“That’s a nice regional bank lender you got there… be a shame if anything happened to it…”

We have warned for months (here, here, and here most recently) – as regional bank shares soared back from SVB crisis lows – that this small bank balance sheet crisis was far from over… and worse still the ‘big banks’ have money to burn with excess reserves (to use, for example, to help the FDIC clean up some small bank issues)…

Last week we highlighted the dominoes had started falling in regionals, and the initial domino – New York Community Bancorp – is back in the cross-hairs as Bloomberg reports that, according to people with direct knowledge of the matter, mounting pressure from a top US watchdog led to the bank’s surprise decision to slash its dividend and stockpile cash in case commercial real estate loans go bad.

The drastic actions – which prompted a collapse in the bank’s shares – followed behind-the-scenes conversations with officials from the Office of the Comptroller of the Currency, the people said

Now, far be it from us to speculate but could a quiet call have been made to prompt regulators to suddenly pay attention?

Why now?

Everything was awesome, remember?

This all happened the week after The Fed officially killed its free-money ‘arb’ and confirmed the imminent death of its bank bailout facility… and as the Reverse Repo liquidity poll is draining fast.

And that has sent NYCB shares down 14% this morning, after falling 11% yesterday…

Which leaves it near its lowest levels since 1997…

…well below the lows reached during the SVB crisis (down 65% from the post-SVB crisis highs).

The bank’s chief risk officer Nicholas Munson and chief audit executive Meagan Belfinger both appear to have left the bank in recent months.

NYCB has said building reserves is part of its widely expected transition to more stringent capital rules after the lender swelled beyond $100 billion in assets while acquiring parts of Signature Bank last year.

Well, given the massive drop in deposits last week (on a non-seasonally-adjusted basis) by domestic banks…

We wonder if SVB 2.0 is about to hit (and prompt those Fed rate-cuts to be brought forward)?

Bonds are bid this morning, gold and crypto are rallying, and rate-cut odds are on the rise again.

A three-judge panel for the US Court of Appeals for the District of Columbia ruled on Tuesday that former President Trump does not have immunity from prosecution related to his efforts to overturn the results of the 2020 election.

“We have balanced former President Trump’s asserted interests in executive immunity against the vital public interests that favor allowing this prosecution to proceed,” the judges wrote in a 57-page opinion reported by CNBC. “We conclude that ‘[c]oncerns of public policy, especially as illuminated by our history and the structure of our government’ compel the rejection of his claim of immunity in this case,” the judges continue, upholding a trial judge’s previous ruling.

🚨 BREAKING: US Court of Appeals has rejected Donald Trump’s claim of presidential immunity in his federal election interference case. pic.twitter.com/8rQJrW9M2a

— Benny Johnson (@bennyjohnson) February 6, 2024

Special Counsel Jack Smith brought the election interference case against Trump in US District Court in Washington DC, where the chances of him receiving a fair trial are slim to none.

Trump is charged in the case with four counts of crimes including conspiracy to defraud the United States and conspiracy to obstruct an official proceeding. He has pleaded not guilty.

Defense lawyers, seeking to dismiss the case, had argued to Judge Tanya Chutkan that Trump has “absolute immunity” from prosecution because the charges relate to official acts performed while he was president.

After Chutkan declined to dismiss the charges, Trump’s attorneys brought the immunity argument to the appeals court. That move put the case on hold in Chutkan’s court. -CNBC

Trump’s legal team is expected to quickly ask the Supreme Court to overturn the decision, in which the former president’s legal team put forth three separate immunity arguments “both as a categorical defense to federal criminal prosecutions of former Presidents and as applied to this case in particular.”

“For the purpose of this criminal case, former President Trump has become citizen Trump, with all of the defenses of any other criminal defendant,” wrote the panel.

“But any executive immunity that may have protected him while he served as President no longer protects him against this prosecution.”

Donald Trump Jr. took to X to rail against the decision, posting: “If POTUS doesn’t have immunity they’ll be incapable of action for fear of future partisan reprisal. That endangers the United States and sets a terrible precedent. If this becomes the norm would a Trump DOJ prosecute Obama for droning an American? If not why not?”

No one who’s been watching is shocked by this partisan hackery but here we go.

