Regional Banks Target New Crypto Business From Former Signature And Silvergate Clients

Regional Banks Target New Crypto Business From Former Signature And Silvergate Clients

Quelle surprise. There’s no shortage of banks currently “rolling out the welcome mat” for crypto firms who need accessing to banking after the blowup of popular crypto banks Silvergate and Signature Bank, according to a new report from WSJ

New Jersey-based Cross River Bank was named among other regional banks like Customers Bancorp and Fifth Third Bancorp who are all “scrambling” to establish new relationships with crypto customers. 

Additionally, large banks like JPMorgan Chase & Co. and Bank of New York Mellon Corp. are still doing business with crypto clients, the report notes. They’re simply being “selective” about their customer list and what services they provide. 

The fears that Washington was going to cut off crypto completely, stoked by indications it was going to sever it from the banking system, appear to have “somewhat abated”, the Journal wrote. 

Rich Rosenblum, co-founder and president of crypto trading firm GSR, said: “There are dozens of other banks, both onshore and offshore, that are taking advantage of this opportunity.” 

After the collapse of Signature, one banker said he was so inundated with calls and applications for new banking that he had to put his phone on “Do Not Disturb” mode in order to get a night’s sleep. 

“We clearly just want to diversify the options that we have,” said Crypto trading firm B2C2 Ltd. CEO Nicola White. The company is in the process of applying for 20 bank accounts across multiple currencies. Michael Shaulov, chief executive of crypto-infrastructure startup Fireblocks Inc., said: “We believe that there is a set of U.S. banks that is likely to onboard some of the crypto firms, with a smaller concentration in each bank than previously.”

Smaller banks usually take more time to establish accounts, as they are more selective about who they do business with. Banks are eager to walk a fine line, minimizing their exposure to crypto so as to avoid the ire of regulators, but still keeping the doors open to new deposits. 

A perfect example of such a fine line is when a spokesman for Fifth Third bank told the Journal the bank didn’t directly handle crypto, but added: “We recognize the need that all companies, including digital asset companies, have for traditional banking services including payroll, benefits, and accounts payable.”

Bob Rutherford, vice president of operations at FalconX, concluded: “Losing SEN and Signet is operationally disruptive, but there are a number of regionals that are also building out these networks and services.”

“The closure of Signature and Silvergate has prompted an increase in inquiries from prospective clients. As a regulated bank and digital asset custodian we can offer firms who meet our strict compliance and risk requirements access to an integrated solution,” said Puerto Rico’s FV Bank CEO Mile Paschini. 

Tyler Durden
Tue, 03/28/2023 – 14:00

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It’s Prudent To Dust Off The Stagflation Hedges Again

It’s Prudent To Dust Off The Stagflation Hedges Again

By Cormac Mullen, Bloomberg Markets Live reporter and strategist

Stagflation, the bogeyman for markets last year, was never truly vanquished. Like the victims in any good horror movie, investors aren’t really prepared for its return.

The fear surrounding it has fallen out of the public eye somewhat. A non-scientific look at Bloomberg’s News Trend function shows that this year we’re down to an average of 2,000 stagflation stories a month, from over 6,600 in 2022 and 2,400 the year before. That’s despite a jump in stories with “sticky” in them, a proxy for persistent inflation, to 9,600 from 7,500 in 2022

From an economic standpoint, talk of a global recession has gained fresh impetus from the banking crisis. Investors seem to assume that inflation will just collapse as a result.

While annual inflation slowed across the US last month, many parts of the country recorded CPI near or above 6%, three times higher than the Federal Reserve’s 2% target. In the UK, it jumped back above 10% and in the European Union, core prices probably reached a new euro-era record this month.

Beyond the drivers of labor- and housing-market tightness and supply-chain disruptions, a rarely-spoken reason for the stickiness of price gains is that companies now feel they can get away with it, and have a not easily-quenched desire to recapture lost profits from the pandemic.

