Sunday evening update: crisis deflected; problems will remain pending.

a) FDIC insurance protection for Silicon Valley Bank depositors 'cap' removed; so there will be no need for panic withdrawal efforts; they say it's just a 'loan', and not a bailout, so use whatever terminology they like; but it essentially is;

b) the use of the 'loan' term is to differentiate this from the 2008 'epic debacle', and I believe they've achieved that for the moment;

c) what's not achieved is anything near parity for Savings or Money Funds; a move that would (if banks etc. paid sufficiently high rates) mitigate what has been a dramatic shift by depositors to Treasuries at they approached 5%;

d) most people (in the spirit of supporting their 'friendly regional banker' would leave their deposits alone if they received near-comparable returns; however that would crimp profit margins for banks more; part of why I'm ambivalent to Bank stocks (actually negative recently);

e) liquidity concerns are calmed just for the moment; even though this kind of looks like a cousin of previous crisis environments; but we'll take instant relief;

f) New York State just took over Signature Bank, which nurtures the dissimilar woes due to crypto funding; which they were involved with re: fiat exchange; I pointed out the other day that many in Silicon Valley were likely both in crypto and small (and/or big or start-up) tech stocks; so suffered a double-whammy;

g) the short-term issue of firms accessing funds for Operations or Payroll has been addressed; however 'all' banks will be more reluctant to lend now;

h) the failure of SVB to hedge their interest rate risk is the troubling aspect for investigation later; but clearly Washington made sure today that overall risks as regards the US 'banking system', got ameliorated just as Futures opened;

i) so the Fed finally did do something that 'broke' the banking structure; simply by taking short-term rates so high so quickly, without the banking industry with the ability 'or will' to pay comparable rates to Treasuries; and now they 'get it';

j) China has signaled stability by keeping Yi Gang as PBOC Governor, even as new leadership takes place under Xi in other realms.. somewhat a relief.

At this hour (7 pm ET Sunday) S&P futures are up over 3000; having moved in down-up-down-up-fade sequence over the past hour (up 50 handles once). Oil is up about .30 and DJIA futures are up nearly 200 (at best up over 300).

The Washington Post says Biden Administration officials will brief Congress tonight on the Silicon Valley Bank 'resolution' (I'll call it emergency stopgap); and it's unknown whether the Congressional Briefing will be public in any way. [See Reuters news report here.]

There are no changes at all to the rest of the weekend report as follows.

Suspended animation prevails - as parties central to the Silicon Valley Bank calamity, including the State of California and the FDIC, sort of attempt their 'ring-fencing' of the crisis, which is typically what happens in a bank crisis.

SVB is now shutdown; it's the largest bank failure since our 'Epic Debacle' forecast early in 2007 (before Bear Sterns & Lehman). This is not that; though there are overtones in the banking sector we're watching: that's MBS holdings or 'mortgage-backed securities'. That's indirectly part of the real estate worry; primarily in 'commercial property' (mostly near-empty office buildings).

Ramifications are even now not fully grasped though ideally Feds cut-off (that is the 'ring-fencing') contagion risk to other regional bankers; with a nod to the money-center banks who (at least pretend) not to have serious exposure. For sure they do in the mortgage arena; hence I think the SVB crisis brings that to the fore of thinking, and provokes caution.

Risk-management exposure matters here; and that's where we'll watch what happens when Silicon Valley companies try to meet payrolls next week. Yes, the Bank has been 'taken-over', but customers are limited on withdrawals so we'll see if their 'automated payroll' providers can withdraw normally soon. It's a psychological factor, but one that may influence things. I still focus on MBS.

Meanwhile . . . I'm generally not going to attempt assessing individual stocks or spillover impact on many small stocks on terms of borrowing capacity or for that matter discuss whether SVB 'held' such stocks in their liquidated portfolio as they tried to put a finger in the dike days ago to stem 'la deluge'.

