Happy Spring! As the old, folkloric saying goes, March comes in like a lion and goes out like a lamb. After last week's banking drama and subsequent market turbulence, a calmer end to the month would be most welcome!
The demise of Silicon Valley Bank (SVB) was jarring but not surprising. Silicon Valley Bank had long focused their business on risky market sectors like venture capital and technology start ups. Thanks in large part to federal assistance, many businesses were flush with cash during the pandemic. Silicon Valley Bank received large deposits during that time and invested heavily in long term Treasuries and mortgage backed securities....investments that were considered safe at the time. As the Fed increased interest rates to tame inflation, the fixed interest payments on the long term Treasuries couldn't keep up with rising rates causing the value of the bonds SVB purchased to be worth less than what they paid for them. Potential losses were in the billions. Last week, possibly due to SVB's announcement that they would have to take losses in order to raise cash, there was a massive run on withdrawals to the tune of $40 billion dollars which the bank was unable to cover. It was at this point that Federal Regulators stepped in.
Two other banks experienced massive withdrawal requests as well: Signature Bank and Silvergate Capital. Like SVB, these two banks were focused on risky business sectors, specifically crypto-currency firms.
Enter Credit Suisse, one of Switzerland's biggest and oldest banks. While the news networks linked Credit Suisse's problems to Silicon Valley Bank's, in reality, it was just unfortunate timing. Credit Suisse had been dogged by scandals for years. While the failure of Credit Suisse would have sent shock waves through the global banking industry, that is no longer a concern as UBS stepped in to acquire Credit Suisse in a deal swiftly brokered by the Swiss government.
With the exception of Credit Suisse, most giant banks like Bank of America, Wells Fargo, JP Morgan Chase and Goldman Sachs, are protected from trouble in the banking industry as they have diversified customer bases and very well diversified assets. The bottom line....there's no need to close out your bank accounts and stuff the money in your mattress. Keep your money where it is and enjoy those higher interest rates!
Although the recent banking issues rattled investors last week, the stock market has been on the rise since hitting a low point in mid October of last year. As inflation cools, investors are anticipating an end to aggressive rate hikes and are beginning to move back into the stock market. We see light at the end of the tunnel and anticipate a market rebound this year.
In other news....
- The age for mandatory withdrawals from your retirement accounts (knows as Required Minimum Distributions) has once again increased. The Secure 2.0 act, courtesy of the Biden Administration, raises the age of Required Minimum Distributions to 73. For those who turn 72 on or after January 1, 2023, the age at which RMD's must begin is now 73.
- The world is weaning itself off of Russian fuel. The U.S. is now poised to become Europe's largest gas supplier. That's what you get for invading sovereign nations.
- Thanks to multiple storms that have swept through California, the Golden State's drought has eased significantly.
- A beautiful owl named Flaco, housed in the Central Park Zoo, sprung himself out of captivity and flew the coop. To the surprise of worried zookeepers, Flaco has been hunting, capturing and eating prey all on his own in spite of living his entire adult life in captivity. Go Flaco!
Wishing you a happy, healthy Spring!
Warm Regards,
Johanna