Just scanning the banking issues I see they are bouncing relatively sharply this morning–up 10% to 20%, but of course it is likely an overreaction, just like the selloffs of the last couple of days were overreactions.
Yesterday we saw a relatively sharp bounce in banking preferred issues during the course of the day–for instance the Customers Bancorp CUBI-F issue closed at $18.10 after being as low as $9.60. It is plenty painful to hold through a day like yesterday-but one has to ‘grin and bear it’. The bounces like we have seen are the times to ‘rebalance’ if you have to do it. I suspect we will see some further losses as folks move to that rebalanced position.
As the current crisis gets more in control we move on to (quickly I hope) changing rules and regulations. I know most of you know that the accounting for portfolio losses in the ‘hold to maturity’ category is highly suspect and this needs to be addressed. As xerty pointed out a day or two ago the banks have ‘fake’ equity numbers under current rules since their hold to maturity losses overwhelm their equity. So we will see changes in these accounting rules and likely huge sales of common share to build equity. It will be interesting to see how fast this proceeds and whether the solution actually fixes the problem.
Today we have equity futures up about 1/2% and interest rates are bouncing quite sharply with the 2 Year treasury up 24 basis points to 4.22% while the 10 year treasury is up 3 basis points to 3.61%. These rates have imploded the last couple of days so once again a bounce is to be expected.
Buckle up!! We have the consumer price index (CPI) being released in about an hour. The forecast is for a year over year number of 6% (compared to last months 6.4%) with the core rate at 5.5% versus 5.6% last month. A hot number will back the Fed into the corner relative to the next rate hike as they will need to hike rates–but of course this may conflict with the need to reduce rate hikes to stabilize the banking system–this should be interesting.
I see that Nomura Securities has now forecast a rate CUT at the next FOMC meeting and elimination of the quantitative tightening (QT) Fed balance sheet runoff. Pretty extreme and I think pretty unlikely. Right now I am guessing a 25 basis point hike with no change to QT–but we have data in an hour that may change everyone’s perspective.
I am looking at the Merchants Bancorp (MBIN) preferreds for additions to my current very small position. I will not be buying now as it is too soon for me after a crisis, but the company did pique my interest with their press release last night so I need to dig deeper. I will not be buying anything today.