In-sum: 'systemic risk' of banks borrowing short and lending long, with margin pressures resulting beyond the direct SVB failure, finally has to be foremost in the Fed's mind now. Thus it won't take a frontal lobotomy on Chairman Powell to restrain the Fed, even now, before more is known. Start thinking 25BP hike.

We discussed the many companies that will need to make payroll and hence a few important (normally routine) operating procedures that could unfold into 'glitches' next week. Mostly people will revert to watching CPI and the FOMC, but obviously, with S&P already below the 200-DMA; it's more like indecision within a continuing or resumed downtrend after the convergence zone broke.

We think it leads to a new entry or buy point, but again that's still tentative for now; with more downside anticipated. I should add that's likely the case 'even if' we get an early rally based on a new owner of SVB come Monday morning. I don't mean the 'trustee' owner, but actual one (like one of the major banks).

The crisis will end, but beware false starts. I slightly ponder whether clients of SVB, being youthful entrepreneurs in the digital realm primarily, also had large holdings in 'crypto', in which case they've been hit with a double whammy sort of; and in the case of SVB, sooner or later their money is recovered; not so for some holdings in crypto, where the funds simply went to 'money heaven'.

As to 'inflation', that's a lagging indicator that is trending lower in some areas; even if the Fed says we're not in overall recession (which is also correct), and even if we avoid it, which gets tougher 'if' there is psychological spillover into a broader 'systemic' problem; which of course is the treat from the SVB issue.

We have essentially 'blamed' the Fed for this overhang situation; idiosyncratic to be sure. The big mistake was the 'too low for too long' Fed policy; and we'd said so for over a year until they finally belatedly moved. As I suggested days ago; at some point from all this the Fed will probably 'declare victory' and that will essentially ease their policies without admitting they can't do 2% inflation.

I've suggested that if we get a less-hot CPI report and with this SVB chaos or potential 'contagion', the Fed will go 25 basis point; forgetting the 50 hike as a nutty increase. Remember 'they' (the Fed) harms the banks with higher short term rates vs. long-term returns.

That scenario was somewhat key to what has transpired; along with technical factors including the break of the S&P 200-day/50-day convergence zone. It's not at all clear whether S&P bottoms as we prefer (Ides of March ideal); but a bigger problem can be sidestepped 'if' the Fed reverts to worrying about bank issues, rather than inflation. With rates, banks, and QT involved; it's a problem for the Fed; which is a bed they made, and are now attempting to sleep in but uncomfortably so far. There are valuation dislocations to address as well. And those become more evident with higher rates and low speculative urges.

Bottom-line: the United States banking system is more resilient than years ago, but the problems associated with a tighter monetary policy regime; most especially one belatedly implemented, are coming home to roost for the Fed.

Hence responsibility falls not just on the innovative California bank; but on the retarded slow to move Fed, which promoted 'free money'; incentivized far too much focus on stocks and speculative asset classes (real estate included by the way); then tried to over-correct in a hurry with this dis-inflationary fight.

Last, I most give some blame to Congress or to both Administrations. Aside debate about spending on Ukraine war; they compelled Oil price increases by their action on the pipeline and trying to remove depletion credits. Sure I get it as they wanted to make driving 'other than EV's' difficult; but no sense making a policy to promote that oh 5-10 years before it would make realistic sense.

'If' you disagree that's fine; but consider that doing the 'climate-based' policies so early did contribute to inflation; and the pickle that put the Fed in. The Fed refused to properly acknowledged such causal factors or the limitation historic monetary tightening would have on entrenched price levels. This continues; and invites renewed stagflation if they push this further. I suspect they'll chill.

More 'black-swan' events are feasible; especially among energetic early-stage companies that pull-in their innovative programs; and to conserve cash delay things, along with more lay-offs, in hope to survive to better times. This 'could' be the case 'even if' the market has relief next week should SVB be bought by the time the NYSE opens Monday; although there can't be an assurance of it.

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Market Briefing For Thursday, Mar. 9
Market Briefing For Wednesday, Mar. 8
Market Briefing For Tuesday, Mar. 7