Via SchiffGold.com,

Given the potential impacts of the ongoing banking crisis, I will start this article with the conclusion.

The current banking crisis could not have come at a worse time for the Comex system. Inventories have seen massive depletion over the last 2+ years as investors have slowly been pulling physical out of the vaults. I have previously called this a run on the vault but labeled it as a stealthy one. As though certain investors did not want to raise the alarm, but slowly take possession while inventory was still available.

Now that confidence in the banking system has been put to the test, people will look to alternative means to store their wealth and get their money out of the financial system. The easiest and safest way to do this would be to own physical precious metals, as people have done for thousands of years.

It is likely that demand for physical metal could increase significantly in the months ahead. The futures market is already showing a massive move in the price of gold, which is knocking on the door of $2,000. It’s only a matter of time before this moves into the physical market. When it does, the Comex vault run will pick up steam.

Investors looked at SVB and saw that it was undercapitalized and people could only get 80-90 cents on the dollar. If investors were to do the same due diligence on the Comex they would find an even worse fractional reserve system in the metals market. The recent discovery by the LME that some of their inventory was stones rather than nickel should only serve as another wake-up call that the supply of physical metal is extremely tight. If everyone rushes for physical at the same time, there won’t be nearly enough to satisfy demand at current prices (silver has 15 paper ounces per 1 physical ounce!).

We could be only months away from seeing a break in the Comex system. SchiffGold will be working all weekend to take orders. Best to get physical locked in at current prices while you still can.

Current Trends

This analysis focuses on gold and silver within the Comex/CME futures exchange. See the article What is the Comex? for more detail. The charts and tables below specifically analyze the physical stock/inventory data at the Comex to show the physical movement of metal into and out of Comex vaults.

Registered = Warrant assigned and can be used for Comex delivery, Eligible = No warrant attached – owner has not made it available for delivery.

Gold

Gold is now in its 11th straight month of net outflows, seeing 285k ounces leave the vault so far in March. The exodus of metal has slowed since last year when some months saw almost 3M ounces leave Comex vaults.

Figure: 1 Recent Monthly Stock Change

As mentioned above, this could change quickly and may already be changing! As the chart below shows, this latest week was the busiest week of outflows in the last month. Given the price of gold finished the week at $1993, the ongoing banking crisis, and general fear in the market… it seems likely that demand for physical could be ready to soar. That could drive larger outflows from Comex vaults in the near future.

Figure: 2 Recent Monthly Stock Change

Pledged gold continues to decline, but similar to the inventory at large, the drop has been slowing.

Figure: 3 Gold Pledged Holdings

Silver

Outflows in silver continue at a strong pace, seeing 3.5M ounces in outflows MTD. Registered is actually seeing inflows for the second month in a row, most likely because inventory of Registered had reached dangerously low levels. As mentioned previously, the real floor is not actually zero but somewhere higher. This is for optics to keep confidence in the fractional reserve silver trade.

Figure: 4 Recent Monthly Stock Change

Unlike gold, the outflows slowed this week. The big moves into Registered occurred just as the March silver contract started its delivery. If Registered silver was not getting close to the bottom, why did the Comex have to move 7M ounces of silver into the Registered category to handle the March delivery volume? This metal was moved specifically to handle that demand which indicates available silver stocks are getting dangerously low.

Interestingly, the metal has not flowed back into Eligible as it typically does after delivery. The data shows that it was none other than JP Morgan taking the majority of the delivery at 5.2M ounces. Perhaps JP decided to obtain silver specifically for the purpose of keeping it in Registered to inflate the numbers. This move increased JP Morgan’s total allocation of Registered from 32% to 41.6%. This means almost half of all Registered silver now sits in JP Morgan vaults… most likely for optics.

Figure: 5 Recent Monthly Stock Change

The table below summarizes the movement activity over several time periods to better demonstrate the magnitude of the current move.

Gold

• Over the last month, gold saw inventories fall by 2.1%

  • Registered remains a bit higher than Eligible

• Since last year, total gold holdings have fallen by 36.8% or 12.4M ounces

Silver

• Registered has increased 19.3% in the last month

• Total Registered remains below 40M ounces and has still seen a drop of 55M ounces in the last year

Palladium/Platinum

Palladium and platinum are much smaller markets but it’s possible that is where the market breaks first.

• Palladium saw a drop of 2.7% during its delivery month

• Platinum was very quiet during the month

Platinum is heading towards its next delivery month in April. In January, Platinum looked like it could break the Comex. At the time, we highlighted they had only bought a few months. Well, we are now close to where inventory will be put to the test once again.

Figure: 6 Stock Change Summary

The next table shows the activity by bank/Holder. It details the numbers above to see the movement specific to vaults.

Gold

• 6 vaults lost gold over the month while none added

• Outflows were evenly distributed across all vaults

Silver

• JP Morgan only shows a net gain of 520k ounces, but as noted above, Registered inventories increased more than 5M ounces

  • This indicates JP Morgan was moving the metal from within its own vaults

• CNT, HSBC, and Manfra all saw fairly large declines in their inventory

Figure: 7 Stock Change Detail

Historical Perspective

Zooming out and looking at the inventory for gold and silver shows just how massive the current moves have been. The black line shows Registered as a percent of total.

Inventories in gold have been falling evenly in both categories, which is why the black line has stayed relatively flat even while supplies have been crashing. It’s amazing how closely the ratio has stayed to the 50% mark. In October, the ratio reached 45%, but quickly rebounded to 50%.

In September 2019, all of the Registered stood for delivery, so it is likely this ratio is now being actively maintained to make sure confidence persists in the system. Given current market dynamics, this confidence could be put to the test.

Figure: 8 Historical Eligible and Registered

Silver has seen far more concentrated outflows from Registered, getting as low as 10.9% of total inventory in February. With the move by JP Morgan, the ratio has since recovered to 13.3%, but this is still at historically low levels compared to history.

Figure: 9 Historical Eligible and Registered

The recent “spike” can be seen on the far right side of the chart above. From this perspective, the moves by JP Morgan seem much smaller. A similar spike-up happened in March 2022 which quickly reversed as metal started flowing back out of Registered immediately after. Will 2023 see a similar pattern?

