Momentum Monday - Bank Crisis and Gold Bugs Delight

It was a week of panic in the market. First, stocks sold off when Fed chairman Powell mentioned that they were ready to raise rates by 50bps if the data require it. He said that rates are likely to reach a higher level than previously anticipated. Then, the bank crisis came along and spooked everyone. The 15th largest bank in the US – SIVB announced they need to raise money to strengthen their capital position. This led to a run on the bank and a massive selloff in the entire banking sector. On Friday, the FDIC closed Silicon Valley Bank. This is the second biggest bank failure in history and the biggest one since the Great Recession in 2008. Literally, half of all venture-backed startups and venture funds have accounts with SIVB. Most accounts are significantly higher than the FDIC-insured minimum of 250k. You can understand why this led to contagion and a selloff in many other financial, biotech, and tech stocks.

On Sunday, it became clear that all depositors will have full access to their accounts on Monday. The uninsured deposits were essentially bailed out. The Fed has also set up a liquidity facility that allows banks to pledge Treasuries and MBSs at their original value to take short-term loans and recapitalize. This should stop the panic for now but for how long is anyone’s guess. Everyone knows that if the Fed is eventually forced to choose between fighting short-term inflation and saving the banking system, they will choose the latter. One thing is sure – volatility will remain elevated in the next few weeks. I wonder what the impact on crypto will be. Currently, I don’t have any crypto holdings. The current bank debacle might eventually become a positive pivot for select cryptocurrencies. I can see some companies deciding to keep 5-10% of their cash in bitcoin, Ethereum, or others and store them in cold wallets for emergencies. It’s just an educated guess. We are already seeing cryptos rallying and the US Dollar pulling back this weekend.

Semiconductor stocks showed notable relative strength in the first half of the week, but the overall market weakness on Thursday and Friday also took them down. Obviously, if the stock market really starts to worry about a recession, semis will be one of the hardest hit sectors.

The silver lining of last week’s bank debacle is that the 50bps rate hike is now off the table. Even the 25bps might be off if equities have another leg lower. Panics create incredible opportunities but you have to put yourself in the financial and mental condition to capitalize on them.