Edging Armageddon – by Peruvian Bull

CategoriesGamestop_, Issue 2023Q2
The Republicans and Democrats are using the debt limit to again play nuclear brinkmanship. The deal they’ve reached is now more terrifying than I could ever have imagined.

From: https://peruvianbull.substack.com/p/edging-armageddon

This past weekend, we were subject to another close shave with Treasury default. Speaker Kevin McCarthy and the Biden Administration were the newest contenders in a fight that is becoming all too common in our current fiscal landscape: the debt ceiling.

The debt ceiling, also known as the statutory debt limit, is a legal cap on the amount of debt the United States government can accumulate to finance its spending obligations. It is set by Congress, and any increase requires their approval. Essentially, the debt ceiling acts as a self-imposed limit to control the government’s borrowing capacity.

The current form of the debt ceiling took shape with the passage of the Second Liberty Bond Act in 1917, during World War I. This act established limits on the total amount of government debt that could be outstanding at any given time. It marked a significant shift in Congress’s approach, establishing a more fixed and permanent debt limit.

Over the years, several pieces of legislation have shaped the debt ceiling’s operation. The Public Debt Acts of 1939 and 1941 introduced the concept of a statutory debt limit, explicitly setting a dollar amount for government borrowing. The Graham-Rudman-Hollings Balanced Budget and Emergency Deficit Control Act of 1985 attempted to link the debt ceiling with deficit reduction targets, imposing automatic spending cuts if those targets were not met.

The primary objective of the debt ceiling is to ensure that the government does not overspend or accumulate an unsustainable amount of debt. It serves as a “mechanism” to encourage fiscal responsibility and maintain the credibility of the United States.

However, this limit has long since lost any and all meaning. Per the Treasury’s own website

“Since 1960, Congress has acted 78 separate times to permanently raise, temporarily extend, or revise the definition of the debt limit – 49 times under Republican presidents and 29 times under Democratic presidents.”

The ceiling has been raised by both parties, under virtually every President that has held the throne of power for the last 60 years.

Once a tool of financial restraint, it has been morphed into a political hot-potato- a game of political chicken where the parties use the impending doom of default to push through last minute spending and political priorities.

They’re using essentially nuclear brinkmanship to get things done.

The irresponsibility and shortsightedness of this cannot be overstated- as a true Treasury default would be catastrophic for the global financial system. I laid out so much in a Twitter thread on Friday, which I will lay out the basics here for review:

If the government hits the debt ceiling and Congress fails to raise it, the Treasury Department must resort to extraordinary measures to continue meeting its financial obligations. These measures include reallocating funds from various government accounts, suspending the issuance of certain types of debt, and implementing cash management techniques. However, these measures are temporary solutions and can only buy the government a limited amount of time before it runs out of funds.

In the case of the United States, this would mean the government not being able to pay interest or principal on its Treasury bonds, bills, and notes held by investors.

The first and most immediate consequence of a U.S. debt default would be a loss of confidence in American financial stability.

Treasury bonds have long been considered a safe haven investment, and a default would cause ripple effects in the many markets that use Treasuries as collateral- the repo markets, FX, swap, and money markets being just a few examples.

The value of the U.S. dollar would likely plummet as investors lose faith in its stability. This would lead to a decrease in the purchasing power of the currency, making imported goods more expensive and fueling inflation.

The EM crises that hit Thailand, Argentina and others would now come to roost in the States.

This is a serious problem because unlike other countries, the US does not have sufficient foreign exchange reserves as it is the world reserve currency.

Other countries have trillions of dollars in the vaults. We have $38B.

Interest rates would spike as investors demand higher returns to compensate for the increased risk associated with U.S. debt. This would affect borrowing costs for businesses and consumers, making it more expensive to obtain credit for investments, mortgages, and other loans.

This is occurring at record Federal debt levels- further pushing the US into a debt spiral.

Financial markets would experience significant turmoil. Stock markets could plummet as investor confidence wavers, leading to widespread panic selling.

Pension funds, mutual funds, and other investment vehicles heavily exposed to U.S. government debt would suffer substantial losses, similar to how the UK’s pensions blew up as their leveraged UK bond positions were all liquidated-


The U.S. government would face challenges in raising funds to finance its operations. Without access to borrowing through Treasury securities, the government would need to rely solely on tax revenues and other limited sources of income. This could result in significant cuts to government programs and services- and government spending is a component of GDP.

We would see a collapse of GDP of several percent in just a month or two- reminiscent of the COVID shutdowns.

The global economy is intricately interconnected, and a default would disrupt markets worldwide, triggering a global financial crisis similar to the impact of the Lehman Brothers collapse in 2008.

Recall there is over $7T of Treasuries held by foreigners globally- if the US defaults, and it is not remedied immediately, then theoretically these sovereigns could begin dumping their huge Treasury debt positions on the market.

Credit rating agencies would likely downgrade the United States’ sovereign debt rating. This would further increase borrowing costs, making it even harder for the government and businesses to raise capital.

In fact, this is already beginning to happen-


The consequences of a U.S. debt default would also have long-lasting effects on the country’s reputation as a reliable borrower. It could take years, if not decades, to rebuild trust among investors and regain the status of a safe haven for global capital.


Default is an unacceptable outcome, and barring an increase in the limit, the Treasury would resort to austerity measures to ensure coupon payments continue to flow out- however with deficit spending still raging, this means severe cuts to many government programs. Social Security, pensions, and veteran’s benefits would be first on the chopping block- but many more would follow in time.

