Every year we do a market forecast where our first statement is: “This year we will be surprised by something we didn’t see coming, that no-one predicted”. Last Monday, if someone asked you what your financial worries were you may have responded by mentioning something like inflation, the direction of interest rates, corporate earnings, market volatility, geopolitical concerns about China or the war on Ukraine, or the debt ceiling and political brinkmanship.
These topics have dominated financial headlines for months. Uncertainty about outcomes persists, but because these issues are well researched they don’t rattle the market and investors in the same way that a surprise does. Surprises differ from uncertainty. When we work with clients we address how they, and their plan, might handle a surprise as this is critical to successful long term navigation of any investment strategy. During times of surprise, it is that strategy that allows us to continue moving forward despite short term shocks.
Let’s review how we got to Silicon Valley Bank’s (SVB’s) collapse:
On Thursday and Friday, SVB, whose customer base was primarily technology and biotechnology start-up companies, experienced huge cash outflows. The bank was forced to sell some of their investments to meet withdrawals. These investments in high quality bonds, purchased before the interest rate increases that began last year, were sold at a loss.
Regulators stepped in on Friday to close the bank. Over the weekend, Fed Chairman Jerome Powell, Secretary of the Treasury Janet Yellen, and FDIC Chairman Martin Gruenberg and their teams met to address the crisis. They issued a press release Sunday announcing that all SVB depositors will be made whole, including those accounts over the $250k maximum FDIC limit. They also stated that additional backstop support will be provided for other banks whose assets may also be ‘underwater’ due to interest rate increases.
The fact that our Central Bank, Treasury and FDIC pulled together by the next business day speaks very positively about the nimbleness of these large institutions to protect both depositors and other banks.
At Gates Pass, we don’t even attempt short term market forecasting. We create a unique long term strategy with each client, and also make it a point to connect with our clients regularly to confirm any changes or updates to their personal short term situation. Our core foundation of financial planning continues to provide clients the requisite perspective and clarity needed to get through the short term challenges.
Adjustments happen along the way as life itself brings its own surprises, in addition to the anticipated transitions such as retirement. If the unexpected happens and we have cash to put to work, surprises can create a buying opportunity where others may panic sell in reaction to fear. If cash isn’t available, we have consciously selected managers and an allocation to navigate through difficult times. The markets have always come back.
We are happy to talk with you about your concerns given the current headlines. Please don’t hesitate to reach out to us