Update (1500ET): As the day wore on and SIVB shares collapsed (and fear spread contagiously across other banks and asset-classes), The Information reports that Silicon Valley Bank CEO Greg Becker on Thursday told top venture capitalists in Silicon Valley to “stay calm” amid concerns around a capital crunch that wiped nearly $10 billion off the bank’s market valuation.

“I would ask everyone to stay calm and to support us just like we supported you during the challenging times,” he said.

On a call, Becker said that “calls started coming and started panic.”

He added that the bank has “ample liquidity to support our clients with one exception: If everyone is telling each other SVB is in trouble that would be a challenge.”

Haven’t we heard that kind of reassurance before?

*  *  *

Is the bursting of the tech bubble finally spilling over to the financial system?

One day after the biggest crypto-focused bank, Silvergate Capital, announced plans to unwind and liquidate after a deposit run effectively killed its core business model, this morning its far larger peer – the parent company of the venerable Silicon Valley Bank, SVB Financial Group – saw its shares plunge the most in more than two decades after the company took “steps to bolster its financial position” that included not only a highly dilutive stock offering but also a panicked asset sale that sparked fears of a liquidity crisis at one of the biggest and original providers of funding to the Venture Capital industry.

The Santa Clara-based company’s shares sank by as much as 60% on Thursday, their biggest decline in the company’s history since going public in 1987.

The slump in the shares to their lowest level since May 2020, came after SVB i) announced a stock offering, ii) sold substantially all of the available-for-sale securities in its portfolio and iii) updated its forecast for the year to include a sharper decline in net interest income.

Put in context, this 60% plunge smashes SIVB back to its lowest since 2016…

“While we view these actions combined with a weaker guide as a clear negative, we do not believe that SIVB is in a liquidity crisis, especially following the significant proceeds” from its sale of securities, Wedbush analyst David Chiaverini wrote as he cut his price target for the company to $200 from $250. Others clearly disagreed and dumped the stock at a pace not seen in a quarter century.

The bank also said it had sold about $21 billion of securities from its portfolio (with a plan to reinvest the proceeds but don’t hold your breath) which will result in an after-tax loss of $1.8 billion for the first quarter. And the cherry on top was SVB’s announcement of equity offerings for $1.25 billion of its common stock and $500 million of securities that represent convertible preferred shares. Additionally, General Atlantic committed to purchase $500 million of common stock, taking the total amount being raised to about $2.25 billion.

It wasn’t immediately clear whether the SIVB liquidity crisis is a function of assets, i.e., loans collateralized by toxic early stage investments that have turned sour… or liabilities, i.e., a good old-fashioned deposit bank run.

“The improved cash liquidity, profitability and financial flexibility resulting from the actions we announced today will bolster our financial position and our ability to support clients through sustained market pressures,” the company said in a letter to stakeholders but judging by the stock reaction, nobody believed it.

Multiple analysts have pointed to the high deposit outflows as the catalyst for the liquidity sale, which stoked fears for the banking industry as a whole.

Truist analyst Brandon King says “the increase in balance sheet asset sensitivity should lower the left tail risk to higher interest rates” but expects material value per share dilution from the proposed capital raise.”

“The proceeds from the sale are expected to be reinvested into short duration US treasuries along and hedged with receive floating swaps”

KBW analyst Christopher McGratty says SVB Financial will exit 2023 on a notable lower earnings run rate due (NII and share count), and “it’s possible that 2024E is in the $16.00-$18.00/share range” pending the price of the capital raise

SVB Financial sold $21B of securities to better manage liquidity, in light of accelerated deposit outflows

For the broader sector, “balance sheet management for the group is unquestionably front and center” and it’s possible that banks with “more volatile/flightly deposits” could trade lower on this news. Namely, SBNY and PACW

Evercore ISI analyst John Pancari:

“We favor SIVB’s strategy to shore up liquidity and reposition the balance sheet for increased asset sensitivity, particularly in lieu of the Fed’s more hawkish recent tone”

Management’s updated outlook reveals incrementally weaker deposit dynamics – an output of more resilient than expected client cash burn trends, and the likely catalyst of the move

Jefferies analyst Casey Haire says the balance sheet restructuring and capital raise will boost net interest income and nudge capital ratios higher…

…but also reveal that SVB Financial’s ecosystem is still challenged due to higher for longer interest rates and a surprise pick-up in client cash burn

Also notes the updated 2023 guidance that implies EPS of ~$15 against consensus of $19

Bloomberg Intelligence analyst Herman Chan notes the sale “comes as a surprise considering the bank’s ability to source off-balance-sheet client funds for deposit funding”

To ease the hit, SVB will raise $2.25 billion through common stock, depositary shares and a sale of shares to General Atlantic

In an earlier note, Chan notes that “SVB is sitting on a $15 billion unrealized loss position in its $91 billion held-to-maturity securities portfolio”

$SIVB $SIVBP

You can see $15.1 billion of unrealized losses on the HTM vs. $1.3 at 2021. This is all MBS and its toasted more now than at 12/31/22. Average yield on this book is a mere ~190 bps. They can’t sell this. They are frozen. pic.twitter.com/3XMxtZ3ecV

— Lake Cornelia Research Management (@CorneliaLake) March 9, 2023

As Lake Cornelia Research Management goes on to note, the market implications of this situation are far and wide.  

