First citizen's scoops up SVB assets at a 22% discount – Regionals rally

• DB is not the disaster that they made it out to be.

• First Citizens buys $72 bil of assets from the failed SVB for $56 bil. That’s a 22% discount….Expect the regionals to rally.

• FRC quoted up 25% in the pre-mkt.

• Minneapolis FED Pres – Neely K – tells us that the banking crisis increases the risk of recession….. Now that’s funny.

• More FED heads to speak this week.

• Try the Spaghetti al’ Tonno.

Stocks had a crazy week – anxiety levels surged then collapse and then surged again….as investors remained concerned over the direction of interest rates and pace of future hikes and what it all means for the global banking sector.  Treasury Secretary Janet Yellen doing not one but two flip flops during the week – saying – ‘Yes we’re helping, then No we’re not, then Yes we are….’ And that sent the algo’s, traders, stocks and the administration into ‘confused mode.’  Leaving many to ask – “Are the banks really safe?”  “Are my deposits protected?”  “Who is driving this bus anyway?”

The Nasdaq was the clear winner last week – rising about 3% on the week – while the Dow Industrials, S&P, Russell and Dow Transports ended within points of where they began the week -but does not paint the picture of all the volatility and swings that we witnessed day to day.  While the daily action saw the indexes get whipped around all week – Friday began as if we were about to witness another European banking disaster by Deutsche Bank……. ‘rumors about imminent failure’ sent European markets reeling - falling more than 2.5% in early trade – and that set the tone for US futures in the pre-mkt and they were ugly…. Now – it was Friday and the weekend was coming….and so you could make an argument that traders and algo’s were just disgusted and were ready to toss everything out and in early trading – US futures were getting clobbered.  But that was not the case – by the end of the day- the hysteria created in Europe – did not infect the mind set of US investors and all the indexes ended the week on a plus tick. (European markets did end on a minus tick though).   The Dow up 133 pts or 0.4%, the S&P up 22 pts or 0.6%, the Nasdaq up 40 pts or 0.3%, the Russell up 14 pts or 0.8% and the Transports added 19 pts or 0.15%.

Other Fed officials now confirming what JJ said on Wednesday – with St Louis’s Jimmy B telling Bloomberg that he sees the terminal rate going to 5.625% before he is willing to give up the hikes.  He was then joined by Richmond’s Tommy Barkin and Atlanta’s Raffi Bostic who both acknowledged that inflation is still too damn high, and that monetary policy should remain focused on fighting inflation – neither one apparently that concerned over the recent banking crisis….

Bullard justifying his comments by saying it this way

“Continued appropriate macroprudential policy can contain financials stress, while appropriate monetary policy can continue to put downward pressure on inflation.  I just think this is a different world than the 2007 to 2009 world where you’re inventing things on the fly.  Here you have the tools in the toolbox while the inflation problem is real and is large.”

So, if he has his way – we can look for at least 1 more 25 bp hikes….hoping that the coming credit crunch will do the rest of the work.  Expectations suggest that the FED will pause in May and let it all simmer down…. unless of course this week’s PCE data and April’s CPI and PPI data do not retreat….then – they will have no choice but to keep going….Capisce?

Now look, recall that all of the big money center banks (JPM, BAC, C, WFX etc.) all raised their allocations to their ‘loan loss reserve accounts’  - signaling that they all expect times to get a bit tougher as we move through the cycle and while that is not ‘good news’ – it is ‘honest and clear news’ and suggests that they are ready….and remember – all the markets want is clarity – good or bad – just give it clarity – the rest will be solved by investor action….reminding us that there are always two sides to a trade….both a buyer and seller….nothing happens in a vacuum.  And remember – just because someone is a seller – does not necessarily mean they don’t like the stock – there could be a dozen reasons for the sale….as there could be a dozen reasons for the buyer as well.  In the end though, as a long term investor -  it is the opportunities that are created by the sellers who overreact and ‘shoot first and ask questions later’ mentality.    

This week – is chock full of a lot of economic data…..the Dallas Fed Survey, Retail Inventories – expected to be +0.2%, Housing price data, Richmond Fed survey, Pending Home Sales – expected to -0.3% and the one that everyone will focus on – the FED’s favored inflation gauge – the PCE  - which is expected to be +0.3% m/m and +5.1% y/y (both a bit lower) while the Core PCE is expected to be +0.4% m/m and 4.7% y/y and then we’ll finish the week with the U of Mich Sentiment indicator and 1 yr. inflation expectations – which they think will be 3.8%....