And the threat of a renewed surge in energy prices is ever present thanks to the war in Ukraine and other geopolitical flashpoints, with Russia’s recent nuclear sabre-rattling an unwelcome reminder of the possibility of escalation.

There are some ominous parallels with what happened in the 1970s, when the world suffered from slow growth, stubborn high prices and rising unemployment, thanks in part to surging energy prices and a weaker dollar. Economists link the phenomenon to a combination of external shocks and policy missteps. The pandemic and the invasion of Ukraine surely count as the former in today’s context, and it’s easy to make a case for the latter.

Of course, inflation is likely to lose impetus in an economic slowdown. But the tail risk that it’s not adequately priced in remains elevated. A gauge of global risk aversion from Citigroup is back in benign territory and a long way from levels seen during the pandemic.

Hedging against stagflation is easier said than done, as it’s a horrible environment for both equities and bonds alike. Take 2022 as a dry run. But some commodity exposure, in particular gold, is an option, as are real assets. Some have argued there’s a case for some emerging market securities too.

Whatever the hedge, it’s at least prudent now for investors to stress test their portfolios for economic growth to slow right down but not take inflation along with it.

Tyler Durden
Tue, 03/28/2023 – 13:40

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Strong 5Y Treasury Auction Stops Through As Nosebleeding Rates Vol Dips

Strong 5Y Treasury Auction Stops Through As Nosebleeding Rates Vol Dips

After weeks of bone-breaking treasury volatility, today has been the first day when the post-bank failure rollercoaster has finally stabilized, and after yesterday’s ridiculously bad 2Y auction (which saw a record tail) which only added to the volatility of 2Y bonds, moments ago the US sold 5Y notes in an auction which almost surprisingly came in stronger than anything we have seen in recent weeks.

The high yield of 3.665% was 44bps below the February yield of 4.106%, but above the January 3.530%; it also stopped through the When Issued 3.675% by 1.0bps.

The bid to cover of 2.48 was unchanged from last month and was just above the six-auction average of 2.45.

The internals were also solid, with Indirects awarded 68.5%, below last month’s 70.0% but above the recent average of 67.3%; and with Directs taking down 18.2%, also above the 17.7% average, means Dealers were left holding 13.3%, the most since December if below the recent average of 15.0%.

The market reaction to the strong auction was modest, with the 10Y dipping from session highs of 3.57% to 3.55%. That said, the 10Y has been stuck in a very narrow range all day, a welcome change from the rollercoaster moves we have observed in recent weeks.

Tyler Durden
Tue, 03/28/2023 – 13:22

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Tariffs on Baby Formula Returned. So Did the Shortages.

baby formula tariffs free trade shortages Food and Drug Administration FDA Biden Administration Congress infants

When supply chain issues caused a baby formula shortage last year, Congress (eventually) cut tariffs to help get more formula onto American store shelves.

It worked! Imports of baby formula soared during the second half of 2022 after tariffs and other regulations were lifted. Stores reported lower out-of-stock rates and news stories about panicked parents being unable to feed their infants abated. In short, the government removed economic barriers and the market solved the problem.

Then, the government put those barriers back in place. On January 1, the tariffs on baby formula returned. Now, so has the crisis.

“It’s getting harder and harder” to find baby formula, pharmacy owner Anil Datwani told Fox News this week. “[Mothers] go from one store to the next store to the next store” looking for baby formula.

Meanwhile, some consumers are complaining on social media that prices for baby formula have suddenly spiked and availability is once again a problem. A Forbes investigation into a recent increase in the price of Enfamil baby formula noted that the increases “follow the expiration of the U.S. government’s suspension of infant formula tariffs in January, which opened the door for formula (both foreign and U.S.-produced) to become more expensive.” (Another contributing factor: Reckitt Benckiser, the British-based company that owns the Enfamil brand, issued a recall in February affecting about 145,000 cans of formula.)