We have a $210+ billion balance sheet (which was a mere 86 billion 2 years ago) that could well have an unwind.  It is not a stretch at all to argue that on a current mark to market basis that equity is negative to the tune of of billions (you can be insolvent but liquid and survive as a bank).  The hit to the startup eco-system of an impaired or vanquished $SIVB would be substantial.  

Beyond the negative duration risk we highlighted (asset side locked at sub 200 bps vs. liability side could increase to 200+), the simple mark to market on the HTM and the $88 billion of HTM and $70 billion of loans is likely far greater than the realized losses on the AFS securities sold at a $1.8 billion loss.  The asset growth since 2020 is crazy.  Total assets for $SIVB are 50% of $BSC at time of $JPM bid.  

We do not believe it would be crazy to see $SIVB at $50 or lower per share when this is all done.  The negative earnings loop, and associated balance sheet pressure, of higher deposit rates plus potential for fleeing private bank clients is a dark scenario.  There are many scenarios where they will need to raise more capital (dilution to existing holders) and this may not have fixed the situation.     

We have rarely seen a situation where buying a bank when it is down 40% on the day to be a good entry…these things can unwind far quicker than people realize.  People with facilities with $SIVB may well call them / draw which would further stress liquidity.  Just haircutting by 10% the value of the 21-22 growth of held loans and HTM securities alone would be a $5+ billion hit to book equity (which is ~$20 billion post these transactions). 

The GA concurrent PIPE we think was the wrong investor.  If there was ever a situation to bring in an “Elliot” / “Baupost” / $GS “Prop Desk” it was this one.  The balance sheet needs to be seen as credible and diligenced.  The earnings and conference call transcripts are farcical; the CEO talks about the VC funding environment and IPO pipeline as opposed to any questions on the balance sheet position.  If this plays out adversely, it will be another sad case of a storied franchise that had a great moat..and then woke up during the $ARKK boom and decided to blow it all on a $140+ billion balance sheet growth splurge on a mortgage and loan book yielding a blended ~3.25% with massive correlation risk…which ran right into rising interest rates.   

Seeing the preferred stock trade down 15% today should be eye opening to many.  It is at $16.60.  This is distress debt mafia stuff.  Par is $25 for reference.  

Lot of digging to do and all the above could well be wrong.  Many / most people far smarter than I am on fins (and other things).  The point is we don’t think this is over and there are a lot of second and third order implications.

Authored by Nick Giambruno via InternationalMan.com,

As told in the movie The Big Short, a group of hedge fund managers who saw the housing crash coming used Credit Default Swaps (CDS) to make a fortune.

These exotic financial instruments conveyed information crucial to seeing the 2008 financial crisis in advance. That knowledge allowed astute speculators to get positioned for massive profits as the crisis unfolded.

In the coming crisis—which has already started—I expect CDS will again play a key role in telegraphing important information shrewd speculators can use to their advantage.

A CDS is a contract between two parties. Think of it like an insurance policy against a borrower—typically a large company or a government—defaulting. One party underwrites the insurance policy, and another buys it. If the borrower defaults, the CDS issuer pays out the CDS buyer.

CDS trade in the open market and reflect investor expectations of the default probability of a particular borrower. The more likely the underlying entity is to default, the more expensive the insurance (CDS) will cost.

The seller of the CDS collects a premium and bets that the underlying entity will not default. Conversely, the buyer of the CDS is betting that the underlying entity will default or become more distressed so that he can sell the insurance policy in the market for a higher price than he paid it for.

For example, in 2006, a CDS to insure $10 million of Lehman Brothers debt against default cost around $9,000. That CDS contract exploded in value to over $6 million in September 2008 as Lehman went bankrupt.

In short, that is how CDS work. They can deliver enormous profits, and their prices provide crucial market information.

Greg Foss is a 35-year veteran of the credit markets. He is an accomplished risk analyst with some of Canada’s most prominent financial institutions. Greg is also a passionate Bitcoiner and has said:

“Bitcoin is the best asymmetric trade I have ever seen.”

Greg has devised a simple—yet clever—way to value Bitcoin using the CDS market. It reveals critical information about Bitcoin and the entire fiat currency monetary system.

The CDS market—and the information it conveyed—was crucial for making fortunes during the last crisis, and I suspect it will be for the next crisis as well. Likewise, I believe the information in Greg’s valuation model is key to getting positioned for big profits in the months ahead.

Bitcoin Is a Cheap CDS on the Entire Fiat System

Greg Foss thinks Bitcoin should be considered default insurance on the entire global fiat currency system—like a CDS on the US dollar, Canadian dollar, British pound, euro, yen, yuan, and all the rest of the government currencies.

Why?

Because Bitcoin is an alternative and superior form of money compared to government confetti.

Think of Bitcoin’s superior monetary properties—namely its total resistance to debasement—like a black hole sucking in capital and monetary energy from other forms of money. The bigger the Bitcoin monetary network gets, the more powerful its gravitational pull becomes. I think this process will continue and accelerate exponentially in the years ahead.

Some proponents believe the endgame for Bitcoin is to eventually emerge as the world’s dominant form of money. It’s a process called “hyperbitcoinization”—or what I like to call The Bitcoin Supremacy.

In short, as the risk to fiat currency continues to rise, so does Bitcoin’s value proposition. As a result, it will benefit similar to a CDS as the fiat currency system defaults.

Legendary value investor Bill Miller has called Bitcoin “an insurance policy against financial disaster.” He’s correct.

Consider the example of Lebanon, which recently experienced hyperinflation, bank failures, and capital controls as its fiat system collapsed.

