Olave/25 Hurts/80

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2023 LCS Spring Playoff Predictions
Here are my playoff predictions from the base bracket. Some of the matches, like (potentially) EG vs CLG feel very coin-flippy, so I just went with my gut.
C9 in Summer 2022 was a great Bo5 team, and with only one member changed out (who synergizes with the team much better), I believe this trend should continue. It is EMENES' first LCS playoffs but he does have previous playoff experience in other leagues. So long as he stays level headed, I don't see a series becoming that close, especially with the drafting flexibility that EMENES allows for. It is like the opposite of 100T, at least during their final week run. I do think that CLG matches up better against C9 than some LCS teams, solely due to their Mid/Top flex picks. Hopefully facing them so recently plays in C9's favor.
Based on their momentum, 100T seems like the team that will make it to finals. While I think FLY will regroup and win the first series against them, LCS script writers have the Doublelift miracle lower bracket run planned already. GG's will have them on the edge of defeat before their plot armor activates.
For entertainments sake, I hope EG has regrouped heading into playoffs with healthy players and a hunger to win. I would be super excited to see EG face C9 if they can make a strong run, EMENES vs Jojo being an awesome matchup, as well as Zven vs our old friend Vulcan.
FLY looked shaky for a decent amount of the second round robin. But I'm willing to bet they come into playoffs with a good start, and get figured out as the bracket goes deeper.
How does your bracket look? Any matches you have a strong opinion about? Who do you want to see C9 face?

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https://preview.redd.it/vjiiw285k7pa1.jpg?width=800&format=pjpg&auto=webp&s=12b3a7afabf7ef644b1b967c3f717b10f047f65d
Full Abstract

1. economic recessions involving banking crises

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(1) are typically longer and more severe than recessions in which the banking system is not severely impaired
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(2) The length and severity require a higher risk premium to compensate than a mild and brief recession.
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(3) Two consecutive banking crises in the same country (i.e., two in about 20 years) are so rare that such an outcome would stigmatize public policy and therefore escalate regulatory efforts.
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1. The banking sector is facing a big test but not a crisis

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The current macroeconomic backdrop lacks a key element (rapid private sector debt accumulation) and includes another important element that allows us to judge that there is no banking system crisis (duration risk rather than credit risk). Therefore, it is difficult to define that we are now experiencing a global banking crisis. For those who predict that the next recession will be a mild and short one, this is good news, because then the risk premium required for global risk markets (targeting PE ratios, retracements or credit spreads) only needs to be in line with the recession average, rather than the more extreme extremes.
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1. Tighter regulation of the banking system is inevitable

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However, tighter regulation at the policy level to correct mismanaged banks will outweigh the effect of interest rate hikes on capital markets. Therefore, even if the central bank suspends interest rate hikes in the coming months, it will trigger a recession by the end of 2023/early 2024 (web link).
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1. Interest rate hikes and financial stability can kill two birds with one stone

