Is Jamie Dimon the Banking Crisis’s Big Winner, and the Pharma Stock Hitting One Record After Another 5/1/23

0:02Right now on Fast, Jamie Dimon and JP Morgan scoop up First Republic, acquiring nearly all of the failing banks deposits. in most of its assets? Does this end the banking crisis? And did Jamie once again come out the big winner? We'll debate that. Plus, a weighty move, a deep dive into a pharma name that showered investors with profit in April. Can it keep delivering record-breaking returns? We'll ask the top analysts. And later, with a host of names reporting tomorrow, we take a look at how the options markets think Starbucks, Ford, Uber, and AMD are going to trade once results cross the tape.

0:32I'm Melissa Lee. This is Fast Money. We're live at the NASDAQ MarketSite on the desk tonight. Tim Seymour, Karen Finerman, Courtney Garcia and Steve Grasa. We start off with the very latest developments on the debt ceiling. Treasury Secretary Janet Yellen just minutes ago sending a letter to Congress saying debt limit measures may run out as early as June 1st. That is earlier than anybody expected. Kayla Tashi's got the details. Kayla. Melissa, Treasury Secretary Janet Yellen said that June 1st is the date at which the U.S. could default on its debt and be unable to pay its bills unless Congress raises or suspends the debt limit.

1:06Now, the new ex-state, as it's called, is four days earlier than Secretary Yellen's prior estimate, and it comes after early assessments of this year's tax revenues. In a letter to congressional leaders, Yellen writes, given the current projections, it is imperative that Congress act as soon as possible to increase or suspend the debt limit in a way that provides longer-term certainty that the government will continue to make its payments. The White House today dug its heels in, demanding Congress raise the debt limit with no strings attached, despite Republican support for budget cuts. House Speaker Kevin McCarthy and President Biden last met on the issue three months ago.

1:41It remains to be seen which side will blink first, Melissa. Most Wall Street shops estimate that the debt ceiling issue would come to a head in late July or early August. We know Treasury's estimates are always conservative, but this is the new deadline that Washington is going to be working toward. So this is the new deadline, Kaylin. This also takes into account any extraordinary measures that Treasury could take. Is that correct? Yes. Yes. Treasury has been taking extraordinary measures since January when the country first brushed up and surpassed that$31-plus trillion debt limit. So it's already been using extraordinary measures for the last several months.

2:17It's been prioritizing some of the government programs that it's been funding, some of the contributions it's been making to government employees' retirement accounts, for instance, and there are going to be some other changes in the next few weeks. But Secretary Yellen is warning there really aren't many measures left. And in just the next few weeks, they'll run out of them completely. Wow. Kayla, thanks. Kayla Tausche from Washington. This is like a month, a month more than what Wall Street had been expecting, Tim. I mean, this has got to, I don't know, scare some people. Yeah, people would think of July through September.

2:49You know, this is not a big deal. Anyone who is, you know, sitting in a chair on Wall Street, anywhere in the country in the summer of 2011 remembers what it was like when everybody blinked. In fact, the U.S. lost their AAA in the downgrade. And it was really part of a global sovereign debt reassessment. But this would be horrible. That's needless to say. What's really interesting are the politics behind this. And it's really not what we do on this show. But clearly, if you think about it, GOP kind of pushed the White House's hand in terms of agreeing to, OK, we'll give you we'll give you a year increase, but you've got to cap spending and you've got to cap a lot of those kind of flagship and some of Biden's biggest pieces of legislation.

3:31So, you know, we're digging in here. Market's not pricing it in. So what divided government looks like. There's no way to avert all this just past the Republican plan for a year. See what happens. Right. That's it. Well, 60 percent of the people in this country, 60 percent of the people in this country think that the government spends too much money. So this is not a minority that we're talking about. And they're cutting the budget by 9 % for a year on$34 trillion in budget. I'm pretty sure they can handle that. Let's say we live in a world in which Steve Grasso is right. And everybody does what Steve Grasso is right.