For over 20 years, the Lebanese government pegged the local currency, the lira, to the US dollar at a rate of 1,500.

That all began to change in the middle of October 2019, and many Lebanese would soon find themselves financially ruined.

As the banking system became insolvent, Lebanon imposed capital controls, preventing most people from sending their funds abroad.

The lira’s artificial peg to the dollar became untenable, and a thriving underground market developed and revealed the real exchange rate. Recently, this free market is trading the lira at around 64,000 to the dollar.

In other words, the Lebanese lira has lost over 97% of its value since October 2019.

Now, let’s look at how Bitcoin could have served as insurance against a collapse in the fiat system in Lebanon.

Imagine there was an astute Lebanese individual, let’s call him Marwan, who saw the writing on the wall and knew trouble was imminent.

After all, similar banking and currency crises had occurred previously in Argentina, Greece, Cyprus, and other countries in recent years. So it didn’t take much imagination to understand that Lebanese bank deposits and the lira could soon lose most or all of their value.

Suppose Marwan had the equivalent of $100,000 USD in his lira savings account at a Lebanese bank in October 2019 and decided to convert half of it—the equivalent of $50,000—into Bitcoin when the price was about $8,333 per BTC.

Marwan would then have around 6 Bitcoins that he could use to send and bring with him anywhere in the world without depending on the whims or permissions of any bank, central bank, government, or third party.

Fast forward to today.

The other $50,000 Marwan left in his Lebanese lira bank account is now worth about $1,200.

Marwan’s 6 Bitcoins are now worth around $142,500 today, nearly triple his $50,000 investment and more than his $100,000 in total savings at the start of the crisis.

Had he not converted half of his money into Bitcoin, his $100,000 in total savings would have collapsed over 97% to just $2,400. Instead, he has $143,700 thanks to Bitcoin.

That’s how Bitcoin could have served as insurance against the collapse of the fiat system in Lebanon.

Undoubtedly, Bitcoin saved many people in Lebanon—I know several of them.

But Bitcoin is not just like default insurance against the fiat system in Lebanon. It’s like a CDS on the entire global fiat currency system. As this system falters in many countries, the value of such insurance could become mind-bending.

However, Bitcoin is even better than a CDS.

That’s because Bitcoin has no counterparty risk, and it never expires.

Typically, a CDS expires after five years and has significant counterparty risk.

For example, consider the lucrative CDS on Lehman Brothers debt I discussed earlier. These insurance contracts became incredibly valuable as Lehman Brothers became more distressed and sank into bankruptcy.

Owning a CDS on Lehman Brothers in 2008 was a winning trade… except for one big problem: counterparty risk.

The sellers of the CDS contracts on Lehman Brothers found themselves in big trouble as they had to pay them out as Lehman went bust. As a result, many, including Bear Stearns, became distressed, which brought into question whether they could fulfill the contracts.

Counterparty risk is a big problem with the fiat currency financial system in general and with CDS in particular.

Even if you get the trade right, your counterparty could default, which means you’d pay the insurance premium for the CDS but not get the payout.

That’s why Bitcoin is even better than a CDS.

It provides insurance against the failure of the entire worldwide fiat currency system, has no counterparty risk, and doesn’t expire.

Bitcoin is about as close to perfect financial collapse insurance as you can get.

Valuing Bitcoin Using the CDS Market

Greg Foss says that if Bitcoin is like a CDS on the entire fiat currency system, then we can use the data in the CDS market to create a fair price valuation for Bitcoin.

Here is how Greg’s valuation model works in five simple steps…

Step 1: Calculate Total Obligations Needing To Be Insured

The US federal government has over $31.5 trillion in debt and about $181 trillion in unfunded liabilities.

That’s around $212 trillion in total obligations that default insurance would need to insure.

Step 2: Obtain US Five-Year CDS Costs

In the open market, US five-year CDS are trading at 35.02 basis points, which means it costs $35,020 to insure $10 million worth of US federal government obligations. It’s essential to remember that this number is constantly changing depending on market conditions.

Step 3: Estimate 20-Year CDS Cost

The obligations of the US federal government do not occur only over five years. Greg thinks a 20-year period is more appropriate.

Since there is no such thing as a 20-year CDS, the best Greg can do is make a calculation to estimate what the price would be using the market data of the five-year CDS. He does this by dividing the cost of the five-year CDS by five and then multiplying it by 20.

Therefore, the estimated cost of a 20-year CDS for the US is 140 basis points—or $140,000—to insure $10 million worth of US federal government obligations.

Step 4: Calculate the Cost To Insure All US Federal Obligations

There is $212 trillion worth of US federal government obligations.

Therefore the estimated cost to insure all US federal government obligations against default is $212 trillion x 140 basis points or about $2.98 trillion.

Step 5: Implied Bitcoin Valuation

If Bitcoin is like a CDS on the global fiat currency system, the fair value of all outstanding Bitcoin should be at least $2.98 trillion or $154,390 per BTC at the current supply.

And that is a conservative estimate because we are just calculating the value of default insurance on the US, not the rest of the fiat currencies.

Bitcoin’s current market cap is around $455 billion, and the price is about $23,609 per BTC.

That means, at current prices, we are getting default insurance on the US at an 85% discount while at the same time getting protection against the failure of all the rest of the fiat currencies for free.

In other words, with Bitcoin, we are getting perfect financial collapse insurance at an 85% discount to fair value at current prices.

That doesn’t mean Bitcoin can’t go higher than $154,390. That is only the model’s fair value valuation at today’s CDS prices.