DC appeals court has ruled that Trump does not have presidential immunity that would shield him in the J6 case

Time for SCOTUS to step in.

If POTUS doesn’t have immunity they’ll be incapable of…

— Donald Trump Jr. (@DonaldJTrumpJr) February 6, 2024

Trump has called the case a “witch hunt.”

Authored by Mike Shedlock via MishTalk.com,

California battered by ‘potentially historic’ storm. 38 million have flood alerts. What If California had channeled this water to fill reservoirs instead of the ocean?

State Emergency

The Office of the Governor reports Gavin Newsom Proclaimed a State of Emergency for eight counties in Southern California as a series of winter storms began impacting much of the state with high winds, damaging rain and heavy snowfall.

The proclamation covers Los Angeles, Orange, Riverside, San Bernardino, San Diego, San Luis Obispo, Santa Barbara and Ventura counties. The emergency proclamation includes provisions authorizing a California National Guard response if tasked, facilitating unemployment benefits for impacted residents, and making it easier for out-of-state contractors and utilities to repair storm damage.

Historic Storm

NBC has Live Updates of a Potentially Historic Storm

• A severe storm system began moving through California Sunday and into Monday, marking the start of what’s expected to be days’ worth of heavy rain and snow.

• Some 38 million people are covered by flood alerts due to a weather system the National Weather Service said could be “potentially historic.”

• Over 500,000 customers are without power in California as of Monday morning, mostly in the northern and central parts of the state, although Los Angeles is also reporting 4,000 powerless homes and businesses.

• Heavy rain led to mandatory evacuations for parts of Santa Barbara and Ventura counties on Sunday and firefighters rescued 16 people from a single street in Los Angeles as mudslides caused havoc.

• At least two people have died in tree fall incidents associated with the severe weather.

• 9.94 inches of rain was recorded near the University of California, Los Angeles; 6.33 inches north of Culver City; and 3.35 inches in Santa Barbara.

• A top wind gust of 138 mph was clocked in Ward Peak near Lake Tahoe, 120 mph in Upper Bull at Patterson Mountain, and 94 mph in Grapevine, California.

Wettest Day Ever in Los Angeles

Yesterday, Feb 4th, DT L.A. had 4.10″ of rain. Exceeded daily record of 2.55″ set in 1927. Since 1877, 3rd wettest day ever for Feb (hiest 4.80″ on 2/24/1913). Ties for 10th wettest day ever with 3/15/2003. (Wettest day ever 5.88″ on 3/2/1938.) #LARain #LAWeather #SoCal #cawx

— NWS Los Angeles (@NWSLosAngeles) February 5, 2024

What About Insurance?

CNN reports, As floods recede, many Californians could be returning to damaged homes that aren’t covered by insurance

Many victims of the massive storms now battering Southern California about are to be hit with another heartbreak — discovering their insurance won’t cover the damage.

The typical homeowners’ policy won’t cover loss from flood damage. That is covered by the National Flood Insurance Program, a part of the Federal Emergency Management Agency. But in California, where drought, not flooding, had been the more common problem until recently, homeowners are about as prepared for flood damage as hurricane-prone Florida residents are for earthquakes.

A look at the numbers: Data from NFIP shows only 52,400 homes and businesses are covered by flood insurance in the eight Southern California counties declared a disaster area because of this storm.

That’s less than 1% of 7.7 million households in the affected area with coverage. Those counties have a combined population of more than 22.6 million people, according to the latest estimates from the Census Bureau.

Los Angeles County, with more than 10 million residents, has only 14,600 flood insurance policies in force.

Atmospheric River Parked Over Southern California

A powerful atmospheric river-fueled storm is moving at an agonizingly slow pace across Southern California, directing a firehose of moisture at deluged cities for hours at a time.

Storms normally track across the US from west to east at a steady pace, but a feature in the atmosphere well above the surface is standing in this storm’s way, causing it to get stuck over Southern California. With nowhere to go, the storm continues to tap into the tropical moisture in the atmospheric river, increasing the heavy rain and flood threat.

The storm’s slow pace is very bad news for the region, as the longer rain lingers, the worse the flooding will likely become.

“This setup is a textbook case for widespread flooding,” the Weather Prediction Center said Monday morning.