Thus our worst case scenario of a “technical” default would be averted- but at what cost? Recall Treasury would have to issue new bills to pay off maturing ones, a scheme I have described eerily reminiscent of a Ponzi scheme…

And all of this at record high interest rates! The yield on the new bills would be 5.25%, pushing the Treasury deeper into a debt spiral in even the best case scenario. Their auction schedule for the next few weeks can be seen below:

However, we can all breathe a giant sigh of relief. A new debt limit deal was reached Saturday afternoon, and unsurprisingly to those of us who follow this monetary mayhem, it promises to do nothing but make the situation worse. Congress still has to pass this deal, of course.

Here are the key aspects of the deal, provided by the NYT:

  • Complete suspension of debt limit for 2 years, until 2025
  • New work requirements for certain recipients of food stamps and the Temporary Aid for Needy Families program.
  • It would limit all discretionary spending to 1 percent growth in 2025
  • accelerate the permitting of some energy projects- such as a  new natural gas pipeline from West Virginia to Virginia.
  • The debt limit agreement would immediately rescind $1.38 billion from the I.R.S. and ultimately repurpose another $20 billion from the $80 billion it received through the Inflation Reduction Act.
  • The proposed military spending budget would increase to $886 billion next year, which is in line with what Mr. Biden requested in his 2024 budget proposal, and rise to $895 billion in 2025.
  • New York Times analysis of the proposal suggests it would reduce federal spending by about $55 billion next year, compared with Congressional Budget Office forecasts, and by another $81 billion in 2025. (Drops in the bucket considering the trillions of dollars of spending the government disburses annually)

Perhaps most importantly, this section was pointed out by ZeroHedge:

Although Republicans had initially called for 10 years of spending caps, this legislation includes just 2 years of caps and then switches to spending targets that are not bound by law — essentially, just suggestions.

Essentially what this means, as one Twitter user pointed out, is a removal of the budgetary limits on most government spending programs. Historically how government agencies operate, is they are given a budget and allowed to spend an amount, up to a cap, for a fiscal year. If they run close to that limit, the next year they are given the same limit, and usually plus a few extra percent, to achieve their priorities through that next calendar year.

After 2025, there will be no limits- the agencies will spend HOWEVER much they deem they need. They’ll worry about the bill later.

This is the stuff of banana republics…

Can you smell that?

Time to get your printer ready, Jerome.

A deep dive into the shrinking money supply: Banks get sweetheart programs from the liquidity fairy while households are forced to take on debt and in some instances DIE while being priced out of their lives in favor of rising interest rates to fight an inflation problem the Fed created.

CategoriesGamestop_, Gamestop., Issue 2023Q2

by u/ Dismal-Jellyfish

Good morning and Happy Wednesday Superstonk! Before I get started, fun fact, did you know a group of jellyfish is called a smack?

With that, I hope y’all will join me as we ‘smack this fish up‘ while we dive into today’s topic: Shrinking M2.

I would like to take a minute to review some of the data around the shrinking money stock, the borrowing banks are able to take utilize vs the debt households are taking on.

I hope by the end of this post, it will be clear that Banks and Households are not experiencing this current economic environment the same way.

In my opinion, inflation is the big bad boogey man that has kicked off the need for all of this borrowing.

While this post is not about inflation specifically, it is fascinating to watch inflation continue to rage even as money stock continues to drop.

Let’s get to it!

M2 (U.S. money stock–currency and coins held by the non-bank public, checkable deposits, and travelers’ checks, plus savings deposits, small time deposits under 100k, and shares in retail money market funds) is decreasing:

  1. M1 consists of (1) currency outside the U.S. Treasury, Federal Reserve Banks, and the vaults of depository institutions; (2) demand deposits at commercial banks (excluding those amounts held by depository institutions, the U.S. government, and foreign banks and official institutions) less cash items in the process of collection and Federal Reserve float; and (3) other liquid deposits, consisting of other checkable deposits (or OCDs, which comprise negotiable order of withdrawal, or NOW, and automatic transfer service, or ATS, accounts at depository institutions, share draft accounts at credit unions, and demand deposits at thrift institutions) and savings deposits (including money market deposit accounts). Seasonally adjusted M1 is constructed by summing currency, demand deposits, and other liquid deposits, each seasonally adjusted separately.
  2. M2 consists of M1 plus (1) small-denomination time deposits (time deposits in amounts of less than $100,000) less individual retirement account (IRA) and Keogh balances at depository institutions; and (2) balances in retail money market funds (MMFs) less IRA and Keogh balances at MMFs. Seasonally adjusted M2 is constructed by summing small-denomination time deposits and retail MMFs, each seasonally adjusted separately, and adding the result to seasonally adjusted M1.
  3. Currency in circulation consists of Federal Reserve notes and coin outside the U.S. Treasury and Federal Reserve Banks.
  4. Reserve balances are balances held by depository institutions in master accounts and excess balance accounts at Federal Reserve Banks.
  5. Monetary base equals currency in circulation plus reserve balances.
  6. Total reserves equal reserve balances plus, before April 2020, vault cash used to satisfy reserve requirements.
  7. Total borrowings in millions of dollars from the Federal Reserve are borrowings from the discount window’s primary, secondary, and seasonal credit programs and other borrowings from emergency lending facilities. For borrowings included, see “Loans” in table 1 of the H.4.1 statistical release.
  8. Nonborrowed reserves equal total reserves less total borrowings from the Federal Reserve.

