Date: March 15, 2023

Volatility Rising But Nowhere Close to 2008 or Even 2022

I am still surprised that Silicon Valley Bank (SVB) created so much panic and anxiety over the weekend since the news broke on Friday. I guess losing two banks in the blink of an eye with the second and third largest failures in history reminded too many people of 2008. As I have said too many times to count, this is not 2008. It’s not even close except that it’s in the same millennium. Don’t get me wrong. I am not minimizing the fate of those two banks, just that they are systemically important.

So we know that SIVB and Signature Bank were both taken over by the FDIC. We know that execs sold stock and paid bonuses and that former Dodd-Frank author, Barney Frank, turned out to be a complete fraud and hypocrite. Politicians are all scrambling to call for investigations and new regulations. Everyone wants to cover their rear ends. The only thing that really matters is that the Fed and Treasury work to give unlimited access to depositors throughout the banking system until they can update and upgrade the rules and regulations.

In the past few days I have heard from lots of folks with questions about what they should do. In the end I do not believe any retail depositors will be harmed by these two failures or any in the near future. This is not new, but I also think bigger is better when it comes to holding cash. I am not the least bit concerned about my own cash sitting at Wells Fargo where I bank.

As I wrote on Monday I did not expect such a strong reaction about SIVB in the markets. Talk of another Bear or Lehman seemed crazy at least to me. And the markets did not trade poorly on Monday. We saw lots of volatility with stocks opening at the low, rallying strongly and then closing on the weak side. On Tuesday we saw a big up open that went higher to lunch, followed by an afternoon swoon and firming into the close. As I type this in the middle of the night pre-market shows little movement, but we all know that’s irrelevant during volatile times. We have retail sales at 8:30am and who knows what comes out of Europe, especially with Credit Suisse.

Very quietly we are seeing technology lead as bond yields plummet in a flight to safety. I would get excited about tech if the bond market quiets down, yields rise a bit and technology remains firm. And it goes without saying that banks absolutely need to calm down and bounce at least 10%. The stock market will have a tough time sustaining higher prices without the financials. It still appears as though the final low for this pullback is not in yet. We will take it day by day and see what shakes.

On Monday we sold EMB. On Tuesday we bought HYG and levered inverse S&P 500. We sold EIFAX.


Paul Schatz, President, Heritage Capital