- First Republic Bank’s multibillion-dollar Band-Aid
- Yellen: The defense tail wags the civilian-economy dog
- G7 ban on all Russian exports (“Simply not doable”)
- Reserve Bank of Zimbabwe’s latest currency POA
- The WSJ plays catch-up today (gold)… Dave gets an “earful” from West Coasters… And more!
What was it our Jim Rickards was saying three weeks ago about the bank crisis not being over?
Oh, that’s right: “The panic is just getting started,” Jim said. (And unlike Bluto, Jim remembers who bombed Pearl Harbor…)
After the closing bell yesterday, we got another reminder that the crisis isn’t over when First Republic Bank issued its quarterly numbers. It turns out $100 billion in customer deposits flew out the door during the first quarter.
The $30 billion deposited by JPMorgan Chase and 10 other banks last month as a gesture of confidence? It doesn’t begin to make up the difference.
And as Jim pointed out at the time, that rescue was “all debt and no capital. That means it’s not really a rescue; it’s just a cash bandage.”
At last check, FRC’s share price is down nearly 30% on the day — in addition to the 86% it already gave up since the start of the year. “The future of the San Francisco bank First Republic is looking very uncertain this morning,” avers the Financial Times.
And so the bank crisis that began last month remains in the early innings.
Jim reminds us about the tempo of the two biggest financial crises of the last three decades:
“The crisis that started in June 1997 had a quiet period around January 1998 before the final blow-up [the failure of Long Term Capital Management] in September 1998.
“The crisis that started in July 2007 had a quiet period around January 2008 before the final blow-up [the failure of Lehman Bros.] in September 2008.
“We’re in one of those quiet periods right now. It’s not over. Get ready for the final blow-up.”
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In the meantime, the U.S. stock market is drifting lower ahead of the big earnings reports from Microsoft and Google due after today’s closing bell.
As we said yesterday, MSFT and GOOG are among a mere eight stocks propping up the S&P 500 so far in 2023. Two more, Meta and Amazon, report tomorrow and Thursday. If they disappoint, they’ll not only sink… they’ll drag down the rest of the market with them.
The Dow is holding up best at last check, down barely at 33,832. The S&P 500 is down 0.6% but still holding the line on 4,100. The Nasdaq is down more than three-quarters of a percent, back below 12,000.
In the commodity complex, the big story is copper — which for the moment is sniffing out an impending recession. The red metal is down over 10 cents to $3.87 a pound, the lowest in about six weeks. Crude is also down big — over 2% to $77.11.
Gold is holding steady at $1,987 but silver’s gotten whacked — down 44 cents to $24.69. Not much movement in crypto, Bitcoin at $27,392 and Ethereum at $1,818.
One economic number of note: New home sales jumped 9.6% in March — well above expectations — as builders respond to tight supply of existing homes. Roughly one-third of homes sold recently are new construction; in more normal times it’s about 10%. Prices for new construction are up 3.2% from a year ago at $449,800.
For the record: It is now formal U.S. policy that the health of the economy must take a back seat to whatever the federal government defines as “national security.”
“Treasury Secretary Janet Yellen said protecting national security would be the U.S. priority in its relationship with China even if it slows economic growth,” says a Wall Street Journal summary of a speech Yellen delivered last week at Johns Hopkins’ School of Advanced International Studies.
Addressing measures such as the ban on the export of advanced semiconductors and other technology to China, she said, “We will not compromise on these concerns, even when they force trade-offs with our economic interests.”
What’s happening here is the national-security tail wagging the civilian-economy dog.
Isn’t the purpose of national defense to protect the civilian economy? But here the economy is made subservient to the priorities of the defense establishment.
Thus, you hear a lot of chatter from Washington about the problem of “dual use” technologies that are applicable to both the civilian and military sectors.
It’s not a new phenomenon. President Harry Truman tried to nationalize the steel mills in 1952 because he thought that would help Washington wage the Korean War; fortunately the Supreme Court slapped him down. Steel was “dual use,” even if no one used the term back then.
In theory, these distortions wrought by the military-industrial complex could have ended after the Cold War and we could have returned to being “a normal country in a normal time.” But it wasn’t to be.
The country has been permanently mobilized for war ever since passage of the National Security Act of 1947 and now it’s, as Agora founder Bill Bonner is fond of saying, a “late-stage degenerate empire.”
