By Garfield Reynolds, Bloomberg Markets Live reporter and strategist

The US banking system is still struggling with the impact of the Federal Reserve’s 4.75 percentage points of interest-rate hikes, even as the central bank is set to add another quarter point today.

The resolution of First Republic Bank’s woes was supposed to relieve matters, but regional lenders promptly sank on concerns others will need rescuing. This looks to be a slow-moving car crash — monetary policy famously acts with a lag. It is also a bit counter-intuitive, because traditionally the expectation is that higher rates improve bank profits by allowing them to increase the gap between their cost of capital and the interest they charge.

This time round, things are a bit different. There’s the persistent yield curve inversion that works against those who borrow short-term and lend longer-term, and the Fed’s helped make money-market rates high enough to lure depositors away. Then there’s the unintended consequences of post-2008 regulations that mandated lenders to hold larger amounts of Treasuries, assets that are now worth a lot less after Fed rate increases.

The only chart you need: no regional bank can compete with the Fed/Money Markets – guarantees the deposit bank run will only get much worse pic.twitter.com/AEBZ09bhCm

— zerohedge (@zerohedge) May 2, 2023

All that underscores the potential that the banking woes, and their own slow-moving impacts on broader credit conditions, will push policymakers to halt hikes sooner than they have been signaling.

Via SchiffGold.com,

The failure of First Republic Bank reveals that the banking system isn’t nearly as sound as Treasury Secretary Janet Yellen and Federal Reserve Chairman Jerome Powell would have us believe. But as Peter explained in a recent podcast, it’s not just the banking system that’s messed up. The Fed has screwed up everything that is a function of interest rates by keeping rates at zero for so long.

First Republic was the third major bank failure this year and the biggest bank to collapse since the 2008 financial crisis. It was the second-largest bank by assets to fail in US history. Peter said the whole banking system is a house of cards that is now collapsing one card at a time.

We’re still in the early days of the 2023 financial crisis.”

Of course, the mainstream media remains reluctant to call it a financial crisis. But if not, what is it?

Banks keep failing. Aren’t banks financial institutions? But no, they don’t want to do it because they don’t want to evoke the memory of 2008. They don’t want anyone to think that what we’re experiencing is another 2008. Now, in a way they’re right, because it’s not another 2008. It’s going to be way worse than 2008. But it is a financial crisis.”

And Peter said it’s not just banks.

The Fed screwed up everything that is a function of interest rates. Anything that is rate-sensitive is all screwed up because rates were so low for so long.”

This includes the auto market and the housing market.

Fed monetary policy also facilitated massive government budget deficits.

How are we able to sustain a $31.7 trillion national debt? It’s because interest rates were so low. If the Federal Reserve had not kept interest rates at zero for so long, had interest rates reflected the appropriate price of money that a free market would set, there is no way the government could have gotten away with this. Government could not be this big. Government could not have spent all this money because it couldn’t have afforded to pay the interest on the debt.”

Now that the Fed has let rates go up, everything that was built on a foundation of zero percent crashes – including the government.

The government is going to come crashing down if the Fed holds the line on fighting inflation. … We can’t have these deficits and normal interest rates to fight inflation. So, the government is going to be forced to downsize dramatically, make big cuts in government spending, if the Fed is going to continue to fight inflation and keep rates up, which I don’t think it’s going to do.”

Peter said he thinks the Fed is going to reverse course to keep banks from failing, stop the auto industry from imploding, save the housing market, and prop up the government.

And then there is corporate America, which has also levered up thanks to easy money.

What’s going to happen over the next year or two as all this cheap money that they borrowed to buy back their overpriced stock comes due? What about all of the junk bonds that are out there?”

We’re already starting to see bankruptcies. Bed Bath and Beyond recently filed Chapter 11. In fact, there have been 70 major bankruptcies already in 2023. It’s the third-worst start to a year ever. That compares with 71 bankruptcies in the early part of 2020 when governments shut down the economy for COVID. The only other year that was worse was 2009, in the depths of the Great Recession.

In this podcast, Peter also talks about the first quarter GDP data, noting that economic growth is slowing down even as inflation is picking up speed.

Despite hard data disappointment, soft survey data for Manufacturing showed an improvement in April and analysts expected the Services sector to do the same with modest gains.

• S&P Global US Services PMI printed 53.6 in April, up from 52.6 in March (but down from the flash print of 53.7)

• ISM Services printed 51.9 in April, up from 51.2 in March, better than the 51.8 expected

Source: Bloomberg

Under the hood, ISM data shows a rebound in export orders, slowing in employment, and prices sticky (up from last month marginally)

Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, said:

“April saw an encouraging acceleration of service sector growth which, combined with indications of a renewed upturn in manufacturing, suggests the economy has regained some momentum at the start of the second quarter.

“Companies have reported an improvement in confidence compared to the gloomier picture seen late last year, with service sector companies also benefiting from a post-pandemic tailwind of spending shifting from goods to services, notably among consumers.

“However, there are indications that resurgent demand for services is reigniting inflationary pressures. Average rates charged for services are now rising at the sharpest rate for eight months, as firms report a greater ability to pass increased costs on to customers. This upturn in the service sector selling price gauge hints at a concerningly stubborn stickiness of core inflation.

Finally, Williamson pours some serious cold water on the hope narrative: 

“Much of course depends on whether this recovery in demand can persist. Headwinds from higher interest rates and the increased costs of living, combined with the winding down of household savings, suggest the upturn could lose steam in the months ahead.”