As the fiat currency system in the US and other countries becomes more distressed, it’s obvious the cost to insure their obligations will increase. That means higher CDS prices and a higher fair value for Bitcoin.

With all the chaos going on right now—which will likely only get worse—it seems prudent to buy Bitcoin to obtain some financial disaster insurance, especially since it is so cheap.

As the fiat currency system falters in the months ahead, buying Bitcoin now could be an even better trade than buying a counterparty-free CDS on Lehman Brothers in 2006.

Now you know why Greg Foss said:

“Bitcoin is the best asymmetric trade I have ever seen.”

I agree.

Here’s the bottom line.

The collapse of the fiat system—which is already well underway—could be an enormous catalyst for Bitcoin.

That’s why I just released an urgent PDF report. It details how it could all unfold soon… and what you can do about it.  Click here to download the PDF now.

The Wall Street Journal article, “U.S. Shale Boom Shows Signs of Peaking as Big Oil Wells Disappear,” suggests that the United States’ position as the top global oil producer may be in decline due to the imminent plateauing of shale growth.

“Frackers are hitting fewer big gushers in the Permian Basin, America’s busiest oil patch, the latest sign they have drained their catalog of good wells,” WSJ’s Collin Eaton and Benoît Morenne wrote. They said top shale companies’ best wells are producing less. 

According to FLOW Partners LLC’s data, the average oil production from the most productive 10% of wells in the Delaware area of the Permian Basin was 15% lower in the previous year compared to the highest output in 2017. Despite experiencing a significant surge, oil production growth in the U.S. has slowed down and has not yet returned to its pre-pandemic peak of approximately 13 million barrels per day.

Shale growth slowdown was blamed on “investor pressure on companies to curtail spending and limit growth in favor of generating higher returns,” WSJ authors noted. 

FLOW said Chevron’s wells in Culberson County, Texas, produced an average of 42% less oil last year than those that started production in 2018. Additionally, Novi Labs’ data indicates that the most productive 10% of wells that Chevron brought online in the Delaware region of the Permian Basin last year were roughly 25% less productive compared to its wells the year before. 

Chevron Chief Executive Mike Wirth offered some insight last week into the shale slowdown, indicating production growth and drilling activity seen last decade “is unlikely to be repeated. “

The key question is why these wells are yielding at reduced outputs. Is it because North America’s oil reserves are being depleted? 

Well, probably not. And what is astonishing is that WSJ authors entirely ‘forgot’ to mention one major contributor to the slowdown in shale production: the Biden administration has been intentionally destroying the energy sector, preventing exploration, drilling, processing, and refining. 

So what’s next for America’s energy independence? 

“The world is going back to a world that we had in the ’70s and the ’80s,” said ConocoPhillips Chief Executive Ryan Lance, during a panel at the conference called CERAWeek by S&P Global. Lance warned that OPEC would soon supply more of the world’s oil.

The days of explosive growth in U.S. shale oil production appear to be over. We pointed this out late last year. Odd that WSJ entirely left out Biden’s anti-oil agenda and its effects on production from its reporting. 

It turns out that once you ditch the free yoga classes, organic food and roughly 80% of a staff that was apparently sitting around and doing very little on a daily basis, you can actually get your expenses below your revenue. Who would have thought?

This is what seems to be the case over at Twitter, where Elon Musk has said as recently as this week that the company could wind up cash flow positive by the second quarter, according to FT. 

He told investors at a Morgan Stanley investor conference on Tuesday this week that cash flow breakeven was likely, at the least, in Q2. He projected that Twitter’s costs would be about $3 billion per year, which includes $1.5 billion in interest payments.

He also lamented a “massive decline in advertising”, which will cause the company’s $5.1 billion in revenue in made in 2021 to likely have fallen dramatically. 

Despite the internal chaos that Musk’s massive cuts have caused, the platform has only experienced moderate hiccups, and generally remains up and usable with the same functions as prior to Musk’s entrance as CEO. Now, it is also facing a headwind from regulators who, as the FT notes, are looking over the company’s “ability to comply with social media rules”, as well as generally creating red-tape surrounding Musk’s release of the “Twitter files”.

Regulators at the Federal Trade Commission have now asked the company to hand over “internal communications relating to Musk since the acquisition, as well as details around its new premium subscription service, Twitter Blue,” Financial Times wrote this week. 

Musk has boasted that he has cut cloud spending by 40% and reduced Twitter’s data centers from 3 to 2. He’s also claiming the company’s monetisable daily active users numbers are at 253 million, the highest they have ever been. 

“The natural potential here for Twitter revenue is gigantic,” Musk said at the conference. 

Authored by Joseph Lord via The Epoch Times,

The U.S. Senate on March 8 overwhelmingly approved a House-passed bill that would overturn a controversial D.C. crime law that critics have blasted as soft on crime. The measure will next go to the desk of President Joe Biden, who’s said he wouldn’t veto the bill.

The chamber passed the measure in an 81–14 vote, with 33 Democrats voting alongside every Republican and Indepedent Sen. Krysten Sinema.

The resolution would block the Revised Criminal Code Act (RCC), a law passed by the D.C. Council that lessens penalties for some violent crimes, such as carjackings and home burglaries. The reform was introduced as the district is experiencing a record-breaking crime wave.

That law was initially vetoed by D.C. Mayor Muriel Bowser, but the Council later overruled Bowser’s veto in a 12–1 vote.

