March 16, 2023
By Peter Bower
The banking crisis that started with the failure of Silicon Valley Bank has now spread worldwide. Credit Suisse, a large Swiss bank, now seems to be in trouble. European banks are now part of the crisis. No one knows where and when the next shoe (bank) may drop, but many investors do not want to stick around to find out. They are increasingly putting assets in U.S. Treasury bonds. Rates on these have declined precipitously as a result. (Remember, the increased demand pushes prices higher, consequently reducing the interest rate yield.)
Fear begets fear. When people get scared, they postpone commitments. When investors worry, they sell or at least refrain from buying. All of this serves to constrain the economy. To a large degree, this crisis is doing some of the work for the Federal Reserve. Look for inflation to continue to recede.
The silver lining from all of this is that the Fed tightening cycle is probably about finished. The adage is that the Fed typically tightens until things begin to break. Well, guess what? They are breaking. So, once we work through this storm, investors should have more stable interest rates and a Federal Reserve on the sidelines, not working against them. Then the focus can return to fundamentals. In the meantime, either buy while others are panicking, or at the very least, stay steady my friends.
The Lonely Bull