The S&P Global US Composite PMI Output Index posted 53.4 in April, up from 52.3 in March, to signal a solid upturn in private sector business activity.

The faster expansion in output reflected quicker increases in activity at manufacturing and service sector firms. The rate of growth was the sharpest since May 2022.

Price pressures regained momentum in April, as input costs and output charges rose at sharper rates. The acceleration in inflation was broad based, with service sector firms registering the faster upticks in both costs and charges.

Update(10:02ET): Zelensky’s office is insisting it had nothing to do with the drone strike on the Kremlin, which Russian officials say was a “terrorist” attempt to assassinate President Putin:

Even though Ukraine has denied involvement, pro-Kremlin voices are already calling for revenge. In a social media post, Vyacheslav Volodin, the chairman of Russia’s lower house of Parliament, said: “We will demand the use of weapons capable of stopping and destroying the Kyiv terrorist regime.”

Another video of a reported Ukrainian drone hitting the Kremlin last night pic.twitter.com/nutepPdooD

— Faytuks News Δ (@Faytuks) May 3, 2023

The reaction out of lawmakers in Russia’s State Duma has been predictably hawkish, also with prominent Russian MP Mikhail Sheremet reportedly saying “It’s time to launch a missile attack on Zelensky’s residence.” Via news wires: 

RUSSIAN PARLIAMENT SPEAKER DEMANDS KYIV REGIME BE DESTROYED AFTER DRONE ATTACK ON KREMLIN

Russia‘s State Duma on Kremlin attack:

Socialist-Revolutionary leader #Mironov: “This is a real casus belli – a pretext for war. To eliminate the terrorist elite of Ukraine. We have something to hit their bunkers with.”#Sheremet: “It’s time to launch a missile attack on… pic.twitter.com/SKOfESbPRl

— Russian Market (@runews) May 3, 2023

The New York Times meanwhile has underscored that “If confirmed, it would be the most audacious attempted strike on Russian soil since Moscow launched its full-scale invasion of Ukraine in February last year.” The report also provides a reminder of recent US intelligence revelations which previewed just such a scenario as drones targeting the Kremlin: 

Local and regional authorities in Russia have reported a series of drone strikes in recent months. Some have landed close to Ukraine’s border with Russia, but at least one has hit south of Moscow. Ukraine has not acknowledged responsibility for most of the incidents. Moscow is around 280 miles northeast of the Ukrainian border at its closest point.

Last month, The Washington Post reported that the United States had secretly monitored discussions among Ukrainian officials about possible attacks against Moscow timed to coincide with the Feb. 24 anniversary of Russia’s invasion. The White House feared that such a move would provoke an aggressive response from Moscow, and two days before the anniversary, the C.I.A. said that Ukraine’s intelligence directorate “had agreed, at Washington’s request, to postpone strikes” on Moscow. The information was part of a trove of classified U.S. intelligence documents obtained by The Post and other news organizations.

Meanwhile, overnight there were also new Russian aerial attacks against Kiev and other locations throughout Ukraine. There continue to be reports of Russian bombers airborne over the country, as people on the ground brace for more waves of strikes.

Speculation continues over the drone attack on the Kremlin…

* * *

Update(0845ET): Below is the clearest video to have surfaced thus far which appears to show what the Kremlin is calling an assassination attempt targeting President Putin:

#BREAKING: Russia says Ukraine tried to attack the Kremlin with drones in a move to target President Vladimir Putin, alleges terrorist act underscoring its right to respond. pic.twitter.com/lEgwxVUieT

— Aditya Raj Kaul (@AdityaRajKaul) May 3, 2023

The video is remarkably close and shows the inbound flight path of the drone as it flew over the Kremlin perimeter. A small explosion briefly sets fire to the rooftop of the struck main building, which houses presidential offices, and may have resulted in minor damage.

Will this incident provide Moscow with a justification for the possible coming “shock and awe” campaign against Ukraine in response? 

Ukraine is quickly trying to distance itself from the drone attack, which some online pundits have already begun to claim and speculate could have been a ‘false flag’…

• UKRAINE HAS NO LINKS TO DRONE ATTACKS ON KREMLIN: PODOLYAK
• UKRAINE: NOT USING RESOURCES TO ATTACK FOREIGN TERRITORIES
• UKRAINE: DON’T HAVE INFORMATION ON KREMLIN DRONE ATTACK

“Ukraine presidential office denies drone strike on Kremlin, says such an attack would achieve nothing and not change anything on the battlefield,” VOA correspondent Steve Herman has noted of the statements from Zelensky’s office.

* * *

The Kremlin says two drones were sent by Ukraine in an overnight attack on Moscow and on government buildings which it sees as an attempt to assassinate President Vladimir Putin. 

A Kremlin press statement called it a “planned terrorist attack” against Putin directly, and says Russia has a right to respond “where and when it deems necessary”.

The president was not injured in the attempted attack and is said to be safe and carrying on his regular work schedule after the drones were “downed” – according to the Kremlin statement, as cited in RIA. 

Further the statement emphasized there was no material damage to the president’s offices from falling debris after Russian defenses disabled the inbound UAVs.

“The aircraft were downed using electronic warfare measures and caused no casualties or damage, it said in a statement,” Russian state media RT reports. “Moscow considers the incident an act of terrorism,” and details further: 

The incident occurred late on Tuesday night, and both unmanned aircraft fell on the grounds of the Kremlin in Moscow, according to the president’s office. His schedule was not affected.

