Month: April 2023

Authored by Larry Johnson via Sonar21.com,

Have you heard of the “International Rules Based Order?” Russia, according to Washington and NATO, is violating those rules (China too) and must be punished. We can’t have “rule breakers” mucking up global tranquility can we?

Since 1945, the United States has pursued its global interests by building and maintaining various alliances, economic institutions, security organizations, political and liberal norms, and other tools — often collectively referred to as the international order…

Building an international order has been a formal program of US foreign policy since at least the 1940s and an aspirational goal since the nation’s founding. According to its post–World War II architects, the international order protects US values by maintaining an environment in which the ideals of a free and democratic society — like that of the United States — can flourish. The United States has used both power and idealistic notions of shared interests to underwrite the rules-based order. In this sense, it employed both hard and soft power to construct the order.

https://www.rand.org/pubs/research_reports/RR1598.html

Got it?

The so-called international order basically is a system of rules that the United States sets and arbitrarily decides whether or not a foreign country is complying or disobeying.

The bottom line?

These “rules” are designed to promote US interests at the expense of others.

What is a rule?

It is, “an authoritative, prescribed direction for conduct, especially one of the regulations governing procedure in a legislative body or a regulation observed by the players in a game, sport, or contest.” In theory, the rule is supposed to apply to everyone.

Let’s take basketball (appropriate in light of March Madness currently underway in the United States) and look at how genuine rules are supposed to work in a competitive environment. There is a set amount of time for a college game — 40 minutes, two 20 minute halves. You, as a rules official, cannot arbitrarily give one team that you like more time to play in hopes that they score more points and finally prevail. Any player who makes a basket outside the 3 point line is awarded 3 points for his team. Any player who possesses the ball and takes more than two steps without dribbling is guilty of traveling and the ball is turned over to the other team.

When we look at the so-called international rules to promote global order a very different picture emerges. We are essentially talking about an international casino and the United States traditionally has behaved like a crooked dealer who makes sure that friends of the casino win. Here is one example. If protestors take to the streets and try to overthrow a government the United States likes, that is bad and those protestors must be punished. However, if the government has fallen out of favor with the United States then the protestors are sanctified beings carrying out God’s will and must be supported.

Iran is a case in point. Last October, Washington cheered on protests in Iran and punished Iranian authorities for trying to quell the activity:

The United States on Wednesday imposed a slew of new sanctions against Iranian officials involved in the ongoing crackdown on nationwide protests in Iran – the latest US response to Tehran’s efforts to quash outrage after the death of 22-year-old Mahsa Amini.

“It has been 40 days since the death of 22-year-old Mahsa Amini in the custody of Iran’s so-called ‘Morality Police,’ and we join her family and the Iranian people for a day of mourning and reflection,” Secretary of State Antony Blinken said in a statement.

“The United States is committed to supporting the Iranian people and ensuring that those responsible for the brutal crackdown on the ongoing nationwide protests in Iran are held accountable,” Blinken said. “Today, we are announcing a joint action between the State and Treasury Departments designating 14 individuals and three entities using five different authorities, demonstrating our commitment to use all appropriate tools to hold all levels of the Iranian government to account.”

https://www.cnn.com/2022/10/06/politics/us-iran-sanctions/index.html

Ditto for Georgia (the country not the state). When the legislature in Tbilisi passed a law intended to limit foreign interference in Georgia, protestors took to the streets and battled police in early March:

Police in the Georgian capital Tbilisi used tear gas, water cannon and stun grenades late on Wednesday as they moved to break up the second straight day of protests against a “foreign agents” law which critics say would limit press freedom and undercut the country’s efforts to become a candidate for EU membership.

https://www.theguardian.com/world/2023/mar/08/georgia-opposition-protes…

And Washington’s response to that “violent insurrection?”

In Washington, State Department spokesman Ned Price voiced solidarity with the protestors.

“We urge the government of Georgia to respect the freedom of peaceful assembly and peaceful protests,” Price said. “We are standing with the people of Georgia and the aspirations that they have.”

If you watched any of the videos of the Georgia protests, they were not peaceful.

