It is always important for us within the aviation industry to understand what’s going on in the equity markets as well as the overall economy. The Trends Research Institute through their Trends Journal is a world leader in forecasting. Therefore we are pleased to provide this weekly market and economic update to our readers.
In The Bronx, we used to say, “Bullshit has its own sound.”
Let’s look at the facts… just the facts.
Back in October 2021, as inflation was sharply spiking, U.S. Treasury Secretary Janet Yellen said “I believe it’s transitory,” and it was just a “small risk” and inflation would be only “temporary.”
Therefore, considering that she was either full of shit knowing that inflation was real but lied about it so the Fed Banksters could keep interest rates low to keep artificially pumping up the equity markets and economy to fight the COVID War—or she was too stupid to see the hard facts—why would anyone with a brain bigger than a pea believe what Ms. Facia Brute is saying now about the banking crisis?
TRENDPOST: We had long ago forecast stronger inflation in articles such as our Economic and Markets Overview sections in our 27 October, 2020 and 3 November, 2020 issues and documented it through last year in our Markets Overview sections on 23 February, 2021 and 18 May, 2021, “Inflation Spreads” (12 Oct 2021) and “Inflation on the Rise” (7 Dec 2021), among a host of other articles.
We were among the first to forecast untamed inflation as a key factor facing the world after 2020’s economic shutdown (“Consumer Prices Rise in July,” 18 Aug 2021).
This is the same Yellen who lied on 12 March that there would be no Federal bailout for the collapsed Silicon Valley Bank (SVB)… as Washington bailed out every one of the banks uninsured venture capitalists and wealthy depositors.
Today Yellen declared that the banking crisis “situation is stabilizing” and “the U.S. banking system remains sound.” The former Fed-Head, also said “The Fed facility and discount window lending are working as intended to provide liquidity to the banking system.”
In other words, the U.S. government would print more money backed by nothing and printed on nothing to backstop more deposits so they can continue to artificially prop-up failing banks.
And as for the banking situation remaining “sound,” you would have to be deaf not to hear more of them crashing down.
As we have detailed, but ignored by the mainstream media, is one of our Top Trends for 2023, Office Building Bust.
We have noted in great detail that with office occupancy rates in the largest U.S. cities at about 50 percent… with interest rates rising, the economy slowing and layoffs increasing, it will hit the banking sector hard.
Simply, with fewer people in the workforce, more tenants will shrink office space and/or not renew leases. This will inflict great economic pain on the owners of the buildings, many of whom will default on their loans, thus putting more pressure on the banks.
And as for what else will crash the banks, there is “The Looming Quadrillion Dollar Derivatives Tsunami” that Ellen Brown has detailed. She noted that in May 2022, the Bank of International Settlements (BIS) reported that the bank derivative bubble reached $600 trillion and is estimated at over $1 quadrillion.
TREND FORECAST: As the smaller banks go bust the Bigs will Get Bigger. Back in 1994 there were some 10,000 banks in the U.S., but now there are a little over 4,000.
Thanks to the “too big to fail” sham that bailed out the Bankster Bandits that ignited the “Panic of ’08” with their subprime mortgage and derivative schemes… with the “smalls” going out of business, the top largest banks now have a much greater share of the banking systems total assets than they 20 years ago.
As reported by the Washington Post who quoted Cam Fine, chief executive of Calvert Advisors, “The midsize regionals and up is where the deposit flows are coming from into the [giant banks]. The regionals are suffering.”
PUBLISHER’S NOTE: And speaking of the charade called the “media,” just before Silicon Valley Bank went bust, Forbes (or is it Frauds?) magazine declared SVB one of “America’s Best Banks”… as they did for five straight years.
TREND FORECAST: Tomorrow, the Federal Reserve is expected to raise interest rates 25-basis points. Banks, like SVB, with lots of cash coming in during the COVID War as the hi-tech sector boomed, put their depositor’s money into long-term bonds that were only yielding about 1.5 percent to 1.75 percent. Thus, the higher interest rates rise, the lower the value of the long-term bonds.
So when depositors started to withdraw money and bad loans worsened, SVB and other banks started to cover their losses by selling long-term bonds at a deep loss.
And now with interest rates rising and depositors getting a grand total of about a 0.2 percent yield, they will be buying safe government securities such as two-year Treasury notes that yield about 4.5 percent.
Again, the beginning of the banking and economic crisis has just begun… and as we detail in last week’s and this week’s Trends Journal, it is global. Indeed, last week the European Central bank raised interest rates 50-basis point… as the EU slips into recession.