The statement from the Russian presidency’s office emphasized: “We consider this a preplanned terrorist action and an attempt against the Russian president.” It happened “ahead of Victory Day and the parade on May 9, when foreign guests plan to be present.” The statement detailed, “Two unmanned aerial vehicles were aimed at the Kremlin. As a result of timely actions taken by the military and special services using radar warfare systems, the devices were disabled.”

Initial videos from the attack are being widely circulated, strongly suggesting the accuracy of the Kremlin statements of a nighttime attack on central government buildings in Moscow; however, they do appear to show a direct strike of at least one of the drones on a building: 

NEW: Kremlin says “Ukrainian” drones attacked Putin’s residence in Moscow last night, but he is safe pic.twitter.com/nQFDNDhpvw

— Ragıp Soylu (@ragipsoylu) May 3, 2023

Fire can be seen atop the roof of one of the iconic buildings of the Moscow Kremlin complex…

Another video purportedly showing the aftermath of the drone attack against the Kremlin pic.twitter.com/GgkwaFl4Em

— Michael A. Horowitz (@michaelh992) May 3, 2023

The Russian presidential spokesman followed-up with this message after the initial Kremlin press release:

“As a result of this terrorist act, the President of the Russian Federation was not injured. His work schedule has not changed, it continues as usual,” the message said.

Putin’s spokesperson Dmitry Peskov explained that the head of state was not in the Kremlin during what he described as a Ukrainian UAV attack on Tuesday night. He noted that President Putin is currently working from his residence near Moscow.

All of this makes a downed Ukrainian drone incident outside Moscow from last week much more interesting in hindsight, which we covered here: Kremlin Rejects German Media’s ‘Putin Drone Assassination’ Report. It will also be interesting to see whether Russia points the finger at the United States and West for its longtime intelligence support to Kiev, as we reviewed in December based on this statement: We Are Not “Enabling” Or “Encouraging” Ukraine To Strike Within Russia: White House.

developing…

Authored by Michael Lebowitz via RealInvestmentAdvice.com,

The recent failures of Silicon Valley Bank, Signature Bank, and First Republic and the poor performance of other regional banks serve as a reminder of the underappreciated risks of investing in bank stocks. It’s not just the inherent banking risks that should make investors selective in buying bank stocks. The historical relative performance of bank stocks should also cause consternation for investors.

Key Takeaways

• Fractional reserve banking allows banks, not the Fed or government, to create money.

• Banks typically only have an approximate 10% equity cushion supporting their assets.

• Such leverage creates bankruptcy risk if banks are not hedged properly for interest rate and credit risk.

• Bank stocks have underperformed conservative sectors and the broader S&P 500.

• Despite the broad risks, there are good banks that can be investment worthy.

Fractional Reserve Banking

All money is lent into existence.

Read that sentence as many times as it takes to grasp. Its understanding is critical to understanding the U.S. banking system.

Despite what the media or financial pundits may say, banks, not the Fed or government, create money!

Under the fractional reserve banking system, on which America’s financial system operates, money is “created” via loans. Here is a simple example:

• You deposit $1,000 into a bank.

• Your neighbor borrows $900 from the same bank to buy a TV from Costco.

• The bank holds the remaining $100 as reserves.

• Costco deposits the $900 into its account at the same bank.

• The bank turns around and lends $810 of Costco’s $900 deposit.

• The cycle continues as money multiplies despite the actual cash in the financial system remaining at $1,000.

Whether or not your neighbor pays back the $900, you and Costco have a combined $1,900 in your accounts. In this case, the $900 the bank created via the loan to your neighbor is new money out of thin air. 

Fractional reserve banking, as we diagram, works well until there is a bank run and or enough loans are defaulted upon or lose sufficient value.

Bank Balance Sheets

We examine the aggregate balance sheet for all U.S. commercial banks to take fractional reserve banking to a working level and appreciate why small and mid-sized banks are struggling.

As the graph shows, commercial banks hold about $23 trillion in assets against $20.8 trillion in liabilities. The difference, $2.2 trillion, is the banking sector’s equity. The yellow shading represents the implied leverage ratio. As it shows, banks collectively hold less than 10% of equity versus their assets. We break down the assets and liabilities in the pie charts below to recognize why such high leverage can be problematic.

Decomposing Assets and Liabilities

Commercial bank liabilities are mainly small and large deposits. The rest of the funding comes from the debt markets, other banks, and the Fed at times.

Bank assets are often diversified across numerous types of loans and securities. Some of their assets, like Treasury securities and MBS, are very liquid. On the other hand, some of the loans and real estate debt are illiquid.

Liquidity allows us to assess how fast and costly a bank can sell assets if needed. About half of the collective assets are liquid and can be sold quickly and with little cost. A good number of the remaining assets can be sold or securitized and sold, but the process may take a little time and cost money. Some assets are entirely illiquid and could take quite a while to sell.

When the value of a bank’s assets or liabilities changes, equity provides a cushion. Today, bank stockholders are questioning whether some banks have enough equity cushion. If losses exceed a bank’s equity, the bank is essentially bankrupt. As we noted earlier, for an average bank, that entails a 10%+ loss on its assets.

Leverage is Dangerous

The graph below shows that commercial bank deposits have fallen by approximately $1 trillion over the last year. Hence, banks must source new deposits, borrow money, and sell assets to compensate.

