* Sold for a small gain

I have sold my United Airlines (UAL) position (small gain) after reading the complete release, which suggested a growing "seasonality" in demand.

Thus, a slowdown may be finally facing the airline sector.

Caution warrants the sale.

Will revisit tomorrow.

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* And my buying shoes have been placed tactically on my feet

Break in!

The S&P Oscillator has fallen dramatically -- to -7.04%.

S&P cash closed at 3855 -- about 45 handles below "fair market value."

Upside reward is finally favorable -- with -150 handles of risk but +245 handles of potential reward ( a positive ratio of 1.6x).

Buying back (UAL) (average cost $45.21) on the news of the labor contract cost's impact on first-quarter profitability.

Thanks for reading my Diary today.

I have several meetings after the close, so signing off.

Enjoy the evening.

Be safe.

Buying back a small position in (PARA) at $19.65 - with the recognition that we might see a dividend cut. 

Doing this based on the streaming industry rationalizing itself going forward.

* For my investors in Seabreeze Capital Partners LP...

I worship at the altar of Lee Cooperman who taught me early that we were competing against some of the smartest minds extant - folks who have MBAs from Harvard, Stanford, Chicago and, my alma mater, Wharton. 

He taught me that in light of this, differentiated investment performance could be the byproduct of working harder. 

So I start work at around 4 am. 

Here are some very early morning trades that worked out at that hour and illustrate the benefits: 

Mar 13, 2023 ' 06:00 AM EDT DOUG KASS

Premarket Trades

* Added to (SPY) $385.31

* Added to (QQQ) $289.16

Added small to First Republic (FRC) on weakness (cost basis $32ish now)

Speculative and small amount of capital employed in this purchase.

tim

Doug selling UST's, just can't bring myself to do it.

dougie kass tim

I am in the absolute performance business.
A -53 drop in the yield on the one year bill is a six sigma event.
Any event that is extremely rare, beyond the sixth standard deviation in a normal distribution, is known as a six sigma event. The probability of such an event happening would be about [2* 10^(-9)] or twice in a billion

The descent of B. Riley Financial (RILY) has been breathtaking.

* In order of importance...

(SPY)

(QQQ)

(GOOGL)

(AMZN)

(JOE)

My financial/bank exposure is a bit under 2%.

Remember, my risk profile is conservative and I always move slowly and incrementally in a regime of higher volatility.

That said, I would go to 5% on a further beating.

Today I added to every bank - except (JPM) which was +$4 on Friday - and reestablished my Citigroup (C) long.

At 1:40 pm:Breadth

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Biggest Movers

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Heat Map

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Selling more Treasuries.

I covered my (GE) short ($88.25).

Reassessing my research tilt, shares acting superior and I am looking to expand longs.

More to come.

Also, back buying (FRPT) ($55.85).

* (SPY) $385.76

* (QQQ) $291.20

Back buying (JOE) at $39.25. 

Also, I have added to my net long exposure today.

I had sold (C) recently - just repurchased a small position.

Picking at other money center banks now. 

Plus, out of (GE) short puts.

Remain short GE (naked).

Back in the saddle.

Back shorty.

From Peter: Crisis averted for now but is the $250k cap fully done with and what about bank profits?

Another crisis averted as the Federal Reserve AGAIN shows up in their fire truck after setting the house ablaze with years of cheap money followed by one year of a vertical rise in interest rates. Putting aside the moral hazard/bailout debate, thankfully many small and medium sized businesses will live to fight another business day and their employees can get paid. And hopefully we can calm the depositors for now at all other small/medium sized banks. But, the analysis can't stop there as to what this means for small/medium sized banks and the US economy is even more unclear.

Firstly, have we just implicitly done away with the $250k insured deposit cap? If so, fine if that's the new government approach to the banking sector. If there is nothing explicit though, and it remains maybe implicit, maybe not, sort of an FDIC grey area, I would think that would result in the further shifting of deposits from small banks to larger ones as why take the chance with a small bank and the insurance cap is still in place. SVB was high profile but what about the hundreds/thousands of banks that have just a few branches? There are more than 4,000 commercial banking institutions in the US by the way according to the FDIC. Are their uninsured depositors forever protected or not? Maybe as a result we'll start to see a wave of small/medium sized bank mergers.

Secondly, as part of the need of banks to work in this grey area, we could be on the cusp of a notable rise in the interest rates banks pay on savings and checking accounts in order to stem the deposit bleed. It will be great for the holders of such accounts but a big crimp in bank profitability could come from the shrinking of loan margins and has the potential consequence of a credit crunch where loans don't flow so easily. This at the same time bank lending standards have already been notably tightening. Something to watch.