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The conflict between price stability and financial stability objectives should be manageable by using the central bank's policy rate to target inflation; and at the same time - using the size and structure of its balance sheet - as a macroprudential policy tool to help banks and financial system to achieve stability reinforcement. The UK had used highly precise asset purchases to ride out the crisis last year, along with the decision to raise the policy rate by 75 basis points from 2.25% to 3%, with subsequent 50 basis point rate hikes implemented on December 15 and February 2, respectively.
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Banking crisis and economic recession
According to some Google indexed value indicators (as shown in the chart), the topic of banking crisis has never received as much attention as it has since the collapse of Lehman Brothers, even though many indicators of financial market stress (e.g. stock retracements, volatility of stocks, currencies and commodities) are far from recession or financial crisis levels. Only interest rate volatility has reached the level of the Lyman Brothers.
https://preview.redd.it/exzg5qq9k7pa1.jpg?width=800&format=pjpg&auto=webp&s=5b03ac29fbef3416fde53ea1a1efbc5619ee098d
When there is such a disconnect between market sentiment and market risk premiums, it is worthwhile to explore the characteristics of a banking crisis. If these characteristics are currently present, the risk premium must rise to align with sentiment. If these characteristics are not present, sentiment will eventually normalize to align with a modest risk premium. I refer to the International Monetary Fund's Systemic Banking Crisis Revisited in 2018 and the Bank for International Settlements' Boom and Banking Crisis in 2016 to determine which events in the financial sector should be called banking crises so that they can be used to determine the risk premium required for diversified risk assets. The IMF study defines a banking crisis as an event that meets the following two criteria.
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(1) triggering severe losses, such as a bank run, a surge in non-performing loans, or a bank failure.
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(2) triggering major policy interventions, such as deposit freezes, bank nationalizations, extensive liquidity support, public sector capital injections, public sector guarantees, and asset purchases. Characteristics of Banking Crises Based on this definition, the IMF has identified about 150 systemic crises since the 1970s, including both developed and emerging market economies.
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The experience of these 150 empirical studies shows that.
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(1) frequent banking crises in the same country are rare. Since 1970, only three countries have experienced three or more such events (Argentina, Democratic Republic of Congo, and Ukraine). The United States has experienced two events (the savings and loan crisis of the late 1980s and the global financial crisis of 2007-09); eurozone members, the United Kingdom and Japan have had only one (the exact date varies by country); and Canada and Australia have had no banking crises. For me, the lack of crisis re-occurrence is attributable to the typical crisis policy response of limiting the ability to re-leverage in the future by regulating the offending sector.
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(2) When a banking crisis occurs, it is rarely just a country-specific event. For me, the contagion is either due to cross-border economic and financial linkages or a common crime committed in one area (e.g. the overleveraging of US, UK and European banks prior to the GFC)
https://preview.redd.it/8s5cyf7dk7pa1.jpg?width=800&format=pjpg&auto=webp&s=893869382e3247e234cf76832b0e75533fe8b37c
(3) Banking crises are usually associated with currency and sovereign debt crises. These linkages are intuitive given that banking crises require a fiscal response, that credit risk in sovereigns weakens the asset base of banks holding government bonds, and that economic crises drive capital flows to reserve currencies. the 2010-2012 eurozone crisis is a case study of these double and triple crises.
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(4) Banking crises often follow credit-intensive booms. The risks associated with unusually rapid credit creation arise not only from the quantity of debt that needs to be rolled over when an economy hits a shock, but also from the quality of those debts. The latter problem arises because rapid debt accumulation is usually associated with lower lending standards, so that the population with the least financing flexibility suffers the greatest accumulation of vulnerability.
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(5) Recessions associated with banking crises are usually deeper and more protracted than those in which the banking sector does not exhibit extreme stress. This result is driven by the need for the banking sector to regain profitability before it can resume its traditional role as an intermediary between households and firms. For example, the 2001 U.S. recession occurred with little significant stress on the banking sector (NPLs rose from about 1% to 1.5%), and it took only a year to return to pre-recession GDP growth trends. During the GFC, NPLs rose from 1% to 5%, and it took about four years to return to the pre-recession growth trend.
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Of the five characteristics discussed above, I believe that - the presence of the pre-crisis credit boom - is the most important because it is the only one we can observe in advance. The other four features (re-occurrence within the same country, cross-country contagion, simultaneous currency and sovereign debt crises, and longer and deeper recessions) are either consequences of the crisis or simultaneous events rather than prerequisites for transforming macroeconomic shocks into systemic events.
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A striking feature of the current macroeconomic backdrop is the deleveraging of the U.S. household sector over the past decade and the moderate increase in corporate leverage over the same period (ignoring some of the consequences due to the collapse of the GDP denominator). These two trends stand in stark contrast to the savings and loan crisis of the late 1980s and the dual accumulation of household and corporate debt during the global financial crisis of 2007-09, as shown in the chart (shaded bars indicate the U.S. recession).
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https://preview.redd.it/rf61g7jgk7pa1.jpg?width=800&format=pjpg&auto=webp&s=dd4bb2ab5ec815ddbe588c6ed0f3f0b36669020a
Such leverage trends are not only seen in the US. Also in addition to the volatility associated with COVID, private sector credit (households and businesses) as a share of GDP has remained stable in the Eurozone countries and the UK, in contrast to the previous banking crises in these countries, as shown in the chart.
https://preview.redd.it/jr8cyprjk7pa1.jpg?width=800&format=pjpg&auto=webp&s=670fbb31a8dc6271dc98216d3069d3a93081d69a
The world's major private sector credit boom of the past decade occurred in our own country, China, but the financial turmoil is already reflected in our stock market and real estate credit problems in 2022:
https://preview.redd.it/9ryz417mk7pa1.jpg?width=800&format=pjpg&auto=webp&s=566bd3536575312cbf9c472b898035630aeba283
Previous industry research on the link between leverage, banking crises and post-crisis harm has focused on credit risk and so has ignored the most salient risk feature of the current U.S. and global banking industry today, namely duration risk. Unlike the credit/default risk of bank assets (their loan portfolios or securities holdings) that relate to banking stability, it is the duration risk (valuation changes due to rising interest rates) that simply triggers anxiety and sentiment. Impaired assets are always an issue for banks, but there is a material difference between assets affected by credit risk and those affected by duration risk. The difference is that one is cyclical (asset values fall further as the economy deteriorates) while the other is counter-cyclical (asset values rise as the economy deteriorates as central banks pause or ease policy).
