Special e Letter 3/13/2023 – Our Take on the SVB Bank Closing
For most of us, the words “bank failure” immediately trigger the memory of the financial crisis of 2008. That was a year no investor could ever forget: the year some of the largest, most storied financial institutions in the world — think Lehman Brothers, Bear Stearns, and others — collapsed, never to return.
Similarly, for anyone who has studied history, the words “run on the bank” immediately trigger images of the early days of the 1930 Great Depression – think scenes from It’s a Wonderful Life. Dramatic moments now consigned to the waste bin of time. You might be tempted to think; “Surely not something that could happen in this day and age.” But all these words — bank failure, bank run – happened to the Silicon Valley Bank in northern California. Many investors, scarred by the memory of 2008, wondered if the same thing could happen to other banks.
As you probably know, when the news broke on Friday morning, all three major indices immediately tumbled, capping off an already rough week for the markets. Aside from being eerily similar to 2008 – a bank makes risky financial decisions at the exact wrong time and crumbles – the situation has investors wondering if other banks out there might soon experience the same problem. No surprise, then, that shares of banks with similar business models have fallen sharply over the last two days.
But there’s more to it than that. In the last 15+ years, banking has changed and will never be the same. The world of mobile banking now means that anyone with a phone can demand instant liquidity of their funds – something that banks have still not caught up with.
Add in social media and millions get a message in minutes that they can then act upon from their beds before the banks have even opened or the Federal Reserve even has time to schedule a meeting, let alone plan a course of action. It’s enough to make anyone nervous.
For now, FDIC Insurance should still be able to cover up to $250,000 per depositor, per insured bank, as promised. So, if you have that amount or less at your bank, there’s no reason to make any sudden moves.
As far as investing goes, the effect this event will ultimately have on the markets remains to be seen. Will this trigger the recession that we (and the Fed) have been waiting for? It depends on how panicked the general public gets.
There are a few lessons we can learn from this:
1. Most of the stock market is lagging against T-Bills (sometimes referred to as the Risk-Free Rate). But eventually it should improve and go back to leading. During this time, many investors and advisors will go into hiding, waiting for the storm to pass. We, on the other hand, are optimistic that we will see a great short-
to mid-term buying opportunity. Times like these are where fortunes are both lost and made. Lost by those who are fearful, made by those who are paying attention.
2. Whenever market trends dictate that we play defense, we will do so. And in fact, we already have done so. We were positioned defensively – before the crisis – across our models and have been for several weeks now. There was no way we could have known about SBV’s issues, but when our technical indicators advised caution, we listened.
3. Always hold true to our data-driven, rules-based strategy. Right now, too many investors are overreacting to every headline and news story. They are making decisions based on emotion, expectation, and cognitive bias. We will continue to use data-driven technical analysis to determine what is happening right now and respond accordingly.
Once again, we are experiencing a time of uncertainty in the markets. Such times are rarely fun, but they’re not unexpected.
The good news is that my team and I continue to have confidence in the road you are taking toward your financial goals. We will continue to monitor the markets very carefully and keep you updated as to what’s going on.
In the meantime, please let us know if you have any questions or concerns. We are always here for you. Have a great month!
Ronald P. Denk, CFP®
Denk Strategic Wealth Partners
10000 N. 31st Avenue, Suite D406A
Phoenix, AZ 85051
Phone (602) 252-8700
Fax (602) 252-8701
Toll-Free (877) The-Denk
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