A little less than a year ago (July 2022) the M2 high was hit at $21,703 billion

Date M2 (billions) Down from all time high (billions)
July 2022 $21,703 0
August 2022 $21,660 -$43 billion
September 2022 $21,524 -$179 billion
October 2022 $21,432 -$271 billion
November 2022 $21,398 -$305 billion
December 2022 $21,358 -$345 billion
January 2023 $21,212 -$491 billion
February 2023* $21,076 -$627 billion
March 2023 $20,840 -$863 billion
April 2023 $20,673 -$1030 billion

*Bank run in commercial banks picked up in February 2022.

While M2 is dropping, deposits at all Commercial Banks are Shrinking:

Source: https://www.federalreserve.gov/releases/h8/20230519/

Domestically chartered commercial banks divested $87 billion in assets to nonbank institutions in the week ending March 29, 2023. The major asset item affected was the following: securities, $87 billion.

Domestically chartered commercial banks divested $87 billion in assets to nonbank institutions in the week ending March 22, 2023. The major asset items affected were the following: securities, $27 billion; and loans, $60 billion.

A little over a year ago (4/13/2022) the high was hit at $18,158.3536 billion

Date Deposits, All Commercial Banks (billions) Down from all time high (billions)
4/13/2022 $18,158 0
2/22/2023 (Run picks up speed) $17,690 -$468 billion
3/1/2023 $17,662 -$496 billion
3/8/2023 $17,599 -$559 billion
3/15/2023 $17,428 -$730 billion
3/22/2023 $17,256 -$902 billion
3/29/2023 $17,192 -$966 billion
4/5/2023 $17,253 -$905 billion
4/12/2023 $17,168 -$990 billion
4/19/2023 $17,180 -$978 billion
4/26/2023* $17,164 -$994 billion
5/3/2023 $17,149 -$1,009 billion
5/10/2023 $17,123 -$1,035 billion

*April is the most up to date M2 numbers

However, borrowing from the liquidity fairy is spiraling to make up for it!:

Bank Term Funding Program (BTFP)

Tool Bank Term Funding Program (BTFP) Up from 3/15, 1st week of program ($ billion)
3/15) $11.943 billion $0 billion
3/22 $53.669 billion $41.723 billion
3/29 $64.403 billion $52.460 billion
3/31 $64.595 billion $52.652 billion
4/5 $79.021 billion $67.258 billion
4/12 $71.837 billion $59.894 billion
4/19 $73.982 billion $62.039 billion
4/26 $81.327 billion $69.384 billion
5/3 $75,778 billion $63.935 billion
5/10 $83,101 billion $71.158 billion
5/17 $87,006 billion $75.063 billion


r/Superstonk - https://www.reddit.com/r/Superstonk/comments/11prthd/federal_reserve_alert_federal_reserve_board/
  • Association, or credit union) or U.S. branch or agency of a foreign bank that is eligible for primary credit (see 12 CFR 201.4(a)) is eligible to borrow under the Program.
  • Banks can borrow for up to one year, at a fixed rate for the term, pegged to the one-year overnight index swap rate plus 10 basis points.
  • Banks have to post collateral (valued at par!).
  • Any collateral has to be “owned by the borrower as of March 12, 2023.”
  • Eligible collateral includes any collateral eligible for purchase by the Federal Reserve Banks in open market operations.

“Other credit extensions”

Tool Other Credit Extension Up from 3/15, 1st week of program ($ billion)
3/15) $142.8 billion $0 billion
3/22 $179.8 billion $37 billion
3/29 $180.1 billion $37.3 billion
4/5 $174.6 billion $31.8 billion
4/12 $172.6 billion $29.8 billion
4/19 $172.6 billion $29.8 billion
4/26 $170.3 billion $27.5 billion
5/3 $228.2 billion $85.4 billion
5/10 $212.5 billion $69.7billion
5/17 $208.5 billion $65.7 billion

“Other credit extensions” includes loans that were extended to depository institutions established by the Federal Deposit Insurance Corporation (FDIC). The Federal Reserve Banks’ loans to these depository institutions are secured by collateral and the FDIC provides repayment guarantees.

For example, $114 billion in face value Agency Mortgage Backed Securities, Collateralized Mortgage Obligations, and Commercial Mortgage Backed Securities about to be liquidated ‘gradual and orderly’ with the ‘aim to minimize the potential for any adverse impact on market functioning’ by BlackRock.

How I understand this works:

  • The FDIC created temporary banks to support the operations of the ones they have taken over.
  • The FDIC did not have the money to operate these banks.
  • The Fed is providing that in the form of a loan via “Other credit extensions”.
  • The FDIC is going to sell the taken over banks assets.
  • Whatever the difference between the sale of the assets and the ultimate loan number is, will be the amount split up amongst all the remaining banks and applied as a special fee to make the Fed ‘whole’.
  • It can be argued the consumer will ultimately end up paying for this as banks look to pass this cost on in some way.

There has been an update on this piece recently:

Whatever the difference between the sale of the assets and the ultimate loan number is, will be the amount split up amongst all the remaining banks and applied as a special fee to make the Fed ‘whole’.

FDIC Board of Directors Issues a Proposed Rule on Special Assessment Pursuant to Systemic Risk Determination of approximately $15.8 billion. It is estimated that a total of 113 banking organizations would be subject to the special assessment.