Fleeing deposits started the problems for Silicon Valley Bank and others. They also spurred a second problem. Many banks price assets on their balance sheet at the price they acquired them. Due to higher interest rates, the current value in almost all cases is less than they paid.

Many banks require cash to replace deposits. As such, they have options. They can raise new deposits, which entails paying customers over 4% versus the paltry near 0% they currently pay depositors. Or they can sell assets. A collective leverage ratio of 10 to 1 means it only takes a 10% loss on a bank’s assets to wipe out its equity cushion. Risk-free U.S. Treasury notes and mortgages lost about 20% of their value in 2022. Since getting new deposits was not feasible for Silicon Valley Bank, it had to sell assets and recognize losses more significant than its equity cushion.

Digital Bank Runs

Bank runs are dangerous for the highly leveraged banking sector. Such is why the Fed acted quickly to support banks. Further, bank runs are often psychological events and are not necessarily rational. We put First Republic, which was fundamentally solid, in that camp.

Concern over a bank’s viability can quickly snowball into default. Unlike prior bank runs, depositors can wire funds 24/7 from a bank in seconds. As a result of a digital bank run, Silicon Valley Bank collapsed as its customers withdrew about $42 billion, representing a quarter of its deposits in days.

Unlike the financial crisis, today’s bank issues are a function of higher interest rates/lower bond prices and not credit losses. As a result of faulty accounting rules enacted during 2008, the Fed, bank regulators, and many banks did not adequately address lower bond prices due to higher interest rates. Hedging interest rate risk was costly from an accounting perspective and, therefore, not fully encouraged by the management of many banks.

The key takeaway is that bank runs, and leverage are risks that all banks and, therefore, bank stockholders take. Bank runs are not always rational. It appears falling stock prices, and not bank fundamentals, are driving depositors to move money from some banks.

Past Performance

Investing is always a risk-reward proposition. Almost any risk is worth taking but only at the right price. Therefore with a better understanding of bank risks, does the historical performance of the bank sector warrant taking the risk? 

The graph below compares price returns on the KBW Bank Stock Index versus the S&P 500 and the conservative S&P Utilities and Staples Index. Since 1997, the KBW bank stock index has returned 40.03%, or 1.47% annually, well below the market and the conservative sectors mentioned above. More stunning, since 1997, the average yield on a risk-free 2-year U.S. Treasury note was 4.98%, over three times the return on risky bank stocks.

Summary

Banking is risky and subject to rational and irrational bank runs. That doesn’t mean investors should avoid bank stocks. Instead, potential bank stockholders must carefully assess whether the expected returns account for a bank’s leverage, degree of risk-taking, and hedging and factor in how sticky their deposits genuinely are. 

Like any business, there are good banks and bad banks. JP Morgan, for instance, has proven to be very well managed. During the financial crisis, they hedged well against loan losses. Such risk awareness and hedging agility allowed them to buy assets from troubled institutions at steep discounts. Similarly, they are benefiting from the latest banking crisis. JP Morgan stock is up over 700% since 1997. Said performance bests the performance of the banking index and the S&P 500.

The Treasury has published details of its quarterly refunding and subsequent Treasury auctions, and as previewed earlier, it kept sales of longer-term debt steady for the third straight time, in line with dealers’ forecasts, while unexpectedly announcing a new program to buyback older securities, starting sometime in 2024. According to some, a buyback program is not that different from QE as it injects liquidity into the system at regular intervals.

Subject to the ongoing limitations of the debt ceiling, the Treasury kept new issuance unchanged; It announced it would offer $96 billion of Treasury securities to refund approximately $75.2 billion in notes maturing on May 15, 2023.  This issuance will raise new cash from private investors of approximately $20.8 billion.  The securities are:

• A 3-year note in the amount of $40 billion, issued on May 9 and maturing May 15, 2026;
• A 10-year note in the amount of $35 billion, issued on May 10 and maturing May 15, 2033; and
• A 30-year bond in the amount of $21 billion, issued on May 11 and maturing May 15, 2053.

The balance of Treasury financing requirements over the quarter will be met with regular weekly bill auctions, cash management bills (CMBs), and monthly note, bond, Treasury Inflation-Protected Securities (TIPS), and 2-year Floating Rate Note (FRN) auctions.

The Treasury said it believes that current issuance sizes leave it well-positioned for its near-term borrowing needs, and so intends to keep nominal coupon and FRN new issue and reopening auction sizes unchanged during the May 2023 – July 2023 quarter, which are shown in the table below.

Yet with tax receipts far below expectations (which will lead to an earlier debt ceiling X-date) and the budget deficit widening as the Fed shrinks its holdings of Treasuries, US debt managers widely anticipated a surge in issuance of longer-term securities later in the year, something which the Treasury’s latest debt borrowing estimates strongly hinted at, by anticipating $1.45 trillion in borrowing needs for the April-September period.

The Treasury Department said Wednesday that may happen as soon as August — an earlier timeframe than many dealers thought, to wit: “based on projected intermediate- to long-term borrowing needs, Treasury may need to modestly increase auction sizes later this year, potentially as soon as the August 2023 refunding announcement.“

Sales plans for Treasury Inflation-Protected Securities, or TIPS, were also kept unchanged compared with sizes over the prior quarter. But the Treasury added that it will “continue to monitor TIPS market conditions and consider whether modest increases would be appropriate in future quarters.”