An additional 1 to 3 inches of rain is possible across the Los Angeles basin Monday, with an additional 3 to 6 inches of rain in the area’s mountains and foothills. Multiple feet of heavy snow will bury the region’s highest elevations.  

The National Weather Service in Los Angeles said an “extremely dangerous situation” is happening in the “Hollywood Hills area and around the Santa Monica Mountains” just outside of Los Angeles, adding that “life threatening landslides and additional flash flooding” were expected.

Question of the Day

Instead of massive regulations, free money handouts to immigrants, an absurd focus on DEI, and moaning about drought, what if California channeled a small amount of tax revenues to capture this rain and sent it to reservoirs instead of the ocean?

But no.

And as a result of rising taxes wasted on nonsense, Californians are in the midst of a Great Escape.

Great Escape

For discussion, please see Great Escape: What Metro Areas Are Attracting the Most New Renters?

Flight is not limited to individuals. Ridiculous regulations have fueled business flight and another round is coming up.

Please note Cost of Running a McDonalds Jumps $250,000 in CA Due to Minimum Wage Hikes

Prices at fast food restaurants in California are set to jump in April as huge minimum wage hikes kick in.

California is a disaster zone in multiple ways, and most of them are self inflicted.

Authored by Daniel Lacalle,

Market participants started the year with aggressive expectations of rapid and large rate cuts. However, after the latest inflation, growth, and job figures, the probability of a rate cut in March has fallen from 80 to 19%. 

Unfortunately for many, headline figures will support a hawkish Federal Reserve, and the latest comments from Jerome Powell suggest rate cuts may not come as fast as bond investors would like.

For the Federal Reserve, the headline macro figures show a strong economy, solid job creation, a low unemployment rate, stronger GDP growth, and persistent inflation. The real economy shows a weaker picture.

The latest job report is not as strong as it looks. According to the Bureau of Labor Statistics, the labor force participation rate, at 62.5 percent, was unchanged in January, and the employment-population ratio, at 60.2 percent, was also little changed. These two measures showed little or no change over the year and remain below the pre-pandemic level. Furthermore, government jobs added 35,000 in the month and ran at +50,000 per month in the past year.

At 3.7%, the unemployment rate looks good, and monthly job creation of more than 225,000 seems enough for the Federal Reserve to keep rates unchanged, but we must also question the strength of the job market when the two measures mentioned before remain below the pre-pandemic level and real wage growth has been negative in the past two years.

Due to the massive debt accumulation that has inflated GDP growth, a $2 trillion increase in public debt and record-high credit card debt holding consumption have obscured a $1.5 trillion increase in gross domestic product.

However, the Federal Reserve will not consider these details. For the central bank, GDP growth is positive even when debt is the primary driver, and job creation is beneficial even when real wages remain in the negative growth range and major ratios are below pre-pandemic levels.

The United States two-year bond yield stands at 4.36% and the 10-year at 4.06%. The massive inflow into bonds of the past year needs lower sovereign bond yields and rate cuts to avoid significant losses, and this bet may show dangerous cracks. Additionally, regional banks’ problems surface again. The unrealized losses from sovereign bond holdings reached a new high in the fourth quarter, and the regional bank index is down on the year despite a strong market. Are there signs of trouble ahead? Probably.

The entire bullish market sentiment is predicated on massive rate cuts with no economic impact. The reality is that the economy is weaker than it seems, and rate cuts may be further away than what many market participants need.

The longer it takes for the Federal Reserve to cut rates, the more difficult it will be to implement any of them, because 2024 is an election year, and I fear that if the Fed does not cut before the campaign, it will not be able to interfere in the election process with unjustified rate cuts that may be seen as a benefit to the incumbent.

The US economy is much weaker than it appears, and the headline strength is a result of high public debt, which will ultimately lead to worse economic growth in the future.

Rate hikes are currently affecting only small and medium enterprises and families, who do not see the headline optimistic economic view.

The Federal Reserve is caught in a difficult situation.

• Pleasing a hyped market and risking a higher inflation figure, or…

• …being prudent with rate hikes that may accelerate the deterioration of the real economy.

Either way, small businesses and families will be the most affected, as they suffer inflation and rate hikes while the government deficit is likely to soar yet again.

Some people never learn, and in that case, former WeWork CEO Adam Neumann, as reported by Andrew Ross Sorkin’s DealBook, teamed up with Dan Loeb’s Third Point to purchase WeWork out of bankruptcy. 

