First-quarter bank earnings are a good litmus test for whether Jamie Dimon was right last week in calling an end to the turmoil that shook lenders last month.
“We’re getting near the end of this particular crisis,” the CEO of JPMorgan Chase and long-serving financial heavyweight had said in an interview with CNN last week. Soon, we should “look at what went wrong and fix it.”
Emergency lending from the Federal Reserve eased again last week and is now down more than 50% from mid-March, though it remains high by historical standards. That suggests calm has yet to fully return.
Dimon had been eager to point out that looser regulations weren’t to blame for last month’s problems. That’s probably right in a strict sense, in that the banks may also have still looked healthy under the old, stricter rules. But it doesn’t follow that better regulation wouldn’t have helped.
The problem for regulators, as pointed out by former Morgan Stanley economist Stephen Roach, is that they are always fighting the last war. If the long history of banking shows anything, it’s that lenders are always finding new and creative ways to fall into crisis.
It’s hard to predict what the next one will be, but after a year of rapidly rising interest rates, it would be reasonable to expect defaults to start increasing dramatically. What banks say over the next few weeks about loan-loss provisions will tell us what they expect.
For now, the backstop for First Republic and the Fed’s new Bank Term Funding Program have staved off a panic. That doesn’t mean another crisis isn’t right around the corner
GOP, McCarthy Planning One-Year Deal on Debt Limit
House Speaker Kevin McCarthy is developing a plan to suspend the federal government’s debt ceiling for a year in exchange for spending cuts, according to reports. The plan will be disclosed when Congress reconvenes next week and proposes a House vote next month to suspend the ceiling until May 2024.
- Republican leaders are weighing whether to cap nonmilitary discretionary spending, or overall discretionary spending, at fiscal 2022 levels. McCarthy’s proposal would keep nonmilitary discretionary spending at fiscal 2022 levels, but allow for a 1% annual increase over 10 years, Bloomberg reported.
- It would take back unspent Covid-19 relief money, prohibit Biden’s student loan forgiveness program, require Medicaid recipients aged 60 and under without dependent children to work, repeal some green tax credits, and implement the House Republican energy plan, Punchbowl News reported.
- Adam Brandon, the president of the conservative advocacy group FreedomWorks, told Barron’s the move could show Republican voters that leaders are focused on more than just social issues. Pushing for financial discipline shows voters the party stands for “more than just Trump and abortion.”
- Separately, Jack Teixeira, a Massachusetts Air National Guardsman, has been arrested by the FBI in connection to a leak of what The Wall Street Journal cited as highly classified intelligence documents.
What’s Next: McCarthy is scheduled to speak Monday morning at the New York Stock Exchange, when he is expected to talk about the debt ceiling and Congress’ determination not to raise it without spending cuts.
—Janet H. Cho and Liz Moyer
Boeing Halts 737 MAX Deliveries in Latest Setback
Boeing has halted deliveries of its 737 MAX jet following the discovery of a parts compliance problem from a supplier. It’s the latest setback for the aerospace company as it seeks to ramp up production of the MAX aircraft. Shares were down in premarket trading Friday.
- Boeing told Barron’s a supplier had notified the company that a nonstandard manufacturing process was used for certain components, which would likely affect a significant number of undelivered 737 MAX airplanes
- Boeing said there was no immediate safety issue and its in-service fleet can continue operating. The 737 MAX has flown safely since its reintroduction to airline fleets in November 2020, following a worldwide grounding due to two deadly crashes.
- Spirit AeroSystems Holdings said it was the supplier concerned and it was working to develop a repair for the affected fuselages. Spirit stock was down in premarket trading on Friday.
What’s Next: Investors will be watching for any effect the issue has on Boeing’s projected deliveries this year, which Wall Street had put at about 570 jets in 2023, up from 480 in 2022. The setback is unlikely to improve Boeing’s standing with the Federal Aviation Administration, which has ramped up scrutiny on the company’s manufacturing in recent years.
—Adam ClarkandAl Root
Twitter Adds Stock Quotes in Another Step Toward Everything App
Twitter took another step toward becoming an everything app, adding the social trading and investing platform eToro to its own platform, which will give Twitter users the chance to check real-time prices for an array of stocks, cryptocurrencies, and other assets through the ‘Cashtags’ feature.
