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TheBRRR’s Thoughts

Risk assets have crawled higher since Monday’s newsletter without a major catalyst.

On the positive side:

1. China continues to inject liquidity to prop up its stock market
2. Tech earnings have been good and they continue to lay off workers

On the negative side:

1. The Fed has U-Turned on dovish interest rate posturing, shifting market expectations from 6+ to ~3 by the end of the year
2. Regional banks may be back on the brink with NYCB teetering on bankruptcy
3. The US dollar index (DXY) is up 3% from its December low

On balance, risk assets have a bullish bias as markets are pricing in a return to a low interest rate, stimulatory environment in an election year.

We’re covering 3 stories today: NYCB, Meta Vs Snap earnings, & Uranium’s new legislative tailwind.

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New York Community Bancorp Plunges Further, Contagion Imminent?

WHAT HAPPENED:

• Stock Plunge: New York Community Bancorp's stock price has dramatically fallen, losing about two-thirds of its value over the past week. This steep decline followed the bank's disclosure of unexpected losses in its real estate loan portfolio, including office and apartment buildings.

• Earnings Report Fallout: The bank's recent earnings report revealed significant losses, leading to a sharp decrease in share price, a cut in its dividend, and a $500 million reserve to cover potential future losses. Two particular loans were highlighted for causing up to $185 million in losses.

• Leadership Response: In response to the crisis, the bank's new executive chairman, Alessandro DiNello, sought to reassure investors of the bank's strength and stability during an emergency call.

• Acquisition and Growth: Over the past year, the bank expanded significantly, reaching over $100 billion in assets, partly through the acquisition of the failed Signature Bank, under the orchestration of federal regulators.

WHY IT MATTERS:

• Broader Market Impact: The bank's troubles have led to a decrease in share prices for other lenders with significant commercial real estate portfolios, highlighting how issues in one institution can ripple through the financial system.

• Real Estate Loan Risks: The significant devaluation of real estate loans underscores the potential vulnerabilities within the banking sector, especially in the context of office and residential building loans.

• Credit Rating Downgrade: Moody’s downgraded the bank’s credit rating, pointing to concerns about its financial stability, risk management, and governance. This downgrade reflects growing skepticism about the bank's ability to manage its challenges.

• Industry-Wide Concerns: This situation comes nearly a year after a crisis that affected several midsize banks, reigniting worries about the health and resilience of the banking industry, particularly in handling real estate exposures amid fluctuating market conditions.
  
  NYT

Meta and Snap: Let Your Winners Ride

WHAT HAPPENED:

• Snap Inc.'s Struggle: Snap's Q4 earnings revealed significant struggles in its advertising business compared to its larger competitor, Meta (owner of Facebook and Instagram). While Meta's ad business soared with a 24% growth year-over-year, Snap reported a mere 5% increase, marking its sixth consecutive quarter of single-digit growth or decline. This underperformance led to a sharp 33% drop in Snap's stock in extended trading.

• Meta's Triumph: In contrast, Meta reported a substantial profit triple, exceeded financial estimates, and offered an optimistic future outlook, including a dividend payout for the first time. This success sent Meta's stock soaring by 20%.

• Digital Ad Market Recovery: Both companies, along with other tech giants, are navigating the recovering digital ad market, which faced downturns in 2022 due to economic pressures. The market is now improving, aided by a more stable economy and anticipation of major events like the 2024 Olympics and the upcoming presidential election.

WHY IT MATTERS:

• Market Dynamics: The contrasting fortunes of Snap and Meta highlight the significant impact of market size and technological advancements on competitiveness within the digital advertising space. Meta's larger user base and advanced ad technology, partly driven by AI investments, have positioned it to capitalize more effectively on the market recovery.

• Snap's Challenges: Snap's slower recovery and technological progress, especially in ad targeting and machine learning, underscore the difficulties smaller platforms face against tech giants. Despite efforts to innovate and diversify with products like Snapchat+, Snap's primary revenue still heavily relies on advertising, making its slower growth a critical concern.

 CNBC

Uranium Market Surge & US Policy Tailwinds

WHAT HAPPENED:

• Legislative Funding for Uranium Enrichment: The U.S. Senate has proposed a significant spending package targeting border and Ukraine aid, which notably includes over $2 billion dedicated to uranium processing and enrichment efforts. This move is part of a broader strategy to diminish global dependence on Russian energy exports, specifically in the uranium sector.

• Uranium Price Spike: Uranium prices have hit a 16-year peak, reaching $106 per pound in mid-January, primarily due to supply concerns and production cuts by major producers like Kazakhstan's Kazatomprom.

• Market Dynamics: The uranium sector is experiencing a significant breakout, with both spot uranium prices and uranium stocks (as represented by the URA ETF) indicating a strong bullish trend into 2024. This surge is backed by increasing demand for nuclear energy as a clean energy source and geopolitical shifts aiming to reduce reliance on Russian uranium.

WHY IT MATTERS:

• Energy Transition and Nuclear Power: The global shift towards sustainable and low-carbon energy solutions is amplifying the role of nuclear power, positioning uranium as a critical component in achieving carbon neutrality. The current market dynamics reflect a broader recognition of nuclear energy's potential in the energy mix.

• Investor Interest in Uranium Stocks: With uranium prices soaring, companies like Uranium Energy that are poised to begin production stand to benefit significantly. This scenario attracts investor interest towards uranium stocks, seeking to leverage the anticipated growth in the sector.

The Hill

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The BRRR is meant for informational purposes only. It is not investment advice. Please consult with your investment, tax, or legal advisor before making any investment decisions.ll