The Long Term Investor

AND.....yes....I continue to see the impact of this "little" event as minimal. The media coverage......however.......will be MASSIVE as will the HYPE, FEAR MONGERING and DOOM&GLOOM.

 

As to the above.....it is impossible to even know what that means. If they are going to insure that.....ALL....depositors have access to......ALL funds.......and....that ALL depositors are "MADE WHOLE"...it is a BAILOUT. Where is that money coming from?

They can refuse to call it a bailout.....but it does not matter what the semantics are.

My reading of it and the people that approved it.......it is a....waiver of some type of the FDIC limit of $250,000. That means it is going to come from the FDIC.....ie.........the government. One way or another this is in FACT coming from the government and therefore from the taxpayers.....since the government has no other funds.

 

When I look at the list on this press release....( see post above) from.....Janet Yellen, Treasury, Powell, the FED, the head of the FDIC, and the President approving it. HERE is exactly what this is:

"in order for the FDIC to use public money to help uninsured depositors, it must declare a "systemic risk exception" — something that requires two-thirds of the Federal Reserve Board of Governors, two-thirds of the board of the FDIC, and the Treasury Secretary, in consultation with the president, to approve."

They have declared an "exception"......and that means that "PUBLIC MONEY".....no matter how they try to use weasel language and hide it.....is IN FACT going to be used to bail out all the Venture Capital firms and all the tech companies that are tied to this bank.

My question is......if this was "normal, little people"......do you think they would be bailed out by the government?

 

I see in another little article that what I posted above is EXACTLY true:

"By designating their backstop measures as a "systemic risk exception" event, Washington regulators sidestepped a vote that would otherwise be required from Congress on whether to backstop the banks' depositors.

The "exception" designation required the approval of two-thirds of the Federal Reserve Board of Governors, two-thirds of the board of the Federal Deposit Insurance Corporation, and the Treasury Department in consultation with the president, according to Ricks."

https://www.msn.com/en-us/money/mar...sn&cvid=a21a281298aa42c8b159381d457a59c9&ei=5

SO.....this little story is OVER. End of story. Everyone will be paid and there is now as of this moment.....absolutely no need for further fear mongering or hype by the media. A classic case of the government protecting the ELITES. Not that I really care.......I am now moving on. My CYNICAL nature is celebrating right now.

 

At this point all that is left is to mention.....we should be in for a BOOMING day in the markets tomorrow.

 

Zukodany.......it does not have to fade away in a couple of weeks. As of tonight it is over with.....done. There is no damage....no one will lose a penny. It is oficially in the past.

Just......DONT WORRY, BE HAPPY.....and take the gains you are going to make tomorrow.

 

I like this little article.

With SVB It Takes a Village...To Mess Things Up This Badly

https://www.realclearmarkets.com/ar...llageto_mess_things_up_this_badly_886767.html

(BOLD is my opinion OR what I consider important content)

Disclosure alert: SVB bought my business in 2001 and I worked there as a senior executive for 2 1/2 years. I’ll offer a little insight into what went wrong….if that doesn’t interest you, hit delete now.

Any bank has three main actors; the bankers, the customers (depositors and borrowers, which often are the same), and the regulators. Let’s start with customers, who in this case had to be incredibly naïve and irresponsible to believe deposits in any bank above the insured limit of $250K are riskless. But then VC’s and tech companies have a long history of being terribly neglectful custodians of cash. They believe that their purpose in life is to make great things, and cash management is just a nuisance. The vast majority of responsible corporations and money managers put excess cash in money market programs, which invest in highly-rated, short-term securities like T-bills. In fact, SVB had just such a program that the responsible, non-lazy corporations used, and those funds will be unaffected by the collapse of the bank. That cash management program was part of what I ran while I was there; the money was actually invested by Citicorp as part of the largest cash management fund in the world (BofA also ran part). SVB staff could have advised deposit customers of the better alternative sitting right next door, but if you think bankers truly have the customer’s best interests at heart, you haven’t been paying attention. As we used to say when I was at Citicorp, if you need a friend, get a dog. BTW, any of you who use sweep accounts are every bit as naïve as SVP depositors, those accounts pay far less interest than the money market accounts also managed by your bank….banks make much of their money from customer naivete and laziness. Customers see pennies that aren’t worth the effort, banks see millions of dollars of profits as those pennies add up.