4:04Wait, wait, wait. We live in a democracy, though. We live in a democracy. And the Democrats had undivided government. Now they don't. The problem is that that's just not, that's probably not going to happen. And that's just the fact of the matter. As rational as you may sound and you may think you sound, it's probably not going to happen. So that's the world we live in. So what are the markets going to do? I think realistically, this is going to come down to the wire. It always does. It's a political football, especially in a year like now where we're going to have elections. This is something that they're going to use.

4:32I don't think markets are necessarily going to trade on it until we get pretty darn close to this. I think this is going to be a conversation at the end of this month. This is not over by any means. But, yes, I don't think it's going to be a few. Vix was at$15.50 at the low today. So in terms of complacency on where markets are, we haven't been here since way back into 2021 before the Fed even embarked upon their plan. Yeah. Karen. Well, it is kind of ridiculous. We all know it's going to get to this at the end. Why not just do it now? Right. I mean, it is it's not like I mean, the balance of power is going to change early in the next month.

5:07But unless they come out with even more ways to delay and that'll work for a week or two, I really don't get the whole thing. But one other piece of data that my friend Andy Constance sent me from Dam Springs was the deficit is rising more rapidly than we thought. Right. Lower tax revenue and higher interest rates. And so the amount of additional bonds that will need to be issued to pay for the deficit, well over a trillion dollars now. So the bond market should be pretty spooked. And that came out later today. The bond market is already down this morning, I think, on some of that economic data that I thought was pretty good.

5:40But I wonder, though, in a default scenario, I don't remember what happened at 11, actually, but was there a flight to quality? So even though bonds would go down, would you still move? Yes, right. There's a flight to quality. I don't know. I don't remember if somebody knows at me because I could see that happening. Turmoil in the bond market. As perverse as it may seem. But we're in Steve's world, so maybe that would happen. I don't know. Well, Steve's world, you've got to do something, right? We're all in agreement. You've got to do something. And you nailed it, right? The balance of power is not going to change.

6:13So maybe the president and McCarthy could possibly meet. Exactly. Maybe they should meet. The last time I met was early February. So nothing's changing. Sit down at the table. So if it's not 9 % in cuts, maybe it's 4%. But it's got to be something, and we've got to agree on it. This is what democracy is doing. I don't know, McCarthy. Can you do Wednesday? Nope. I'm busy. Can you do June? Let's do it the first one. Oh, I have the default. It's on the calendar. Have you ever had an assignment, a paper that you had to write? And you wait until the last minute. All the time. Nothing's going to change.

6:41Right. You can start at five days before. It's not like you will know anything more in five days. Right. But you still wait until the night before. And you won't even enjoy the time. And that's what the markets do. They wait, as Courtney said, until the night before to see what the real reaction is going to be. And every time we get to this point, I say the same thing. This really feels like the time we're going to default. This really feels like the time we're going to default. And then somehow it works out. To Karen's point, though, what do you think happens in this world with the bond market?

7:08I'm ready to answer Karen's question because I went to work here when she asked the question. I'm embarrassed. I didn't know it, but I guess nobody else knew it either. You didn't get it off to the last minute. So we went from 3 % on the 10-year down to 150. And if you think about it, there were a lot of things going on. And, again, to me, what was more significant about that time was Mario Draghi stepped forward in the European Union and actually made a semblance out of chaos in the pigs. So, again, Southern Europe. And they were the ones that were about to have the sovereign debt default. We were doing our thing over here as we're doing.

7:36And as we're all saying, we will continue to do right up to the last minute. But it is a flight to quality on its own level. And, you know, at some point, if you own Bitcoin and if you own gold and if you own other diversified assets that are where people expect the world to go at some point. But until the U.S. is not the economy in the world. And again, the most significant economy. If China's number two and we're talking about China and the world we live in, China's not even close in terms of a bond market and the confidence there. Using that as a blueprint, then, we have sort of an interesting push-pull situation where the Fed is trying to raise rates and getting rates to go higher.

8:10And yet you're saying that the bond market will actually work against the Fed and rates will go lower as a result of this. History is a guide. I think that's right. Karen also, though, brings up, I think before we get there, or flight to quality is what it is, but there are technical factors that have yields going higher. There's no question in terms of issuance. And if you talk to a lot of guys that are really looking at the issuance calendar, this is one of these things that at some point and the same people that are in favor of Bitcoin and gold are saying the U.S. is not going to be able to finance their way out of this the way they used to.

8:41They're going to be able to do it, but they're not going to be able to do it with with the costs being as low as they were. All right. Let's move on now to J.P. Morgan. Scooping up First Republic CEO Jamie Dimon winning control of the failed bank through an FDIC auction this weekend. And J.P. Morgan shares up more than 2 percent on the day. But gains didn't help the broader banking sector. The KRE banking ETF dropping more than 2 percent, closing less than 2 percent from its lows of the year. That's a KBE, excuse me. Regional banks are faring even worse, down almost 3 percent, less than a buck from its lows.

9:09So is Jamie Dimon once again emerging as the big winner from the most recent banking crisis? Karen, you seem to think so. I do. I think this is really an extraordinary deal. I mean, there are so many things to like about it, right? There's so much protection from the FDIC. They get to write down the loans to 87 percent. They get a loss sharing agreement for five years on on residential mortgage, seven years, I think, on commercial mortgages. I mean, there's there's so much like here. I think they were really kind of sandbagging the how good the deal was because they don't want it to seem too good that it is accretive to book.

9:44It is accretive to earnings. And then obviously the wealth management business is it's a prize. It's probably a little bit dented from where it was six weeks ago, but that could fold very nicely into J.P. Morgan asset management. And he looks like a good corporate citizen and sort of solves the crisis. He is the hero. Once again. Right. Once again. It's long in. I don't say anything good about Jamie Dimon, but he always says it wasn't just me. Every other bank was on that call. We're all in to make deposits. We all did it together. They just called me first, but everybody was working on it. But everything has his fingerprints all over it.

10:22And I like that last line. They called him first. And they're going to call him first when all the regulatory framework changes as well. And not that he's going to advantage J.P. Morgan more so than other banks, but he's definitely not going to disadvantage J.P. Morgan over other banks either. That's why this is the one trade that I'm holding on to. It benefited him. His stock has outperformed everything in the group. Yeah. One other thing I just wanted to add, because there is this backstop from the FDIC, plus they give them 50 billion dollars of loans. We didn't get to that. The risk weighted asset, the waiting for these loans is less than it would normally be so they can lever up and make more money on it.

11:01It's it's a fantastic deal. I thought something very interesting was, you know, PNC was in their bidding as well. And yet their stock was treated today as if they were a bank that should be bid for. I mean, if you look at actually some of the banks that were actually at least considered to be on that group, PNC, Citizens Financial, Fifth Third, it wasn't a great day for almost anybody in the banking space other than the money center banks with strength. The regionals sold off some more. And if anything, as Jamie Dimon said, this should solve this situation for now is kind of what he said, at least the phases of it.

11:34And I don't think he was auguring or foreboding something that much more ominous. But I do think the point was this should put a nail in the coffin on runs on banks. And yet, again, one of the banks that was in their bidding and claimed to have a competitive bid, they were down 6 percent today. One last thing, and I know you want to go to Cordy. The thing that will continue the run of the bank is if the Fed continues to raise rates and people continue to usher money out into money markets. That's the one thing that's the problem. them. It's not so much what's going on with running in to rescue these banks.

12:06It's the fact that the Fed is actually creating the run on the banks. Court. Yeah. And that's that's what we're going to see this week is is the Fed raising rates by another 25 basis points or not? Because this was happening even before Silicon Valley Bank. People were taking money out. We were getting calls from clients every day asking us to buy treasuries and money markets. They're taking money out. And the banks are going to have to raise interest rates in order to to keep their money there, because this was a problem that's not going away. And it gets worse every time the Fed raises interest rates.

12:32But when it comes to JP Morgan, I agree. I actually think this is really beneficial for them. I think the biggest thing, which Karen mentioned, is this really gets them in the door with the wealth management business, where they are really trying to get in the foot for. But they just can't compete with your Merrill Lynch's and your Morgan Stanley's. And suddenly they can compete now because they just gained all of these high net worth assets. And that clientele, so First Republic says, they were still keeping. So I think that'll be interesting to see what they're moving forward. I agree. And it's that wealthy clientele.