Figure: 10 Historical Registered

The LBMA had been seeing similar outflows of silver from their vault, but that appears to have stopped for now.

Figure: 11 LBMA Holdings of Silver

Available supply for potential demand

Coverage on the Comex continues to deteriorate. On Jan 26, before the recent sell-off in gold, the amount of paper gold for each Registered physical ounce was 4.6. That is the highest level since July 2020, right before all the new supply was added. The ratio now sits at 4.2, but the drop has mainly been driven by a fall in Open Interest rather than a surge in inventory.

Figure: 12 Open Interest/Stock Ratio

Coverage in silver is far worse than gold. The paper to Registered physical ratio reached 22 ounces on Feb 2nd. It had drifted lower to 19.5 and then after JP Morgan stepped in, the ratio dropped to 15.4.

This means that after the move by JP Morgan, there are still 15 paper contracts for every physical ounce of metal available.

Figure: 13 Open Interest/Stock Ratio

Wrapping Up

See above!

Update (1315ET): The Washington Post reports that Trump spokesman Steven Cheung said Saturday morning there had been no “notification” of an indictment and said Trump’s supporters should attend a rally he is holding next week in Texas for his 2024 reelection.

Susan Necheles, a lawyer for Trump, said his remark about the timing of his arrest was gleaned from media reports on Friday about local and federal law enforcement players expecting to convene early next week to discuss security and logistics related to Trump’s expected indictment.

“Since this is a political prosecution, the District Attorney’s office has engaged in a practice of leaking everything to the press, rather than communication with President Trump’s attorneys as would be done in a normal case,” Necheles said in a statement.

*  *  *

As the banking crisis and the Hunter Biden laptop scandal continues to unfold, the potential indictment of former President Trump on felony falsification charges could be the only headline that really matters next week. 

Fox News anchor John Roberts informed viewers on Friday afternoon that the Manhattan District Attorney’s Office has requested a “meeting with law enforcement ahead of a potential Trump indictment.” He said, “to discuss logistics for some time next week, which would mean that they are anticipating an indictment next week.”

“Same sources familiar with the planning said they will go over security preparations in and around the courthouse in lower Manhattan. Secret Service will take the lead in what they will allow or will not allow, the source cautioned, mentioning, for instance, that the decision to handcuff the president, the former president, or not, they will set the tone and will escort him into the courtroom,” Roberts continued. 

“We are learning that the Manhattan DA office has asked for a meeting with law enforcement ahead of a potential Trump indictment. The meeting is to discuss logistics for some time next week which would mean they are anticipating an indictment next week” pic.twitter.com/IkbM46Naoe

— Acyn (@Acyn) March 17, 2023

Trump’s lawyer, Joseph Tacopina, told AP News that if the former president is indicted, “we will follow the normal procedures.”

If Trump is charged with felony falsification of business records, he would be forced to surrender to New York authorities and make an appearance in a Manhattan courthouse. The former president allegedly coordinated a transfer of $130,000 to pornstar Stormy Daniels through former attorney Michael Cohen. 

“The payments were made to a lawyer, not to Stormy Daniels. The payments were made to Donald Trump’s lawyer, which would be considered legal fees,” the lawyer told MSNBC earlier this week, adding that Cohen “was his lawyer at the time and advised him that this was the proper way to do this to protect himself and his family from embarrassment. It’s as simple as that. That is not a crime.”

According to New York Daily News, the Manhattan District Attorney’s office held meetings with several law enforcement agencies to discuss security concerns ahead of a possible indictment. 

And if Trump is charged next week, he might as well kick off his presidential campaign — would be a hell of a way to start. 

If this happens, Trump will be re-elected in a landslide victory

— Elon Musk (@elonmusk) March 18, 2023

Hard to imagine a prosecutor engaging in more egregious election interference than indicting a presidential candidate (and former president) on a charge so vague and petty, no reasonable person would think it’s a crime *of any kind*

— Buck Sexton (@BuckSexton) March 18, 2023

It is possible that a PR campaign is underway to divert the attention of the American public from banking failures and the Biden family.

Trump will most likely be in the spotlight next week. On Saturday morning, he wrote this on Truth Social: 

What exactly is Trump suggesting his followers do? Those last few words seem to play right into Democrats’ narratives.

… and forget about those regional banks and Hunter Biden headlines next week. It might be all about Trump. 

*    *    * 

Here’s more on next week via submission by ‘BlueApples,’ 

Apparently, arrest warrants for populist politicians are en vogue right now. On the same day that the International Criminal Court (“ICC”) announced the issuance of an arrest warrant for Russian Federation President Vladimir Putin, reports out of New York suggest the same fate is forthcoming for former president Donald J. Trump. Local, state, and federal law enforcement agencies met with security agencies concerning the logistical preparations necessary to handle Trump’s arrest. That preparation is in anticipation of an indictment against Trump from Manhattan District Attorney Alvin Bragg for felony charges of falsification of business records, according to NBC News.

The crux of the charges stems back to Trump’s handling of the Stormy Daniels saga that enveloped his 2016 presidential campaign. According to Trump’s attorney, Joe Tacopina, the former president is not guilty of the presumably impending charges. In Trump’s defense, Tacopina shifted the blame to Michael Cohen hose cooperation with the Manhattan District Attorney’s office has accelerated its action against Trump. Under Cohen’s directive, Trump authorized a payment to Daniel’s that the Manhattan District Attorney’s Office contends was falsely categorized as a legal fee when Trump reimbursed Cohen for it. The potential charges coming from the Manhattan district attorney’s office are a near carbon copy of the federal charge Cohen pleaded guilty to in 2018 concerning the $130,000 payment Trump made to Daniels in the 11th hour of his 2016 campaign.

According to Cohen, the directive to issue the payment came directly from Trump. Cohen categorized the order from Trump for the purpose of influencing the 2016 Presidential Election. Cohen contended that the payments to Daniels were made by him directly and that Trump reimbursed him for the $130,000, a transaction that was itemized as a legal fee by Trump’s company. Cohen testified to a grand jury for a second time preceding the emergence of reports about a potential indictment of Trump. President Trump declined to appear before the same grand jury Cohen testified to earlier this week following an invitation from the District Attorney’s Office.

