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The big news from yesterday was obviously the pressure on the banking sector after SIVB had to sell their bonds at a loss to cover their deposit claims. Peter Thiel's Founder's Fund has advised companies to pull money from SIVB and shares of the bank are down further in pre-market trading.
None of this bodes well for SIVB and there is certainly the possibility that there is a “bank run”, where depositors rush to pull out their money. With the liquidity situation already weak a this bank, it could mean the bank shuts down. Whether this creates a contagion and credit risk event, I don’t know. But, it’s certainly something to think about with the regional banks.
And it’s not just about the unrealized losses on their bond portfolios that may cause this but, it could even be corporate and consumer defaults. Collateral values are falling and that’s what caused the banks to collapse in the 80s. Having said all of this, there are measures in place by the FDIC and the Federal Reserve that are meant to prevent a collapse of the banking system. This is not a Lehman moment and I don’t see a Fed pivot on this. But, I would remain vigilant and careful.
I know this is not what you want to read first thing in the morning but, it’s something I wanted to address. We, at Traderade, have been discussing warnings signs in the macro and it’s time to also heed the fundamentals, along with the technicals. I promise you this is still not the time to go all in. Trade to make money in the interim but, we’re not starting a new bull market and we just want to make sure you manage your risk appropriately. This is why all three of us give you updates several times a week with a combination of educational articles and market coverage.
To be fair, this is not an environment where we want to make a lot of money but rather, protect our hard earned capital, and that will always be our priority at Traderade.