SVB is a Global Issue #Systemic

Magnelibra wanted to share a Twitter post that we feel does a good job of putting the SVB issue into perspective. We feel that this is just the tip of the iceberg and we know by the buying Asia and EU were doing on Thursday Night that this is not a U.S. centric issue, but rather a global banking issue. At the heart of the matter is higher interest rates crushing global banking net interest margins.

We have heard counter arguments to this usually in the form of higher interest being charged, yet we do not feel that is valid given tendencies for non payment, write offs and other interest rate imbalances in the banking sector in regards to types of loans, varying levels or tranches of risk etc. Rather we understand the banking sector has for far too long kept their interest payments to savers far below equilibrium.

Anyway, on twitter Bill Ackman posted a very revealing tweet about the SVB issue. It is a must read. However, Ackman gets one thing wrong. He posits that the FDIC takeover was a mistake and there were other plausible solutions, to which he may even have participated.

However the reality is, in our financial system, there are no mistakes, the central banks work in unison, the ECB, the BOE, BOJ, FOMC etc. The know exactly the pain threshold for regional banks and GSIBs for that matter. They know that higher rates will eventually lead to a run as investors transfer savings to TreasuryDirect or MMMFs.

Here is the link to the tweet, Ackman on SVB and a picture of the tweet,

This for all intents and purposes was a hit job, one that opens the door to exposing the weakness of fractional reserve banking and one by which the Federal Reserve will gladly hand to the masses...Why would the Federal Reserve want to do this? Well because they know the system and the problem with the system is not enough capital reserve, the problem with the system is too much debt money and they really cannot control interest rates. Secondly, this is all laying the foundation for CBDCs to become the savior. CBDCs are nothing more than total centralized control of your labor or investment income. It will be able to track, decipher, and even eliminate your access if deemed necessary, as anything else that is fully digital, it is susceptible to external control. This is the opposite of Cash, Physical gold and silver and cold stored Bitcoin which any rational human that respects freedom and individual rights should never want to see eliminated.

The central banks know that the bond market controls interest rates, which USED TO BE a function of risk, however in order to concentrate capital they need to remove insignificant players and consolidate. How many banks own 60% of the deposits in this country? They are held by 10 institutions, with 2 of those holding 25% of all deposits. (Statista) Do you think they are immune to this?

What do you think this SVB issue will do, it will cause more people to go into MMMFs and drain more banks of deposits. It is something that Magnelibra has warned since last year and well, now you see the problem first hand!

What happens when deposits go? AFS securities get sold at a discount, bank takes losses, banks don't have equity to cover losses, FDIC steps in, real businesses lose real capital and credit, real businesses start selling assets, start laying off people, people stop paying credit cards, debt, NIMargin continues to get smoked and all assets then become fire sale fodder. The response this time cannot be emergency rate cuts, Repo rate cuts, because the FOMC knows once they go down that path, the global bond investors will punish rates down further and faster, driving risk assets right down the toilet including equities…

I happen to agree with Jay Powell and his hikes, why because I believe the risk free rate should be where it is based upon the given level of present market risk, I believe in the free market, should pick winners and losers and central banking should be limited or eliminated entirely for debt free US Treasury money.

The banking sector has gotten complacent, they have stolen billions from savers by keeping interest rates far too low and now they will pay the heavy price. SVB should have had treasurers that new what they were doing, should have used SWAPs and paid fixed to receive floating.

My guess smaller institutions don't even employ such strategies and even if they did they use Goldman or the like which most likely didn't have best interests in mind...but that’s just me speculating...This is the problem with too much money, you get complacent, you think the game never changes, then when it does, it does so with such veracity that nobody can even cope fast enough.

FRIDAYs move was global, just so you know, Asian buyers came in hot and heavy for front end US Securities overnight, so don't think this is just an American issue! We posted this 5s30 chart last week too, rest assure those that were forced to sell curve now will be driven right back in because you can toss the soft landing theme out the door. Anyway the FOMC is not going to like the global bond investors rushing into this bad boy, then again, the FOMC only has the illusion of power and that will be exposed over the next year as global bond investors drive short rates lower. Part of me wants Jay Powell to still go 50bp this month, yet reality is if we see equities continue to falter into the meeting, you can kiss future hikes buh bye:

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