Another month of above-average payroll growth … major problems in the crypto and broader banking sectors … big news from the oil patch … where Digest readers are finding income

This morning, the jobs report came in stronger than expected.

Nonfarm payrolls rose by 311,000 in February, topping the Dow Jones estimate of 225,000.

This suggests that the red-hot payroll report in January wasn’t an anomaly, and that isn’t great for a Federal Reserve looking to cool the labor market.

On that note, regular Digest readers know that we were also eager to learn whether the January payroll report would show a significant downward revision.

If you recall, January’s jobs number was an eye-watering 517,000. But there was speculation that this was an inflated number due to seasonal adjustments.

Well, the number was revised lower – but not by much.

From CNBC:

The year opened with a nonfarm payrolls gain of 504,000, a total that was revised down only slightly from the initially reported 517,000. December’s total also was taken down slightly, to 239,000, a decrease of 21,000 from the previous estimate.

Interestingly, despite the show of labor market strength, traders are pulling back on expectations that the Fed will raise rates 50 basis points in two weeks.

Earlier this week, traders put the odds of a 50-basis-point hike at more than 70%. As I write Friday morning, that’s down to 41%.

Part of the reason for this reduced expectation is cooler wage growth from this morning’s report.

Average hourly earnings rose 4.6% year-over-year, which is less than the estimate of 4.8%. The monthly increase of 0.2% also came in below the 0.4% estimate.

It appears Wall Street believes this will be more important to the Fed than the overall headline number.

We’ll find out in a week-and-a-half.

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Meanwhile, there are two huge stories in the banking sector playing out this week

The first is the implosion of crypto lender Silvergate Capital.

For months now, there have been rumblings about potential liquidity problems with Silvergate, a leading bank for the crypto community.

But the latest drama came Wednesday evening when the lender announced it was winding down its operations and would liquidate its assets.

From The Verge:

Silvergate Bank, which had been a cornerstone in the crypto world, announced it’s closing and returning deposits.

In a press release, the bank’s holding company, Silvergate Capital Corporation, said it made the decision to shut down “in light of recent industry and regulatory developments.”

It’s been clear for a while that the company was struggling along with some of its most high-profile clients like FTX and Genesis.

In January, its earnings report revealed that it lost a billion dollars in one quarter after its customers withdrew $8.1 billion. Then, on March 1st, it filed a document saying its financials were even worse than the quarterly report had shown.

The collapse raises questions about the impact on growth within the crypto sector. Silvergate was a leading source of operational cash for crypto-related companies.

One of the fears is that its absence will force crypto companies to turn to less regulated institutions, making the space even riskier.

However, the opposite is also true in that the collapse could accelerate the push toward greater regulatory guardrails that help the industry grow in a safer manner.

I reached out to one of our crypto experts, Charlie Shrem, for his take on Silvergate’s collapse. Here’s his quick take:

I honestly never thought in 2011 that Bitcoin would lead to an actual FDIC Insured US Bank failing. However, this is part of the process of creating a better more equitable financial system. 

Bitcoin’s price was holding up admirably in the face of the bad news for most of the week, but that changed last night as you can see below.

We’re looking at Bitcoin’s price over the last five trading sessions on a 30-minute basis. The big drop you see came last night.

Source: StockCharts.com

This selloff isn’t purely due to Silvergate.

What we’re seeing is likely a mixture of the Silvergate news mixed with a surge in risk-off market sentiment, in part due to our next story about more trouble in the banking sector…

Silicon Valley Bank (SVB), which is a key source of lending in the venture capital world, has just gone under

Let’s jump to Yahoo! Finance:

Turmoil for SVB began when the California based bank filed a surprise announcement of a $1.8 billion loss following a deposit outflow and plans to raise $2.25 billion by selling common and preferred stock.

Silicon Valley Bank primarily serves startups and technology firms, which have been under pressure as the Federal Reserve raises interest rates.

In short, SVB suffered some brutal losses in its bond portfolio as the Fed has hoisted rates. This led to the need for more cash, so SVB announced plans to sell more stock. Depositors panicked, resulting in a bank run and a plummeting stock price.

As I’m nearing my publishing deadline on Friday, news is breaking that regulators have now shut down SVB in order to protect customer deposits.

