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Oil rallies, finally
Oil rallied today, Monday, March 27, for the first time in, well, quite a while. Oil is likely to finish with a loss in March, for a fifth monthly drop. So today’s move, which saw West Texas Intermediate jump by almost 55, marked quite a shift in direction.
The Search for the Next Shoe to Drop in the Bank Crisis Goes On: What About Commercial Real Estate?
Officials from the White House, the Treasury Department, and the Federal Reserve, are huddling over risks to the banking systems from the $20 trillion market for commercial real estate. Analysts told the Washington Post that this market could be heading for a crash over the next two years thanks to higher interest rates and continued softness in demand after Covid shutdowns. One reason that this market is getting extra attention is that regional banks, already under pressure from problems at Signature and First Republic banks, play a big role in this market for loans to commercial real estate.
Please Watch My New YouTube Video: Trend of the Week Is a Minsky Moment Ahead?
This week’s Trend of the Week is Minsky Moment Ahead? Hyman Minsky was an economist who studied credit cycles. Minsky died in 1995, but in 1998, during the Russian Ruble and Asian Currency Crises, economist Paul McCulley recognized the situation was one described by Hyman Minsky, and dubbed it a “Minsky Moment.” A credit cycle starts when credit is abundant and banks are lending generously and gradually taking bigger and bigger risks. Eventually, an event like the Silicon Valley Bank failure hammers the banks, causing them to pull back and tighten their lending to a greater degree than at the start of the cycle. It’s a classic case of locking the barn door after the horses have escaped. Once the crisis is in place banks tighten their lending standards and this causes a constriction of credit when the economy really needs credit–a Minsky Moment. Right now, there are a lot of contractionary forces at work in the economy, including the Fed’s raising of interest rates while selling off some of its balance sheet. The two areas that will likely be hit hardest by these contractions and the Minsky cycle are emerging markets, which are having trouble repaying debt from lenders such as China that are not willing to renegotiate, and the start-up market, where private companies are finding it harder to raise enough capital to keep their companies going. If you’re holding emerging markets stocks or new tech stocks with an eye to the future, make sure you’re comfortable with where they are presently, and watch that they’ve been able to secure the funding they need. Be careful out there.
Please Watch My New YouTube Video: Quick Pick KBE Bank Stocks ETF
Today’s Quick Pick is SPDR S&P Bank ETF (NYSEARCA: KBE). I’m not suggesting buying this now: I’m suggesting you watch this and buy Put Options on this ETF when the time is right. The SPDR S&P ETF is approximately 80% regional banks. As you can imagine, it took a huge hit during the recent banking scare and would have been a great Put Option last week during the plunge in the sector. Options are a way to leverage the volatility of this market. The recent exit of my VIX Call Option resulted in a 100% gain in about a week. For KBE, I’d look at Put Options that climb in value as the price of the ETF sinks. At the time of recording, KBE was selling at about 37. I’m looking at the June 16 Put at a strike price o 38. At the moment, the Put is deeply underwater but I’ll continue to watch this rally to see when it’s worth it to jump in. At the moment, I suggest you watch this one: Don’t buy just yet but wait for the next shoe to fall in the banking crisis.
So what was today all about?
I argued in my YouTube video on Tuesday that this was a market without a trend. So far that seems about right.
Market consensus converges on 25 basis point interest rate increase from the Federal Reserve tomorrow
The CME FedWatch Tool, which calculates the odds of a Fed move on interest rates by looking at prices in the Fed Funds Futures market, puts the odds of a 25 basis point interest rate increase from the U.S. central bank tomorrow at 86.4%. That’s up from 73.8% on March 20.