- Twitter’s Cashtags, introduced in 2012 to the platform, lets users find tweets associated with a company by entering the stock ticker price with a dollar sign in front of it into the search bar. CEO Elon Musk said in December they added data from TradingView, a markets-charting platform.
- Several live price charts will be expanded through eToro, the company said. Users can click through to eToro’s site to see more information and have the option to trade the security they are looking up. It covers stocks, exchange-traded funds, crypto and commodities.
- Twitter has recorded 420 million searches for Cashtags since the start of the year, according to eToro. Searches average 4.7 million a day but surge when there are big announcements, such as Apple ’s Feb. 2 earnings, when Cashtag searches rose to 8 million. Tesla ’s stock ticker is the most commonly used Cashtag.
- Chris Riedy, Twitter’s vice president of global sales and marketing, said the company would continue to invest to grow the #FinTwitter community on the platform. In the first 90 days of this year, there were 498 million tweets about business and finance, 65% by users aged 18 to 34.
What’s Next: Musk wants to turn Twitter into a super app, offering a broad array of services like China-based Tencent ’s WeChat—a messaging app that also has payments features. Musk has talked about making Twitter the world’s biggest financial institution.
Travel Rebound Means Bookings and Airfares Are Soaring
Global travel rebounded last year after the Covid-19 pandemic shutdowns and the trend is continuing in 2023—but with a costlier price tag. International travel bookings from the U.S. have increased more than 200% since 2022, according to AAA. Airfares for international flights have jumped more than 30%.
- International hotel bookings are up 300% from last year, AAA said. London is the top European destination for U.S. travelers, with a nearly 350% increase in bookings, followed by Rome, Paris, Dublin, and Barcelona. Canada is also in demand.
- Delta Air Lines , the first major carrier to report earnings, missed first-quarter expectations for adjusted earnings, but offered a robust second-quarter outlook, saying it foresees record advance bookings for the summer.
- Delta CEO Ed Bastian said the company was confident in guidance for full-year revenue growth of 15% to 20% over 2022, earnings of $5 to $6 a share, and free cash flow of mor than $2 billion.
- United Airlines, which reports earnings April 19, said international bookings jumped 15% in March, compared with 2022. United is expanding its overseas summer schedule by 25%, flying to 114 international cities. American Airlines, which reports April 27, raised its profit guidance.
What’s Next: Delta said corporate travel has increased both domestically and internationally, and that passengers have been booking flights earlier, but told The Wall Street Journal it won’t return to its 2019 levels this summer as it had hoped.
—Callum Keown and Janet H. Cho
AMC Entertainment, GameStop Among Most Squeezable Stocks: Analyst
The run up in stocks over the past month is putting pressure on short bets, making the positions more crowded and “squeezable,” according to Ihor Dusaniwsky, the managing director of predictive analytics at S3 Partners. The firm identified 18 vulnerable stocks, including meme favorites AMC Entertainment and GameStop.
- In a short strategy, the trader borrows stock and sells it hoping to buy it back later at a lower price and pocket the price difference after returning the borrowed stock. There’s always the danger that prices can rise unexpectedly as short sellers buy to close their bets.
- S3 Partners, which tracks data on short selling, recently identified stocks with perfect so-called squeeze scores of 100, which factors in higher financing costs to put on a trade and unrealized losses. Crypto miner Riot Blockchain has the biggest 30-day mark-to-market losses, down 80.3%, S3 said.
- Movie theater chain operator AMC has been a favorite among shorts. The cost to borrow AMC stock has jumped 237.8%, with short interest now at $748.9 million, S3 said. GameStop costs 11.6% more to borrow, with short interest at $1.3 billion.
- Crypto exchange Coinbase has 30-day mark-to-market losses of 25% and short interest of more than $2.7 billion, the report said. But the borrowing cost is up just 4.3%. Coinbase shares are up 94.8% this year, while AMC is up 34% and GameStop 22%.
What’s Next: As S3’s Dusaniwsky notes: a trader exits a short position because large losses force them to or because they are reaching risk or concentration limits. “No-one is forced to exit a winning trade,” the report says.
This article was originally published in Barron’s on April 14, 2023.
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