Despite not testifying before the grand jury, Tacopina has addressed the probe behind the looming charges against Trump. “We are not convinced they will bring a case, but if so we will deal with it,” Tacopina said in the wake of the Manhattan District Attorney’s office extending an invitation to Trump to testify before the grand jury. Trump himself categorized the probe as a “Scam, Injustice, Mockery, and Complete and Total Weaponization of Law Enforcement in order to affect a Presidential Election!” in a post made on his social media platform Truth Social. Cohen’s appearance before the same grand jury came following over 20 meetings with prosecutors.

Potential charges from Manhattan’s District Attorney would come at a time where Trump is already under the scrutiny of Justice Department Special Counsel Jack Smith. The Special Counsel’s probe into Trump envelopes the former president’s role in the events of January 6th, 2021 as well as his handling of the classified documents at the core of the FBI raid of Mar-a-Lago.

Like that FBI raid, Trump is sure to capitalize on any charges coming out of Manhattan to fortify the narrative of his 2024 presidential campaign. Like in 2016, Trump has repeatedly framed himself as an anti-establishment candidate despite any record substantiating that claim accrued during his time in office. The FBI raid of Mar-a-lago, coupled with charges that he may be indicted on next week, will surely be categorized as evidence of a political witch hunt against him, just as he has described the Russiagate narrative that emerged following his initial election in 2016.

As reports suggest, the gravity of that continued persecution of Trump is not lost upon the NYPD, New York State Court Officers, the U.S. Secret Service, the FBI’s Joint Terrorism Task Force, and the Manhattan District Attorney’s Office. The law enforcement and security consortium all met to discuss how booking Trump under any charges would be handled. However, sources reporting these deliberations have indicated that the meeting has yet to take place but that the Secret Service would have over-arching authority on the handling of any indictment.

If the Manhattan District Attorney’s Office does indeed move forward, it will mark the second high-profile case it has engaged in against Trump. In December 2022, the Trump Organization was convicted on charges of tax fraud and falsifying business records. Though Trump himself was not a defendant in that case, former CFO Allen Weisselberg eventually plead guilty to 15 felony charges.

Trump’s attorney Joseph Tacopina breathed life into the reality of similar felony charges against the former president by conveying that his client would follow normal booking procedures if he was indicted, according to CNBC. While falsification of business records can be charged as a misdemeanor in New York State, Manhattan District Attorney Alvin Bragg has elected to modify the charges as a felony. The same federal officials who charged Cohen decided against pursuing similar charges against Trump.

Despite any charges against being exalted as an immense victory against Trump by his opposition, any indictment doesn’t appear to dissuade him from his 2024 campaign. In discussing potential federal charges regarding his possession of classified documents, Trump assured his supporters that his commitment to running for election would remain unfettered. Trump told James Rosen of Newsmax that he would run for president regardless of any charges levied against him.

BREAKING: @realDonaldTrump told me @CPAC just now that he will stay in the race for the @WhiteHouse even if he is indicted in one or more of the pending criminal investigations into his activities. Watch @NEWSMAX to see the video.

— James Rosen (@JamesRosenTV) March 4, 2023

Trump’s incorrigible defiance in the face of looming charges against him serves as the pathological pillar of his 2024 campaign, assured to revitalize the devout allegiance to him that may have been fractured by the emergence of the likes of Florida Governor Ron DeSantis as a competitor for the Republican Party’s nomination in the next presidential election. Knowing the poignancy of how an indictment could reaffirm the belief that Trump is the victim of a continued political witch hunt, the decision by Bragg may eventually become an example of cutting one’s nose off to spite its face. Even if a conviction or guilty plea were to come from any felony charges, that may prove to be little more than a Pyrrhic victory for Trump’s opposition as it may stoke the same support that led to his election in 2016. In the end, that hubris could lead to the establishment’s demise once again as the Democratic Party struggles to put forward a worthy opponent for 2024.

Update (1300ET): The Financial Times reports that UBS has agreed to buy Credit Suisse after increasing its offer to more than $2bn, with Swiss authorities poised to change the country’s laws to bypass a shareholder vote on the transaction as they rush to finalize a deal before Monday.

The purchase price is a fraction of the $8 billion market cap the company was valued at on Friday’s close; it means that UBS will now pay slightly more than CHF0.50 a share in its own stock, up from a bid of SFr0.25 earlier today, but far below Credit Suisse’s closing price of CHF1.86 on Friday.

We also learn that UBS agreed to a softening of a material adverse change clause that would void the deal if its credit default spreads jump; it wasn’t immediately clear if that entire clause was scrapped or if the CDS trigger was merely pulled wider.

UBS shareholders – who will not be consulted on the deal which will circumvent normal corporate governance rules by preventing a UBS shareholder vote – are angry. As FT notes, Vincent Kaufmann, chief executive of Ethos Foundation, which represents Swiss pension funds that own between 3% and 5% of Credit Suisse and UBS, told the Financial Times that the move to bypass a shareholder vote on the deal was poor corporate governance.

“I can’t believe our members and UBS shareholders will be happy about this,” he said. “I have never seen such measures taken; it shows how bad the situation is.” 

As a reminder, here is a list of the 40 biggest investors.

Finally, The Wall Street Journal reports that, in an effort to smooth the deal, the Swiss National Bank has offered UBS a whopping $100 billion in liquidity to help it take on Credit Suisse’s operations,

In other words, the Swiss government has extended a liquidity line equal to ~$11.5MM on a per capita basis: said otherwise, every family of 4 is backstopping almost $50MM in UBS assets.

Using UBS to save Credit Suisse marks a turnaround from nearly 15 years ago, when Switzerland bailed out UBS after it got stuck with billions of toxic assets in its U.S. business. Credit Suisse declined state aid at the time and emerged from the crisis in stronger shape. 

