See the stock market reaction as these markets realising what the bond markets have been pointing to for long as bond market had predicted 38% chance of Credit Suisse default
1. Easy money over, Central Banks mismanaged the transition and gave a shock therapy to markets, taking away easy money of 14 years in 1 year.
2. Lax supervision of US banks/ mismanagement at banks of ALM mismatches/duration risk/liquidity risk, now transforming into solvency risk as 3 US banks fail.
3. Investors locking into illiquid products in the search for yields, now caught out as valuations crash and no exits
4. Use of wrong economic models leading to tightening of monetary policy to control a supply chain and geopolitical fragmentation induced inflation. More targeted govt actions like energy subsidies funded by windfall taxes, safety nets and food coupons would have bought time.
5.Raising rates economy wide have destabilised bank MTMs of huge bond holdings and will impair banks' ability to lend and function normally. Coming home to roost now.
6.This not 2008. More likely it is a multi-year, slow drawn out banking crisis, like the 1980s/90s Savings and Loan crisis in the US
7.The $42 bn deposits withdrawal at Silicon Valley Bank was the first instance of social media/ Twitter induced bank run. More to come ? Probably. No small bank could withstand such levels of withdrawals.
8.Basically, entire US banking risk is now on the Feds balance sheet. Small banks will slowly fade, uninsured deposits leave for larger banks . Will have deep implications for US financial system
9.Overall, "very difficult to predict" type of turmoil is on, various fronts impacted at the same time. Best to sit this one out. Don't be fooled by recoveries, the trouble on bank balance sheets will take time to resolve.
10.No panic for long term investors. Conserve capital for now . And wait for bottom formation. Will happen. Though time wise it may extend for a lot longer than comfortable . Has to be borne.
