House prices
frog wrote:Specifics of SVB is one thing.
The bigger issue is that sharply higher interest rates after so long being low is starting to show up weaknesses in banks and swags of business all over the place.
Contagion and flow on from SVB is a risk but also now everyone is on alert that the ice is thin all over the place looking for the next breakage.
Big shift in market psychology.
EXACTLY!!!
And we all know what happens to the market due to bearish psychology!!!! Every jumps out the windows at the first sign of market dumping.
gsco wrote:maybe.
I see a lot of people blaming the HTM rules, as well as the post-GFC quantitative easing and ultra low interest rates combined with the now very aggressive Fed tightening (like ZeroHedge).
But the actual cause of SVB failing seems much simpler than that:
https://twitter.com/brandonjcarl/status/1634369256463761408
And, as mentioned in the ZeroHedge article, SVB only just now (i) sold some long duration (at a huge loss) and bought shorter duration bonds, (ii) hedged some of their long duration exposure, and (iii) increased their long-dated funding (basically moving more towards asset-liability duration matching).
ZeroHedge says: "None of this is shocking, and yet the market was clearly surprised. Why?
This is a ridiculous thing to say. Of course the market is surprised. It's all a year too late and most likely an illogical and self-sabotaging thing to do right now at this point in the interest rate cycle.
What a bizarre situation.
A fair bit of manipulation going on by the opposite side of the fence (JPM) it would appear.
https://www.zerohedge.com/markets/record-bank-run-drained-quarter-or-42-...
Remember during the gfc - the thing that concerned CBs most was if businesses (mainly banks) stopped lending to each other and doing business with each other, cos they were worried the other party wasn’t good for it? The cogs might be starting to freeze again. If that happens, it’ll probably take interest rates out of the hands of the CBs, again.
Sentiment = liquidity
etarip wrote:Did the change in regulatory requirements made in 2018 contribute to this ‘surprise’? Or would it have made no difference?
Most of it is over my head, but I’m interested that there are (some) calls for a bail out. Can’t see that happening though?
No I don't actually think Trump's 2018 rolling back of some of the Dodd-Frank Act caused this, no matter how hard the left is going on the issue.
A bank the size of SVB still had to submit stress tests, just less frequently, as mentioned here. And the whole debate is starting to drift into "victim mentality mode" in that it seems to be forgetting that a bank is not profitable when it fails. It's kind of in everyone's interest that banks don't fail regardless of their regulatory obligations. Australian banks regularly exceed their specific regulatory requirements.
It seems to have been some very basic failures in bank management, particularly risk management, and possibly failures in regulatory oversight by the government for seemingly not noticing what was happening. (Not sure if I'm buying ZeroHedge's argument that SVB was basically intentionally sabotaged by an external party..)
Again, SVB seems to have been living in its own little "HTM bubble":
SVB is/was not like the others because a prudent bank hedges interest rate risks. SVB did not.
— AndreasStenoLarsen (@AndreasSteno) March 11, 2023
Chart from JPAM / Michael Cembalest pic.twitter.com/qfm6MbM0Oz
Wolf Richter's write up of the demise of SIVB
https://wolfstreet.com/2023/03/10/rip-silicon-valley-bank-shut-down-by-c...
SVB's focus on tech and start up and living in the silicon value easy money, can do, get rich quick environment would have a very risky loan book with poor collateral (blue sky, crypto, over valued real estate) backing loans.
A risky bank. Many loans to tech start ups with no cash flow or perhaps some but profits years away.
Being in Silicon Valley is also much more impactful psychologically to the US market than some unknown bank in say Ohio.
Decades of Silicon Valley hype has been shaken big time.
Yes but actually the problem was that a very large portion of its assets were in bonds, with only a small portion in loans:
“The bank says it has $US212 billion of assets of which 62 per cent is in high quality fixed income securities and cash, and just 35 per cent in the form of loans to customers.”
So it was heavily overexposed to increasing interest rates / bond yields, and evidently even unhedged.
From: https://www.afr.com/markets/equity-markets/silicon-valley-bank-where-the...
Interesting article: https://www.wsj.com/articles/who-killed-silicon-valley-bank-interest-rat...
Yes, it seems some simpler mistakes were made:
WSJ:
"Management screwed up interest rates, underestimated customer withdrawals, hired the wrong people, and failed to sell equity." SVB set up a Board noted for its diversity composition but maybe not so much priority was given for financial literacy and oversight of risk skills::
"... SVB reached for yield, just as Bear Stearns and Lehman Brothers did in the 2000s. With few loans, these investments were the bank’s profit center. SVB got caught with its pants down as interest rates went up.
Everyone, except SVB management it seems, knew interest rates were heading up."
And: Silicon Valley Bank had no official chief risk officer for 8 months
"Laura Izurieta stepped down from her role as CRO of SVB Financial Group in April 2022, and formally departed the company in October, according to an SVB proxy filing. The bank appointed her permanent successor as CRO, Kim Olson, in January of this year.
"It is unclear how the bank managed risks in the interim period between the departure of one CRO and appointment of another."
https://fortune.com/2023/03/10/silicon-valley-bank-chief-risk-officer/
I guess "diversity" is more important than the risk function.
You gotta admit that would be a pretty sweet gig being a chief risk officer and like Luke's shot on the death star there is a certain rare scenario that blows you up and no one sees it so you just continue to bank coin.
OK, is this the fix coming in?
https://www.macrobusiness.com.au/2023/03/how-the-us-bailed-out-the-banks...
shoutout to Flollo, who said this would keep happening. So quickly!
Oh yeah it says they euthanised another NY bank as part of it.
Feeling euphoric now, so I'll link this. Not so much because of the title (although it's having big moves) but more so the bit about always believing in yourself (ie - be confident! Things are good!):
They didn't mess around. Even backed all uninsured deposits. Being able to pledge collateral at par (face value) in the new financing facility is interesting.
And HSBC has agreed to buy SVB's UK arm for a whopping £1. Would love to see some more details of the UK arm's financials.
The 18th biggest bank is too big to fail? Actually, scrap that… Signature bank is also too big to fail… and it’s 29th biggest.
I am certain if the profile of the depositors was different, this would’ve played out very differently. This is gfc 2.0. My god they’re crooked.
What I don't understand is how can they (US Gov) say that all deposits will be covered and this won't cost the US taxpayers a cent? Are they just creating the $200B out of thin air?
donweather wrote:What I don't understand is how can they (US Gov) say that all deposits will be covered and this won't cost the US taxpayers a cent? Are they just creating the $200B out of thin air?
Good explanation here: https://wolfstreet.com/2023/03/12/silicon-valley-banks-uninsured-deposit...
To start with the FDIC guarantees all deposits up to $250k by operating as a US government run pretty stock standard insurance company. So its funding is insurance premiums paid by member banks and other institutions. This covers a very large portion of depositors.
Secondly, in response to SVB the govt just set up a new funding facility called the Bank Term Funding Program (BTFP) which enables banks and other institutions to take out 1yr loans with the Fed (what they call the discount window) via pledging as security bonds, mortgage backed securities and some other eligible instruments. The Fed does just create money out of thin air for this, just like QE. Borrowers have to pay interest on these 1yr loans though.
This will pretty well cover all deposits. There may technically be some that are still not covered, but it seems that things are “all good” for now.
Edit: The specifics of the handling of SVB and Signature are well detailed in the Wolf Street article.
For instance Circle (Crypto stable coin USDC) had well over $250k of deposits, so I don't understand how they're covered without taxpayers forking out something? Interesting that the US Gov would just print to cover these significant USDC deposits (talking billions here).
This is specific to the winding up or sale of SVB.
The FDIC is basically acting as an administrator and liquidator of SVB, is still trying to find a buyer for it, and runs it as a “bridge bank” pretty well as per normal in the meantime.