Quite a contrast to what took place in the United States on January 6, 2021, when Donald Trump supporters surrounded the US Capitol. The Trump supporters are condemned, prosecuted and imprisoned as insurrectionists bent on sedition. The evidence from that day indicates that agents of the US Government (as well as a few Ukrainian members of AZOV) were in the crowd trying to stir them to violence. Once those protestors entered the Capitol, very few participated in acts of violence. But, because they opposed Joe Biden, they are treated as despicable criminals. Tucker punches back against the Biden Administration propaganda meme.

Iran, who was widely condemned in Europe for its response to protestors, is having great fun with French President Macron’s response to French citizens angry over raising the retirement age without a vote by the French legislature:

Iranian authorities commented on the mass protests and strikes in France. According to Iranian Foreign Ministry spokesman Nasser Kanani, official Paris should listen to the French people and abandon the “barbaric methods of violence against people defending their democratic rights”.

https://t.me/sonar_21/1406

Rules about protests are small potatoes compared to the Big rule about not carrying out military activities in a foreign country unless you have been invited to send your forces to provide assistance or you have been attacked. The United States and NATO insist that Russia is a major violator of this rule and must be punished. Russia, for its part, argues that it is acting to protect Russian speaking Ukrainians who have been shelled relentlessly by the Government of Ukraine since 2014 and to oppose NATO’s expansion to its borders.

Neither Russia nor China give any credence to complaints and outrage from the West because of America’s own sordid record of military campaigns in Vietnam, Iraq, Syria, Panama, the former country of Yugoslavia, Somalia and Afghanistan.

Here is the harsh truth about the Rules Based International Order. It is an anachronism created in the wake of World War II by the United States, it is unraveling and the Biden Administration continues to enact policies that will hasten its demise.

Keep your eye on Israel. It is being wracked with protests over a proposed law to strip its Supreme Court of power and consolidate that power with the Executive. The rifts within Israel are profound and widening by the day. Prime Minister Benjamin Netanyahu fired the Defense Minister today and Israel’s Consul General resigned in protest.

Why do I bring this up? Because there is no signal yet from the Biden Administration whether it will bless these protests as “following the international rules” or condemn Netanyahu as a violator of those rules.

Laments about the “International Based Rules of Order” exposes the fact that America no longer has the strength nor the ability to impose its will on others. China, Russia, Iran, Saudi Arabia, India and South Africa, to mention a prominent few, are awake to this reality and are busy creating an alternative international order that will put the United States on the sidelines. I believe this is the most important consequence of the proxy war between NATO and Russia in Ukraine.

The weak underbelly of America has been exposed and no amount of threats or sanctions from Washington will change that reality.

Twitter has changed its icon… to the Dogecoin Token symbol…

DogeCoin soared over 20% to 4 month highs as the market noticed Musk’s change…

 It’s not just DogeCoin that is getting a bump. Ethereum is back above $1800…

As CoinTelegraph notes, just two days prior, Elon Musk, CEO of Twitter and Tesla, asked a U.S. judge to dismiss a $258 billion lawsuit filed by investors alleging the operation of a pyramid scheme to promote Dogecoin.

Musk’s lawyers reportedly argued that “funny pictures” and “tweeting words of support” do not amount to a fraud claim.

Additionally, TechCrunch reports that in that suit, Musk’s lawyers recently called dogecoin a “legitimate cryptocurrency that continues to hold a market cap of nearly $10 billion,” arguing that Musk’s tweets thereof were just that (we note that the current ‘market cap’ value of dogecoin has shot to around $12.4 billion).

It appears this ‘update’ reflects Musk’s general view on the farcical litigation.

Authored by Kevin Duffy via The Mises Institute,

“This is all about regulation and the fact that at some point in time there was great advocacy for making sure that the regional banks and the smaller banks didn’t have to comply with some of the rules that perhaps would not have allowed them to get into this situation because there would’ve been stress testing and more oversight and more watching of what was going on.”

~ Rep. Maxine Waters (D), Financial Services Committee, March 15, 2023

As fate would have it, Silicon Valley Bank CEO Greg Becker lobbied in 2018 to raise the asset bar on the annual Dodd-Frank stress tests from $50 billion to $250 billion. On May 24, 2018, when President Donald Trump signed “the biggest rollback of bank rules since the financial crisis,” SVB’s assets footed to $54 billion. By the end of last year, they had mushroomed to $212 billion.