I'll finish with this, it's certainly a new economic and investing world, when after the two bear markets/recessions before covid were the crash of tech stocks and home prices, it's now the ownership of risk free (in terms of the guarantee of getting principal back upon maturity) assets like Treasuries and agency MBS that does the damage and all because duration bites.

As for the Fed, oops, they did it again (sorry Britney). The fed funds futures are pricing in a 60% chance of even a 25 bps rate hike next week after getting as high as 68% chance for two after Powell last spoke. The 2 yr yield is lower by 81 bps in the last 3 days. It will be really interesting to hear not just what Powell has to say next week but his colleagues that have remained uber hawkish thinking that there was no problem taking the fed funds rate up 500 bps in one year after 15 years of near zero at the same time conducting QT. Either way, the monetary tightening process in order to combat high inflation is now driving on black ice and what happens at the same time if inflation remains sticky and persistent?

I'll use this as another opportunity, for the umpteenth time, that gold will now really be a beneficiary of what has transpired, especially because the Fed is just about done hiking rates. The price this morning stands at a 5 week high.

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In response to not just the lowered odds of a Fed rate hike, bonds are rallying globally on the same assumption for other central banks, particularly the ECB which meets this week. The Euro STOXX bank stock index is down by 6.6%. The Japanese TOPIX bank stock index was lower by 4%. The US dollar is getting sold off for a 3rd straight day. We still like and own Japanese bank stocks.

Given the 54 bps drop in the one year Treasury bill yield I am reluctantly selling some.

And...

My DM sent to Tom Keene (this morning):

When , as a "Nader Raider," I cowrote the book CITIBANK with Ralph Nader while at second year at Wharton we warned about funding mismatch issues and poor mgt at Citibank (it wasnt yet called Citigroup) - that was 1975!!!!

Friday and today are a fitting example why Treasuries should have a disproportionate role in many portfolios. 

As well, Treasuries provide no risk, liquidity and are non volatile (usually!) - delivering equity like returns.

From the wonderful Danielle DiMartino Booth:

This week on my Twitter not only was "divisiveness in America" reframed, but deep schisms on Wall Street were exposed. We've long known there are camps; now, even they are divided. The pivoteers want the Federal Reserve to slam rates back to the zero bound (ZIRP) and resume Quantitative Easing (QE); in their minds, Gordon Gekko was right. Others worry that Jerome Powell's campaign of terror will be the death knell to business investment for a generation; it will be impaired, no doubt.
The other camp wants the Fed to maintain its tight stance. One sub-camp is inhabited by inflationistas, paranoid that crashing monetary aggregates and rising joblessness will ignite a wage-price spiral. And then there are those who've given up on playing the game, exhausted at the thought of the Fed Put 'celebrating' its 40th birthday on October 20, 2027. For this minority, there are no risk-free solutions, no right answers, just the imperfect compromise of running down the Fed's balance sheet at around the current level of interest rates and never returning to ZIRP or QE.
As for the general public, the conflating on Twitter was enough to prompt several large doses of Advil for my throbbing head. Consider that borrowing at the discount window still carries a stigma. Sure, you no longer know which of the Fed's 12 Districts saw bank(s) tap the window, threatened as they were with dumping assets at fire sale prices. The Fed added that veil of anonymity in March 2020, the last time a liquidity crisis presented itself as a global pandemic. Somehow, a tweet highlighting that the Fed's discount window was open was greeted by howls. "It's another taxpayer-funded bailout!!"
I've coined a term: Violations of the Eighth Deadly Sin of Conflation. The public's anger was another world. With every announcement that the FDIC, Fed, and Treasury were more aggressively backstopping depositors, the infuriation kicked up a notch. And then stock futures opened up bigly. Forget that another crypto bank was put into receivership at the same time, that Signature Bank of New York's shareholders, bondholders, and to an unknown extent, creditors were doing anything but high fiving each other at being wiped out.
While I assure you the banking system will be the subject of a deep dive in this week's Quill and continued analysis in our dailies, we feel it appropriate here to step back. What's largely been lost on the parts of the angry masses and the Street are fundamentals. This was no March 2020 Fed redux, resplendent with ZIRP and unlimited QE on demand. I highly doubt we'll see even a hint at a pause in the rate-hiking cycle leaked in coming days.
And then there's the human element. Silvergate employed upwards of 400, while Silicon Valley Bank and Signature had payrolls of 8,500 and 1,850, respectively. There's much to keep in perspective here. As a percentage of the total U.S. labor market, across banks, depository institutions and credit intermediaries, we're only taking 1.1% of the pie; that's down from 1.4% in April 2020 (easier to work from home industry) and the same proportion coming out of the Great Financial Crisis (GFC).
Tellingly, employment in financials during the GFC troughed at -4.0% year-over-year (YoY), double the worst readings in the wake of the pandemic's flash recession. We will monitor this sector closely moving forward. Declines in financials employment may not affect large numbers of workers but they do flag arrested credit creation, which itself destroys jobs in the broad economy.
On that note, QI's Dr. Gates observes that, "Credit cycles also manifest as permanent damage to the U.S. workforce. Permanent job losers boost unemployment after business failures reach a critical mass, which happened in the three months ended February. It's just a matter of time before this bankruptcy cycle generates an unemployment shock (upper right chart)." On a practical level, bank runs could easily incent formerly hesitant C-Suite occupants to greenlight planned workforce reductions. The shock to U.S. consumers will naturally constrain the urge to splurge.
Fanning out to other entrails within Friday's forgotten jobs data, we're also cognizant of small sectors sending big signals. The Information industry fits this description as the media companies in this space rely on advertising revenue, a GDP indicator. Echoing the lead-in to the GFC, headcount reductions today are starting with managers and spreading to workers as the recession deepens (upper right chart). Staying in this space, February's spike media job cuts was a record for any month, paralleling past recessions (lower left chart).
About that feared wage price spiral, current wage guidance is apparent in average hourly earnings. As for what's in the pipeline, we glean that from 'good unemployment," the share of the unemployed who have the confidence to jump ship for better opportunities. They were quite the rage last year. Given credit to tech is compromised, last year's quiet quitters should start making lots of noise when they put in their face time. Because Powell has convinced the market that labor pressures are reflected in his beloved 'supercore' inflation (core services less housing), good unemployment tops our dashboard.
As you can see on the lower right chart, 2023 is not off to an auspicious start on this count. The continuing climb in layoffs tells you a rolling over in supercore is not far behind.

