Countdown to Bank Earnings, and Can AI Pick Your Portfolio? 4/13/23

0:01Right now in fast, the S &P posting its best close in two months ahead of earnings season, which kicks off tomorrow with the big banks. Will the financials keep the market surging ahead or grind this rally to a halt? Plus, no beef with Netflix right now. The stock's surging today and climbing over 17 % in the past month. Will it be the designated survivor in the streaming landscape? Should you be a hoarder of this name? And it's a lot of puns. And later, from AI helping you with your homework to now chat GPT investing your money, we'll hear from a University of Florida professor who says AI could be useful for picking stocks.

0:36will put it to the test. I'm Melissa Lee. This is Fast Money. We're live with the NASDAQ Market Sight on the desk tonight. Tim Seymour, Karen Feinemann, Dan Nathan, and Guy Adami all in the house. We start off with a big countdown to big bank earnings. JPMorgan, Citi, Wells Fargo, kicking things off tomorrow morning with Bank of America, Goldman Sachs, and the regionals all out in the next few days. Investors focus on just how deeply the banking crisis has impacted these names. Analysts now looking for earnings for the group to grow about 4 % in Q1, according to Refinitiv. That is down from the nearly 7 % growth expected at the start of the year.

1:08Bank stocks rallying today ahead of the reports, posting better gains than the broader markets, though they are still near their lows of the year. Can tomorrow's results help these stocks pull out of this rut? And of course, the backdrop, massive rally today. In the broader market, which is incredible. I mean, as I say all the time, I don't need help looking stupid, but the market seems to do it for me each night. And today was one of those days. But, you know, J.P. Morgan trading 129. You have no real meaningful bounce over the last month and a half, two months. So it actually lines up where you should see a relief rally.

1:40That's something that Dan talks about. But for the life of me, I can't believe that any of these money center or major banks should say anything all that constructive to get them off the mat in a meaningful way. So a couple percent rally off the lows, maybe. But I think the dialogue and the rhetoric and some of the guidance that they see, especially in light of Jamie Dimon's recent letter, can't be all that good. Maybe no news is good news. Maybe the consumer trudging along, maybe everything going as planned, despite what happened in banks over the past month or so. Maybe that's actually a good thing.

2:10That's enough of a catalyst. Well, valuation is not yet, but at some point becomes enough of a catalyst, too. I mean, if you look at, you know, 1.1 times price to tangible book on 24, about 7.7 times. These are, you know, those are 20 and 30 percent cheap on a relative basis to where these things have traded on a five to 10 year basis. But there's no question banks are not going to get away from you on re-rating. I mean, how is it you're going to see with a regulatory overhang, with a credit? You know, we still don't know what's going on. Credit trends have actually normalized a bit. So they've been it's been pretty positive.

2:41But to me, as much as I want to say and as someone that owns J.P. Morgan and owns Bank of America and own Citibank. And I think there are people in the analyst community that actually even say that Wells Fargo is worth a worth a look here. I think it's going to be tough sledding. They've priced a lot of bad news in. That's the good news. Karen. So I don't think it'll be that newsy because of the Silicon Valley situation. Actually, I do think we'll see a lot of things that happened during the quarter. I think they were losing deposits going into the quarter, which they sort of manufactured that they had too many deposits.

3:13They offered rates that they knew would send some money fleeing. And then they got in a deluge of deposits from fear. And and the loan to deposit ratio, which which has been declining over years, probably went down a lot in this new environment. It's hard to think about putting out new money for loans when you think about, all right, how flighty are these deposits, right? So you need that sort of match there. And I think, though, credit quality has been very good. I don't think we're really going to see an uptick there. And it's going to be more of the usual. You and I talked about this before the show about what do they see in the economy?

3:45What do they see in the consumer? You know, maybe they'll get questions about commercial lending, which, you know, I know JP Morgan, for example, doesn't have a particularly big book of commercial lending. But to me, I have moved more of my Bank of America into JP Morgan. I want to be in the biggest, the best, the safest. And, you know, it's 10 ish times earnings, three plus yield. I'm hanging out. You know, the problem is it doesn't look like there's too many places across the financials in general to hide right now. If you look at just kind of and we've talked a little about, you know, some of the life insurance looks like a bomb went off there.