Never mind that the rollback bill was signed by 33 Democrats in the House and 17 in the Senate. The Left had its perfect scapegoat. “Back-to-back collapses came after deregulatory push,” claimed The New York Times, shortly after the FDIC took control of SVB and Signature Bank, the second and third largest U.S. bank failures in history.

Would it have made any difference? The architects of the 2010 Dodd-Frank Act put in place a set of rules to prevent another mortgage crisis, never imagining that the next crisis would change its spots. Truth be told, subjecting SVB to a rash of annual stress tests would not have saved the day. Bank regulators have been looking for trouble in all the wrong places.

Banking risks

The nature of modern day, fractional reserve banking is a high wire act, juggling blow torches over pools of gasoline. Far from their staid, conservative public image, banks are exposed to a number of risks that could spell impending doom on any given day. These risks are magnified by leverage, typically 10 to 15 times.

A bank has three main risks: credit risk (not being paid back), interest rate risk (rising interest rates) and funding risk (depositors pulling their money out). Banks are in the business of borrowing short-term and lending long-term, a.k.a. the “carry trade.” While the stream of interest payments from borrowers is fixed, the rate banks pay depositors is variable and unknown. 

The 2008 financial meltdown centered on credit risk, as a combination of easy money (meant to contain the bursting tech bubble of 2000-02) and the government’s drive towards homeownership encouraged lax lending standards and ignited a housing bubble. In 2009, the same all-seeing regulators who failed to anticipate the Great Financial Crisis (GFC) were tasked with heading off the next disaster, leading to the Basel III Accords in which 27 member countries participated. This was the blueprint for Dodd-Frank, which began subjecting the “global systemically important banks” (G-SIBs) to annual stress tests in 2013. 

Administered by the Federal Reserve, the tests project various economic variables over a 3 ¼ year period for a baseline path and “severely adverse” scenario (deep recession with the unemployment rate reaching roughly 10 percent). A simulation is then run along the severely adverse path, concentrating on how capital ratios are impacted for each participating bank.

Post-GFC environment

The good news is that the credit risk of bank portfolios appears to be waning. From 2013 to 2022, the Fed’s loss rate assumption on domestic first-lien mortgages went from 6.6 percent to 1.3 percent as homeowners’ equity increased from 52.6 percent to 71.2 percent. Apparently, some of the lessons from the mid-2000s housing bubble were taken to heart.

The bad news is that nobody paid attention to exponentially growing interest rate risk. The onset of Covid-19 and ensuing government lockdowns set off an ill-fated “flight to safety,” plunging 10-year Treasury yields from 1.92 percent to 0.65 percent in the first quarter of 2020. Several stimulus packages followed, totaling over $6 trillion. As the government’s budget deficit swelled from $1.0 trillion to $4.1 trillion that year, the Fed went into rescue mode, more than doubling its balance sheet. From the end of 2019 to the end of 2021, bank deposits exploded, going from $13.2 trillion to $18.0 trillion. 

The banks sealed their fate when they put that money to work, much of it flowing into low-yielding Treasury bonds and mortgage-backed securities (government guaranteed) which the regulators had assigned ultra-low capital requirements and risk weightings of zero. By the end of 2021, CPI inflation hit 7.0 percent, the highest rate in 40 years, yet the fed funds rate (overnight rate banks lend to each other) remained stuck at 0.08 percent. With deposit rates essentially at zero, buying government bonds yielding 1 ½ percent seemed like a no-brainer. What could possibly go wrong?

Plenty, as interest rates more than doubled, narrowing the gap with price inflation and producing the worst year for bonds since the early days of the republic. (And no, this wasn’t caused by Fed chair Jay Powell raising rates. The market demanded higher rates to compensate for raging price inflation. The Fed was way behind the curve.) For all of 2022, the 10-year Treasury lost 17.5 percent of its value, with the yield ending the year at 3.88 percent. For perspective, a 10x leveraged bank that loses 10 percent on its assets is insolvent.