Even Washington’s allies are starting to push back when it comes to a proposal to ban nearly all exports to Russia.
Ahead of a summit among G7 leaders next month, the U.S. government is proposing that all the G7 member states — the U.S., Canada, U.K., France, Germany, Italy and Japan — ban their exports to Russia. There would be exceptions for food and medicine, but that’s about it.
The Financial Times says it’s seen the documents floating this proposal. The paper then asked a couple of anonymous European and Japanese diplomats for their reaction. “From our perspective it is simply not doable,” says one.
Yep, this global-hegemon stuff is hard. The story’s not going away, and the investment implications are legion. Stay tuned…
The country that gave the world a 100 trillion dollar bill is now looking to adopt… a gold-backed digital currency?
It was 15 years ago when hyperinflation in Zimbabwe led to the introduction of…
… and even those could buy only four loaves of bread.
In more recent years, Zimbabwe adopted the U.S. dollar as an official currency alongside the local version. No surprise, Zimbabweans gravitate toward the greenback.
Now the country’s Sunday Mail reports that “the Reserve Bank of Zimbabwe is set to introduce a gold-backed digital currency to be used as legal tender for transacting in the country, as part of interventions to stabilize the local currency.”
Still, there are aspirations and then there’s reality: The gold reserve to back this digital currency needs to be worth about $100 million. That’s according to Bloomberg, citing Persistence Gwanyanya — a member of the central bank’s monetary advisory committee.
The current reserve is worth maybe a quarter of that amount right now. All we can say is good luck…
Just remember you read it here first — five months before it became The Wall Street Journal’s quirky “A-hed” story today…
Way back in November, we threw the spotlight on Paradigm’s natural resource authority Byron King. He described attending a conference earlier in the year where he met a lot of young people who made a pile in crypto… and were plowing their profits into gold. “Definitely, this was not a conference full of aging, gray-haired gold bugs,” Byron told us.
The Journal is playing catch-up today: “For a long time, I kind of figured, ‘Oh gold and silver?’ That’s kind of the old-guy thing,” says a college student from British Columbia named Mitch Day. He spent three years riding Bitcoin’s ups and downs — and he’s not completely out — but now he’s moving on to the Midas metal.
“Sure, I’m not necessarily going to get rich buying gold,” he tells the Journal, “but it will hold that money in uncertain times better than a lot of other things.”
Wise words those are…
“I read your comment from your reader on Mountain time and it gave me a chuckle,” begins today’s mailbag.
“I appreciate the fact that you do replays of some of your live events. Thanks — I’m four hours earlier than you living on Alaska Daylight Time.
“When I first moved here in the ’70s we had five time zones in our state and that really did cause some interesting problems. Frankly I love the fact that East Coast markets are closed by noon here and Monday Night Football is over by 7:30 p.m.
“BTW, I wouldn’t trade a summer day here for a summer day anywhere else in the US. :)”
“Oh Dave, you’re going to get an earful from us West Coasters now,” writes one of our regulars after I recalled living in Denver and thinking the 11:00 a.m. start to the early Sunday NFL games was disconcerting.
“Those of us who are Seahawks, 49ers, Rams, Raiders, Chargers fans HAVE to be ready for those East Coast games at 10 a.m., so complaining about 11 a.m. game starts just doesn’t cut it.
“So us West Coasters can see a game at 10 a.m., 1 p.m. and then the Sunday night game is over around 8:30 p.m. Sure beats staying up until 11:30 p.m. for a game… Of course when the market opens it’s 6:30 a.m. over here on the West Coast, errrrr….
“Just saying. And BTW, your home office is in Baltimore. What are the Ravens going to do with Lamar Jackson? Wait, that might be a better question for my sports feeds and fantasy football group buddies LOL!”
The 5: I don’t have the bandwidth for the Lamar drama now that my Packers have formally moved on from Aaron Rodgers.
If the Pack is now doomed to two decades of mediocrity comparable to the 1970s and ’80s — not guaranteed, but surely within the realm of possibility — well, at least there will be fewer of those Sunday night games where my wife and I stay up close to midnight. (There’s an Eastern Time Zone portion of Packers Country, and we’re in it.)
Another upside: We’ll probably move up the Packers season-ticket waiting list — on which we’re presently something like 93,000th in line!
(And no, that’s not hyperbole.)
Best regards,
Dave Gonigam
The 5 Min. Forecast
