Hi, and welcome to today's Bay Area Times daily newsletter. Top stories today: 1) Federal government to guarantee all SVB, Signature deposits, 2) Fed will buy banks' bonds at par, 3) Aramco profits $161B in 2022, 4) Biden approves $7B Arctic oil project, and 5) dividend stocks are yielding less than short-term Treasuries.

0. Data and calendar

1. Federal government will guarantee all deposits of Silicon Valley Bank and Signature Bank

The news:

• All Silicon Valley Bank deposits available for transfer on Monday. The FDIC is covering all $175.4B of deposits, including those above $250K (the only ones the FDIC had to guarantee). - Joint statement, WSJ

• All paid for by the FDIC reserves, which were $128B in December 2022. Even if SVB deposits take a 20% hit ($35B), the FDIC would pay for this, not the taxpayers, says the government. "Shareholders and certain unsecured debtholders will not be protected."

• Signature Bank also being closed down. The crypto-focused bank had $88.6B in deposits, which will also be fully covered by the FDIC.

The so-what:

• Now even $100B banks are too big to fail. If the FDIC is changing its rules for a bank like Signature, are all medium-sized regional banks also too big to fail? In its statement, the government called it a "systemic risk exception."

• Will contagion to other regional banks be stopped? This was obviously the main goal of the federal government, and we will have to see how it plays out.

2. The Fed will also print away banks' bond losses

• The Federal Reserve will create the new Bank Term Funding Program. The BTFD will offer one-year loans to banks accepting U.S. Treasuries and MBSs at par value, meaning they will ignore that these bonds have greatly decreased in value over the past year, due to the Fed's rate hikes.

• The Treasury will make available up to $25B for this program, signaling that this program might be unprofitable. Some estimates for banks' unrealized losses in bonds reach $600B. - Fed, CNBC

Markets now price in roughly equal chances of 0 and 25 bps, from pricing in 25 or 50 bps on Friday

• Goldman Sachs is expecting 0. Although it would be very weird for the Fed to stop rate hikes, and then have to resume them, assuming inflation keeps coming above an annualized 2%. - CNBC

• We will know more tomorrow with February's CPI report.

USDC climbs back to $0.99

• Circle is expected to resume 1:1 USDC:USD conversions today. They had promised this even before the FDIC announcement, and now it should be even easier to resume operations, given their $3.3B in SVB deposits are safe. - Coindesk

In related news...

• SVB's UK arm sold to HSBC for £1. It had assets of £8.8B ($10.7B) - Axios

• JPMorgan, PNC might buy SVB's non-commercial bank operations: asset management, private banking, securities business. - Axios

• Sam Altman and Vinod Khosla were personally giving out loans to startups with SVB problems. - Techcrunch

• When did SVB insiders realize the bank was toast? There were many red flags, including the lack of a Chief Risk Officer, the excessive number of Risk Committee meetings, and the sale of stock by many insiders. - Nongaap Investing

• Many had tried to sound the alarm about SVB's disastrous balance sheet:

• From a previous newsletter:

3. Saudi Aramco's profits jump to $161B, the highest in the world

They're the #2 most valuable company in the world, just behind Apple

• West falls behind as governments ban new oil and gas projects. The West voluntarily chose to impose strong restrictions on its own industry, giving more power to undemocratic countries like Saudi Arabia and Russia. - Aramco, WSJ

• China-led Saudi-Iran deal is a consequence of these anti-oil policies. This weakens Israel and, of course, the U.S. - WSJ

• Unfortunately, very few politicians seek a reversal of this trend. Perhaps the only one today in America is Vivek Ramaswamy; we await details of his proposed energy policy.

4. Biden to block all Arctic oil and gas leasing, except for $7B Willow ConocoPhillips project

• Willow approval to come 6 years after discovery. ConocoPhillips estimates a peak of 180K barrels a day, totaling 600M barrels ($43B) of oil equivalent (including gas) over its lifetime. - WSJ

• The region is expected to have 160B barrels of oil, worth $12.2T. That number includes the Arctic territories of other countries, but excludes the natural gas reserves and the indirect positive effects that having a real oil and gas industry would bring to the region and the U.S. - BBC

• Russia keeps drilling in its segment of the Arctic sea, while American companies' hands are tied by their own government.

5. Dividend stocks paying more than cash drop from 379 to 34

• This ignores the fact that dividends tend to grow over time. On average, dividends + buybacks are expected to grow by GDP growth + inflation, so comparing dividend yields to long-term TIPS, inflation-indexed bonds, would be fairer.

• 30-year TIPS are back to the pre-Covid 1.5% level, as per the graph below. So while short-term rates have increased significantly due to the Fed hikes, long-term real yields are just back to their usual level. In standard economic theory, long-term TIPS yield should also track expected GDP growth, which we believe it partially does.

6. Other headlines

Tech

• ChatGPT's API is so good and cheap, it makes most text-generate AI obsolete.

• Apple VR launch is being strongly pushed by Tim Cook, expected this year.

• LLaMA AI can now be run on normal computers.

Business

• Carl Icahn prepares for proxy fight at Illumina, is against the $30B Grail purchase.

• Apple losing many veteran vice-presidents, as it has become more bureaucratic.

• South Korea proposes legal cap on weekly work hours from 52 to 69.

• 3M U.S. households making $150K+ are still renting.

Crypto

• Former Sen. Toomey: FTX would not have existed if not for lack of SEC guidelines.

Washington and more

• China plans new Middle East summit as it seeks to take over U.S.'s role of mediator.

• Beijing boxed America out of the South China Sea.

• North Korea fires 2 missiles from submarine, threatening the U.S., South Korea.

• UK committing an extra $6B to defense, nuclear program, submarines, ammunition.

• Swiss neutrality being questioned by its own people.

• Pence increases direct attacks on Trump, in calculated campaign move.

• McCarthy says he will slowly release Jan. 6 tapes to other, non-Tucker, outlets.

• MAGA Senate GOP candidates could put red wave at risk once again.

• The Oscar goes to: Everything Everywhere All at Once; Navalny wins documentary.

7. Interesting tweets, memes, and images

Was this newsletter forwarded to you? Sign up here. Liked it? Forward it to friends and get rewards (see below).

Thank you for reading Bay Area Times. Got any tips? Email us at [email protected].

Disclaimer: The Bay Area Times is a news publisher. All statements and expressions herein are the sole opinions of the author. The information, tools, and material presented are provided for informational purposes only, are not financial advice, and are not to be used or considered as an offer to buy or sell securities; and the publisher does not guarantee their accuracy or reliability. You should do your own research and consult an independent financial adviser before making any investments. Assets mentioned may be owned by members of the Bay Area Times team.