Good Tuesday AM,

The mini rally I mentioned yesterday is picking up steam.

The MBS gapped up and tested resistance, while the yield on the ten-year treasury note plunged 15 basis points down to 3.40%. Consumer confidence reading tanking certainly has helped this morning but the market was already moving at the open as a result of the overnight markets. We also received results on the FHFA housing, Case-Shiller and New home sales, all of which beat expectations by a lot. It is amazing to see how strong housing is while the affordability numbers are at 40 year lows. The last time we saw affordability this bad was in the early 80s and nobody was buying homes. Once again, I believe that housing will transcend the coming recession. This is unusual, but we saw it happen during the brief COVID recession. The rest of this week could be all over the place and the news keeps getting more important as the week goes on. Be careful.

Bank stress is not over.

News about First Republic Q1 results confirmed that bank is in trouble. Deposits fell more than 40% to $104.5 billion at the end of March, a tally that includes a $30 billion rescue package from megabanks, suggesting last month’s panic cost it around $100 billion in deposits. The deposit run late in the quarter forced the bank to take on expensive loans from the Federal Reserve and Federal Home Loan Bank, which will likely crimp future earnings. Looking to reduce expenses, First Republic said it will reduce head count by 20% to 25% and slash executive pay. Its shares fell 20% in after-hours trading following the earnings report. First Republic is now paying more for some loans from the government than it is makes on it’s deposits.

And commercial real estate is continuing to flash warning signs.

Landlords are contending with a cyclical market downturn and with secular changes in the way people work, live and shop—two forces that haven’t come together on this scale since the 1970s, investors and economists say. Some analysts say the commercial property downturn may well end up less severe than the slumps in the early 1990s and after the 2008 financial crisis, but the deeper problems facing office and certain retail landlords—a glut of offices and falling tenant demand—mean building values are less likely to rebound to new highs the way they did after those previous meltdowns.

Please remain safe and stay healthy, make today great!