Are you sitting down?

Adam Neumann wants to buy back WeWork. And he’s teaming up with Dan Loeb’s Third Point to do it.

Breaking in @DealBook this AM…https://t.co/xiS8OI4tl1

— Andrew Ross Sorkin (@andrewrsorkin) February 6, 2024

DealBook says Flow has already raised $350 million from the venture capital firm Andreessen Horowitz, which is revealed in a new letter that shows Third Point would help finance the transaction. 

According to the letter, Neumann and Third Point have been stonewalled by WeWork for months in receiving any information to formulate a bid. 

“We write to express our dismay with WeWork’s lack of engagement even to provide information to my clients in what is intended to be a value-maximizing transaction for all stakeholders,” the lawyers representing Neumann, Flow, and their affiliates wrote in the letter. 

Neumann and Third Point have collaborated on a new bankruptcy financing package for the co-working company. Their offer aims to acquire either the entire company or its assets.

“Although my clients have attempted since December 2023 to obtain information necessary for an offer to purchase the Company or its assets and later to provide debtor-in-possession ( DIP ) financing to support the Company through the bankruptcy process, they still do not have access to that information,” the layers said. 

The lawyers continued:

“This behavior has jeopardized the ability of the company to explore alternatives to the RSA and has failed to maximize value for all stakeholders the goal of any bankruptcyprocess. This failure was underscored by the Company’sown advisors in Court today, wherethey explained that WeWork now needs to obtain additional financing and that it’s negotiations with its landlords have resulted in only seven successful lease amendments .” 

Currently, court documents propose that WeWork’s bankruptcy plan hands over the company to most senior debt holders, including those holding its credit line, first-lien notes, and second-lien notes. This would mean third-lien noteholders and unsecured creditors are wiped out. 

Last fall, WeWork declared bankruptcy. Neumann resigned as CEO in 2019 following the startup’s unsuccessful attempt to launch an IPO, which marked the beginning of its dramatic decline from a once-estimated value of $47 billion to its current state of bankruptcy.

The year is 2025: WeWork files for Chapter 22 bankruptcy after Adam Neumann successfully gets idiot VCs to give him another $10BN which he immediately cashes out.

The year is 2026: Adam Neumann uses the money to buy a bankrupt WeWork out of bankruptcy. Again

— zerohedge (@zerohedge) February 6, 2024

*   *   * 

Here’s the full letter:

Authored by Simon White, Bloomberg macro strategist,

Trading in option markets is likely making it easier to get bank credit, but it’s too early to say whether this will be enough to arrest the downswing in the credit cycle.

The SLOOS survey for the quarter to the end of January was released on Monday, and it showed a further easing in bank-lending standards.

This is potentially positive, as when banks make it easier to get a loan, it typically leads to rising loan growth over the next year or so.

The easing in standards was not just confined to commercial and industrial (C&I) loans; loans for residential and commercial real-estate also eased.

On the surface, this is an upbeat development for the credit cycle. But some caution is required. In a column from two weeks ago, I discussed how the stock-market is behaving like a perpetual motion machine.

Dispersion selling mainly by banks (i.e. selling index volatility versus single-name volatility) is creating a feedback loop, keeping index volatility repressed.

Heavy vol selling on the index means that when the market darlings – that everybody seemingly wants to own (or has to own to not trail the index) – rise, other stocks have to fall, as the vol selling pins the index.

This dampens index correlation and in turn leads to lower index volatility.

Wash, rinse, repeat.

Credit and equity vol are indirectly linked, but the latter is also a direct input to many credit pricing models via the Merton distance-to-default model.

In the model, the equity of a firm is taken to be a perpetual call option on its solvency. Thus, the observable implied volatility of a company can be used to infer the unobservable volatility of the company’s asset base, and thus the implied probability of default – the basis of the value of the credit spread – can be calculated via Black-Scholes.

Action in option pricing is therefore repressing credit spreads.

Whether they are a true reflection of underlying credit conditions is a moot point – it’s possible tighter credit spreads can create their own reality.

One way is by encouraging banks to ease credit. As the chart below shows, there is a close relationship between net percent of banks tightening commercial and industrial (C&I) loan standards and credit spreads. The first is quarterly data, but credit spreads are real-time. Banks are likely influenced on how easy they want to make it to get a loan by looking at credit markets.