Yet, despite the gloom on the near horizon, the equity markets keep rising. Why? Because the system—as evidenced by the bailouts and other dirty banking sector deals—the system is rigged. Just take a look at the crime syndicate’s “Plunge Protection Team.” A gangster club that artificially pumps up stock markets to make it appear that the worst is over and the best is yet to come.
OVERVIEW: As we keep forecasting, the higher interest rates rise, the more vulnerable the economy.
Silicon Valley Bank (SVB) failed, in large part, because it held long-term, low-yielding government bonds that it was unable to sell as the U.S. Federal Reserve steadily raised interest rates from 0.25 percent to as high as 4.75 percent over the past 12 months.
The bank seems to have assumed that low interest rates would endure for years to come and failed to hedge against a different future.
When the bank hit the skids, it was unable to sell its bonds with low-yields because investors could get a better price on bonds with notably higher returns.
The bank’s collapse is a cautionary tale of the long-term impact of interest rates sitting near rock bottom from October 2007 until a year ago.
In the aftermath of SVB’s implosion, it was revealed that U.S. banks are sitting on $620 billion worth of unrealized losses—the difference between the face value of the low-yield bonds they hold and the price those bonds would fetch now on the open market.
However, banks also are facing other losses due to investments they made when rates were low—including the wave of mortgage loans they made during the COVID War.
As a result, banks’ total unrealized losses may be closer to $1.75 trillion, according to a study by New York University economists.
Banks can make up a good portion of the difference by lending money now at higher interest rates, but that requires depositors to have enough faith in banks to leave their deposits where they are—not yank them out, as account holders did at SVB and continue to do at regional banks around the country.
Aware of the risk as public faith in the stability of banks has been shaken, the U.S. Federal Reserve set up an emergency lending program for U.S. banks that face unusually high demands for withdrawals.
Under the program, banks can use their bonds at full face value as collateral to borrow from the Fed, even though the bonds are now worth far less on the open market.
The Fed also loosened requirements for banks that borrow from its discount window, the usual venue for banks to take loans from the Fed.
Another weak spot that became visible when the Fed began raising interest rates was the tech sector’s delicate economic balance.
Tech stocks usually are seen as growth stocks that have high prices relative to their earnings and pay minimal dividends. High interest rates shrink their cash flows and leave them less able to reinvest in their businesses.
As a result, Amazon, Microsoft, Meta, Uber, and other household names have collectively dumped hundreds of thousands of workers, with the number of unemployed rising with each increase in interest rates.
Higher interest rates are supposed to have that effect: weaken the job market, slow growth, and give people less money to spend so prices can settle down.
However, that method is a shotgun approach that cannot be selectively aimed.
“This teaches you that we have these blind spots,” Harvard economist and former Fed governor Jeremy Stein told The New York Times. “You put more pressure on the pipes and something’s going to crack,” he said, “but you never know where it’s going to be.”
On 17 March, interest-rate futures markets were betting the Fed would raise its key rate a quarter point this week and the rate would peak at about 4.77 percent.
If the Fed adds a quarter point to its rate this week, it would meet the markets’ expectation of a rate peak, meaning that the Fed would halt increases after its March meeting.
“The [banking] industry’s lack of recent experience with higher and more volatile interest rates, coupled with material levels of market uncertainty, present challenges for all banks,” Carl White, vice-president of the Federal Reserve Bank of St. Louis, wrote last November.
Michael Feroli, chief economist at JPMorgan Chase put it more bluntly.
“There’s an old saying that when the Fed hits the brakes, someone goes through the windshield,” he noted. “You just never know who it’s going to be.”
LAST WEEK: BANK FAILURES SPOOK STOCKS
Following the virtually simultaneous failures of Signature and Silicon Valley banks last week, the Dow Jones Industrial Average backed off 384 points on Friday, the NASDAQ dropped more than 86 points, and the Standard & Poor’s 500 index fell almost 44 points.
Markets were also rattled by the apparent imminent failures of Credit Suisse and California’s First Republic Bank.
All of the S&P’s 11 sectors slid for the week, financials leading the way down.
Keycorp lost more than 25 percent of its market value, its worst weekly performance since early 2020. U.S. Bancorp shares were off 19 percent, posting their worst week since 2009.
First Republic’s stock value plunged by another third at week’s end. The bank suspended its dividend and had borrowed heavily from the U.S. Federal Reserve to remain solvent before receiving a $30-billion cash lifeline from a consortium of 11 U.S. banks. (See “First Republic Continues Its Struggle to Survive” in this issue.)
The consortium included Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, and Wells Fargo, among others.
