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Markets still falling like whoa

Llano Estacado

By Llano Estacado
in Business and Markets

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Eastwood
Eastwood

That's why I'm out. There is no end game, IMO. This has to be fixed outside of the market and I got too nervous about what that entails for retail investors. They will always be last on the list, if o

Rusty Shackelford
Rusty Shackelford
Eastwood
Eastwood

I'm not a financial advisor. This is not financial advise. I don't work in finance. I do not have a degree in finance. Actually, I have a BA and I'm bad at math past Cal I. I won't apologize for the l

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Posted
Posted
20 hours ago, Incredulity said:

Disappointed Big Daddy GIF

No shit. I've likely just had the most successful 12 months in my life far as far as income goes. But between the value of the house dropping like a stone and the stock market, my net worth is flat over that time. Frustrating as hell.

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HamsterHookah

HamsterHookah 112

Posted
Posted
8 hours ago, FirstTimeCaller said:

No shit. I've likely just had the most successful 12 months in my life far as far as income goes. But between the value of the house dropping like a stone and the stock market, my net worth is flat over that time. Frustrating as hell.

If you consider that the bump you saw in paper net worth from 2020-2022 was fake news anyways and never a real thing, you will feel better. At least I do.

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10 hours ago, HamsterHookah said:

If you consider that the bump you saw in paper net worth from 2020-2022 was fake news anyways and never a real thing, you will feel better. At least I do.

That's my wife's attitude. I just don't think that way.

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Captainant

Captainant 28387

Posted
Posted
20 hours ago, FirstTimeCaller said:

No shit. I've likely just had the most successful 12 months in my life far as far as income goes. But between the value of the house dropping like a stone and the stock market, my net worth is flat over that time. Frustrating as hell.

first time GIF

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B00M

B00M 6725

Posted
Posted
52 minutes ago, wackawacka said:

I expect this year to be flat or down but still piling all my extra cash into the market. YOLO!

Lmao the fed trained us so well… now it needs to beat the shit out of us until we stop wackawackaing into the market. You know, to fix the inflation problem it created

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Mullet Free

Mullet Free 39

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Here’s something on the crypto bank that’s folding up, but they had some of the same basic issues. 
 

https://www.wsj.com/articles/silvergates-story-is-about-fundamentals-not-just-crypto-30f08fc6

 

Spoiler

Silvergate Capital SI -42.16%decrease; red down pointing triangle was in the newfangled business of cryptocurrency banking. But it ran into some very old banking problems—which could rattle investors in traditional lenders, too.

The California bank said Wednesday that it intends to wind down and plans to return all deposits. Though Silvergate’s customers were once cryptocurrency exchanges such as Coinbase Global and FTX, its core banking activity was actually quite familiar: holding deposits of ordinary dollars from those customers and investing in government-backed securities. And therein lies the concerning part for bank investors.
 

Unlike some bank failures of recent memory, Silvergate didn’t have bad assets in the sense of risky loans or complex derivatives. In fact, its assets were mostly unassailable things like U.S. Treasurys and agency mortgage-backed securities. But credit risk—or the risk of not being paid back—isn’t the only kind of risk banks face. Securities such as these carry interest-rate risk.

So when rates surged as the Federal Reserve hiked in 2022, Treasurys and mortgage bonds plunged in price. Now if a bank is able to hold on to these securities until they mature, it doesn’t ultimately lose anything. The problem comes if a bank needs to sell them before maturity, crystallizing the losses in their market value. Silvergate has said it had to sell securities amid its deposit outflows.

Banks can plan for this risk by aiming to match the duration of their liabilities, which includes deposits, to their assets. For example, if a bank is getting funding via a one-year certificate of deposit, it can buy a Treasury maturing in one year to match. But if a bank’s deposits can move at any moment, it has to weigh that risk when investing.

A bank could just keep all its money in cash. But to earn more, banks need to take more risk. They can manage this by building up a mix of deposits that don’t all move or reprice at once. This is done by diversifying across customer and account types, or by adding term deposits such as CDs. Banks also diversify with assets that are floating rate, like many kinds of corporate loans or credit card loans.

