Bank Trouble, Buffett, and DCA

SIVB Financial crumbled due, in part, to its lending to startup companies. When the economy turned for the worse, these startup companies weren't making deposits as often as during the era of 0% interest. Bond prices dropped as the Fed tightened, and so SIVB had to sell its bond assets in order to maintain solvency. All this added up to a bank run at SIVB. A bank run happens when faith in the bank is lost, and clients withdraw their money at alarming rates. When a bank runs happens, the bank often needs a "bailout" of sorts (either from the government or other banks). 

The good news is depositors with under $250,000 in the bank should get their balance. Stockholders of SIVB, on the other hand, take losses. Investing is a risk, and investors assumed the risk of a bank run when they bought shares.

The greatest risk right now is contagion. What this means is, the broad spectrum of depositors lose faith in the banking system to the extent that several banks experience bank runs. Western Alliance, PacWest, and First Republic have taken heavy losses. The Biden administration is acting to ensure that the public maintains its faith in the banking system. Biden sent delegates to Omaha, Nebraska, to consult with Warren Buffett. Buffett injected capital into struggling banks during the 2008 financial crisis, and he may do so now in 2023.

There were additional moves to shore up the banks. Firsts Republic got $30 billion in deposits from the big banks. Credit Suisse got a $54 billion credit line from Swiss National Bank. Subsequently, UBS agreed to buy Credit Suisse in an all-stock deal. Currently, mid-size banks are asking the FDIC to ensure all deposits for the next two years.

Andres Cardinal at The Data Driven Investor wrote two highly informative articles on the state of the banks. I highly recommend subscribing to his service. The Wall Street Journal and Seeking Alpha have numerous articles on the situation.

The extent to which the public retains confidence in the banks remains to be seen. If confidence continues to diminish, that could make for a rough recession.

On another subject, I decided to DCA into the Model Portfolio last Thursday. These are the additions.

SNOW    2 shares at $135.62

CRWD    2 shares at $133.12

CB          1 share at $186.80 (FINBOX has CB 44% undervalued).

WM        1 share at $153.15

GOOGL  2 shares at $101.62

AMD       2 shares at $97.84

If the market continues downward, I may add more aggressively.

The current Model Portfolio holdings are AMD, CB, CELH, CRWD, GOOGL, MA, SNOW, and WM.

That's all for now. Have a great week!

This website is created and authored by Marlin Sandlin and is published and provided for informational and entertainment purposes only and merely cites my own personal opinions.  I am not a financial advisor, and this website is not intended to constitute investment advice or provide specific advice or recommendations for any individual or on any specific security or investment product.  Any action you take upon the information you find on this website is strictly at your own risk.  This website may share links to articles and information which is interesting to me, but it is in no way an endorsement by me or by anyone associated with me.  The views reflected in the commentary are subject to change at any time without notice.   I may or may not hold investments in the companies or securities discussed on this website.

Marlin Sandlin owns shares of Crowdstrike (CRWD), Alphabet Inc. (GOOGLE), Waste Management, Inc., Chubb Limited (CB), Advanced Micron Devices, Inc. (AMD), Mastercard Incorporated (MA), Snowflake Inc. (SNOW), and Celsius Holdings, Inc. (CELH).






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