Any loss incurred by the FDIC in the process of making all depositor funds available while resolving the issue will be recovered by a “special assessment on banks” which basically means charging the banking sector higher insurance premiums in its role as a deposit insurance company.
https://www.fdic.gov/news/press-releases/2023/pr23019.html
https://www.wsj.com/articles/fdic-planning-another-svb-auction-d63c8929
https://www.federalreserve.gov/newsevents/pressreleases/monetary20230312...
gsco wrote:This is specific to the winding up or sale of SVB.
The FDIC is basically acting as an administrator and liquidator of SVB, is still trying to find a buyer for it, and runs it as a “bridge bank” pretty well as per normal in the meantime.
Any loss incurred by the FDIC in the process of making all depositor funds available while resolving the issue will be recovered by a “special assessment on banks” which basically means charging the banking sector higher insurance premiums in its role as a deposit insurance company.
https://www.fdic.gov/news/press-releases/2023/pr23019.html
https://www.wsj.com/articles/fdic-planning-another-svb-auction-d63c8929
https://www.federalreserve.gov/newsevents/pressreleases/monetary20230312...
So other banks fork out the bill essentially to pay for a fcked up bank
Interestingly the FDIC invests in Treasury Notes...oops.
I'll try to find the link but they dont have enough cash to cover all the deposits because of the losseson the treasury notes - lots of banks, money market funds and so on in the same position.
The FED is offering loans to cover these losses until such time the bonds mature.
Its not good.
yes correct Don. It's not a bad solution really.
And since the FDIC is continuing to operate SVB as a going concern (for the time being), with all deposits fully backed and everyone's accounts open and fully accessible, not everyone will necessarily feel the need to withdraw their deposits.
Not sure of the numbers here in terms of how many people have stayed put. Lots of articles reassuring people that their money is safe:
https://time.com/6262567/money-safe-silicon-valley-bank/
https://www.cnbc.com/2023/03/13/what-the-svb-and-signature-crashes-mean-...
https://www.sfchronicle.com/bayarea/article/silicon-valley-bank-17834904...
@monkeyboy, as per the FDIC's financial report, it has a large holding of US treasuries (as per its function as an insurance company):
but all of which are relatively low duration (relatively short maturity), with half maturing within one year, and they have only a relatively very small unrealised loss:
https://m.
gsco wrote:yes correct Don. It's not a bad solution really.
but all of which are relatively low duration (relatively short maturity), with half maturing within one year, and they have only a relatively very small unrealised loss:
Plenty of losses there. I imagine many insurance companies are in the same boat, remember this is exactly what happened with the UK Gilts albeit temporarily. Its not enough to cover all the insured deposits in the US banking system. It shouldnt have to be as you'd assume not all the banks would go broke.
There will be repercussions.
I removed my money from Schwab US a few months back because of the state of the US banking system. Not out of any paranoia just a general trend in the US to lock people out of their funds (like being unable to sell any holdings in Russian companies).
This is a good one, some of these numbers are strong. No major crisis yet.
‘The APRA publication also reports on the volume of housing loans that are non-performing (or 90-plus days past due), as well as loans where payments are late by 30-89 days. In the December quarter of 2022, the total portion of loans with late repayments sat near record lows of 1.01%. This increased from 0.98% in the previous quarter, led by a slight uptick in the volume of loans that were 30-89 days past due (from 0.3% to 0.4%).’
https://www.corelogic.com.au/news-research/news/2023/apra-release-shows-...
flollo wrote:This is a good one, some of these numbers are strong. No major crisis yet.
‘The APRA publication also reports on the volume of housing loans that are non-performing (or 90-plus days past due), as well as loans where payments are late by 30-89 days. In the December quarter of 2022, the total portion of loans with late repayments sat near record lows of 1.01%. This increased from 0.98% in the previous quarter, led by a slight uptick in the volume of loans that were 30-89 days past due (from 0.3% to 0.4%).’
https://www.corelogic.com.au/news-research/news/2023/apra-release-shows-...