SVB execs weren’t the country’s best bankers, but they didn’t need to be, they were simply running a term arbitrage game (borrow short-term at low rates, invest long-term at higher rates) like so many others. Those games worked spectacularly well over 40 years, until the Fed pulled away the punchbowl a year ago. SVB failed to react when deposits tripled over about two years beginning in 2020 as cash gushed into the tech sector, and put most of those new assets into term arbitrage (of $140B in new deposits, $100B went to term arbitrage). Risk went through the roof, since for much of that period market observers saw the Fed reaction coming, that they would have to raise rates to stem inflation, and that would turn term arbitrage upside down. It’s always hard to walk away from an incredibly successful game – SVB stock had gone from the low $20’s to almost $600 over 20 years – but that’s what good managements do, they know when to say when. Another example is when Chuck Prince did not stop the subprime mortgage lending operation at Citi and almost destroyed the bank…he later used the incredibly lame excuse that you can’t stop dancing until the music stops. Bottom line, SVB management was every bit as lame as Chuck Prince, and did destroy the bank because, unlike Citi, SVB is not considered by the Fed to be systemically important.

Then we have the useless primary regulators who are supposed to be watchdogs for safety and soundness….for SVB, that was the San Francisco Fed. They could have stopped the excess risk-taking with a phone call, but didn’t, yet they were informed regularly as the risk built. Wall Street knew, the stock has been in free-fall for over a year, so of course the Fed knew.

I have no special insight here, but would observe that everybody in the tech world and in the Bay Area treated SVB like a pet rock, lovable fools who needed hugs regularly. The many VC’s who promoted the use of SVB are like gods in the Bay Area, so who wanted to be the one in the neighborhood to point out that the emperor has no clothes. SVB naively believed that if they loved the VC’s, VC’s would love them back….then VC’s couldn’t get their money out fast enough at the first signs of a bank run. Anyone who believes that VC’s are your friend in a crisis has not been paying attention over the last 40 years….VC’s save all their love for LP’s, there is none for companies or banks.

I’ll leave you to decide who you think is more to blame, but for sure, the debacle could not have happened without major contributions from all three. There may be a silver lining….astute observes have remarked that the Fed would keep raising rates until they broke something, and now they have broken something. SVB is gone, and the economy is likely next if they don’t stop or at least slow down….it already may be too late. Fed actions take effect with a 12-18 month lag, so it seems only prudent to stop for a bit to see what those effects are. The only counterpoint to that is Biden and Democrats wanting to continue their uncontrolled spending, which has been the major cause of inflation, and we don’t know yet whether Republicans can slow that down. For the good of our economy and country, we must hope so."

MY COMMENT

EXACTLY what you would expect......including the outcome that NO ONE loses a penny.

Perhaps I am old-fashoned.....but in business if you fail....you lose and disappear.

If you are too DUMB and too incompetent in your management and you expose your company assets in a bank by having deposits WAY WAY over the FDIC limit........and dont put those funds into an alternative like a Treasury only....money market fund.......too bad for you.

If you are a bank and you through poor management go under due to your own incompetence.......too bad for you.

If you are the local FED and you fail to see what is happening right in front of you face.........no problem.....nothing happens to anyone working there.

This is just how the free market system and capitalism works.....at least for most people.

 

I like this little article.

Bank Runs, Now & Then

https://awealthofcommonsense.com/2023/03/bank-runs-now-then/

BOLD is my opinion OR what I consider important content)

"Silicon Valley Bank, the 16th biggest bank in the country, was closed on Friday. It was the second-biggest bank failure in U.S. history.

As recently as November 2021, the market cap of the company was more than $44 billion. That equity is now essentially worthless.

There is a lot to this story but it really boils down to an old-fashioned bank run. A flood of withdrawals from depositors destroyed the bank.