The Treasury also addressed the elephant in the room, namely the looming debt ceiling crisis, noting that as Yellen outlined in her recent letter to Congress, “our best estimate is that we will be unable to continue to satisfy all of the government’s obligations by early June, and potentially as early as June 1, if Congress does not raise or suspend the debt limit before that time.”

In keeping with the spirit of newfound spirit of fearmongering, the Treasury said that while “It is impossible to predict with certainty the exact date when Treasury will be unable to pay the government’s bills, and Treasury will continue to update Congress in the coming weeks as more information becomes available” given the current (very loose) projections, “it is imperative that Congress act as soon as possible to increase or suspend the debt limit in a way that provides longer-term certainty that the government will continue to make its payments.”

Bottom line: “Until the debt limit is suspended or increased, debt limit-related constraints will lead to greater-than-normal variability in benchmark bill issuance and significant usage of CMBs.” As a reminder, a high-stakes summit is now planned for May 9 between Joe Biden and top congressional leaders on the debt limit.

With the Treasury constrained by the debt limit, reduced issuance of T-bills has seen them drift near the lower end of the 15% to 20% share of total debt recommended by the Treasury Borrowing Advisory Committee, or TBAC.

However, once the debt ceiling is resolved – and it will be one way or another, but most likely only after there has been some “market shock” event – dealers see a deluge of new bill sales coming in the months following. Keeping it below the 20% mark is one reason dealers have been expecting increased issuance of coupon-bearing debt. Many had anticipated that starting in November, with a smaller number projecting August, as the Treasury rebuilds its cash balance, a move which will result in a big drain of liquidity from the market.

Strategists at TD Securities predict that Treasury will issue nearly $900 billion of bills by the end of fiscal year on Sept. 30. They also assume an increase in the debt ceiling will come in July, and forecast even more net bill issuance in the next fiscal year to help normalize the supply-demand imbalance at the front-end of the yield curve.

Treasury buyback

But much more importantly, the Treasury announced that, after months of consideration, it’s kicking off a buyback program in the calendar year 2024. By buying back older securities and issuing more of the current benchmarks, one aim is to help bolster patchy liquidity in the Treasuries market. The program could also help the department to smooth out volatility in its issuance of Treasury bills as it manages its cash balance. We previewed this last October in “The Market Is About To Be Shocked With A “Treasury Buyback” Operation Twist.” Seven months later it’s now a fact.

“Based on feedback from a broad variety of market participants, including the Treasury Borrowing Advisory Committee and primary dealers, Treasury believes it would be beneficial to conduct regular buyback operations for cash management and liquidity support purposes” the Treasury said in the refunding statement.

“Treasury anticipates designing a buyback program that will be conducted in a regular and predictable manner, initially sized conservatively,” the statement said. The program is “not intended to meaningfully change the overall maturity profile of marketable debt outstanding,” it added, but of course, what the market will read here is that the Treasury just launched its own version of QE, at least until the Fed joins the fun after the next market crash.

As detailed in the TBAC’s presentation, the Treasury buyback program would focus on two debt management objectives:

• Liquidity Support: in order to bolster market liquidity, including by establishing a predictable opportunity for market participants to sell off-the-run securities
• Cash Management: in order to reduce volatility in Treasury’s cash balance and bill issuance

In terms of buyback parameters, the TBAC laid out the following:

• Liquidity Support: include nominal coupon and TIPS securities with maturities across the curve. 6-8 purchase buckets by tenor would allow 1-2 operations in each bucket each quarter with operations around once per week
• Cash Management: likely focused on off-the run nominal coupon and TIPS securities with short maturities

The Treasury said that further details on the buyback – the first such program in about two decades – will be unveiled in future quarterly refunding announcements, with more consultation to come with market participants.

There were much more details in the May 2 TBAC Minutes, in which debt manager Kyle Lee noted Treasury believes a buyback program should focus on liquidity support and cash management objectives, and operations should be regular and predictable across tenors, “not be used to fundamentally change the overall maturity profile of total debt outstanding, and not be used to mitigate episodes of acute market stress”

The presentation noted Treasury agrees with TBAC’s suggestions on initial buyback sizes, noted it would be important for Treasury to be flexible with buyback amounts based on market conditions and prices; Lee said Treasury also believes buybacks should be treated like any other cash outlay for debt management purposes, and given the size of the buybacks being considered, “should not meaningfully impact the overall maturity profile of total debt outstanding.”

Lee said there are “several outstanding issues that Treasury is still considering” among which:

• Primary dealers split on whether $5 billion to $10 billion per month would “meaningfully improve liquidity” as some thought the signal of Treasury’s willingness to conduct buybacks for liquidity support would improve investor confidence and liquidity. Others thought Treasury would need to also indicate a large size to assure investors
• Dealers also noted some difficulties sourcing short coupons given supply and demand imbalances in the front-end, while others said investor preferences for bills over short coupons would enable Treasury to conduct larger buybacks in short coupons (hence the “Operation Twist” we previewed late last year)

The TBAC committee also discussed whether to change the auction schedule for the 2-, 3-, 5-, and 7-year notes from monthly new issues to a schedule of one new issue and two reopening auctions per quarter.

The presenting member noted initial analysis indicated that fewer and larger issues could lead to improvements in Treasury market liquidity; he said the Treasury should consider a staggered approach to ensure that at least one tenor matures each month.

