NEW PODCAST WITH CHRIS MACINTOSH
Jason Burack of Wall St. for Main St. recently hosted Chris on his podcast.
They discussed how the recent central bank rate hikes exacerbated a global credit contraction and the implications this precarious shift has for investors, such as:
- Why understanding the difference between “I want” vs “I need” investments has never been more critical
- Are pension funds the next big domino to fall?
- The parallels between the 1970’s energy shock and today (the 1970’s crisis wasn’t just a typical supply shock — as most people mistakenly believe)
- How likely is a splintering of the US? Chris believes the divorce is already settled, they only need to agree on who gets the family silverware
- Chris’ view on real estate in the current macro environment
- And more…
Click here to listen to the entire conversation.
WHAT TO MAKE OF THE SILICON VALLEY BANK BLOW UP
We would be remiss not to touch on the recent Silicon Valley Bank blow-up.
By now, you probably know the bank went tits up, making it the second largest bank failure in America’s history. Ironically, all this happened just days after the bank made the Forbes list of America’s Best Banks.
Chris dedicated an entire section of the Insider Newsletter to the Silicon Valley Bank blowup. Here’s an excerpt:
SVB made a fixed income investment, rates moved higher, decimating the value of those bonds and now their collateral base is crappy. They’d need to sell assets to shore up their balance sheet, call in loans, raise equity, or all of the above — all of which may in itself call into question the solvency of the bank. Well, as it turns out, they waited too long to do any of that to try to fix things. And now they’re gone.
As we’ve been saying for years now, the unwinding of the bond market is going to create all manner of problems, many of which we’ve not even thought about. Anyone long bond duration is going to get hammered. The knock-on effects promise to be substantial.
What to look out for? Well, there are three things I can think of. Banks (obviously), insurance companies, and pension funds all own long-term paper at extremely low interest rates. Increasingly, they’ll be forced to compete with short-term treasuries, and they’ll lose. This is without them marking to market their balance sheets, which will come under enormous pressure. Consider a bond bought with a 1.25% coupon. When that same bond yields a mere 2.5%, the value of the bond gets cut in HALF.
Now, that in itself is problematic already. But if not properly managed (it’s why “managing the press” is so important to the powers that be), it could quickly spark mass withdrawals from depositors seeking higher returns on their money, which itself results in a wave of bank failures… and that itself results in further withdrawals.
Furthermore, consider all this a timely reminder that money in the bank is NOT YOURS. You are an unsecured creditor in what may very well be an insolvent institution. Some countries don’t even have deposit insurance, and every penny can be taken.
Also, the way we see it, holding some gold here might not be the stupidest idea.
ALL THINGS TRANSITORY…
Feels like a lifetime ago, when — back in February 2020 — we started warning that lockdowns will bring about inflation and shortages. Fast forward to today, and this pesky stuff is now part of our daily lives. We recently set up a dedicated inflation channel in our Insider private forum, where members can share their own experiences with all things “transitory”.
Insider member Sean has a report on healthcare costs in the Bailiwick of Jersey:
Today I was told that a doctors visit in Jersey has increased from £53 to £64 (21% increase) and a home visit has gone up from £106 to £132 (25%). So if you live in Jersey don’t get sick….
While not exactly an apples-to-apples comparison, the UK puts the most recent annual health care increase at 6.8% (more on official statistics in a moment).
Perhaps better suited for our humour section, but as member Stefan pointed out, supply shortages keep rearing their ugly heads in the most unlikely places.
This time around, they came for high end watches. Don’t believe us? Take a look at this and watch the timepiece on the French president’s wrist just vanish.
Now, government pointy shoes are known for their near-magical ability to make things disappear. Typically, this entails taxpayers’ money. But Macron takes dark art to a whole different level. Impressive!
THE LEHMAN OF VENTURE CAPITAL
One of the topics Chris and Jason discussed in the podcast mentioned at the beginning of this missive was the bust of the “growth” bubble, particularly in relation to the major players in that arena such as Softbank, ARK, etc.
Many years ago (back in 2019), Chris wrote an entire article about the Softbanks of the world. He also detailed exactly how that story would play out. Here’s an excerpt:
In every business cycle there is an excess in some sector of the market and it finally gets cleansed.
I was still cutting my teeth with the pointy shoes in the investment banking world when I experienced first hand the tech boom and bust in the late 90’s and 2000’s.
And we all know about the GFC, which was an excess in the housing market. That was a 2008 affair.
Purely from a timescale perspective, we’re due around about now. We sure as hell are pretty damn pregnant. Take a look around yourself today and tell me what’s crazier than WeWork, Uber, Lyft, Alibaba, Tesla, and yes, SoftBank?
I’m 100% certain that this time around it’s going to be VC.
Is this likely to happen tomorrow? Probably not, and maybe not even for some time. But it absolutely needs to be on your radar because this bad boy is a bug in search of a windshield.
While Chris’ article might seem prophetic today, this show is far from over.
As you can see in the chart below, Softbank shares might’ve crashed ~50%. But they are still largely where they were when Chris wrote his article — with much further to go.
In fact, as Chris mentioned in the most recent Insider Newsletter issue:
The coming implosion (give it 12 months or less) as the venture capitalists books are going to begin to be forced to mark-to-market their positions is going to be epic. I say they’re going to be forced to do this because most VC funded firms have 12 months of runway, and pray tell, who’s going to keep lending money to mostly (not all mind) cash incinerating Silicon Valley startups? So start your stopwatches and let’s clock back in 12 months from now or so (probably less).
Let’s check back in March 2024, shall we?
To continue with our “inflationary” humour…
And a reminder that official statistics might not accurately reflect reality (h/t to Insider member Patrick).
Have a great weekend!