2022 stress test

How far off were the stress test modelers? Heading into 2022, the baseline scenario assumed declining, but still positive real GDP growth, CPI inflation falling to 2.1 percent over the next three years and the 10-year Treasury yield increasing to 2.5 percent. Meanwhile, the severely adverse scenario projected a 1.3 percent CPI inflation rate and 0.7 percent 10-year yield by the 3rd quarter of 2022. Ironically, the baseline path may have been more damaging to bank balance sheets due to rising rates, but only the adverse path was considered when running the 2022 stress tests.

The 33 banks tested in the first half of 2022 had a combined Q4 2021 Tier 1 capital ratio of 14.1 percent, well above the regulatory minimum of 6.0 percent. By comparison, Silicon Valley Bank sported a Tier 1 capital ratio of 14.9 percent, earning the bank the distinction of “well-capitalized.”

Under the severely adverse scenario, the Tier 1 capital ratio of the 33 banks was projected to fall as low as 11.4 percent, still comfortably above the minimum. Although we cannot know for sure, SVB’s outsized holdings of bonds (59 percent of assets vs. just 31 percent in loans) and high capital ratio meant it would have likely passed the 2022 stress test with flying colors.

Held-to-maturity accounting

How big were the bond losses at Silicon Valley bank? They totaled $18 billion at year-end (17 percent of cost), $15 billion of which was kept off the books as long as the securities were marked “held-to-maturity.” While HTM losses wiped out 98 percent of SVB’s tangible equity, they are spread throughout the banking system, albeit to a lesser degree. For example, Bank of America would see 53 percent of its equity vanish under mark-to-market accounting. (Losses were also 17 percent of cost at year-end, but BofA’s bond portfolio was only 26 percent of total assets.)

The Fed’s new Bank Term Funding Program (BTFP) kicks the HTM can further down the road. The banks will not have to recognize these losses as long as they never sell, holding to maturity. To help them over the current rough patch, the Fed is willing to lend against these underwater bonds at par (well above their market value) for one year at the overnight index swap rate (currently 4.72 percent) plus 0.10 percent. In other words, these losses will be passing through the income statement for years, slowly bleeding bank equity. The total bill will depend on future short-term interest costs.

Conclusion

Citigroup CEO Jane Fraser recently argued, “this is not a credit crisis.” She’s right. This is a crisis caused by banks taking on massive amounts of interest rate risk from 2020-21 during the final blow off phase of a 40-year bull market in bonds, all under the watchful eyes of the financial system’s overseers.

This is not to suggest that the problem is isolated to bond portfolios. The banks’ loan books make provisions for future credit losses, not mark-to-market losses due to rising rates. According to Goldman Sachs, 99 percent of outstanding mortgages were originated at rates below today’s market rate.

The Fed is caught between a rock and a hard place. Allow interest rates to rise much further and the banking system becomes insolvent. Try to push rates lower and price inflation spirals out of control. Above all, the Fed must instill confidence in the system lest depositors panic. Like the banks, the Fed is juggling blow torches.

Several years ago, Jim Grant envisioned what should be obvious today: “The question before the house is whether the central bankers can continue to control events or whether events will turn the tables and start to control the central bankers. Our money’s on events.”

Authored by Bill Blain via MorningPorridge.com,

“You can’t beat honesty, education and competitiveness.”

Q2 opens up with a new oil shock, but after the volatile start to 2023 what will roil markets next? Might it be further geopolitical instability?

A new month, a new quarter! After the tumult of Q1: a spate of bank failures, the rescue of Credit Suisse, crashing bonds followed by a flight to quality rally, uncertainty and certainty, volatility and liquidity… where are we headed next? There are so many ways to read markets, but anything we say is frankly guessing when we don’t really have a breeze about what’s happening tomorrow. Which outcomes are most likely?

• The optimist will tell you about Central Banks easing rates, repressed demand, entrepreneurial spirits unleashed, earnings set to rise, and how battered stock prices are bound to bounce back higher.

• The pessimist will warn of rates, inflation, consumer discretionary spending, and the long slow requirement to undo the financial asset price inflation caused by ultra-low-interest rates and QE distortions.

• Nouriel Roubini et al will tell you we are caught in a doom-loop of central banks facing a tri-lemma of being unable to provide unlimited liquidity to bolster banks, rising inflation and a deeper recession – triggering a debt Armageddon. Entertaining stuff it is not…

What factors are likely to dominate markets this quarter? Rates? Inflation? Employment? Energy? Or…… maybe something more external; Geopolitics?

