Deja vu!

March 11 2023

Weekly Column with The Contrarian

Hello everyone,

Already seen, that's where we seem to be with the failure of Silicon Valley Bank. Not only have we seen banks fail before, the current failure comes fifteen years to the day, March 15th 2008. Vanity Fair.Com chronicled the demise of Bear; " Bringing Down Bear Stearns, August 2008. SVB was the 16th biggest bank before its collapse. SVB was the fastest collapse on record. Treasury Secretary Janet Yellen slipped up by saying the Treasury is monitoring " A Few Banks ". The market's focus went from SVB to what other banks?

Uncertainty is the markets biggest fear. By the end of the week risk assets were in freefall with most sectors down big. We saw cash flows into bonds as prices rallied and yields declined. Investors might think this is a good thing, but it's not. It's a flight to safety. Until we know what the Treasury knows, expect more downside to risk assets. Some "experts" believe that the collapse of SVB will force the Federal Reserve to stop rate hikes sooner and thus force the Federal Reserve to Pivot.

Bill Ackman, founder and CEO of Pershing Square Capital Management called on the Treasury to bailout SVB under the "Too Big to Fail" criteria. SVB was responsible for much of the financing of Silicon Valley's Tech Start Ups. Venture Capital was heavily used by SVB to help fund the tech sector. Bill Ackman is a billionaire venture capital guy, so of course he would say SVB should be considered for the Too big to Fail Bank by the Treasury and Congress.

The last time the Treasury and Congress bailed out a Too Big to Fail Bank was in the 2008 Financial meltdown. Bailing out banks with taxpayers money may have shortened the Great Recession in 2008, but it never held anyone accountable for the reckless risk management style banks used.

Yes, the Dodd - Frank act of 2009 helped curb risk taking by the biggest of banks, but it also allowed large non bank money centers to take on more risk going forward and know that ultimately the government backstop whatever they do with taxpayers money. The fallout from the great recession impacted many sectors of society and the risk managers who were not held accountable only scattered like cockroaches under the light.

Like Gordon Gekko once said "Greed is good". This has become all too real since the era of cheap money began over the twenty three years ago. If you don't know who Gordon Gekko is, watch the 1987 movie Wall Street. Next week we have a number of reports.

Stay Tuned...