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The SVB collapse doesn't look to be isolated. Forbes called it the best bank in America just 3 weeks ago, which counted for nothing.
Looks like Credit Suisse is on the brink and Deutsche Bank may follow quickly after.
US mortgage default rates are predicted to double this year.
This could get very grim
I hope you’re wrong.
I hope you’re wrong.
Me too😬
Highly unlikely, I think.
SVB and Signature both serviced a very narrow customer range and failed to hedge their exposure to bonds.
Credit Suisse has been in the doghouse for years.
Interesting to note that Goldman Sachs were the counterparty in SVBs bond holding sell-off.
Two things, I think, are clear:
- US banking is a consistent threat to the global banking system as there's no real transparency and the Fed haven't really got a grip
- central banks will re-visit capital requirements and stress tests for banks with a new deep dive into holdings and associated risks.
Could be a buying opportunity.
For sure if 'they' keep lifting rates they will break something.
And it's not a secret that there will be a pop at some point.
However the underlying issues have been bubbling for ages let's face it and the banking sector is very protected and would always be recapitalised.
Currently lifting interest rates is adding to to inflation whilst the inflation (energy) that caused the original spike is declining at the same time.
So if they'd left alone or cut the rates we'd be very much on the retreat now.
What's happening is the market keeps a anticipating a pullback but then new money floods into and it goes on surge again. So currently there's a wobble in the FTSE and I expect it to then make gains.
You've got opposing forces - and underlying economy that is wobbly but then interest rate money powering assets..
It's a bit of a weird time as the real economy in then US is doing okay too.
Yes, eventually something will knock everything off course.
Basically check out dollar strength DXY for how money floods in and out of the dollar to give you an idea of confidence of market expectations for risk on assets.
I still think a recession will hit, it's just the pathway has been been muddied with - raising rates - were expected to have slowed the economy that but it's in fact done the opposite so far.
It's pretty bizarre. But lots of black swan events and once in a lifetime headwinds.
Some good I insight here: although a couple of weeks old.
https://twitter.com/wbmosler/status/1632027926551056385?t=WZ5-5ovXdn4BQPaVWjTWrg&s=19
But lots of black swan events and once in a lifetime headwinds.
Be honest you’ve just made that up!
Credit swiss nearly went twice last year. As for the US it's a race for the last dollar I don't think they have much fiscal responsibility built in.
Coffeezilla released a very good video explaining the demise of SVB and what's happening with the bond market
lots of black swan events and once in a lifetime headwinds
Can I just clear something up - are the black swans at the tip of the spear or are they inside the ringfence with the unicorns?
Tory Gov with shake the magic money tree to bail out banks again and blame the NHS workers for their wage demands
There’s a massive change to the SWIFT network this weekend with the introduction of the ISO20022/CBPR+ messaging standards. Target2 is also migrating to HVPS+.
Whilst there is a co-existence period with the old system I expect a bit of disruption next week which could cause a few wobbles.
Target2 is big bang, so it won’t surprise me if a few banks can’t settle EUR on Monday.
All speculation of course, maybe I’m being overly pessimistic…
I would love to see some of these insightful experts release their detailed videos in advance of the events as opposed to the current trend for predicting the past and claiming great precision for doing so.
jim, any signs of the yield curve beginning to invert?
@WorldClassAccident economics appears to be a ‘science’ that’s fails in its predictive models in two directions: past and future.
WorldClassAccident
Free Member
I would love to see some of these insightful experts release their detailed videos in advance of the events as opposed to the current trend for predicting the past and claiming great precision for doing so.
Michael Burry has been predicting the collapse for some time
And the coffeezilla video I linked to wasn't predicting, just explaining what had happened and why
Forbes called it the best bank in America just 3 weeks ago, which counted for nothing.
Forbes is an absolutely terrible magazine. A lot of its articles are simply puff pieces, and the non-US versions (franchises and JVs?) are even worse. They invented the listicle
But lots of black swan events and once in a lifetime headwinds
Bull$h!t Bingo Card:
Blackswan event - TICK
Once in a lifetime headwinds - TICK
They're basically financial astrologers.
