The Market Perspective

Elliott on the SVB failure

Tuesday Marcch 21, 2023

 

Silicon Valley Bank, Silvergate and "The Everything Bust"
"The pressure on banks will rise"

By Elliott Wave International

The phrase "Everything Bust" means a bust in just about every financial risk-asset of which you can think, as well as the economy and, I dare say, the financial system itself.

Indeed, in a section titled "The Everything Bust Is on The Way," the December Global Market Perspective, a monthly Elliott Wave International publication which covers 50-plus financial markets, noted:

The pressure on banks will rise as the economy heads south.

And, now, we have these headlines:

• Silicon Valley Bank Fails After Run on Deposits (The New York Times, March 10)
• Crypto-focused bank Silvergate is shutting operations and liquidating after market meltdown (CNBC, March 8)

Silicon Valley's collapse was the biggest bank failure since Washington Mutual in 2008 and the second largest bank failure in U.S. history.

Many of those on Wall Street blamed the bank failures for triple-digit declines in the Dow Industrials on the day the news came out. However, the real "bust" in the Dow Industrials and S&P 500 began a year earlier, in January 2022. It reflected a downturn in a social mood; today's bank failures have the same roots that stretch back months and months. And since social mood is showing no signs of improvement, it's likely not over.

The "Everything Bust" is on -- in stocks, real estate, bonds, the world of crypto, SPACs (a.k.a. special purpose acquisition companies) and elsewhere in the world of finance, including the subprime auto market.

This chart and commentary are from the March Global Market Perspective:

The percentage of subprime auto borrowers who are at least 60 days late on payments surged to 6.05% in December, more than double the seven-year low of 2.58% recorded in April 2021, and eclipsing the peak reading of 5.7% during the Great Recession of December 2007 to June 2009.

As a March 10 New York Post headline said:

Silicon Valley Bank meltdown sparks contagion fears: 'We found our Enron'

Whether you want to call it "contagion fears" or the manifestation of an increasingly fearful mood, don't be surprised if more bank failures appear on the horizon sooner rather than later.

Also, don't be surprised if more triple-digit declines occur with the Dow Industrials.

The Elliott wave pattern of this senior U.S. index is revealing what very well may be next for U.S. stocks.

If you're unfamiliar with Elliott wave analysis, or simply need a refresher, read Frost and Prechter's Elliott Wave Principle: Key to Market Behavior. Here's a quote from the book:

Although it is the best forecasting tool in existence, the Wave Principle is not primarily a forecasting tool; it is a detailed description of how markets behave. Nevertheless, that description does impart an immense amount of knowledge about the market's position within the behavioral continuum and therefore about its probable ensuing path. The primary value of the Wave Principle is that it provides a context for market analysis. This context provides both a basis for disciplined thinking and a perspective on the market's general position and outlook. At times, its accuracy in identifying, and even anticipating, changes in direction is almost unbelievable. Many areas of mass human activity display the Wave Principle, but it is most popularly used in the stock market.

If you'd like to read the entire online version of this Wall Street classic, you may do so for free once you become a member of Club EWI, the world's largest Elliott wave educational community (around 500,000 worldwide members).

A Club EWI membership is also free and members enjoy complimentary access to a range of Elliott wave resources on investing and trading.

Join Club EWI now by following this link: Elliott Wave Principle: Key to Market Behavior -- get free and instant access.

This article was syndicated by Elliott Wave International and was originally published under the headline Silicon Valley Bank, Silvergate and "The Everything Bust". EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

 

shat I llike about texas

The Very Big Picture

 

The banking system in the US is sound.

Janet Yellen, US Treasury Secretary

For updates on SVB et al see

www.professorelam.typepad.com

www.professorealmtypepad.com/markets

If the banking system is in such good shape why did a group of big banks need to deposit $30 B at First Republic?  The better question is, where were the layers of Federal oversight as this unfolded?  Just to name a few, the Comptroller of the Currency,  the Treasury Dept.  the FDIC, and the FED all  failed to open the ‘window’ and flood Silicon Valley Bank with enough over night lending to meet the withdrawals?  Worse, KPMG CPAs had issued ‘clean opinions’ on Silicon Valley, Signature Bank (note Barney Frank pocketed  $2.4 M while on that board before the collapse) and First Republic?  Ironically First Republic needed funds exactly 15 years to the day that Bear Stearns failed.   What am I getting for my $31000 tax bill from the Federal Government?