If everyone with a Planet Fitness membership showed up at the gym at the exact same time there would be chaos at the squat racks. It would be impossible for anyone to work out and the gym model wouldn’t work.

The same thing applies to banks. If everyone goes to get their money out on the same day, it’s going to be hard for a bank to survive.

There could be plenty of different ways this plays out but I find myself captivated by the process of a bank run.

The SVB ordeal caused me to revisit my old copy of The Panic of 1907 by Robert Bruner and Sean Carr.

It’s a wonderful account of one of the biggest and most influential financial crises in history.

The Panic of 1907 would probably be more famous if it wasn’t overshadowed by the Great Depression just a couple of decades later.

It lasted 15 months and saw GDP decline an estimated 30% (even more than the Great Depression).

Commodity prices crashed. Bankruptcies exploded. The stock market fell 50%. Industrial production dropped by more than at any time in history up to that point. The unemployment rate went from 2.8% to 8%.

Trust in the financial system went out the window as banks failed left and right. In October and November of 1907 alone, 25 banks and 17 trust companies went under.

John Pierpont Morgan more or less single-handedly saved the U.S. banking system by being a one-man central bank when none existed at the time.

He not only bullied the other banks into putting money in the system to save many of the failing banks but helped slow the pace of bank runs by instructing bank tellers to count out money as slowly as possible to stem the tide of withdrawals (it actually worked).

The banking system is more electronic today so that strategy wouldn’t work anymore. There was a financial institution in 1907 that experienced a “silent” bank run that took place over the course of 4 months.

Silicon Valley Bank basically went under in 24-48 hours once word spread that they might be in trouble.

The free flow of information today is one of the biggest differences between now and the Panic of 1907. There was also no Federal Reserve of FDIC insurance back then.

I’m not banking on a system-wide calamity the likes of 1907 this time around (fingers crossed) but there are some psychological similarities between the bank runs of the early 20th century and what we saw this week.

Bruner and Carr laid out 7 reasons the Panic of 1907 was a perfect storm for bank runs and a massive financial crisis:

1. Complexity. Complexity makes it difficult to know what is going on and establishes linkages that enable contagion of the crisis to spread.

2. Buoyant growth. Economic expansion creates rising demands for capital and liquidity and the excessive mistakes that eventually must be corrected.

3. Inadequate safety buffers. In the late stages of an economic expansion, borrowers and creditors overreach in their use of debt, lowering the margin of safety in the financial system.

4. Adverse leadership. Prominent people in the public and private spheres wittingly and unwittingly may implement policies that raise uncertainty, thereby impairing confidence and elevating risk.

5. Real economic shock. An unexpected event (or events) hit the economy and financial system, causing sudden reversal in the outlook of investors and depositors.

6. Undue fear, greed, and other aberrations. Beyond a change in the rational economic outlook is a shift from optimism to pessimism that creates a self-reinforcing downward spiral. The more bad news, the more behavior that generates bad news.

7. Failure of collective action. The most well-intended responses by people on the scene prove inadequate to the challenge of the worst crises.

Again, not exactly like 1907 but this run on the bank seems to check all of the boxes in its own way.

The bizarre thing about the banking sector is it’s a faith-based system. Sure there are assets and liabilities, checks and balances, rules and regulations but trust plays a larger role than most people think.

Bank runs themselves are about a loss of faith and trust but they’re difficult to explain because of the psychological component involved.

Two economists took a stab at explaining why bank runs happen and concluded they’re kind of random. Depositors are worried a financial shock will cause a lengthy liquidation so they pull their money en masse.

But what sets them off?

People being people, I guess?

There was an infamous story of a bank run in Hong Kong that was caused by a long line in front of a pastry shop that just so happened to be right next to a bank. People assumed the line was for depositors taking their money out of the bank, word spread and soon the bank run was on for no other reason than the herd mentality.

