EPTTrading/Investing Thread - Page 126
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Uldridge
Belgium5232 Posts
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{CC}StealthBlue
United States41117 Posts
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{CC}StealthBlue
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{CC}StealthBlue
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{CC}StealthBlue
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RvB
Netherlands6322 Posts
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{CC}StealthBlue
United States41117 Posts
WASHINGTON (AP) — The Federal Reserve’s preferred inflation gauge rose last month at its fastest pace since June, an alarming sign that price pressures remain entrenched in the U.S. economy and could lead the Fed to keep raising interest rates well into this year. Friday’s report from the Commerce Department showed that consumer prices rose 0.6% from December to January, up sharply from a 0.2% increase from November to December. On a year-over-year basis, prices rose 5.4%, up from a 5.3% annual increase in December. Excluding volatile food and energy prices, so-called core inflation rose 0.6% from December, up from a 0.4% rise the previous month. And compared with a year earlier, core inflation was up 4.7% in January, versus a 4.6% year-over-year uptick in December. Source | ||
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RvB
Netherlands6322 Posts
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SC-Shield
Bulgaria891 Posts
On February 25 2023 01:25 {CC}StealthBlue wrote: But the fed has a choice cause a recession or increased prices are permanent. Source You forget that 4%+ interest rate was the norm till like 2006. Low interest rate is a relatively recent thing. We'll get inflation resolved, no need to overreact. ![[image loading]](https://i.imgur.com/n1da7Wi.png) On that note, it amazes me how many people try to time the market on the trading platform I use. E.g. even opening Sell positions against stable companies such as Apple. They generate so much fees and sometimes commissions (from buy-sell spread at least) that it surprises me. Either way, after Friday I'm like -11.5% on my portfolio (tech heavy) but I don't care. Still going long on stocks. :D Edit: In fact, if US Fed keeps interest rates higher for longer it may be a good thing. From what I've heard about 1981 recession, you don't want to go there. 20% interest rate, and 10.8% unemployment. | ||
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{CC}StealthBlue
United States41117 Posts
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{CC}StealthBlue
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RvB
Netherlands6322 Posts
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KwarK
United States44382 Posts
On March 11 2023 04:04 RvB wrote: That's so fast. Shows the flaws of the current regulatory regime with risk weighted assets. Silvergate was actually fine. Zero exposure to crypto. It held a mixture of bonds dated in from short to medium term. The market value of those bonds declined due to rising interest rates. If someone could loan their money out today at 5% then they’re not going to buy your 4% yield bond unless you offer them a discount. It’s still the exact same bond with the exact same safe yield that it always had but if you can buy a better one today for the price that the old one was bought at then the old one has declined in market value. None of that is relevant for accountants if the bond is recorded as Held To Maturity. What that means for accountants is that the value the bond will eventually pay out is what it is recorded as on the books which basically makes sense. You’re not flipping it and you’re going to get the face value at maturity so that’s the applicable value of it as an asset. Whereas people who flip bonds daily use Available For Sale valuations which care about market value because if they’re planning on selling to the market then a loss is a real loss whenever it goes down in value. So the bank was loaded with these bonds in excess of its deposits so it was a safe bank with sufficient assets. The market value of the bonds declined but as long as there wasn’t a run on the bank that would be fine because the money was all still there, these were safe bonds, there was no concern over whether they would payout, it’s just you could buy one with an even better payout today. Depositors started pulling their money from the bank because it was seen as being broadly associated with crypto. And as they started pulling deposits the bank started redeeming their short maturity bonds to cover those deposits. All standard practice, bank is still in great shape. They recognized that their ratio of short maturity bonds and medium maturity bonds was getting uncomfortable and therefore that they might have to rebalance which would naturally involve selling some medium bonds for short term. And once you start doing that then you start reclassifying from HTM to AFS which means you start doing write downs on these bonds which, to restate the important part, were still completely safe and were still going to yield the face value at maturity. And, of course, you announce that you’re doing an asset write down in connection with the broader crypto market uncertainty. And that’s when everyone else demands their money back and you have to explain that their money is in bonds and the bonds will yield more than enough money to pay everyone what is owed if they’d just give you a few years but that if they make you firesale then today then you can’t afford to pay everyone back. And what they hear is that you can’t afford to pay everyone back and the whole place collapses. They were fine, no crypto market exposure, just a good old fashioned run on the bank. It could happen to any bank if the depositors get greedy enough. | ||
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{CC}StealthBlue
United States41117 Posts
