Geopolitics and Markets Review – 13th March 2023

Silicon Valley Bank Fallout

Silicon Valley Bank (SVB)

We have the return of black swan events to financial markets, the first since COVID, as described by Yahoo Finance. A black swan event comes as a surprise and has a major effect. With hindsight, it is also explained to appear as less random than it truly was.

Its no doubt that the collapse of Silicon Valley Bank is having a major effect, but did it come as a surprise? And in hindsight, what will be the reasoning used to explain the collapse as not random at all?

The surprise can be reflected in the key safe haven indicator, Gold. Gold has been moving in reverse correlation to the dollar index, but the dollar index is down 0.34% versus Gold is up 1.22% at the time of writing.

Silicon Valley Bank is a regional US bank, located of course in Silicon Valley. It will not receive a bailout, but depositors will be protected. Shareholders will not be. The Deposit Insurance Fund will cover the deposits and is funded with quarterly fees from financial institutions and interest on government bonds. Hence there will not be a repeat of the 2008 taxpayer-funded Wall Street bailouts.

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U.S. Regional Banks ETF (KRE)

The sharp drop in the price of the U.S Regional Banks ETF (KRE) is noticeable. We are also down another 5.8% currently in pre-market trading.

The volume has also skyrocketed, which is natural when this much focus is on regional banks. It is suspected that all of this is short-interest, so tensions in regional banks aren’t over yet. The volume of KRE will be a good indicator of when regional bank tension is lessening and when sentiment could start to improve. The ETF is bound to be volatile, and timing the market is difficult. I’d avoid any trading, especially when financial institutions are so heavily involved in this situation to ensure it doesn’t spread.

So why did Silicon Valley Bank collapse? What started this story?