George Charles Selden published a book in 1912 called The Psychology of the Stock Market that feels like it could have been published yesterday. He tackled the psychology behind booms and busts and how the Panic of 1907 fits in:

Both the panic and the boom are eminently psychological phenomena. This is not saying that fundamental conditions do not at times warrant sharp declines in prices and at other times equally sharp advances. But the panic, properly so called, represents a decline greater than is warranted by conditions, usually because of an excited state of the public mind, accompanied by exhaustion of resources; while the term “boom” is used to mean an excessive and largely speculative advance. There are some special features connected with the panic and the boom which are worthy of separate consideration. It is really astonishing what a hold the fear of a possible panic has upon the minds of many investors. The memory of the events of 1907 has undoubtedly operated greatly to lessen the volume of speculative trade from that time to the present.

Panic was a word that was used more frequently in the 1800s and early-1900s. Today we just have recessions. Back then things got so bad that they were either called depressions or panics.

Never say never, but it’s hard to believe the bank run we saw this week will lead to a 1907-like panic.

But it’s worth noting how the one constant across all economic environments is human nature.

Booms, busts and bank runs will always occur because people are people."

MY COMMENT

YES.....people are people and human nature does not change. We are no different than our ancient ancestors......no matter how much we advance and what tech we have. PANIC is PANIC.

I dont care what business we are talking about......if you create a PANIC.....whether there is any connection to reality or not.....you will pay the price.

 

To broaden the discussion.

The FED needs to sit down and STFU. Do what they are going to do.....but....STOP the constant talking in the media and trashing of the markets and business and the economy.

It is NOT their job to kill the stock markets. It is not their job to trash the economy. They need to do what they should have been doing all along......come up with a 6-12 month plan and put it out there so business, investors, and people in general can see that there is a reasonable and rational plan in place. Allow people to have some confidence and understanding of what is going to happen and why. Lurching around from economic report to economic report and data release to data release.....is INSANITY.

This constant process that they have been doing for the past 12 months........having people waiting on pins and needles....while the media cheer-leads the fear mongering and hypes.......every little economic release with rampant speculation........is NO WAY to run a financial system.

 

I am sure this is the big question going forward.

Goldman Scraps March Rate Hike Call as Traders Unwind Fed Bets

https://finance.yahoo.com/news/fed-bets-pared-goldman-scraps-031122728.html

(BOLD is my opinion OR what I consider important content)

"(Bloomberg) -- Less than a week after Federal Reserve Chair Jerome Powell opened the door to a re-acceleration in the pace of interest-rate hikes, traders slammed it shut again amid the sudden eruption of financial strains at US regional banks.

Goldman Sachs Group Inc. economists said they no longer expect the Fed to deliver a rate increase next week, even after US authorities moved to contain a crisis spurred by the exodus of depositors from Silicon Valley Bank and Signature Bank.

Treasury two-year yields dropped 18 basis points to 4.34%, heading for their steepest three-day decline since October 1987, when the Black Monday equities rout stunned markets. Just as that shock interrupted a tightening cycle, traders are now rapidly shifting back to betting on Fed rate cuts for the second half of this year.

The risk of a banking crisis underscores the tension between Fed efforts to cool the economy and tame inflation with burgeoning concerns that 4.5 percentage points of rate hikes in the space of a year will spark a recession and a rout in riskier assets.

Fed officials are entering a quiet period before the March 21-22 meeting. Economists as of last week were overwhelmingly expecting a quarter-point increase at the meeting, with six forecasting a half-point move.

Regulators Respond

US regulators were spurred into action Sunday to contain the problem. The Fed set up a new emergency facility to let banks pledge a range of high-quality assets for cash over a term of one year. Regulators also pledged to fully protect even uninsured depositors at SVB and relaxed terms for lending through the Fed’s discount window.

Those measures should provide “substantial liquidity to banks facing deposit outflows and to improve confidence among depositors,” Goldman’s Jan Hatzius wrote in a note. Still, he pulled his previous call for a quarter percentage point increase next week and said there’s “considerable uncertainty” about the path beyond then.

Yields on two-year Treasury notes had surged above 5% last Wednesday, to the highest level since 2007, in the wake of Powell’s signaling that a 50 basis-point rate hike was on the table if upcoming economic reports kept coming in hot ahead of this month’s meeting.

The Fed is now seen as likely to raise rates a quarter point next week. The Fed funds rate may peak at about 5.1% in six months from now, the OIS curve shows, down from a terminal rate of 5.74% priced on Wednesday.

Eurodollar markets moved to bet on two Fed rate cuts for the second half of the year.

Swaps traders also reduced their projections for six-month changes in central bank rates across eight major developed-market economies, with Canada and Norway seen holding policy over that time frame. Australia’s central bank is now seen as better than a 75% chance to hold rates next month, OIS contracts show.

Flare Up

“We continue to look for a 25 basis-point hike at next week’s meeting,” Michael Feroli, chief US economist at JPMorgan Chase & Co., said in a note Sunday. “Even before the problems flared up in the banking sector, we thought a 50 basis-point move would be ill-advised, and we still think that is the case.”

Moving by a lesser magnitude — or even pausing the tightening campaign — would give Powell and his colleagues more time to assess whether there are further problems to emerge in the banking system. A senior US Treasury official told reporters on a call Sunday that there are some institutions that look like they have some similarities to SVB and perhaps to Signature.

“It may take some time before the full ramifications of SVB’s collapse are apparent,” Tom Kenny and Arindam Chakraborty, economists at Australia & New Zealand Banking Group, wrote in a note Monday. “Front of mind for markets is the risk of contagion, deteriorating risk sentiment and potentially a broader financial crisis.”

Meantime, economic data are still pending. On Tuesday, Fed policymakers will get the latest reading on inflation, with the consumer price index for February due. Economists see the CPI rising 0.4% from the previous month, down slightly from a 0.5% gain in January."

MY COMMENT

At this moment the Two Year Treasury is at 4.026%. The Ten Year Treasury is at 3.462%.

Nothing like a big nasty BLACK SWAN showing up to cause a significant fall in the Treasury Yields.

 

HERE is the markets today.

Stock market news today: Stocks seesaw, bond yields, bank stocks fall on SVB fallout

https://finance.yahoo.com/news/stock-market-news-today-live-updates-march-13-2023-114351107.html

(BOLD is my opinion OR what I consider important content)

"U.S. stocks started off the week with a sour sentiment after federal banking regulators took aggressive actions to stem the fallout of Silicon Valley Bank's failure.

The S&P 500 (^GSPC) declined 1.1% Monday morning, while the Dow Jones Industrial Average (^DJI) dipped 0.3%. Contracts on the technology-heavy Nasdaq Composite (^IXIC) dropped 1%.

Bond yields plunged. The yield on the benchmark 10-year U.S. Treasury note dipped to 3.48% Monday morning, while on the front end of the yield curve, two-year yields dropped to 4.17%.

U.S. stocks got smoked on Friday, rounding out their worst week so far this year. Federal regulators closed tech-focused lender Silicon Valley Bank in the biggest U.S. bank failure since the financial crisis in 2008.

President Joe Biden addressed the nation Monday morning regarding the collapse of Silicon Valley Bank. Biden said that “no losses will be borne by the taxpayers” and he assured customers that they would be protected. The president also vowed to ask Congress and the banking regulators to strengthen rules for banks.

His remarks came after regulators took extraordinary action Sunday. Treasury Secretary Janet Yellen, Fed Chair Jerome Powell and FDIC Chairman Martin J. Gruenberg announced that depositors of the failed Silicon Valley Bank would be able to access all their money starting Monday.

The saga of Silicon Valley Bank has had a rippling effect into a second bank: Signature Bank (SBNY) was closed Sunday, the second bank failure in three days. Among the measures, the Fed said depositors would be made whole. It created a new “Bank Term Funding Program” (BTFP) facility that enables other banks to obtain quick cash in exchange for collateral.

Separately, going back to 2008, U.S. Senator John McCain said the fundamentals of America's economy are strong. However, phrases like this one "never seem to be made when markets and the economy are running smoothly, and we’ve heard a number of similar phrases like this made by officials over the weekend and this morning," Paul Hickey, co-founder of Bespoke Investments Group, wrote in a note Monday morning. "That’s definitely not to say that the events of the last week and today are a repeat of 2008, but these types of comments almost never have their intended purpose of providing comfort to investors."

