Are we seeing the first signs of crack from the unabating interest rate rise? The collapse of Silicon Valley Bank was a surprise. Took just a couple of days for a liquidity problem to emerge and then buckled under. I believe it's a bank relatively unknown to most people. The reaction thus far? Pretty orderly and that's where I felt slight uneasiness due to the hysteria usually associated to a bank closure event, even more when it's the 16th largest bank by assets in US. Soon after, another one namely Signature Bank was foreclosed. Although the markets did sell off, the depth of despair certainly isn't that bad, compared to 2008. Perhaps strong indicators in payroll, jobs creation, tightened banking environment etc are giving people confidence that past lessons have prepared the market well to absorb such an impact. Still, those companies who deposited money with SVB will feel the pain. If they were to quietly fade away, nobody notices and the contagion effect is dismissed, like an occasional gust of wind. The above is a good learning moment. Even when rules and accounting were properly followed, it doesn’t mean a bank is healthy. The point here is to scrutinize the assets and liabilities held in the books of a company. After all, items can be valued differently and unfortunately, SVB forgot to give a discount factor to market realities when a fire sale is required.
Personally, I feel the interest rate effect is biting and likely to worsen in the next six months. What I will be looking out is the tipping point of affordability. When expenses overshoot income generation, that's when worry sets in and eats into daily lives. As a third party, we can't tell from appearance whether a person is jobless or having stress over a mortgage payment. So the better observation would be to look at people's spending on the wants (think cars, electronics, restaurant visits, holiday trips, luxury investments). I liken the current market to walking in the streets with overcast skies. The SVB example is just a slight drizzle. For those companies and people living on the edge, it's time to take take out the brolly and look for shelter, the weather is about to turn. The next SVB is likely round the corner if central banks do not give confidence in their coming actions.
Now, for some positive news, I managed to get $5000 worth of T bills at 3.98%pa payout. Also made a purchase of 200 shares of OCBC at $12.48 (before SVB came out). The next plan is to continue SSB purchase and a side glance at US stocks. It's tempting to go out buying when prices fall but I think the safer option at the moment is to be patient.
Tip: Maboroshinotaki Junmai Ginjo, tasty spring water imparted with medium crisp
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