Earlier this week, the D.C. Council member who introduced the revised criminal code said he plans to withdraw the measure amid the rising congressional backlash and after Biden said he wouldn’t veto the resolution if passed.

Washington Mayor Muriel Bowser attends March for Our Lives 2022 in Washington on June 11, 2022. (Paul Morigi/Getty Images for March For Our Lives)

On Feb. 9, the House voted 260 to 173 to approve a measure that would strike down the law. The bill won the support of 31 Democrats.

The district’s crime reform measure came as the Metropolitan Police Department reported a substantial uptick in violent crime. According to that data, homicides are up by 33 percent over the same time last year, sex abuse is up by 120 percent, and motor vehicle thefts are up by 108 percent.

‘A Danger and an Embarrassment’: McConnell

Republicans say the D.C. Council’s bill will only serve to exacerbate the crime situation.

Senate Minority Leader Mitch McConnell (R-Ky.), speaking against the bill in remarks on the Senate floor, highlighted recent criminal incidents in Washington.

“Carjackings and cartels have become a daily routine; homicides are racking up at a rate of four—four!—per week.”

McConnell also cited reports that assaults had become so commonplace on Washington public transportation that civilian volunteers have created their own patrols on Metro trains and platforms.

“We’re the greatest superpower in history,” McConnell said. “This is our capital city. But local politicians have let its streets become a danger and an embarrassment.”

McConnell noted that D.C. is not the only major American city facing a record-breaking crime surge: in cities from San Francisco to Minneapolis to Atlanta, vandalism, assault, burglary, grand theft auto, murder, and other violent crimes are on the rise.

The responsibility for this, according to McConnell, lies with the left’s long-lived campaign of anti-police rhetoric.

“This is what happens when Democrats at all levels decide we need fewer arrests, shorter sentences, and more generosity to criminals at the expense of less justice for victims and for families,” McConnell said.

Sen. Shelley Moore Capito (R-W. Va.) said on the Senate floor that the effects of a loose criminal policy are not limited merely to the victims of such crimes. She cited studies showing that living in high-crime areas could lessen the value students receive at school and can have negative health factors, ranging from weight gain to elevated blood pressure.

Democratic Opposition

Democrats in both the House and Senate have argued that the Congressional effort to overrule the crime bill was akin to colonialism.

Del. Eleanor Holmes Norton (D-D.C.), for example, called the measures “profoundly undemocratic” during a speech criticizing the legislation on Feb. 9.

…

Read more here…

Two weeks ago, we reported that JPMorgan was the latest bank to join a growing parade of sellside analysts which had had enough with the Dept of Labor’s ridiculous seasonal adjustments. Specifically the bank’s economist Dan Silver politely said that “some alternative seasonal adjustments of the initial claims data show some less favorable changes in filings from recent weeks than the official figures.” Translation: the various “adjustments” embedded in initial claims data had gotten so grotesque even the largest US bank had to bring attention to them, and understandably so: earlier today we showed the divergence between layoffs tracked by Challenger and the DOL’s own initial claims. The chart needs little commentary.

And even though today’s initial claims ended the bizarre recent trend of declining in the face of relentless mass layoff news (not to mention the starkly conflicting Challenger data), and rose to the highest since December…

… today none other than Goldman joined the bandwagon slamming the BOL’s gratuitous data fudging with chief economist Jan Hatzius writing that “seasonal adjustment issues have exerted an increasing amount of downward pressure on initial claims over the last few months” adding that “the pressure will begin to reverse in a few weeks.”

Translation: we are about to see a big spike in claims, and it’s not just Goldman expecting this. In a note just out from Bloomberg Economist Eliza Winger, she writes that “the rise in jobless claims is just a taste of what we expect over the next two months, when claims should rise sharply following a spike in layoff announcements. More companies are clearly preparing for an economic slowdown, cutting workers and slowing hiring.”

Bottom line: the Biden admin may have been able to hide for months behind grotesque and gratuitous seasonal adjustments, which maintained the false impression that at least the US labor market was stable at a time of collapsing corporate profits and soaring inflation – and thus feeding the Fed with false signals demanding further monetary tightening. But all that is about to end, and the open question is whether tomorrow’s payrolls report will benefit from these generous adjustments for one last fake hurrah in labor market strength, or is the DOL about to pull the rug and will markets be “shocked” with a negative print, just as DB’s Jim Reid showed recently is long overdue as the US economy careens toward a painful hard-landing.

More in the full Goldman report available to pro subscribers.

Journalists Matt Taibbi and Michael Shellenberger are testifying before the House Judiciary Committee’s Select Subcommittee on the Weaponization of the Federal Government today. Both journalists were involved in the ‘Twitter Files’ disclosures, in which we learned that the government was directly involved in censoring disfavorable speech.

“Our findings are shocking,” writes Shellenberger at his blog. “A highly-organized network of U.S. government agencies and government contractors has been creating blacklists and pressuring social media companies to censor Americans, often without them knowing it.”

Watch Live:

Ahead of the appearance, Taibbi released his prepared remarks. He also dropped a new and related Twitter Files mega-thread on ‘THE CENSORSHIP-INDUSTRIAL COMPLEX’ which will be submitted to the Congressional record which, according to Taibbi, ‘contains some surprises.’