Going into the final quarter of the week – we see that Communications stocks are + 18%, Tech up 17%, Housing stocks up 8%, Disruptive Tech up a whopping 20%, Semi’s up 25%, AI up 18%, Cybersecurity up 6%, the Growth trade up 6% while the value trade is flat on the year.  Gold is up 10%, Copper up 11%, Silver interestingly is lower by 2%.   Cryptos are back in vogue with Bitcoin up 68% and Ethereum up 46%.   Lagging sectors were last year’s better performers – Energy – 11%, Utilities – 6%, Consumer Staples – 2%, Financials -9%, Healthcare – 6%, Regional Banks – down 25% and Real Estate off 3%.

The ongoing confusing narrative out of the US treasury – a la Janet Yellen – about what we will do or won’t do in the event of an ‘emergency’ continued to send shivers thru the system… We have seen a massive bond rally – that sent bond prices higher and yields lower…..moves in the bond market that we haven’t seen in years…. By the close on Friday, the 2 yr. now was yielding 3.76%!  Amazing, no?  2 weeks ago it was yielding near 5.5% - that’s a 32% decline in 2 yr. yields……the 10 yr. now yielding 3.37% down from just over 4% - representing a 16% decline in yield.  But as the overall tone for stocks appears to be settling down (European markets are higher and US futures are pointing up) – we are seeing many ‘flip those bonds’ locking in nice gains – sending bond prices down this morning and yields up.  At 6 am – the 2 yr. is up 11 bps at 3.87% while the 10 yr. is now yielding 3.44% up 6 bps.

Oil – which traded down 20% after the SVB announcement did find support at $65 on the 20th – has since rallied off that low.  By Friday afternoon – we saw oil close at $69.30 – up 9% and this morning WTI is up another 25 cts – trading at $69.65 – after testing as high as $70.25. Word that Vlad is making threats of placing nuclear weapons in Belarus (aimed at Europe) is raising all kinds of political tensions across Europe.  In addition – Russia’s deputy Prime Minister – Alex Novak reports that Moscow is achieving its target of cutting output by 500k bpd.  Analysts tell us that Russian crude inventories have been rising and if they want to draw down the recent build – then they may cut output through June.  Remember that the next OPEC+ meeting is on April 5th – and there are all kinds of speculation around what the Saudi’s will do to support and force the price of oil higher. 

Gold which shot higher last week on a range of fears – traded as high as $2030 on Thursday and settled at $2000/oz on Friday.  This morning it is down $20 at $1980/oz.  The pullback being credited to the strengthening dollar, the possible pause in rate hikes and the declining fears of global banking contagion….news that First Citizen’s Bancshares (FCNCA) has purchased SVB is helping to send gold lower and futures higher…..First Citizen’s is said to have bought all of the deposits and loans  for about $56 billion dollars – a $16.5 billion discount from its $72 billion valuation.  This morning FCNCA is quoted up $60 or 10% at $640/$700 on the back of that news.  Expect to see lots of action in the regional banks today….and potentially more pressure on Gold…Trendline support is at $1915, but trader support is more like $1950….with resistance at $2030…

The dollar index is holding steady at $103.13 – as it attempts to pierce resistance at $103.46….a successful move up will put some pressure on the commodity complex – It appears we are in the $100/$103.50 trading range. 

This morning global markets are higher….European markets all UP – the UK is +0.5% while the Italians take the lead + 1.2%. – Everyone else is jockeying for position in the middle.  The banking issue remains top of mind – but many investors appear to be ‘ok’ with where we are and are cautiously optimistic after Friday’s beating.  DB – which created all the drama on Friday is trading up 3.7% in mid-morning trade. On Sunday – IMF Chief Kristina Georgieva told us that ‘risks to financial stability have  increased’, but the actions by advanced economies appear to have calmed the stress… German business sentiment has climbed for the 5th straight month – Manufacturing showing the biggest change while they did see improvement in services and trade as well.  Vlad’s latest nuclear threats not causing investor angst – at least no yet.

