The Sunday Drive - 03/12/2023 Edition
👋🏻 Hello friends,
Let's take it easy and enjoy a leisurely Sunday Drive around the internet.
Vibin'
The insolvency event this week of Silicon Valley Bank is a very active topic in the news as many of us are trying to assess the potential for a broader impact of the failure of nation’s 16th largest bank on the financial sector and the economy as a whole. I’ve linked to a few very good ‘splainer articles in the Drive-by section below.
There will be lots of “We’ve seen this movie before.” type news stories in the coming days, primarily drawing parallels to the 2008-9 Great Financial Crisis. However, while there may be some similarities to the past, this is not the same movie.
While I do not want to blithely dismiss the potential for contagion across the tech, venture capital, and financial sectors, it’s important to remember how strong the underlying economy is, as evidenced by the Federal Reserve’s ongoing battle against inflation.
The situation is fluid and I believe it’s important to keep an open mind and remain flexible as new information comes to light. However, I’m of the mind that what we are really seeing is the impact of the withdrawal of liquidity from the system as a result of the Federal Reserve’s interest rate tightening cycle which began in the Spring of 2022. (Reference the Quote of the Week below.)
In light of such a significant turn of events, this week I’m vibin’ to the title track of Pat Travers’ 1980 album, Crash and Burn.
💡 Quote of the Week
📈 Chart of the Week
From the FDIC, we see the impact of the Fed’s interest rate increases on the bond portfolios of U.S. banks.
I suggest that as the Fed and other policy makers digest the aftermath of the insolvency of Silicon Valley Bank, they may be forced to pause for a while to let the impact of what has been done thus far work its way through the banking sector.
🚙 Interesting Drive-By's
📉 Why was there a run on Silicon Valley Bank? - The big news in both the tech and financial worlds right now is the run on Silicon Valley Bank. SVB, as it’s known, was a bank that lent a lot of money to startups (or “startups”, i.e. bigger tech companies that are still private), and provided a lot of financial services to both startups and other tech companies.
💰 The Demise of Silicon Valley Bank - During the pandemic, banks took in record volumes of new deposits. Between the end of 2019 and the first quarter of 2022, deposits at US banks rose by $5.40 trillion. With loan demand weak, only around 15% of that volume was channelled towards loans; the rest was invested in securities portfolios or kept as cash. Securities portfolios ballooned to $6.26 trillion, up from $3.98 trillion at the end of 2019, and cash balances went up to $3.38 trillion from $1.67 trillion.
🧐 Silicon Valley Bank Rocks California - The shocking collapse of Silicon Valley Bank rippled across California Friday to industries far beyond the technology community that it played a major role in shaping.
😳 Labor Market vs Inflation - Jerome Powell testified in front of Congress this week and the main takeaway was “we are absolutely going to keep ripping rates if we need to - and it looks like we need to.”
👋🏼 Parting Thought
Don’t forget about Daylight Savings Time.
If you have any cool articles or ideas that might be interesting for future Sunday Drive-by's, please send them along or tweet 'em at me.
I hope you have a relaxing weekend and a great week ahead. See you next Sunday...
Your faithful financial provocateur,
-Mike
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