I think mortgage repayments (or lack of) are one of the last things to be gauging a crisis on. First signs are radical drop in discretionary spending along with a surplus of second hand items going up for sale. Such as second hand cars, caravans etc, toys like jet skis, slowing of holiday bookings particularly overseas, and even things like big Fck off second hand tvs. People will flog off a lot of things and not book future holidays etc before they start missing mortgage repayments.
Check out the very interesting graph in this article.
https://thenewdaily.com.au/finance/2023/03/16/rate-hikes-households-bank...
Makes it all the more clearer now why US banks are feeling the pinch way more than Aussie banks.
https://www.abc.net.au/news/2023-03-16/credit-suisse-stock-slump-trigger...
Another crack in the banking system
Dead Cat Bounce IMO.
https://thenewdaily.com.au/finance/finance-news/2023/03/15/property-pric...
Key here is current stability in prices is being led my lack of supply. Once supply goes up prices will continue to drop even more so once people coming off fixed mortgages into huge jump in variable rates will have no choice but to sell the air bnb or holiday house or investment property.
Also a very well written and articulated article on how SVB died.
https://www.abc.net.au/news/2023-03-13/why-the-collapse-of-silicon-valle...
All is well.
ZH
Breaking from a Credit Suisse employee: “panic, meltdowns, people crying.”
Then SNB bailout.
But
" this is a last-ditch liquidity infusion, and all it does is prevent forced asset liquidations (a la SVB). Meanwhile it does nothing to halt the depositor flight because once trust is broken, it rarely returns."
Contagion risk ....
donweather wrote:Key here is current stability in prices is being led my lack of supply.
And continuing high demand.
freeride76 wrote:donweather wrote:Key here is current stability in prices is being led my lack of supply.
And continuing high demand.
Plenty of demand in my area. One of the neighbours put their house on the market and it was sold a week later. Other one also put it on the market and had an inspection last Saturday. The street was full of people.
my mate in RE reckons 5% down to flat here and we are at the bottom, will bump along prob this year but if RBA drops a rate cut he reckons will go ballistic as FOMO buyers trying to time the bottom of the market and high demand from immigration in the cities combine.
we'll see.
barely skimmed the cream off the pandemic rises, that's for sure.
He's saying another 5% drop max?
Ex-neighbour is selling in the mid to high 2's.
Down a bit from the crazy peak but he's had heaps of interest in the past three weeks since it's been on the market with a few genuine non-tyre kickers.
This guy says 15-20%
https://www.realestate.com.au/news/property-prices-fall-after-zac-efron-...
Who to believe?
"“Last year there were six properties listed below $700,000 across the shire’s main towns and villages."
What, pre-fabs in van villages?
Believe the local knowledge Kaiser.
my mate is still up there 3 days a week cheffing for the Hemsworths. They're going nowhere.
And the 3 bed brick and tile lego box just around the corner that last went to market in 2019 for 800000 just sold for 1.3 million.
These things I definitely know to be true.
Spec homes made by builders for price on tiny blocks on the wrong side of the hill are easy enough to come by but if you want a house on a nice block you'll be in a queue with cashed up Boomers paying overs.
Averages in Northern Rivers, of course, have been dragged right down by massive floods where anything underwater has to be sold at a discount. Still over what it was pre-pandemic.
Even the most flood prone Lismore dumps are getting sold to investors looking to cash in on high rents and housing shortages.
Nothing has changed in the fundamental equation: high demand, not enough supply.
Backpackers have now returned at pre-pandemic levels and they also need a roof- not all can live in their vans because the demand for labour is still so high.
