Saturday, March 25, 2023 11:39 PM EST
We would be remiss not to touch on the recent Silicon Valley Bank blow-up.
By now, you probably know the bank went tits up, making it the second largest bank failure in America’s history. Ironically, all this happened just days after the bank made the Forbes list of America’s Best Banks.
Chris dedicated an entire section of the Insider Newsletter to the Silicon Valley Bank blowup. Here’s an excerpt:
SVB made a fixed income investment, rates moved higher, decimating the value of those bonds and now their collateral base is crappy. They’d need to sell assets to shore up their balance sheet, call in loans, raise equity, or all of the above — all of which may in itself call into question the solvency of the bank. Well, as it turns out, they waited too long to do any of that to try to fix things. And now they’re gone.
As we’ve been saying for years now, the unwinding of the bond market is going to create all manner of problems, many of which we’ve not even thought about. Anyone long bond duration is going to get hammered. The knock-on effects promise to be substantial.
What to look out for? Well, there are three things I can think of. Banks (obviously), insurance companies, and pension funds all own long-term paper at extremely low interest rates. Increasingly, they’ll be forced to compete with short-term treasuries, and they’ll lose. This is without them marking to market their balance sheets, which will come under enormous pressure. Consider a bond bought with a 1.25% coupon. When that same bond yields a mere 2.5%, the value of the bond gets cut in HALF.
Now, that in itself is problematic already. But if not properly managed (it’s why “managing the press” is so important to the powers that be), it could quickly spark mass withdrawals from depositors seeking higher returns on their money, which itself results in a wave of bank failures… and that itself results in further withdrawals.
Furthermore, consider all this a timely reminder that money in the bank is NOT YOURS. You are an unsecured creditor in what may very well be an insolvent institution. Some countries don’t even have deposit insurance, and every penny can be taken.
Also, the way we see it, holding some gold here might not be the stupidest idea.
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Disclaimer: This is not intended to render investment advice. None of the principles of Capex Administrative Ltd or Chris MacIntosh are licensed as financial professionals, brokers, bankers or even ...
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Disclaimer: This is not intended to render investment advice. None of the principles of Capex Administrative Ltd or Chris MacIntosh are licensed as financial professionals, brokers, bankers or even candlestick makers in any jurisdiction, anywhere on this big ball of dirt.We do NOT know your individual situation, and you should always consult with your attorneys, accountants, financial planners, and those that are sanctioned to provide you with advice. DO YOUR OWN DUE DILIGENCE.
But seriously, all investments carry risk. Some of what I discuss arguably carries great risk. Investments which can lead to you losing 100% of your capital and maybe more if you are stupid and use margin.If you invest more than you can afford to lose, or borrow money from Joey down at the tavern, Master Card or Visa to make your investments, then you need to go and read a different website.
But really seriously…
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