Lots of commentators don’t think we face an ongoing banking crisis – it’s already been nipped in the bud by the swift promise of liquidity to US banks suffering deposit flight, and the swift quietus administered to Credit Suisse. Back in September 2007 everyone was quite shocked by the run on UK bank Northern Rock (caused by its funding sources drying up). It was not a one-off. It was almost exactly a year later that Lehman failed. I remember writing a note back then about the Global Financial Crisis 2007-2037 – inferring this ongoing crisis is barely halfway through. Further pain this way comes remain my prediction – but the market seems less concerned….

The reality is the future path for markets probably lies somewhere between all these varied perspectives – we can make our calls based on probabilities, experience and informed guesstimation.. There may be trouble ahead, but frankly there always is.

However, first clue on more volatile conditions in Q2 might be this morning’s news of a 1 mm barrels a day cut in oil quotes by OPEC – well, basically Saudi. It should remind us how changed the world is – Saudi Arabia not just flexing its muscles, but making a direct challenge to US hegemony while leaning in towards the new China axis. In terms of a shock to prices, inflation and expectations on markets – it’s a significant move likely to set the tone this month. But whatever the Saudi’s just triggered will likely just be a footnote in the long-term historical record of tension between East and West.

Strip the market down to the basics, and there are three big, closely interrelated themes currently being spun by the tides of human affairs. These define where the global economy is likely going, and where these are likely to lead markets.

• Recession – will be global economy tumble into a deep recession? How much will central banks be able to ameliorate the consequences and at what risk by supporting markets?

• Consumers – how will society and markets cope with crashing discretionary spending? Don’t discount a rising tide of populism across the West – France might just have been the first domino.

• Geopolitics – What does the conscious uncoupling of China and Russia from the West mean?

I have a feeling we underestimate just how destabilising politics and the rising tension betwixt East and West may yet become. Unlike Russia – which favours the direct approach and battle, the Chinese are far more subtle and long-term in their approach.

The Great geopolitical threat to the West, and the reason so many now expect the end of dollar hegemony, is China challenging / offering itself for the top global spot. It’s seized the opportunity – created by the distracted West – to place itself in front of the non-aligned economies by presenting the illusion of an alternative to dealing with the West. Long-term initiative like the Belt and Road project, debt diplomacy, agreeing rules on the South-China Seas with its neighbours, focusing on being the regional power, and flexing across Africa, Latin America, and in the soft Italian underbelly of Europe, it is now inserting itself in the Ukraine/Russia equation as a Russia’s crutch and as the potential peacemaker. Critically the Chinese are resetting the fundamentals of dollar based global trade by inserting the Yuan into oil and other commodity payments.

In a world made less certain by the hatstand behaviour of elected leaders and the bitter political gridlock of the US, the opportunity from China to look a more reasonable partner and present its self as alternative offering peace, wealth and prosperity appeals to many struggling nations. The US is presented as unreliable – China presents itself as a resolute partner.

This morning’s oil spike will be a boon to China’s ambition. Although China is now Saudi’s largest buyer, it is benefitting from Russian oil (being delivered in old, dilapidated tankers bought by Russia but flying whatever the most convenient convenience flag) at deeply discounted prices. By fracturing the Saudi-US axis, global oil prices will remain increasingly volatile. While China can play peacemaker in Ukraine, but ferment ongoing conflict to keep the West distracted and using up warstocks – China is a clear winner.

Senior European leaders, French president Emmanuel Macro and EC President Ursula von der Leyen, are set to pay court to Emperor President Xi. Ostensibly Macron says he will talk to Xi about Ukraine and attempt to unravel the current alliance between Russia and China. (Why would XI listen – effectively Russia is now a client state.) More interesting is von der Leyen’s presence: she has commented previously on de-risking Europe’s dependency on China – the Chinese may be judging how unstable her position may become.

The current political ructions in the US – where the gridlocked house makes the frightening scenario of a technical default and shutdown look a non-zero outcome, and the soon-to-be-arraigned Former President Trump is the GOP frontrunner – raise serious concerns in Europe about the future of the relationship with the US. Trump is sworn to revenge European slights and withdraw US support.

But, just how good an alternative to the West is China?

I have some very simple questions: How many Western entrepreneurs are asking for Chinese citizenship? How many western business leaders are seeking to sell their companies to move East and invest their proceeds buying Chinese companies? How many refugees are knocking on the doors of Russia and China looking for opportunity? Govts lean one-way, business and people the other.

The West is not perfect – far from it – but it kind of works. China may build more high speed railways in 10-years than Europe can dream off, but no matter how much they spend, how many theses their educational scientific paper mills push out, or how much IP they liberate from the west, they still can’t make a decent superconducting chip.

Factor that into how this plays out long-term.

While over 1 million Americans routinely travel to Mexico for medical, dental or other health services each year, pet owners are doing the same – saving hundreds or even thousands on vet bills.

“The price difference is insane,” Valerie Silva told USA Today. Silva took her first trip to a Mexican vet clinic at the beginning of 2022 after her chihuahua mix needed vaccines and a spay. She later had her husky vaccinated at the same clinic, where she said eight shots for two dogs came out to roughly $200, while the spaying procedure was $80.

“It’s just so much easier being able to go in there and not have to worry about it being like $70, $100 for a shot.”

A 2022 Forbes Advisor Survey of 2,000 dog and at owners revealed that nearly two-thirds report inflation has made it more difficult to pay a surprise vet bill. A bill of less than $1,000 would cause 42% of pet owners to go into debt, while bills of less than $500 would cause 28% of pet owners to go into debt.

According to data from the Mexican government, more Americans are entering Mexico with their pets, as both costs and wait times at US vet clinics soar.

“We’ve got this perfect storm in terms of pet vet tourism,” said Dr. David Vequist, director of the Center for Medical Tourism Research at the University of the Incarnate Word in Texas. “People are trying to find care at the price that they want.”

According to Mexico’s SENASICA agency, which inspects all pets entering the country, crossings with pets hit 33,500 in 2022, up 68% from 2019.

In addition to inflation, the surge in border crossings comes as US vets suffer staff shortages amid a booming pet population.

The number of pet dogs jumped as much as 16% between 2016 and 2020, while pet cats climbed as much as 6%, according to the American Veterinary Medical Association.

Clinics in the U.S. have raised salaries to attract more workers, but the wage hikes coupled with inflation mean higher costs are passed on to pet owners. The cost of veterinary services is up 10% year-over-year, according to the latest data from the Bureau of Labor Statistics.  

A shortage of nearly 15,000 veterinarians will likely still exist by 2030, according to a 2022 report from Mars Veterinary Health, a network of more than 2,500 veterinary clinics, hospitals and diagnostic labs. Over 75 million U.S. pets may not have access to vet care by then without intervention. –USA Today

In 2015, San Diego dog owner Anna Ginsky said she was quoted around $2,000 for dental work. Instead, a Mexican clinic charged her just $300.

Ginsky turned her experience into a business, launching MexiVet Express in 2018 – a transportation and liaison service which shuttles American pets back and forth from clinics in Baja, California.

“Some people just can’t afford $5,000 to remove a tumor off of their pet’s leg,” she said. “If they don’t know about an alternative option, then their only option is to let their pet suffer. In a lot of cases, that’s when they find us.”

During the pandemic, Ginsky says her client list doubled. She’s now up to around 60 clients per week and has nine employees.

Mexican vets, meanwhile, report that business is booming. Maria Mariño, a veterinarian and owner of two clinics in Ensenada, says that roughly 20% of her patients were from the US before the pandemic – a figure which is now closer to 30%.

“The treatments are very expensive there, so they travel to check another second option,” she said.

By Sagarika Jaisinghani, Bloomberg Markets live reporter and strategist

Of all the top Wall Street strategists who predicted a rocky first half for equity markets back in December, many warned about mounting economic and profit risks from higher interest rates, but no one saw the turmoil in the banking sector coming.

Shares in European banks just posted their deepest monthly drop since the start of the pandemic as the sudden collapse of a number of US regional lenders including Silicon Valley Bank and the meltdown in Credit Suisse stock caught leading prognosticators by surprise. Forecasters had primarily focused on the fallout from recession risks, rising rates and inflation’s erosion of corporate earnings.