What does all this borrowing look like for the banks?


Over the few weeks prior to the FDIC receivership announcements on March 10 and 12, the banking sector lost another approximately $450 billion. Throughout, the banking sector has offset the reduction in deposit funding with an increase in other forms of borrowing which has increased by $800 billion since the start of the tightening.

The right panel of the chart below summarizes the cumulative change in deposit funding by bank size category since the start of the tightening cycle through early March 2023 and then through the end of March. Until early March 2023, the decline in deposit funding lined up with bank size, consistent with the concentration of deposits in larger banks. Small banks lost no deposit funding prior to the events of late March. In terms of percentage decline, the outflows were roughly equal for regional, super-regional, and large banks at around 4 percent of total deposit funding:

The blue bar in the left panel above shows that the pattern changes following the run on SVB. The additional outflow is entirely concentrated in the segment of super-regional banks. In fact, most other size categories experience deposit inflows.

The right panel illustrates that outflows at super-regionals begin immediately after the failure of SVB and are mirrored by deposit inflows at large banks in the second week of March 2022.

Further, while deposit funding remains at a lower level throughout March for super-regional banks, the initially large inflows mostly reverse by the end of March. Notably, banks with less than $100 billion in assets were relatively unaffected.

However, during the most acute phase of banking stress in mid-March, other borrowings exceeded reductions in deposit balances, suggesting significant and widespread demand for precautionary liquidity. A substantial amount of liquidity was provided by the private markets, likely via the FHLB system, but primary credit and the Bank Term Funding Program (both summarized as Federal Reserve credit) were equally important.

  • Large banks increased borrowing the most, which is in line with deposit outflows being strongest for larger banks before March 2023.
  • During March 2023, both super-regional and large banks increase their borrowings, with most increases being centered in the super-regional banks that faced the largest deposit outflows.
  • Note, however, that not all size categories face deposit outflows but that all except the small banks increase their other borrowings.
  • This pattern suggests demand for precautionary liquidity buffers across the banking system, not just among the most affected institutions:
  • So, on the commercial side, as M2 has been shrinking, the banking system has seen a considerable decline in deposit funding since the start of the current monetary policy tightening cycle in March 2022.
  • The speed of deposit outflows increased during March 2023, following the run on SVB, with the most acute outflows concentrated in a relatively narrow segment of the banking system, super-regional banks (those with $50 to $250 billion in total assets).
  • Notably, deposit funding amongst the cohort often referred to as community and smaller regional banks (that is, institutions with less than $50 billion in assets) were relatively stable by comparison.
  • Large banks (those with more than $250 billion in assets), which had been subject to the largest deposit outflows before March 2023, received deposit inflows throughout March 2023.
  • Throughout, banks were able to replace deposit outflows by making use of alternative funding sources–FHLB, Primary Credit, BTFP.

Banks get liquidity while ‘we’ get inflations and rate hikes. Speaking of households…

During this same period, Household borrowing has also skyrocketed!

From 1st quarter 2022 to 1st quarter 2023, total household debt has increased $1,205 billion to $17.05 trillion (+7.57%)–Mortgage balances ($864 billion), HELOC ($22 billion), Student loans ($14 billion), Auto loans ($93 billion), Credit Card debt ($145 billion), Other ($67 billion):

  • Total household debt has risen by $148 billion, or 0.9 percent, to $17.05 trillion in the first quarter of 2023.
  • Mortgage balances climbed by $121 billion and stood at $12.04 trillion at the end of March.
  • Auto loans to $1.56 trillion.
  • Student loans to $1.60 trillion.
  • Credit Card debt $986 billion.

However, unlike the banks above, there are no fancy programs designed to keep households afloat in this inflating economy–and boy are households starting to feel it, especially in the areas like services and housing (that are BIG components of CPI–and way more ‘sticky’ than goods).

For example, on the housing front:

April 2023 Rental Report: The median asking rent was $1,734, up by $4 from last month and down by $43 from the peak but still $348 (25.1%) higher than the same time in 2019 (pre-pandemic)

To try and further drive home the shaky ground households are on, let’s revisit the Fed’s Economic Well-being US Household 2022.

  • “fewer adults reported having money left over after paying their expenses. 54% of adults said that their budgets had been affected “a lot” by price increases.”
  • “51% of adults reported that they reduced their savings in response to higher prices.”
  • The share of adults who reported that they would cover a $400 emergency expense using cash or its equivalent was 63 percent.

It is the younger generations starting to see itself break into delinquency now:

  • Auto loans are above 3% delinquency for (30-39) and approaching 5% for (18-29)
  • Credit Cards are above 6% delinquency for (30-39) and approaching 9% for (18-29)
  • Student Loan delinquency is being artificially suppressed currently.
    • Speculation: when folks (18-29) and (30-39) have to pay Auto loans, Credit Card dent, and Student loans all at the same time, delinquencies across all 3 will jump bigly.
    • People will DIE being priced out of their lives in favor of raising interest rates to fight inflation for a problem the Fed created to begin with:


  • M2 is shrinking
  • Borrowing is up
    • Banks have access to sweetheart programs from the liquidity fairy.
    • Households are taking on debt that is literally killing them.
  • Some fed governors are calling for 2 more rate hikes this year
r/Superstonk - A deep dive into the shrinking money supply: Banks get sweetheart programs from the liquidity fairy while households are forced to take on debt and in some instances DIE while being priced out of their lives in favor of rising interest rates to fight an inflation problem the Fed…

U.S. officials at the federal and state level are assessing the possibility of “market manipulation” behind big moves in banking share prices in recent days by Short Sellers

CategoriesGamestop_, Issue 2023Q2

Credit goes to Reuters :

May 4 (Reuters) – U.S. officials at the federal and state level are assessing the possibility of “market manipulation” behind big moves in banking share prices in recent days, a source familiar with the matter said on Thursday.