*  *  *

Update (10:30am ET):  So much for Credit Suisse thinking it has leverage by balking at the proposed CHF0.25 offer from UBS. Just hours after it was floated that UBS could buy Credit Suisse for $1BN, a proposal which the bank’s shareholders balked at, Bloomberg reported that authorities are now considering a full or partial nationalization of Credit Suisse – an outcome which would wipe out the equity and bail-in bondholders – as the only other viable option outside a UBS Group AG takeover. And yes, 0.25 is still more than 0.0.

According to BBG, “the country is considering either taking over the bank in full or holding a significant equity stake if a takeover by UBS Group AG falls apart because of the complexities in arranging the deal and the short time frame involved.”

Needless to say, the situation remains “very fluid” and is changing by the hour as authorities seek to finalize a solution for the bank by the time Asian markets open, which is late evening in Europe, the people said.

*   *   *

Earlier

With just hours left until futures reopen for trading in what could be a very turbulent session, UBS has offered to buy Credit Suisse for up to $1BN the FT first reported, with Swiss authorities planning to change the country’s laws to bypass a shareholder vote on the transaction as they rush to finalize the deal engineered to restore trust in the banking system.

The take-under offer was communicated on Sunday morning with a price of CHF0.25 a share to be paid in UBS stock, far below Credit Suisse’s closing price of CHF1.86 on Friday. And while the current terms value Credit Suisse’s equity at a paltry $1BN, the figure does not reflect additional provisions of around $6 billion from the Swiss National Bank to ensure the deal is done.

In other words, UBS gets an explicit $6BN central bank backstop (which would mean the central bank is in for a penny, in for a trillion), pays $1BN and gets a megabank whose Zurich headquarters alone is probably worth more. One can see why JPMorgan, pardon UBS would love the deal… and why Credit Suisse would be less than enthused.

The all-share deal between the two biggest Swiss banks is set to be signed as soon as Sunday evening and will be priced at a fraction of Credit Suisse’s closing price on Friday, all but wiping out the target’s shareholders, FT sources said. They also noted that in an unexpected twist, there will be a very unique material adverse exit clause: if UBS credit default spreads jump by 100 basis points or more, the deal is off! In other words, if the market balks at the pro forma deal and believes more contagion is coming, UBS wants none of it, and the Swiss government and SNB can deal with the fallout.

Needless to say, Credit Suisse shareholders – led by the Saudi National Commercial Bank, a full list of the top 40 is shown below – were less then enthused by the prospect of losing everything …

… and Bloomberg notes that Credit Suisse is pushing back on the proposed deal with backing from its biggest shareholder: “Credit Suisse believes the offer is too low and would hurt shareholders and employees who have deferred stock.”

The FT echoes the skepticism, and says that the situation is fast-moving and there is no guarantee that terms will remain the same or that a deal will be reached: “Some of the people said that the current terms were unfair for Credit Suisse and its shareholders. Others criticised the plans to void normal corporate governance rules by preventing a UBS shareholder vote.”

The reason why in this late hours there seems to be little convergence toward a consensus is because there has been limited contact between the two banks and the terms have been heavily influenced by the Swiss National Bank and regulator Finma, the FT sources said. Meanwhile, the Federal Reserve has given its assent to the deal progressing.

Both sides have been locked in discussions with regulators since Wednesday, when Credit Suisse asked the SNB to provide it with an emergency SFr50bn ($54bn) credit line. When this backstop failed to halt the collapse in depositor confidence and stock price – as we said it would – the central bank stepped in to force a merger after becoming concerned about the viability of the country’s second-largest lender. Yesterday, we learned that deposit outflows from Credit Suisse topped SFr10bn a day late last week, after a record bank run pulled CHF111BN from the group in the final three months of last year.

According to the FT, on Saturday night, the Swiss cabinet assembled in the finance ministry in Bern for a series of presentations from government officials, the SNB, market regulator Finma, and representatives of the banking sector.

UBS will dramatically shrink Credit Suisse’s investment bank, with Reuters reporting that some 10,000 workers will be let go, and the combined entity will make up no more than a third of the merged group, two of the people said. However, the current term sheet for the deal does not specify what will happen to Credit Suisse’s individual business divisions, and simply outlines a 100% takeover of the group.

The government is preparing emergency measures to fast-track the takeover and plans to introduce legislation that will bypass the normal six-week consultation period required for UBS shareholders so the deal can be sealed immediately. The framework of the deal has been designed by Swiss regulators to provide maximum stability to the country’s banking system, people briefed about the matter said.

However, if Credit Suisse balks at the takeunder – as it perhaps should and takes its chances in bankruptcy court where its equity may be valued higher than the paltry 0.25 – the Swiss National Bank, and all other central banks, will have no choice but to step with a shotgun bailout of the entire financial system for the second time in 15 years.

The Belarus government is implementing widespread measures to crack down on dissent as pro-Ukraine guerrillas attempt to sabotage railways and other logistics that could be used by Russia for a future offensive from the north.  

The move comes not long after the guerrillas, part of an organization called BYPOL, used two armed drones to damage a Russian Beriev A-50 parked at the Machulishchy Air Base near Minsk.  The early warning aircraft was lent to Belarus for monitoring the security of their southern border.  The attack failed to destroy the plane beyond minor repairs according the the Belarus government, but did garner BYPOL headlines in the western media.

What they did not report was that the primary perpetrator of the attack was apprehended along with 20 other accomplices.  Belarus claims that at least one of the guerrillas has ties to Ukrainian security services, though this remains unconfirmed. 

Last month, President Alexander Lukashenko warned that:

“I’m ready to fight together with the Russians from the territory of Belarus in one case only: if so much as one soldier from (Ukraine) comes to our territory with a gun to kill my people.”

If BYPOL attacks continue within Belarus they may provide the very rationale that Lukashenko needs to justify joining military forces with Russia, which would open up the northern border of Ukraine to attack and likely deal a devastating blow to the nation’s defensive posture. 

Acts of sabotage have already been used as fuel for civilian restrictions including the issuance of arrest warrants for numerous activists as well as at least five journalists, two of them now sentenced to 12 years in prison for a variety of charges including “Tax evasion, organizing activities aimed at inciting racial, ethnic, religious, or social hatred, and public calls through the media and the Internet aimed at damaging the national security of Belarus.”

