Economic Reality Check & Misplaced Financial Priorities – Top 3 Takeaways – March 15th, 2023
- That didn’t take long. Yesterday my top takeaway was “head fake”. In it I said, Look, the second to last thing I want to do is to be an alarmist about what’s happening economically in the country right now. But the last thing I want to do is to see what’s happening, say nothing, and have you caught off guard and unaware until it’s too late. Among the notes I received from listeners on the back of my commentary about concerns that this is the beginning of a bigger problem as opposed an isolated event that was over when the FDIC stepped in on SVB and Signature Bank last weekend...was this: By paying now, the Fed has a higher chance of stopping additional bank failures. Unlike in 2008 when the Fed was silent for over a week, the cost, was over $700 billion. On the backside, the Fed as they did in 2008 will acquire all of the bank's assets and put them up for sale with the profits repaying the amounts paid out. So far it appears to have worked, the public didn't panic, and the stock market returned to positive. It could have been a disaster this week. That’s well thought out and obviously articulated by someone who is generally informed about both the 2008 financial crisis and up to speed on what’s happened this week. It’s also exactly the type of thought process which can prove dangerous to one’s financial wellbeing. No sooner had I communicated my top takeaways yesterday, explaining that Tuesday’s reaction in the financial markets was a head fake (and frankly a good opportunity for those who needed to make adjustments to do so), than came news Credit Suisse was in serious trouble and at risk of failing. After falling by 21% to an all-time low trading was halted at the bank after it acknowledged failures within its financial reporting over the previous two years and material weaknesses on their balance sheet which immediately placed the future of the institution in doubt. The result, was that my call at this time yesterday, of the Tuesday rally in the financial markets being a head fake...
- Was instantly proved true as financial markets were roiled. That included stocks not only giving up Tuesday’s relief rally but hitting new lows for the year in the process. Now again, here’s the important question. What are the odds this is the end of it? What are the odds there’s more to come? A lot of what happens in the complicated world of the banking system and economy at large is unknown. That consideration, in my view, remains rather simple to understand. And to reiterate a concern I expressed in Tuesday’s Q&A, with the stunt the FDIC engaged in, by backstopping all deposits at SVB and Signature Bank, 95% which weren’t legally FDIC insurable... If they have losses from backstopping those deposits, it puts further stress on the existing banking system by imposing special assessment fees on all remaining FDIC members to make up the losses. It also risks their ability to have the financial wherewithal to backstop FDIC backed deposits at other institutions if needed. It’s frankly indefensible for the FDIC to have potentially put other banks, and their customers who’ve been responsible depositors, at risk, going forward as well. And to give you an idea of just how upside-down priorities have been at many financial institutions as we’re early into whatever this will end up being. While on CNBC’s website yesterday the banner ad at the top included a link to: Why Gender Lens Investing May Lead to Better Returns. I’m not kidding. First woke corporations were throwing billions of consumer and shareholder dollars at the Marxist BLM movement, now we have a focus on Gender Lens investments? And btw, what is held up as a positive in the Morgan Stanley Gender Lens investing strategy article?
- Gavin Newsom’s California policy. Again, I kid you not. What credible financial institution in their right mind would suggest Gavin Newsom’s model should be the model? So, with top financial institutions having placed racial, gender and related woke politics as priorities – how prepared are they really for what’s happening right now? What’s more, these types of priorities help explain the failures we’ve already seen at four especially woke institutions, and could provide a non-traditional view of what we might be instore for. Quoting Kevin O’Leary’s recent Tweet: The combination of a negligent board of directors @SVB with idiot management is the potent cocktail that led to a disastrous outcome. Why should taxpayers bail them out? When the focus of a financial business is political as opposed to principled, what we’re seeing is what you get. This is something I’ve been talking about for awhile around here. A la, my January 20th story: Finding Banks That Don’t Use ESG Standards. As noted, 68% of financial institutions had incorporated ESG into standard operating procedures. That’s the percentage of our financial institutions which have at least somewhat sold out to political correctness and in doing so have taken their eye at least partially off of the ball. Just as many people have created their own realities asserting gender fluidity, financial institutions prioritizing those things have placed us at a greater risk. There aren’t free puppies and free candy and free school lunches and free Biden bucks and free Obama phones and free money printing. Just as there isn’t systemic racism in our society or more than two genders. All of those are made up. The accounting for much of this started with 40-year high inflation, but the rest of the literal accounting for all of this and those who’ve placed money at risk based on this this, is in the process of coming due right now.