Silicon Valley Bank

Washington Post has good coverage, behind a paywall though. The summary, which sounds entirely plausible, is that the bank took a large position in ten-year US Treasuries at exactly the wrong time, and rising rates lowered the value of their portfolio, and hence their capitalization. In 2022 2023 the stressed tech companies have been drawing more than expected to cover their “cash burn” (I love that term… it sounds so idiotic and futile). Banks have to report everything, they can’t keep it secret, so when it was announced they had to sell assets to cover their withdrawals, all of the Tech Bros, who often move in a mindless herd anyway, panicked and tried to get out of the same small fire exit, and they trampled each other.

I’m not terribly worried about contagion personally. I think bank failures will happen again in 2023 2024, though. The next one might be real estate related, not tech related. Maybe more crypto related bank and exchanges go dark. I keep assets spread over several institutions so I can always pay the bills if there is an issue with one or more of them. I download and save my latest monthly statements so I can prove ownership.

Rising rates is the same thing that brought down the UK government of Liz Truss, Ms. “Head of Lettuce”. The UK announced big spending but no new taxes, the bond market said, “OH NO YOU DON’T” forcing interest rates up*, the UK pensions got undercapitalized, the UK government had to print money to bail them out… how could you let pensions fail. The UK Pound plunged in value, which of course makes everything imported, and they import a great deal being a post-industrial island and all, more costly. So she was out.

More things are going to break. Market predictions (like weather forecasts, they get revised constantly and are never correct until you get closer to the period you’re trying to predict), are that US short term rates to get to almost 6% by October 2023. The yield curve will be deeply inverted still… it has been for a long time now. The yield curve is a very good predictor of recession.

I think there will be deals in the stock and bond markets late in 2023, and into 2024, 2025. Have dry powder and be patient. Curious though - Meb Faber says, “The stock market is the only place where when things go on sale people run screaming out of the store”.

The stock of Charles Schwab Corp., SCHW, has gotten creamed with the Silicon Valley Bank thing. I don’t have desires to own Schwab, but it might be a stock to look at now.

  • AKA “The Bond Vigilantes”
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The four second investment book contents: ‘Don’t do something; just stand there’ by John Bogle

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I’m not changing anything. I have money in several banks / credit unions. I can always pay the bills. I have enough paper currency in my safe per Clark’s recommendation.

It’s a bit funny in a dark way but also sad… the fear, uncertainty, and doubt is spreading on the Reddit communities for banking, Schwab, Fidelity… just from the questions being asked, you can tell that people didn’t understand at all what they having been buying these past few years. I just saw one - “Are Schwab stock slices insured?” (stock slices are $5 slices of S&P 500 stocks). Someone replied - “insured against what?”

A few days ago… everyone was really chirpy and upbeat, and was downplaying risks, now there are all kinds of questions about whether Money Market Fund s are insured (yes, by SIPC, but not insured against a loss of value).

I get the sense that many of us here, like Clark, are Old Timers. We’ve seen this movie before. There’s going to be more fear developing, maybe some panic selling and a waterfall decline or two. First Republic Bank close to failing and Signature Bank did fail over the weekend. When the mood is awful for an extended period, when S&P500 is 1600-2400 level, and everyone you know tells out to get out of stocks, “oh my gawd how could you ever consider owning stocks they are so dangerous and money losers…”

that is when you cinch your belt, step up, and buy…

That moment may not be this year, maybe next.

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The famous Warren Buffet quote applies here…

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Here’s Clark’s take on what the failure of Silicon Valley Bank means to you and if your money is safe:

The failing banks had holdings in 10 year government securities. Interest rates go up. The market value of the securities go down. People want to get out of the bank all at once. There is a little of ‘It’s A Wonderfu Life’ type fear going on, hence the stand there don’t do anything quip. I hope there is no cascading but part of me does not have a small enough violin for the likes of smartest people in the country.

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Elephant that cannot be ignored… but most probably will.

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Good podcast. My Mom has owned and still owns some TLT, the 20+ year US Treasury ETF. OH MY that fund has taken a gigantic hit since Aug-2020. So if SVB owned a big slug of 10-years… I feelz their pain. But TLT is really taking off today. So is GLD.

Yea, massive spending largely by Biden coupled with massive printing of money that created quick inflation resulting in rapid rising of interest rates is not to blame. But it was bipartisan deregulation that Barney Frank supported that caused a poorly ran bank that invested too much in long term bonds to be at fault. LOL.

The bailout of Silicon Valley (not bank) has begun.

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Looks like they got caught in a wrong bet with Treasuries that have gotten crushed with the runaway inflation under the current administration.

BTW, lets not ignore the fact that the bill referenced in the article passed easily with bi-partisan support:

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Also, let’s not ignore the fact that only 17 of the yeah votes in the Senate were from non-GOP members, and it it appears it would have passed with Pence contributing a deciding vote in the Senate with no Dem support. And, practically any president other than Trump wouldn’t have signed it into law. Dodd-Frank did make life more difficult for the smaller banks, true. The more prudent path would have been to make small amendments to it to give relief to those most harmed. The passage pretty much threw the baby out with the bath water.

Speaking of Barney Frank (the author of the bill you reference):

President Donald Trump’s rollback of some of the Dodd-Frank rules was not a factor in the collapse of either SVB or Signature Bank, Frank said. The changes that Trump put in place eased regulations and decreased the amount of money that was spent on compliance for midsized banks such as Signature.

“I don’t think that had any effect,” Frank said. “I don’t think there was any laxity on the part of regulators in regulating the banks in that category, from $50 billion to $250 billion.”

(mic drop)

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I’m shocked to learn that you’re now such a fan of the wisdom of Barney Frank, frankly confused. BTW, Barney also said at the time ““I would vote against this bill,” says former Rep. Barney Frank, a Democrat who helped spearhead the namesake Dodd-Frank Act.”"

If one has T Bills and CDs at one institution but the CDs are from different institutions is the account still subject to the 250K FDIC limit? For example
Schwab allows purchase of T Bills and CDs which are not Schwab products. Thanks

People might want to check out Dave Ramsey’s take on the Silicon Valley Bank failure.

Hi everyone, I am considering a move of my planning services to Charles Schwab but keeping much of my Vanguard investments; my current personal advisor is not meeting my needs.
Just before pulling the trigger, the whole SVB thing happened, and as the author mentioned, “The stock of Charles Schwab Corp., SCHW, has gotten creamed with the Silicon Valley Bank thing.” I also agree that this might be a good time.
I hate to make a decision that could be considered “timing the market” what are your thoughts? I listen to almost every podcast; I do not recall Clark mentioning this.

Regarding FDIC insured accounts, if one had two or three separate accounts (savings and/or money market) with a bank or credit union, each with a balance of $250K, would each account be fully insured or would only a flat $250K of the total be insured?

Im no expert by any means, but my understanding is that is based on the ownership of the accounts. So if you have three accounts at the same bank all in your individual name, the combined total cannot exceed $250k. If you have one in your name, one in your spouse’s name, and one jointly titled, then each account has $250k of protection. But again, I am not 100% certain about this…Ive never had to worry about it. :slight_smile: