- Failed confidence measures: First Republic Bank is no more
- Why First Republic won’t be the last bank sunk by the Fed
- Apple tiptoes into AI — just the right approach, says Blanco
- Less nickel in your nickels: Is it hoarding time again?
- The Tucker Carlson picture becomes clearer (Ukraine, JFK).
So after a few weeks’ pause, we’re back to the whole Sunday-afternoon-rescue thing.
As perhaps you’ve heard, the government seized the flailing First Republic Bank and turned over most of it to JPMorgan Chase. San Francisco-based First Republic is the second-biggest bank failure in U.S. history behind Washington Mutual in 2008 (which also ended up in JPM’s hands).
That said, the feds were cutting it fine this time: The FDIC set a deadline of 4:00 p.m. EDT yesterday for interested parties to submit bids. There wasn’t nearly enough time to perform due diligence and get a deal done before Asian markets opened for the week two hours later.
In the end, the announcement came around 3:30 a.m. EDT — six hours before the U.S. stock market opened for the week. Still not enough time for proper due diligence — thus, the FDIC’s already-thin insurance fund is now that much thinner…
It’s at this moment we’ll remind you of two things Paradigm’s macro maven Jim Rickards has said over and over in recent weeks…
- The confidence measures intended to bolster First Republic — $30 billion in deposits courtesy of 11 other banks (including JPM) — wouldn’t be nearly enough
- The bank crisis was not yet over — indeed, it’s still in the early innings and is likely to stretch into next year.
You’re probably wondering: Will deposits over $250,000 at First Republic be covered — even though they’re over the FDIC’s insurance limit?
After all, that’s what was done with Silicon Valley Bank and Signature Bank in March; the feds invoked a “systemic risk exception” for those two.
The answer is it’s a moot point in this instance, with JPM assuming First Republic’s deposits.
In the meantime, we can’t wait for the Federal Reserve to submit its “after action report” on First Republic.
On Friday, the Fed’s sorry-ass vice chair for supervision Michael Barr turned in his report on Silicon Valley Bank’s failure.
I’ll summarize the gist of his findings like this: “We did a piss-poor job of enforcing the existing regulations on midsize banks, so we need some new regulations governing midsize banks.”
I kid you not. Doesn’t exactly inspire confidence going forward, does it?
We interrupt our dirge of doom for a moment’s comic relief…
Realistically, though, the Federal Reserve is set to make the crisis worse just two days from now.
Recall that its interest-rate increases going back to March of last year helped touch off the bank crisis. It’s the old saw about how the Fed keeps raising rates until it breaks something. Something broke in March of this year and it was the banks.
And as Jim said here last week, the breakage will continue: For one thing, the Fed looks at “lagging” indicators like the job market as guideposts for what it should do next. And for another thing, the inflationary genie the Fed unleashed starting in 2020 isn’t back in its bottle yet; the Fed’s favorite measure of inflation is still running 4.6%, way higher than the Fed’s 2% target.
Thus, the activity in the futures market this morning suggests an 89% probability the Fed will raise the fed funds rate another quarter percentage point on Wednesday — to 5.25%.
And as Jim explains in an updated presentation, 5.25% is the real breaking point — for the markets, for the economy, for everything.
“It means that the mainstream narrative is about to fall apart,” he says. “And soon, we’re all going to have to suffer the consequences.”
If you have money in the markets… or assets you need to protect… Jim urges you to watch this message right now.
For the moment, however, the seemingly “orderly” wind-down of First Republic is keeping a floor under the major U.S. stock indexes.
The Dow is performing best, up a third of a percent to 34,205. The S&P 500 is up a quarter percent to 4,178. The Nasdaq is barely in the green at 12,228.
The dollar index has rallied past 102, and that’s pushed gold back down to $1,983. Silver is back below $25. Copper is flat at $3.88 a pound and crude is down over a buck to $75.53.
The economic number of note today is the ISM manufacturing index — better than expected at 47.1. Still, that’s the sixth straight reading below 50, suggesting the U.S. factory sector has been contracting steadily since last fall. It’s the longest sub-50 streak since 2009.
The big earnings report due this week is Apple — and you have to wonder whether Tim Cook is going to at least give lip service to artificial intelligence on the conference call.
“AI was mentioned over 50 times during Microsoft’s earnings call last week,” says Paradigm tech specialist Ray Blanco. It’s MSFT that sunk $10 billion into ChatGPT developer OpenAI.
Meanwhile, “Google was quick out of the gate (maybe too quick) with their introduction of Bard.
“Historically, Apple has never been in much of a rush when it comes to innovation. They’ve been happy to let others make early mistakes while they bide their time, eventually putting their own legendary branding and marketing on a polished version of the product.” [Case in point: The iPod was not the first MP3 player.]
Scuttlebutt has it that “Apple is working on an AI-powered health and fitness app called Quartz,” Ray goes on. “Quartz will offer a customized coaching program developed using AI based on data provided from the user’s Apple Watch data. Its focus will be to keep users motivated to maintain healthy lifestyles, including exercise routines and improved eating habits.”
Ray thinks that’s a shrewd approach out of the gate: “Using AI to boost a well-established feature solidifies its place as the standard for health tracking, while also assuring speculators that they’re well aware of the ongoing AI craze.”