The big picture is this. Interest rates rose from 1942 to 1981.  By 1981 one could make double-digit returns on a safe CD, so why invest in stocks. The top in rates, low in bond prices reversed as Paul Volcker raised rates higher still, marking the peak for inflation. A final low in stocks occurred the next year 1982 an. The new bull market was born which lasted until November 2021- January  2022.   Rates have risen sharply since the March 2020 low. And investors are slowly realizing stocks can go down and stay down as demonstrated by the ups and downs of this week.  The reverse of  1982-1984 is now underway.  Investors will be abandoning stocks for safer Treasury notes and CDs.  A new bear market in stocks is underway.

Central banks have a universal solution for those companies with debt problems, take on more debt!  The second largest bank in Switzerland, Credit Suisse, now trades at  25% of its book value.  No one wants to buy the stock at that discount, so what to do?  The Swiss Central Bank proposes to loan up to $54 M dollars.  Who ever heard of anyone re-paying a  $54 B loan?    Credit Suisse lost the equivalent of its entire year net income, $5 B, on one client and has yet to recover.  In my presentations on that Archegos financial disaster, I  wondered to the audience, how many  more Archegos deals are out there we don’t know about?  We are finding out now.

Investors are exiting oil investments, Crude oil broke the  $70 support, now trading at  $66.42. This is also a sign of economic weakness, less demand for crude oil. The move to electric everything is over done. There is not enough grid and  all these trucks,, planes, and ships are not going electric. Let’s watch for a coming low in the energy markets.

I mentioned Nustar NS which continues to fall in price, now yielding 10% dividend.  Patience is needed waiting for a final low..

NS moving averages come together

Friday March 17 2023

Moving averages have atendency to come together before changing direction. NS rallied into the first two blue arrows shown above and then reversed course. Now NS has rallied and the MAs are coming together, look ike a turn higher> Price is now testing this break out.

rice has returned to the  200 day MA. It should bounce here and then resume higher.

 

The Big Picture

Friday March 17 2023

The Very Big Picture

 

The banking system in the US is sound.

Janet Yellen, US Treasury Secretary

For updates on SVB et al see

www.professorelam.typepad.com

www.professorealmtypepad.com/markets

If the banking system is in such good shape why did a group of big banks need to deposit $30 B at First Republic?  The better question is, where were the layers of Federal oversight as this unfolded?  Just to name a few, the Comptroller of the Currency,  the Treasury Dept.  the FDIC, and the FED all  failed to open the ‘window’ and flood Silicon Valley Bank with enough over night lending to meet the withdrawals?  Worse, KPMG CPAs had issued ‘clean opinions’ on Silicon Valley, Signature Bank (note Barney Frank pocketed  $2.4 M while on that board before the collapse) and First Republic?  Ironically First Republic needed funds exactly 15 years to the day that Bear Stearns failed.   What am I getting for my $31000 tax bill from the Federal Government?

The big picture is this. Interest rates rose from 1942 to 1981.  By 1981 one could make double-digit returns on a safe CD, so why invest in stocks. The top in rates, low in bond prices reversed as Paul Volcker raised rates higher still, marking the peak for inflation. A final low in stocks occurred the next year 1982 an. The new bull market was born which lasted until November 2021- January  2022.   Rates have risen sharply since the March 2020 low. And investors are slowly realizing stocks can go down and stay down as demonstrated by the ups and downs of this week.  The reverse of  1982-1984 is now underway.  Investors will be abandoning stocks for safer Treasury notes and CDs.  A new bear market in stocks is underway.

