Return 'of money', rather than return 'on money' captured sentiments of nearly everyone dealing with 'regional' banks especially in the Bay Area, but not limited to that area.

Freepik

Most such stocks are down 30-50% in a few days (ZION,FRC), an exercise in panic liquidation unseen since our 'Epic Debacle' back in 2007'-08. And it's not over, but softer CPI and potentially chilling Fed, would mean lots.

The Federal Government has offered a guarantee or backstop for deposits so it's a bit worth pondering 'why' investors or average small businesses would, it seems, continue transferring funds 'out' to money-center major banks. I really do prefer a vibrant community and regional banks system in this Country, not an essentially nationalized system (though we already have shades of that). I realize Senator Warren says 'regulation is your friend', well they didn't monitor the regional banks adequately, but if the Fed had they'd know the risks there so I believe could have prevented what just transpired (avoid concentration). Anyone want to revisit Dodd-Frank and evaluate if things were too loose?

The Fed 'should' stop raising rates here, but probably won't. Why? This event is a broad confidence issue, and it's the 'intersection of policy and supervision' as far as the Fed is concerned. Some economists speculate if a prudent Fed would stop because even this 'is' a major dis-inflationary event, tight lending standards and so on, which have similar effects to tightening interest rates. It might be 'some' want S&P to fall hard now, so they must stop hiking rates. (?)

I won't opine on investing in Bank stocks (large & small) now, as yes far better prices exist, but so does risk. We still have a Fed a majority of traders do feel remains on the path towards higher rates (sounds absurdly stubborn), but this Fed is on a trek towards being one of the worst ever (low too long, for sure it got higher so quickly once they 'got religion', and too high relatively now, all as they made it tricky for bankers to hedge their higher 'wholesale' money cost).

My inclination is to suggest that 'next' the CPI will show continued disinflation, with slowing going forward almost baked-in, given the psychological hit to the already-sobered crowd that benefited from nearly-free money for far too long. So S&P might rally anew on a softer CPI, however will the Fed hike anyway? If the Fed doesn't hike we likely get significant rally.. from 'The Ides of March'.

In-sum: 

We won't dissect everything discussed since last Thursday (summary follows this Briefing, as media covers it all and then some. We will note what's next, besides the helter-skelter prospects that impact Fed rate decisions.

We've got CPI, PPI, ECB (will Christine limit rate hikes, probably), FOMC and lest we forget, 'the Ides of March'. Aside what that meant for Julius Caesar, it's worth noting that mid-March had more significance in the Roman era. It was a time to 'settle debts', which Brutus decided to do at that time. To this day it's Corporate tax filing time (individuals get another month). Slay your taxes :).

We'll see if the Fed moves to 'high for long' instead of 'higher for longer', as in my view they should simply stop, but most traders think they'll do another 1/4. Many variables prevail, including snugging-up lending policies .. everywhere.

So we'll look 'across the valley' to likely upside 'if' Fed pauses, but that's going to be related to individual stocks more so than just how the Indexes do. That's been the case and remains the overall viewpoint, because this is now a bit more about financial stability and 'resources' than it is about policy wonks.

By that I mean banks and venture capitalists will deal with 'Silicon Valley Bank fallout' for some time, and regardless how that's ultimately sorted-out, lending is already tougher and will remain that way. So when we look at speculative or sprinkled small stocks (including ours but far broader in scope) we think more in terms of 'resources and survive-ability' based on existing funding status.

Most companies responsibly kept funds mostly in Treasuries (incredibly even I did that many years ago at a couple crucial times) at least short-term. Now in a higher rate level it's harder to rollover bond portfolios so that's complicated in the future, since the stresses in the system do create concerns about lower rated debt loans. So for small stocks, they need not to be using floating rates, ie: better if they're already locked in on low rate products, aside duration. So it is a situation where the Fed is accepting undervalued paper (at par) and that's a negative impact on the Fed's balance sheet, although few talk about that yet it seems. Yield Curve is steepening, and still has many looking for slowing. As far as that goes, I don't disagree in some areas, especially with lending tough.

Elsewhere, the lateral S&P technical picture prevails, and the banking 'event' is not bullish in any way other than it sidesteps a bigger mess. There may be more banks with 'margin squeeze' concerns, which we won't hear about if they can avoid transparency.

Banking industry bifurcation, higher borrowing costs for the bankers, at least for now fewer innovative lending programs 'in-general', not just for start-ups, although they'll feel the challenge more. We remain neutral on most areas as we look to individual stocks to progress where feasible.

The market is stabilizing from a significant repricing, while incredible that Fed didn't recognize the inability to hedge as short-term yields approached 5%, as it led to a rapid shift from Savings and Money Market funds to Treasuries and I suspect had a lot to do with the SVB (SIVB) failure as their depositors moved funds.

All this does remind us of a greatest National Security risk: the National Debt. It's problematic and can't be serviced adequately absent significant growth. It is impossible to resolve it with simply higher taxes as Washington presents it.

Credit is stumbling, not collapsing. So what I've discussed is 'tiering credit' to more qualified borrowers, which is why speculative stocks need to be focused on financial stability, whether it slows their growth, but also share prospects. It is thus a time where we can avoid catastrophe, but not a time for euphoria. In a sense one could deduce our 'aggressive neutrality' slightly related to that.

The policies put into place for this emergency can be inflationary longer term. I suppose the Fed will raise 25 basis points this time, though we prefer they'd make 'no change' in rates. This might be the last increase however (if at all).

The CPI etc. are still relevant despite the 'crisis', but the Fed 'thinks' calming the waters by letting the FDIC expand protection was sufficient, although not very much so, given the ancillary aspects. If the Fed doesn't hike, it proves they're just following the 2-year paper, although we think they do follow that.

More By This Author:

Market Briefing For Monday, Mar. 13
Market Briefing For Thursday, Mar. 9
Market Briefing For Wednesday, Mar. 8