The Belarus government seems to have abandoned optics in favor of policies akin to martial law, which suggests a near term plan to join Russia militarily as well as to wage an anti-insurgency effort against BYPOL.  Foreign Minister Sergei Aleinik stated at the end of February that the accelerated militarization of the eastern flank of the North Atlantic Treaty Organization (NATO) represents a threat to his country’s security.

Lukashenko has launched a diplomatic tour, visiting allies of Russia and Belarus in an effort to strengthen ties.  He was recently welcomed in Iran, which has been involved in economic support of Russia in the midst of heavy NATO sanctions.  The president’s statement to the Iranian leadership  appeared to stress the view that the US was a shared enemy of the two nations:

Lukashenko has been accused by western governments of election fraud and vote rigging to defeat his opponent, Sviatlana Tsikhanouskaya, in the 2020 elections.  Most evidence of fraud comes from the testimony of poll workers, and if true constitutes an egregious violation of voter trust.  However, it should be noted that Tsikhanouskaya has been embraced by the globalist World Economic Forum, which raises suspicions about the intentions of her candidacy.  She has also been announcing reforms for Belarus as if she has the power to implement them; perhaps assuming that she will eventually be installed as president sometime in the near future.

While the Belerus crackdown is itself a display of oppression if all the accusations are true, it also highlights the domino effect of NATO involvement in the region leading to wider instability.  The Ukrainian government has also been accused of numerous trespasses against civilian rights with the country aggressively enforcing martial law, and these questionable actions are supported by US and EU tax dollars.     

The governments of the US and Europe refuse to acknowledge that Ukraine is a full blown proxy war against Russia, but the results are clear and the consequences could be catastrophic.  Eastern nations including the BRICs are beginning to gravitate to each other not just economically but militarily, which one might think is the opposite of what NATO would want.  At the same time, Ukrainian support for guerrilla operations in Belarus, if proven, could justify expansion of the war.            

By Peter Tchir of Academy Securities

If the morning headlines are any indication, it is going to take a lot of coffee to make it through a long day at the end of a long week. Since I average about 1 T-Report for every 2 to 3 cups of coffee, it could be a long day for you, the readers!

UBS Announces Offer to Buy CS

The FT reported that UBS offered to buy CS for 0.25 Swiss Francs per share. There was also a line in the report stating that a Material Adverse Change Clause (MAC) was linked to UBS CDS spreads widening by 100 bps. I for one, haven’t seen a MAC clause linked to CDS spreads.

There are also headlines that CS is “said to push back” against UBS’s offer.

Bear Stearns and JPM Morgan

When that deal hit the tape it was a fait accompli. There was little to no doubt a deal was getting done. The price of $2 dollars may have seemed low (and it got changed over time), but there was clarity that a deal was done (I keep harping back to the language that JPM was guaranteeing/taking over the Bear Stearns swap books, regardless of whether the deal closed or not). That is in stark comparison to headlines crossing the tape right now where, there is significant uncertainty.

The CDS MAC Clause

It is only one line in the FT’s report, that said the deal include at MAC clause linked to UBS CDS going 100 bps wider.

What we don’t know about the clause:

• What maturity CDS? Assuming the 5-year as it is typically most liquid.

• How Is CDS measured? Is it if it trades 100 wider once? Closes above 100 wider? Some number of trades or notional go through at more than 100 wider? 

• What is the base CDS spread? UBS 5-year CDS averaged 68 bps this year. It was 71 bps last Friday, but closed at 133 bps this past Friday, as markets started to price in the probability that UBS would buy CS and subsume a lot of existing debt.

• How long does this MAC exist for? Is it a Monday only MAC? Does it last for a few days? Weeks? Months? Somewhere between a few days and a week or so seems “about right” to me, but we don’t know.

A weird “game theory” dynamic

For now we can talk generically about 100 bps wider, without knowing the details, as it helps (though I’m assuming in my own thought process 100 bps wider from something lower than Friday’s close, that lasts about a week, before falling off).

• CS bond holders want to sell UBS protection. If you are a CS bond holder, especially if you were a subordinated debt holder, or even lower down in the cap structure, you want this deal to go through. Europe is busy trading this morning, and I’m hearing that some Jr. Sub paper is trading up from around 30 points to nearly 60 (this bond was basically 90 the week before). One reason CDS, from a “game theory” perspective shouldn’t go 100 wider.

• Buying up 100 bps seems “counterproductive”. Even if you think UBS is overpaying and taking on too much risk, driving the CDS spread 100 bps wider is incredibly counterproductive. At 99 bps there would be a deal (if CS agrees to the terms) but at 100 bps, in theory, no deal, so UBS should scream back tighter. To pay 100 bps higher, you almost have to believe the deal gets done no matter what, with no additional support (seems unlikely) or that even if the deal doesn’t get consummated, the CDS only tightens back a little bit. Another reason from a “game theory” viewpoint for it not to go 100 wider.

• Where do generic banks spreads trade without a deal?  If you think that bank spreads in general in Europe will widen with no deal, then you can bid up UBS CDS more easily. If you think there is a “contagion” type of risk, where with no UBS deal, the market looks to identify the next set of banks to go after, and that will cause even the biggest and safest banks to widen, then maybe the risk reward of paying up 100 bps changes.

• What does the clause tell us, if anything? While CS has allegedly pushed back saying the price is too high, I think from a “game theory” perspective, UBS included this clause as a safeguard, in case the market thinks they are missing something in their valuation. It does not inspire confidence in the deal, which may weigh on bank spreads even with an apparent solution.

More From the Government?

• Will the Swiss government or central bank have to step up with additional backstops? Maybe even capital injections? Who knows, but they are caught in the middle of this and will be pushed hard to deliver more.

Europe Solved?

No. Not by a long shot. I’m sure there will be another T-Report later today as headlines are coming fast and furious (the WSJ just reported that CS AT1’s will face a haircut). From a pure “absolute priority of payment”, many may have assumed that is equity gets money, the AT1 should not be impaired, and anyone working on that assumption might have to rethink other positions in other institutions.

