📑 Research Notes for 2023-03-27
This week, we look at Putin's move in Belarus, increased hard landing concerns, commercial real estate compounding bank worries, and a sudden drop in the Deutsche Bank stock price.
We conduct extensive investment research and share the most interesting content that we come across every week. Here is a curated list of this week’s top observations.
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Last Week’s Market Performance Heatmap
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Putin Announces Nuclear Weapons Deployment in Belarus Amid Rising Tensions with NATO.
Russian President Vladimir Putin has announced that Moscow will station nuclear weapons in Belarus for the first time since the 1990s. The move comes amid rising tensions between Russia and NATO, and is likely to further escalate the situation. Belarus has been a close ally of Russia, but the deployment of nuclear weapons on its territory is likely to be seen as a provocative move by the West. The announcement has also raised concerns about the safety and security of nuclear weapons in the region.
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Former New York Fed President Warns of Increased Risk of Hard Landing Due to Banking System Stress.
Former New York Fed President William Dudley has warned that the risk of a hard landing has increased due to uncertainty surrounding the banking system stress and its impact on the economy. He noted that the Fed will not know the appropriate policy until more information is received, which will take time to assess. Dudley also highlighted that the Fed's decision to keep rates high throughout the year suggests that they do not think the banking system stress will have a significant downward impact on the economy. However, he cautioned that if the banking system stress continues, the risk of a hard landing will remain high.
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Commercial Property Debt Creates More Bank Worries.
The commercial property market is causing additional concern for banks. The pandemic led to a decline in demand for office and retail space, resulting in a rise in delinquencies and defaults on loans. Banks are now facing the possibility of having to write off billions of dollars in bad loans, which could lead to a ripple effect throughout the financial system. The situation is further complicated by the fact that many of these loans have been packaged into securities and sold to investors, making it difficult to determine who ultimately bears the risk.
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Deutsche Bank Stock Falls 14% Amid Unclear Reasons.
Chart Source: Bloomberg
Deutsche Bank's stock fell considerably on Friday, but the reason for the drop is not clear. Some analysts believe it is due to a general recession trade, where quality factors are in demand and low-quality factors are being sold off. Deutsche Bank is particularly vulnerable to this due to its exposure to corporate lending and Germany's exposure to the global economy. The market is repositioning for a hard landing story, which has been developing over the past two weeks.
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Curated by Joseph Lu, CFA®
Joseph is the founder and managing director of Conscious Capital Advisors, and a CFA® Charterholder.
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