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Venture capital financing dries up
It’s not like it was easy to find venture capital financing before the collapse of Silicon Valley Bank. It’s just that now finding money to fund a startup or raising a round of follow-on financing has gone from difficult to almost impossible. In the last three months of 2022 venture capital funding fell by 61%, according to Pitchbook. Now many more venture capital investors are sitting on the sidelines.
Saturday Night Quarterback says, For the week ahead expect…
Look for another inflation report this week. This time–on March 31–it’s the Federal Reserve’s favorite inflation model, the Personal Consumption Expenditure (PCE) index. And, there’s potential trouble in this report–if projections from the Cleveland Federal Reserve Bank’s Inflation NowCast are accurate.
Goldilocks fails to capture the Federal Reserve (sort of)
Goldilocks is just about the only thing keeping the current stock market afloat in the face of a storm of worry from a banking crisis, to stubbornly high inflation, and signs of a cooling economy. The Goldilocks story says, Don’t worry about all that. The Federal Reserve is about to pivot on interest rates. At its May 3 meeting, the Federal Reserve Open Market Committee might raise interest rates by 25 basis points but that will be the last interest rate increase. And then the Fed will move to start cutting interest rates in the second half of the year with financial markets pricing in as much as 200 basis points of cuts by the end of 2024. And all this will happen, too, without a recession, as the Fed engineers a successful soft landing of the economy and a significant slowdown in inflation.
If you believe that, you should be buying stocks. I don’t believe it. And more importantly, the bond market doesn’t believe it.
Move #3 in my Special Report: 5 Moves for the Next 5 Months
Here’s Step #3 in my 5 Steps for the Next 5 Months Special Report
So what was today all about?
I argued in my YouTube video on Tuesday that this was a market without a trend. So far that seems about right.
Please Watch My New YouTube Video: Quick Pick KBE Bank Stocks ETF
Today’s Quick Pick is SPDR S&P Bank ETF (NYSEARCA: KBE). I’m not suggesting buying this now: I’m suggesting you watch this and buy Put Options on this ETF when the time is right. The SPDR S&P ETF is approximately 80% regional banks. As you can imagine, it took a huge hit during the recent banking scare and would have been a great Put Option last week during the plunge in the sector. Options are a way to leverage the volatility of this market. The recent exit of my VIX Call Option resulted in a 100% gain in about a week. For KBE, I’d look at Put Options that climb in value as the price of the ETF sinks. At the time of recording, KBE was selling at about 37. I’m looking at the June 16 Put at a strike price o 38. At the moment, the Put is deeply underwater but I’ll continue to watch this rally to see when it’s worth it to jump in. At the moment, I suggest you watch this one: Don’t buy just yet but wait for the next shoe to fall in the banking crisis.
Please Watch My YouTube Video: Where is the Contagion?
Today’s topic is Where is the Contagion? I’m not talking about viral diseases, I’m talking about financial market contagion. After the collapse of Silicon Valley Bank and the subsequent shutdowns of Signature and Credit Suisse, investors are naturally asking, who’s next? What happens if this pops up in places we aren’t expecting? The problem is in the financial world, many financial companies and systems are connected. They can act as guarantors for one another, or have obligations to each other that see risk passing from one bank to another. All this creates opportunities for contagion to spread. One of these “contagions” to look at is AT1 bonds, otherwise known as CoCos. At1 bond issued by Credit Suisse become worthless when that bank was taken over by UBS. There are about $280 billion worth of AT1 bonds in the world at the moment. The question is, who owns them? Bloomberg discovered both PIMCO and Invesco hold these CoCos, though not at a level that would cause their collapse. If you’re invested in a bond fund, it’s important to know which kinds are in their portfolios. that’s especially true in the case of bond funds that have looked to beat the yield of treasuries by buying riskier classes of bonds.
Fed raises interest rate by 25 basis points as expected
Not a whole lot of news out of today’s breathlessly awaited meeting of the Federal Reserve’s Open Market Committee. The committee raised its short-term benchmark rate by 25 basis points to a range of 4.75% to 5%. That move had about 80% odds in its favor going into the meeting. The Dot Plot projections kept the interest rate forecast at 5.1% for the end of 2023. That was unchanged from the December Dot Pot projections.
FOMA lives! At least with Big Money
Want to know why stock prices have been so resilient in the face of a global banking crisis and the prospect of higher interest rates from the Federal Reserve? FOMA. Fear of missing out. Especially among some of the world’s largest money managers. Some of the world’s biggest investors are looking beyond interest-rate hikes, bank failures, and the threat of recession to one of the greatest fears of all money managers—-missing out on the next big rally, Bloomberg reports.
Ahead of the Fed’s decision on interest rates, the signs are that banks are pulling back on lending because of the banking crisis
Ahead of the Federal Reserve’s decision on interest rates today, banks look like they’ve cut back on lending as a result of the Silicon Valley Bank/Signature Bank/ etc. crisis. And economists are reminding us all, that a reduction in bank lending because of fear of a banking crisis is just as much a tightening of the money supply as higher interest rates from the Fed.
It’s my VIX Call Options trade all over again–almost
On March 6, I bought the May 17 Call Options with a strike of 23 on the CBOE S&P 500 Volatility Index (the VIX) when the index traded at 18.61. I figured that the “Fear Index” was so low that it wouldn’t take much to push it and these options higher. A week later the options were up 116% after the VIX climbed to 26.52. Historically, that isn’t a very high reading for the VIX, which can easily hit 35 to 45 when fear engulfs the market. I’m still holding my June 21 Call Options with a strike of $23. But I’ve been looking for a chance to replay that earlier trade. Somehow (LOL) I don’t think this market is done with volatility.
Please Watch My YouTube video: Trend of the Week There is No Trend
This week’s Trend of the Week: There is no Trend. When I was filming this video on Tuesday the 14th, the S&P was up almost 2%, the DOW was up almost 1.5%, the NASDAQ was up 2.23% and the VIX, which had been climbing higher with the Silicon Valley Bank collapse, was down almost 15%. Since filming, the markets dipped sharply with the threat of Credit Suisse going under, and have trended slightly upward since. If you’re going to trade in this market, you have to do one of two things. One thing is to be very fast, and trade on the bounces as they show up. The other tactic is planning ahead. Long-term in this market is about a week. A week prior to filming (3/6) I bought Call Options on the VIX (the volatility index) and I sold them on March 13 with a 108% return. On March 14, however, those VIX Call options were down 27%. Talk about volatility! The trend is, there is no trend. Subscribe to my JubakPicks.com to get timely posts on how to keep up with the chaos. For more options and other volatility plays, subscribe to JubakAM.com.
Market consensus converges on 25 basis point interest rate increase from the Federal Reserve tomorrow
The CME FedWatch Tool, which calculates the odds of a Fed move on interest rates by looking at prices in the Fed Funds Futures market, puts the odds of a 25 basis point interest rate increase from the U.S. central bank tomorrow at 86.4%. That’s up from 73.8% on March 20.
That’s stability? First Republic shares drop another 47% today
Shares of “troubled” (is that fair? just “troubled?”) First Republic Bank (FRC) fell another 47.11% by the close today, March 20, after credit rating company S&P Global lowered the bank’s credit rating for the second time in a week.
Global banking stocks lose $460 billion in March (so far)
Bank shares around the world have lost $460 billion so far in March (as of the close on March 17.) That’s a lot of money. Even these days when a coffee can run you $5.60. That’s the worst loss for the sector since the March 2020 Covid plunge.
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