No need to panic from you and the RBA.The case of some failures...

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17/03/23

09:27

Post #: 66816696
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Originally posted by madamswer: ↑

In the context of developments over the weekend, relating to the collapse of Silicon Valley Bank, and the knock-on impacts it is having on global capital markets, that chart illustrates the issues clearly.

I was about to share something similar, but you beat me to it.

The last thing that SWF needs is for the SBV thing to cause central banks to blink and for interest rates to fall.

But I think that tells only half the possible bear story for SWF; the other half relates to the extent to which the events of the past few days might accelerate this unfavourable trend:

View attachment 5134588

Sure, the properly versed among us know that SWF is not a bank, doing business on the basis of risky fractional lending, but there is likely to be a portion of SWF's client base that (wrongly) perceives enhanced risk to the deposits held with SWF, and acts accordingly.

Any acceleration in the decline in cash balances, combined with the reduction in the rate SWF earns on the client cash it holds, would obviously be a most unwelcome development.

Especially since it was the extraneous tailwind of higher levels of interest earned on client cash during the past few quarters which has avoided the need for the company to be funded by drawing down on its cash balance.

If that tailwind becomes a headwind, it is going to require trading activity to rise meaningfully in order to prevent the company tipping back to negative cash flow state.

And, given the current mood of the market, the chances of that look slim.

If I had been thinking of buying the stock (on sheer undervaluation grounds), that decision has been placed in suspension pending clarity around the above concerns.

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No need to panic from you and the RBA.

The case of some failures in the states were due to long term bond market bets because margins on their other business was poor.

Australian bank don’t rely on such desperate tactics and our banking system is regulated such that these issues will be minor ones. The great USA with their low regulation environment allowed bad fiscal practices to play out. No surprise.

So read various commentaries about our banking situation here. Only the chicken Little’s will see it as a calamity if they are not properly informed.

As for USA, they are idiots and tend to make constant greedy banking mistakes. They need a strong parent ie. better regulations because they can’t be trusted. Their federal reserve, I feel, is a little naive trying to hold interest rates because of some poor financial institutions. I thought their aim was inflation, not rewarding incompetent bankers.

Looking at the chances of and interest rate increase at the next RBA meeting, it increased from 0 to 25%.

Maybe people are seeing it as a mild USA problem and barely a ripple here. Only mass panic from bank customers could concern banks. If there is panic, it is unfounded, usually by the financially illiterate.

SWF Price at posting: 17.5¢ Sentiment: Buy Disclosure: Held
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0 Great analysis

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