NEW YORK (AP) — Regulators rushed Friday to seize the assets of one of Silicon Valley’s top banks, marking the largest failure of a U.S. financial institution since the height of the financial crisis almost 15 years ago. Silicon Valley Bank, the nation’s 16th-largest bank, failed after depositors hurried to withdraw money this week amid anxiety over the bank’s health. It was the second biggest bank failure in U.S. history after the collapse of Washington Mutual in 2008. The bank served mostly technology workers and venture capital-backed companies, including some of the industry’s best-known brands. “This is an extinction-level event for startups,” said Garry Tan, CEO of Y Combinator, a startup incubator that launched Airbnb, DoorDash and Dropbox and has referred hundreds of entrepreneurs to the bank. Source | ||
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BlackJack
United States10574 Posts
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{CC}StealthBlue
United States41117 Posts
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RvB
Netherlands6322 Posts
On March 11 2023 04:47 KwarK wrote: Silvergate was actually fine. Zero exposure to crypto. It held a mixture of bonds dated in from short to medium term. The market value of those bonds declined due to rising interest rates. If someone could loan their money out today at 5% then they’re not going to buy your 4% yield bond unless you offer them a discount. It’s still the exact same bond with the exact same safe yield that it always had but if you can buy a better one today for the price that the old one was bought at then the old one has declined in market value. None of that is relevant for accountants if the bond is recorded as Held To Maturity. What that means for accountants is that the value the bond will eventually pay out is what it is recorded as on the books which basically makes sense. You’re not flipping it and you’re going to get the face value at maturity so that’s the applicable value of it as an asset. Whereas people who flip bonds daily use Available For Sale valuations which care about market value because if they’re planning on selling to the market then a loss is a real loss whenever it goes down in value. So the bank was loaded with these bonds in excess of its deposits so it was a safe bank with sufficient assets. The market value of the bonds declined but as long as there wasn’t a run on the bank that would be fine because the money was all still there, these were safe bonds, there was no concern over whether they would payout, it’s just you could buy one with an even better payout today. Depositors started pulling their money from the bank because it was seen as being broadly associated with crypto. And as they started pulling deposits the bank started redeeming their short maturity bonds to cover those deposits. All standard practice, bank is still in great shape. They recognized that their ratio of short maturity bonds and medium maturity bonds was getting uncomfortable and therefore that they might have to rebalance which would naturally involve selling some medium bonds for short term. And once you start doing that then you start reclassifying from HTM to AFS which means you start doing write downs on these bonds which, to restate the important part, were still completely safe and were still going to yield the face value at maturity. And, of course, you announce that you’re doing an asset write down in connection with the broader crypto market uncertainty. And that’s when everyone else demands their money back and you have to explain that their money is in bonds and the bonds will yield more than enough money to pay everyone what is owed if they’d just give you a few years but that if they make you firesale then today then you can’t afford to pay everyone back. And what they hear is that you can’t afford to pay everyone back and the whole place collapses. They were fine, no crypto market exposure, just a good old fashioned run on the bank. It could happen to any bank if the depositors get greedy enough. That's all true but I think it is an issue that highly rated government bonds have a risk weight of zero. In other words banks do not have to hold any capital for unexpected losses on highly rated government bonds. In normal circumstances, there is no problem but in the case of liquidity issues assets have to be sold and potential losses have to be realised. It is no surprise that those same highly rated government bonds are the first to be sold since those markets are very liquid. This unexpected loss is why banks are required to hold capital but,since for government bonds they do not have to hold any capital there is no buffer to absorb these losses. In the case of SVB the consequence is that they had to go to equity markets to raise new capital but that only made the problem worse since it made everyone lose trust. Edit: to add a little: the issue with being able to categorise bonds as HTM is that it decreases the incentive to hedge interest rate risk as you do not have to mark to market. A hedge costs money and the loss is only the opportunity cost of another bond with a higher rate. That would not matter as much if you'd have to hold capital against the risk of a fire sale but they don't always have to do that as far as I am aware. So in the case of the bond sale of SVB there is both no hedge and no capital to absorb the loss. It is also a case of a failure in risk management of the bank. Hedging interest rate risk is one of the core responsibilities of risk departments in banks. To give an anecdotal example: I worked in the mortgage department of a large international bank in The Netherlands and for every mortgage the bank originates they immediately hedge the interest rate risk with an interest rate swap. That's how it should work but SVB quite clearly did not do that. | ||
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{CC}StealthBlue
United States41117 Posts
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{CC}StealthBlue
United States41117 Posts
edit: Oh yes, very interesting. | ||
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WhistlerR-
12 Posts
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