Any announcements Thursday will be market-moving: Figures from Vanda Research show that AAPL makes up 19% of the average individual investor’s portfolio. (Seems awfully concentrated. Makes you wonder about the above-average folks, no?)
Gee, this’ll solve the problem of dollar debasement: Two U.S. senators are proposing to alter the metal content of our coinage. Again.
Sens. Joni Ernst (R-Iowa) and Maggie Hassan (D-New Hampshire) have introduced legislation authorizing the U.S. Mint to develop coinage with cheaper metals.
And so it goes: Silver disappeared from most of our small change in 1965 (and all of it by 1969). The copper content of pennies was cut in 1982.
A few days ago, the Mint reported that the cost of minting a nickel last year soared past 10 cents. “It’s absolute non-cents that American taxpayers spend 10 cents to make just one nickel,” Ernst tells CNBC via email. (Did she come up with that painful pun herself or was it one of her aides?)
Nickel hoarding is a thing again, it seems — given the content of 75% copper and 25% nickel. We remember nickel hoarding was all the rage toward the end of the previous commodity bull market around 2011… and Russia’s invasion of Ukraine set off the trend again.
“Actually melting down those nickels for profit is illegal,” an Atlantic article reminded us last year, “but that hasn’t stopped opportunistic investors from zigzagging between banks and credit unions to gather nickels, with the hopes of one day selling them off for more than five cents.”
Which sounds great in theory… but I can never get past the question of who you’d sell them to in practice…
“I’m concerned that you may have accidentally misrepresented the security leak reported weeks ago,” a reader writes after we spotlighted Jim Rickards in last Wednesday’s edition.
“Supposedly, the leaker posted the info on his game site, which remained there, unnoticed for weeks. Then a Russian media propaganda outlet found it and reposted it widely, which is how it was discovered. However, in the reposting, the Russians changed the information to reflect that seven Ukrainians had died to every one Russian, which was not true.
“Nothing new. However, the only U.S. news medium to take the misinformation and publicize it was Fox, on the Tucker Carlson show. And now you. I can’t be 100% sure of my facts, but you may want to look into it and if so issue a correction.”
The 5: We’ll concede it’s murky. “Seven Ukrainians are being killed for every Russian,” said Carlson on April 13. But he didn’t cite a source, so there’s not much to go on — and no one else we’ve seen is running with those numbers.
If it turns out to be bogus, it’s a worthy reminder about the dangers of confirmation bias.
Still, that shouldn’t serve to distract from the real story behind the genuine documents: The UKRAINE IS TOTALLY WINNING narrative from the White House and Big Media is a crock.
It is staggering that only last week the commander of U.S. troops in Europe told Congress with a straight face, “I am very confident that we have delivered the materiel that they need [in Ukraine].”
Imagine a U.S. general telling Congress that everything was going swimmingly for South Vietnam’s army even after Daniel Ellsberg had spilled the Pentagon Papers!
OK, as long as the reader brought up Tucker Carlson…
Last week, colleagues Brian Maher at The Daily Reckoning and Sean Ring at The Rude Awakening averred that Carlson was shown the door at Fox because he strayed once too often from acceptable elite discourse. He wasn’t content staying inside the 40-yard lines as defined by Joe Biden on the left and Mitch McConnell on the right. He’d go places Sean Hannity never would.
Corroborating evidence: Yesterday brought word that “Fox News Executive Chairman Rupert Murdoch held a previously unreported call with Ukrainian President Volodymyr Zelenskyy this spring,” according to the new Semafor news site founded by Ben Smith (ex-BuzzFeed and New York Times). “Carlson’s firing will immediately relieve pressure on key Capitol Hill Ukraine supporters whom Carlson had criticized on air.”
That’s interesting in light of a Washington Post story last week: Carlson’s position on Ukraine “had drawn furious blowback from powerful Republicans who see U.S. support for Ukraine as a bulwark in a fight for freedom and democracy — some of whom had Murdoch’s ear. After one such on-air segment in mid-March, Murdoch joined a Fox newsroom meeting to loudly challenge Carlson’s message.”
But don’t take it from us or from the mainstream: Take it from David Talbot, founder of the Salon website and more recently author of tomes like The Devil’s Chessboard, a biography of Deep State super-villain Allen Dulles.
“I think the real reason that Carlson was fired was because he was evolving into a more independent voice on everything from the dominance of the war state — which goes unchallenged by our media and political elites — to the assassination of President Kennedy,” Talbot writes in a Facebook post.
“Carlson believes that the CIA was involved in the assassination, the reason that the spy agency has repeatedly flouted the 1992 JFK Records Act and blocked the full release of Kennedy-related documents.”
There’s a rumor — so far unconfirmed — that Carlson had booked Oliver Stone for his show last week. Stone directed the 1991 thriller JFK and more recently was executive producer of the 2016 documentary Ukraine on Fire (banned last year by YouTube). Was that the final straw?
Like Talbot, I have no use for Carlson’s nativism — but I still assess that his departure from a mainstream platform is a net loss for civic discourse. Then again, if Carlson resurfaces somewhere online and builds a Joe Rogan-size following, he’ll have the proverbial last laugh.
We’ll leave it there for today. Tomorrow’s mailbag will be stuffed with reactions to our Saturday edition about socialism, Nordic style. (Even after all these years, I’ll be surprised by what generates a passionate response!)
Best regards,
Dave Gonigam
The 5 Min. Forecast