Shares of regional banks resumed their slide this week after the collapse of First Republic Bank, the third U.S. mid-sized lender to fail in two months. Short sellers raked in $378.9 million in paper profits on Thursday alone from betting against certain regional banks, according to analytics firm Ortex.

Increased short-selling activity and volatility in shares have drawn increasing scrutiny by federal and state officials and regulators in recent days, given strong fundamentals in the sector and sufficient capital levels, said the source, who was not authorized to speak publicly.

“State and federal regulators and officials are increasingly attentive to the possibility of market manipulation regarding banking equities,” the source said.

PacWest Bancorp (PACW.O) shares slid 57% on Thursday, dragging down other regional lenders, after the Los Angeles-based bank said it was in talks about strategic options.

Western Alliance Bancorp (WAL.N) denied a report from the Financial Times that said it was exploring a potential sale, and said it was exploring legal options. The report had sent the lender’s shares down as much as 61.5% before trading was halted.

Share price swings did not reflect the fact that many regional banks outperformed on first quarter earnings and had sound fundamentals, including stable deposits, sufficient capital, and decreased uninsured deposits, the source said.

“This week we have seen that regional banks remain well- capitalized,” the source said.

Short selling, in which investors sell borrowed securities and aim to buy these back at a lower price to pocket the difference, is not illegal and considered part of a healthy market. But manipulating stock prices, which the SEC has defined as the ‘intentional or willful conduct designed to deceive or defraud investors by controlling or artificially affecting” stock prices, is.

An official with the U.S. Securities and Exchange Commission told Reuters on Wednesday the agency was “not currently contemplating” a short-selling ban.

On Thursday the agency did not respond immediately to a Reuters request for comment.

But the source familiar with current events noted that the agency had warned in March, during a previous period of high market volatility surrounding the collapse of Silicon Valley Bank and Signature Bank, that it was carefully monitoring market stability and would prosecute any form of misconduct.

Strange Things Volume III: The Dying Banks and the Singularity

CategoriesGamestop_, Issue 2023Q2

A new financial crisis is brewing. Last month, 4 major banks collapsed or were shut down, and this past weekend First Republic Bank was seized by the FDIC and sold in a fire sale to JP Morgan Chase. There is an accelerating withdrawal of money throughout the entire system.

The cracks are widening, and Strange Things are going on in the world of banking. The gravitational fields made by the Fed to avoid prior crises are now creating a new crisis. Anything will be done to paper up the disemboweled banks bleeding from the latest hiking cycle.

Welcome to the Singularity.


r/Superstonk - the Singularity
the Singularity

Silicon Valley Bank (SVB) was a commercial bank that provided financial services to technology and life science companies, as well as venture capital and private equity firms. Founded in 1983 in Santa Clara, California, the bank had expanded to serve clients in major innovation hubs across the world, including New York, Boston, London, and China. Silicon Valley Bank was known for its expertise in the technology and life science industries, providing tailored solutions to help companies and investors navigate complex financial landscapes.

To incentivize companies to stay with them, SVB would offer a range of financial products, and include bonus “gifts” such as free subscriptions to many of the essential SaaS services that startups need (Salesforce, for example.) More insidiously, however, the bank offered to help firms raise additional capital if they stayed with the bank, and kept this money in their account.

This is eerily reminiscent of Mafia rackets, where businesses were given incentives to keep a gang as their business partner in a money laundering scheme.

As a result of these policies, Silicon Valley Bank had a unique customer base- almost entirely high end VC, PE and startup clients who held millions of dollars in each deposit account.

Silicon Valley Bank, like any bank, is constrained by a variety of regulations that limit the types of investments it can make- loans and bonds, especially “Tier 1” HQLA (High-Quality Liquid Assets), would make up the majority of its balance sheet.

During 2021 and the first quarter of 2022, the Fed had been plowing $120B a month into the market via QE, and interest rates were suppressed near the zero bound. This created a massive influx of capital- deposits at SVB ballooned from $61bn at the end of 2019, to a peak of $174bn at the end of 2022.

With limited places to put these funds, SVB had poured them all into Treasuries and MBS in hopes of remaining compliant with federal regulations.

We can see their balance sheet below:


r/Superstonk - SVB Balance Sheet (Consolidated)
SVB Balance Sheet (Consolidated)

However, this would soon come back to haunt them.

While digging through their financials, I found something startling. Their assets were segregated into two different types: AFS and HTM. AFS stood for Available for Sale, these were assets that were liquid, marked to market (meaning that if there were losses, they would be counted as unrealized losses on the BS). HTM stood for Hold to Maturity- these were bonds and MBS that would be held until the maturity date of the instrument.

Strikingly, HTM securities were not hedged for interest rate risk and did NOT have to be marked to market. They assumed that the risk profile for these bonds was ZERO.

r/Superstonk - Credit Risk of HTM is 0
Credit Risk of HTM is 0


What was even more terrifying is I soon found out that this is an industry standard practice- SVB is not alone. Any bank chartered in the US, if it holds HTM securities, does not have to record an ECL (Expected Credit Losses) on them and thus will not hold any cash in reserve, or hedge against the security falling in value!