Ultimately, Lee recommended maintaining the monthly new issue cadence for the 2-year, which market participants find valuable.  TBAC members discussed different potential auction, repo, and secondary market trading dynamics of monthly versus quarterly issues and concluded that further study was warranted

The full TBAC presentation on “buybacks as a policy tool” is below (pdf link)

Having solved all other problems in New York, including a decrepit, expensive and dangerous subway in the city, astronomical taxes and surging crime, Democratic Gov. Kathy Hochul is now set to make her state the first to ban natural gas stoves.

And, according to the New York Post, residents are “furious”. 

The state’s latest budget deal mandates that “all new buildings under seven stories be fully electric by 2026 with larger structures following three years later”, the Post reported over the weekend. After all, what would new rules be if they weren’t appended to a massive $229 billion spending deal? Spending: it’s the American way. 

Meanwhile, the legislation isn’t going over quite as well with residents. One resident of Sutton Place told the Post: “Kathy should mind her own business and get out of our kitchens. Now she’s in our kitchens first, our bedrooms will be next. Why would somebody come into your private home and tell you what to do? We’re not communist yet – we’re getting there – but it’s just an insult.”

Meanwhile, a poll conducted at Siena back in Februrary found that only 39% of registered voters supported banning all new fossil fuel equipment for new homes by 2025 and all construction by 2029. 

Joseph Hogan, vice president of building services at the Associated Contractors of New York State, told the Post: “People are apt to make choices of whether they are located in New York State or somewhere else and this will provide a further strain on the market until there’s certainty about the availability in the grid as we move forward so that’s a real concern.”

And of course – not unlike what we experienced during Covid – it’s a case of “do as I say, not as I do”. It had previously been reported that Hochul uses gas stoves in her executive mansion in Albany and her home in Buffalo. 

Assembly Minority Leader William Barclay said at the time: “The governor’s push to ban gas stoves appears to be as hypocritical as it is ridiculous. One has to wonder how many times she’s fired up her own gas stove since declaring them environmentally unsafe in her State of the State Address.”

Defending the ban, Hochul said last week: “Everyone knows we’ve seen the effects of climate change, the storms, the hurricanes coming to New York, record snow amounts. Our Budget prioritizes nation-leading climate action that meets this moment with ambition and the commitment it demands.”

One Upper East Side resident retorted: “I’m very much against the change. I don’t see the benefit. Electric stoves don’t cook as well.” Her 70 year old neighbor, Claire Gozzo, agreed, telling the Post: “I have electric in Florida and I hate it, you can’t control it. I want a new stove. I don’t like it. I like gas because you can control it and everything cooks good.”

Obviously, based on the above photo of the Governor making gameday eats, that’s a lesson Hochul knows firsthand. 

Bud Light parent company Anheuser-Busch is desperately scrambling to rehabilitate their image following corporate suicide over a transgender ad campaign featuring TikTok influencer Dylan Mulvaney.

In order to make amends with distributors after off-site sales fell 26.1% in the week ending April 22 vs. one year ago, the company has pledged to boost marketing spending on Bud Light and accelerate production of a new slate of ads, according to the Wall Street Journal, which adds that Anheuser-Busch will give a ‘case of Bud Light to every employee’ of a wholesaler.

Bud Light sales down 26.1% vs last year in the week ending April 22nd. 📉

Sales of the beer plummeted vs last year due to the ongoing backlash from the brands decision to hire Dylan Mulvaney as a brand ambassador.

Rival beer brands Coors Light sales rose by 13.3% while Miller… pic.twitter.com/6835StMEXH

— Oli London (@OliLondonTV) May 1, 2023

Meanwhile, sales of rival brands Coors Light and Miller Light each grew 21% during the same period ending April 22.

The efforts are continuing a month after Dylan Mulvaney, a transgender social-media star, spoke in an Instagram video about a personalized can of Bud Light that the brewer had sent her as a gift. The April 1 post sparked a boycott that caused sales to plummet for both Anheuser-Busch and its independently owned distributors. The distributors’ employees, many of whom drive trucks bearing the Bud Light logo, were confronted by angry people on streets, in stores and in bars. -WSJ

The deterioration of Bud Light’s market share “continued apace through the third week of April — and actually somehow worsened. We’ve never seen such a dramatic shift in national share in such a short period of time,” according to Beer Business Daily.

The fallout has spread to other Anheuser-Busch brands as well, including Budweiser, Busch Light, and Michelob Ultra, according to Bump Williams.

“It sent shock waves through distributors,” according to Jeff Wheeler, vice president of marketing for Del Papa Distributing near Houston, Texas, adding that his staff has fielded “tons of phone calls from people being very hateful.”

Two Bud Light marketing executives have been placed on administrative leave in the wake of the controversy.

Marketing Vice President Alissa Heinerscheid took a leave of absence after the Daily Caller reported on photos of her at a college party following comments she made slamming Bud Light’s customer for being “fratty.” Budweiser reportedly announced Sunday that Daniel Blake, group vice president for marketing at Anheuser-Busch, was also taking a leave of absence. –Daily Caller

After three weeks of social media silence, Mulvaney posted a TikTok video mansplaining that he wishes he could be reincarnated as someone “non-confrontational and uncontroversial.”

“I don’t know if reincarnation is a thing, but in my next life I would love to be someone non-confrontational and uncontroversial — God that sounds nice!” he said, adding “The good news is that the people pleaser in me has nearly died, because there’s clearly no way of winning over everyone.”

Mulvaney has also inked advertising deals with Instacart, Nativ, Ulta Beauty, Nike, and others.

Anheuser-Busch will report quarterly earnings on Thursday. We’re sure they’ll receive some interesting analyst questions… and of course a big question on everyone’s mind; will they cut outlook?

