What to Watch After the SVB and Signature Bank Collapses

In today's special edition of Something You Don't Know, you'll find an important briefing from credit analyst and author Martin Fridson, who leads Porter & Co.’s Distressed Investing team.

An Urgent Update from Our Distressed Investing Director

Editor's Note:

Below, you'll find an important briefing from credit analyst and author Martin Fridson, who leads Porter & Co.’s Distressed Investing team.

Martin is “the most well-known figure in the high yield world,” according to Investment Dealers’ Digest. Over a 25-year span with brokerage firms including Salomon Brothers, Morgan Stanley, and Merrill Lynch, he became known for his innovative work in credit analysis and investment strategy. Now, he’s the director of Porter & Co.'s new Distressed Investing advisory, where we examine the "greatest legal transfer of wealth in history."

Friends,

In the space of three days, we’ve witnessed the second and third largest bank failures in U.S. history.  Both Silicon Valley Bank and Signature Bank were profitable, with investment grade credit ratings as of last Wednesday. Price drops of 63% and 38% last week show that the collapses were huge surprises to the market.

Banks are a special breed of companies. They can seem to be going along fine and then wham!—depositors lose confidence. The bank is hit with massive withdrawals and suddenly it has a liquidity crisis. This is very different from the long, drawn-out deterioration that typically moves industrial companies and retailers into the distressed category.

RIP Silicon Valley Bank: Shut Down by California Regulator, Taken Over by FDIC, Shareholders Bailed In, Insured Depositors to Get their Cash by Monday

The bank survived the Dotcom Bust. But this bust is far bigger because the Free-Money bubble was far bigger. FDIC may not have a loss on this deal.

By Wolf Richter for WOLF STREET.

Silicon Valley Bank, a California state-chartered bank that was uniquely exposed to the massive all-encompassing startup bubble during the Free Money era – a bubble that is now imploding spectacularly amid what is called a mass extinction event among startups – was shut down and taken over Friday morning by the California Department of Financial Protection and Innovation (DFPI). In its press release, the regulator cited “inadequate liquidity and insolvency.”

The DFPI appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. The FDIC announced that it had created the “Deposit Insurance National Bank of Santa Clara (DINB)” and that the FDIC, as receiver, “immediately transferred to the DINB all insured deposits of Silicon Valley Bank” to protect insured depositors. Depositors will have access to their insured deposits on Monday, March 13.

Biggest Recession Warning in 42 Years Just Tripped

By Brian Maher

Mr. Powell frightened the horses yesterday.

The Dow Jones Industrial Average plunged 532 panicked points on his congressional testimony that:

We continue to anticipate that ongoing increases in the target range for the federal funds rate will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2% over time. In addition, we are continuing the process of significantly reducing the size of our balance sheet…

The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated. If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes. Restoring price stability will likely require that we maintain a restrictive stance of monetary policy for some time.

Follow the Money: Climate Finance is Heating Up

It’s a trigger word no matter which side you’re on.

But if you follow money and capital flows there’s no argument.

In recent years, one of the hottest segments of the venture capital market has been something you may not have expected:

Climate tech.

The world is increasingly turning to climate tech startups to address the urgent need for sustainable solutions.

These startups can be found in sectors such as clean energy, transportation and agriculture.

Climate tech companies do one of three things:

Directly remove, offset, or mitigate greenhouse gas emissions,

Alleviate the various harmful effects caused by climate change, or

Provide a better understanding of the climate and our impact on it.

While there’s been plenty of talk about green and sustainable investing, investors have been putting their money where their mouth is, as the chart shows…

This Beaten-Down Commodity Is About to Soar

By Brett Eversole

Folks have gotten used to watching commodities soar over the past few years...

Lumber skyrocketed hundreds of percent... Oil jumped above $100 a barrel... And even cotton climbed to a decade-plus high.

Today, we're seeing the flip side, though. Prices are coming down. And inflation is falling with them. So most folks have stopped caring as much about commodity investments.

They're making a mistake, though. That's because the rapid declines have led to some rare opportunities.

Coffee is one of them. Prices crashed recently. Traders absolutely hate the commodity... And according to history, that means a major rally is on the way.

These Charts Scared the Stock Market into a 700-Point Drop Yesterday

By Pam Martens and Russ Martens

The Dow Jones Industrial Average plunged 697 points by the closing bell yesterday, wiping out all of its gains this year. Here’s a rundown of what happened.

At 2 p.m. ET today, the Federal Reserve will release the minutes of the Federal Open Market Committee (FOMC) meeting it held on January 31 and February 1. The stock market is particularly skittish on the day prior to the release of those minutes, out of concern that an overly hawkish tone on interest rates will tank stocks.

Given that skittishness, all the stock market needed for a major selloff was a trigger. It got that when Bloomberg News published this headline at 1:36 a.m. in the morning: Morgan Stanley Says S&P 500 Could Drop 26% in Months.

Morgan Stanley’s opinion matters for two main reasons: it has just shy of 16,000 stockbrokers (a/k/a “Financial Advisors”) who typically pitch the firm’s playbook to their clients; and it is a major prime broker to hedge funds who will get a boost from a negative outlook if they are shorting stocks.

Bitcoin regains $25K amid hope record China easing will boost BTC price

By William Suberg

Bitcoin whales are guiding BTC’s price around $25,000, and caution is needed, analysis warns.

Bitcoin buoyed by “Notorious B.I.D.”

Data from Cointelegraph Markets Pro and TradingView showed BTC/USD making up losses from around the weekly close to approach the $25,000 mark again at the time of writing.

Bulls remained unable to spark a resistance-support flip, however, and whale activity on exchanges kept suspicions high.

In its latest update, monitoring resource Material Indicators revealed that large-volume traders were artificially “thinning” resistance overhead, making it more likely that BTC/USD would move higher.

Co-founder Keith Alan referenced a wall of bid liquidity buoying spot price, something he called the “Notorious B.I.D.”

“Multiple rejections from $25k correlates perfectly with BTC macro TA which is a valid reason to TP at these levels, but Notorious B.I.D. is still trying to push price up,” a tweet stated.