Joe Consorti ⚡️ @_JoeConsortii

The debt ceiling is resolved, but the real problem is now here. When the US Treasury issues new bills to refill the TGA, they'll have a 5.25% coupon to match current bill yields — the rate the US is paying now is 2.11% The cost of debt financing for the US is now 2.5x higher:

Good morning ☕️ The last time that VIX was this compressed, the S&P 500 put in its all-time high.

First Republic was the second-largest bank failure in US history. JPMorgan is the Fed's strongest footsoldier — gobbling up distressed banks like candy. It's acquiring $295 billion in loans, securities, and deposits. Small banks are going extinct this cycle, swallowed by four:

ISM Manufacturing came in hotter than expected this morning 🔥 Headline is still in contraction but Prices Paid is back in expansion at 53.2 which is somewhat hot for inflation & growth 📈 Yields pushing higher on the day — 10s (a proxy for growth) are now back above 3.5%

keyboard_arrow_left Previous keyboard_arrow_right Next

Regionals continue getting hammered. PacWest Bancorp's stock has been halted 14 TIMES TODAY — Western Alliance has been halted 6 times. Turns out that removing 50% of small banks' reserves relative to their asset bases causes a pretty severe credit crunch.

Just like that. One day out from the FOMC rate decision, the odds of a 25-bps hike have been fully priced out. The terminal rate is holding at 5% This kind of move never happens ONE DAY OUT from a Fed meeting — this is an end-of-cycle type event.

All banks are sitting on major securities losses. The Big 4 US banks have a combined $211.5 billion in unrealized losses, BofA alone is stomaching 1/3 of it. Regionals are getting slaughtered due to their small deposit bases, but large banks have these holes too. Bananas 🍌

The Treasury is running out of cash fast. Janet and the gang burned through $78 billion yesterday alone, that's 25% of their cash balance. The government is going to fund itself by burning through its remaining $238 billion in cash... until the debt ceiling is raised (again)

The US Services sector is not dead yet. New service business orders rose this month as consumers continue to spend. On the flip side, manufacturing new orders are contracting. By the time both are falling, the slowdown has hit consumers and the Fed is in the process of easing:

The last two months' bank failures have already eclipsed the size of the Great Financial Crisis. So what does the Fed do? It raises its benchmark interbank lending rate to 5.25%, the highest it's been since 2008. Driving blind 🙈

If Powell says he's only cutting rates when something really bad happens, and the market is pricing in cuts, the market is expecting something really bad to happen.

PacWest Bancorp's stock is down 41% immediately after market open and has been halted. The SEC has also placed a rule limiting short-selling of the stock. The trouble for regionals is not abating.

The yield curve is screaming at the Fed. The 3m10s yield curve is at its second-deepest inversion, ever. Front-end rates are nearly 2% below long-end rates — the market is pricing in devastation that will warrant rate cuts. Crisis-level signal from the yield curve.

Emergency bank loans declined this week — but only AFTER removing the loans to JPMorgan & the FDIC to buy First Republic. The Fed removed them to downplay the crisis. Add those back, & emergency loans rose to $321 billion, that's TRIPLE the peak of emergency loans in 2008 🚨

Depositors are pouring out of banks and into Money Market Funds as banking fear only gets worse. MMFs have had $489 billion in inflows in two months. Not the normal risk-taking behavior you see in a healthy economy. Fear is spreading, and people are hunkering down.

Financial stability is taking a backseat to Powell's pursuit of legacy. Just published this week's markets newsletter. Have a great weekend, everybody 🥂 thebitcoinlayer.substack.com/p/powell-is-af…

Binance has actually NOT seen a huge drawdown in its bitcoin balance. Wallets were improperly labeled on the data provider, causing regular wallet shuffling to look like deposit outflows. In reality, the BTC outflows are far more muted, only -11,000 over the last week:

Corporations are increasingly under pressure as the Fed's tightening transmits to tighter financing. There is now $317.8 billion of distressed US corporate bonds & loans — a 6x increase from last year as investors derisk. Companies will deleverage by not rolling into new debt:

55% of senior loan officers at small & large banks are reporting a drop in business loan demand. Whenever credit demand gets this dry, the Fed is already cutting rates to get it moving again. This time, the Fed is still hiking. Hiking straight into a brick wall 🧱

This is the path for CPI priced by the market. The steady bid for duration, peaks in services/energy/shelter CPI, and money supply in deflation for the first time in 98 years confirm it for me. Return to 2% within a year, barring a recession that would accelerate its decline: