Short and concise analysis on concepts or recent events in the financial markets from the ASG Capital Team.
This new episode is entitled ‘Until they break something’.
Click here to listen to podcast
Transcript:
In 2022, certain analysts expected the Federal Reserve to tighten financial conditions until they broke something.
In its efforts to engineer some kind of credit constraint after years of financial hubris. It was unlikely a balance sheet demolition of its smaller banking network would have been the Fed’s objective in this breaking something scenario. When Silicon Valley Bank got into trouble, it seemed, on paper, to be just an unfortunate collateral damage. Please excuse the pun in their monetary policy equation.
Unfortunately, the potential chaos in the flapping of the Silicon Valley default wings was set to cause a more dangerous chain reaction in the industry. For now, the problem seems to have been contained, addressed and nipped in the bud.
However, the authorities’ reaction to this bank failure reveals which toy effectively got crushed by their tightening of monetary conditions rolled out in 2022.
And the answer looks to be their own rules put in place after the great financial crisis of 2008. This last weekend’s proposed save the system mechanisms, which involve ring fencing of bank deposits and bank collateral, is looking to bring us right back to the good old bailout years.
Under the guise of a limited facility, which we all know it can’t be, the message sent to the banking industry is clear. We will now make up the banking rules as we go along. After all these years of efforts to comply, in just two days the authorities have made a complete farce of their own regulations put in place since 2008.
As the French would say: “Tout ça pour ça” (All that fuss for nothing!).
This podcast is for information only. It should not be considered as investment advice. We would recommend seeking professional investment advice when allocating to any asset.
—
Originally Posted March 14, 2023 – Podcast #12: Until they break something…
Disclosure: ASG Capital
ASG Capital is a Registered Investment Advisor. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments or investment strategies. Investment involve risk and unless otherwise stated are not guaranteed. Be sure to first consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed herein.
Disclosure: Interactive Brokers
Information posted on IBKR Campus that is provided by third-parties does NOT constitute a recommendation that you should contract for the services of that third party. Third-party participants who contribute to IBKR Campus are independent of Interactive Brokers and Interactive Brokers does not make any representations or warranties concerning the services offered, their past or future performance, or the accuracy of the information provided by the third party. Past performance is no guarantee of future results.
This material is from ASG Capital and is being posted with its permission. The views expressed in this material are solely those of the author and/or ASG Capital and Interactive Brokers is not endorsing or recommending any investment or trading discussed in the material. This material is not and should not be construed as an offer to buy or sell any security. It should not be construed as research or investment advice or a recommendation to buy, sell or hold any security or commodity. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.