Because that’s what tariffs do, of course. They are import taxes that protect domestic industries at the expense of domestic consumers, who are subjected to limited supply and higher prices as a trade-off for industrial protectionism.

“Families who use imported formula aren’t the only ones who suffer because of these taxes,” because the tariff-induced price increases create an opportunity for domestic producers to raise prices too, explains Reason contributor Bonnie Kristian in a piece at The Daily Beast. “For instance, if tariffs make the price of European formula go from $24 to $30 a jar, U.S. producers that might otherwise have charged $25 can hike their prices to $27. Even with the ‘cheaper’ American option, you’re paying more.”

It’s obviously a bad deal for consumers, but one that’s often invisible. The baby formula shortage has changed that and made the costs of this specific trade policy readily apparent.

It has also revealed the ways in which special interests pull the strings on many protectionist policies. In this case, it was the dairy industry, which benefits from the anti-competitive tariffs and other regulations that effectively prevent foreign baby formula from being sold in America. As Reason reported in December, the National Milk Producers Federation pushed Congress to reimplement the baby formula tariffs, arguing at the time that “the temporary production shortfall that gripped American families in need of formula earlier this year has abated.”

Except, obviously, it hasn’t.

Meanwhile, on Tuesday, the Food and Drug Administration (FDA) announced new plans to “increase the resiliency of the U.S. infant formula market,” including new regulations, more inspections of manufacturing facilities, and an expedited review process for new products seeking to enter the market. The FDA also promised to examine “other factors that may influence the infant formula supply, such as tariffs and market concentration” but did not promise to take any particular steps in that direction.

The timing is convenient, as current and former FDA officials are being hauled before Congress this week to answer questions about the shortage and the agency’s role in worsening it. The hearings are likely to once again highlight how the FDA’s internal dysfunction led to delays in informing the public about the problems at the Abbott Nutrition plant in Michigan, which was shut down in early 2022 due to contamination, spurring the shortages.

The fact that the FDA has admitted it played a major role in creating the baby formula shortage in the first place but has steadfastly refused to hold anyone at the administration accountable for those mistakes should temper any expectations of positive changes.

The FDA has also backpedaled since the start of the new year. On January 6, it rescinded some of the measures adopted last year to allow foreign formula producers to sell their products in the United States. Now, only applications from foreign producers who intend to have a permanent presence in the U.S. market are being reviewed—potentially cutting off suppliers who might be able to help on a temporary basis.

More than a year after the baby formula shortage hit, the federal government is still struggling to figure out what should be blindingly obvious. Want a more resilient market? Let more producers compete on a level playing field—regardless of whether their products are made here or not.

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Title IX Sexual Assault Cases and Extraterritoriality

From today’s decision by Judge Paul Maloney (W.D. Mich.) in Doe v. Calvin Univ.:

In 2020, Plaintiff Jane Doe attended Calvin University in Grand Rapids, Michigan. Calvin University offered a study abroad program in the Philippines with Silliman University, a private university in Dumaguete, Philippines. Silliman University selected some of its students to serve as “buddies” for the Calvin University students. Near the end of the program, the students attended a dinner on the Silliman campus. After the dinner, the Silliman students invited the Calvin students to a local bar and club. One of the Silliman students laced or spiked Plaintiff’s drink and later escorted her back to the hotel where he sexually assaulted Plaintiff.

Plaintiff sued under, among other things, Title IX, and Calvin defended by arguing “that Title IX does not apply outside of the United States.” No, said the court: “Plaintiff pleads deliberate indifference in the administration of the program, a claim based on Calvin University’s conduct in the United States.”

For her Title IX claim, Plaintiff pleads that Calvin University was responsible for establishing and implementing polices and procedures concerning the security and safety of students, including adequate supervision, staff training and education of the program participants relevant to the risks of sexual assault and harassment. Plaintiff pleads that Calvin University’s conduct amounted to deliberate indifference by, among other things, (1) maintaining outdated and inadequate sexual assault and harassment policies, (2) failing to provide adequate training and guidance for staff concerning the study-abroad programs, (3) failing to provide adequate orientation for students in the study-abroad programs which were necessary for protection against sexual assault and harassment, and (4) failing to require the implementation of safety protocols during the study-abroad program….

Title IX provides that “[n]o person in the United States shall on the basis of sex, be excluded from participation in, be denied the benefits of, or be subjected to discrimination under any education program or activity receiving Federal financial assistance, ….” … Our Supreme Court has held that an entity receiving federal funds may violate Title IX through an administrative enforcement scheme that amounts to deliberate indifference. Circuit courts, including the Sixth Circuit, have recognized as viable a Title IX “before” claim, based on the deliberate indifference that occurred before a student-on-student incident….

Neither the Supreme Court nor any circuit court has determined whether Title IX applies to incidents that occur outside the United States. Interpreting a different statute, the Supreme Court noted a “longstanding principle of American law that legislation of Congress, unless a contrary intent appears, is meant to apply only within the territorial jurisdiction of the United States.” Morrison v. National Australia Bank, Ltd. (2010). The majority of district courts have found that Title IX does not apply to incidents outside of the United States. The only district court to reach the opposite conclusion issued its opinion before Morrison…. The Court concludes that Title IX does not rebut the presumption against extraterritorial application….

The conclusion that Title IX does not apply to events that occur outside of the United States does not provide Defendant any relief. Plaintiff pleads a before or pre-assault claim based on a policy of deliberate indifference. (Defendant’s conduct or lack of conduct giving rise to Plaintiff’s Title IX claim occurred in the United States….

Congratulations to Allison Elizabeth Sleight (Thacker Sleight, PC), who represents Doe.

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Bombshell Vax Analysis Finds $147 Billion In Economic Damage, Tens Of Millions Injured Or Disabled

Bombshell Vax Analysis Finds $147 Billion In Economic Damage, Tens Of Millions Injured Or Disabled

A new report estimates that 26.6 million people were injured, 1.36 million disabled, and 300,000 excess deaths can be attributed to COVID-19 vaccine damages in 2022 alone, which cost the economy nearly $150 billion.

Research firm Phinance Technologies, founded and operated by former Blackrock portfolio manager Ed Dowd, Yuri Nunes (PhD Physics, MSc Mathematics) and Carlos Alegria (PhD Physics, Finance), split the impact of the vaccines into four broad categories to estimate the human costs associated with the Covid-19 vaccine; no effect or asymptomatic, those who sustained injuries (mild-to-moderate outcome), those who became disabled (severe outcome), and death (extreme outcome). Data on vaccine disabilities and injuries comes directly from the Bureau of Labor Statistics (BLS), while the excess death figures are derived from official figures on deaths in the US via two different methods (methodology here).

It’s important to note that people in one category (injured, for example) can move into latter categories of severity – which this analysis does not take into consideration.

“We need to remember that not only are these groupings an attempt to characterize different levels of damage from the inoculations, they are not static and could interact with each other,” reads the report. “For instance, there might be individuals who had no visible effects after vaccination but nonetheless could still be impacted.”

Individuals with mild injuries from the inoculations could, over time, develop severe injuries to the extent of being disabled, or an extreme outcome such as death.”

Estimating the economic cost

In analyzing each of the above categories, Phinance used absolute excess lost worktime (see previous report) to determine that the direct economic cost of vaccine injuries was $79.5 billion in 2022, and $52.2 billion for those with severe disabilities.

For deaths, Phinace used the average yearly absolute rise in excess deaths since 2021, which was 0.05% for the 25-64 year-old demographic, which amounted to $5.6 billion in lost productivity.

In total, they found a total “economic cost” of $147.8 billion in 2022 due to the Covid-19 vaccines.

