Government scaremongering about Silicon Valley Bank — and how to profit from it

ken fisherman

Business

From ken fisherman

March 15, 2023 | 5:00 a.m

A week ago, traders priced in a 50 basis point rate hike by the Fed at their March 22nd meeting. Now, after all the bank collapse fears, I have no idea what the Fed will do.

But whatever the Fed does, I bet it’s spreading more chaos than calm.

Treasury Secretary Janet Yellen — Anthony Fauci’s version of Treasury Finance — loudly announced Saturday that the Feds would not bail out the Silicon Valley bank.

However, on Sunday they jointly announced with the Fed and FDIC that they would bail out SVB depositors — though not shareholders or creditors — while insisting it was not a bailout at all.

Inconsistency breeds fear.

The media say that SVB’s failure was the second-biggest ever and New York’s Signature Bank third-biggest. Gruesome. But they weren’t really #2 and #3.

Yes, SVB had over $200 billion in deposits, and they’re #2 by any measure. But in terms of relevant economic impact — which really matters — the SVB was, for example, relative to the size of the economy in 2023 only about 4% the size of the Bank of the United States when it failed in 1931.

This was despite the fact that SVB was roughly 1,000 times larger in dollar terms than New York’s Bank of the United States.

Nominal GDP growth (not adjusted for inflation) since then accounts for the difference. Compared to today’s GDP, Signature and SCC were smaller than Continental Illinois’ failure in 1984 – relative pimples, no major bleeds.

UK Treasury Secretary Jeremy Hunt, who boasted that Britain had bailed out the roughly 3% of the SVB’s wealth parked there, claimed that if they hadn’t intervened, “strategic (British) companies would be ‘wiped out’.”

Such statements fuel fear. But name one British company that would have been wiped out. You can not. Neither can he.

President Biden said failing bank executives should be fired. Again – scary. But if?

If upper management had been fired last weekend, the FDIC would have had no one at the SVB to talk to to allow customers to redeem deposits. Chaos would reign.

Later, Mr President, on this twaddle.

The main problem of the SVB? The depositor base was far too concentrated in firms and venture capitalists.

Last Thursday, when VCs began urging their portfolio companies to withdraw their SVB deposits before others could, it started the “run” on SVB among those companies, employees, family and friends.

Few American banks have nearly as concentrated a depositor base as SVB. First Republic Bank — the same size as SVB with a heavy geographic overlap but with a far more diversified depositor base by industry — fell sharply on Friday and early Monday on all the fears.

But then it stabilized and then increased.

Banks use deposits to fund long-term loans, which fall in value as long-term interest rates rise — as they have since inflation fears rose in 2023.

SVB’s marginal balance sheet couldn’t stand it any longer last week. Ironically, 10-year rates have just fallen 0.5% — in 2023 they’re down a bit overall. The SVB got in between.

Most banks do not do this due to their diverse depositor base.

Big banks are in far better financial shape than small ones.

But overall, in my 50+ year career as a professional investor, banks are near best (as measured by total loans to assets).

Shares are up this year as expected, but have been down since February.

There’s a lot I don’t know — like where stocks will be in 45 days.

I know that stocks are hugely higher two years later when banks collapse.

Mood shows (like comments on my March 5th column) overwhelming negativity and fear.

As Warren Buffett said, “You should be fearful when others are greedy and greedy when others are fearful.”

be greedy

Ken Fisher is the Founder and Executive Chairman of Fisher Investments, a four-time company New York Times Bestselling author and regular columnist in 17 countries worldwide.