and a photovoltaic cell collects that light on the other end. The process is called optical power beaming and is essentially a smaller, more focused take on how a roof-based solar panel works.
While the latter has an efficiency of about 25%, power-over-fibre can reach up to 70% but overall, once other factors are accounted for, the power conversion efficiency, according to photonics specialist RP Photonics, can go up to 30%. Not good enough for a portable power station for example or to power a laptop.
Clearly, it is not going to replace copper wholesale across power equipment; it still requires a lot of discrete components and is far costlier than copper deployment. However, with improving technology and mass production, one can expect power over fiber to make a much bigger dent in a lot of scenarios.
In the case of H+S, it means enabling an increased distance of a few kilometers between the source and the receive system, several orders of magnitude compared to copper. In the long term, it may help simplify the deployment of FTx (fiber to anywhere) with fiber to the room being the last frontier - and PoF will play a huge role in that as well as in 5G, 6G and iOT deployment because of the number of low-power antenna units and nano/pico/femto cells.
There is a huge drive for research in what could be a thriving sector: more than 20 conference papers have been submitted to the IEEE, the world's largest technical professional organization dedicated to advancing technology since the beginning of 2022.
A tiny solar panel in a cable: How fiber optics is changing the way power is transmitted (msn.com)
If all else fails, immortality can always be assured by spectacular error.
John Kenneth Galbraith.
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