This table is a useful tool for short term traders:

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I agree 

Masterhedge

The ramifications are far from over. Things will pop up that you never expected.

Large Swedish Pension Alecta fund had a concentrated bet on three US Regional Banks - SVB, Signature and Republic.
_____

There will be more.

The banking crisis, and it is a crisis, means more disinflationary pressures, bank credit standards will be materially raised, corporate and banking industry profits will be much lower... as will economic activity. 

These factors probably offset the benefits of the recent interest rate decline and likely slowdown in the Fed's tightening cycle.

I have been cautioning about the Russell Index for 10 days. 

The weakness in (IWM) was a tip off to broader market weakness. 

As mentioned last Wednesday - the technical set up that I look at was the worse in years that evening. 

Stuffed with a number of regional banks, the Index is down again, in premarket.

In response to several subscriber emails - I remain short (GS) and (MS) .

To repeat: 

I sold futures on the 50-70 handle gap last night.

Buying (AMZN) $91.07 and  (GOOGL) $90.86 in premarket trading.

I disagree:

Remember when, less than two weeks ago, I warned about banking deposit betas? 

Welcome to March 2023. 

Stocks down huge since then - nibbling on Friday and this morning.

From JP Morgan who is defending (FRC) . For now, poorly timed as the shares are down by another -60% this morning! 

First Republic (Steven Alexopoulos, CFA )

Dramatic Overreaction with Diversified Deposits, Relatively Small Securities Portfolio, Bolstered Liquidity

In the aftermath of the SVB crisis, regional bank stocks saw significant selling pressure, which prompted several banks to put out various metrics to the market in order to allay concerns. To this end, FRC was no exception, with the shares declining 29% since March 8 vs. peers down 11% over the same timeframe.
_____

I am long small FRC, purchased at $31.50 in premarket trading.

Given that I have a Board meeting between 10 am-12 pm and that I am trading actively in the premarket, there will be no "Futures" column this morning.

I will be back on that tomorrow.

From JP Morgan:

EQUITY AND MACRO NARRATIVE: The stock market has been driven by rate hike expectations for much of this year and now the added twist is the situation in the financials sectors. Followed by the failure of SVB and Signature Bank, last night, the Fed, FDIC and Treasury announced (Fed Announcement here) that all depositors at SVB and Signature bank will be able to access all their money. In addition, the Fed created a new facility BTFP (Bank Term Funding Program) to provide funding up to 1yr with all assets be valued at par; the Treasury will make available up to $25bn as a backstop for the BTFP. Futures initially rallied on the news but now fell below 3900. Bonds yields and dollars both declined sharply: 2yr yields fell 41bp overnight and is 83bp lower from Wednesday's high. What's from here? Below are some initial thoughts on Equities and Rates.