2. “MONITOR ALL TWEETS COMING FROM TRUMP’S PERSONAL ACCOUNT/BIDEN’S PERSONAL ACCOUNT”

When #TwitterFiles reporters were given access to Twitter internal documents last year, we first focused on the company, which at times acted like a power above government. pic.twitter.com/IK1VWewVoW

— Matt Taibbi (@mtaibbi) March 9, 2023

Continued…

But Twitter was more like a partner to government. With other tech firms it held a regular “industry meeting” with FBI and DHS, and developed a formal system for receiving thousands of content reports from every corner of government: HHS, Treasury, NSA, even local police:

Emails from the FBI, DHS and other agencies often came with spreadsheets of hundreds or thousands of account names for review. Often, these would be deleted soon after.

5. Many were obvious “misinformation,” like accounts urging people to vote the day after an election. But other official “disinfo” reports had shakier reasoning. The highlighted Twitter analysis here disagrees with the FBI about accounts deemed a “proxy of Russian actors”:

Then we saw “disinfo” lists where evidence was even less clear. This list of 378 “Iranian State Linked Accounts” includes an Iraq vet once arrested for blogging about the war, a former Chicago Sun-Times reporter and Truthout, a site that publishes Noam Chomsky.

In some cases, state reports didn’t even assert misinformation. Here, a list of YouTube videos is flagged for “anti-Ukraine narratives”:

But the bulk of censorship requests didn’t come from government directly.

Asked if Twitter’s marketing department could say the company detects “misinfo” with help of “outside experts,” a Twitter executive replied:

We came to think of this grouping – state agencies like DHS, FBI, or the Global Engagement Center (GEC), along with “NGOs that aren’t academic” and an unexpectedly aggressive partner, commercial news media – as the Censorship-Industrial Complex.

Who’s in the Censorship-Industrial Complex? Twitter in 2020 helpfully compiled a list for a working group set up in 2020. The National Endowment for Democracy, the Atlantic Council’s DFRLab, and Hamilton 68’s creator, the Alliance for Securing Democracy, are key:

Twitter execs weren’t sure about Clemson’s Media Forensics Lab (“too chummy with HPSCI”), and weren’t keen on the Rand Corporation (“too close to USDOD”), but others were deemed just right.

NGOs ideally serve as a check on corporations and the government. Not long ago, most of these institutions viewed themselves that way. Now, intel officials, “researchers,” and executives at firms like Twitter are effectively one team – or Signal group, as it were:

The Woodstock of the Censorship-Industrial Complex came when the Aspen Institute – which receives millions a year from both the State Department and USAID – held a star-studded confab in Aspen in August 2021 to release its final report on “Information Disorder.”

The report was co-authored by Katie Couric and Chris Krebs, the founder of the DHS’s Cybersecurity and Infrastructure Security Agency (CISA). Yoel Roth of Twitter and Nathaniel Gleicher of Facebook were technical advisors. Prince Harry joined Couric as a Commissioner.

Their taxpayer-backed conclusions: the state should have total access to data to make searching speech easier, speech offenders should be put in a “holding area,” and government should probably restrict disinformation, “even if it means losing some freedom.”

Note Aspen recommended the power to mandate data disclosure be given to the FTC, which this committee just caught in a clear abuse of office, demanding information from Twitter about communications with (and identities of) #TwitterFiles reporters. (link here)

Naturally Twitter’s main concern regarding the Aspen report was making sure Facebook got hit harder by any resulting regulatory changes:

The same agencies (FBI, DHS/CISA, GEC) invite the same “experts” (Thomas Rid, Alex Stamos), funded by the same foundations (Newmark, Omidyar, Knight) trailed by the same reporters (Margaret Sullivan, Molly McKew, Brandy Zadrozny) seemingly to every conference, every panel.

The #TwitterFiles show the principals of this incestuous self-appointed truth squad moving from law enforcement/intelligence to the private sector and back, claiming a special right to do what they say is bad practice for everyone else: be fact-checked only by themselves. While Twitter sometimes pushed back on technical analyses from NGOs about who is and isn’t a “bot,” on subject matter questions like vaccines or elections they instantly defer to sites like Politifact, funded by the same names that fund the NGOs: Koch, Newmark, Knight.

#TwitterFiles repeatedly show media acting as proxy for NGOs, with Twitter bracing for bad headlines if they don’t nix accounts. Here, the Financial Times gives Twitter until end of day to provide a “steer” on whether RFK, Jr. and other vax offenders will be zapped.

26. Perhaps the ultimate example of the absolute fusion of state, corporate, and civil society organizations is the Stanford Internet Observatory (SIO), whose “Election Integrity Partnership” is among the most voluminous “flaggers” in the #TwitterFiles: pic.twitter.com/wiSN9tl5Bl

— Matt Taibbi (@mtaibbi) March 9, 2023

According to the EIP’s own data, it succeeded in getting nearly 22 million tweets labeled in the runup to the 2020 vote. It’s crucial to reiterate: EIP was partnered with state entities like CISA and GEC while seeking elimination of millions of tweets. In the #TwitterFiles, Twitter execs did not distinguish between organizations, using phrases like “According to CIS[A], escalated via EIP.”

After the 2020 election, when EIP was renamed the Virality Project, the Stanford lab was on-boarded to Twitter’s JIRA ticketing system, absorbing this government proxy into Twitter infrastructure – with a capability of taking in an incredible 50 million tweets a day.

In one remarkable email, the Virality Project recommends that multiple platforms take action even against “stories of true vaccine side effects” and “true posts which could fuel hesitancy.” None of the leaders of this effort to police Covid speech had health expertise.

This is the Censorship-Industrial Complex at its essence: a bureaucracy willing to sacrifice factual truth in service of broader narrative objectives. It’s the opposite of what a free press does.