Central banks have a universal solution for those companies with debt problems, take on more debt!  The second largest bank in Switzerland, Credit Suisse, now trades at  25% of its book value.  No one wants to buy the stock at that discount, so what to do?  The Swiss Central Bank proposes to loan up to $54 M dollars.  Who ever heard of anyone re-paying a  $54 B loan?    Credit Suisse lost the equivalent of its entire year net income, $5 B, on one client and has yet to recover.  In my presentations on that Archegos financial disaster, I  wondered to the audience, how many  more Archegos deals are out there we don’t know about?  We are finding out now.

Investors are exiting oil investments, Crude oil broke the  $70 support, now trading at  $66.42. This is also a sign of economic weakness, less demand for crude oil. The move to electric everything is over done. There is not enough grid and  all these trucks,, planes, and ships are not going electric. Let’s watch for a coming low in the energy markets.

I mentioned Nustar NS which continues to fall in price, now yielding 10% dividend.  Patience is needed waiting for a final low..

Calm Returns

Thursday March 16 2023

 

çrude oil broke apparent support at  $70 s investors exited the energy sector. I have recommended Nustar NS common and will fill you in this weekend on their notes and Preferreds. It has a nice potential reversal day and it paying about  1% dividend t this level.  Don't go over board, put some orders in under the market in lower ladder fashion. I like this play very profitable company with thousands of miles o pipelines

FDIC Updte

March 16 2023

 

The Shocking Truth About the FDIC and Your Bank Deposits
Why you can't rely on the FDIC if your bank goes under

By Elliott Wave International

Editor's note: The failures of Silicon Valley Bank and Silvergate Bank have many observers of the banking system discussing the possibility of contagion. Even so, many depositors feel safe because their deposits are covered up to $250,000 by the F.D.I.C. (Federal Deposit Insurance Corporation). However, this feeling of safety may very well be misplaced.

Here are some important insights about the F.D.I.C. and the safety of your bank deposits.

---

Millions of U.S. bank depositors feel safe in the knowledge that the Federal Deposit Insurance Corporation will protect their accounts, even if their bank goes under.

Yes, it's true that the FDIC says it will do so. As their website states:

The standard insurance amount is $250,000 per depositor, per insured bank, for each account ownership category.

But, the question is: Does the FDIC have the wherewithal to fulfill its promise?

In the event of a major financial crisis, the answer is an emphatic "no." Not even close.

Here's what the Elliott Wave Theorist said in August 2008, near the middle of the 2007-2009 financial crisis:

The FDIC is not funded well enough to bail out even a handful of the biggest banks in America. It has enough money to pay depositors of about three big banks. After that, it's broke.

No doubt, most bank depositors would be shocked to learn this.

But think about it: No single entity could possibly insure all of the nation's bank deposits.

Yet, that FDIC sticker on the front of your bank is very reassuring. The discussions with your banker about your deposit "insurance" might be reassuring.

But, something that is not quite so reassuring is from none other than a former vice-chairman of the FDIC itself. Here's what Thomas Hoenig wrote for the Los Angeles Times in a Dec. 18, 2014 article titled, "FDIC couldn't cover a big bank bailout without taxpayer support":

As a reminder, when the financial industry imploded in 2008, Congress had to pass a special law to fund a $700-billion bailout... . The Federal Deposit Insurance Corp. had nowhere near enough resources to fund their resolution.

Today, with assets of nearly $11 trillion and derivatives worth $4 trillion, the eight largest U.S. banks are far bigger and hold more derivatives than in 2008. Compare those numbers with the FDIC insurance fund of $54 billion. [Emphasis added]

These are eye-opening statistics.

The best way to protect your deposits is to adequately research the banks in your community, and pick one where the banks' officers handle their customers' deposits prudently.

Indeed, the Theorist once remarked:

Relatively safe banks may become even safer. If they have the sense to inform the public of their relative safety aspect, depositors in a developing financial crisis will move funds out of weak banks into stronger ones, making the weak ones weaker and the relatively strong ones stronger.