The banking sector’s taint spread to PacWest Bancorp, shares of which lost 19 percent. Zion’s Bancorp stock price shrank by 6.8 percent.
“People don’t know what the extent of the damage is and whether there’s another group of banks in trouble,” Michael Mullaney, research director at Boston Partners, told The Wall Street Journal.
Despite a glum Friday, all three indexes turned in a positive week. The NASDAQ was up 4.4 percent, the Dow took on a fraction of a percent, and the S&P grew by 1.4 percent.
As investors fled stocks, treasury securities, gold, and Bitcoin soared.
The yield on the 10-year treasury note fell from 3.580 percent Thursday to 3.395 percent Friday. Yields fall as investors bid up securities’ prices.
Over the last two trading weeks, the 10-year’s yield has dwindled by 0.567 of a percent, the sharpest two-week drop since March 2020 when the COVID War began.
Gold for April delivery bumped up 2.6 percent to $1,969.80, its highest since April 2022. Gold’s futures market gained 5.8 percent for the week, its steepest weekly climb also since early 2020.
Brent crude oil futures slumped to $72.97, a price not seen since December 2021. The bank failures have worried investors that the weakness could spread across the global financial sector and slow the world’s economy even more, which would reduce oil demand.
Bitcoin, which has been touted as a shelter from equity markets’ volatility, soared 9.5 percent to $26,584 at 5 p.m. EDT on 17 March after reaching close to $27,000 during Friday’s trading and setting its highest price this year.
Overseas markets also were felled by the bank sector’s woes.
London’s FTSE ended the week down 5.4 percent, with the pan-European Stoxx 600 off 3.8 percent.
The Nikkei 225 gave up 3 percent and South Korea’s KOSPI index ticked down less than 0.1 percent.
China’s markets seemed to ignore the West’s banking concerns. The Hang Seng in Hong Kong rose 0.1 percent on the week. The mainland’s CSI Composite slipped less than 0.1 percent and the tech-heavy SSE Composite was up by the same amount.
TRENDPOST: The failure of the Signature and Silicon Valley banks in the U.S. and the crippled Credit Suisse in Europe spread fears more widely across the continent and into the U.S. bond market.
The decision by the U.S. Federal Deposit Insurance Corp. to reimburse uninsured depositors at the two U.S. banks to prevent “systemic failure,” and the U.S. Federal Reserve’s decision to open a line of emergency credit to the U.S. banking system, has, as we have forecast, temporarily stopped the economic bleeding.
That prospect sparked enough volatility in interest-rate futures trading that the market briefly suspended trading last week.
The yield on the two-year treasury note, which is closely tied to interest rates, dropped from about 5 percent two weeks ago to less than 4 last week, a dive not seen since the October 1987 stock market crash.
Speculators had shorted the notes, betting their price would fall as interest rates rise. (Prices and yields move in opposite directions.) With the prospect that rates might not rise, or even fall, players dumped their short positions, sending yields down.
“Financial crises create demand destruction,” Eric Rosengren, former president of the Federal Reserve Bank of Boston, tweeted last week. “Banks reduce credit availability. Consumers hold off large purchases. Businesses defer spending,” all of which drags the economy down.
The U.S. financial system faces a “slow-rolling crisis” with “more seizures and shutdowns coming,” Larry Fink, CEO of the private equity colossus Blackrock, wrote in a letter to investors last week.
SVB’s destruction is “the price we pay for a decade of easy money,” he said, even though private equity has enriched itself vastly during the years when the Fed held interest rates at rock bottom.
YESTERDAY: DOW UP AFTER UBS AGREES TO BUY CREDIT SUISSE AT DEEP DISCOUNT
The Dow Jones Industrial Average increased 382.60 points, or 1.20 percent, to close at 32,244.58 yesterday while the S&P 500 rose 0.89 percent to close at 3,951.57. The Nasdaq Composite was also up 0.39 percent to 11,675.54.
Stocks rose despite lingering concerns about the financial sector after the collapse of Silicon Valley Bank and Signature. The big news on The Street yesterday was UBS agreeing to buy Credit Suisse, its longtime rival, for $3.2 billion.
The Swiss National Bank, which worked behind the scenes to shore up the deal, said in a statement that “a solution has been found to secure financial stability and protect the Swiss economy in this exceptional situation.”
The decision by the country to save the bank jeopardizes its position as one of Europe’s banking epicenters. One executive told CNBC that the bailout will now make the country look like a “financial banana republic.”
