In the middle of difficulty lies opportunity.–Albert Einstein
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Last week ended with a bang as Silicon Valley Bank (SVB) in California was shut down. This bank failure is significant because SVB is the nation’s 16th largest bank and it’s the second largest bank failure in US history. In addition, Silvergate Corp shut down on Wednesday and Signature Bank was closed on Sunday (March 12, 2023). It appears that these banks are “victims” of higher interest rates, which caused their investments in the treasury markets to fall in value (as interest rates/yields rise, the principle falls in value.) True to form, the Treasury Department and Federal Reserve are making statements to the effect that they will make bank depositors whole and these “bank runs” are not systemic. But for many, the handwriting is on the wall.
For starters, it’s the European and Japanese banks that are in the most trouble. So even if the problems of the US banks magically go away, it’s only a matter of time before the foreign banks start imploding. Credit Suisse, as per former London banker, Alasdair Macleod, has been on the cusp of going under for some time now. As for the Fed saving the day, what happens if/when more banks go down? Everyone seems aware of the FDIC protection up to $250,000 in individual bank deposits, but in fact, the FDIC can only cover 3/10 of 1% of all bank deposits nationwide. In other words, if more than a few banks go under, you can kiss your insured deposits good-bye. Of course, then, the Fed would probably resort to printing trillions of more dollars out of thin air. So, you might see some of your money, but the ramifications would be hyper inflationary.
As I read more about SVB this weekend, I learned the stock was valued at $700 a year ago and just last week it was trading around $280. Today the stock is worthless, which to me is mind boggling. I mean, how can a stock drop that quickly and suddenly have NO value. It almost makes Carvana, which took a year or so to go from $370 to $4, look tame. Unless you don’t mind the increased risks in owning stocks, bonds and even real estate, maybe now is a good time to consider protecting/insuring your wealth with hard assets like gold and silver. Fortunately, some investors had the same thought on Friday because as news of the Silicon bank emerged, the stock market tanked, and gold prices rallied $38/oz.
For years now, it seems stress nationwide is on a one-way street to the moon. Besides an out-of-control national debt, we got COVID. And all the conflict between Democrats vs Republicans, vaccine vs non vaccine and the rich getting richer vs the poor getting poorer. Then throw in rampant inflation, and you have the recipe for an even bigger disaster. For several years now, you have been warned about the stock and bond market bubbles that were created by trillions of dollars printed out of thin air. Considering how quickly SVB fell out of favor last Friday (and how severely the used car companies collapsed, led by Carvana), it’s no wonder more than a few eyebrows are being raised. Whether you own stocks, bonds, real estate, and/or have cash in the bank, now is not the time to keep your head in the sand. Unless, of course, you thrive on high stress – then you have nothing to worry about.