If anyone has been out of contact and is wondering what was going on with our stocks today, the Silicon Valley Bank went bankrupt, and were taken over by the FDIC, for the second largest bankruptcy in US history. It scared the heck out of everyone, with fear of other banks going under. It seems to have been at least partially due to the extremely rapid raising of interest rates by the Fed, which caused the value of bonds, and government bonds, that some were holding their money in, to plummet. I would imagine that this will certainly make the Fed rethink their next planned interest rate hike.
This was for information only and doesn’t need a response unless you have something really important to add.
Emphasis added.
Anybody here think the Fed will stop raising rates because a leveraged VC bank went bust?
I lodged a couple of warnings a year or two ago suggesting that their hyper growth stocks were subject to interest rate risk and got fa’ed and warned. They are big boys and girls and there is no need for me to talk to them or about them.
I don’t think the Fed will change their plans. They may pointedly ignore SVC to show that they won’t be influenced on the Macro scale question of inflation by a single bank going bust.
Watch the Financial Stress Index. That would show if the problem spreads to the extent that the Fed would be forced to act. So far, no.
It is very possible the FED punts. This is very serious.
The FED economists will know the duration of bonds in the major banks. If it is risky to one or two of the majors that will be the last rate hike. (I am talking the last prior hike, the FED may not hike from here) Or the FED is out to lunch which I doubt.
The damage is now done.
It is not just US banks. Other banks have long maturities of US paper. We may see the March spiral in the long end of the yield curve. Selling US paper and the USD to buy other currencies.
It was pointed out there is a POSSIBILITY the FED is flooding the banks with cash. We can see more inflation to stave off a collapse. It is still uncertain if we will have a collapse…see main point do one or more of the major US banks have too great a duration in their bond holdings.
All that said the dust could settle after a meltdown very quickly. I am still not bullish this market after a deeper bottom for another year.