From CNBC:

Financial regulators have closed Silicon Valley Bank and taken control of its deposits, the Federal Deposit Insurance Corp. announced Friday, leaving companies and wealthy individuals largely tied to the tech sector unsure of what will happen to their money…

The FDIC said in the announcement that insured depositors will have access to their deposits no later than Monday morning…

The FDIC’s standard insurance covers up to $250,000 per depositor, per bank, for each account ownership category.

It is unclear exactly how larger accounts or credit lines for companies will be impacted by the closure. 

This is a big deal. Silicon Valley bank is America’s 16th largest bank, on par with Washington Mutual. And it’s a massive player in the venture capital world.

The fear of spreading contagion has resulted in a selloff of the broader banking sector. As I write, the SPDR S&P Bank ETF (KBE) is down 12% since yesterday’s open.

Now, tangentially, this is likely to influence the Fed’s interest rate policy in two weeks

Signs that the banking system is fragile are likely to slow down the Fed and its hike-size. This is part of the reason why the odds of a 50-basis-point hike have fallen so much in the last 24 hours.

The bond market certainly believes this to be true. Bond yields are crashing as I write.

The 10-year Treasury yield has fallen from 3.98% yesterday to just 3.73%. 

This story is developing. We’ll keep you updated.

Meanwhile, there was also big news this week from the oil and gas sector

Let’s jump straight to legendary investor Louis Navellier and his Wednesday Special Market Update for Platinum Growth Club members:

We have a big energy conference underway and multiple executives are talking about what they call “the stagnation of shale,” where the big wells in the Permian Basin are now dropping off at a pretty rapid pace.

Now, they’re still drilling in the Permian Basin…and they’re still discovering new wells, but they’re dropping off pretty fast too. And they just can’t find the big, mega-wells they’ve had in the past.

As you would guess, if the U.S. is running low on its energy deposits, that makes us more reliant on other countries.

Here’s more on that note from The Wall Street Journal:

…Executives cited the stagnation in shale, saying it signaled a return to more dependence on foreign energy sources and more challenging times ahead for major U.S. companies, after most of them posted record earnings last year.

“The world is going back to a world that we had in the ’70s and the ’80s,” said ConocoPhillips Chief Executive Ryan Lance, during a panel at the conference called CERAWeek by S&P Global.

He warned that OPEC would soon supply more of the world’s oil.

For the impact on oil prices and oil stocks, let’s return to Louis:

The supply/demand imbalance is fragile. That’s the best way to describe it.

So, this paints a very, very good picture for the oil industry. Prices are going to remain high…

It will be interesting to see how high crude oil prices rise. $100 a barrel is certain. $120 a barrel might be likely during peak demand…

I feel very good about my energy bet right now.

In addition to his energy bet, Louis is also bullish on top-tier tanker stocks. They’re benefitting from longer shipping routes as the world continues adjusting to the impact of the Russia/Ukraine war.

For more of Louis’ analysis of the oil and gas sector as well as his top investment choices, click here to learn more about becoming a Platinum Growth Club member.

Finally, on Wednesday, the two-year Treasury yield topped 5%

As we noted in last Friday’s Digest, we have a Fed that’s hostile to asset prices. And as Wall Street comes to grips with this, it’s leading to the best income options in years (even though yields are crashing today as I noted a moment ago).

Last week, we asked Digest readers to write in to let us know how they’re viewing today’s new income options and which specific vehicles they’re choosing.

Thanks to everyone for writing in. We love hearing from you. Here are three responses that largely summarize the overall gist of the feedback:

– I have about 30% of my portfolio invested in one- and two-month CD’s – current average yield is around 4.35%.  What a blessing when you are retired and looking or some fairly secure monthly income.

– I have a lot of cash in my non retirement accounts and I am starting to park it in muni bond funds paying ~4.5% such as NZF. The tax benefits are great. Potential for capital appreciation if/when interest rates finally do start to drop. In the meantime, the current yield does a reasonable job of protecting from inflation.

– Yes. I am looking at 5% no risk. What am I missing out on if I pull out of stocks? That big rebound isn’t feeling close at all.

If you want to share a specific income investment vehicle that you believe our file should know about, email us at Digest@Investorplace.com.

Have a good evening,

Jeff Remsburg

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