The failure of Silicon Valley Bank (hereafter SVB) lit a fuse and so began the banking “crisis” that to this day unfolds. First Republic Bank caught fire and the banking sector, both in Europe and the United States, feels the heat. Regulators stepped in to control the damage and guaranteed all SVB deposits, including those above the $250,000 FDIC insured limit. No telling how severe the crisis would have been had they not acted quickly. Over 90% of SVB’s deposits are rumored to have been over the $250,000 limit. SVB shareholders were wiped out, save for a possible settlement down the road. It remains to be seen what the future holds for the various parts of SVB but it is likely it will be sold in pieces. SVB declared bankruptcy. It took forty years to build Silicon Valley Bank and less than a week for it to implode.
On Friday, March 10, 2023, Silicon Valley Bank failed which shocked investors and sent shares of most regional banks lower. It is not exactly clear what caused the collapse, but bank executives made what in hindsight appears to be a series of mistakes. First, SVB invested excess deposit reserves in prior years when interest rates were very low. The New York times reports they averaged 1.79% on $21 billion dollars of bonds that were sold for a loss of $1.8 billion. Banks are permitted to price bonds that are intended to be held to maturity at cost, but once sold they report the capital gain or loss. It may have been an innocent, yet naïve sale, in order to invest in higher yielding investments and improve profitability. But this sizeable sale was perceived by some to be a red flag, indicating SVB needed to raise funds to shore up deposits[more…]
Fourteen years of low interest rates and a higher stock market lulled investors into believing any downturn in the market would just be a blip on the screen. That is, until this year. A generation of investors have never seen a true bear market or negative returns for an extended period of time. Market declines are humbling. Stocks and bonds both fell at once in the first five months of this year, which is not the norm. It makes some sense after the strength in both markets over the past ten years and the appetite for risk as the markets moved higher. Stocks especially were the only game in town until this year because returns were so low from the alternatives, including bonds.
Our society has been transformed in a very short period of time. We have changed the way we work, the way we communicate and the way we shop – all due to a surprise pandemic and the impact it has had on many parts of our lives. We did not expect such a dramatic event to curtail economic activity and drive our economy into recession. The stock market reacted initially and fell sharply in March 2020 as COVID shutdowns and fear gripped our economy. The Dow Jones Industrial Average lost 37% of its value from February 12, 2020 and March 23, 2020. However, stocks changed course quickly and the market recovery was sharp and swift as stimulus programs and unemployment benefits kicked in. Looking back, it was easy to panic and sell stocks which turned out to be the absolute wrong move. Recessions are usually triggered by economic excesses, strong[more…]
First quarter 2020 was truly remarkable! The stock market hit an all-time high on February 27th only to drop over 30% by March 23rd. The COVID -19 virus began as a humanitarian crisis and then erupted into fears of a major, global economic crisis. This is a perfect example of a black swan – a rare event that no one sees coming leading to unexpected results and panic and fear. Our health, safety and financial well-being are under attack at once. It does not feel right to focus on the economy and the stock market when so many lives have been lost and people are adjusting to very limit interaction with others. But the concern for financial safety is heightened at this time. We move into the second quarter of 2020 with major uncertainty how the virus will play out and if the cancellation of events, closure of businesses and[more…]
October is the month we expect a spooky stock market and scary economic headlines. October is often a volatile month for stocks. Friday, October 19thwas the 31stanniversary of the 1987 Black Monday Crash that few on Wall Street remember. Then and now the market always recovers from its darkest days and investors are fine if discipline, rather than emotion, drives investment decisions. This bull market is one of the longest in history, fueled by near zero interest rates and strong corporate profits. It would be unreasonable to think that a correction is not in the cards. Goblins, politicians, ghosts of crashes past and fearful pundits should not cause panic or emotional selling. Reports of weak economic data seem to be overshadowing strong corporate earnings on days when the stock market declines. Softer new and existing home sales in the face of higher mortgage rates, fears of slowing global growth and higher[more…]