Fears of Another Bank Run Is on the Horizon ??

In this issue of the Peel:

• ?? What’s going on with other countries’ stock markets?
• ?? Meme stocks are tanking again—don’t be a bagholder.
• ?? The New York Community Bancorp soap opera continues…

Market Snapshot ??

Banana Bits ??

• Deutsche Bank, the first bank to predict a U.S. recession, is also the first to scrap that idea
• After undergoing prostate surgery, King Charles III has been diagnosed with cancer
• Presidential hopeful Nikki Haley’s appearance on Saturday Night Live rubbed some people the wrong way
• Hedge funds in Asia that bet big on oil investments were up as much as 25% in 2023

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Macro Monkey Says ??

The Global Battle

While Jay Powell’s market-rattling speeches have been grabbing the bulk of the attention, little has been said about markets in Asia, which are also materially impacted by rate decisions.

Equities in Asia (particularly Japan, Australia, and South Korea) were hit hard after we all realized that the foretold March rate cut wasn’t happening, at least not in March.

The Fed’s actions have several implications for our neighbors in the Pacific. Firstly, interest rates are tied to currency exchange rates. Leaving rates the same could promote a stable U.S. dollar, which inevitably impacts exchange rates in other countries, making it easier or more difficult for foreign investors to conduct business in the U.S. and vice versa.

Secondly, foreign countries often borrow in US dollars, and Asian countries are large holders of US debt. This, along with Fed rate decisions influencing general inflation and commodity prices, means that there are massive implications for the stock markets of these countries.

In Japan, annual wage negotiations are set to take place. The central bank hopes to see evidence of a “virtuous wage-price cycle” as it looks to exit from its long-standing negative interest rate policy stance.

What About China?

China was the lone player, up over 1%, as Beijing rolled out more governmental measures to prevent further stock slides, such as tightening trade restrictions on domestic institutional investors and offshore units.

Additionally, China’s sovereign wealth fund will continue purchasing ETFs, which it has been doing for some time now, lifting investor sentiment.

View from Down Under

Down under, in the forgotten pockets of the global financial system, Australia and New Zealand are seeking clarity regarding their own Federal Banking system. Australian and New Zealand bond yields were both moderately higher.

The Reserve Bank of Australia is set to update its rate path projections when bankers meet this week. The consensus among economists is that the RBA will hold rates steady at 4.35% given the still elevated inflation level in the country.

In many ways, all of these global powers are fighting the same fight. Everyone is ensuring that economic growth remains strong while working to bring inflation under control, all while monitoring the delayed impact of sharp rate increases throughout the last year and a half.

What's Ripe ??

4D Molecular Therapeutics (FDMT) ??84.6%

• This biotech company that develops therapies to treat rare genetic diseases saw a major breakthrough. Interim data in a mid-stage trial for a drug treating eye disease “checked all the boxes,” according to one analyst. While there are several phases of testing required for new therapies, this Phase 2 data stoked exuberance from existing investors and pushed prospective investors to hop on the train before it’s too late.
• For those who love risk, biotech stocks can be a fun playground of volatility. Like a seesaw, these stocks are generally binary trades, going either straight up or straight down depending on clinical trial data readouts.
• On the back of the positive data readout and subsequent stock jump, the company also announced a deal to raise $250mn from investors in an all-equity capital raise.?

Bowlero Corp (BOWL) ??15.8%

• Has anyone else had enough of these fancy, complicated-to-understand technology stocks taking up all the headlines? If you’re looking for a timeless, old-fashioned company with a simple business model, then Bowlero is the company for you.
• As its name implies, Bowlero operates a chain of 350 bowling alleys across the US. They went public via a SPAC (remember those?) in 2021. It’s a simple business with no phantom revenue levers or questionable EBITDA adjustments, just pure blocking and tackling.
• Bowlero beat both revenue and EBITDA estimates, replenished a $200mn buyback, and declared a dividend of $0.055 per share.

What's Rotten ??

New York Community Bancorp (NYCB) ??10.6%

• Flashback to the ides of March 2023. Regional bank stocks are back in the headlines, and not for a good reason. In all honesty, is there ever a good reason for a regional bank to make headlines?
• NYCB shares got hammered last week following a larger-than-expected net loss number tied to their real estate portfolio, which sparked this infamous analyst rant toward management.
• Now, more details are coming out, including the departure of NYCB’s Chief Risk Officer weeks before the earnings announcement. The company slashed its dividends in order to store up more cash reserves, which received mixed reviews from investors.