4:17Right. If you look at just some of the brokers, we talked about Schwab a lot. It looks like a bomb went off their Bank of America so much worse than, let's say, JP, to your point. So when I think about, you know, some of the news that's already discounted in, there's a lot of bad news, right? We talked about the regional banks. They can't get out of their own way here. You know, it's interesting because, you know, Jamie Dimon, their annual letter last week, there was a lot of commentary that came out of that. That may take some of the sting out of whatever, you know, like if you were going to look at something, you know, glass half, you know, empty, you know, that takes a little sting out of it.

4:47I don't know if you guys saw this Wells Fargo headline. Their head of consumer, the CEO of the consumer and small business just announced that she's leaving. That's today. This is the day before they're going to announce their result tomorrow. So there's ways to kind of piece out information that make it not as bad when it comes out. I think, you know, JP has not really gotten out of its way. Wells has had a bit of a rally here. Schwab is not really rallied. The KRE can't get out. So to me, I think if you do have a relief rally, given the lack of visibility that we have about these companies and their own businesses, and then when you think about what's going on with the economy and the volatility around rates and really what we feel about investment banking in general.

5:24And then are we on the eve of a credit cycle? I just don't find them that compelling. So if they were to rally, I think if you're long, it probably gives you the opportunity to take some money off the table. And me as a trader, I would be looking to re-short these things. And, you know, I was short them. I had a good trade on. I stayed around too long. I did not want to press that short. I've been saying that for a couple of weeks here, but I would look for an opportunity to put them out on any rally. Well, I agree with you on Wells Fargo. I sold Wells Fargo to get into Morgan Stanley, which is a very different business, right?

5:52Investment banking and asset management. And all the money center banks probably are not going to have very good investment banking numbers, right? We've talked about what a dearth of deals there are. But that's a lumpy thing, and I think that will improve. So Morgan Stanley is where I want to be instead of Wells. But we'll see tomorrow. I own banks. I'll say this about the market and what the implications for banks should be. I mean, the market's trading. Like we got Fed minutes yesterday, said mild recession. We've seen PPI and CPI this week that have been great. We've got retail sales tomorrow, which also are going to be another read.

6:25But the labor numbers, the payroll numbers, while they're softening, we still have a very tight job market, a consumer that has a job. So, you know, the market that's rallying right now in a market, it was a huge day in the markets and it was a risk on day. It was a day of breath. And that's the part of this that doesn't reconcile with banks. And we've seen this at different times. I mean, banks have not been able to outperform the market. And take a look at the carry trading at levels close to the lowest levels during the crisis, the recent crisis. They haven't gotten off that low. What's going on?

6:55There's been no bounce whatsoever. Telling a different story. Listen, Sheila Bair came on this show, I think it was earlier this week, right? She suggested something else. Warren Buffett in Tokyo with Becky Quick this week said the same thing. So it's not just us talking about this. And the KRE is trading in the way. The XLF is a flawed ETF. Sorry about that. It's a flawed ETF. It's Berkshire Hathaway. It's JP Morgan. It's MasterCard Visa. that's, I think, almost 40 percent of it. So say what you want. The XLE, if you look at it, it's telling you something that something again is going to happen here.

7:23All right. Well, deposit losses may not be the biggest issue facing banks. One of the investors known for successfully betting against housing before the 2008 implosion sees bigger trouble ahead for financials. Danny Moses of The Big Short Fame joins us now. He is the founder of Moses Ventures. Danny, always great to have you with us. Great to be on an update. It's nice. Thanks. You have no position in banks right now. I do not. Okay. So what are you looking for? What are you curious about, particularly when the regionals report? I think we're going to see a shift from the Fed obsession to really what's going on in the economy.

7:54I would rather hear what Jamie Dimon has to say than Jerome Powell or any dot plot, because I think you get a real-time look at what's going on. And I think we're going to start to trade on fundamentals and not whether the Fed is done. The Fed at this point has 25 basis points left in it, maybe. You're now seeing rate cuts being priced in in September. And my concern is that that actually happens. That means the S &P earnings are only going to drift lower from here and the market may be overvalued. So every bank tells you something different. Some have commercial real estate exposure. Some have been getting hit on the deposit shifts within the banks themselves.

