Four Biggest U.S. Banks Lose $47 Billion in Market Value
- JPMorgan lost about $20 billion in market value Thursday.
- Bank of America lost roughly $15 billion.
- Wells Fargo‘s market capitalization was down $8.5 billion.
- Citigroup‘s was down $3 billion.
The Wall Street Journal reports Four Biggest U.S. Banks Lose $47 Billion in Market Value
Bank investors were spooked by SVB Financial Group’s decision to sell a large chunk of its securities portfolio at a $1.8 billion loss as it deals with an outflow of deposits, which more than halved the technology-focused bank’s stock.
The banking industry has more than $600 billion in unrealized losses on its securities holdings, according to the Federal Deposit Insurance Corp., the result of stowing extra cash in bonds when rates were super low. Now that rates have risen, the prices of the bonds have gone down significantly.
Banks likely won’t have to sell their bonds at a loss unless they have big outflows of deposits. But fears of such losses combined to hammer the stocks.
Mark-to-Fantasy
Thanks to suspension of mark-to-market accounting rules in March of 2009, (ironically, something I mentioned two days ago on Twitter), banks can hold bonds as investments and not mark any losses.
It was suspension of mark-to-market rules that reignited the stock and bond markets making the final bottom of the Great Recession.
$BKK – Weekly Bank Index
Ewave Analysis
This is about as clean of an Elliott Wave chart count as you can get. That does not make it right, and there is that pesky gap in the lead chart.
Gaps eventually fill. But the individual charts today from FactSet does not show pesky gaps. I did not look individually to see what other gaps there may be.
Regardless, the $BKK weekly is a very nasty count. Wave threes are generally the longest and strongest wave.
If a wave 3 has started, a decline from here would likely be huge and unrelenting. I will post Ewave charts of the S&P 500 later this evening or tomorrow.
Powell’s Hawkish Speech to Congress Sends Interest Rate Hike Odds Soaring
On March 7, I reported Powell’s Hawkish Speech to Congress Sends Interest Rate Hike Odds Soaring.
Yesterday, CME Fedwatch had the March 22 rate hike odds of 50 basis point at 78.6 percent.
Today, those odds fell to 64.6 percent. But a month ago, the odds of 50 basis point hike was only 9.2 percent.
We will get another chance for a surge or decline on Friday’s job report.
The odds of an “accident” keep increasing as noted earlier today in Forget About Openings, Quits Tell a Better Story of Job Market Strength
This post originated at MishTalk.Com.
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Mish
interest rates go up, flows into savings and time deposits increase” ( the
ratio of M1 to the sum of 12 months savings ).
The rate-of-change in currency in circulation is back to 2010 levels. The
6-month roc in our means-of-payment money has turned negative. When the
10-month roc turns negative there will be a recession. But now the FED won’t
know about it after a lag.
effect of money flows, the volume and velocity of money, are mathematical
constants. There is no “Fool in the Shower”. Economics is the dismal science. The economy is being run in reverse. The welfare of the banks is codependent upon the welfare of the nonbanks (putting monetary savings back to work). Savings flowing through the nonbanks never leaves the payments system (with the exception of the O/N RRP facility).
As
I said: The only tool, credit control device, at the disposal of the monetary
authority in a free capitalistic system through which the volume of money can
be properly controlled is legal reserves. The FED will obviously, sometime in
the future, lose control of the money stock.
May
8, 2020. 10:38 AMLink
The Banking Act of 1935 gave the BOG permanent power to fix the reserve ratios applicable to member banks within limits set by Congress. The maximum and minimum limits to this discretionary power were amended by the 1948 Act for the three classes of member banks: Country, Reserve City, and Central Reserve City.
An increase in reserve requirements immediately impacts inflation. There is no lag effect / waiting period. Draining legal reserves for 29 contiguous months caused the GFC. I.e., Bankrupt-u-Bernanke “did it again”.
Governors reduced the reserve requirement on checkable deposits to zero. This
action ended the Fed’s ability to control M1.”
And we knew this already:
In 1931 a commission was established on
Member Bank Reserve Requirements. The commission completed their
recommendations after a 7 year inquiry on Feb. 5, 1938. The study was entitled
“Member Bank Reserve Requirements — Analysis of Committee Proposal”
its 2nd proposal: “Requirements against
debits to deposits”
Member Bank Reserve Requirements: Analysis of Committee Proposal, Box 107 (stlouisfed.org)
After a 45 year hiatus, this research
paper was “declassified” on March 23, 1983. By the time this paper was
“declassified”, Nobel Laureate Dr. Milton Friedman had declared RRs to be a
“tax” [sic].
of velocity stems directly from the theory of the demand for money, anything
that affects velocity can be related to some aspect of the demand for
money.”
As Dr. Philip George puts it: “Changes in
velocity have nothing to do with the speed at which money moves from hand to
hand but are entirely the result of movements between demand deposits and other
kinds of deposits”.
As Dr. Philip George says: “The velocity of
money is a function of interest rates”
Buying opportunities!
The oil story hasn’t changed for over two years now Tony. (And I see, in spite of that, you are still hitting your head on the same brick wall.) The breakeven for most oil companies ranges from WTI $25 to $50. Since WTI has been exceeding breakeven by so much, they have been gushing cash flow for over two years.And what did they do with all that cash flow? Some goes to capex in order to sustain production. But that was a relatively small part. Most of it was used to pay down debt. Many of the companies I own are now debt free, or have hit their low debt targets. They now have fortress balance sheets.Since they no longer have to pay down anymore debt, they are free to return their future excess cash flow to shareholders, through dividends, buybacks or both. Many of the companies I own have committed to returning 50%, 75% and even 100% of that cash flow to shareholders. So the dividend rates are now increasing (for some companies, several times per year). Some are also declaring special dividends. Though some are focusing more on share buybacks.I expect the 7% to increase to over 10% by the end of this year. And considering the price I paid for these companies, that’s more than 30% dividend rates on my cost price.Those rates are sustainable at $80 WTI. And considering some of the companies I own have 30, 50, 70, and even 100 years of reserves to tap into, I look forward to juicy dividends for many years to come. Add in share buybacks and that will help share price appreciation. Many of these companies could buyback all their shares with just 3-6 years of excess cash flow.Incidentally, the executives at these companies have been buying their own company shares in large quantities in the open market for the last two years as well. That tells me that they see these shares as a no-brainer since they continue to trade at such low prices relative to historical valuations. I always ask what YOU are invested in, but you are always too afraid to reply. Apparently you like to criticize others, but can’t handle criticism yourself.