Bank of America strategist Michael Hartnett said in December the next shoe to drop would be a “credit event” caused by the impact of policy tightening by the Federal Reserve, although he wasn’t expecting it to come from small banks.

Even bearish strategists were confident about betting on banking stocks at the start of the year. And some, such as Max Kettner at HSBC, went so far as to turn optimistic about the broader market, saying the pessimism on the rest of Wall Street would likely fuel a contrarian rally. “There is no sugar coating this — our constructive view has proved pretty wrong lately,” Kettner acknowledged in a note.

The banking tumult dragged the regional benchmark Stoxx 600 to its worst March since 2020 and ended its record streak of outperformance against its US peer. It’s also sparked a rotation into defensive and growth stocks.

Part of the challenge in forecasting such a crisis is timing. The team at Goldman Sachs was among those warning that stocks would face a tough recovery in 2023, given projections of higher rates. Even so, strategist Sharon Bell says they were “surprised at the specifics” of how the weakness has played out in relation to the banking sector.

“We felt that with rates rising so fast, the US market was vulnerable,” Bell says. “But it’s one thing to say vulnerable and another to actually pinpoint the problems that can occur and that’s very, very difficult.”

In Europe, Barclays strategist Emmanuel Cau was among those recommending lenders. He downgraded his view after the banking drama, saying he now sees higher regulatory scrutiny weighing on lenders.

HSBC’s Kettner, on the other hand, remains constructive both on banks as well as broader equities. “This is not a liquidity crisis or a capital crisis, it’s about confidence,” he says. “We could easily look back in a couple of months and view this as a hiccup rather than something more sinister.”

But as recession worries take hold, Citigroup’s Beata Manthey is returning to her neutral rating on European stocks excluding the UK, less than three months after she upgraded her call to overweight because of attractive valuations.

NATO Secretary-General Jens Stoltenberg has announced that Finland will formally enter the Western military alliance as its 31st member as soon as Tuesday.

“This is a historic week,” Stoltenberg told reporters the day before NATO foreign ministers are were set to meet in Brussels. During the Monday comments, he emphasized: “From tomorrow, Finland will be a full member of the alliance.” He also expressed hope of Sweden joining in the following months.

The announcement of the Scandinavian country’s speedy accession came the week after both Hungarian and Turkish parliaments belatedly voted to approve Finnish membership in NATO. Turkey had been the last holdout, and is still not expected to approve Sweden’s application.

Stoltenberg continued in his celebratory remarks, “we will raise the Finnish flag for the first time here at the NATO headquarters. It will be a good day for Finland’s security, for Nordic security, and for NATO as a whole.” 

Finnish President Sauli Niinistö, Defense Minister Antti Kaikkonen, and Foreign Minister Pekka Haavisto are expected to join Stoltenberg Tuesday for a televised flag-raising and induction ceremony on Tuesday:

Stoltenberg said that Turkey, the last country to have ratified Finland’s membership, will hand its official texts to U.S. Secretary of State Antony Blinken on Tuesday. Stoltenberg said he would then invite Finland to do the same.

Russia, which shares an 810 mile border with Finland, has meanwhile announced it will strengthen its defenses along its western and northwestern frontiers.

Russian Deputy Foreign Minister Alexander Grushko said to RIA: “We will strengthen our military potential in the western and northwestern direction. In the event that the forces and resources of other NATO members are deployed in Finland, we will take additional steps to reliably ensure Russia’s military security.”

Meanwhile, the Finnish leader who helped push hard for NATO entry in the wake of Russia’s invasion of Ukraine has just conceded defeat after Sunday’s parliamentary election, in a major setback for the Finnish left…

The Prime Minister of Finland 🇫🇮, Sanna Marin, who pushed for Self-ID Laws, for Men to use Women’s Spaces & for Kids to be transitioned, has been defeated at the polls. 🗳️

The country has chosen to remove her from office and elect a conservative coalition government. pic.twitter.com/esQ0E5qpye

— Oli London (@OliLondonTV) April 3, 2023

“Finland’s left-wing Prime Minister Sanna Marin conceded defeat on Sunday in the Nordic country’s parliamentary election as the opposition right-wing National Coalition Party (NCP) claimed victory in a tightly fought contest,” CNN reports Monday.