Profiles portray DiResta as a warrior against Russian bots and misinformation, but reporters never inquire about work with DARPA, GEC, and other agencies. In the video below from @MikeBenzCyber, Stamos introduces her as having “worked for the CIA”:

DiResta has become the public face of the Censorship-Industrial Complex, a name promoted everywhere as an unquestioned authority on truth, fact, and Internet hygiene, even though her former firm, New Knowledge, has been embroiled in two major disinformation scandals.

This, ultimately, is the most serious problem with the Censorship-Industrial Complex. Packaged as a bulwark against lies and falsehood, it is itself often a major source of disinformation, with American taxpayers funding their own estrangement from reality.

DiResta’s New Knowledge helped design the Hamilton 68 project exposed in the #TwitterFiles. Although it claimed to track “Russian influence,” Hamilton really followed Americans like “Ultra Maga Dog Mom,” “Right2Liberty,” even a British rugby player named Rod Bishop. Told he was put on the Hamilton list of suspected “Russian influence” accounts, Bishop was puzzled. “Nonsense. I’m supporting Ukraine,” he said.

As a result of Hamilton’s efforts, all sorts of people were falsely tied in press stories to “Russian bots”: former House Intel chief Devin Nunes, #WalkAway founder @BrandonStraka, supporters of the #FireMcMaster hashtag, even people who used the term “deep state”:

Hamilton 68 was funded by the Alliance for Securing Democracy, which in turn was funded by the German Marshall Fund, which in turn is funded in part by – the Department of State.

42. Though at least one reporter for a major American paper was at a meeting in September, 2018 when New Knowledge planned the bizarre bot-and-smear campaign, the story didn’t break until December, two days after DiResta gave a report on Russian interference to the Senate.

— Matt Taibbi (@mtaibbi) March 9, 2023

Internally, Twitter correctly assessed the Moore story as far back as fall of 2017, saying it had no way if knowing if the Moore campaign purchased the bots, or if “an adversary purchased them… in an attempt to discredit them.”

Twitter told this to reporters who asked about the story contemporaneously. Moreover, after the story broke, Twitter’s Roth wrote: “There have been other instances in which domestic actors created fake accounts… some are fairly prominent in progressive circles.”

Roth added, “We shouldn’t comment.” Repeatedly in the #TwitterFiles, when Twitter learned the truth about scandals like Project Birmingham, they said nothing, like banks that were silent about mortgage fraud. Reporters also kept quiet, protecting fellow “stakeholders.”

Twitter stayed silent out of political caution. DiResta, who ludicrously claimed she thought Project Birmingham was just an experiment to “investigate to what extent they could grow audiences… using sensational news,” hinted at a broader reason.

“I know there were people who believed the Democrats needed to fight fire with fire,” she told the New York Times. “It was absolutely chatter going around the party.”

The incident underscored the extreme danger of the Censorship-Industrial Complex. Without real oversight mechanisms, there is nothing to prevent these super-empowered information vanguards from bending the truth for their own ends.

By way of proof, no major press organization has re-examined the bold claims DiResta/New Knowledge made to the Senate – e.g. that Russian ads “reached 126 million people” in 2016 – while covering up the Hamilton and Alabama frauds. If the CIC deems it, lies stay hidden.

In the digital age, this sprawling new information-control bureaucracy is an eerie sequel to the dangers Dwight Eisenhower warned about in his farewell address, when he said: “The potential for the disastrous rise of misplaced power exists.”

Thanks to @ShellenbergerMD and reporters/researchers @Techno_Fog, @neffects, @bergerbell, @SchmidtSue1, @tw6384, and others for help in preparing this testimony. The Twitter Files searches are performed by a third party, so material may have been left out.

Bloomberg, citing sources familiar with the matter, has reported that Visa and Mastercard’s scheme to monitor gun and ammunition sales at retailers has been temporarily halted.

Both credit companies said they would halt the development of the new merchant code for gun retailers with the International Organization for Standardization (ISO). Gun rights advocates have said the new merchant code could be used to track gun and ammo transactions. 

A representative for Geneva-based ISO recently said the new code, dubbed “5723 – Gun and ammunition shops” – was available for financial institutions to use by the end of February.

“The decision to use the new merchant category code is eventually left up to the users in the industry,” the ISO representative said.

The decision by the credit card companies to adopt the new codes drew instant criticism from politicians. Several months ago, two dozen state attorneys general penned a letter to Visa’s then-chief executive officer, Al Kelly, and Mastercard CEO, Michael Miebach, asking them to “take immediate action to comport with our consumer protection laws and respect the constitutional rights of all Americans.”

In the last few months, Republican politicians have pushed bills in multiple states, including Florida and Mississippi, aiming to restrict credit card companies and payment processors from using the new merchant codes. At the start of this year, a bill that would “prevent the use of payment card processing systems for surveillance of Second Amendment activity and discriminatory conduct” passed West Virginia’s House and was sent to the state’s Senate. 

Had the credit card companies gone ahead with the draconian tracking system, it would’ve sparked a massive blowback that could damage their businesses. In other words, they wanted to avoid ‘go woke, go broke.’ 

According to Challenger Gray & Christmas, U.S.-based employers announced 77,770 job cuts in February. It is 410% higher than the 15,245 cuts announced in the same month last year.

February’s total is the highest for the month since 2009…

So far this year, employers announced plans to cut 180,713 jobs, up 427% from the 34,309 cuts announced in the first two months of 2022. It is the highest January-February total since 2009…

“Worst since Lehman” is never a good thing.