In markets, greed typically ensures trades blow up rather than fading noiselessly from view.

Perhaps the easing of bank credit will mean a credit crisis is ultimately averted.

But it’s hard to be confident of that call when vol-selling could go belly up, as it has several occasions before.

After tumbling the prior day following remarks on heavy tariffs from presidential front-runner Donald Trump, Chinese stocks rallied significantly across the board overnight after reports that regulators planned to brief President Xi Jinping on the financial market as soon as Tuesday.

The Xi-Briefing was the final headline in a day full of jawboning which included sovereign fund Central Huijin (translation: the plunge protectors) vowing to buy more ETFs, and China’s securities watchdog vowing to ‘guide’ (translation: coerce) institutional investors and funds to increase their A-share holdings.

“Huijin’s purchase will guide and encourage more funds to buy and also confirms the market speculation on more state buying recently,” said Zhou Nan, investment director at Long Hui Fund Management.

“There’s very limited room for further slide, but the market may continue to fluctuate before the bottom can be solidified,” he said.

It worked, as it tends to temporarily, with the CSI 300 surging 3.5% (its best day since late 2022)…

For context, that lifts the broad index to one-week highs…

While that all sounds very impressive, in context it is a fart in a hurricane (here is the small cap CSI 1000’s 7% surge)…

But of course, there’s always the risk that they fail to actually ‘do’ anything and we fade back to news lows as has been the case again and again over the last year.

Some $7 trillion of value has been wiped off Hong Kong and China equities since their peaks in 2021 and piecemeal approaches to support the economy and stabilize markets have so far failed to lift sentiment.

Most importantly, as we noted previously, the lack of stimulus (amid China’s real estate sector crisis and escalating tensions with Washington on trade) has had a very adverse impact on both economic and market sentiment at a time when China’s middle class is growing increasingly restless and pitchforky, resulting in a surge in labor strikes and (mostly peaceful) protests.

And while a quiet, painless sovereign suicide may be an option for Japan – with its demographic disaster and rapidly aging population where more adult than baby diapers have been sold for years; for China – which still has a young, vibrant and increasingly angry population – this is not an option as the coming tidal wave of unrest could easily result in the one thing the Chinese Communist Party dreads the most, a revolution.

However, despite the modest reaction, Xi’s involvement means it’s different this time as some are wondering if this is the last ‘verbal bazooka’ before they are forced to actually do something.

“The news that the nation’s number one is holding a meeting is an encouraging development as it shows that the plunge is getting close to punching through the authorities’ comfort level,” said Li Weiqing, fund manager at JH Investment Management Co.

“It gives me the impression that they are doing everything they can, apart from calling out to the market — now is the time to buy.”

How much longer can Beijing wait?

Authored by Paul Joseph Watson via Modernity.news,

President Joe Biden was caught in another embarrassing gaffe when he claimed he spoke with former French President Francois Mitterrand during a 2021 G7 summit.

Mitterrand died in 1996.

The incident happened during a speech Biden gave to to hospitality workers in Las Vegas ahead of Tuesday’s Nevada primary.

Biden also struggled to differentiate between Germany and France during the garbled monologue.

Biden said he attended the meeting, “And I sat down and said America’s back.”

“And Mitterrand from Germany, I mean from France, looked at me and said, uh, s-said, you know, what, why, how long you back for?”

Biden was presumably referring to French President Emmanuel Macron, someone who hasn’t been dead for 28 years.

The White House later amended the remarks with the name “Mitterrand” crossed out and replaced with “Macron”.

I can see why @billmaher told @patrickbetdavid that @joebiden is cognitively sharper than Orange Himmler. In this clip, Biden has extraordinary mental acuity, and I know this to be true because only a few days ago, I had lunch with Charles Darwin and Isaac Newton (and Biden is… https://t.co/tQyGq3ePwK

— Gad Saad (@GadSaad) February 6, 2024

Biden, who will be 86-years-old by the time his next term ends if he wins, appears to be suffering an accelerated cognitive decline.

He continues to look like a lost dog whenever seen in public.

🇺🇸Biden recalls his recent meeting with French President François Mitterrand at a G7 meeting in 2021.