 

So most banks aren’t subject to risks of a single industry such as crypto. Having so much of its funding coming from similar types of depositors turned out to be one of Silvergate’s biggest risks. But there are still echoes across banking. For one, the Federal Deposit Insurance Corp. reports that banks had unrealized losses on securities of about $620 billion as of the fourth quarter. Plus, banks’ deposits are starting to move more quickly, and against the backdrop of the Fed’s aggressive rate increases and the unusual postpandemic economy, it isn’t clear exactly what their ultimate velocity will be. Notably, valuable deposits on which banks don’t pay any interest have been declining.

Banks generally have a number of sources of liquidity and have diversified over time. Few are at risk of needing to wind down so quickly. But many may still have to take actions throttling back on loan growth or raising more capital if the Fed keeps going and deposits flee more quickly than anticipated.

Silvergate may have been an unusual bank. But its story carries old lessons that all investors sometimes need to relearn.

So, the question remains, how high up the chain do these problems spread? Is this the kind of consequence that causes the Fed to pause or alter course?

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Skipper

Skipper 6406

Posted
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1 hour ago, Hefeweizen said:

SVB is the big lender for a lot of tech.  This is going to be a big deal.

I think there is going to be a massive run on deposits tomorrow.  Starting getting calls on this late afternoon.  I have clients that lend to some companies that utilize SVB for cash management. Concerning.  

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Keef

Keef 852

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Posted

I'm a lawyer at one of the big tech law firms (think Goodwin, Cooley, Fenwick WSGR).  Have been getting calls all day from founders wanting to know if they can stick their SVB money in our client IOLTA trust account for safe keeping.  Truly wild times.

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Frieda’s Boss

Frieda’s Boss 181

Posted
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42 minutes ago, Keef said:

I'm a lawyer at one of the big tech law firms (think Goodwin, Cooley, Fenwick WSGR).  Have been getting calls all day from founders wanting to know if they can stick their SVB money in our client IOLTA trust account for safe keeping.  Truly wild times.

Where are you recommending as an alternative?  We, of course, are currently banking with SVB…

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Jackson P. Neighbors

Jackson P. Neighbors 136

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SVB will not survive this. I am not sure what you mean by bailed out, but there most definitely is a group from the FDIC being assembled to enjoy a nice long weekend in Santa Clara to monitor the situation. I have no inside knowledge at all to predict if this will be a receivership situation or sale of assets to a 3rd party. Given their clientele, I would question the value of said assets, however.

This is a classic bank run unfolding (liquidity failure) but the underlying cause is very different from situations in the past. Almost every single bank right now is carrying massive unrealized losses in their securities books right now due to the interest rate environment. However, for 99% of them, it's a complete non-issue. They have ample liquidity, a solid funding base of deposits, and a reasonably manageable portfolio duration. Where it becomes problematic is when a bank is forced to sell and realize those losses, see SVB. Couple that with an announced capital raise and the messaging is awful for investors. These are cardinal sins for any respectable banker.

From an investment standpoint, these niche lenders like SVB, SG et al are on increasingly shaky ground and should be avoided. But otherwise, most of the others that saw massive drops yesterday? I'm a buying man. A regional bank with a horribly boring balance sheet that is down over 5% this week is easy money.

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Wally Fairway

Wally Fairway 5664

Posted
Posted

Hello darkness my old friend
I've come to talk to you again
About a market slowly creeping
left is highs while I was sleeping
and the vision that was planted in my brain
still remains 
within the sounds of crashing

In restless day visions, I cry as others frown
As the market skyrockets down
neath the halo of an implosion

(I like this one best, because it shows the ending of the sequence)

Strangelove GIFs - Get the best gif on GIFER

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Keef

Keef 852

Posted
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9 hours ago, Frieda’s Boss said:

Where are you recommending as an alternative?  We, of course, are currently banking with SVB…

Credit risk isn't really a legal issue, so we're not advising on it.  We're as much in the dark as anyone.  But, wanted to say sorry for the situation you're in.  Can only imagine the stress that you're being put under.

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