Authored by Michael Snyder via TheMostImportantNews.com,

Have you ever looked at Joe Biden and wondered if this guy is going to get us all killed? 

If so, you are definitely not alone.  Biden is an ill-tempered lunatic that is not all there mentally, and his foreign policy team includes well-known warmongers such as Jake Sullivan, Antony Blinken and Victoria Nuland.  Over the past two years they have been provoking our enemies every chance they get, and that has pushed us to the brink of war with several of them.  They keep telling us that they know exactly what they are doing, but if they get this wrong we are not going to get a “do over”.  Once the missiles start flying, there will be no going back. 

The following are 4 ways that Joe Biden and his minions could get America into a nuclear war…

#1 Russia

The war in Ukraine has evolved into a full-blown proxy conflict between the United States and Russia, and both sides just continue to escalate matters.

So where does this end?

At this point, the Biden administration has already announced 36 different military aid packages for Ukraine since the war started…

US President Joe Biden’s administration announced $325 million in new military aid for Ukraine on Wednesday to help its military in its war against Russia, including additional ammunition for High Mobility Artillery Rocket Systems (HIMARS), advanced missiles and anti-tank mines.

It is the 36th security package for Ukraine since the Russian invasion in February 2022, and brings total US military assistance for the Kyiv government to more than $35.4 billion in that time.

On the other side, the Russians keep framing this crisis as an existential conflict between east and west, and western leaders have certainly bolstered that perception by publishing maps of Russia broken up into dozens of little countries.

At this point, the Russians believe that they are fighting for all the marbles, and Dmitry Medvedev is openly warning that they will use nuclear weapons when push comes to shove…

He spelt out that Russian doctrine “makes it clear that nuclear weapons may be used if Russia faces an act of aggression involving other types of weapons, which threaten the very existence of the state”.

He added: “In fact, it is about using nuclear weapons in response to such actions.

“Our potential adversaries should not underestimate this.

“All these speculations about how the Russians will never do this are worthless.

“The Western analysts and Western commanders – both military and political leaders – should simply assess our rules and our intentions.”

Why won’t our leaders take such threats seriously?

I am entirely convinced that the Russians are not bluffing.

And it should greatly alarm all of us that Russian submarines are becoming increasingly active in the Atlantic Ocean…

“The Russians have been more active than we’ve seen them in years,” Army Gen. Chris Cavoli, the top commander for NATO and U.S. military operations in Europe, told Congress on Wednesday of Moscow’s undersea capabilities.

“Their patrols into the Atlantic and throughout the Atlantic are at a high level most of the time, at a higher level than we’ve seen in years,” Cavoli testified before the House Armed Services Committee. “And this, despite all the efforts they’re undertaking in Ukraine.”

Eventually, the Russians could use subs to launch a surprise first strike on the U.S., and if that happens it will be the end of our nation as we know it today.

#2 China

As I have detailed in previous articles, the Chinese have been feverishly expanding and modernizing their strategic nuclear arsenal.

At one time, their capabilities paled in comparison to our own, but now they have substantially closed that gap.

Unfortunately, the Biden administration is still choosing to treat them like a vastly inferior power.

We do not want a war with China, and under previous administrations such a war was not even a possibility.

But now the status of Taiwan has become a major international issue, and the Chinese just keep sending more military aircraft into Taiwan’s air defense identification zone…

Taiwan’s defence ministry, in an early Friday update of Chinese military activities over the previous 24 hours, said 19 military aircraft had entered the island’s air defence identification zone.

One of those was a TB-001 drone, which flew around Taiwan, first crossing the Bashi Channel that separates Taiwan from the Philippines, then up the east of Taiwan before crossing back toward the Chinese coast, according to a map provided by the ministry.

In addition, sovereignty over certain areas in the South China Sea is another matter that has caused tensions between the U.S. and China to rise…

The US has warned the Chinese Coast Guard to stop harassing Philippine vessels in the South China Sea, it was reported.

On Saturday, the US state department said in a statement: “We call upon Beijing to desist from its provocative and unsafe conduct.”

Last week, the Philippines accused China’s coast guard of “aggressive tactics” and “dangerous manoeuvres” in the South China Sea, amid simmering geopolitical tensions between the two nations.

Hopefully cooler heads will prevail and our relations with China will take a turn in the right direction.

But I wouldn’t count on it.

#3 Iran

As I have warned over and over again, a major war in the Middle East could erupt at any time.

And just to make sure that tensions go a little bit higher, the U.S. has deployed aircraft equipped with “bunker-busting bombs” to the region…

In a show of force to Iran, the United States military has equipped aircraft sent to the Middle East with advanced bunker-busting bombs, American officials told The Wall Street Journal on Friday.

According to the report, around a dozen A-10 Warthogs were refitted to allow the attack aircraft to carry up to 16 of the precision-guided GBU-39/B bombs.

Of course the Iranians are also choosing to make things even worse.

In fact, the Iranian military just illegally seized a tanker that was headed for the United States…

Footage has been released by the Iranian navy that shows the seizure of a foreign vessel in the Gulf of Oman.

The Marshall Islands-flagged oil tanker Advantage Sweet was taken Thursday by Iranian forces after leaving Kuwait en route to Houston, the U.S. Navy announced.

“Advantage Sweet was seized by Iran’s Islamic Revolutionary Guard Corps Navy while transiting international waters in the Gulf of Oman,” NAVCENT said.

