Amber Lancaster and I even mentioned it in our Market Insights video. (In case you’re curious the best way to get entry to our relaunched duo video, click on right here.)
I’ve been maintaining a tally of it, largely as a result of it jogs my memory of my previous days again on Wall Avenue…
You may not know this about me, however I first received began in finance by working within the banking business. I did fixed-income buying and selling first at Salomon Brothers, and later at Citigroup.
I’m telling you this to offer you just a little little bit of context for the place I used to be in 2008.
I’m certain most of you bear in mind the yr that kicked off the monetary disaster.
Again then, I used to be managing a hedge fund that benefited from the collapse of huge banks.
I had a front-row seat to all the things that occurred.
I witnessed the systemic collapse of all these totally different finance corporations and mortgage bond insurers.
Now, Silicon Valley Financial institution (SVB), it’s helpful to have this expertise to attract again on.
As a result of at this time, I’m right here to let you know one factor…
The contagion we noticed in 2008 is just not going to occur once more with the collapse of Silicon Valley Financial institution.
And all of it boils down to at least one purpose: Silicon Valley Financial institution is just not too large to fail.
In at this time’s video, I lay out how SVB received into this bother within the first place, the way it compares to what occurred in 2008, and what this implies for rates of interest.
I additionally reveal:
SVB’s BIGGEST difficulty. (2:25)
How this created the world’s first digital financial institution run. (5:43)
The sport for the inventory marketplace for the remainder of the yr. (9:47)
In case you’d like to observe my complete video, simply click on on the play button under.
(Or learn a transcript right here.)
That’s it for my take private tackle SVB, however, as you already know, right here at Banyan, we worth having conversations — even when we don’t agree generally.
So write us at BanyanEdge@BanyanHill.com, and tell us what you suppose.
Is Silicon Valley Financial institution the herald of the subsequent monetary disaster? Or is it simply an overleveraged establishment searching for a handout?
I look ahead to studying your responses!
Regards,Ian KingEditor, Strategic Fortunes
The shutdown of Silicon Valley Financial institution (SVB) is the most important information of this yr. It’s the second largest financial institution failure in U.S. historical past, and a mainstay of the tech financial system for the previous 40 years. However you already know that.
I’m extra within the “not a bailout” bailout.
SVB’s dying was brought on by a mismatch. It had long-term belongings, however its liabilities — buyer deposits — have been short-term. These long-term belongings have been primarily mortgage and Treasury bonds, which declined in worth due to hovering bond yields.
It was only a matter of time earlier than the Fed’s aggressive price climbing “broke” one thing.
After 20 years of ultra-loose financial coverage, nobody operating a financial institution at this time has any expertise with a Fed this hawkish or a yield curve this inverted.
So, SVB primarily received caught on the mistaken facet of an rate of interest commerce it didn’t understand it was making.
And right here is the place the Fed stepped in.
His coverage errors in the course of the pandemic however, Fed Chairman Jerome Powell is just not an fool. Neither is Treasury Secretary Janet Yellen. Each have been good sufficient to know that we are able to’t have a repeat of the 2008 meltdown (and subsequent bailouts).
15 years later, we’re nonetheless coping with the aftermath of the choices made again then. The rise of anti-establishment populism on each the left and proper has been ripping our nation aside for years.
This stems, in no small half, from the anger, frustration and basic sense of unfairness that People felt after watching bankers in fancy fits blow up the world. Then, they received bailed out by the federal government … with out even dropping their jobs.
If we had a repeat of that, there possible would actually be blood within the streets.
So how is that this time totally different?
Curiously, the executives of the failed banks have been eliminated. The shareholders have been largely worn out.
That’s begin. The depositors are successfully being bailed out properly above and past the $250,000 FDIC max. And sure, that could be a “bailout” of types for rich shoppers and firms.
However the pondering right here is that, no less than, we’re bailout out the harmless victims versus the irresponsible bankers that screwed all of it up.
However right here’s essentially the most attention-grabbing half.
Taking a web page out of their 2008 playbook, the Fed created the Financial institution Time period Funding Program (BTFP), which permits banks to borrow from the Fed utilizing their battered long-term bonds as collateral.
I’ll clarify it in plain English: Let’s say the financial institution purchased 30-year Treasuries which have declined by 25% in worth on account of rate of interest strikes. Now they’re value $750 as an alternative of their face worth of $1,000. The Fed will lend them the total $1,000, taking the $750 bond as collateral.
Now, does this “repair” the issue?
No, not utterly. Banks that screwed up are nonetheless not going to be in an amazing place to lend and develop their companies any time quickly. But it surely ought to stop a repeat of 2008, the place the banks began to fall like dominoes.
I imagine we’ve escaped a 2008 meltdown situation. That’s the excellent news. However that doesn’t imply this bear market is over or that we’re out of recession hazard. Simply at this time, Meta, Fb’s mother or father firm, introduced 10,000 extra layoffs.
Staying nimble right here is the important thing. And like Adam O’Dell talked about in our podcast yesterday, his Inventory Energy Ranking System was capable of pinpoint the weaknesses out there (and in financial institution shares) earlier than SVB collapsed.
His system has additionally predicted the subsequent “Large Quick” in overvalued shares. Simply click on right here to seek out out extra!
Regards,Charles SizemoreChief Editor, The Banyan Edge