The term premium is positive again for the first time since early 2021. Looking back at previous coverage from the last time this happened is kind of instructive.

bloomberg.com/news/articles/…

SILICON VALLEY BANK

Some takeaways and thoughts regarding the SVB situation on a Friday afternoon before logging off for the weekend.

First, what happened?

1/ A classic asset-liability mismatch where SVB had a big influx of hot money (venture capital/tech) deposits that it needed to do something with.

2/

The FTX/FTT implosion reminds me of the Beanie Baby craze, and not for the obvious ‘bubble’ reason.

A thread 1/ Imagine you have 10 beanie babies and you’re not really sure how much they’re worth. This is the very start of the craze and there’s no real ‘market’ yet. Local shops are just selling them for $4-$5 each. 2/

This is the crux of the charges against Bill Hwang/Archegos execs as far as I can tell, but IMHO this isn't a clear cut case:

assets.bwbx.io/documents/user… For a start, I'm not sure what fiduciary duties hedge fund clients have towards their counterparties. Lying probably isn't great but is it illegal?

Given recent yield moves and people ramping up rate hike expectations, I'm just going to flag the below two pieces on corporate credit from earlier in the week.👇 So stocks have gotten all the attention but there's also been a wobble in credit in recent days. Credit is much more of an issue for the Fed trying to raise rates without destabilizing the economy than tech stock valuations falling from 100x earnings etc.

bloomberg.com/news/articles/…

1/ Remember how earlier this year some people were complaining about how low interest rates were creating zombie companies that were tied to the "old economy" and should go ahead and die? 2/ Fast forward to today and some of these companies (notably energy firms) have massively delevered, been upgraded and could conceivably make a lot of money.

THREAD

Dire situation in Hong Kong right now.

As longtime residents and immigrants depart on crowded planes, many are being forced to leave their pets behind.

scmp.com/news/hong-kong… The cost of flying a pet out of Hong Kong is now prohibitively expensive for many -- upwards of HKD $100,000 ($12,000 US dollars) for flights to the UK.

Air cargo space is at a premium given Covid disruptions to transport & there are a ton of animal restrictions to deal with.

I hope the @emilyaccount drama draws attention to the vastly different experiences that many fintwit women have on this platform compared to fintwit men. I rarely talk about this (since it just tends to court more drama and unwanted attention) but just to emphasize the above point, in the past year I've experienced swarms that have distracted from my work.

Places like Sweden, the US, Taiwan, & Germany are experiencing more inflation at a faster rate than emerging markets like China, according to Deutsche Bank's Alan Ruskin. He's aggregated levels and rates of change on CPI, PPI, etc. for the below chart.

bloomberg.com/news/newslette… One way of viewing that chart is that inflation really is a problem centered on goods, and perhaps most extreme in places that went into full lockdown and are now struggling to restart supply chains and so on.

Thinking more about Ant and its clash with Chinese financial regulators. A couple months ago the BIS published a paper explicitly comparing Ant Group's lending vs. that of traditional Chinese banks.

bis.org/publ/work881.p… Ant's use of more sophisticated underwriting tech (massive amounts of big data) reduces the importance of collateral in the financial system, since Ant is looking at things other than just 'how much your house/assets are worth.'

The U.S. ban on Tencent (WeChat) and Bytedance (TikTok) is a huge deal not because it changes things in the U.S., but because it potentially changes things *within* China. It seems plausible that once the order comes into effect US companies operating within China won't be able to use WeChat, increasing the complexity of doing business by taking away access to the most common messaging platform. WeChat's pretty central to daily & business life.

In today's newsletter, I wrote about how China's encouraging people to become street vendors to replace lost or reduced income during the economic crisis.

It's "gig economy" with Chinese characteristics. The social campaign going along with this is pretty amazing. Here's an infographic teaching people to become vendors that's been running in a few provincial news sources:

Investors in triple-leveraged oil ETFs: Banking regulators trying to calibrate leverage ratios in real-time to allow banks to extend credit and refuel the economy without burning the whole place down:

Here's a thread of some older Odd Lots episodes @TheStalwart and I have made that are worth listening to right now.

Clearly we're in unprecedented times for markets, finance, the economy and society, but there are some consistent themes that start to emerge ---> First, the world is terrible right now. So listen to Arthur Demarest, an anthropologist who’s often been compared to India Jones, talk about why civilizations collapse (Yes, I think about this one a lot):

podcasts.apple.com/us/podcast/55-…

JPMorgan estimates there were around 300 investment-grade portfolio trades in the first half of 2019, about 40% higher than the number of such trades in the *whole* of 2018. (Portfolio trades in high-yield were roughly stable at 160). As a reminder, portfolio trades are when investors/dealers agree to exchange a basket of bonds in one transaction. Unsurprisingly, this is growing in tandem with corporate bond ETFs.

Let's talk about earnings quality and credit. 43% of syndicated loan deals featured Ebitda addbacks in the first half of this year. That's a record proportion, according to BAML. If you strip those addbacks out, Ebitda/Interest coverage levels on loans are the lowest since 2005. (Let me tell you about my pet theory that Valeant's aggressive use of addbacks and debt financing to engineer artificial growth in a sluggish economic environment is actually representative of the entire market.)

Libra is a payments system designed to get Facebook a slice of that market. That's not necessarily a bad thing but it should make cryptocurrency enthusiasts pause. Thread ---> Libra is many things Bitcoin is not:

1. It is not decentralized (it's permissioned, at least to start with)