Bond_yields_are_collapsing_and_real_assets_are_back_and_focus
00:00:00.000 | Hello everybody, it's Sam from Financial Samurai and it's Monday morning, March 13th
00:00:05.000 | Temporarily, we've been saved as the Feds have decided to backstop all depositors for Silicon Valley Bank
00:00:13.200 | They've shut down Signature Bank in New York, and they've also backstopped all depositors. So this is great
00:00:19.800 | however
00:00:21.160 | US regional bank stocks continue to sell off
00:00:24.560 | Western Alliance down 70 plus percent First Republic down 60 plus percent Zions Bank Corp
00:00:30.720 | Down 40 plus percent PacWest down 40 percent
00:00:34.260 | Comerica 33 percent fifth third down 20 percent. So it's not looking good for the regional banks
00:00:41.960 | Unfortunately, and the Fed will likely have to do more and since the Fed showed it is willing to backstop
00:00:48.620 | Silicon Valley Bank and Signature Bank
00:00:52.000 | It will inevitably have to backstop any other bank that experiences a bank run and fails
00:00:58.560 | Otherwise contagion right? We know what will happen. I do want to point out that the feedback I receive from my newsletter
00:01:07.080 | Which has about 55,000 subscribers
00:01:09.480 | Was pretty good. You can sign up for my newsletter at financial samurai.com forward slash news because I was thinking there would be a
00:01:17.480 | Number of readers who would reply with nasty comments saying the depositors are not innocent
00:01:24.080 | They knew the FDIC limit is 250,000. So they should have diversified across multiple banks
00:01:30.440 | Haha, they deserve to lose their money, but surprisingly
00:01:34.400 | Only one reader one reader who seems pretty wealthy
00:01:39.260 | So the depositors are not innocent victims and they should have known better
00:01:44.240 | And it's just a weird kind of feeling because I don't feel good about anybody losing money and I don't feel
00:01:52.000 | depositors
00:01:53.680 | Deserve to be told you should have known better when they were just busy doing their business
00:01:57.980 | They trusted an institution that would take care of them. But suddenly they turned from
00:02:01.960 | Depositors to creditors to me. That's insane. I don't wish ill on anybody. And so this schadenfreude this
00:02:10.040 | feeling of joy and the suffering of others
00:02:13.840 | I feel it is a terrible feeling that needs to stop and I'm pleased
00:02:18.520 | I'm really pleased and proud of the financial samurai community
00:02:21.880 | For not being that way because if you go on Twitter if you go on social media
00:02:26.960 | You'll see a lot of people who are just finding the joy and the failure of others
00:02:31.980 | And I don't know what's going on with these people, but that just doesn't seem right to me
00:02:37.560 | So thank you for inspiring hope in humanity
00:02:42.000 | So the aftermath we're currently living it now the futures were up huge on Sunday evening
00:02:47.920 | But then the markets opened up flat to down on Monday March 13th. There's still a lot of work to be done
00:02:54.000 | What is interesting to note is that the 10-year bond yield has collapsed from 4%
00:03:00.760 | down to 3 and a half percent and below that in a one-week time period and the two-year bond yield has
00:03:07.400 | Collapsed from 5% to 4% in three days
00:03:11.360 | So this shows there's a lot of fear
00:03:13.840 | There's a lot of assets going into Treasury bonds, which are supposedly the safest asset
00:03:19.440 | They are the safest asset, but they're not safe if you have to sell before holding
00:03:24.440 | to maturity
00:03:26.320 | Because when interest rates rise these bond prices fall and that's what happened with Silicon Valley Bank
00:03:31.800 | They decided to sell something like 21 billion dollars worth of their long bond holdings
00:03:37.640 | To try to change the duration and match it more properly to their deposits as a result
00:03:43.520 | They were hit with a 1.8 billion dollar loss and the sad part of it is that Silicon Valley Bank
00:03:50.720 | Temporarily, it looks like they sold tens of billions of dollars of long-term Treasury bonds at the bottom of the market
00:03:57.640 | Because now the bond market has rallied
00:03:59.800 | So it's really
00:04:02.520 | important for banks to match their
00:04:05.760 | Duration liability with their assets and I'm sure many regional banks and all the bigger banks will be
00:04:12.760 | Hedging against interest rate risks in the future as a result. Maybe fees will go up for
00:04:18.880 | Consumers maybe profitability will go down for banks
00:04:23.800 | What I do know is that I think economic calamity was knocking at our doors
00:04:30.240 | But this time the Fed realized it could not let these banks fail
00:04:35.520 | So we came up to the edge to the cliff's edge and then we walked back
00:04:40.440 | We're not out of the woods yet
00:04:42.600 | But I think the worst case scenario has been avoided
00:04:47.840 | I think the Fed gets it if you look at the terminal rate the futures
00:04:52.120 | Expectations of the Fed Funds terminal rate. It was at around five point two five percent of five point five percent
00:04:58.640 | right more Fed rate hikes of
00:05:02.520 | 25 base points for the next two sessions at least but now
00:05:07.360 | Expectations are for maybe only one 25 basis point rate hike
00:05:11.440 | Goldman Sachs my old shop came out with a note on Sunday evening saying it expects no Fed rate hikes anymore