Here’s a further breakdown. They held billions in MBS, CMBS, and even variable-rate CMO- Collateralized Mortgage Obligations.

r/Superstonk - SVB Assets breakdown
SVB Assets breakdown


All that for a drop of blood. The average yield on all securities was a measly 1.56%.

r/Superstonk - Average Yield
Average Yield

They had plowed billions of dollars worth of deposits into these securities at ultra-low interest rates, and as the Fed began its hiking cycle, a vicious problem began to confront them.

Debt securities trade inverse to the interest rates on them- so the higher the Fed hiked, the more the market value fell. For a while, this was managed fine as they kept receiving deposit inflows.

However, late in 2022, some VCs began to get worried and warned their companies to begin pulling out of SVB.

The Fed’s hiking cycle caused billions of dollars in unrealized losses on their balance sheet, with around $22B coming from AFS securities- however, this was only part of the picture as HTM securities did not have to be marked down.

Like any bank, they are fractionally reserved- $14B of cash deposits and cash equivalents backed up $173B of deposit liabilities.

However, this figure is misleading as it includes other securities. When I looked closer, they only had $2.3B of actual cash on hand.

This process accelerated in January and February. They ran out to raise capital, but the markets smelled a corpse. The capital raise failed and on March 9th the stock collapsed 62%.


r/Superstonk - SVB March 9th, 2023
SVB March 9th, 2023

During the next 24 hours, 85% of SVB’s bank deposits were withdrawn or attempted to be withdrawn.

That’s the fastest bank run in history.

By the end of Friday, March 10th, they would be in FDIC receivership and the bank would be closed.


Within the month of March, Silvergate, Silicon Valley, Signature, and Credit Suisse would all collapse. First Republic would fall in late April, and PacWest now stands at the brink.

The problem that plagued these banks was a different beast than 2008- instead of making bad loans, they had made bad investments. The Fed had promised infinite liquidity without repercussions, and the risk management committees, bound by regulation, had followed the rest of the banking sector headlong into bonds when the prices were at their highest.

Now, with inflation still raging and the Fed stating they are “unfinished” with the hiking cycle, the banking sector has a massive gaping hole blown through it.


r/Superstonk - Unrealized losses at banks
Unrealized losses at banks

According to the chair of the Federal Deposit Insurance Corporation (FDIC), there were $620 billion of such unrealized (or paper) losses sitting on U.S. bank balance sheets in early March.

However, this does not account for all securities. More sober estimates put this figure closer to $1.7T dollars! (See here)


r/Superstonk - $1.7T of Unrealized Losses
$1.7T of Unrealized Losses

Banks as a whole have been using the HTM loophole to shift more and more securities into this designation, in order to avoid mark-to-market losses on their books. At the same time, they’ve reduced the amount of AFS securities.

HTM securities also are not allowed to be hedged.

Which means that none of these bonds have been hedged for interest rate risk. Even if they were allowed to do so- what would that change? The system as a whole would want to hedge the trillions of dollars of interest rate risk they carry, and who would take the other side of that trade?

If any firm did, they would face the same fate as AIG did during the 2008 Financial Crisis…


r/Superstonk - Increasing amounts of HTM held at banks
Increasing amounts of HTM held at banks

Silicon Valley then, is not unique. In a startling research paper entitled Monetary Tightening and U.S. Bank Fragility in 2023, the authors made several terrifying points:


r/Superstonk - The entire system is at risk
The entire system is at risk

They then continued:

“Marking the value of real estate loans, government bonds, and other securities results in significant declines in bank assets. … The median value of banks’ unrealized losses is around 9% after marking to market. The 5% of banks with the worst unrealized losses experience asset declines of about 20%. We note that these losses amount to a stunning 96% of the pre-tightening aggregate bank capitalization.”

There are 190 banks across the US, with $300B of deposits, that are at substantial risk of failure.

The entire banking system is at risk. At first, the deposit flight was simply out of the small commercials and into the bulge brackets, the large prime banks that are the “Too Big to Fail” institutions from the 2008 financial crisis.

But now, the deposit flight is widespread. Hundreds of billions of dollars of deposits are missing from the banking system, even the prime banks- where did they go? (See here)


r/Superstonk - hundreds of billions are missing from the banking system
hundreds of billions are missing from the banking system

One of the primary beneficiaries has been the shadow banks- the opaque financial institutions that can take on deposits and lend them out through the monetary plumbing that underlies the system.

Money Market Funds, for example, have seen $640B in inflows since the end of last year. In an ill-fated attempt to prevent collateral shortages in the shadow banking system, the Fed opened up the Reverse Repo window to allow MMFs and banks to park their cash overnight and hold Treasuries as collateral.


r/Superstonk - Cash flowing into MMFs
Cash flowing into MMFs

This was discussed in-depth in my DD on MMFs here: (Major Signals Flashing Code Red in the Shadow Banking System, RRP Hitting $1T is just the tip of the Iceberg) (August 4th, 2021).

The cash parked in the RRP window has held above $2T now for months, and the award rate (the interest rate paid on RRP cash deposited) has been steadily increasing, and stands at a record 4.8% as of writing.


r/Superstonk - Interest rate paid on RRP
Interest rate paid on RRP

The MMFs are therefore able to offer attractive rates, often in excess of 4%, while the banks are confined to near 0% interest on deposits.

