High Note Market Update: Friday, March 17, 2023

4 minute read | March 19th, 2023

Happy Fri-YAY, all! Lordy, it’s been a wild and wooly week in global financial markets. In the last ten days, there have been enough “important” headlines and market volatility for an entire year. But we aren’t here to report personal records for screen time, so we will sort through the mess, clean it up and talk a little strategy.  

If you haven’t been following the news, first, good for you. As it should be. Second, here’s a version of the headlines that have been alternating days for the last week:



Yes, friends, we are dealing with the age-old problem of bank failures – a classic gambit in the world of money. As long as there have been banks, there have been bank failures. Surprisingly, it’s more common than one would think. Often, they happen with very few headlines and minimal impact. Their relevance to the financial system has to do with size and timing. The most recent failure, Silicon Valley Bank, lit a media dumpster fire because it’s quite large and the timing is ominous (this week is the 15th anniversary of the collapse of Bear Sterns). We will chat “timing” in a minute. 

The Netflix documentary on the Silicon Valley Bank failure in two years is going to be excellent. It has all the ingredients: famous billionaire tech clients, a prominent role in the start-up community, executive stock selling, political ties, and hundreds of millions of uninsured deposits. It’s a “can’t miss”. 

Rather than get into those details, we will spend our time today on timing and the impact on investing. The venerable Adam Tooze wrote a thorough and excellent piece on Silicon Valley Bank. Mr. Tooze is a professor of history and English at Columbia, so he brings a unique and interesting perspective in trying to make sense of something that doesn’t make sense. You can find his note here.  

The drama of a bank failure aside, the “timing” of said failure is very important. You’ve all heard us blab for a year and a half about interest rates and inflation. Fed hike this, consumer-price-index that, blah, blah, blah. A little dry, certainly, but in those discussions was the foreshadowing of today’s banking collapse. We said something along the lines of, “it’s possible that the Fed can get inflation under control without breaking something…they’ve just never done it in the past”. 

When the news of SVB failing first broke, it seemed too isolated and unique to simply blame rate hikes. The 2-year rate had only gotten to 5% and that sucker has been over 10% plenty of times in history so it looked more like a failure of leadership and risk-control. But that thought was quickly complicated by Signature Bank failing a couple of days later and a whole bunch more reported to be teetering. This led to the various DC agencies jumping in to backstop depositors and provide liquidity to the teetering others while we watch every move carefully.  Whether they should or should not do such things or if this is a “bailout” or a “backstop” are the not the questions for this blog.  The question is to hike or not to hike? That decision will give us a better indication of whether something actually “broke” or if this whole regional bank debacle is a false flag. The answer is crucial to the investment environment going forward. 

With inflation still present, rates should go up. However, if the Fed believes there is a bigger problem or concern with the banks, they’ll lay down the sword and leave inflation to its own devices. This all makes for a very fascinating inflection point. Luckily, we won’t have to wait long as the Fed is convening next week and they have previously signaled they will hike again. 

For the past year plus, our portfolio strategy has mainly been sitting politely, but with grand posture, in the classroom but not trying to be the valedictorian, if you follow. We’ve been taking advantage of strong short-term rates while keeping stock exposure under and tilted towards value. When growthy tech stocks rallied in January, it was easy to get FOMO, however, stocks tend to come back down quickly when “bank” and “crisis” are used in the same sentence. That leaves us back where we want to be as this all unfolds. 

Outside of the “rates debates”, the key thing we are looking for is any sign of contagion into different lines of business. Any time there’s uncertainty and extreme volatility like today, one wonders if a hedge fund is sitting on a bomb of bad assets, or an insurance company got itself mixed up with a counter party going bad. Neither would be good but there’s been nothing of the sort in this recent mess.

That’s what we have this week! We are more than happy to have deeper discussions or answer any questions you have about what’s going on today. Thank you for reading. All the best.

P.S. – those feeling like Credit Suisse got slighted by not getting shout outs here, don’t worry, we will get to that down the road. It’s a different story in itself and has been a train wreck of its own making for a very long time. This environment might be accelerating its downfall, but many have said for a long time it would eventually have to get absorbed by the Swiss National Bank.