The collapse of Silicon Valley Bank (SVB), the 2nd largest bank to collapse throughout the history of the U.S., was a watershed event. With the collapse, and most importantly the rate of speed at which it occurred, the probability is very high that the commercial banking infrastructure in the U.S. has the potential to virtually disappear overnight. The March 10, 2023 event increases the probability for the U.S. to soon enter into its 3rd Great Depression and first since 1929-1938, that I had predicted in 2022, would begin by end of 2023. The collapse was much more significant than the infamous bank collapses that occurred in 2008 for two reasons:
1. In 2008 all banks collapsed including the four largest U.S. banks, Wells Fargo (WFC), J.P. Morgan (JPM), Citigroup ( C) and Bank of America (BAC) that are depicted in the chart below. Since all banks collapsed there was no need for depositor to move their cash from one bank to the next.
2. It has been well publicized that the March 10, 2023 bank collapse was isolated to a “regional bank”. Because the four big banks have undergone the Federal Reserve’s annual stress tests since the passage of the Dodd Frank Act in 2010, they are safe. Most importantly, they have the Federal Reserve’s good housekeeping seal of approval and the local and regional banks in the U.S. don’t. Click here for a list of the 34 banks which passed the 2022 stress test.
Wells Fargo, Citigroup, Bank of America and J. P. Morgan passed their 2022 exams and are well capitalized. Therefore, unlike 2008 depositors have the opportunity to move their cash from a regional or local small bank to the much safer big bank. For this reason, and especially due to the media publicizing the Silicon Valley Bank collapse as depicted below, the share prices of regional banks are collapsing.
The table below depicts the share price performance of the four largest banks, the recently well publicized regional banks and the KBW and KRE bank ETFs for March 10, 2023. The four largest banks being the top performers illustrates the flights to safety from out of the regional banks to the four big banks. J.P. Morgan, whose share price increased by 2.54% on the day, was the second-best performer for the entire stock market on March 10, 2023. J. P. Morgan’s performance is not surprising. It is widely considered to be the best and safest bank in the world.
The regional banks in the above table included the four that have been well publicized by the financial media in the above picture. It also includes the five publicly traded regional banks that were on Mybanktracker.com’s list of best regional banks as of 02/03/23. The site analyzed nearly 350 of the top regional banks to uncover the ones that deliver the highest and most consistent rates, best customer service and low-fee accounts. For the week ended 03/10/23, the declines for the five in the table below ranged from -9.30% to -21.10%.
The decline and collapse for SVB was swift and merciless. On Wednesday March 8, after the stock market closed the company announced that it was raising $2.5 billion to shore up its Balance Sheet. The funds were needed due to the paper losses and actual losses that had been taken on the assets that it held. From then to the close of business on March 9, $42 billion of deposits were withdrawn from the bank. The table below depicts the key Financial Statement and valuation metrics for Silicon Valley Group at 12/31/2023. The market capitalization was slightly above its tangible book value then.
The regional bank’s demise was breathtaking. The run on the bank that resulted in $42 billion evaporating in less than 24 hours made the run on the banks from 1929 to 1932 seem like child’s play.
The bad news for all but the 34 of the 4,746 commercial banks in the U.S., which have passed the stress test, is they had to offer higher rates to depositors and premium services which the larger banks do not offer to acquire and maintain their customers. SVB is a good example. The bank’s Demand Deposit Account enabled an unlimited number of withdrawals and the there were no minimum balance requirements. The premium account left SVB susceptible to the bank run which occurred.
The events on March 10, 2023 left no doubt that the investors and depositors of 4,712 local and regional U.S. banks are at great risk. It’s because only the banks which passed the stress tests are not susceptible to bank runs.
The U.S. stock market and economy are also at great risk. Based on the speed at which Silcon Valley Bank’s deposits evaporated, the commercial banking and lending infrastructure for small businesses that had been in place for more than a century has the potential to virtually disappear overnight. Anyone who is invested in the stock market or has a mutual fund, 401K etc., should liquidate all stocks and mutual funds immediately.
The meltdown of Silicon Valley Bank and the meltdowns for a majority of the rest of the local and regional banks that will soon follow was a consequence of the Federal Reserve’s repeating of its 1928/1929 discount rate policy mistake in 2020/2021. The events on March 10, 2023, SUBSTANTIALLY increase the probability for the U.S. to enter into its 3rd Great Depression by end of 2023. The article below contains the rationale for my June 2022 Great Depression prediction:
“Federal Reserve’s Repeat of 1920−1931 Policy Mistakes Set Stage for Next U.S. Great Depression”
J.P. Morgan shares are not a safe haven, even though the bank’s shares were the second best performer in the market for March 10, 2023. The share price increase was a knee jerk reaction. It’s rather obvious that J. P. Morgan would be the hands down winner in an extremely volatile banking environment. However, in an extremely volatile banking environment, the U.S. economy and stock market would be big losers. When the economy and stock market crash due to the commercial banking infrastructure meltdown, J.P. Morgan shares will also decline substantially.
In a rapidly declining market, the prices for a vast majority of all shares will decline. A defensive “return OF capital” instead of a “return ON capital” strategy should be deployed immediately. For the instructions to follow for deployment of my “return of capital” defensive strategy click to view video below:
Michael Markowski, a 46-year financial markets veteran, is the Director of Strategies for AlphaTack, whose slogan is “growing assets against the wind”. He conducts empirical research of the past, which he then utilizes to develop algorithms to predict the future. His research of Enron’s Financial Statements after its infamous bankruptcy led to the development of a Cash Flow Statement algorithm. The algorithm was utilized to predict a “day of reckoning” for Lehman, Bear Stearns, Merrill Lynch, Morgan Stanley and Goldman Sachs in a September 2007, Equities Magazine article. Michael’s research of prior market crashes led to the development of the Bull & Bear Tracker (BBT) algorithm. From 2018 to 2022, the BBT gained 177% vs. the S&P 500’s 50%. His predictions of all periods of heightened market volatility from 2008 to 2022 and that S&P 500 at March 23, 2020 had reached its bottom which was exact are media verifiable.