As Dowd notes, these figures are just what can be currently measured, as things like “The knock effects such as lost productivity due to a worker being present but working at say 50%-75% of capacity is missed plus burn out from those picking up slack.”

“The multiplier effects are massive.”

 Now imagine the impact worldwide…

Tyler Durden
Tue, 03/28/2023 – 13:20

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The Case For Gold Is Looking Stronger

The Case For Gold Is Looking Stronger

Authored by Austin Mann via Knowledge Leaders Capital blog,

The Federal Reserve’s balance sheet grew by $394B in the past two weeks.

In the context of all G4 central banks, this move alone erases half of all quantitative tightening (QT) progress since the beginning of the year. A directional change like this could indicate the end of a short quantitative tightening cycle.

The dotted lines in the chart below demonstrate how this move would look without any additional balance sheet expansion from other G4 central banks.

So far, the ECB has been able to avoid a similar balance sheet expansion.

Credit Suisse did not require intervention, and the applicable policy came from the Swiss National Bank, not the ECB.

The price of gold in USD is correlated to G4 balance sheets as a percent of GDP.

Additional G4 central bank interventions causing a further increase in central bank balance sheets could be beneficial for gold.

The price of gold is inversely correlated to the US dollar and now suggests a near 4% drop in the USD.

As of 12.31.22, none of the securities mentioned were held in the Knowledge Leaders Strategy.

Tyler Durden
Tue, 03/28/2023 – 13:06

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After Price Cuts, Teslas Now Lose Value Faster Than Rivals

After Price Cuts, Teslas Now Lose Value Faster Than Rivals

Those price cuts Tesla has recently put in play to help spur business may wind up not being the “perfect plan” after all.

That’s because a report from FT this morning says that Tesla vehicles wind up losing their value faster than rival vehicles after price cuts. In fact the “value of second-hand Tesla cars has collapsed since the electric-vehicle maker embarked on a series of price cuts,” the report notes.

A new Model 3 with a long-range battery, bought in January this year in the UK for £57,435 is estimated to fall 46% in value to £31,300 by January 2024, the report says, citing figures from industry pricing agency CAP HPI.

It seems clear the depreciation is a result of the price cuts. Over 12 months, the same model only fell 4% in price after September 2021. It was £48,435 new and was worth £46,300 a year later, FT wrote. 

Alarmingly for potential Tesla owners, competitors don’t seem to be experiencing a comparable loss of value. A £50,395 electric Polestar 2 purchased in January would be worth about £33,000 at the start of 2024, FT wrote. This is a 35% drop, compared to the 46% plunge for Tesla. 

The report notes that the steeper depreciation could results in Teslas being more expensive via financing deals. 

In the beginning of March, we noted that Tesla also cut prices on its Model S and Model X vehicles. This decision follows the investor day event held at the end of February, wherein Elon Musk stated that price cuts had sparked demand for more affordable models.

Musk claimed that the demand for Teslas was nearly unlimited and would increase significantly as the company made its vehicles more affordable. The recent price reductions for the S and X models imply that these vehicles may not have experienced the same boost in demand as the rest of the lineup when the company reduced prices earlier this year. 

In January, Tesla slashed the prices of its more affordable vehicles by as much as 20%, which enabled buyers to qualify for the tax incentive by putting the vehicles under a $55,000 cap. 

Musk directly addressed the price cuts during the investor day: “We found that even small changes in the price have a big effect on demand, very big.” 

And, apparently, an effect on residual value…

Tyler Durden
Tue, 03/28/2023 – 12:45

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Staffer For Sen. Rand Paul “Brutally” Stabbed

Staffer For Sen. Rand Paul “Brutally” Stabbed

Authored by Mimi Nguyen Ly via The Epoch Times,

A staffer from Sen. Rand Paul’s (R-Ky.) office has been attacked in Washington, D.C., according to a statement from the congressman’s office.