8:24And I'm not so worried about a flight of deposits overall at these banks. I'm real concerned about what the impact of those change of deposits does to the net interest income and their margins. Right. What do they have to do to stabilize the deposits? I mean, that's a costly venture. When you see a small regional bank offering close to 5 % to keep money there, I mean, that's going to catch up with that bank. For sure. What they need is loan growth. And unfortunately, I think we've kind of seen the peak in that. So if you don't have anyone to lend to and your margins are going to get hit, you really can't grow.

8:53And so it becomes an ROE story, which is an equity story for these banks. And that's historically how they've traded. And I'll note that these banks are not overly expensive, but they're definitely not overly cheap yet. And so same thing I was on here a month ago. I didn't have a position. I don't have a position now. To me, it's about the story that is telling for the economy. Danny, how about the ROE doesn't really reflect? We're all talking about earnings dynamics, and I would make an argument that the net interest margin pain is something that we didn't give banks a lot of credit for on the way up.

9:20The big issue, and I'm guessing, and this is your background, is credit. And banks were trading at a discount to the market and at a discount to themselves before we even knew about SVB. So how do you assess that here? And where do you think investors, what do you need to wait for? What do you want to see before you can determine that credit is either not as bad as you thought or maybe it's worse? Right. So the credit comes in different shapes here, right? It's credit obviously you're lending out to your clients, your customers. It's corporate credit and so forth. So we're going to get a pretty good glimpse from Wells Fargo, obviously, in the auto loan book.

9:52And we'll see things like that. We're going to get corporate credit, CNI loans. We're going to get a piece of that. And I think what is lost on people is, yes, last year was a stock pickers market. And I think there's also a bond pickers market. And when I say bond picking, it's credit. And the ability of these companies that they lend to to get refinanced is going to change. And so a lot of orphan companies out there, in my opinion, that were able to get credit from these banks. And these banks have to now make decisions because cost of capital is going higher and where they lend. And my fear is taking that credit and trying to figure out what does that mean to the economy as far as contraction might be.

10:23So how do you think about the ripple effects of this banking turmoil and have you put any positions on as a result of it, whether it be and it's it may not be in the banking sector. It may not even be commercial real estate, but even tangentially, were there trades that you put on because of what has happened? Not necessarily. I probably got a little bit more bearish. You know, I think I think in general, like I said, I think the Fed's been somewhat of a sideshow as far as what's going to happen here. And so I think I think that all the deposits are safe. And I think that's kind of if there was a Fed put for years, there's now a Treasury put or Yellen put, whatever, that if something else happens to another bank, we're going to be OK.

10:58And that's given the green light to people that it's OK to own banks. And what Dan, the point that Dan just made earlier about people want to feel safe owning things. You see in the Nasdaq top three or four holdings amass the majority of inflows that come in. I think we see that in the bank and safety numbers. I don't agree with the valuations per se, but I am watching it. And to your point, Melissa, there are auto lenders out there that are publicly traded that you can watch and garner a lot of information from these large banks on. that may not get the access and the credit lines they need to keep growing.

11:23So I'm short the HYG, which, you know, is just a bet on credit end rates, but the credit part. Although I'm wondering, is there a scenario where there's not enough new high yield bonds created that makes them scarce and therefore more valuable? That's a great point. So the passive ETFs for fixed income have always driven me crazy because I just mentioned before, I think we're going to have more of a bond pickers market going forward. but passive ETFs and fixed income have basically changed that dynamic. People feel diversified. If you look within the breakup of the HYG itself and what's in there, you can see energy companies, consumer goods companies, and that's what I like to look at individually.

12:02I realize for most people, it's hard to trade those individual bonds. But listen, with rates coming in and the Fed being done, I don't know how much juice you'll get on the short side in those. But to me, it's an indication, and I know Tim has talked about this before, about credit spreads in general. And if credit spreads widen, I use the HYG as a tool to tell me how everything else is kind of trade. Danny, good to see you. Thank you. Thanks for having me. Danny Moses, Moses Ventures. Are you rethinking that short? I am. I've just been thinking about the dearth of deals. And are there not enough bonds?

