Well, it has been quite a week, now, hasn't it?
Since last Friday, investors have witnessed the second and third bank failures in U.S. history. The FDIC has ensured the roughly $300 billion of uninsured deposits of largely well-connected entities would be fully made whole. The Swiss National Bank also has made over $50 billion of liquidity available to bolster the balance sheet of Credit Suisse (CS) while major banks like JP Morgan (JPM) and Bank of America (BAC) have rustled up some $30 billion to put on deposit at trouble lender First Republic Bank (FRC) .
I don't know about anybody else, but I am very much looking forward to having a very dull weekend and preparing for the weeks ahead.
Equities rebounded nicely in trading Thursday on hopes measures that have taken place this week will bring stabilization to the banking system. The administration and Treasury Secretary Yellen are out making the rounds telling anyone that will listen that the U.S. banking system is 'sound'.
Color me a skeptic, until proven otherwise. After all, these are some of the same dolts that help ignite surging prices in the first place and spent all of 2021 stating sky high inflation was 'temporary' and 'transitionary'. Markets are now experiencing the impacts from the most aggressive monetary tightening since the early 80s in response to that policy miss.
In addition, I am old enough to remember when Fed Chairman Bernanke was out on the hustings saying the sub-prime crisis was 'contained.' As my late father, who was a banker in Phoenix, one of the epicenters of the Savings & Loan crisis back in the late 80s/early 90s, liked to quip during these types of financial hiccups: "There is never just one cockroach." What this means for investors is we should not be nearly ready to declare "mission accomplished" and go back to our regular investing patterns.
The next few weeks are likely to be a roller coaster ride. What has transpired over the past week is like a major earthquake and there will be plenty of follow up tremors throughout the next few weeks and months. Case in point, First Republic Bank which was up 10% in trading yesterday as its larger brethren rode to its rescue, was down some 20% in early market trading. The bank is seeing analyst downgrades and has suspended its dividend, both moves that should have been anticipated by its shareholders.
The keys to navigating the next quarter or two will be patience, discipline, and a whole lot of cash within one's portfolio. Risk management, something that appears to have been completely lacking at Silicon Valley Bank (SIVB) , will be paramount here.
Balance sheets at any potential investment take on greater importance in this sort of environment as does identifying companies that can still grow in what is likely to be a recession by year end. On Monday I will highlight some of these types of names. In the meantime, it is time to lock in as it should be another interesting day in the markets as we end what has been an extremely volatile trading week on an option expirations day.
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