NCM Blog

In summary, while all these current banking crises are disconcerting, we continue to believe that we are NOT facing a similar issue as we experienced in 2008-2009. The main cause of that crisis (i.e., leveraged and securitized loans with defaulting borrowers) is very different from the current landscape. Most, if not all, U.S. domestic major banks appear to be much more well capitalized. Late last week, in a sign of trying to instill more confidence in the banking system, 11 of the largest financial institutions collectively deposited $30 billion into First Republic Bank. From what we currently know, this latest crisis appears to be caused by one bank’s (SVB) utterly gross mismanagement and the involvement of another two banks which were too heavily involved with crypto businesses. However, all this being said, we can’t rule out the possibility of further contagion. Remember, in the short term markets are driven by fear and greed and computerized trading that is very momentum driven.

SVB had a concentrated customer base. Too many of their deposits were from the venture capital/private equity/crypto space, which were all “hot money” areas. Here is the problem: Just as any investor, they should have diversified their customer base. This was a classic “bank run” as this close-knit community all headed for the doors quickly together.

As human beings, we need to be careful to avoid making emotional decisions regarding our finances. When faced with pain or concern, our human nature may make us feel like we have to DO something even though that action might not put us in a better position in the future.

Although conditions have not changed too much in January, many investors seem to be confused by the markets. Stocks and bonds are up nicely so far in 2023, but why? Aren’t we going into a recession? Isn’t inflation still too high?