12:34Although I love the idea of the shorts. So I got to come up with a different way. Maybe it's individual names. But it's a place you got to. I mean, HYG has been, well, it's probably 75 and a half. It doesn't trade. Karen will tell you that. But when it trades, it trades in a meaningful way. but it's been basically trading around the bottom here-ish for quite some time. I do think there's going to be a credit event. And the Fed basically told you, they said, we understand that what just happened, we're probably going to see a mild recession. For them to even say that is interesting. The adjective before it I don't think makes a difference.

13:02But they acknowledge that that could happen, and they're still going forward with raising rates. So they do this, and again, something broke in terms of Silicon Valley Bank. There are other things out there that are going to break. I think credit's next. It's an interesting time to be throwing credit back out there on the short side because we've seen a 60 BIP tightening in high yield spreads in the last three weeks. So there's really been this. We went from the harsh show to things aren't that bad. I just you know, I think about the HYG. And do you find that you're really matching beta, though?

13:29In other words, if you're using that as a short to to to try to express a world where credit's gone bad, that thing doesn't really move. I mean, it all depends on how you leverage, how you put it on, if you have it on an options. But what I've always noticed about the HYG, yeah, I mean, high yield can trade down and high yield can trade down 10 percent. It can trade down 20 percent. But it probably isn't going to match the move in equities if we really have the credit blow up that I think you might be trying to express. Yeah, true. Yeah, I see what you're saying. It's a very valid point. I really have to think about it.

14:04Although it doesn't move that much either way. It doesn't. Yeah. Right. But if I really want to be turbocharged that bet, I've got to change it. All right. The Fed releasing its latest balance sheet data in the last hour. Steve Leisman's got the details. Steve. Hey, Melissa. Yeah. Indicators of stress in the banking system that you can call from the Fed's balance sheet continue to improve, but they remain elevated compared to where they were before the failures of Silicon Valley and signature banks in early March. The Fed's balance sheet came in at$8.58 trillion. That's down$17 billion since last week.

14:39It's the $272 billion above the level before the banking term. While part of that, of course, a big chunk of that is the Fed's financing the failed banks that are run now by the FDIC. Fed borrowing at the discount, the bank borrowing at the discount window fell by$2.1 billion. And borrowing at the Fed's new bank lending facility, the one that will finance your paper at bar, it was$71.8 billion. That's down$7.2 billion from last week. So the combination of the two, that's the most direct signal of banks' need for extra liquidity. the combined$9 billion decline, again, the third in a row. But the$139 billion that they are borrowing, well, that's$139 billion more than they were borrowing before the banking turmoil.

15:19So there's still some need for extraordinary liquidity out there. Fed officials have said they see banking problems easing, suggesting the funding made available to the banks has offered enough liquidity out there and clearing the way for them to raise rates if they want to. But of course, the bigger economic problem, the one I'll be listening to in those bank earnings tomorrow would be banks losing deposits and reducing their lending. Melissa? All right, Steve. Thanks. Steve Leisman, reducing deposits and reducing, excuse me, increasing deposits and reducing lending. That grinding sound of lending is the sound of the economy.

15:57$257 billion above where we were SVB. I mean, they took out all the QT. And you can't tell me that markets move isn't associated with that. All right. Coming up, streaming surge, a big move higher in Netflix today. We'll dig into what's behind that move and find out if there's even more room to run. That trade is next. Plus, an emerging opportunity, a major shift in EM money flows. And we're looking south of the equator for where the opportunity is, the bet on Brazil when fast money returns.

16:36Welcome back to Fast Money Investors. Binging on shares of Netflix today, the stock jumping more than 4.5 % ahead of earnings next week. Analysts at Wells Fargo optimistic on the company's password sharing crackdown. And Wedbush noting a solid start to the platform's ad-supported tier. What do you think of this move, outsized move relative to its peers? Well, again, this is something that is incremental to the business that they had. And I think this is part of the positive. I think people at first reacted, hey, this is telling us that demand and streaming is going down. lower. It was really just Netflix doing something they probably should have done.