“Switzerland’s standing as a financial center is shattered,” Octavio Marenzi, CEO of Opimas, said in a research note obtained by CNBC. “The country will now be viewed as a financial banana republic.”
He said the country’s reputation for “sound regulatory oversight, and, frankly, for being somewhat dour and boring regarding investments, has been wiped away.
Amazon announced another round of layoffs. The company will cut another 9,000 workers, which brings the total to 18,000. The company said its cuts are intended to streamline costs and to prepare for the economic “uncertainty” in the near future.
TRENDPOST: The Trends Journal has long noted that the Big Tech companies behind the effort to lock down the country and keep Americans inside are dealing with new realities. Get ready for a new dot.com bust.
Also, as detailed in our ECONOMIC OUTLOOK in this issue, as the Fed continues to increase interest rates, watch for more banks going bust when commercial office building landlords can’t pay their mortgages.
London’s FTSE was up 68.45 points, or 0.93 percent, to 7,403.85 and Europe’s benchmark Stoxx 600 gained 4.29, or 0.98 percent, to 440.60. Asian stocks were in the red. Japan’s Nikkei was down 388.12, or 1.42 percent, to 26,945.67 and South Korea’s Kospi was down 16.49, or 0.69 percent, to 2,379.20. Hong Kong’s Hang Seng lost 517.88, or 2.65 percent, to 19,000.71. China’s Shanghai Composite was down 15.64, or 0.48 percent, to 3,234.91.
OIL: Brent crude gained 78 cents a barrel, or 1.07 percent, to $73.75 while West Texas International gained 82 cents a barrel to $67.74.
It was a choppy day in the oil markets yesterday and prices hit their lowest levels in 15 months due to recession fears and unrest in the Western banking sector. Oil prices benefited after word on The Street indicated that the Fed will hold off on a new rate hike this week so the banking sector doesn’t crumble.
TRENDPOST: Readers of The Trends Journal know that we have warned that a global economic collapse is looming due to the COVID War’s draconian lockdowns and how governments flooded economies with trillions of dollars and the central banks dramatically lowered interest rates to artificially prop up economies and equities. Now, with that cheap money drying up, so too will economic growth.
Two OPEC+ sources told CNBC that banking uncertainty was feeding fears that there will be a financial collapse similar to the Crash of 2008. Oil, like any commodity, increases in price when there is higher demand.
Recessions mean countries are not producing, thus the need for oil weakens.
GOLD: The precious metal increased $9.40 an ounce to $1,983.
Fears in the banking sector have made the yellow metal more attractive to investors seeking a safe haven. The rumor that the Fed will hold off on raising interest rates also benefited the value of gold. The value of the U.S. dollar was also lower on Monday, which makes gold a more attractive investment on the international market.
TRENDPOST: There’s going to be a point where gold prices go up regardless of interest rates or the value of a U.S. dollar because the economy will crash.
BITCOIN: The world’s most popular crypto had a choppy day yesterday and was trading down $33.70 to $28,024.40 at 4:38 p.m. ET.
Cryptos seemed to be unaffected by problems in the banking industry and have been up 15 percent in the past week. The value of cryptos is up about 70 percent for the year.
Yat Siu, chairman of Asia’s largest blockchain investor Animoca Brands, said that crypto investments are a relatively safe investment.
“If you take a look at what happened recently with the whole development with Silicon Valley Bank, which was obviously shocking, and with Credit Suisse being taken over by UBS…actually the narrative was played out quite differently for crypto,” Siu said, according to Forbes. The business magazine reported that he made the comments during a Web3 Investment Summit in Hong Kong. “It started to actually bifurcate as some people had predicted, which is that sort of future, let’s say, safety net.”
TREND FORECAST: Looking for safe-haven assets, bitcoin went up when there was growing fear of a banking crisis. We also maintain our forecast that if bitcoin stays in its current range for several weeks it has the potential to double in price.
TODAY: STOCKS RISE AS YELLEN CALMS BANKING FEARS, ALL EYES ON FED
The Dow Jones Industrial Average was up 316.02, or 0.98 percent, to 32,560.60 today and the benchmark S&P 500 was up 51.30, or 1.30 percent, to 4,002.87. The tech-heavy Nasdaq was up 184.57, or 1.58 percent, to 11,860.11.
Janet Yellen, the U.S. treasury secretary, told the American Bankers Association today that the federal government could bail out depositors at other banks to calm the banking crisis. She said the “intervention” at Silicon Valley Bank was “necessary to protect the broader U.S. banking system. And similar actions could be warranted if smaller institutions suffer deposit runs that pose the risk of contagion.”
