Part I 2023 Banking Crisis
The 2023 US regional banking crisis was steadied over the last six weeks by the Federal Reserve and US Government effectively guaranteeing all deposits of the troubled regional banks. This means not only insured deposits up to $US250,000 were guaranteed, but uninsured deposits above that amount. The small number of banks affected has not grown, although others have seen significant falls in their market prices. Some of this activity appears to be from short sellers, which may suffer losses if, as expected, the US regulators continue to keep ahead of any adverse situations. This includes on sale of any further at risk regionals eg the sale to JP Morgan.
The second shoe to drop was Credit Suisse. Years of poor risk management & poor corporate deals saw Credit Suisse suffer large deposit withdrawals in a short period, resulting in Swiss banking regulators arranging a shotgun marriage with UBS. Credit Suisse European style hybrids were wiped out & shareholders lost almost all their equity. In Australia, the Tier 1 hybrids would have been converted to equity, while all other debt holders will not suffer losses. (Australian banks are now well capitalized, so economists and regulators see no real probability of contagion in Australia).
So Part I of the 2023 banking crisis is over. The question is what is Part II?
Part II 2023 Banking Crisis
There are a number of risks, but we lack the public data to quantify the following:
There is a real risk that the US market is too optimistic about a soft landing & interest rates moving from rising to falling. Given the inflation bogie, this seems unlikely. Rather stagflation is a more likely outcome. The outlook for the high growth stocks including the tech sector in the US is therefore clouded.
So far most companies have continued to report some small softening in economic conditions impacting on sales and inflation on costs, but for most those impacts are not dramatic to date. But consumers are nervous and the interest rate rises have many quite fearful both in the US and Australia. This impact on consumers should continue to result in a further softening of consumer expenditures. Stagnant GDP growth with too high inflation creates a difficult investment climate for employers and investors. Many have no experience of the stagflation of the 1980’s.
Some pointers on Investing.
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