One question, that I think people had hoped would be put to rest this weekend, is “if CS is solved, can European markets move on?”

For those of you who lived through the GFC and European Debt Crisis, the memories of “epic turning points” that sometimes lasted less than 24 hours is still scarred on our psyche. What is going on so far, does not inspire the greatest confidence, at least not for me, that we can rally and not look back, but the day is young!

All Quiet on the U.S. Front

As we sent in a Bloomberg IP on Friday, a “plane tracker” reported on twitter that a lot of private jets were showing up in Omaha. There are stories that Buffett is talking to Biden. He was very involved in the GFC, taking direct positions and indirectly supporting companies with his “seal of approval”. Will that be the case this time? Will it work?

I saw a headline that some banks were pushing for a “temporary” (in this case 2-year) extension of FDIC insurance to all deposits of any size. As written yesterday, in Gasp, Gup, Glug, I think we need much broader deposit insurance to stabilize the situation.

That will give us the breathing room to get capital infusions where necessary.

Smaller banks, well below Wall Street’s radar, are bearing the brunt of this and that can become problematic for the economy. As as reminder “small, Medium Banks Account For 50% Of C&I Lending, 45% Of Consumer Lending And 80% Of All Commercial Real Estate Lending.”

Bottom Line

The day is young, the coffee is flowing, and there is a lot more time to see some truly positive and supportive news before U.S. futures open at 6 pm EST. or the cash markets open here at 9:30 am EST.

So I am optimistic we see more done and am looking forward to being on Bloomberg TV tonight at 6:30 pm as they ramp up special coverage of the global banking industry!

The Biden administration and National Security Council say they closely monitored multiple days of rare joint naval drills between China, Russia, and Iran held in the Gulf of Oman.

The “Security Bond-2023” exercises took place from Wednesday through Saturday, and were focused on deepening “practical cooperation between the participating countries’ navies … and inject positive energy into regional peace and stability,” according to China’s Defense Ministry. The allies confirmed the exercises concluded Saturday and hailed their ‘success’.

Iranian state as well as Russian media published and circulated footage of the drills, which involved joint warship maneuvers, deployment of aircraft, and day and night artillery firing.

NSC spokesman John Kirby indicated in Friday press remarks that the US isn’t particularly concerned about these drills. “We’re going to watch it, we’ll monitor it, obviously, to make sure that there’s no threat resulting from this training exercise to our national security interests or those of our allies and partners in the region,” he told CNN, conceding that, “But nations train. We do it all the time. We’ll watch it as best we can.”

According to The Wall Street Journal, “Still, the exercise is significantly smaller than those anchored by the U.S. military, which is winding up an 18-day naval exercise in the Middle East involving 42 other nations, including Israel, Saudi Arabia and the U.A.E.”

Iran, China, and Russia hold joint drills in Sea of Oman

Dubbed “the Marine Security Belt 2023”, the military maneuver aims to strengthen regional security.

Follow Press TV on Telegram: https://t.co/7h1TYXZOQt pic.twitter.com/cvuDJgBizb

— Highlights (@highlightsnews1) March 17, 2023

While it’s not the first time the Russians and Chinese have trained together in or near the Persian Gulf region, it’s another sign of deepening cooperation after they declared their ‘no limits partnership’ in February 2022. 

The timing of the drills also came days before Chinese President Xi Jinping is expected to arrive in Moscow to meet with his Russian counterpart Vladimir Putin to discuss the war in Ukraine, and possible paths toward peace negotiations.

Biden in 1997…

Then senator Biden on NATO expansion, Russia-China, and Russia-Iran cooperation. Stole it from TG channels. pic.twitter.com/YFm5PWShOh

— Kirill Shamiev (@kirlant) March 10, 2023

Authored by Michael Clements via The Epoch Times (emphasis ours),

Sen. Lindsey Graham (R-S.C.) said Senate Republicans are set to introduce on a bill on Thursday that would codify the right to bear arms for self-defense outside the home.

The bill would incorporate elements from the Supreme Court’s 2008 District of Columbia v. Heller decision and the New York State Rifle and Pistol Association v. Bruen decision from 2022, he said.

In Heller, the court affirmed an individual’s right to own a firearm. The Bruen decision affirmed the individual’s right to carry a gun for self-protection outside their home. Graham said the bill would enshrine those rights in federal law. It would also give citizens the right to sue any government agency or official who tried to infringe on that right.

“When you live in an autocratic environment, you don’t own; the government does,” Graham said during a March 16, 2023, press conference.

“[The Act is] to give you a cause of action so you can fight back.”

Graham was joined by Sen. John Kennedy (R-La.) and Sen. John Cornyn (R-Texas). Kennedy said Americans must respect the court’s decisions, regardless of whether or not they agree. He said some Democrats have been taking the position that it’s okay to ignore rights they disagree with.

“Their copy of the Bill of Rights goes from amendment one to amendment three,” Kennedy said.

According to Graham, the Democratic Party is continuing an assault on Americans’ fundamental constitutional rights and the institutions set up to protect those rights. He said a Senate Judiciary Committee hearing on protecting public safety in the wake of the Bruen decision is an example.

In that hearing, gun control advocates told how the Bruen decision had impacted other laws, especially the prohibition of firearms ownership for those subject to domestic violence protection orders.

In Bruen, the court established a “text and history” test for courts deciding a law’s constitutionality. Under this test, if a law does not conform with how similar laws have been enforced, it would not be considered constitutional.

Victims of domestic violence and gun control proponents told the committee that this test was used by the Fifth Circuit Court of Appeals to remove protections.

In that case, Zackey Rahimi had been involved in several altercations in which he fired a gun while subject to a civil protection order. Based on the Bruen decision test, Rahimi pleaded guilty to that charge but successfully appealed.

Read more here…

Authored by Alex Pollock abd Paul Kupiec via The Mises Institute,

How should Congress assess the Federal Reserve’s track record as an investor in residential mortgage-backed securities (MBS)? Regardless of Fed spin, it merits a failing grade.