One issue, HE DIED IN 1996 pic.twitter.com/ws9NsBXAwB

— Mario Nawfal (@MarioNawfal) February 6, 2024

As we highlighted last week, Jimmy Kimmel suggested that merely noticing the president’s early onset dementia is a wild conspiracy theory.

However, a top White House cybersecurity official recently told James O’Keefe that “they can’t say it publicly,” but the White House wants to replace Kamala Harris and “Biden is definitely slowing down.”

BREAKING VIDEO: Top White House Cyber Official tells O’Keefe in Disguise “they can’t say it publicly” the White House wants to replace Kamala Harris and Confirms President @JoeBiden mental decline: “Biden is definitely slowing down.”

“I’m just telling you what I’ve heard…… pic.twitter.com/75Wdw03DHs

— James O’Keefe (@JamesOKeefeIII) January 31, 2024

*  *  *

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Authored by Steve Watson via Modernity.news,

Italian Deputy Prime Minister Matteo Salvini has called for people convicted of violent sexual offences to be chemically castrated, following a horrific incident last week when a group of Egyptian migrants were arrested on suspicion of gang raping a 13 year old schoolgirl in a park.

The Italian newspaper Il Giornale reports that the girl and her boyfriend were attacked in the Sicilian city of Catania by the migrant gang who then dragged the girl into a public bathroom and brutally assaulted her in front of the helpless boyfriend, who they also beat up.

The pair somehow managed to escape, but not before two of the migrants had raped the girl, according to the report.

Six of the migrants, three of whom are minors, were arrested the same evening, with the seventh detained the following day after appearing to attempt to flee the town.

Prime Minister Giorgia Meloni addressed the victim, stating “I want to say this to express my solidarity with her and her family. The State will be there and justice will be done.”

Salvini was more direct, stating “Don’t come and talk to me about tolerance. In the face of horrors like this, there can be no clemency but only one cure: chemical castration. I count on the proposal presented by the League to be voted on as soon as possible.”

Ragazzina STUPRATA da una banda di SETTE egiziani davanti al fidanzato, minacciato, bloccato e tenuto lontano.
Non venitemi a parlare di “tolleranza” o “errore”.
Davanti ad orrori del genere non può esistere clemenza ma soltanto una cura: CASTRAZIONE chimica.
Conto che la… pic.twitter.com/Chf9oMwte0

— Matteo Salvini (@matteosalvinimi) February 3, 2024

Lega MEP Annalisa Tardino also urged “We remain firm in the idea that chemical castration is needed for rapists and pedophiles, life imprisonment for similar episodes, as well as greater security in our cities.”

Tardino also called for foreigners who commit such crimes to be “repatriated immediately,” further noting “In Egypt they would never have allowed such behavior. The safety of our children must be a priority throughout Italy.”

Related:

*  *  *

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Authored by Dave DeCamp via AntiWar.com,

Russia said on Sunday that at least 28 people were killed in the Ukrainian shelling of a bakery in Lysychansk, a city in the Russian-controlled Luhansk Oblast in eastern Ukraine.

The bakery was hit on Saturday afternoon, and the death toll rose as emergency workers searched through the rubble overnight. According to Reuters, local officials said the strike was carried out by Ukrainian forces using a US-provided HIMARS rocket system.

Russian Foreign Ministry spokeswoman Maria Zakharova said the strike was carried out with Western weapons. “According to preliminary information, the strike was carried out with Western weapons,” she said.

Zakharova called the strike a “terrorist attack” and said EU citizens should know their taxes are being used to send weapons systems to Ukraine, which “uses them to kill civilians.”

The major shelling of the bakery has been confirmed by The Associated Press and US-backed military publication Stars & Stripes, among others.

Ukrainian attacks inside Russian-controlled Ukraine and inside Russian territory have increased as it has become clear that Ukrainian forces can’t gain any territory. Last month, Ukrainian artillery shelling killed 27 at a market in the Russian-controlled portion of the Donetsk Oblast.

Later in January, Kyiv downed a Russian military transport plane in Russia’s Belgorod Oblast that Moscow said was carrying dozens of Ukrainian prisoners of war. Russian President Vladimir Putin said Ukraine used US-provided Patriot missiles to shoot down the plane.