Is Silicon Valley Bank (SVB) Heralding the Next Financial Crisis?

Amber Lancaster and I even mentioned it in our Market Insights video. (In case you’re curious tips on how to get entry to our relaunched duo video, click on right here.)

I’ve been maintaining a tally of it, principally as a result of it jogs my memory of my outdated days again on Wall Road…

You won’t know this about me, however I first acquired began in finance by working within the banking trade. I did fixed-income buying and selling first at Salomon Brothers, and later at Citigroup.

I’m telling you this to offer you a little bit little bit of context for the place I used to be in 2008.

I’m positive most of you bear in mind the 12 months 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 firms and mortgage bond insurers.

Now, taking a look at Silicon Valley Financial institution (SVB), it’s helpful to have this expertise to attract again on.

As a result of in the present day, I’m right here to let you know one factor…

The contagion we noticed in 2008 isn’t 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 not too large to fail.

In in the present day’s video, I lay out how SVB acquired 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 subject. (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 12 months. (9:47)

In case you’d like to look at my complete video, simply click on on the play button beneath.

(Or learn a transcript right here.)

That’s it for my take private tackle SVB, however, as , 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 following monetary disaster? Or is it simply an overleveraged establishment on the lookout for a handout?

I look ahead to studying your responses!

Regards,

Ian King
Editor, Strategic Fortunes

The shutdown of Silicon Valley Financial institution (SVB) is the most important information of this 12 months. It’s the second largest financial institution failure in U.S. historical past, and a mainstay of the tech economic system for the previous 40 years. However you already know that.

I’m extra within the “not a bailout” bailout.

SVB’s dying was attributable to a mismatch. It had long-term property, however its liabilities — buyer deposits — had been short-term. These long-term property had 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 fee mountaineering “broke” one thing.

After 20 years of ultra-loose financial coverage, nobody operating a financial institution in the present day has any expertise with a Fed this hawkish or a yield curve this inverted.

So, SVB primarily acquired caught on the fallacious 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 isn’t an fool. Neither is Treasury Secretary Janet Yellen. Each had 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 Individuals felt after watching bankers in fancy fits blow up the world. Then, they acquired bailed out by the federal government … with out even shedding their jobs.

If we had a repeat of that, there doubtless would actually be blood within the streets.

So how is that this time totally different?

Apparently, the executives of the failed banks have been eliminated. The shareholders have been largely worn out.

That’s a very good begin. The depositors are successfully being bailed out nicely above and past the $250,000 FDIC max. And sure, that may be a “bailout” of kinds for rich purchasers and corporations.

However the pondering right here is that, at the least, we’re bailout out the harmless victims versus the irresponsible bankers that screwed all of it up.

However right here’s essentially the most fascinating 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 complete $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. However it ought to stop a repeat of 2008, the place the banks began to fall like dominoes.

I consider 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 in the present day, 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 Score System was capable of pinpoint the weaknesses out there (and in financial institution shares) earlier than SVB collapsed.

His system has additionally predicted the following “Massive Quick” in overvalued shares. Simply click on right here to seek out out extra!

Regards,

Charles Sizemore
Chief Editor, The Banyan Edge