Hello everybody, it's Sam from Financial Samurai and it's Monday morning, March 13th Temporarily, we've been saved as the Feds have decided to backstop all depositors for Silicon Valley Bank They've shut down Signature Bank in New York, and they've also backstopped all depositors. So this is great however US regional bank stocks continue to sell off Western Alliance down 70 plus percent First Republic down 60 plus percent Zions Bank Corp Down 40 plus percent PacWest down 40 percent Comerica 33 percent fifth third down 20 percent.

So it's not looking good for the regional banks Unfortunately, and the Fed will likely have to do more and since the Fed showed it is willing to backstop Silicon Valley Bank and Signature Bank It will inevitably have to backstop any other bank that experiences a bank run and fails Otherwise contagion right?

We know what will happen. I do want to point out that the feedback I receive from my newsletter Which has about 55,000 subscribers 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 Number of readers who would reply with nasty comments saying the depositors are not innocent They knew the FDIC limit is 250,000.

So they should have diversified across multiple banks Haha, they deserve to lose their money, but surprisingly Only one reader one reader who seems pretty wealthy So the depositors are not innocent victims and they should have known better And it's just a weird kind of feeling because I don't feel good about anybody losing money and I don't feel depositors Deserve to be told you should have known better when they were just busy doing their business They trusted an institution that would take care of them.

But suddenly they turned from Depositors to creditors to me. That's insane. I don't wish ill on anybody. And so this schadenfreude this feeling of joy and the suffering of others I feel it is a terrible feeling that needs to stop and I'm pleased I'm really pleased and proud of the financial samurai community For not being that way because if you go on Twitter if you go on social media You'll see a lot of people who are just finding the joy and the failure of others And I don't know what's going on with these people, but that just doesn't seem right to me So thank you for inspiring hope in humanity So the aftermath we're currently living it now the futures were up huge on Sunday evening But then the markets opened up flat to down on Monday March 13th.

There's still a lot of work to be done What is interesting to note is that the 10-year bond yield has collapsed from 4% down to 3 and a half percent and below that in a one-week time period and the two-year bond yield has Collapsed from 5% to 4% in three days So this shows there's a lot of fear There's a lot of assets going into Treasury bonds, which are supposedly the safest asset They are the safest asset, but they're not safe if you have to sell before holding to maturity Because when interest rates rise these bond prices fall and that's what happened with Silicon Valley Bank They decided to sell something like 21 billion dollars worth of their long bond holdings To try to change the duration and match it more properly to their deposits as a result They were hit with a 1.8 billion dollar loss and the sad part of it is that Silicon Valley Bank Temporarily, it looks like they sold tens of billions of dollars of long-term Treasury bonds at the bottom of the market Because now the bond market has rallied So it's really important for banks to match their Duration liability with their assets and I'm sure many regional banks and all the bigger banks will be Hedging against interest rate risks in the future as a result.

Maybe fees will go up for Consumers maybe profitability will go down for banks What I do know is that I think economic calamity was knocking at our doors But this time the Fed realized it could not let these banks fail So we came up to the edge to the cliff's edge and then we walked back We're not out of the woods yet But I think the worst case scenario has been avoided I think the Fed gets it if you look at the terminal rate the futures Expectations of the Fed Funds terminal rate.

It was at around five point two five percent of five point five percent right more Fed rate hikes of 25 base points for the next two sessions at least but now Expectations are for maybe only one 25 basis point rate hike Goldman Sachs my old shop came out with a note on Sunday evening saying it expects no Fed rate hikes anymore Nothing in March and that's it So the terminal rate the terminal Fed Funds rate expectations has now declined to about four point eight five percent So that's in the middle of no rate hikes anymore and one last 25 basis point rate hike So this is a positive for the economy for consumption for risk assets and I do want to highlight that there will be a refocus on real estate and other real assets you can touch and Utilize that also generates income There's so much funny money out there and I never thought cash would be considered funny money But with the bank run at Silicon Valley Bank and other regional banks cash, unfortunately is Being moved towards the funny money category and I've written about this in past The key to getting rich is turning funny money into real assets So in 2021, we had a lot of funny money with speculative stocks with cryptocurrencies with NF T's of meme stocks and the keys to take some profits and convert that into real assets like real estate because that'll help increase your chances of Preserving that funny money wealth that was created I'm taking a deep look at my net worth allocation right now 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 2022 and pretty much flat right so far for 2023 and then now I'm looking at my venture capital Money, I'm like kind of disappointed in you guys too because there's been the run on banks these private market valuations Are kind of not real you just don't really know what they are But the good thing is I don't see them every single day So they don't really stress me out and it's not a huge percentage of my net worth at about 5% But again, it's kind of like funny money right now 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 Your banker is the United States government.

It's not going bankrupt You're yielding 4% 4 and a half percent 5 plus percent most recently keep at it guys Keep the dream alive. Now. Finally, I'm looking at about 50% of my net worth in real estate and I was disappointed in real estate for a while because Mortgage rates have risen so quickly it depresses the value of my real estate holdings.

However, I'm also Appreciative. I'm also proud they are still standing and generating rental income and providing shelter For our family and my tenants. There's no tenant turnover yet knock on wood and there haven't been too many problems Except for that funny fire alarm that we found beeping inside the walls because my contractor Decided to close the walls and not take it out beforehand So I say let's pay attention closely to real assets Once again, it can be real estate fine art fine wine Anything that provides joy and value and can generate a return in income that's tangible It's looking Relatively more attractive again.

I'd like to conclude this podcast episode with another thought process Imagine you took out 10 mortgages worth 10 million dollars across various Failing regional banks. How would you feel? I think you'd feel nervous confused maybe a little scared But eventually you might think hmm Do I not have to pay any of these mortgages back or will they maybe just forget about it after they go into receivership?

Don't really know Probably you're gonna have to end up paying that money back, right? There's just really no free lunch But it's a different type of concern 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 A free lunch now sooner or later that free lunch needs to be paid But for the moment, maybe things are looking better for you 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 Want to allocate your net worth across various assets I think we are blessed to be able to borrow money and upgrade our lifestyles and live beyond what we can afford with cash And if we borrow so much money and then we unfortunately pass away do we lose or do we win in the end?

It's something to think about. All right, everybody keep safe. Keep strong. Keep aware I'll keep on writing and recording as much as I can. This is really Unbelievable times right now and we've got to pay attention If you've enjoyed this episode, please share with a friend if my words have given you any sense of solace or comfort 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 Stay strong everyone.