Fair enough FR, was more of a ‘opinions are like arseholes’ jibe. Personally I’m noticing an uptick in props for sale (funny how our own little bubble shapes our macro view). As you say, the good ones have a queue lined up for them. But most of what’s coming on is not A grade stuff. Usual flight to quality or at least sticky demand for good product that happens at this part of the cycle. Will see how it goes from here, but the impact on lending capacity will have to come to pass eventually, once all those with cash dwindle down.
TBH, I think the RBA has played it pretty well- they were late to move and have raised much less than our peers (NZ for eg) which has kept full employment and just taken some steam out of demand until supply issues are resolved.
If they cut later this year it'll go bang-o again, but this time with more capacity in supply and labour.
Just my opinion, we'll see.
FR…You don’t need to be to be a boomer to be cashed up, but you know that.From what I observe plenty of cashed up media personalities and yuppy(if that’s still a term) types in the queue as well.Queue the Painters and Dockers.
kaiser wrote:Fair enough FR, was more of a ‘opinions are like arseholes’ jibe. Personally I’m noticing an uptick in props for sale (funny how our own little bubble shapes our macro view). As you say, the good ones have a queue lined up for them. But most of what’s coming on is not A grade stuff. Usual flight to quality or at least sticky demand for good product that happens at this part of the cycle. Will see how it goes from here, but the impact on lending capacity will have to come to pass eventually, once all those with cash dwindle down.
This is a good observation. Although I follow the market regularly I often don’t even look at the property unless it’s high quality (and there’s a fair bit of subjectivity here though). One thing I definitely did notice is that it’s is much harder to sell a crappy property for outrageous amounts of money. Those shittier ones have definitely come down in value. Part of it could be the realisation that getting labor/materials to conduct upgrades and fixes is very expensive and hard to come by.
Here we go again
- "But they're doing the restructuring right now when we may possibly be close to the top of the interest rate cycle"
Like many it seems, we're looking to lock in our mortgage (not too big luckily) so i've come to Swellnet for clear thinking and honest opinion on global finance.
iheartSN
GSCO - top of the cycle? We've decided on 2 years but it's like playing lotto. Do you think we would get a better deal in 2 years time? Complicated question I know and I won't hold you to anything just curious if you or anyone has any intel that might help? Seems folk are expecting another finance roller coaster sometime soon
freeride76 wrote:TBH, I think the RBA has played it pretty well- they were late to move and have raised much less than our peers (NZ for eg) which has kept full employment and just taken some steam out of demand until supply issues are resolved.
If they cut later this year it'll go bang-o again, but this time with more capacity in supply and labour.
Just my opinion, we'll see.
I don't have a perspective on this other than that it's really hard to swallow that RBA millionaires make decisions that ruin lives, and generally all we do is take a big picture view of it and decide whether it was good or not. Rate rises have been a nightmare for my friends and family with mortgages - full cliche things like kids not getting new shoes or winter uniforms, not going on excursions, sleepless nights, third jobs, relying on charities, stealing from supermarkets. I've been hit up more for money in the last two months than in the last 10 years. Conversely I've listened to wealthy losers talking about how they're making more money now than before rate rises. Australia is a fucking nightmare.
Havn't you heard the news dandandan.
The wealthy are the winners!
Every one else is a patsy.
What a deal
Is the $2b funded by their central bank at all? Otherwise who’s gonna pay $2b for a failed bank? UBS have shares? If so will be interesting to see their shareholders reaction to this bailout.
https://www.abc.net.au/news/2023-03-20/ubs-backed-by-swiss-authorities-t...
It’s actually $3b or maybe that’s AUD in the article above?
The global derivatives market is a $2+ QUADRILLION (2,000+ TRILLION) ticking time-bomb. When banks fail, derivatives won't just unwind in an orderly fashion. Few people understand this.
— Gabor Gurbacs (@gaborgurbacs) March 19, 2023
These are some of the top U.S. banks ranked by derivatives exposure (double-digit TRILLIONs). pic.twitter.com/cS23fazqZH
A long read but very interesting.
House prices - going to go up , down or sideways ?
Opinions and anecdotal stories if you could.
Cheers