FNArena’s Weekly Insights – March 20 2023
In this week’s Weekly Insights:
-Banks Need Confidence (Lots Of It)
-All-Weather Stocks – Back In Fashion
-All-Weathers: Post-February
-Research To Download
By Rudi Filapek-Vandyck, Editor
Banks Need Confidence (Lots Of It)
What investors are witnessing this month is not a re-run of the Lehman Bros collapse in late 2008, but it isn’t “nothing to see here” either.
Central banks and regulators around the world have been in a frenzy to prevent confidence to fully abandon local and international banks. While their swift actions might prevent worst case scenarios, confidence remains all-important for all banks; from the strongest down to the smallest lenders.
It is anyone’s guess precisely how markets will respond to further daily news flow. As things stand on Monday, we have two separate bank problems that need to be dealt with. The easiest to solve is Credit Suisse, the weakest link inside the global financial system for a long while and it seems this particular vulnerability will soon be quarantined.
Over in the USA, however, we have now witnessed Silicon Valley Bank (SVB), Silvergate Capital, Signature Bank and First Republic Bank making headlines and there’s more news waiting to come out, for sure. How much exactly remains unknown, also because we don’t as yet know how effective regulatory actions will be.
No two situations are exactly the same, but this year’s banking crisis in the US appears to have plenty of similarities with the Savings & Loans (S&L) crisis that occurred in the 1980s and early 1990s.
That crisis followed aggressive tightening from the Fed, looser regulatory restrictions and oversight, and lenders not marking to market which prevented the outside world to get a clearer (and more accurate) insight into the balance between assets and liabilities.
Ultimately, the S&L crisis went on and on, preceding a nasty recession in the US and elsewhere (the recession Australia had to have, according to Keating).
Not saying history is about to repeat, but the public debate whether the US will suffer an economic recession this year has instantaneously become a lot less combative. Banks’ focus has now shifted to preserving, if not repairing, balance sheets, and counter-party risks.
History shows when this happens, economic recession is usually not far off. Bank credit is almost literally the oxygen that feeds today’s economies.
There will be rallies after falls, but I would not recommend trying to be a hero in the days, weeks, or even months ahead. When the facts change, savvy and experienced investors know it’s time to adapt.
For those who’d like to find out about today’s similarities for themselves, I’d recommend putting S&L crisis in your internet search engine, and start reading.
It won’t cheer you up.
