I really need to start blogging again. Although I am not sure if anyone is blogging anymore given how popular podcasting has become, I believe people are not reading as much as they used to given that media and information in general has become more visual. I am guilty of this myself as I pretty much get all my information and news from YouTube Videos which in my opinion has become the new cable network. Anyways, although my output has become sporadic over the years, I seem to write these blogs at periods of time when there seems to be turmoil not only in the United States but globally as well. The last one was about a year and a half into the Covid pandemic and the US Mid-term elections coming up. What has happened since my last post. We seem to have Covid under some control despite there being many variants since the initial outbreak. Although people are still getting infected whether or not they are vaccinated/boosted, deaths have come way down. I believe most people don't care about it anymore as most of the mask mandates have been rescinded. I still wear a mask in subways and crowded places. I feel like it has become an appendage to my body. We can debate until the cows come home whether masks made any difference anyways. To me, it is just no big deal in wearing it. The world is starting to open up as China has opened it's borders to foreigners again. What else happened during this time. As you recall the world was essentially shut down for almost two years. Trillions of dollars of government support flowed to individuals, businesses to keep economies from collapsing. Interest rates were kept at zero or close thereto. What typically happens when debt is cheap, asset prices start to rise. However, inflation starts to rear it's ugly head as well. How do governments respond to rising inflation, they start to raise interest rates. What else happened during this time. Mr. Putin decided to invade Ukraine which ended driving up the price of food and fuel and disrupting supply chains again. Over the last year or so, The Fed has raised interest rates at a remarkable pace not seen at any other time in our country. What does that mean for all that cheap debt that was issued. NOT GOOD. Most of that debt was floating rate debt which means that in many cases, interest payments could double. We are already seeing cracks in the real estate market where owners are just handing over the keys to the lender, particularly in the office market which has not recovered from Covid. Also, the value of long duration bonds start to suffer due to higher interest rates. Was a perfect storm brewing. You bet. About a week ago, a good old fashioned run on the bank happened. Silicon Valley Bank considered the Bank for Startups was seized. The first bank seizure since you guessed it 2008. Silicon Valley Bank had many problems. Many of their customers were going out of business or severely downsizing as funding was drying up due to the economy going into recession. More importantly, the bank was caught in a liquidity squeeze as they had bought long dated bonds that were rapidly losing value. When people began to learn of their precarious financial position, it became a stampede to withdraw their money from the bank. Signature Bank followed and it looks like Credit Suisse is hanging on by a thread. I read a report that 34 regional and community banks in the US are in worse shape than Silicon Valley Bank. Now the finger pointing begins. Did the Fed raise rates too quickly. Can these bank failures be contained. With respect to the Fed raising interest rates, the Fed had talked about raising interest rates at the end of 2020 beginning of 2021. Interest rates can not be kept at zero forever or we would suffer the same fate as Japan. Just like I said back in 2008, no one wants to be the one to to tell people the party is over. Regarding bank failures, if you recall in 2008, the crisis started with the failure of Lehman Brothers and Bear Stearns and then spread like a virus to bigger institutions such as Merrill Lynch, Morgan Stanley, Goldman Sachs etc. I can certainly see that scenario here particularly if Credit Suisse goes under or more likely to happen get bought for pennies on the dollar.
Signing Off
