The fallout in banking has gone international! Credit Suisse was in the headlines this week after they couldn’t secure capital from their biggest shareholder – the Saudi National Bank due to regulatory requirements. Ultimately the Swiss central bank had to step in but it seems that move was a temporary band-aid. Will CS be merged with UBS or taken over by some other bank? Who knows?
Meanwhile, I’ve been catching up on all the news and opinions regarding the financial sector fallout and it seems to me that this was a combination of regulatory failure, bad risk management on the part of both SVB and its depositors, and the byproduct of the current macro environment.
The worry now is that credit will be tighter for longer and be another source of headwind for the already weak global economy. The good thing is that the recent drop in markets and less-than-rosy- sentiment means that it could be a good time to start getting back into markets if you had cash waiting on the side.
The main problem with that is valuations for US markets aren’t necessarily cheap.
Don’t Chase the Past
(bilello.blog)
Great post. Goes at odds with the momentum crowd though.
The economist who won the Nobel for his work on bank runs breaks down SVB’s collapse—and his fears over what’s next
(Yahoo finance)
I forgot that Diamond and Dybig won the Nobel Prize in Economics for their model on Bank Runs. Anyway, great points made by Diamond in this Fortune.com article that’s posted on Yahoo finance.
What I Think About the Silicon Valley Bank Situation
(Ray Dalio)
Ray Dalio thinks SVB is just the start of things to come.
Myth-Busting: The Economy Drives the Stock Market
(Enterprising Investor)
The economy is undoubtedly linked to the stock market. The question is which way is the casuality and how much does it matter?
“But even if economies and stock markets are highly correlated, it does not necessarily follow that high-growth countries make for good investments. The low volatility factor demonstrates that low-risk stocks outperform their high-risk counterparts, at least on a risk-adjusted basis, and the excess returns from growth stocks are essentially zero. The same likely applies on a country-by-country basis.”
You can use the stock market to predict the economy but you can’t necessarily use the economy to predict the stock market.
Ryan Goh: Life through these eyes 