Unlike Russia and China, Iran does not have intercontinental ballistic missiles.

But the Iranians are getting very close to being able to produce their own nuclear weapons, and some analysts believe that they already possess older nukes that have been provided to them by others.

If a major war does erupt in the Middle East, Iran will throw whatever it has against Israel, and Israel will do the same to Iran.

Let us hope that such a conflict can be put off for as long as possible.

#4 North Korea

You would think that the potential for 3 cataclysmic wars would be enough.

But no, the Biden administration has also decided to greatly provoke North Korea by sending “nuclear-armed submarines” to South Korea…

The United States will deploy nuclear-armed submarines to South Korea for the first time in decades — part of a new agreement that will signal Washington’s commitment to defend Seoul against rising nuclear threats from North Korea, U.S. officials said.

The plan to dock the ballistic missile submarines in South Korea, which hasn’t happened since the 1980s, headlines an effort to make U.S. deterrence against Kim Jong Un’s regime “more visible,” according to senior administration officials. It will also see the U.S. vow to give its ally a greater role in any response to a potential nuclear attack.

One rule that I try to live by is that you should never provoke crazy people.

And in this case, the Biden administration is provoking crazy people that are armed with nuclear weapons.

The North Koreans are not happy with the Biden administration’s latest move, and they just issued a very angry statement that contains the words “nuclear war”…

North Korea will step up its “military deterrence” against South Korea and the United States, state media said Sunday, blasting this week’s summit agreement between the two sides on strengthening the U.S. extended deterrence as a “product of heinous hostile policy” against Pyongyang.

The Korean Central News Agency (KCNA) ran a commentary criticizing President Yoon Suk Yeol’s state visit to the U.S. this week as “the most hostile, aggressive and provocative trip and a dangerous one for a nuclear war.”

In April, North Korea tested a solid-fuel intercontinental ballistic missile that is capable of hitting the United States.

If Kim Jong Un gets angry enough, he could order his military leaders to nuke several west coast cities.

Of course we could nuke North Korea in return, but nothing would ever bring those cities back.

Most Americans don’t realize this, but at this moment we are closer to nuclear war than we have ever been before.

Biden administration officials seem to believe that none of our enemies are crazy enough to actually use nuclear weapons, and so they are not afraid to be extremely aggressive with Russia, China, Iran and North Korea.

But what happens if Biden administration officials make a mistake and push one of them too far?

This is not a game.

One really bad mistake could result in hundreds of millions of deaths.

So let us hope that someone can talk some sense into Joe Biden and the warmongers around him, because right now they really do have us on the brink of the unthinkable.

*  *  *

Michael’s new book entitled “End Times” is now available in paperback and for the Kindle on Amazon.com, and you can check out his new Substack newsletter right here.

Rice is the primary food source for over half of the global population, especially in emerging markets, where it plays a crucial role in feeding people. Last year, we highlighted the potential for a severe global rice shortage. A new report reveals that rice production this year could be at its lowest in decades. 

A report by Fitch Solutions forecasts this year’s global rice production will log its biggest shortfall in two decades. The deficit will be a major headache for countries relying on grain imports. 

“At the global level, the most evident impact of the global rice deficit has been, and still is, decade-high rice prices,” Fitch Solutions’ commodities analyst Charles Hart told CNBC. 

Sliding rice production in China, the US, and Europe is already causing grain prices to increase for 3.5 billion people, particularly in the Asia-Pacific region — this region of the world accounts for 90% of the world’s rice consumption. 

“Given that rice is the staple food commodity across multiple markets in Asia, prices are a major determinant of food price inflation and food security, particularly for the poorest households,” Hart said.

Hart said this year’s global shortfall would be around 8.7 million tons, the largest global rice deficit since 2003/2004 of 18.6 million. 

As a result of tightening global supplies, rough rice futures trading on the CBoT recently peaked at $18 per cwt, the highest level since September 2008. Cwt is a unit of measurement for certain commodities such as rice.

CNBC provides a breakdown of why rice supplies are strained. 

There’s a short supply of rice as a result of the ongoing war in Ukraine, as well as bad weather in rice-producing economies like China and Pakistan.

In the second half of last year, swaths of farmland in the world’s largest rice producer China were plagued by heavy summer monsoon rains and floods.

The accumulated rainfall in the country’s Guangxi and Guangdong province, China’s major hubs of rice production, was the second highest in at least 20 years, according to agriculture analytics company Gro Intelligence.

Similarly, Pakistan — which represents 7.6% of global rice trade — saw annual production plunge 31% year-on-year due to severe flooding last year, said the US Department of Agriculture (USDA), labeling the impact as “even worse than initially expected.”

The shortfall is partly due to result of “an annual deterioration in the Mainland Chinese harvest caused by intense heat and drought as well as the impact of severe flooding in Pakistan,” Hart pointed out.

Rice is a vulnerable crop, and has the highest probability of simultaneous crop loss during an El Nino event, according to a scientific study.

Recall in the late summer of 2022. We told readers:

• The Stage Is Being Set For A Massive Global Rice Shortage
• “Situation Is Really Precarious”: World’s Largest Rice Exporter Faces Output Decline Amid Heatwave

… and just recently. 

• Thai Rice Prices Jump As Global Food Crisis Reignites

The takeaway is that a tight global rice market will raise food inflation for major rice importers such as Indonesia, the Philippines, Malaysia, and Africa. Elevated food inflation is dangerous for governments because it increases social instability risks.