Phew, that was close. Too close. I think that there was so much fear engendered by the events of the last 72 hours since Silicon Valley Bank collapsed that there will be investors who want to sell no matter what. I think that posture is ill-advised. The fact is the Federal Reserve and other U.S. regulators did everything a rational bull could hope for, and a little more than that, to mitigate contagion from the SVB failure. I like cutting to the chase: What the Fed and Treasury did Sunday evening was take a huge chunk of risk — and losses — off the table by promising to make SVB depositors whole (and those of smaller Signature Bank in New York, which was shuttered Sunday). If the Fed had not acted the way it did, I am convinced we would have been in a recession by Friday. You can’t just wipe out a bank and about $170 billion in SVB deposits and expect to see business as normal in the country. Anyone, I mean anyone, who had more than $250,000 in an account with a bank would, Monday, have sent that money to JPMorgan , which has the best balance sheet. Period. So, while there were plenty of people I heard Sunday evening and will hear Monday who will talk about moral hazard, the unintended consequences of doing nothing is to throw a huge number of people out of work because of the errors of one bank. That’s just wrong. It is what the Fed was set up to stop. What it means for markets I want to go into the markets first before I go into what happened. The actions Sunday evening were, per se, bullish versus what was going on since last Tuesday when Fed Chairman Jerome Powell said things were still running too hot. I think after this weekend’s events he has to question that. If he’s prudent, Powell should say we have to wait and see and may not even do raise interest rates by 25 basis points at the Fed’s policy meeting later this month. If he feels the 25 was already a done deal, so be it. But it would be a little hasty not to wait and see who has been hurt already by what’s occurred. We had some real flight to quality on the long end of the bond market’s yield curve that is now being undone and rates on the short end are going down — all of which is in keeping with the events of Sunday evening. But let’s put it right out there: We just got a reprieve from a massive wipeout of deposits and companies. We are less likely to have a rate hike. We are very oversold in the stock market. There were many shorts in the market Friday betting against the policymakers. Bad bet. What investors should do So, one word comes to mind: buy. Now, we don’t like buying up and we’re restricted on many names in the Club portfolio. But, if you were concerned, say, about a big series of rate hikes so you sold the stock of Caterpillar on some weird downgrade to sell last week then you are getting your chance. I mention CAT because it had the most egregious decline in the whole portfolio If you sold the stock of Morgan Stanley you have to wonder why you did it. The bank is in great shape. If you sold shares of Wells Fargo , well, I don’t know what to say. Some say WFC’s numbers have to be cut because it will be in a bidding war for deposits. Oh please, it’s got more deposits than it needs. We will have a full list Monday — but I can tell you that I am eying anything that got hit since Tuesday as something that should be bought. I also think that you have to be more cyclical than we would otherwise be because the actions to save the SVB depositors are also going to make the Fed move slower, if at all. The Fed can’t move too quickly anymore because there are other banks and brokers that do indeed look a little like SVB when it comes to their bond portfolios, not their depositors, and they have to take some medicine. If the Fed moves too quickly, the medicine won’t have time to have an impact. Yes, the other banks that invested as stupidly on the curve as SVB did will live to play another day, like it or not. Fortunately, almost no one had the horrendous mismatch that SVB had — very few retail depositors and very many long bonds that they were under water on. They shouldn’t have been allowed to do that. Almost everyone in the media wants to dwell on moral hazard and blame, etc. There’s plenty of time for that. You don’t come to me for moralizing for heaven’s sake. With the biggest risk of a recession — bank failures — off the table, we can all find things to buy. I would let the early bird buyers take things up. Then let the bears who need the market lower try to take it down, and the sellers who want 5% on cash bolt, too. At that point, we can buy (unless something opens up down in the morning that we like). Debate: Bank bailout or not Was it a bailout? Depends on who you ask. If you are a shareholder of the bank or a holder of its corporate bonds and preferred, nope. You just lost everything. If you are a depositor, let’s just say you aren’t going to be so foolish as to concentrate your deposits going forward. Earn a little less. If you are a sightseer? You just missed a crash that would have engulfed you for certain. We live to play again. One more note The closing of Signature by New York authorities was surprising. The bank was only said to have about 15% of its assets in crypto. But it did have a very low retail share of deposits, like SVB, so perhaps that may have had something to do with it. Either way, what a warning if you don’t have a broader deposit base and you have a lot of crypto or borrowing against crypto. (Jim Cramer’s Charitable Trust is long CAT, MS, WFC. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
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Phew, that was close. Too close.
AdminMarch 13, 2023