• EQUITIES: With the announcement, the worst case scenario of a wide spread systematic crisis seems to be avoided for now. For regional banks, Financials Specialist James Goulbourne highlighted the small banks vulnerable to NIM compression and deposit outflows below. He expects key implications for the sector from here are higher deposit costs and NIM compression rather than broad based balance sheet challenges. Vivek Junejathinks the selloff in Large Cap banks are overdone given their higher liquidity and better diversification (here).

Which smaller banks are vulnerable to NIM compression given low cost deposits?

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Who's been vulnerable to deposit outflows of late? (annualized deposit flows in Q4)

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• RATES: Last week,the financial sector concerns led to a flight-to-quality rally in yields, especially the front end of the curve, with 2yr yield finished the week 48bp lower. In addition, rate hike expectation was repriced significantly. As the Fed stepped up to provide liquidity, there has been discussion around no rate hike vs 25bp for the upcoming March FOMC this weekend, reversing the narrative around 50bp last Wednesday. This fuels another rally in the front end of the curve as the market now seeing small chances of no hike (~13%). Feroli still sees 25bp at the next meeting and Jay Barry sees the recent rally was overdone ahead of CPI next week.

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OIS FORWARDS FFR EXPECTATIONS (AS OF MARCH 8)

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OIS FORWARDS FFR EXPECTATIONS (AS OF MARCH 13 MORNING)

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• US MKT INTEL: The OIS Forwards start seeing probabilities of no hike at the next meeting with the OIS forwards now seeing ~20% of no hike at the next meeting. If the new tools can stem the crisis, I don't see a solid case being built for pausing at the March meeting now. I agree with Feroli's argument that "While the Fed wants tighter financial conditions to restrain aggregate demand, they don't want that to occur in a non-linear fashion that can quickly spiral out of control". In other words, I think the purpose of BTFP is to become a tool for the Fed to prevent extreme liquidity events during the pace of hiking, rather than a sign of reversing its tightening effort. If the Fed's measurement can provide some stabilization to the sector, we expect focuses to be shifted back to inflation / CPI. That said, we still hold a market neutral approach. Stocks has room to rebound further from here: Positioning Intelnotes that recent YTD uptrend in US Equities could be sustained by a shift away from the fairly risk-off tone in ETF and HF flows over the past month. However, the reaction in rates and TIPS may be overdone and we may see yields reverse some of its downward momentum as (i) flight-to-quality inflow to ST treasury may be slowed down (ii) yields may tick higher if CPI reverses the recent repricing in OIS forwards.

* Trade them, don't hold them...

I will elaborate on the banking crisis either later this afternoon or tomorrow. (Busy!) 

But for now, as it relates to our economy and markets - the chaos is disinflationary and economy contracting. 

Bankers will now be husbanding their resources and profit guidance will be reduced. 

SIVB is a bonafide "black swan" that will have broad ramifications. 

While it is is a function of poor bank management, it is also, importantly, the outgrowth of poor monetary policy - lowering interest rates - and then, raising rates rapidly.

Corporate profits forecasts will be coming down - and profits are the nexus to valuations and stock prices. 

I am small net long and see no reason to materially tilt my portfolio in either direction. 

TATA remains my mantra - "treasuries are the alternative."

At 4:35 am:

* In premarket trading...

Wolf Street, here.

From Jefferies:Fed, Treasury & FDIC Take Steps to Preserve Banking System Liquidity and Customer Deposits

On Sunday afternoon, the Federal Reserve, US Treasury Department, and FDIC released a joint statement announcing the creation of the Bank Term Funding Program (BTFP). The program aims to provide banks with a stable source of funding to meet customer withdrawal requests in the wake of the rapid failures of Silicon Valley Bank as well as Silvergate and Signature Bank, New York.

The BTFP will provide loans to banks, credit unions, and other depository institutions for as long as a year in exchange for US Treasury and agency debt and MBS, valued at par, at a rate of 1-year OIS + 10 bps. The Fed has provided a term sheet here.

The Fed also announced that the discount window remains open and available to provide liquidity. However, collateral requirements have been adjusted to mirror the BTFP, reducing the typical haircuts.

Just as they did with the lending facilities created to fight the effects of the pandemic, the Treasury will provide $25 bln in credit protection to ensure against losses. These funds are not expected to be drawn upon, so taxpayer liability for the program should be minimal, if not zero.

One of the biggest revelations about the failure of Silicon Valley Bank to raise capital last week was the impact of the cumulative increase in interest rates over the last year on their securities portfolios. Because the pledged collateral is going to be valued at par, this new facility will ensure that other banks with similarly impaired hold-to-maturity portfolios will be able to easily leverage them to access liquidity, rather than have to realize significant losses and flood the markets with paper.

Monday will surely be a stressful day for many in the regional banking sector, but today's action dramatically reduces the risk of further contagion.

* Added to (SPY) $385.31

* Added to (QQQ) $289.16