Michael Burry has been predicting the collapse for some time
I have been predicting my death for some time. I am sure it will happen eventunally and then I will have a tombstone saying "I told you I was ill"
Joking aside, the problem with these type of predictions (Michael B not mine) is that they potentially lead to or even be the catalyst to a major event. Of course it has to come from someone influential, me saying there will be a banking collapse in the future will not send anyone into a panic, but influentiaL types can build the panic. Look at Mystic Meg FFS she told me I would meet a tall, dark, stranger one day....................and you know what.........I bloody well did you know.
Michael Burry has been predicting the collapse for some time - and also many other things that have failed to materialise. Remember the old Top of the Pop DJs who predilected every single released in November and December would be the xmas No 1, and then claimed to be amazing because one of their predictions was right? Okay, Michael Barry has slightly more credibility that Bruno Brookes but you get the message.
And the coffeezilla video I linked to wasn’t predicting, just explaining what had happened and why Agreed, and no issue with this idea. It is when they do a post-mortem on the events stating that it was 'so obviously going to fail' and 'clearly unsustainable' etc. The whole way the money market works is by having unsustainable growth that will eventually fail. You make your money buying on the rise and selling before the failure, then buying the collapsed remains and waiting for the next rise etc
economics appears to be a ‘science’ that’s fails in its predictive models in two directions: past and future.
Economics is part of the social sciences.
I'm sure we'll have plenty of insight from the STW financial experts who consistently tell us that everything everyone's doing is wrong.
There’s a joke about how Michael Burry has accurately predicted 17 of the last 2 financial crises.
It's a chaotic system, of course predictions are difficult.
Small banks have been failing for 200 years and SVB UK has only 3000 tech industry customers
When these banks go they take entire communities (C19th) and industries with them (C21st); you'd imagine that the world would have learnt by now and maintained proper regulation after 2008
The UK tech sector is an emerging one and fortunately our main banks, HSBC specifically, were strong enough to keep SVB UK, their customers and the sector afloat.
My concern is that the US chair of the Federal Reserve, Jerome Powell, is telling us not to panic while forgetting that he was involved in weakening the regulations for smaller banks post-2008 https://www.theguardian.com/business/2023/mar/13/silicon-valley-bank-failure-svb-collapse
Black Swan event is some bollocks often attributed to Taleb. The thing is that black swans are common in some places, so in those places what do they refer to for extremely rare events?
It's so popular in risk management that people talk about grey swans nowadays. It's because they lack the ability to effectively communicate the difference between epistemic and aleatory risk (Google it)
black swan
This is not a business bullshit term like ducks in a row, it's a recognised theory for the occurrence of low probability events, and the high consequence if them. This is significantly due to the fact that very low probability events are discounted as the frequently require multiple low probability event to occur in turn but given a long run they do occur.
https://en.m.wikipedia.org/wiki/Black_swan_theory
i wish i was more diverse in my stocks, got lots of lloyds, hsbc, barclays and bp/shell,
I'd gained circa 20% since start of Jan, since friday I've lost at least 15% of the 20%.
looks like that imminent collapse is now off till tomorrow, swiss government to back CS with 54b euro;s.
words can strike fear into the hearts, the media seem intent on breaking us by focusing on the negative :0)
you’d imagine that the world would have learnt by now and maintained proper regulation after 2008
Where is the regulatory failure around SVB or SVBUK? The regulatory system seems to be doing fine.
Why was SVB so attractive to tech companies in the first place?
I think some of the issue with American banks is that good old Trump rolled back the stress tests that were introduced following the previous bank crash. Other countries still have them in place so should be fine, but market jitters run around the world.
Where is the regulatory failure around SVB or SVBUK? The regulatory system seems to be doing fine.
theres a couple of bits that suggest the regs arent doing the job...only the first $250,000 is supposed to be protected - the feds have stepped in to cover everyone in full at SVB, will they do so for the next time? Does this mean that there are now no limits to this scheme? Is it now better to take risks?
AFAIK, SVB was well within all the compliance rules, but still went pop, are the compliance rules then too slack?
Why was SVB so attractive to tech companies in the first place?
banking for startups is tricky...you might be running at an epic loss for 10 years plus, many regular bank managers just don't get it. SVB did.
the valley is also a very very small place, people just do stuff because everyone else is. The VC / startup world is basically Mean Girls
only the first $250,000 is supposed to be protected – the feds have stepped in to cover everyone in full at SVB
That sounds like a wildly successful regulatory intervention.
Regulation isn't intended to stop every bank failure anywhere anytime. It's supposed to prevent systemic failure and protect retail customers. So far that seems to have worked out fine...
AFAIK, SVB was well within all the compliance rules, but still went pop, are the compliance rules then too slack?
SVB had a very particular set of issues that it's management largely ignored.
That sounds like a wildly successful regulatory intervention.
Regulation isn’t intended to stop every bank failure anywhere anytime. It’s supposed to prevent systemic failure and protect retail customers. So far that seems to have worked out fine…
An entire industry sector that can't go to the bigger banks because of the risky nature of their technology and innovation is forced to smaller banks who are more willing to take that risk.
US regulation post-2008 forced banks with $50bn+ in assets into a framework of scrutiny with greater liquidity and capital required to reduce the chances of that bank collapsing and impacting the economy. It also aimed to protect customers, many of whom would have no access to funds to run their business and pay employees if their bank collapsed.
Donald Trump relaxed those assets to $250bn, amongst other changes, which meant that SVB, amongst others, wasn't subject to such intense scrutiny, stress-testing, etc, the rest is history...
Which bank is next?
There's a balance to be struck between regulation and risky business sector innovation, but the current world economy as a stressor has to be regularly tested as well
Google Dodd-Frank Act (Dodd-Frank Wall Street Reform and Consumer Protection Act 2010)
I don't see your point.
Bull$h!t Bingo Card:
Blackswan event – TICK
Once in a lifetime headwinds – TICK
What's COVID or a local War then?
Funny I've not noticed another pandemic like that in my life time.
If you don't think the response to that event had a massive effect on the world economy you are clueless.
Monetarist responses to these events are why we are where we are.
I would love to see some of these insightful experts release their detailed videos in advance of the events as opposed to the current trend for predicting the past and claiming great precision for doing so.
I don't think anyone wholly predict specifics accurately otherwise there would be a lot more millionaires kicking around in the economic community.
What you can do is look at economic data and draw a trajectory.
Basically you make a prediction you will probably get it right at some point.
Economists that i've followed for several years have pretty much nailed the inflation issue since it started.
They were calling out supply chain issues and just in time supplies way back. Pointing out supply side issues when monetarists were shouting too much money printing! Lol.
It's not hard to see where things are going wrong - monetarism and neoliberalism are the wrong economic models/levers to run a society where the state needs to provision good essential services.
Why was SVB so attractive to tech companies in the first place?
They put a lot of effort into charming the venture capitalists who were handing out the money.
Several of which included a clause requiring the companies to bank with SVB which SVB then exploited further with a exclusivity clause.
They also offered lots of special deals to the owners for personal purposes, mortgages and the like.
Does seem to have been some pretty clever targeting.
Regulation is put in place then the finance sector starts to demand less regulation to be successful.
I don’t see your point
Successful regulation isn't about HMG having to step in as a matter of urgency to save a bank and a UK business sector.
"SVB and Signature accumulated risk and made dangerous decisions about how to manage that risk. They did so in part because of greed and incompetence – but were allowed to do so under faulty supervision and in a weakened regulatory environment that you helped to create." Senator Eliazabeth Warren talking about Federal Reserve Chair, Jerome Powell
Which US bank will be next to collapse?
I watched The Big Short again last night, the bad leading and CDOs which some seem coming and sold short on during the 2008 collapse is an eye opening. Having watched a few times I feel I openly speak about this, I still have very little understanding of it all.
I hope we don’t see a repeat of this, the bank collapse not the film, as it had a global and devastating effect.
First Republic Bank - smallish - just had 30bn cash injection from Bank of America, Goldman & JP Morgan.
This resulted from a run on the bank.