But, as you've seen, it's a myth that the FDIC can always protect your bank deposits, and it's not the only myth. We have more.

You can see them in EWI's classic report, "Market Myths Exposed." It's part of your free 21-day Elliott wave journey across U.S. markets -- FreePass for a Changed World.

You'll discover the 10 most nefarious myths and how they undermine your financial safety. Myths like:

• News and Events Drive the Markets
• Earnings Drive Stock Prices
• To Do Well Investing, You Have to Diversify
• And 7 more

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This article was syndicated by Elliott Wave International and was originally published under the headline The Shocking Truth About the FDIC and Your Bank Deposits. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

 

The CS Solution

EWI  has commented that the solution to companies with  too much debt (25% of russell 2000 stocks cannot meet debt payments) is

 

sure enough, more debt

 

that thought crossed my mind in reading on yahoo finance, goldman heightens chances of recession and specifically how CS is saved

 

that's great if the swiss central bank is now a shareolder in CS and CS does not have to re pay the loan, otherwise I don't see how this works

this is the sort of thing I want too mention in the upcoming podcast, Bob went out of  his way to to make this point in the llast few EWT

 

has anyone ever paid off a  $54 B loan?

 

dennis

 

Credit Suisse (CS) shares have seen two days of extreme volatility on rising fears of its survival. The investment bank said late Wednesday it would borrow up to $54 billion from the Swiss central bank to shore up investor confidence.

Is VIX signalling a bottom and rally?

Wed March 15 2023

click here for link

stock rally ahead?

 

Corporations Buy Shares Back at Top of Markets

Tuesday March 14 2023

 

Insights into This "Old Faithful" Indicator of Financial Peaks
Here's when "supposedly informed corporate officers take the bait"

By Elliott Wave International

Some stock market indicators have proven themselves market cycle after market cycle.

For example, one indicator which has stood the test of time is a jump in the level of foreign buying near or at a stock market top -- and that can be in any country. Right now, we're talking about the U.S., but looking back a few decades, it also occurred in Japan at the end of the 1980s.

Another Old Faithful indicator of financial peaks is an extreme in the zeal with which corporations buy back their own shares.

The April 2022 Elliott Wave Financial Forecast, a monthly publication which provides analysis of major U.S. financial markets, noted:

Companies usually buy back their own shares at a record pace near major market peaks.

As historical examples, new extremes in quarterly S&P buybacks occurred around the time of the stock market peaks in the first quarter of 2000 and the third quarter of 2007. Another extreme accompanied the Dow and S&P tops in the first quarter of 2022.

The just-published March Elliott Wave Financial Forecast provides an update with this chart and commentary:

[Here's an] Old Faithful indicator ... a new monthly record of $131.5 billion of announced buybacks in January. This total is even higher than that of January 2021 and January 2022. It was also close to half of the record three-month total in the first quarter of 2022. As the Elliott Wave Financial Forecast said in April, "At the end of the greatest stock market advances, supposedly informed corporate officers take the bait."

Financial optimism is running so high that even a new tax has not slowed corporate officers from buying back shares. Here's a March 2 news item from the Wall Street Journal:

Executives largely shrugged off a new 1% tax on stock buybacks as the cost of doing business.

Keep in mind that the level of corporate buybacks is not a short-term timing tool for the stock market.

It's best to consult the market's Elliott wave pattern for insights into specific and important price junctures.

Now through March 31, you can see those insights FREE inside EWI's FreePass for a Changed World event.

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This article was syndicated by Elliott Wave International and was originally published under the headline Insights into This "Old Faithful" Indicator of Financial Peaks. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

 

CFR Loses 1/3 value since November

Tuesday March 14, 2023

 

 

CFR has alaready

 

CFR has alreaay  dropped to the previous fourth wave low and beyond.  The  200 week MA is 101 and CFR is about there already. As the WSJ editorial says today the markets are not believing either Biden or Yellen.

XLF bank index

XLF peaked over a year ago with the rest of the major stock indexes. Its wave 3  is also beginning.

Stocks are making a weak bunce in pre market trading.