AMC Entertainment (AMC) ??8.7%

• It’s never a good sign when your stock is down this much on no discernible news. That just means people are dumping it out of boredom. To be fair, people were pumping the stock in 2021 out of boredom as well.
• While AMC doesn’t report earnings for another three weeks, it seems like the meme stocks are out of favor, at least for the time being. Gamestop also registered its biggest decline in two months.
• Maybe AMC will defy all odds, announce a blowout quarter, and send the stock soaring. If not, they can at least be comforted by the fact that people are paying attention to the stock at all, even if that attention is through selling it.

Thought Banana ??

The Ghost of Signature Bank Past

Something about the post-Christmas pre-spring season just doesn’t bode well for the regional banking industry. Nearly a year after the failure of Silicon Valley Bank, the ghost of Signature Bank is rearing its ugly head. This time through its new victim (ally), New York Community Bancorp.

Here's a Quick Refresher

Signature Bank primarily catered to middle-market, privately owned businesses such as law firms, real estate companies, and even some smaller crypto-related businesses. Though confined to a small region, it was the 19th largest bank by deposits, just shy of $90bn.

After the collapse of its neighbor, Silicon Valley Bank, depositors panicked and forced a run on the bank. This is a self-fulfilling prophecy in which investors, out of fear of the bank collapsing, rush to withdraw their money. However, it is the exact act of withdrawing their money that causes the bank to collapse.

By reading The Daily Peel, you not only gain financial acumen, but you also get a lesson in human psychology.

How does this relate to NYCB?

After panic ensued, leading to the failure of Signature Bank, New York Bancorp swooped in to save the day, acquiring all of Signature Bank’s assets. The thing about purchasing a company, though, is that in addition to the assets, you also have to acquire all of the liabilities.

Whoops. New York Bancorp is taking much longer than anticipated to absorb all of Signature’s losses from real estate loans. Part of this has to do with record-high office vacancies, which are causing landlords and developers to struggle to pay back loans, many of which are owned by NYCB.

NYCB’s stock has been getting killed after releasing earnings. Allowance for credit losses almost doubled in the latest quarter. Net charge-offs, another key measure of credit quality, also rose dramatically during the quarter, which primarily stemmed from two bad loans. NYCB’s results caused contagion risk throughout the sector, and regional bank stocks are falling as investors parse out where all of these real estate loans lie.

Source

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Debt Downgrade

The good people over at Fitch Ratings downgraded NYCB to a BBB- rating. While this is still considered investment-grade, it is the lowest investment-grade rating a company can get before being downgraded to junk.?

The rating agency noted trouble in the commercial real estate book as well as regulatory issues that still haven’t been sorted out from last year’s acquisition of Signature. The combined balance sheet means that NYCB now has over $100bn in assets, which comes with stricter liquidity and capital standards.

While a Fitch downgrade is nothing to be taken lightly, let’s all remember these are the same people who told us that mortgage bonds in 2007 were A-OK.

NYCB is doing everything it can to win investors back. This includes cutting its quarterly dividend in order to hold more cash in reserves to get it through this rough patch.

?? The Big Question ??: What's going to happen with NYCB? Will they be able to weather the storm or is their stock headed for the ground? Are you getting in on this?

Banana Brain Teaser ??

Yesterday ??

Items that are purchased together at a certain discount store are priced at $3 for the first item purchased and $1 for each additional item purchased. What is the maximum number of items that could be purchased together for a total price that is less than $30

Answer: 27 items

Today ??

An open box in the shape of a cube measuring 50 centimeters on each side is constructed from plywood. If the plywood weighs 1.5 grams per square centimeter, which of the following is closest to the total weight, in kilograms, of the plywood used for the box? (1 kilogram = 1,000 grams)

Send your guesses to [email protected]

Wise Investor Says ??

“The life of money-making is one undertaken under compulsion, and wealth is evidently not the good we are seeking; for it is merely useful and for the sake of something else.”—Aristotle

How Would You Rate Today's Peel??

??All the bananas? ? ? ? ? ? ? ? ? ? ? ? ???Meh? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ??Rotten AF

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Happy Investing,

David, Vyom, Jasper & Patrick