The Sunday Drive - 03/19/2023 Edition
👋🏻 Hello friends,
Let's take it easy and enjoy a leisurely Sunday Drive around the internet.
Vibin'
This week’s theme is about friendship and the sense of “we are all in this together” amongst adversaries and competitors in the financial system.
In the wake of the (much talked about) collapse of Silicon Valley Bank, this week the FDIC, Federal Reserve Bank, and U.S. Treasury department offered the hand of friendship to the depositors of SVB, disregarding the $250,000 limit on FDIC insurance and guaranteeing to cover the full balance of all depositor accounts.
In Switzerland, the Swiss National Bank became a friend of Credit Suisse by providing $50 billion in funding in order to save the bank from collapsing. Now SNB is playing matchmaker by attempting to force a marriage between Credit Suisse and UBS.
Back here in the U.S., First Republic Bank found themselves with a lot of new friends who deposited $30 billion to shore up the bank’s funding. JPMorgan, BofA, Wells Fargo, and Citigroup each pitched in $5 billion, while Goldman Sachs and Morgan Stanley deposited $2.5 billion each, and State Street, PNC, Truist, US Bancorp, and Bank of New York Mellon each added around $1 billion.
Who knows how much more “friendship” we’ll have to live with in the financial sphere over the coming weeks, but for now….
I’m just vibin’ to You’ve Got a Friend in Me from the Toy Story soundtrack.
💡 Quote of the Week
Fed tightening is like a glass ketchup bottle you keep hitting the bottom, nothing comes out, then eventually everything comes out. - Nick Timiraos
📈 Charts of the Week
The Chart of the Week show the yield premium for shorter duration bonds in the current interest rate environment after the Fed’s historic pace of rate increases.
This is one of the key drivers of concern about the banking system.
Banks are increasingly forced to offer higher and higher interest rates on checking and saving accounts and CDs in order to retain their deposits amidst competition from Treasury-bills. Deposit retention is critical to the banks’ viability, but comes at a steep cost to their profitability.
Pretty dramatic shift in the public’s behavior, eh?
🚙 Interesting Drive-By's
📉 Robert Wilson and the Danger of Hubris - What two things would Buffett recommend we refrain from on our quest for wealth? First, there’s leverage. Buffett compared debt to the “dagger mounted on the steering wheel of a car.” Sure, the driver would be more careful and attentive. But any pothole could kill them.
The roads of business are riddled with potholes; a plan that requires dodging them all is a plan for disaster.
Ok, careful with leverage. How about short selling? Not exactly Buffett’s cup of tea either. That’s not because finding terrible or overvalued companies is particularly difficult (there should be plenty). It’s just difficult to profitably short them without blowing up over time.
🤓 Psychological Paths of Least Resistance - Excellent article from the always awesome Morgan Housel.
When faced with a problem, rarely do people ask, “What is the best, perfect, answer to this question?”
The more efficient question is often, “What answer to this question can I obtain with the least amount of effort, sacrifice, and mental discomfort?”
The psychological path of least resistance.
💰 On Euthanizing Venture Capitalists - Quite the incendiary article from Mike Solana.
As the hours following the collapse of Silicon Valley Bank passed into days, and then finally our first week, the chaotic early takes rapidly evolved from tweets to pieces to actual positions. At this point, we now know venture capitalists were, and continue to be, The Problem — not the failed bank, not the regulatory framework within which the failed bank functioned, but a small subset of highly-visible investors who viciously, unthinkably put money in a bank that failed.
🙌🏻 Technology is Good Actually - An interesting counterpoint to the SVB/VC mess from Evan Armstrong. According to Evan, startups screw up sometimes, but making things cheaper is a moral necessity
I understand making fun of VCs—you can and should mock them mercilessly. People making millions are auto-enrolled in the jokes-at-my-own-expense club. But the technology sector and startups have merit and value that I fear is being lost. I get where the anger is coming from. In the past six years, we’ve seen the ways software—accidentally or otherwise—can make more problems than it solves.
👋🏼 Parting Thought
Here’s a simple explanation of how the global financial system works…
(Be sure to un-mute it.)
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
If you enjoy the Sunday Drive, I'd be honored if you'd share it with others.
If this was forwarded to you, please subscribe and join the other geniuses who are reading this newsletter.