00:05:18.520 | Nothing in March and that's it
00:05:20.520 | So the terminal rate the terminal Fed Funds rate expectations has now declined to about four point eight five percent
00:05:28.920 | So that's in the middle of no rate hikes anymore and one last 25 basis point rate hike
00:05:34.880 | So this is a positive for the economy for consumption for risk assets
00:05:40.520 | and I do want to highlight that there will be a
00:05:44.420 | refocus on real estate and other real assets you can touch and
00:05:49.520 | Utilize that also generates income
00:05:53.440 | There's so much funny money out there and I never thought cash would be considered funny money
00:06:00.060 | But with the bank run at Silicon Valley Bank and other regional banks
00:06:04.560 | cash, unfortunately is
00:06:07.240 | Being moved towards the funny money category and I've written about this in past
00:06:11.960 | The key to getting rich is turning funny money into real assets
00:06:16.560 | So in 2021, we had a lot of funny money with
00:06:20.900 | speculative stocks with cryptocurrencies with NF T's of meme stocks and the keys to take some profits and convert that into
00:06:28.480 | real assets like real estate because that'll help increase your chances of
00:06:33.520 | Preserving that funny money wealth that was created
00:06:37.920 | I'm taking a deep look at my net worth allocation right now
00:06:41.400 | and I'm disappointed in 30% of my net worth because it consists of the stock market and the stock market has been terrible in
00:06:48.800 | 2022 and pretty much flat right so far for 2023 and then now I'm looking at my venture capital
00:06:55.960 | Money, I'm like kind of disappointed in you guys too because there's been the run on banks these private market valuations
00:07:03.580 | Are kind of not real you just don't really know what they are
00:07:07.240 | But the good thing is I don't see them every single day
00:07:09.880 | So they don't really stress me out and it's not a huge percentage of my net worth at about 5%
00:07:15.120 | But again, it's kind of like funny money right now
00:07:17.480 | So then I move on to my treasury bond holdings and I'm looking at these guys and thinking I'm proud of you all
00:07:24.860 | Your banker is the United States government. It's not going bankrupt
00:07:28.760 | You're yielding 4% 4 and a half percent 5 plus percent most recently keep at it guys
00:07:34.660 | Keep the dream alive. Now. Finally, I'm looking at about 50% of my net worth in real estate
00:07:42.360 | and I was disappointed in real estate for a while because
00:07:46.120 | Mortgage rates have risen so quickly it depresses the value of my real estate holdings. However, I'm also
00:07:52.760 | Appreciative. I'm also proud they are still standing and generating rental income and providing shelter
00:08:00.120 | For our family and my tenants. There's no tenant turnover yet knock on wood and there haven't been too many problems
00:08:08.320 | Except for that funny fire alarm that we found beeping inside the walls because my contractor
00:08:13.600 | Decided to close the walls and not take it out beforehand
00:08:16.760 | So I say let's pay attention closely to real assets
00:08:21.940 | Once again, it can be real estate fine art
00:08:25.360 | fine wine
00:08:27.780 | Anything that provides joy and value and can generate a return in income that's tangible
00:08:33.460 | It's looking
00:08:35.440 | Relatively more attractive again. I'd like to conclude this podcast episode with another thought process
00:08:41.540 | Imagine you took out 10 mortgages worth 10 million dollars across various
00:08:48.960 | Failing regional banks. How would you feel? I think you'd feel nervous
00:08:54.480 | confused maybe a little scared
00:08:57.080 | But eventually you might think hmm
00:09:00.500 | Do I not have to pay any of these mortgages back or will they maybe just forget about it after they go into receivership?
00:09:08.100 | Don't really know
00:09:10.860 | Probably you're gonna have to end up paying that money back, right? There's just really no free lunch
00:09:15.400 | But it's a different type of concern
00:09:18.260 | I don't think you'd be as afraid anymore because you are the one who actually owes them money and you might be able to get
00:09:24.300 | A free lunch now sooner or later that free lunch needs to be paid
00:09:29.180 | But for the moment, maybe things are looking better for you
00:09:32.900 | it's just a thought process to think about how you want to spend your money how you want to borrow your money and how you
00:09:39.420 | Want to allocate your net worth across various assets
00:09:43.600 | I think we are blessed to be able to borrow money and upgrade our lifestyles and live beyond what we can afford with cash
00:09:50.620 | And if we borrow so much money and then we unfortunately pass away do we lose or do we win in the end?
00:09:57.460 | It's something to think about. All right, everybody keep safe. Keep strong. Keep aware
00:10:03.960 | I'll keep on writing and recording as much as I can. This is really
00:10:08.780 | Unbelievable times right now and we've got to pay attention
00:10:11.700 | If you've enjoyed this episode, please share with a friend if my words have given you any sense of solace or comfort
00:10:19.660 | I'd love a positive review and if you want to support my book by this not that you can check it out at financial samurai.com
00:10:26.700 | Stay strong everyone.