This Week in Episodic Pivots: March 12, 2023
I sense a disturbance in the markets....
That escalated quickly. We started the week great… And then things went downhill. Fast.
In case you’ve been sleeping the whole weekend, on Friday U.S. regulators took control of Silicon Valley Bank and their assets. They tried to find a buyer this weekend, but that failed. PNC was interested, but then said no after performing some initial due diligence.
But at least the government stepped in to make sure none of the depositors would lose money. All their clients will be able to access all their money on Monday morning.
Now this is no small bank. It’s the 16th largest bank in the U.S. And many companies from small to large, use SVB in California. A failure of this bank would have far reaching impacts on our startup community in the U.S.
So it looks like we won’t have a full failure yet… But it does make one wonder which other banks are holding onto long duration bonds and haven’t marked down their books yet (which is legal under current accounting rules – if they classify bonds as “held to maturity” they don’t have to mark the bonds to the current prices). This is ridiculous… If the banks do need to cash out to meet customer withdrawals, they won’t get full value.
That’s what happened to SVB. The bank was actually being fairly conservative, but their 10-year Treasury and 30-year mortgage portfolios lost value as interest rates rose. And when they had to sell these securities to meet customer withdrawals, they ran into problems.
While the Federal Reserve and U.S. Treasury Department were able to control this one, how many more banks are sitting on a pile of long-term debt which has a current value less than their liabilities? That is the unknown.
And why the market sold off hard last week. It broke below the support of the moving averages and kept plummeting.
As of writing, futures are up over 1% on bailout news. And in case anyone missed their stop outs last week, the morning will likely be a good time to sell.
I don’t trust this rally. Major technical damage was done to the markets. And it feels like the tenor of the market changed last week.
Powell came out on Tuesday and told Congress that he would likely move rates higher than anticipated. Even though it looks like he might be walking those comments back after recent events.
That doesn’t change the fact that investors are now skittish of the damage done by higher interest rates. We’re starting to see some collateral damage. (See what I did there?? Huh huh???)
The correct course of action for Monday is to not enter any new trades. So there won’t be any new recommendations this week.
But we do have a lot of housekeeping to do. Most of our positions triggered their stop losses this week.
I think it will be easier to just mention the positions left in the portfolio.
We are still holding onto World Wrestling Entertainment ( WW 0.00%↑ E ), Tesla ( TSLA 0.00%↑ ), Apollo Medical Holdings ( AMEH 0.00%↑ ), and Kratos Holdings ( KTOS 0.00%↑ ).
Everything else we should have sold before the weekend. Once again, if you did not, it’s important to sell it soon. When these charts break down, they tend to continue going down.
Proper stop losses are vitally important. Especially right now.
If I sense the market is turning and conditions are ripe for entering a new position, I will send out a mid-week update. But if you don’t see anything, that’s because things still look murky.
But if thing stabilize, we will have opportunities to enter new positions… Even in bear markets, this strategy works. We saw it play out in December. And I believe we’ll see it happen again. We just want to make sure this market isn’t heading straight down.
So keep patient and keep strong. I suspect things will get a little bumpy.