Welcome to our #165 weekly newsletter.
“For women taking control of their financial future”
-Jana Hlistova
From The Purse
In this week’s newsletter, we focus on the US banking crisis and what this means for the economy, the markets and investors.
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And you can review the news in brief so you stay on top of global financial, economic and investing trends.
I hope you enjoy this week’s newsletter.
Until next week,
Jana
SVB, US banking crisis: what does this mean for the economy and investors?
BlackRock CEO shares his views in a letter to investors and investors Ray Dalio and Raoul Pal also weigh in.
According to the CEO of BlackRock, Larry Fink in his letter to investors, the collapse of the Silicon Valley Bank (SVB) could be the start of ‘slow rolling crisis’ in the US financial system, as reported by The Guardian.
He warned that ‘more seizures and shutdowns are coming’. And that inflation would remain ‘sticky’ and rates would continue to rise.
The recent failures of US banks Signature Bank and Silvergate has caused nervousness in the global market.
On Wednesday Credit Suisse shares plunged to record lows after its biggest investor declined to provide further funding.
According to the Financial Times, the Swiss National Bank and regulator Finma have had to step in to broker a deal for UBS to buy Credit Suisse, currently valued at £1bn, to stave off a Credit Suisse collapse which would otherwise be another ‘Lehman Brothers moment’.
Fink described the situation as the ‘price of easy money’ after the Federal Reserve printed money and dropped interest rates to 0% from early 2020, in order to keep the US economy afloat during the Covid lockdowns.
The Fed’s aggressive interest rate hikes, which are the fastest since the 1980s, have exposed ‘cracks in the financial system’.
There is growing concern that instability is ‘brewing’ in the European banking sector which would pose an even bigger risk.
However, regulatory response has so far been swift, including the Fed’s new Bank Term Funding Program (BTFP) introduced last week, to help the industry cope with serious crisis of confidence and liquidity, as depositors withdraw their money.
In other words, the Fed has started printing money again after less than a year of tightening (QT) to prevent a liquidity crisis and a potential collapse of the US financial system.
Fink pointed to ‘asset-liability mismatches’ or negative equity in the banking sector, as the cause. And Wall Street figures are warning that the crisis may spread to mid-sized and regional US banks.
According to investor and hedge fund manager Ray Dalio, who shared a post on Linkedin, the SVB failure is the ‘canary in the coalmine’ which will have knock-on effects on the venture world and beyond.
The markets are now predicting rate cuts and increased liquidity (QE), which is why we are beginning to see risk-on assets rise (such as tech stocks and crypto) in the midst of a banking crisis.
Macro and crypto investor Raoul Pal believes that a banking crisis is the single most important ‘marker’ of a deflationary process, despite the majority view that inflation will be ‘sticky’ for some time.
The banking crisis will lead to slower economic growth, rising unemployment which is likely to ease inflation over time.
He also argues that the stock market bottomed out in October of last year, whilst the crypto market has started its bull run.
News in Brief
Financial news
Stocks are rising in the midst of the banking crisis. Central banks are again pumping billions in liquidity into the market. The combined balance sheet of the 3 leading central banks rising again.
While cap-weighted S&P 500 managed to finished the week 1.4% higher, underlying trends weren’t nearly as robust. Equal-weight S&P 500 underperformed. When investors piled into the biggest stocks at expense of everything else, that doesn't speak to optimism.
Banking crisis: Fed balance sheet jumped by $297bn, largest weekly increase since pandemic. Financial institutions took billions in short-term loans from the Fed as the industry copes with serious crisis of confidence and liquidity. Banks borrowed $11.9bn from new BTFP.
Markets are already anticipating a big 100 basis points rate cut by the Federal Reserve. 2 year US yields are in free fall-now less than 4%. Only an interest rate cut can end the stress in the banking system.
Banks rush to borrow record-breaking $150bn from Fed's discount window this week, topping even a record set during the 2008 financial crisis, after the collapses of Silicon Valley Bank and Signature Bank.
European Central Bank (ECB) raises key interest rates by 50 basis points amidst banking crisis. Depo rate is now at 3%, Main refi rate at 3.5%. Says ECB is ready to respond on price stability and financial stability.
Credit Suisse takes $54bn loan from Swiss central bank after share price plunge. After largest shareholder was unable to provide backing, Europe’s 17th largest lender says it will use government help to become ‘simpler and more focused’.
UBS offers to buy Credit Suisse for up to $1bn. Swiss authorities expected to change country’s law to bypass UBS shareholder vote.
UK Chancellor Jeremy Hunt has unveiled the contents of his first Budget in the House of Commons, including 30 hours of free childcare for working parents in England expanded to cover one and two-year-olds.
Crypto: bitcoin, ethereum, DeFi & NFTs
Bitcoin rallied as Silicon Valley Bank parent filed for bankruptcy, up 30%+ in the past week to past $27,000. Stocks slumped on Friday, but Bitcoin is doing remarkably well—all while the banking industry faces a crisis.
Ethereum is up more than 20%+ in the past 7 days, trading at more than $1,790+. And the stock market isn’t moving in tandem—a shift from the correlation that investors and traders have grown accustomed to in recent years.
Arbitrum, the biggest player in the Ethereum Layer 2 space, said it will airdrop its ARB governance token on March 23, distributing 12.75% of the token's total supply to community members who have used the network over the past year.
Microsoft testing crypto wallet in its web browser Edge. Bleeping Computer said Microsoft has partnered with Consensys to offer a crypto swap feature.
Cathie Wood’s Ark Investment Management bought more Block (SQ) shares on Friday. Ark’s flagship exchange traded fund, Ark Innovation ETF (ARKK), purchased 50,858 shares in Block, according to an update from the fund manager’s trading desk on Friday.
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We’d love to hear from you. Get in touch with Jana via the The Purse website or tweet @jointhepurse and janicka.
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