Meanwhile, in the UK, British officials worked throughout the weekend to find a buyer for the U.K. subsidiary of Silicon Valley Bank, with HSBC stepping in.

The turmoil on the banking front overshadowed February's job report, which blew past expectations once again, as the U.S. economy added 311,000 jobs, a slower pace from January's blowout number, and compared to consensus estimates from economists for job gains of 225,000. The unemployment rate edged up to 3.6%, and wage growth rose 4.6% over the last year, slower than expected.

Economic releases will dominate the conversation this week as Wall Street pays attention to two data prints as the next Federal Reserve’s meeting rapidly approaches. At the same time, investors will be glued to the latest headlines over the collapse of SVB Financial Group and the implications for the banking sector.

Tuesday's Consumer Price Index (CPI) kicks off the action in data on Tuesday. Economists expect inflation to rise 6% over the last year on a headline basis, while on a “core” basis the call is for 5.5%.

Meanwhile, February’s retail sales read rolls out Wednesday morning. The upshot in the reading of those reports will weigh in on the Fed’s next policy move.

Analysts at Goldman Sachs (GS) said it “no longer expects” the Federal Reserve to hike interest rates later this month amid the SVB failure.

The sour bank sentiment has spread across markets, as the KBW Bank index (^BKX) fell 12% Monday morning, while index members including Bank of America (BAC), JPMorgan Chase (JPM), Wells Fargo (WFC) and Citigroup (C) all traded down.

Other regional bank stocks including First Republic Bank (FRC) plummeted more than 60% after JP Morgan lent the bank a hand. The California-based bank secured funding from the Wall Street giant that gives it more than $70 billion in unused liquidity.

PacWest Bancorp (PACW), Zions Bancorporation (ZION), First Republic Bank (FRC), Regions Financial (RF), and Western Alliance Bancorporation (WAL) stock has been halted on Monday, triggered by volatility.

In other single-stock moves, Roku (ROKU) fell 8% after the company said that SVB held 26% of its cash and cash equivalents, per its filing to the Securities and Exchange Commission (SEC).

Shares in the Swiss lender Credit Suisse (CS) hit a new record low Monday morning on the fears of the European banks ability hang onto deposits amid the collapse of US lender SVB.

On the earnings front, FedEx (FDX), Adobe (ADBE), Dollar General (DG), and Lennar (LEN) will report quarterly results this week."

MY COMMENT

Somehow I dont think much of the economic data is going to get much attention this week. The week will be all about BANKS in the media.

 

To continue the above......we are probably in for a wild week or two. Not due to events....but due to potential panic and fear of the unknown. The markets HATE uncertainty. Add in the financial media fanning the flames with incendiary opinion and analysis......and you have total uncertainty for a short time.

I know that most people on here are pretty well informed.....but the markets today....represent a flood of investors that may not be as well informed driving the markets UP and DOWN as they VAGUELY try to evaluate what is going on and what it means for them.

This is the type of environment where there is potential for......PANIC. Good old fashioned irrational.......run for the exits.....PANIC. Once the crowd starts to run, it is nearly impossible to stop it.

Lets hope that responsible people in the financial media and other opinion makers step back and DO NOT give in to sensationalism, fear mongering, hype, and short term clicks.....over a balanced and rational look at current events.

 

LOL.....I just saw some coverage of commentary by Home Depot founder....Bernie Marcus. I love that guy as a businessman. He certainly does not hold back on his views.

Of course.....I am not going to put any of his comments up on here. Too BLUNT for modern sensibilities and no doubt would be taken as politics.

 

One thing is sure....for more speculative investors.....there will be some bargains out there in bank stocks. You had better be very good with your analysis of the fundamentals....but there will definitely be some medium term BIG money to be made.

BUT.....for me.....I have not invested in ANY bank for over 50 years......and am am sure NOT going to start now. I will NEVER invest in any bank stock. I dont trust their management, I dont trust their accounting, I dont trust their business model, I dont trust their customer service or how they treat their customers......I dont trust their COMPETENCE.