US futures are also UP this morning…..Dow futures are up 120 pts, S&P’s +15, the Nasdaq + 27, and the Russell is +12.  News the FCNCA (a top 30 bank) is buying the assets of SVB is helping the tone…. Regional banks expected to benefit from this move, and all are quoted higher…  Concerns over the European banking sector because of the DB drama on Friday have now dissipated.  Over the weekend – we saw Minnesota’s Neely Kashkari on CBS’s Face the Nation tell us that the recent banking crisis HAS increased the chances of a recession  - I think he said something like  ‘it could be a much bigger threat of something slowing down or breaking’   …..Here’s a clue Neely – The recession IS here…the slowdown has begun and if you hadn’t noticed -   a handful of banks have been broken…..the recent banking crisis only increases the ‘depth and length’ of the recession.  Get it straight….

In addition to all of the macro data points – we are going to hear from a range of FED heads….. Neely kicked it off but expect to hear from Boston’s Suzy Collins and Richmond’s Tommy Barkin.  On Friday we will hear from NY’s Johnny Williams.  Other speakers this week include Treasury Secretary Janet Yellen (maybe she is announcing her retirement?) and ECB President Chrissy Lagarde.

The S&P closed at 3970  up 22 pts…..but it was a crazy day….the S&P traded as low as 3909 – again breaching the support trendline at 3935 but finding ultimate support right near the 3900 level….as it did earlier in the week…..as it tries to stabilize around the trendline.  Remember – if it gets more chaotic in the days ahead a test of the March low (3800) would not surprise me.  Trendline resistance at 4015…. If the mood continues to improve – then don’t be surprised to see us test the most recent high at 4100.  So it kind of feels like we are in the 3900/4100 trading range.

When the mood remains volatile and anxious – the path of least resistance is lower but when the mood changes – then the path of least resistance is HIGHER and you get all those traders/algo’s and investors frenzied up into a FOMO mentality….If investors think that the worst is over and that they are ‘missing out’ then watch as stocks push up….. as they all pile in….which is why – I say don’t overreact at all….Stay the course – steady as she goes…...Stop trying to time the market and pick highs and lows IF you are a long term investor….Do not chase anything….patience is a virtue.  Don’t get drawn into the frenzy – if you are invested you are participating…..nothing to worry about.

Spaghetti Al' tonno

This recipe comes to us from the Island of Sicily – just off the tip of the boot…. Sicily is all about fishing and contains numerous fishing villages that are responsible for catching much of Italy’s seafood, including most of its tuna.

Giuseppe Garibaldi, Italian national hero was said to have eaten it upon his arrival in the Sicilian city of Marsala in the year 1860.  Whatever its origin….it is delish…

For this you need – Tuna in olive oil (not water), olive oil, s&p, red pepper flakes, dried oregano, crushed tomatoes – (or you can buy whole peeled tomatoes and crush them yourself), capers, garlic, anchovies, white wine, and 1 lbs of spaghetti and freshly chopped parsley and of course – fresh grated Parmegiana cheese.  

Bring a pot of salted water to a rolling boil.

In the meantime – in a large skillet, turn heat to medium – add some olive oil, 1 or 2 anchovies (depending on your tastes), and drained capers.  Sauté until the anchovies melt – now add in thinly sliced garlic…. (3 cloves).  Sauté for 3 – 4 mins….do not burn….

Now add in about ¾ c of dry white wine – I use a pinot grigio – turn the heat up to med high and bring to a boil, add some red pepper flakes and dried oregano reduce to about 1/3…. stir and reduce….

Now add in the crushed tomatoes…I use San Marzano…. stir to mix…. season with s&p.  Let it simmer for about 10 mins…….

Now add in the tuna and oil…. break it up …. stir to mix well, add in the chopped parsley – now lower the heat to simmer and let it simmer

Add the spaghetti to the boiling water and cook for about 8 mins…. you want this to be aldente…. Strain – always reserving a mugful of the pasta water.  Add the pasta back to the pan with the sauce….. add a splash of the pasta water and toss to moisten.  Mix well.  Cover and allow to sit for 3 mins…. Open and look – does it need a bit more of the water to keep it moist?  If so – add a touch more, if not, then not.

Now serve in a warmed bowl – top with a drizzle of olive oil and some more chopped parsley and grated parmigiana.