This financial gravity created by the Fed’s RRP is sucking cash out of the banking system and into the shadow banks, at the same time that the traditional banks are bleeding from the hole blown through them via their bond portfolios.

Just the other week, Apple announced a new high-yield savings account, paying a shocking 4.15%, and this product is to be managed by Goldman Sachs.

This move has contributed to over $60B of outflows from big US financial groups such as Charles Schwab, State Street and M&T.


r/Superstonk - Deposits getting sucked out of US Banks
Deposits getting sucked out of US Banks

(See here)

Why hold deposits when you can plow funds into a shadow bank and hold positive yielding Treasuries instead?

The system is being drained. With Treasuries finally providing higher rates, at a “risk-free” yield, the Fed and Treasury combined have essentially created a massive money laundering scheme via the banks.

r/Superstonk - Peruvian Bull Tweet, March 14th 2023
Peruvian Bull Tweet, March 14th 2023

In a fractional reserve banking system, they only have a few percent of the deposits as the actual cash on hand- so it doesn’t take that much to push many of these firms over the edge.

The FDIC, the supposed savior of the system, is a dead man walking- the Deposit Insurance Fund (DIF) balance was $128.2 billion on December 31, 2022, up $2.8 billion from the end of the third quarter. The reserve ratio increased by one basis point to 1.27 percent as insured deposits increased 1.4 percent.

This fund exists to back up $19 TRILLION of deposit liabilities throughout the American financial system.

The worst part? The dominos will continue to fall as the gravitational pull rips more banks into pieces. Now, the failure of the latest firm, First Republic, has put the total failure amount (adjusted to inflation) HIGHER THAN 2008.

And that’s not even counting Silvergate or Credit Suisse!


r/Superstonk - Bank Failures by year, 2023 already largest on record
Bank Failures by year, 2023 already largest on record

As the fallout continues from the most disastrous Fed policy error in a century, only one question remains to be asked: Who will be left to hoover up the wreckage? Only the big boys like JP Morgan, who was announced this morning as the winning bidder for First Republic.

Desperate to prevent a widespread bank collapse like the 1930s, the Fed will heap increasing quantities of liquidity onto the system. The prime banks will swallow more and more assets, growing ever larger.

As the system moves beyond the event horizon, the money backing ALL liabilities will move to Infinity.

The Fed has created a singularity from which there is no escape.



r/Superstonk - Singularity


Thanks for reading!

You can follow me on Twitter here: https://twitter.com/peruvian_bull

Did JP Morgan Chase just get a “not-a-bailout” bailout to make it a bigger systemic risk so that the global financial system must bail them out?

CategoriesGamestop_, Issue 2023Q2, Site Updates_

From u/ WhatCanIMakeToday :

According to the list of global systemically important banks (WikipediaFinancial Stability Board (FSB)FSB PDF), JP Morgan Chase is top dog as the only Tier 4 bank. (The higher the tier, the more systemic risk the bank poses to the financial system so the required capital buffer is higher at each tier.)

A systemically important financial institution (SIFI) is a bank, insurance company, or other financial institution whose failure might trigger a financial crisis. They are colloquially referred to as “too big to fail“. [Wikipedia]

According to the Bank for International Settlements (BIS), which has a dashboard showing scores and components for Global Systemically Important Banks (GSIBs), JP Morgan Chase is by itself in Tier 4 with the highest overall risk rating as the most interconnected bank with the most complex banking relationships.

r/Superstonk - Global systemically important banks: assessment methodology and the additional loss absorbency requirement (Nov 2022)
Global systemically important banks: assessment methodology and the additional loss absorbency requirement (Nov 2022)

Score Calculation Methodology [PDF]

r/Superstonk - The G-SIB assessment methodology – score calculation (BIS, Nov 2014)
The G-SIB assessment methodology – score calculation (BIS, Nov 2014)

If JP Morgan Chase were to fail, the financial system would be at high risk of a financial crisis. Which means JPM Chase is in an interesting position because the global financial system is both incentivized to keep JPM from failing and, if an institution is to fail, putting the most complex and interconnected financial institution at risk maximizes the likelihood of another bailout.

Some of you may remember from 2 years ago (April 15, 2021) that JP Morgan sold $13B in bonds in the largest bank deal ever at the time (SuperStonkBloomberg) to raise money. The next day, Bank of America takes the lead by selling $15B worth of bonds (SuperStonk DDBloomberg, April 16, 2021).

So if JP Morgan needed to raise some serious money without getting a bailout, buying another bank in a sweetheart deal seems like another way to juice up JP Morgan’s balance sheet with some good PR. According to CNN Business,

First Republic … had assets of $229.1 billion as of April 13. As of the end of last year, it was the nation’s 14th-largest bank, according to a ranking by the Federal Reserve. JPMorgan Chase is the largest bank in the United States with total global assets of nearly $4 trillion as of March 31.

