top of page
Search

Market Brief - March 2023

The recent insolvencies of Silicon Valley Bank, Silvergate Bank and Signature Bank has been met with swift action by the U.S. Treasury Department, Federal Reserve and FDIC, moving forward with mechanisms to provide funds and liquidity to support depositors. The Federal Reserve in its role to provide price stability has stated it “will make available additional funding to eligible depository institutions to help assure banks have the ability to meet the needs of all their depositors.” This is encouraging, though ripple effects will most likely continue.





At first glance, the impact of recent events will most likely be seen in tighter lending standards and greater difficulty for startup and early-stage companies to receive funding. Similarly, banking profitability may come into question as loan growth may be somewhat muted and greater expense in managing their capital ratios.


There are also questions of how much further the Federal Reserve will go in raising interest rates given the concern of how higher rates have impacted banks capital ratios. In fact, the CME Fed Watch tool is now predicting a hike of 0.25% in rates at next week meetings as opposed to the 0.50% hike highly expected only a week ago, while there is a slight chance the Fed will not raise interest rates at all.


Only when the tide goes out do you discover who’s been swimming naked.

-Warren Buffett


I am a big fan of the financial perspective of the “Oracle of Omaha” and his folksy way of making sense of prudent investing.


Since the Federal Reserve began raising rates, I have often thought that at some point, the “tide would go out”, and we would see those financial firms that have been engaging in risky behavior. When a bank receives deposits, it invests a fraction of those proceeds in high quality, fixed income-paying asset, mostly high-quality bonds, including U.S. Treasury bonds, and then generates loans. A big and not unforeseen risk to banks is the risk of interest rates rising and thus bringing down the value of the bonds they own as collateral and available to pay depositors. Given the importance of these capital requirements, to be prudent, banks will hedge against changes in the interest rate environment. In the case of Silicon Valley Bank, the tide went out as depositors pulled their funds from the bank, exposing a lack of appropriate risk management.


And, for clients who wish to know more about the safety of their funds at our custodial brokerage firm, Founder and Co-Chairman Charles Schwab, and Co-Chairman Walt Bettinger have issued a timely note with a few important and clarifying points regarding impact of recent events accompanying Schwab’s Monthly Activity Report and the indicators of the safety and stability of their firm. A copy of which may be accessed at https://www.aboutschwab.com/perspective-on-recent-industry-events.


I will continue to follow this and all financial news that impacts Parkview’s investment decisions and continue to share my analysis on a regular basis. If you ever have specific questions about how unfolding financial news may affect your portfolio, I encourage you to reach out to me directly to discuss it.


Thank you for the trust that you place in me and Parkview.


With sincere regards,






David W. Malmgren, CFA

Founder and Principal

Parkview Capital





The information contained herein should not be considered a recommendation to purchase or sell any particular security. It should not be assumed that any securities transactions, holdings or sectors discussed were or will be profitable, or that the investment recommendations or decisions that we make in the future will be profitable. The opinions stated and strategies discussed in this commentary are subject to change at any time.


Recent Posts

See All

Comments


bottom of page