17:08So I like it. I think the ad supported tier is something that is is both a positive and it also will reaffirm this is a company that will be generating free cash flow, unlike a lot of their streaming peers. Yeah. I mean, the other piece of the Wedbush note is that they believe that they're going to be on Q1. So they're going to come in stronger. So how do you trade the stock? I mean, again, we all know where it got to. Maybe it didn't deserve to be north of seven hundred dollars. But this is a stock that lost over 50 percent of one, but much more than that. 380, if you go back a year ago, this was the second leg down from 380 down to those lows we saw early in 2022.

17:42That's where we should find resistance. And quite frankly, that's probably where it's headed, given the momentum of the broader market. Yeah, you know, you think about just the fundamentals, right? So we had a lot of conversations about that ad supported model a year ago, and there's a lot of uncertainty about that. And then we talked about the cannibalization and you talked about like the kind of breaking up the password sharing. I mean, all of that, if you look at what consensus is for gross margins over the next couple of years, they're expected to grow. Right. And so you think about this is like, OK, competition has gotten really hot.

18:10We know they're spending a lot on original content and that was something a drag. But when you talk about Tim just mentioned this kind of free cash flow generation, I mean, that drops right down. Yeah. So like it really does drop. So, you know, that was probably when you were buying it in the depths of 2022. And I know you bought it, Karen. You know, that sort of thing. You had to be optimistic about those sorts of possibilities. And that's how you trade stocks like this. It's like it looks kind of cheap on the out year at 24 times expected growth, high teens, earnings and sales. But that could change really quickly if there are economic headwinds.

18:42And maybe this strategy doesn't particularly work. The stock's going to be on its way back to 200. Well, it's not cheap here. But I mean, they have really established their dominance again after it seemed to be faltering a year ago. And with what's happened, like you look at WBD yesterday, you know, with the new max thing and you think, all right, who's going to be left one year from now? What is the dynamic going to be for streaming? I think Netflix will be at the top for sure. I don't know if the cost of content will have gone down. I think that some will have failed. That's probably good. So I think this sort of macro sets up decently for them.

19:19I don't love the multiple here, But I wouldn't buy more here, but I won't sell it. There's a lot more fast money to come. Here's what's coming up next. A Brazilian boom. Money flowing out of China and into Brazil as investments in LATAM rise. The traders are going south of the equator for this trade next. Plus, is there a big box beatdown underway? Shares of Walmart cooling off after its recent run. And the charts could be pointing to even bigger discounts for the stock. You're watching Fast Money, live from the NASDAQ market site in Times Square. We're back right after this.

20:05Welcome back to Fast Money. Time for a check on emerging markets. The EEM ETF getting a nice bounce today, but there is one specific part of the world seeing a lot of interest from investors. Seema Modi's got the details. Hey, Seema. Hey, Melissa. According to Citi's Brazil team, leveraged inflows started in late March and have continued into this week. Rajiv Jain of GQG partners with$90 billion in assets under management, who recently made news with his$2 billion bet on India's Gautam Adani, sharing with CNBC that he's extremely bullish on Brazil and that the market is too pessimistic on President Lula, who came into office this year, adding that if he were to go, quote, hard left, Brazil has strong checks and balances in place to stop that from happening.

20:45Now, from a valuation perspective, Jane also argues Brazil is very attractive. Despite the 18 percent run up we've seen in the iShares, Brazil ETF from its March low still trading at a discount, about five times earnings versus the broader MSCI emerging market index at 12 times. However, using the relative strength index, technicians caution that the EWZ is trading in, quote, overbought territory. Now, the rebound in Latin M comes as Chinese tech stocks have suffered big losses this month. The sell-offs are actually accelerating this week after Tencent's largest shareholder process reportedly sold stock.

21:19The release of key economic data next week, including GDP, retail sales, that will give investors a key read on the reopening in China and its ongoing stimulus measures. Mel? All right, Seema, thanks. Seema Modi. Is there an emerging markets? Oh, that's a great story. I cannot let that one. No, there is a story there, folks, and I'll let somebody else tell you. It's not going to be me. What do you think of EWZ? I think it's interesting. I think if you're investing in Brazil, you better hope the currency is your friend. The real actually is is breaking through five. And that's very important. I think the dollar is the story.