The Fed’s COVID-era intervention in the mortgage markets fueled the second real estate bubble of the 21st century. The bubble ended when the Fed stopped purchasing MBS and raised rates to fight inflation. While time will tell whether recent increases in home prices are reversed, the end of the bubble has already cost the Fed over $400 billion in losses on its MBS investments.

From 1913 until 2008, the Fed owned precisely zero mortgage-backed securities. While the Fed’s monetary policy decisions still impacted conditions in the housing and mortgage markets, they did so indirectly through the influence the Fed’s purchases and sales of Treasury securities had on market interest rates.

In a radical “temporary” policy response to the 2008 financial crisis, the Fed began intervening directly in the mortgage market. Through a series of MBS purchases, the Fed’s MBS portfolio ballooned from $0 to $1.77 trillion by August 2017. The Fed subsequently altered policy and slowly reduced its MBS holdings. By March 2020, it held about $1.4 trillion in MBS.

When the COVID crisis hit in March 2020, the Fed decided to reinstate its 2008 financial crisis rescue plan. It resumed purchasing MBS as well as Treasury notes and bonds. By the time it stopped its purchases in the spring of 2022, it owned $2.7 trillion in MBS. The Fed had become the largest investor in MBS in the world. By spring 2022, it owned nearly 22 percent of all 1-to-4 family residential mortgages in the U.S. By Sept. 30, the date of the last available quarterly Fed consolidated financial statement, the Fed had lost $438 billion on its MBS investments. These losses will increase if the fight to subdue inflation requires still higher interest rates.

Because most buyers borrow 80 percent or more of the purchase price of a home, house prices are sensitive to the level of mortgage interest rates. Low mortgage rates increase the pool of potential buyers, stimulating housing demand. If the interest rate stimulus is overdone, excess demand will push up home prices. High mortgage interest rates have the opposite effect. They dampen demand, dissipate upward pressure on home prices, and in some cases, lead to home price declines.

As one might predict, the Fed’s massive MBS purchases coincided with large reductions in mortgage interest rates. During the Fed’s COVID MBS purchase campaign, the national average 30-year mortgage interest rate fell to a low of 2.65 percent in January of 2021. Today, with the Fed’s campaign of higher interest rates to battle inflation, 30-year mortgage interest rates are hovering around 7 percent. This change in the mortgage interest rate alone would cause monthly principal and interest payments on a same-sized mortgage loan to increase by 65 percent.

Predictably, the decline in mortgage interest rates stimulated housing demand and pushed up home prices. Government statistics report that, from January 2018 to this January, the median new home price in the United States rose from $331,800 to $467,700—an increase of 41 percent. Interestingly, from January 2018 through March 2020, before the Fed renewed its MBS purchases, the median price of a new house actually declined to $322,600. From April onwards, the national median house price rose steadily, reaching a peak of $468,700 by the end of June 2022.

In 2018, purchasing a new median-price home with 20 percent down and the then prevailing average 30-year mortgage rate of 3.95 percent required $1,259 in monthly principal and interest payments. In January, purchasing the $467,700 median-priced new home with 20 percent down required monthly payments of $2,360 given the 6.48 percent rate on a 30-year mortgage. In only 5 years, because of house price inflation and higher mortgage interest rates, the monthly principal and interest payment needed to purchase a median-priced new house increased by 87 percent!

The Fed’s foray into the MBS market will have a long-lasting impact on real estate markets. Not only has demand for homes been softened by home price inflation and 7 percent mortgage rates, but current homeowners with favorable mortgage interest rates are reluctant to sell, reducing the inventory of homes available for sale in a market that is already starved for listings. This unfavorable balance is clearly reflected in the National Association of Realtors housing affordability index which has fallen from a cyclic high of 180 in July 2021, to recent readings below 100, indicating affordability challenges not seen since the double-digit mortgage interest rates of the 1980s.

The end of Fed MBS purchases and the increase in Fed policy rates have put an end to the COVID housing bubble. While home prices are showing declines in some areas, prices in other areas remain elevated due to historically low inventories of homes for sale and strong job markets.

Any realistic review of the impact of the Federal Reserve’s experiment investing in MBS would conclude that the Fed should stop buying mortgages. Its decision to invest trillions of dollars in MBS has helped to push the cost of home ownership beyond the reach of many. Others will find themselves locked into homes they cannot afford to sell because of the artificially low rates on their current mortgages.

From either perspective, the Fed’s MBS experiment has whipsawed housing markets and cost the Fed over $400 billion in MBS losses. It’s hard to see how this experiment merits anything but a failing grade.

Some of Florida’s top beaches are at risk of a dual catastrophe as poisonous algae bloom, commonly referred to as ‘red tide,’ is causing the death of wildlife and poses a health threat to people. Now, a massive 5,000-mile-wide blob of seaweed is passing through the Caribbean and up into the Gulf of Mexico and could soon wreak havoc on Sunshine State beaches. 

“It could be two problems turning into a bigger one,” Mike Parsons, a marine science professor at Florida Gulf Coast University, told CBS News. 

The algae causing the red tide is a single-celled organism called “Karenia brevis.” It can reproduce in large numbers and create massive blooms that transform the water into an eerily reddish-brown hue — hence ‘red tide.’ 

Karenia brevis produces a type of toxin known as “brevetoxins,” which have fatal effects on marine life and birds. Human contact with these red tide organisms can cause skin irritation and even coughing or congestion problems. 

I live 3 miles from Florida’s west coast. Red tide ruined Christmas, and it’s on pace to ruin Spring Break. I don’t care about D’s and R’s. I care about my health, my neighbors, and the marine wildlife dying en masse. DeSantis needs to figure out what’s going on and fix it. pic.twitter.com/JhfT9VNVvZ

— Tomy Robinson (@TomyTRobinson) March 8, 2023

Gigantic 5,000-mile blanket of rotting seaweed dubbed the ‘red tide’ which is TWICE the length of the US and can be seen from space invades the coast of Florida – as residents report burning eyes and trouble breathing pic.twitter.com/3h63yOGMhy

— Urantian Lady (@UrantianL) March 13, 2023

#RedTide is ongoing in Florida. Over the next 36 hours, some beaches may experience a MODERATE to HIGH risk of respiratory irritation in CHARLOTTE, COLLIER, LEE, PINELLAS and SARASOTA counties For the latest updates, visit https://t.co/JDsQV8pAoG. pic.twitter.com/9KwfSiqI39

— NOAA Coastal Ocean Science (@noaacoastalsci) March 13, 2023

And if that wasn’t enough. A seaweed blob spanning more than 5,000 miles is headed for the shores of Florida.