12:59It's very important. It was the Bear Stearns prime brokers back in 2008, 2009. I mean, you know, J.P. Morgan is a massive prime broker. They're much different than they were back then. But even with just the Bear Stearns assets, that was, look, Bear Stearns as a PB back then and as a custodian was one of their core businesses. So Jamie Dimon doesn't need to go out there and say, well, this is, you know, we're trying to grow our wealth management business. He can just go in there and say, I've got the capital. FDIC went to us because we have the lowest impact on the cost to them on this solution.

13:28but it is, as Courtney, as she said, I mean, look, the wealth management business is such great business for J.P. Morgan. It's the one business, if you look at their ivory tower, and it is ivory, has got some places to compete and to get better against the biggest ones in the country. Well, Morgan Stanley has had an advantage, right, in many years because of its wealth management business, which it had built up over time. But also it's the stock price advantage in that to the extent that it's that part of the business as opposed to the lumpier investment banking or even lending part of the business.

13:58But one thing I also want to add, to the extent that there's the notion that is this the end of the crisis, the FDIC has kind of said we're going to insure uninsured deposits. They haven't really formed. There isn't a new regulation saying that. Are there proposals saying business accounts should be able to step up to higher insurance brackets to have more of their deposits insured? So there are a lot of things going around out there. But you've got to hope there's not another bank failure. Right. You could rest a little easier as a depositor in excess of$250 ,000 now, knowing that likely the FDIC will be there.

14:35Well, there's been an implicit backstop this whole time during the finance, during this banking crisis. During the first two. Yeah. But now this is, here we are six weeks later, another one that was, and there they are. Well, they have to. I mean, there is no other step that J.P. Morgan will take to save another bank. Who else is going to go in? This is a one-off. So this is not a solution in a systemic sort of way. And sort of a this is the blueprint for how we solve crises going forward. Jamie Dimon then picks up the assets. Who the hell with the FDIC? I mean, this is just not a sustainable model.

15:08When Jamie Dimon put together a consortium of banks to give 30 billion or lend 30 billion to ultimately back them up. I mean, it goes to show that J.P. Morgan was in on this. J.P. Morgan wanted this solution. J.P. Morgan, the stock, I just want to say, you know, for all the pain and suffering in the banking sector, if you look at J.P. Morgan against the S &P over the last 12 months, it's outperformed the S &P by 17 percent. Now, I'm choosing a calendar year. I'm just using 12 months back. You can find different places in the last two years where it's really underperformed. But we've been in an environment where it's been Fed heavy.

15:42And actually, the worst of J.P. Morgan's underperformance in the year before that was really as the Fed, as the rate hike cycle began in earnest and was aggressive. And since then, even with higher rates, J.P. Morgan has been outperforming. And, you know, we know what goes on with net interest income. It's getting better even if the margins are going down. All right. For more on the banking crisis and how it's factoring into the Fed's decision this week, let's bring in Jim Bianco, Bianco Research. Jim, great to have you with us. So we've got the banking crisis going on. We've also got this new X state, which has been moved up significantly to the beginning of June.

16:13How do you think this factors into the Fed's decision, if at all? I don't think it does. I think that the Fed is focused on inflation and they're going to raise rates and they're going to leave the door open to raising rates again in June. Now, I happen to think that's a mistake at this point, but it doesn't matter what I think. That's the way that they've been viewing it. I remind everybody that on February 14th, there was a meeting. This came out with the report on Friday to the board of governors of the Fed. Jay Paul was there. They were told that the banks were getting unrealized losses and that they were in trouble.

16:47And they pointed out a specific bank that was in trouble, Silicon Valley Bank. Three weeks later, he went to Congress and said, we're going to raise rates aggressively. 24 hours later, they failed. So he's not willing to have anything with the banks change his opinion. It's all about inflation. He sees inflation as a problem. He's going to raise rates this week and leave the door open for more rate hikes. You don't think that the Ex-State gives the Fed a little bit of, I mean, to the extent that monetary policy should help fiscal policy and vice versa. I mean, that's sort of gone hand in hand for many years, that that sort of gives them cover at this point, along with the banking crisis to say, you know what, we're going to have it, there's going to be a dovish hike, so to speak.