Now that JP Morgan picked up First Republic, their total assets increases by about $229B (about 5.7%). And, according to Reuters [Factbox], JP Morgan just got a pretty sweet deal with First Republic Bank:

  • JPMorgan Chase will pay $10.6 billion to the Federal Deposit Insurance Corp (FDIC)
  • Will not assume First Republic’s corporate debt or preferred stock
  • FDIC to provide loss share agreements with respect to most acquired loans

So JP Morgan paid $10.6B to pick up $229B (less than 5c on the dollar), passes on the corporate debt, and shares losses with the FDIC so that:

  • JPMorgan expects one-time gain of $2.6 billion post-tax at closing
  • Estimated to add roughly $500 million to net income and be accretive to tangible book value per share

That’s a pretty damn good deal. Let’s look more into what the FDIC says about shared loss agreements (SLA).

r/Superstonk - FDIC FAQ on Shared Loss Agreements
FDIC FAQ on Shared Loss Agreements

The FDIC absorbs a portion of the loss on assets sold through resolving a failed bank “sharing the loss with the purchaser of the failed bank”. Sounds like the FDIC just took one for the team.

r/Superstonk - FDIC FAQ on Shared Loss Agreements
FDIC FAQ on Shared Loss Agreements

According to the FDIC, loss sharing is basically an 80/20 split (except for after the 2008 Great Financial Crisis when the split was 95/5, which has ended).

r/Superstonk - FDIC FAQ on Shared Loss Agreements
FDIC FAQ on Shared Loss Agreements

According to the FDIC, resolving a failed bank with loss sharing is supposed to be based on the least costly option (to the Deposit Insurance Fund). (We’ve seen this least costly option come up in resolving bank failures before with the FDIC and Federal Reserve contemplating requiring Too Big To Fail banks sell destined-to-fail bonds to absorb losses and reduce payouts by the FDIC Deposit Insurance Fund [SuperStonk])

According to Investopedia, JPMorgan To Pay FDIC $10.6 Billion For First Republic, This is What It Gets, resolving FRC bank failure will cost the FDIC Deposit Insurance Fund $13B.

The FDIC will take a $13 billion hit to its fund and provide $50 billion in financing.

Wait, the FDIC is providing $50B to finance JPM buying FRC?!

r/Superstonk - Did JP Morgan Chase just get a "not-a-bailout" bailout to make it a bigger systemic risk so that the global financial system must bail them out?

The FDIC loaned JP Morgan $50B to buy the failed First Republic bank for $10.6B. $30B of that was used to repay a rescue deal from March (last month) backed by JP Morgan, Citigroup, Bank of America, and Wells Fargo. Which means JP Morgan gets their money back from the previous rescue plus an extra $9.4B out of this loan deal to buy $229B worth of assets from First Republic.

On top of that, JP Morgan splits losses with the FDIC 80/20 with the FDIC covering 80% of loan losses for the next 5-7 years (5 years for commercial loans and 7 years for residential mortgages).

Imagine if a bank loans you $9,400 to buy a $229,000 house. No down payment. Just “here’s $9,400 and the keys to that $229,000 house”. Oh, and the bank will cover 80% of the cost for anything that breaks in the house for the next 5-7 years. This is an insane deal.

Which truly makes one wonder if this is a “not-a-bailout” bailout for JP Morgan, the only Tier 4 GSIB as the most interconnected bank with the most complex banking relationships and the highest overall systemic risk rating.

Are we going to see:

  1. Fat bonuses at JP Morgan?
  2. Followed by news about JP Morgan posing a systemic risk?
  3. Followed by calls to bail out JP Morgan to save pensions?

A little dive into the seismic GME graph

CategoriesGamestop_, Issue 2023Q2
With pretty pictures!

From u/ HansAuger :

Hello my highly regarded apes,

this week fellow regard Spinmoon pulled a graph from the vault and presented to the hive, and it was rewelcomed with the usual cheers, shit-flinging and excited chest bumps, the usual healthy hypey stuff that us smooth brains like to do when we get some new fodder to support the MOASS thesis. I am talking of course of this post here. It should be said, that the graph itself comes from another community member,, Antoine_FRITOT. I don’t know where they have got it from, or if they are the originator of the graph.

Seismic activity go brrrrrrr

Now, when I skimmed through the comments, I noticed a lot of comments who had questions about the exact method that was used to derive this graph and how it compares to other stocks. Now, my brain is so smooth that I was part of some mulecular experiment once. Don’t ask me what it was about, I just participated because I was promised two bananas a day and one of the lead scientists was the boyfriend of my wife at the time, so I trusted him. And I am especially not a data scientist. But I do dabble with python every once in a while. So I took some time to look into the data and if I could recreate it. And although I can not say what the original creator of the graph did, I think I came reasonably close to recreate their results.

So here is my representation of the data, how I created it and some other data points, which will hopefully answer some questions and inspire some more questions.

Here is my version of the graph:

First of all, the data I used for this graph comes from NASDAQ, which offers historical stock market data for plenty tickers, GME specifically I have from here. This gives us a stock’s open price, close price and traded volume for each trading day for the last 5 years, which is all that we need.

The first graph just shows the closing price for each day, I’m sure you are familiar with that shape. To come to the second graph, I did the following:

  • Subtract close price from open price for each day

  • Normalize this data by dividing by the average of both prices (0.5 * (open_price + close_price))

  • Divide by the volume of that day

I did the same for some of the basket stocks and some of the other old familiars, keeping the y-axis in the same scale to make comparison easier. As you can see, other basket stocks have had similar seismic activity, although compared to GME, they are rather in decline. Boomer stocks however are basically flatlining.

The code I used to derive these graphs is available here. You can use it for your own purposes or verify my findings if you wish. If you have other suggestions of what to look at, feel free to suggest something in the comments and I might look into it.

BUY HODL DRS and keep that receipt porn up ??????