“Certainly, employers are paying attention to rate increase plans from the Fed. Many have been planning for a downturn for months, cutting costs elsewhere. If things continue to cool, layoffs are typically the last piece in company cost-cutting strategies,” said Andrew Challenger, Senior Vice President of Challenger, Gray & Christmas, Inc.

“Right now, the overwhelming bulk of cuts are occurring in Technology. Retail and Financial are also cutting right now, as consumer spending matches economic conditions. In February, job cuts occurred in all 30 industries Challenger tracks,” he added.

In fact, Challenger has not recorded announcements in every industry the firm tracks since January 2013, when cuts occurred in all 29 industries.

Tech Layoffs continue to dominate…

Source: layoffs.fyi

Led by Google, Meta, and Microsoft…

Source: layoffs.fyi

But, here comes the ‘official’ BLS-sponsored data which shows that initial jobless claims which jumped from 190k to 211k last week (above the 195k exp), the highest since December (but still extremely low historically). Continuing claims also rose to 1.718mm (near cycle highs) and well above the 1.66mm expected…

Source: Bloomberg

Notably non-seasonally-adjusted initial claims jumped to 237k…

Source: Bloomberg

Overall, the total number of Americans on some form of unemployment benefit continues to hover near one-year highs…

Source: Bloomberg

Additionally, Bloomberg’s Simon White notes that overall, the percentage of industries with a rise in claimants of more than 10% is creeping up.

Source: Bloomberg

This does not necessarily suggest reason for any imminent concern, but this “regime shift” indicator climbs fast, especially just before a recession.

Yes, we understand there are lags between the two series since the laid off are likely to be getting severance, but the fact that the claims data is tumbling back near record lows as layoffs are accelerating YTD at their fastest pace ‘since Lehman’ is ridiculous…

Source: Bloomberg

Finally, we note that companies announced plans to hire 28,830 workers in February, down 12% from the 32,764 hires announced in January. It is down 87% from the 215,127 hiring plans announced by companies in February 2022.

So far this year, companies announced plans to hire 61,594 workers, the lowest January-February total since 2016.

Authored by Katabella Roberts via The Epoch Times,

Senate Minority Leader Mitch McConnell, (R-Ky.), has been hospitalized after a fall at a hotel in Washington, his spokesperson confirmed on March 8.

The 81-year-old Senator was attending a private dinner at a local hotel when he tripped, spokesman David Popp said in a statement.

“This evening, Leader McConnell tripped at a local hotel during a private dinner. He has been admitted to the hospital where he is receiving treatment,” Popp said, without providing further details.

McConnell, the Senate’s longest-serving GOP leader, had been at an event at the Waldorf Astoria when he fell, according to Punchbowl News.

The Republican lawmaker was previously hospitalized in 2019 for another fall, this time at his home in Kentucky, which resulted in him fracturing his shoulder.

At the time, a spokesperson for the senator said he had tripped on the outdoor patio at his residence in Louisville and received medical treatment.

McConnell is a survivor of polio from his childhood, having been diagnosed with the disease before a vaccine was developed.

Battle With Polio

While the majority of individuals with polio do not display any visible symptoms, a small portion of those diagnosed develop serious symptoms that impact the brain and spinal cord, including meningitis and paralysis, according to the Centers for Disease Control and Prevention (CDC).

In 2018, McConnell told a conference on polio eradication at the Center for Strategic and International Studies that doctors had warned his mother that he shouldn’t walk after his diagnosis.

His symptoms included paralysis in part of his left leg and, at the time time, he periodically visited a polio rehabilitation institute for treatment.

“So my mother, like a drill sergeant, literally watched me every waking moment for two years,” McConnell said. “After two years, my first memory in life was our last visit to Warm Springs, where the nurse told my mother, ‘I think he’s going to be OK.’”

He noted that his experience motivated him to help support vaccine efforts and the tracking of polio in the remaining cases throughout the world.

“I think it’s under-appreciated outside the public health community just how much hard work and innovation has to continue after a disease has dropped off the front pages,” McConnell said, adding that without continued support, “progress could erode rapidly.”

McConnell was first elected to the U.S. Senate in 1984 and served as the Senate majority leader from 2015 to 2021, and the Senate minority leader since then.

Before his election to the Senate, he served as judge-executive of Jefferson County, Kentucky, from 1978.

More Lawmakers Hospitalized

McConnell’s hospitalization comes shortly after Sen. Dianne Feinstein (D-Calif.), the oldest member of the Senate, was hospitalized after contracting shingles.

“I was diagnosed over the February recess with a case of the shingles,” Feinstein’s office said in a statement on March 2. “I have been hospitalized and am receiving treatment in San Francisco and expect to make a full recovery. I hope to return to the Senate later this month.”

The Democrat has since been released from hospital, although it is unclear when she will return to Washington.

Elsewhere, Sen. John Fetterman (D-Penn.), 53, who suffered a stroke during his campaign trail last year, remains hospitalized at Walter Reed National Military Medical Center where he has been receiving treatment for clinical depression since last month.

His office said late last month that he is “doing well, working with the wonderful doctors, and remains on a path to recovery.”

The absences of the Democratic lawmakers have made things difficult for Senate majority leader Chuck Schumer (D-N.Y.), who is already navigating a very narrow 51-49 majority as opposed to the 50-50 split of the previous two years.

The Epoch Times has contacted McConnell’s office for comment.