In a statement to outlets, Paul said that a member of his staff “was brutally attacked in broad daylight in Washington, D.C.,” over the weekend.

“I ask you to join Kelley and me in praying for a speedy and complete recovery, and thanking the first responders, hospital staff, and police for their diligent actions,” he added.

“We are relieved to hear the suspect has been arrested. At this time we would ask for privacy, so everyone can focus on healing and recovery.”

In a statement on Monday, the Metropolitan Police Department of the District of Columbia (MPD) said the attack took place on March 25 and police were dispatched around 5:17 p.m. to 1300 block of H Street, Northeast, in response to a reported stabbing.

The victim was taken to a hospital for “treatment of life-threatening injuries.”

There has been no update as to the staffer’s condition as of late Monday.

The victim was identified as Phillip Todd, who serves on the Senate Homeland Security Committee, according to The Independent, citing MPD’s report. Paul is the top Republican on the committee.

According to the MPD report, the attacker “popped out” from corner to attack Todd, who was walking down the street with another person at the time.

The attacker stabbed Todd and subsequently ran off.

The suspect, Glynn Neal, 42, was arrested on the same day of the attack. He was charged with assault with intent to kill with a knife, according to the MPD statement.

Neal had been sentenced in 2011 to more than 12 years in prison for compelling two women to engage in prostitution, according to a release (pdf) from the Department of Justice.

Neal was released from prison just one day before the stabbing, reported Fox5DC, citing Federal Bureau of Prisons records.

The attack occurred weeks after Rep. Angie Craig (D-Minn.) was attacked in an elevator inside her Washington, D.C. apartment building on Feb. 9. The suspect, a homeless man, was arrested on the same day.

Tyler Durden
Tue, 03/28/2023 – 12:25

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“Economic Headwinds Are Building” – Jeff Gundlach Warns Of Imminent Recession

“Economic Headwinds Are Building” – Jeff Gundlach Warns Of Imminent Recession

Echoing his comments from earlier this month, ‘Bond King’ Jeff Gundlach warns of an imminent recession – within the next few months – as the yield-curve suddenly steepens…

“The economic headwinds are building, we’ve been talking about this for a while, and I think the recession is here in a few months,” Gundlach said Monday during an interview with CNBC.

“All we really need is the unemployment rate to go higher.”

In fact, the 5s10s spread actually uninverted last week…

As Gundlach previously noted:

“In all the past recessions going back for decades, the yield curve starts de-inverting a few months before the recession,” adding that,

“I think it’s within four months at the most. Almost every indicator is flipped into high probability. The only one that hasn’t is the unemployment rate.”

And with reference to that, Gundlach previously pointed out that at 3.6%, the unemployment rate just crossed back above its 12-month moving average…

Which, historically has been “a reliable indicator you’re on the doorstep” of recession.

Gundlach is far from alone as even Goldman Sachs’ Jan Hatzius increased his forecast of recession odds within the next year to 35% (still well below the consensus 60% odds of recession)…

The Doubleline Capital founder also said he believes The Fed will “capitulate” and will cut interest rates “a couple of times” this year.

More directly, he warned that if the Fed raises rates again in May, the difference “between what you can get on T-bills and what you can get in the banking system will grow.”

He warned that such a scenario would “counter-productively cause great shrinkage of liquidity in the banking system, maybe some more problems with unrealized losses,” he said.

As Goldman notes, further monetary policy tightening combined with the contraction of the credit impulse from banks themselves will have a more serious drag on real GDP growth…

The new ‘bond king’ also opined on the insane volatility that markets (especially bond markets) have been experiencing recently:

The markets are so volatile, so much movement that it’s almost impossible to sell on weakness. The markets just go from a mineshaft type of decline and that’s true in the credit markets and I think it’s true in other risk assets as well,” Gundlach said.

The overall state of the economy is “clearly weak,” Gundlach concluded.

Watch the full interview below:

Tyler Durden
Tue, 03/28/2023 – 12:05

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