📑 Research Notes for 2023-05-01
This week, we look at First Republic's failure, France's debt downgrade by Fitch, the stock market ignoring economic fundamentals, and Elon Musk's warning.
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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First Republic Bank To Be Sold to JPMorgan.
First Republic Bank will be taken over by J.P. Morgan Chase after rescue attempts fail. The bank's stock price has fallen 80% since March, and despite a $30 billion infusion from larger banks, it lost 43% of its value on Friday, closing at $3.51 a share. The Federal Reserve has taken some responsibility for the collapse of Silicon Valley Bank in a report released on Friday outlined regulations and oversights, but acknowledged that it could take years to implement any changes.
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Fitch Ratings Downgrades France's Debt Rating to AA-.
Fitch Ratings has downgraded France's debt rating from AA to AA-, citing weaker fiscal metrics and social movements that could put President Macron's agenda at risk. This is the first downgrade since the adoption of the highly contested pension reform, which sparked nationwide strikes and further destabilized the economy. However, Fitch revised the outlook to stable, predicting that the French economy will grow by 0.8%, just short of the forecasted 1.1%. France's Minister of Economy, Bruno Le Maire, dismissed Fitch's concerns, claiming that recent reforms would boost the economic model.
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Stock Market To Catch Up to Looming Recession.
Matt Maley from Miller Taback believes that the stock market will soon catch up to the credit crunch and looming recession. While systemic issues are under control, there is a problem on the economic side with big changes in deposits. Many people are choosing to invest in money market funds and T-bill rates, which means banks have less money and are pulling in the horns with lending. Maley believes that when credit contracts, a recession is inevitable and the stock market will eventually catch up to this realization. He also suggests that the regional bank trade is not safe to get into right now and that a washout is needed before great opportunities arise.
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Elon Musk Predicts Global Financial System Collapse, Advocates for Bitcoin.
Elon Musk, the CEO of Tesla and SpaceX, has made a dire prediction about the economy, stating that the current global financial system is on the verge of collapse. He believes that the COVID-19 pandemic has accelerated the inevitable downfall of fiat currencies and that cryptocurrencies like Bitcoin are a better alternative. Musk has been a vocal supporter of Bitcoin and recently invested $1.5 billion in the cryptocurrency through Tesla. However, some experts have criticized Musk's prediction, stating that the global financial system is more resilient than he suggests.
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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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