Run on SVB

This was most certainly a risk off week, with money flowing into U.S. Treasuries and gold and out of risk assets. Most of the damage was done on Friday when there was a major run on SVB Bank, which is a major part of the SVB Financial Group (SIVB). Underlying the troubles for SVB Bank is the bank’s securities exposure. It holds $212 billion in total assets, $120 billion are securities (of which most or $57.7BN are Held to Maturity (HTM) MortgageBacked Securities and another $10.5BN are CMO, while $26BN are Available for Sale with $16BN in TSYs). Clearly with rates rising and with an illiquid $57.7 billion being held to maturing mortgages, it wouldn’t take a lot of deposit withdrawals to lead to bankruptcy.

As usual, when a single institution runs into trouble it is common to look at it as a unique problem. You may be able to make the case that SVB is unique. But on the other hand, it may also hold a lot in common, namely, heavy in mortgages. That indeed is where smaller regional bank portfolios are usually held. So it may be no surprise that the two stock charts noted above look an awful lot alike with KRE starting to tank a few days ago.

The general consensus has been that Jerome Powell will continue raising interest rates until something breaks in order to kill the inflation boogey man. That may be true, but if my special guest, Tom Luongo, on my Turning Hard Times into Good Times show is right, Chairman Powell isn’t so much concerned about inflation as he is about the emerging global socialism and the attempted takeover of America by the one-world government headed by the Davos crowd. That is for sure a very unusual view, but it is one I think may well be correct. I hope you can listen to this special interview on the Jay Taylor Media YouTube channel at 8:00 AM New York Time. Whatever the case, the gold market responded to today’s news with a gain of around $40 to around $1,868. If this is for real, then investors in the stocks discussed in this letter should enjoy the days ahead.