17:28So a raise, but then we'll see. Right. Well, I don't think that the X date is going to really matter. Yes, it is a big surprise that it is early June. A lot of people thought it would be around late July or something like that. So that is a surprise. Jay Powell has made it very clear, and I've agreed with him, that the Fed's position about the debt ceiling is to do nothing, is to do nothing. This is a 100 percent political act, and this for it needs to be solved by Congress without any mitigation by anybody else in terms of trying to fix this. This is Congress's issue. This is not the Fed's issue.

18:06This is not anybody else's issue. So I don't think that that's going to change. And he's also talked about fiscal dominance in the past. That's fancy talk for we're not going to let the possibility of a default or big deficits change what we think is the right monetary policy. Jim, when you look at the two scenarios, either the Fed continues to raise rates and continues to break something or they don't. Inflation continues higher. Those two scenarios won't inflation high prices? Won't high prices save themselves from other future high prices? Take me down just really quickly. If he does nothing, what's what's the difference?

18:44Well, I think the way that he looks at it is that 57 percent of the public, and this is a recent survey by Bankrate, lives paycheck to paycheck. They couldn't come up with a thousand dollars in savings. So he looks at a five or six percent inflation rate and says these people lose. I have to do something about inflation. If a bunch of rich people in stocks have to suffer because I'm raising rates too much, then a bunch of rich people in stocks have to suffer because I'm raising too much. He's not going to say to the 57 percent that live paycheck to paycheck, sorry, you're just going to have to deal with having prices rise faster than your paycheck because I can't let the stock market go to thirty five hundred or whatever the bearish scenario you want.

19:25He doesn't look at it that way. That's why he's focused on inflation. And that's the dilemma. If he focuses a lot on inflation, then financial markets could struggle. If he appeases financial markets, he lets inflation go. And he's viewing it from that 57 percent versus stockholders. He's made that clear in a lot of his press conferences and a lot of his speeches. Last quick question, Jim. Let's say we hit the debt ceiling or about to hit the debt ceiling. What happens to bonds? What usually happens around June 1st is all the Treasury bills that mature on that date, people will avoid them and there'll be a big hump in the yield curve.

20:03Because if you don't get paid on those bonds, your money market fund has to value it at zero, even if it's for one or two days and it could break the buck. So no one wants to be in a position to break the buck. So you're going to see wild gyrations in the Treasury bill market. And it's probably more of a headache for money market mutual fund managers than anything else. I don't think it creates a bid for the 10-year or creates a sell-off in the 10-year or anything like that. All right. Jim, thank you. Jim Bianco, Bianco Research. Well, I mean, if the Fed says, you know what, it's a political problem, we're going to leave Congress.

20:37I mean, I don't know if anybody has much faith in Congress to actually solve this thing, but that really leaves the markets in a sort of a lurch because you're not going to get any help. Well, we want our central bank to be independent. Let's be clear. It's not independent in Turkey, so they've got a different situation going on. The Fed that's really got a dual mandate of core inflation against unemployment, if you look at kind of two different axes, you've got a dynamic where I just think that they have to still continue to lean on inflation. We forget that today we had an ISM number manufacturing.

21:06We know we're a service economy. We know manufacturing is kind of what it is. But it was only, you know, take out two inflation, sorry, COVID lows. And this was the lowest ISM we've had since going all the way back to the financial crisis. I mean, the numbers right now, the leading indicators tell you the economy is not in a good place. And the labor market figures we've gotten, even in terms of jobless claims and whatnot, have been showing a weakening labor market. So the economy is weakening. We know that. And I just think that we haven't really seen it in the stock market. Coming up, we're watching MGM in the after-hours session.

21:38Shares on the move after reporting results. We've got the details from the quarter next. Plus, get your passports ready. We're going international. how markets in Europe and Asia are faring against stocks here at home. The country is to watch straight ahead. Don't go anywhere. Fast Money is back in two.