International Forecaster Weekly

Has Everything Changed?

If there was ever a case to just sit back and watch, this is it. Let me explain…

Fed head Powell made it very clear on Tuesday and Wednesday that he was going to hike rates “faster, and higher, and longer” than Wall Street wanted. When the bell rang Wednesday afternoon to close the market show, I was convinced he was going to give us a 50 basis point rate hike in less than two weeks.

But then Thursday we started hearing about some big trouble at the Silicon Valley bank, and the stock was getting slaughtered. Like falling 50% and then some. The problem seemed to be that they were sort of experiencing a run on their bank, after there was some questions about their liquidity situation.

Friday morning we got hit with two things. First the jobs report hit and it was sort of mixed, giving a couple different signals. Now first off realize that NONE of the official numbers are real. None. There’s so many hands in the cookie jar, and so many adjustments, no one knows how much fudging the other guy has done. So all we can do is go by the official baloney. Well they say 311,000 jobs were created.

In a normal world, more jobs would be great. But in a Wall Street driven, fed fearing world, more jobs than expected is bad. Yes the supposed unemployment rate moved up a bit, but then so did Labor participation, so it was sort of a wash. The bottom line was that the jobs number did nothing to convince me that Powell wouldn’t be doing a 50 basis point hike on the 22nd. 

But then more and more word came hitting the wires concerning Silicon Valley Bank, and the big questions started. Did Powell’s rapid rate hikes “break” the debt/bond market? Were other banks in trouble? Were past hikes finally catching up and crashing things?

Then the news hit that the bank had been shut down by the California banking regulators and the FDIC was going to be in control of things. That sent panic waves across the market and the stock indexes were whipping around like a loose water hose.  For instance at one point the DOW was green by 50 points, and not long after it was red by 400.

Bob Rinear | March 11, 2023

If there was ever a case to just sit back and watch, this is it. Let me explain…

Fed head Powell made it very clear on Tuesday and Wednesday that he was going to hike rates “faster, and higher, and longer” than Wall Street wanted. When the bell rang Wednesday afternoon to close the market show, I was convinced he was going to give us a 50 basis point rate hike in less than two weeks.

But then Thursday we started hearing about some big trouble at the Silicon Valley bank, and the stock was getting slaughtered. Like falling 50% and then some. The problem seemed to be that they were sort of experiencing a run on their bank, after there was some questions about their liquidity situation.

Friday morning we got hit with two things. First the jobs report hit and it was sort of mixed, giving a couple different signals. Now first off realize that NONE of the official numbers are real. None. There’s so many hands in the cookie jar, and so many adjustments, no one knows how much fudging the other guy has done. So all we can do is go by the official baloney. Well they say 311,000 jobs were created.

In a normal world, more jobs would be great. But in a Wall Street driven, fed fearing world, more jobs than expected is bad. Yes the supposed unemployment rate moved up a bit, but then so did Labor participation, so it was sort of a wash. The bottom line was that the jobs number did nothing to convince me that Powell wouldn’t be doing a 50 basis point hike on the 22nd. 

But then more and more word came hitting the wires concerning Silicon Valley Bank, and the big questions started. Did Powell’s rapid rate hikes “break” the debt/bond market? Were other banks in trouble? Were past hikes finally catching up and crashing things?

Then the news hit that the bank had been shut down by the California banking regulators and the FDIC was going to be in control of things. That sent panic waves across the market and the stock indexes were whipping around like a loose water hose.  For instance at one point the DOW was green by 50 points, and not long after it was red by 400.

Now one thing to understand is that Silicon Valley is not your normal mom and pop bank you’d find on your street corner. They were big financers of start ups, like venture capital, and their structure was different than most normal banks. It didn’t matter, the panic was in the air and the banking sector was getting spanked.

But here’s where it gets goofy. Remember I said I was firm on the idea he was going to do a 50? Well, before we get to his decision, we have to weigh in 1) the Jobs report being stronger than they hoped, 2) this situation at Silicon Valley, and then 3) a slew of economic reports next week that are important like the CPI.

So, is SVB symbolic of all the banks? Yes and no. I’ve told you for years that our debt market is creaking and groaning. Banks by and large are NOT in good shape, despite what they tell you. I’ve also said that one day we’ll get a debt market melt down, that literally crashes almost everything. But NO…. I don’t think the time is now.

Silicon Valley is a horse of a different color, and not emblematic of most other banks. While they’re not in good shape either, not all of them are ready to implode, not just yet.

Now I could be all wet and we come into the new week hearing about all manner of other banks that are blowing up, but I don’t think so. I’ve been wrong before however, so there is that.

My point is that anything could happen in the stock market this coming week. The CPI could come in lighter than feared and they all cheer and rejoice and we see a big monster bounce that rips your face off. Or, it could come in hotter and give Powell one more reason to go 50 instead of 25 basis points.

I think the bottom line is that unless you are a VERY nimble trader, next week might be a really good week to go paint the fence. Build that cabinet you’ve been putting off. Weed the garden. Because the chop that could be brewing might be epic depending on the news flow.

Are we in trouble? Absolutely. The implosion of this fiat economy is simply a matter of when, not if. When you make the markets heroin addicts, and feed their addiction with every lower rates for years on end and then jam them with one of the most aggressive hiking campaigns in history, some of those junkies are going to get withdrawal sick. We’re seeing some of it starting.

Until the 2 year coughed up a ton of Yield on Friday, people were getting keen on the idea of simply buying treasuries and getting a risk free 5% on their money. Well, banks are trying to continue to make money on their “spread” between what they borrow at, and what they lend at. But if they have to borrow at 5% and they want to make good money, they’ve got to charge like 8% or more on a used car loan. People don’t like that, so they’re avoiding the pain.

If there was ever a time to lift an eyebrow and think “maybe I should have more of my savings in gold and silver, instead of in the bank”…this might be that time. God forbid we hear of a US bank implementing a “bail in” on their customers and yes, all hell will break loose.

Keep your head on a swivel folks. We just saw the biggest bank failure since the 2008 crisis. Caution is very warranted.