Successful regulation isn’t about HMG having to step in as a matter of urgency to save a bank and a UK business sector.
Are you confusing regulation (what the regulators do to protect retail customers and the market) with governance (how the bank runs itself)? The SVBUK and SVB regulatory interventions look very successful so far. It's not a regulatory failure just because regulators respond.
We're still in the fall out from COVID, and the reaction of stupid central banks. They reacted under pressure from the political system to solve the problem with raising rates.
The USA is coming back from Q/T with a sneeky form of Q/E.
The establishment will do absolutely anything to keep the financial sector capitalised whilst workers are starved of money. Always remember the same form of Q/E could simply 'pay' for the lack of money the government goes on about when it comes to the public spending.
But they don't, they prefer bank hand outs.
Big day for the Fed today. After last week’s knock about and government bail / deposit guarantee (I love how it's basically Q/E but they're jumping through hoops to obfuscate) – all eyes are on the Fed for whether there will be a raise of .25 or 0, or even .50 but that's unlikely.
It’s an interesting one because if the aim of the Fed was to damage or slow the economy out of inflation then in theory there’s a chance they do 0 in reaction to last week. Let’s see if hawkish or dovish.
Watch equities fly if 0.
Not sure where this leaves the real economy currently.
Won't a drop in rates signal a loss of confidence in banks?
Equally, a rise in rates might be too much for some banks so leave rates well alone for now?
But if they don't put rates up, that probably indicates that they know something that we don't. And if they do put rates up, it means that it's worse than we thought. And if rates go down, it's a desperate attempt to salvage the situation, because we're in desperate straits. And if rates don't go down, it's because they are scared of the market response.
Basically, whatever you think, it's already worse than you thought, and whatever decision is made, just shows it's even worse than that.
Should I buy Barclays at 140?
😆
Inflation up today in the UK.
It's not a surprise if you understand upping rates increase the price level and adds money at the top end.
If they'd just left the damn rates where they were it would have been transitional as energy supplies/market level out.
They're hanging on to this useless lever of interests rates. It's an absolute rubbish way of controlling the economy. But monetarists like their capital and think government spending causes inflation.
They're obnoxiously stupid.
And I agree now they started this thing is made a mess of the macro picture. Up or down now will be a shock to someone.
Inflation is a measure of people defending their position in a market. And at the moment as usual is pushing against the low paid consumer.
If you've got interest bearing assets you're doing okay compared.
Should I buy Barclays at 140?
Lol general advice appears to be simply sit on your hands during volatility.
Today's Fed will be interesting.
0.25 priced in. Anything else will be interesting
I've never known the western economies be so split between possible outcomes.
I'm mean the US is actually doing very well on metrics due to government spending.
It’s not a surprise if you understand upping rates increase the price level and adds money at the top end.
They'll be really surprised when they realise that most companies write in an "inflation + x%" term into contracts, which of course has absolutely nothing to do with feeling inflation.
I’m mean the US is actually doing very well on metrics due to government spending.
As someone who spends a lot of time in the US, my subjective opinion is that they are underreporting inflation rates, particularly on food. The tipping culture also disguises things a bit because it allows a fudge in prices to be hidden - the default gratuity is now 23%. It's insane how much it costs to eat in the USA now.
The government stepped in to squash fuel prices, again creating a falsely low overall figure.
@rone, @thegeneralist, they are 147.26p to buy, so i'd go for it :0)
7.25p dividend, 8p this year decent return with an upside potential,
If you believe the conspiracy theorists then a downfall in the current banking system is necessary to bring in a digital currency which could be programmable in conjunction with digital ID to control what the population buy or don't buy with their money. Same across the Western world and already happening in China. Yet all we hear about on the BBC news is the Gary Lineker or Boris Johnson (or insert other current distraction) sideshow.
Still, it's all a big conspiracy - right?
If you believe the conspiracy theorists
No
If you believe the conspiracy theorists then...
...COVID led to a unitary global government, microchip implants, and a world where the government will control every journey by live logging it in an app.
Instead, we've gone right back to being as thick and disorganised as we were during COVID, albeit with a few sanitizer bottles lying around like yesterday's vuvuzelas.