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“QE” or “Quantitative Easing” has been the bull’s “siren song” of the last decade, but will “Not QE” be the same? Last week, amid a rash of bank insolvencies, government agencies took action to stem a potential banking crisis. The FDIC, the Treasury, and the Fed issued a Bank Term Lending Program with a $25 […]
The Silicon Valley Bank failure, originally considered a one-off event, is escalating and spreading. On Sunday afternoon, UBS, with significant liquidity and financial backstops from the Switzerland National Bank (SNB), bought Credit Suisse (CS) for about a third of its most recent market cap. The purchase may settle markets, but it potentially opens pandora’s box […]
The FOMC will announce its Fed Fund’s rate policy decision this Wednesday. Given the recent events in the banking sector, we return to the question posed Friday in Fed Mandates or Financial Stability: Will the Fed aggravate inflation by ignoring its Fed mandate and focusing on financial instability? The ECB’s rate decision last Thursday provides […]
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Could the consensus view of a “no recession” scenario be wrong? As portfolio managers, this is the question we ask ourselves daily. Since the lows of last October, the technical backdrop has improved markedly, as discussed last week in “Bear Trap.” To wit: “Our most critical bullish signals are the short- and intermediate-term Moving Average […]
Shares of Credit Suisse and other large European banks traded sharply lower yesterday. This occurs only a few days after European leaders expressed little concern that U.S. banking problems would spread across the Atlantic. Credit Suisse Bank, down nearly 25% yesterday, appears to be the culprit. Credit Suisse, a foreign bank domiciled in Switzerland, has […]
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While headlines of bank failures and bailouts consume the media, few are contemplating the economic and financial aftershocks that will follow. Hockey great Wayne Gretzky famously commented, “I skate to where the puck is going to be, not where it has been.” Let’s take his advice and consider where the economic puck will be tomorrow. […]
On Sunday afternoon, the Fed and Treasury rode the rescue with the Bank Term Funding program, BTFP, the latest bank bailout. The government staring at potential bank runs shored up banks and helped comfort depositors that their money is safe. The facility will save some banks from selling underwater bonds and taking losses in order […]
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With the collapse of Silicon Valley Bank, questions of potential “bank runs” spread among regional banks. “Bank runs” are problematic in today’s financial system due to fractional reserve banking. Under this system, only a fraction of a bank’s deposits must be available for withdrawal. In this system, banks only keep a specific amount of cash […]
Banking is relatively simple, they raise deposits and lend money. To do so successfully, a bank must manage a few risks. First, they need to duration hedge to address the difference between short-term deposit rates and the interest rate they lent money stays positive. Second, they hedge the credit and price risk of their assets. […]