Yellen, who incorrectly called inflation “transitory” for months, assured investors and said the banking system “remains sound” and “aggregate deposit outflows from regional banks have stabilized.”
Treasury yields were up today, with the two-year Treasury yield climbing 4.162 percent from 3.922 percent and the benchmark 10-year yield reached 3.568 percent compared to 3.477 percent a day earlier.
First Republic Bank saw its stock rise after The Wall Street Journal reported that Jamie Dimon, the CEO of JPMorgan Chase, is leading discussions with other bank chiefs about a rescue plan for the bank.
The Street was also focused on the Fed’s announcement on Wednesday and whether the central bank will announce a pause in rate due to banking concerns. Some investors have called on Jay Powell, the Fed Head, to pause interest-rate hikes due to “a number of major shocks to the system.”
Bill Ackman, the hedge fund billionaire, tweeted, “Inflation is still a problem and the Fed needs to continue to show resolve. Powell can do this by pausing and making very clear that this is a temporary pause so that the impact of recent events can be assessed. He can make clear that his intent is to resume raising rates at the next meeting unless the banking crisis remains unresolved, and has on its own sufficiently slowed the economy.”
Elon Musk tweeted late Monday: “Fed needs to drop the rate by at least 50 bps on Wednesday.”
The CME Group’s FedWatch tool said investors are pricing in a 86 percent chance of a quarter-point rate hike after this week’s meeting.
TRENDPOST: Gerald Celente has said the banking crisis is in its early stages and noted that the Commercial Real Estate Bust will hit the banking industry hard… put the small and medium size banks out of business while the Bigs get bigger. The Wall Street Journal noted today that there is a record amount of commercial mortgages expiring in 2023 and “smaller banks hold around $2.3 trillion in commercial real estate debt,” which is about 80 percent of commercial mortgages held by banks.
Old news to Trends Journal subscribers, but big news today, Tomasz Piskorski, the Edward S. Gordon professor of real estate at Columbia Business School, told the paper, “We are in a very precarious position now.”
Elsewhere, London’s FTSE was up 132.37, or 1.79 percent, to 7,536.22 and the benchmark Stoxx 600 was up 5.87, or 1.33 percent, to 446.47. In Asia, Japan’s Nikkei gained 388.12, or 1.42 percent, to 26,945.67 and South Korea’s Kospi was up 9.15, or 0.38 percent, to 2,388.35. Hong Kong’s Hang Seng was up 258.05, or 1.36 percent, to 19,258.76. The Shanghai Composite was up 20.74, or 0.64 percent, to 3,255.65 and the Shenzhen Component was up 180.11, or 1.60 percent, to 11,427.25.
OIL: Brent crude was up $1.53 per gallon, or 2.07 percent, to $75.31 and West Texas Intermediate gained $1.81, or 2.65 percent, to $69.62.
Oil prices have suffered under the weight of the Silicon Valley Bank bust and the risk that the failure will lead to an industry-wide contagion.
Oil prices have lost more than $10 per barrel over the last couple of weeks, spurred on in part by the near collapse of the SVB bank and panic that the dire situation could spread to other banks and that it was indicative of broader economic troubles.
TRENDPOST: Gerald Celente has famously said, “When all else fails, they take you to war.” Celente said if a military conflict breaks out between Iran and Israel, oil prices will skyrocket to above $130 a barrel, which will crash the global economy and the equity markets.
On the economic front, Pierre Andurand, the hedge fund manager, said oil prices will hit $140 per barrel by the end of 2023 on demand from China’s reopening.
GOLD: The precious metal was trading lower today and was down $39.50, or 1.99 percent, to $1,943.30 an ounce.
Bob Haberkorn, senior market strategist at RJO Futures, told CNBC that there is concern in the gold market about the potential rate hike from the Fed.
“The market wants to hear what they have to say, what (Fed Chair Jerome) Powell has to say about what’s going on in the banking sector and ways to combat that,” he said. “There’s some doubt out there about how he’ll say it and what he’ll say. That’s why gold is lower.”
TRENDPOST: We maintain that gold is the ultimate safe-haven asset and the proof is in the pudding. The precious metal is up $100 after the collapse of Silicon Valley Bank. That price will sharply increase as socioeconomic and geopolitical conditions worsen. We forecast 2023 will be the year that gold trades well above the $2000 range per ounce.
BITCOIN: The world’s most popular crypto saw gains today and was trading up at $28,133 per coin.
Please see our Bitcoin forecast in the ECONOMIC UPDATE section of The Trends Journal.
Note: The views expressed on on-aviation.com are not necessarily those of On Aviation™.