“Half of America’s banks are potentially insolvent – this is how a credit crunch begins.
“The second and third biggest bank failures in US history have followed in quick succession. The US Treasury and Federal Reserve would like us to believe that they are “idiosyncratic”. That is a dangerous evasion.
“Almost half of America’s 4,800 banks are already burning through their capital buffers. They may not have to mark all losses to market under US accounting rules but that does not make them solvent. Somebody will take those losses.
““It’s spooky. Thousands of banks are underwater,” said Professor Amit Seru, a banking expert at Stanford University. “Let’s not pretend that this is just about Silicon Valley Bank and First Republic. A lot of the US banking system is potentially insolvent.”
“The full shock of monetary tightening by the Fed has yet to hit.”
“The three banks that have collapsed in the last few weeks had more in assets than all the banks that collapsed in the 2008 financial crisis combined even after adjusting for inflation.
“But the White House says, “The US banking system is safe.””
https://twitter.com/gurgavin/status/1653065271240806401
“No Quick Or Easy End To This Banking Crisis…
“Unfortunately, though, those first few banks are rarely the main show. Instead, they are the forerunners – the ones at the leading edge of some risky growth strategy that has blown up. As the Fed, FDIC and Wall Street dig into those initial banks’ actions, an overriding fad or flaw usually emerges.”
“PacWest falls more than 20% as regional bank stocks slide to new lows.
“Regional bank stocks fell sharply Tuesday as the fallout from the third major bank failure this year continued to put pressure on the sector. Shares of PacWest fell nearly 28% on Tuesday and was on track for its fourth-straight negative session. The stock was halted for volatility multiple times.
“Regional banks, already under financial stress and the eye of regulators, now face another potential crisis in the shaky commercial real estate sector.
“Stress in the commercial real estate sector could be the next big concern for U.S. regional banks and regulators, as losses emanating from higher interest rates manifest over the coming months, analysts and bankers say.”
“Is “The Great Stagflation” Ahead? High interest rates and bank failures could cause economic activity to stagnate even as inflation remains stubbornly high…
“The FDIC has a problem on its hands. It’s tasked with maintaining public confidence in the U.S. banking system, keeping tabs on banks’ health, and, if necessary, backstopping customer deposits up to $250,000. Not an easy job this year, given three of the top 5 largest bank failures in history have happened in 2023, straining confidence.”
https://smarts.thestreet.com/all-smarts/is-the-great-stagflation-ahead
“U.S. Manufacturing Marks 6-Month Contraction.
“U.S. factory activity contracted for the sixth straight month in April as demand remains soft and end-customer inventories continue to build. The Institute for Supply Management’s PMI improved slightly in April – by 0.8 percent – to 47.1. Any number below 50 indicates contraction… However, new order rates remain sluggish…”
https://epsnews.com/2023/05/01/us-manufacturing-marks-6-month-contraction/
“Parts of a controversial public order bill, which empowers British police to take stronger action against peaceful protesters, will come into force on Wednesday, days ahead of the coronation of King Charles III.
“The Home Office said the Public Order Act on Tuesday received royal assent from King Charles, which is a formality and the final hurdle before a bill becomes law.”
https://edition.cnn.com/2023/05/02/uk/uk-public-order-act-coronation-intl/index.html
“At least 108 police injured and 291 held in May Day protests in cities across France.
“French police fired teargas and clashed with demonstrators in Paris and other cities on Monday after trade unions transformed their traditional Labour Day marches into anti-government demonstrations against the rise in the retirement age.”
“Germany Stalls On Plan to Support Industry With Power Discount.
“Chancellor Olaf Scholz’s ruling coalition is stalling on a proposal to subsidize power prices for industrial companies after Berlin’s fiscally hawkish finance minister questioned the tool and its affordability.”
“Eurozone inflation rises to 7 percent after months of decline.
“Consumer prices edged up from 6.9 percent in March, which could further encourage the European Central Bank (ECB) to raise interest rates on Thursday. Analysts for FactSet and Bloomberg had predicted the rate would remain stable.”
