Morning Reads


Todays Open Interest Change




The investing world is still trying to determine whether there is another banking crisis on the horizon following the collapse of Silvergate Capital (SI) and the shoring up of Silicon Valley Bank. Shares of the latter's parent company, SVB Financial (SIVB), tumbled 60% on Thursday and fell another 20% in the AH session to $82.90. Panic quickly spread to the broader market as bank shares across Wall Street reacted to the developments, and pushed the S&P 500 Financials Index Sector (SP500-40) down 4% by the close, marking its worst drop since June 2020.

What happened? Stirring up fear among investors, SVB Financial Group announced it would raise $2.25B in new capital through two offerings and a private placement. The money would go to shore up its balance sheet, which was dented by the sale of a loss-making bond portfolio consisting mostly of U.S. Treasuries. The bank apparently lost $1.8B on the trade as it rushed to sell off its low-interest bonds, with an inverted yield curve creating headwinds for those that are borrowing short-term and lending long. Note that SA's Quant system put a Sell rating on SIVB as of Feb. 16, giving it poor grades in growth, momentum and earnings revisions. By contrast, the average Wall Street analyst rating stands at Buy.

Compounding the situation: If too many customers tap their deposits at once, a bank run can ensure or trigger sector contagion. On Thursday, SVB Financial CEO Greg Becker held a conference call with clients and urged them to "stay calm" as tech entrepreneur Peter Thiel's Founders Fund reportedly asked its companies to move their funds (Bill Ackman is advocating for a bailout). Silicon Valley Bank was known for its bets on what has now been deemed frothy tech, and as the Fed continues its aggressive monetary policy path, much of the capital and liquidity that was there is leaving the system. SIVB also revised its outlook to reflect a sharper decline in net interest income, expecting rates to stay higher for longer.

Outlook: "We remain on the sidelines with regard to SIVB and want to stress that we see it as an outlier in the industry. Other banks have underwater bond portfolios as well, but they generally have lots of retail deposits, which are much less rate-sensitive than SIVB's deposits," Oppenheimer analyst Chris Kotowski wrote in a note. "While we view these actions combined with a weaker guide as a clear negative, we do not believe that SIVB is in a liquidity crisis, especially following the significant proceeds received from the AFS sales, capital raise, and low loan-to-deposit ratio in the mid-40s." Will he be right, or is another crisis unfolding? (44 comments)

Jobs Day

If the February jobs numbers, due out at 8:30 AM ET, come in much stronger than 250K, "that will be, I think, a big shock to a lot of economists," Glassdoor Chief Economist Aaron Terrazas said in an interview with Seeking Alpha. "Obviously, if the February data come in stronger than average, anything above 250K jobs, that is a signal that January was not an anomaly and that the underlying market is a lot more immune to much tighter lending standards than any of us anticipated." Also watch for the Labor Department's revisions to January's numbers, as well as wage pressures, lost income, policy impact lags and the current two-track labor market. (7 comments)

What would ChatGPT say?

Artificial intelligence-linked stocks like (AI), Holdings (BBAI) and SoundHound AI (SOUN) slid on Thursday as the U.S. Chamber of Commerce laid out a report in which it called for regulation of AI. It's a notable development as the business lobbying group usually takes an anti-regulatory stance. The 14-page long report notes that AI is expected to increase global GDP by $13T by the end of the decade, but it will have an impact on areas such as national security and privacy, making it important to regulate in a responsible manner. "We must address these issues clearly so that we can shape appropriate responses and achieve our goal, which is to allow the innovation machine to continue to work its magic and improve society, while protecting the basic rights of citizens," the Chamber of Commerce declared. The EU is reportedly looking into similar plans. (2 comments)

Biden budget

President Biden has released his budget plan that aims to cut the federal deficit by $3T over 10 years. The proposal features a minimum 25% tax on billionaires, the reversal of some Trump-era tax cuts, a higher corporate tax rate and doubling the capital gains tax to 39.6%. It also calls for a large number of spending programs intended to provide low-cost childcare, affordable housing, paid family leave, guaranteed paid sick days, and lower health-care costs, among others. In essence, the proposal acts as an opening bid in negotiations with Congress, but Senate minority leader Mitch McConnell (R-KY) has said the plan "will not see the light of day." Chances are even slimmer in the House of Representatives, where Republicans who hold a slim majority are demanding sharp spending cuts. (59 comments)

Today's Markets

In Asia, Japan -1.7%. Hong Kong -3%. China -1.4%. India -1.1%.
In Europe, at midday, London -1.7%. Paris -1.3%. Frankfurt -1.4%.
Futures at 6:30, Dow -0.6%. S&P -0.4%. Nasdaq -0.2%. Crude -1.1% to $74.92. Gold +0.2% to $1838.80. Bitcoin -9.1% to $19,664.
Ten-year Treasury Yield -7 bps to 3.85%

Today's Economic Calendar

8:30 Non-farm payrolls
1:00 PM Baker-Hughes Rig Count
2:00 PM Treasury Statement

Companies reporting earnings today »

What else is happening...

Disney's (DIS) Iger mulls Hulu's fate in 'very tricky' streaming space.

Comparable sales: Gap's (GPS) holiday quarter comes up short.

1MDB: Former Goldman (GS) banker Roger Ng is sentenced to prison.

China's Xi secures unprecedented third term as president.

Oracle (ORCL) sinks after revenue miss; dividend raised by 25%.

Visa (V), Mastercard (MA) pause new merchant code for guns.

General Electric (GE) hits four-year high on aviation outlook.

Tesla (TSLA) may use the Ferrari model with the Cybertruck rollout.

General Motors (GM) offers buyout across salaried workforce.

BOJ's Kuroda defends ultra-dovish stance in last policy meeting.

Known to most as Uranium Pinto Beans, Jason has more than 15 years under his belt of trading stocks, options and currencies. His expertise primarily lies in chart analysis, and he has a strong eye for undervalued stock. Because he’s got the ability to identify great risk/reward trades he usually enjoys taking the path less traveled and reaping the benefits from the adventure.

He is a co-founder of Option Millionaires, and he is best known for his weekly webinars with Scott, as well as his high level training webinars and charts found in the forums.

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