Thurs. Mar 9, 2023, Dow Jones Industrial Average closes at 32,254.86
AT CLOSE
-543.54 (-1.66%)
SVB Financial Group106.04-60.41%
AT CLOSE
-161.79 (-60.41%)
PRE-MARKET • AS OF MAR 9, 04:00 P.M. EST
36.35
-69.69 (-65.72%)
This one asset decline focused attention on the entire financial sector the next day: Large retail banks decline between 10-13 percent. What is the immediate cause? Emphasis on immediate. Beginning with a note from Bill Ackman, he advised a government bailout as the bank of SVB Financial Group help needed cash of the Venture Capitalists (VC) which are the primary depositors. At least one major VC depositor advised other VC’s to withdraw their cash deposits now. This informed advisory could be the instigation of a nation-wide financial contagion not similar, but exactly like the Great Financial Crisis of 2008. Cause was not bad management, but unexpected and thus unprovisioned credit unavailability. The Federal Reserve Bank ultimately with the U.S. government (alias public taxpayers) bailed out the major U.S. banks. The existing major Banks tried to stop the contagion but were unsuccessful. The rest is known history with global wide consequences.
By 7:00 AM, the same day, on air live whispered words of “contagion” and “selling bond holdings at loses” became live news marquee headlines in mere minutes in self-fulfilling warnings. Of the hundreds of twitter responses to Bill Ackman, none advocated any bailout whatsoever. Private profits versus socialized losses, do not fight the Fed, face the losses VC’s accept in their risk business, No tax payer bailout, are exemplary of the public and professional investor negative sentiment.
The Fed mission of higher interest rates for longer (even unlimited) duration (to keep so-called inflation from rising) only affect businesses and individuals with short and/or long term debt. Cash is king and accrued saving and consistent profitable net sales income is the only way to growth going forward. Otherwise unprofitable, uncompetitive, zombie businesses will fail. VC’s will need not 51% ownership but 60%-66% ownership contingent with minority owner buy back at prevailing market rates. All so-called start-ups of any kind must be self-sustaining in operational and growth income. It is a new era of conservative financing, ex no interest funding and operating loans. These are inflationary and contrary to the mission of any Central Bank. Successful start-ups must be triple AAA rated for VC investment, otherwise on their own growth from profitable product and/or service sales.
Will there be a national bank run? So what if everybody took out all their money with nowhere to deposit it (if not in heavy protected home safe) and no reason to withdraw their deposits save fear of some banks’ failures, (except non-bank investing, loan financing alternatives). If cash is king, maybe withdraw money from equity and bond trading accounts? This is a possibility: hide out as it were in treasury bills, short duration (2, 10) bonds for who knows how long. Unless prepared to offer public and/or private financial services as a non-bank, leave cash in banks, eliminate all debts as much as possible, and invest very conservatively, if at all, for a few years or more, until financial and economic trends are much more settled and defined.