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While the market believes that the Fed is likely to pause rate hikes, the duration risk implies structural changes in the operating models of banks in certain regions, as well as recapitalization and consolidation. But federal policy support for the asset side of these institutions' balance sheets is more important than directly addressing credit quality through monetary policy.
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Reversing credit weakness requires a recovering business cycle, which can only occur later in the federal monetary policy easing cycle, or directly by the U.S. government through fiscal easing. But sadly, neither is likely to be a potential policy option for 2023.
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Even though the headlines in both the U.S. and European banking sectors look ominous, this is not some banking crisis we are experiencing right now. Having a proper, objective and dispassionate understanding helps us determine the size of the coming recession and the size and scope of the risk premium required in such an economic environment.
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Financial Stability and Monetary Tightening
When a market liquidity and/or funding liquidity crisis occurs at a moment when inflation is above target, a tension between the central bank's objectives - price stability and financial stability - is inevitable. In this case, while financial stability must come first, as it is a prerequisite for the effective pursuit of price stability.
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This does not mean, however, that central banks should stop or suspend their anti-inflationary policies when threatened by a banking crisis or similar systemic stability risks. The conflict between price stability and financial stability objectives should be manageable by using the central bank's policy rate to target inflation; and at the same time - using the size and structure of its balance sheet - as a macroprudential policy tool to help banks and financial system to achieve stability reinforcement. Reliable communication is essential to achieve both objectives simultaneously
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https://preview.redd.it/zd05hshpk7pa1.jpg?width=800&format=pjpg&auto=webp&s=ec0dec005484d4b7af06411b12390e7e9fb6c6b9
Will the SVB collapse (and subsequent turmoil in the banking sector) be the catalyst to reverse the Fed's tightening cycle? The market seems to be saying "yes" as it is forcing this week's hike to be priced in at +25 bps, with the assumption that a significant cycle of rate cuts will follow.
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However, a 50 basis point increase in risk-free short-term nominal rates would not have a material or significant impact on the stability of the financial and banking systems of any of the large developed advanced economies. The stability of the financial system is affected by interconnected liquidity and credit risk premiums, and the disappearance of potential purchasers and lenders in illiquid financial markets. The Bank of England mastered this trick and succeeded in temporarily purchasing long-term UK government bonds during a period of monetary policy tightening brought about by the incoherent policies of then Prime Minister Liz Truss, and postponed quantitative tightening and stabilized the financial system through asset purchase facility gilt sales. The asset purchases, which lasted from September 28 to October 14, were designed to address dysfunction in the long-term UK government bond market. At the first Commonwealth Monetary Policy Committee meeting following the asset purchases, the Bank of England demonstrated its continued commitment to its firm goal of fighting inflation by raising the policy rate 75 basis points from 2.25% to 3%. Subsequent 50 basis point rate hikes were implemented on December 15 and February 2. The prudence of the temporary asset purchases would have been more evident if they had been offset.
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The ECB also raised its policy rate by 50 basis points this month, despite the financial chaos in the U.S. following the Silicon Valley Bank (SVB) bankruptcy. Headline HICP (Harmonized Index of Consumer Prices) inflation in Europe was 8.5% in February, and core HICP inflation (excluding volatile energy and food prices) was 5.6%. The ECB addressed the twin issues of financial stability and inflation by stating that its "policy toolkit is well positioned to provide liquidity support to the euro area financial system when needed and to maintain a smooth transmission of tight monetary policy". In the second half of the 1940s, the Federal Reserve also combined interest rate hikes (albeit very small) with balance sheet reductions and yield curve controls
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https://preview.redd.it/r3z2h7dsk7pa1.jpg?width=800&format=pjpg&auto=webp&s=42d7a3ce5cf6ee72565f58c316366770c8d1d1e2
What will the Federal Reserve Board do at its upcoming meeting? I believe that the issue of financial stability after the collapse of SVB and Signature Bank has been effectively addressed after ensuring that all deposits in these two mismanaged institutions are intact. In effect, this means that all deposits in U.S. banks are insured from now on. No doubt this will lead to moral hazard, as incompetent or reckless bank managers will not be punished for losing familiar depositors. But this is an unavoidable price to pay for ruling out the systemic threat posed by a bank run. This is because, with the market value of many eligible debt instruments well below par, the lender of last resort has become the lender of first resort, providing what is essentially a subsidized loan of funds. The same anomaly (valuing collateral at par value) now applies to loans in the discount window.
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As of the end of 2022, U.S. banks plan to hold to maturity securities with unrealized losses of approximately $620 billion. While an increase in policy rates would likely further reduce the market value of long-term securities, it would be right to continue to raise rates anyway, as the U.K. and ECB have typically done. It is difficult to quantify the duration risk hedging pressures on banks and their counterparties, but bank losses due to bad investment decisions (in an orderly market) are part of the healthy Darwinian mechanism that maintains a market economy: banks that do not hedge interest rate risk carefully have to face bankruptcy; and so does the orderly liquidation resolution of failed institutions. Both U.S. and global central banks must be prepared to fulfill their financial stability responsibilities as lender of last resort and market maker of last resort in the event of illiquidity, bank runs, or other market failures that pose a systemic threat. However, if extreme circumstances do not arise, the continued responsibility to maintain price stability should also be honored on a consistent and stable basis.
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As the U.S. core personal consumption expenditure inflation rate remained at 4.7% in January, the Fed should, in theory, raise its policy rate target range by 50 basis points at its upcoming meeting. However, the market believes that the Fed may raise rates by only 25 basis points or even pause the rate hike, as the market feels that a larger rate hike would have a serious negative impact on financial stability. In the short term, the Fed stands ready to intervene as a lender and market maker of last resort, in the best interest of U.S. financial stability. In the medium to long term, the Dodd-Frank regulations for small and medium-sized banks, which were repealed in 2018, should be reimposed, and restrictions on banks' proprietary investment activities should also be reinstated