“The blob is currently pushing west and will pass through the Caribbean and up into the Gulf of Mexico during the summer, with the seaweed expected to become prevalent on beaches in Florida around July, Dr. Brian Lapointe, a researcher at Florida Atlantic University’s Harbor Branch Oceanographic Institute, told CNN. 

A massive bloom of seaweed could be headed toward the Florida Gulf coast. It stretches about ~5,000 mi and could be one of the largest in history. I used the Sargassum Watch System (SaWS) which utilizes four satellite sensors to make this image below. https://t.co/tmUwhmBxzo pic.twitter.com/zcVH79xi7a

— Grant Gilmore WTSP (@GrantWTSP) March 14, 2023

The combination of red tide and seaweed blob is likely to cause problems for beachgoers and potentially harm the tourism sector in the state this summer. 

Update (10:30am ET):  So much for Credit Suisse thinking it has leverage by balking at the proposed CHF0.25 offer from UBS. Just hours after it was floated that UBS could buy Credit Suisse for $1BN, a proposal which the bank’s shareholders balked at, Bloomberg reported that authorities are now considering a full or partial nationalization of Credit Suisse – an outcome which would wipe out the equity and bail-in bondholders – as the only other viable option outside a UBS Group AG takeover. And yes, 0.25 is still more than 0.0.

According to BBG, “the country is considering either taking over the bank in full or holding a significant equity stake if a takeover by UBS Group AG falls apart because of the complexities in arranging the deal and the short time frame involved.”

Needless to say, the situation remains “very fluid” and is changing by the hour as authorities seek to finalize a solution for the bank by the time Asian markets open, which is late evening in Europe, the people said.

* * *

With just hours left until futures reopen for trading in what could be a very turbulent session, UBS has offered to buy Credit Suisse for up to $1BN the FT first reported, with Swiss authorities planning to change the country’s laws to bypass a shareholder vote on the transaction as they rush to finalize the deal engineered to restore trust in the banking system.

The take-under offer was communicated on Sunday morning with a price of CHF0.25 a share to be paid in UBS stock, far below Credit Suisse’s closing price of CHF1.86 on Friday. And while the current terms value Credit Suisse’s equity at a paltry $1BN, the figure does not reflect additional provisions of around $6 billion from the Swiss National Bank to ensure the deal is done.

In other words, UBS gets an explicit $6BN central bank backstop (which would mean the central bank is in for a penny, in for a trillion), pays $1BN and gets a megabank whose Zurich headquarters alone is probably worth more. One can see why JPMorgan, pardon UBS would love the deal… and why Credit Suisse would be less than enthused.

The all-share deal between the two biggest Swiss banks is set to be signed as soon as Sunday evening and will be priced at a fraction of Credit Suisse’s closing price on Friday, all but wiping out the target’s shareholders, FT sources said. They also noted that in an unexpected twist, there will be a very unique material adverse exit clause: if UBS credit default spreads jump by 100 basis points or more, the deal is off! In other words, if the market balks at the pro forma deal and believes more contagion is coming, UBS wants none of it, and the Swiss government and SNB can deal with the fallout.

Needless to say, Credit Suisse shareholders – led by the Saudi National Commercial Bank, a full list of the top 40 is shown below – were less then enthused by the prospect of losing everything …

… and Bloomberg notes that Credit Suisse is pushing back on the proposed deal with backing from its biggest shareholder: “Credit Suisse believes the offer is too low and would hurt shareholders and employees who have deferred stock.”

The FT echoes the skepticism, and says that the situation is fast-moving and there is no guarantee that terms will remain the same or that a deal will be reached: “Some of the people said that the current terms were unfair for Credit Suisse and its shareholders. Others criticised the plans to void normal corporate governance rules by preventing a UBS shareholder vote.”

The reason why in this late hours there seems to be little convergence toward a consensus is because there has been limited contact between the two banks and the terms have been heavily influenced by the Swiss National Bank and regulator Finma, the FT sources said. Meanwhile, the Federal Reserve has given its assent to the deal progressing.

Both sides have been locked in discussions with regulators since Wednesday, when Credit Suisse asked the SNB to provide it with an emergency SFr50bn ($54bn) credit line. When this backstop failed to halt the collapse in depositor confidence and stock price – as we said it would – the central bank stepped in to force a merger after becoming concerned about the viability of the country’s second-largest lender. Yesterday, we learned that deposit outflows from Credit Suisse topped SFr10bn a day late last week, after a record bank run pulled CHF111BN from the group in the final three months of last year.

According to the FT, on Saturday night, the Swiss cabinet assembled in the finance ministry in Bern for a series of presentations from government officials, the SNB, market regulator Finma, and representatives of the banking sector.

UBS will dramatically shrink Credit Suisse’s investment bank, with Reuters reporting that some 10,000 workers will be let go, and the combined entity will make up no more than a third of the merged group, two of the people said. However, the current term sheet for the deal does not specify what will happen to Credit Suisse’s individual business divisions, and simply outlines a 100% takeover of the group.

The government is preparing emergency measures to fast-track the takeover and plans to introduce legislation that will bypass the normal six-week consultation period required for UBS shareholders so the deal can be sealed immediately. The framework of the deal has been designed by Swiss regulators to provide maximum stability to the country’s banking system, people briefed about the matter said.

However, if Credit Suisse balks at the takeunder – as it perhaps should and takes its chances in bankruptcy court where its equity may be valued higher than the paltry 0.25 – the Swiss National Bank, and all other central banks, will have no choice but to step with a shotgun bailout of the entire financial system for the second time in 15 years.