“Eurozone banks tighten lending criteria sharply: ECB…
“Eurozone banks tightened lending criteria in the first quarter at their fastest pace since the 2011 sovereign debt crisis, while demand for loans fell heavily, according to a European Central Bank survey released Tuesday. The results highlight the impact of aggressive monetary tightening combined with recent banking sector turmoil…”
“Australia unexpectedly hikes rates, hints at more tightening ahead…
“The Reserve Bank of Australia hiked by 25 basis points to 3.85%, going against market expectations. Economists polled by Reuters had widely predicted that the central bank would keep rates at 3.6% for a second consecutive meeting.”
https://www.cnbc.com/2023/05/02/resesrve-bank-of-australia.html
“Japan, South Korea revive stalled economic talks as global risks rise.
“Japan and South Korea held their first finance leaders’ meeting in seven years on Tuesday and agreed to resume regular dialogue as tensions in the wider region and slowing growth prod them to increase co-operation and mend strained relations.”
“South Korea factory activity shrinks in April, marks longest downturn in 6 years – PMI.
“South Korea’s factory activity shrank for a 10th consecutive month in April and for its longest streak in six years, a survey showed on Tuesday, underlining the weak global demand conditions that continue to undercut the domestic economic recovery.”
https://finance.yahoo.com/news/south-korea-factory-activity-shrinks-005642169.html
“The world’s major industrial engines are struggling to emerge from an economic rut.
“The lack of traction was evident in new figures from Asia. Data released on Monday showed South Korea’s shipments abroad fell 14.2% in April, steeper than economists’ expectations for a 12.2% decline. Korean exports are a bellwether for international trade…”
“Platinum prices surge as speculators bet supply will run short.
“Platinum prices have shot up as speculators bet that power outages at South African mines and rising demand from auto makers and the hydrogen industry will create supply shortages. Platinum is used to neutralise harmful engine emissions, as well as in other industries and jewellery.”
“South Africa’s state-owned power utility said it will increase outages this week due to a delay in returning nine generating units to service.
“Eskom Holdings SOC Ltd. will implement so-called stage 4 loadshedding — in which 4,000 megawatts is removed from the grid to prevent its collapse — from 5 a.m. on Tuesday, then 6,000 megawatts will be cut from 4 p.m., according to a statement on Monday.”
“Liberia: LEC Announces Massive Power Cuts.
“…the problem appears bigger than what TRANSCO is claiming, as CI Energies, the company supplying Liberia with electricity through the Transco-CLSG transmission lines from Ivory Coast, says it can no longer supply Liberia with electricity beyond contracted capacity.”
http://www.liberianobserver.com/liberia-lec-announces-massive-power-cuts
“Kenyan anti-government protests resume with police firing tear gas.
“…protests were marred by clashes between police and demonstrators as well as sporadic incidents of violence, including one that Interior Minister Kithure Kindiki termed as “ethnically-laced arson” when a church and mosque were set ablaze in Nairobi’s Kibera neighbourhood.”
“Over 800,000 people could flee unrest in Sudan, UN says.
“The UN’s World Food Programme resumes its operations in Sudan, but the conflict continues amid a little-respected truce extension and warnings of a humanitarian catastrophe. Also, Senegal registers the first death from a closely watched outbreak of Crimean-Congo hemorrhagic fever.”
“Drowned migrants washing ashore overwhelm African nation, ‘radical solutions’ sought as cemeteries fill up.
“Authorities in Tunisia are weighing the construction of new cemeteries amid a recent swell of migrants washing ashore after drowning in the Mediterranean Sea… Local morgues and cemeteries are reportedly overflowing…”
https://news.yahoo.com/drowned-migrants-washing-ashore-overwhelm-153552181.html
“Moroccans Protests Against Soaring Food Prices.
“Hundreds of Moroccan trade union activists rallied in the capital, Rabat, to protest against declining purchasing power, soaring inflation, and rocketing food prices. Report says the unions are demanding, among other things, a ceiling on fuel prices, a reduction in taxes on basic products, and a reduction in income tax to support purchasing power.”
https://von.gov.ng/moroccans-protests-against-soaring-food-prices/
“Protests in Paraguay as losing candidates call for recount.
“Supporters of a right-wing candidate who came third in Paraguay’s presidential election clashed with police outside the electoral court on Monday, amid complaints of fraud in a vote that the ruling Colorado Party won comfortably.”
https://www.reuters.com/world/americas/protests-paraguay-losing-candidates-calls-recount-2023-05-02/
“Peru sends military to Chile border to block undocumented migrants.
