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In this weekly wrapup, we’re taking a break from our usual subject matter to bring you some material on the Silicon Valley Bank failure debacle to help you understand some different perspectives related to the developing story.
“Silicon Valley Bank structured its loans with the understanding that startups do not earn revenue immediately, managing risk based on their business model. The bank’s main strategy was collecting deposits from businesses financed through venture capital.”
In the end, this event is just another unwinding of the 15 year speculative bubble that will give more credence to stock picking taking precedence over a buy anything strategy. We continue to be very bullish on buying traditional boring growth plus value microcap stock set-ups.
Yesterday night, financial regulators declared that depositors of Silicon Valley Bank, which failed on Friday, will be able to access their full deposits beginning on March 13th. They also unveiled new measures to ensure that deposit withdrawals can be backed up throughout the banking system, in response to concerns about contagion following SVB’s unexpected collapse last week.
According to a joint statement issued by the heads of the Federal Reserve, Treasury Department, and FDIC, the FDIC and Federal Reserve boards recommended the actions, and after consulting with the President, Secretary Yellen endorsed them. The statement stated that these measures will allow the FDIC to completely resolve the Silicon Valley Bank situation in Santa Clara, California, in a way that fully safeguards all depositors.
Prior to this development, CNBC’s “Mad Money” host, Jim Cramer, posited that this could be good news for the market in that he believes it would be reckless for the Fed to keep on tightening monetary policy with the prospect of other banks failing in SVB’s wake. In other words, by his standards, the collateral damage caused by the bank failure could cause a deflationary environment, so that rates no longer would need to be raised. His full commentary can be found here.
Without understanding the negative impact on those invested in or relying on Silicon Valley Bank, we can’t form a conclusion. For example, if the government is going to make depositors whole, then will this event really tame inflation? On the other hand, if investment in startups cools, one could argue that this could be somewhat deflationary. Regardless, we’re certainly not experts on this and don’t want to act like we are, so we’ll just keep picking stocks.
If you want some engaging perspectives on the subject, we encourage you to listen to a Twitter Space hosted by Mario Nawfal in which activist Bill Ackman, CNBC’s “Last Call” anchor Brian Sullivan and famed short seller Marc Cohodes chime in with opinions of their own.
MSNBC host Jonathan Capehart and Congresswoman Katie Porter also weighed in on the second largest bank failure in U.S. history, and the largest since the 2008 financial crisis. You can watch the brief segment here.
Although futures are currently trading higher, in tandem with Cramer’s bullish view of how things will play out, how the market will ultimately react to the Fed’s rescue of depositors remains to be seen.
As far as what’s on our docket this week, we’re getting ready for the onslaught of microcap 2022 fourth quarter earnings that will be coming out over the next several days.
We are also building a nice pipeline of stock ideas to share with you in the coming weeks. Stay tuned.
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