Hi, and welcome to today's Bay Area Times daily newsletter. Top stories today: 1) UBS buys CS for $3B, 2) Fed announces more global USD liquidity, 3) this Wed: FOMC meeting, 4) this Thu: TikTok CEO testifies, to announce 150M U.S. MAUs, 5) Balaji makes $1M BTC bet, and 6) Trump says he will be arrested on Tue.

0. Data and calendar

1. UBS buys Credit Suisse for $3B

• All stock deal. UBS won't put a dime of cash in, rather paying with shares, at CHF 0.76 per CS share, 59% below its closing price of CHF 1.86 on Friday. - WSJ

• Clearly, the government nudged UBS into doing this. In addition to the $54B in liquidity provided to CS last week, the Swiss central bank is offering $100B in liquidity to UBS, and the government will insure UBS's losses connected to this deal up to $9B.

• Given CS's $574B in assets, this $9B backstop might not be enough. CS's last balance sheet showed $49B in reported book value, meaning that UBS will start losing money if CS's assets are worth 10%+ less than their reported values.

UBS is down 7% on the news, as shareholders do not appreciate the government forcing UBS to buy CS

2. Fed announces more global USD liquidity, in partnership with 5 other central banks

• This allows foreign central banks to make more USD loans to their domestic banks. The Fed is increasing the frequency of 7-day swap line operations from weekly to daily, commencing today and lasting "at least through the end of April." The partner central banks are the ECB, BoE, Canada, Japan, and Swiss. - Bloomberg, Fed

Will this be enough? Will the U.S. government announce more?

• New accounting and risk rules could help. As is common, governments created complex regulations that failed to address core problems. In this case, 2 problems: 1) held-to-maturity accounting fails to recognize that mark-to-market is more robust, and 2) the risk-weighted assets calculus only looks at credit risk, ignoring duration risk, which was the cause of the failure of SVB and many others.

In related news...

• Sen. Elizabeth Warren is proposing an FDIC insurance cap raise to $2-10M, from the current $250K. - WaPost

• Midsize U.S. banks are asking for full FDIC insurance for 2 years. The Mid-Size Bank Coalition of America, which represents banks with assets between around $10B and $100B, sent a letter to Yellen, the FDIC, the Comptroller, and the Fed. - Bloomberg

• First Republic could be one of the first ones to go. - Bloomberg

• Signature Bank: FDIC selling most of the failed bank to Bancorp and its Flagstar subsidiary. - CNN

• AT1 bonds are falling 14%, after being wiped out in the UBS <> CS deal. - Bloomberg

3. This Wed at 2 PM ET: FOMC meeting

Markets now slightly lean towards hiking 25 bps, at 60% vs 40% leaving rates unchanged:

• Analysts are divided. Read more about this at Bloomberg.

4. This Thu: TikTok CEO testifies to House

• Expected to announce 150 million monthly active users in the U.S. That is almost half of all Americans, many of which don't use social media. - NBC, House.gov

• ByteDance's CapCut now has 200M MAUs, globally. The mobile video-editing tool is perfectly designed to create videos for TikTok, whose global MAUs already surpass 1B. - Bloomberg

• In parallel, TikTok is telling U.S. advertisers that all is well. There was a meeting last month in NY with top advertisers, where TikTok showed their ongoing project to have all its U.S. data go through Oracle's U.S. servers. The meeting didn't convince some participants, and likely won't convince Congress or the American public, who is increasingly open to seeing China as the enemy. - The Information

• Hard to say what will happen. As we said last week, all three major scenarios are possible: status quo, sale, and ban. Overall, the national security risks of TikTok remain unclear, given there is little evidence of abusive government control in TikTok.

• Noah Smith says, "of course we should ban TikTok. The reasons are: 1) TikTok sends data about its American users to the Chinese Communist Party, and 2) TikTok is probably subject to Chinese-directed censorship that tries to nudge U.S. users into supporting CCP goals." - Noahpinion

• Instagram Reels and Youtube Shorts are set to benefit if user access to TikTok is somehow curtailed by the U.S. government.

5. Balaji burns $1M+ in BTC to $1M bet

• He loses either way:

  • If Bitcoin gets to $1M in 90 days (probably less than a 1% chance), he gets 1 BTC from Medlock. Of course, if he bought BTC today at $27K, he could buy 37 BTCs.

  • If Bitcoin doesn't hit $1M, he just loses $1M in hard cash.

His reasoning is that the Fed's saving of regional banks will lead to a vicious cycle of more money printing

The problem is that banks' unrealized losses "just" total $2.2T

And that's the most bearish estimate we could find:

U.S. federal debt is already $31T, would only $2T more cause hyperinflation?

Probably not, and that's assuming the government would have to bail out all these unrealized bank losses:

Even Balaji admits his bet is more of a publicity move

6. Trump claims he will be arrested Tuesday, calls for protests

Trump's betting odds were unaffected by this news: he remains the GOP frontrunner as a 50% favorite

• Today, pro-Trump attorney Robert Costello is expected to testify on the Manhattan grand jury. He used to be a legal adviser to Michael Cohen, Trump's former fixer. Cohen is the key witness in the trial, having served 3 years for related crimes. - WSJ

• Trump probably committed crimes, but arresting the opposition frontrunner is a complicated endeavor. One option is to wait until after the election, or, if he wins, until he leaves office, and prosecute him then.

Trump also returned to Facebook and Youtube this weekend

Meanwhile, Mike Pence remains impressively restrained in criticizing Trump: "I believe in forgiving"

In related news...

• McCarthy pushes back on protest talk: "we want calmness out there."

• Trump allies pressure DeSantis to criticize Trump's indictment.

• Other criminal charges Trump could face: Georgia's "find" the votes, and 2 federal ones: Jan. 6 riot and Mar-a-Lago documents.

7. Other headlines

Tech

• Netflix's ad-supported plan hits 1M users.

• GLAZE, software from UChicago group, seeks to protect art against AI learning.

• Replika and Character.ai remove erotic roleplay ability from AI characters.

• AI events are happening all over San Francisco.

Business

• Elizabeth Holmes asks judge to delay prison sentence, mentioning her two children.

• Vice co-founder Shane Smith sold $100M+ in secondary shares since 2014.

Crypto

• Microsoft testing a built-in Ethereum wallet in Microsoft Edge.

• FTX U.S. suing FTX Bahamas over exchange control, in Delaware court.

• FTX's auction of LedgerX: Date moved for 3rd time to April 4.

• Taiwan to approve crypto regulation legislation.

Washington and more

• Putin visits Mariupol in 1st public trip to occupied Ukraine.

• Taiwan's Ma to become 1st former President to visit China.

• Saudi king to visit Iran for 1st time in 25 years.

• Senators seek to repeal Iraq war authorization, still in place.

• Texas bill would ban foreign students from China, Iran, NK, and Russia.

• Cancer rates higher in U.S. Air Force crew, likely due to UV rays exposure.

8. 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.