“Some 700 Peruvian soldiers and police officers will reinforce its southern border with Chile to prevent the entry of undocumented migrants, Peruvian authorities said on Friday, amid diplomatic tensions between the two countries over the issue.”
“Quality of Venezuelan gas raises alarm as cars catch fire amid widespread shortages.
“The corruption scandal engulfing state-owned energy company PDVSA has been exacerbated by huge lines at filling stations and vehicles breaking down due to fuel impurities.”
“Mobsters burned alive, public stonings, gang-rape, ransom demands and political assassinations: How violence has gripped Haiti – with civilians now carrying out brutal executions to reclaim the streets…
“The United Nations says gangs have control of 80 percent of the country’s capital of Port-au-Prince, home to more than two million people. Others say it is 100 percent.”
You can read the previous “Economic” thread here. I’ll be back tomorrow with a “Climate” thread.
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“However, Dr Doom/Nouriel Roubini has some economic doom to impart at:
https://www.project-syndicate.org/commentary/federal-reserve-facing-trilemma-inflation-recession-insolvent-banks-by-nouriel-roubini-2023-03
As pessimistic as Nouriel Roubini is, he does not factor in our problem with energy constraints, so always seems to see things *ultimately* getting better, which of course they cannot.”
____________________________________________________________________________________________________
I see Roubini more commenting on the short-term detail, say the next 1-2 years, rather than in longterm trends – eg. next decade or more. While I have worked through the maths on the energy constraints on surplus energy economics – that downward trend is still not obvious in day-to-day economic activity in markets, sectors etc.
Which is what the ones with the $$$ for parking their capital, they are always looking for returns on their capital and hence *drive* such markets, especially in the short term.
I personally found it useful learning about the “bond Markets”, which I never understood before. I just know that my tiny nest-egg retirement investment portfolio has a bunch of bonds, and my peers are always telling me they are such ‘safe’ long-term investments because “everyone” says so 🙂
I had difficulty getting my head around the media articles all saying things like bond ‘market values’, now running in reverse to rises in interest rates – as , and since banks have heaps of long-term bonds in their asset portfolio, they are likely to become more and more worthless as time moves on.
Also am confused about valuation (and reporting) of bond assets. As with SVB, they had a deposit run – but sold some of their bonds to try and raise funds for restoring the loss in deposits. Sounds normal and sensible – you have a shortfall, you sell/liquidate some assets to make up the shortfall. But, they sold the bonds at a loss on that particular day’s ‘market value’ which determined the bonds were no longer worth their ‘face value’. And, so far, the bank collapses, have been bailed out by other even bigger banks, with ‘mergers and acquisitions’.
Which is the way I see capitalist *competition* working out, companies, banks etc are supposed to compete for the services, products etc they provide – but its more like a football “KnockOut” competition – some will fail and will no longer be able to play at all, and ends up a handful of ‘winners’.
In the corporate financial world, this ‘knockout’ method, leads to mergers and acquisitions as the ‘losers’ get carved up. It can also lead to cartels, monopolies, oligarchies etc.
“As pessimistic as Nouriel Roubini is, he does not factor in our problem with energy constraints, so always seems to see things *ultimately* getting better, which of course they cannot.”
True, but since the energy constraints have yet to become so severe — things may well *ultimately* — but *temporarily* — get better, but I see each *recovery* period, as temporary, short-lived and not as good a *recovery* as the one before it due to the continuing energy decline and contraction.
Roubini does have some views about the longer-term:
“The one possible Hail Mary pass Roubini sees is technological innovation leading to a surge in economic productivity and environmental improvement. Strong, inclusive, sustainable economic growth of more than 5 per cent a year could check many of these dangerous trends and enable us to afford universal basic income… “For anything resembling a happy ending to happen, computers poised to displace us must come to our rescue,” he writes. Despite the dangers, we had better bet on AI.”
https://www.ft.com/content/3be78531-a7f9-4045-9ac8-88ca64210f59
Re energy constraints, global energy consumption per capita has been trending down since the early 70’s, only temporarily stabilised by Cantarell, Prudhoe and North Sea oil coming online. Global oil production hit a peak we have yet to recover to in Nov 2018. The financial effects of that are already severe IMO, but I will keep my fingers crossed for your nest-egg bonds!