House prices

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Blowin started the topic in Friday, 9 Dec 2016 at 10:27am

House prices - going to go up , down or sideways ?

Opinions and anecdotal stories if you could.

Cheers

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velocityjohnno Friday, 3 Mar 2023 at 9:19pm
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batfink Friday, 3 Mar 2023 at 10:18pm
frog wrote:

Earnest Hemingway famously quoted:

“How Did You Go Bankrupt?” “Two Ways. Gradually and Then Suddenly.”

Financial crisis within businesses and the economy as whole have an element of this in the processes that lead to the big events.

Pretending, extending, hoping, denying, fiddling, borrowing, begging etc. can stretch out the lead up a long way.

Lag effects of policy moves can be 6 or 12 months or more.

In the background, weaker businesses, with high debt now are now getting squeezed big time by interest rates and input cost inflation.

In the economy, massive flows of money in the economic pipelines are freezing here or there and lenders pull in loans or decide collateral offered is no longer adequate. Pipes freeze and break until in market terms "somethings breaks".

Interestingly, the UK bond market or Credit Suisse could have been that break last year but was just papered over. Countries like Pakistan are close to breaking.

What else is out there that is creaking or freezing under strain? Quite a lot.

The Hemingway quote is very good, frog.

I agree with you, think we’re on a precipice. Somewhere later this year we’ll either go over the edge or we’ll skim our way out of serious trouble. My thinking is that the odds are on a recession for Oz, I think the RBA have already gone too hard, but they don’t care, they are only interested in inflation (one-eyed man problem).

But the entire western world could also go under, in which case it’s a full on depression. One cascades into another.

My other concern, probably bigger, is that nations tend towards war as the inevitable approaches. Rather than work with the mess they’d rather create a bigger one, as a distraction. Some scary times ahead.

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velocityjohnno Friday, 3 Mar 2023 at 10:23pm

Leaning toward recession as well now, before I thought we'd bail it out again. Still, I can't yet see it as fully in the Aus yield curve, compared to the eyebrow-raising US one.

Flannel was really in during the last recession. And not in a weekend BBQ wagyu and shiraz sense.

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Nick Bone Sunday, 5 Mar 2023 at 8:46pm

Out of curiosity, instead of billion dollar profits, could banks pass on interest rates hikes? Hey now, you don’t have to run at a loss, hell, you can make millions and help millions too?

I know it’s probably a bit more complex than that so enlighten me..

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flollo Sunday, 5 Mar 2023 at 9:16pm
velocityjohnno wrote:

https://www.reddit.com/r/AusFinance/comments/11fxtjn/australian_youth_gi...

What a shitstorm has ensued.

I don’t know about this. I know quite a few young people who are doing really, really well. And even if it’s not exceptionally well, I really don’t know any that have given up or just working 2 days a week to get by. I don’t know what the average condition is though, this post you shared is definitely not my experience.

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mowgli Tuesday, 7 Mar 2023 at 12:56pm

Yeah mine neither. Almost everyone I know is uni-qualified (at least one) and is grinding away and not giving up. In my social circle it's been more about not putting up with shit employers or bullshit hours. I think there's been an underlying conflict/cold war happening the last couple of years between Gen Y and Gen Z versus Boomers and Gen X.... who are telling us "these are the rules, work 50+ hours a week, get ahead, your kids won't care if you don't show up to their soccer matches.... get money, get ahead of your neighbours and mates, get a heart attack, get dead, FTW!"

.... and we're all going yeah nah fuck that sounds like a shit deal. My social network includes tradies, doctors, teachers, accountants, actors, firies, finance bros, graphic designers and public servants... All but one are just not interested in the slightest about "becoming CEO" one day (you guessed it, the exception is the finance bro hahahaha).

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dandandan Tuesday, 7 Mar 2023 at 1:50pm

Plenty in my circle, including myself to a certain degree. The main material concern we share is that we’ve all grown up poor with assetless parents. It’s our lives experience, demonstrated to us our whole lives, that working hard counts for nothing if your peers were given $250k when their grandparents passed away, and a million or more in assets when their parents did. You can work yourself stupid, but for what end? All of this is a social construct, an entirely failed one if you ask me, and so there’s a sense of just refusing to participate in something that doesn’t align with your values or serve a common good. The other thing we all share is that we all spend at least 20 hours a week working on things that really matter without being compensated for it - it’s not some desire to just “not work”, but it’s a commitment to not doing some Bullshit Job (Vale David Graeber) and instead giving your life to things that are essential and matter.

Basically the materials conditions we live under are perfectly primed for a Counter Culture 2.0 - inflation, stagnant or declining wages, electoral apathy, etc - and I’d imagine this will become more common, before inevitably being eaten up by capital all over again.

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freeride76 Tuesday, 7 Mar 2023 at 2:56pm

"Basically the materials conditions we live under are perfectly primed for a Counter Culture 2.0 "

Thats interesting Dan- what shape do you think that might take?

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velocityjohnno Tuesday, 7 Mar 2023 at 3:12pm

Yes very interesting Dan, so there's a bit of similarity to all those people posting on reddit.

The Z's I see are really hard working - incredibly resourceful too, very physical, and hands-on. Almost all are tradies, in our regional area. Some went to Defence. Some at uni in medicine/other paths. Most are concerned with making good now, and some looking to go on the mines as soon as apprenticeship finishes. They want to get ahead fast, and are open to learning things like finance outside of hours.

I've seen the boys bust a front axle on a 105 series off track, then calmly pull the whole front axle apart where it lay, and then drive home in RWD. And a 2nd time when a front diff blew up on a different car. Nothing seems too hard for them. They will do well.

Most of the 1990s was a grind in career/going nowhere as Mowgli says, for our gen... "Job hogs" kept promotion to a minimum (they had 17% mortgages to pay I guess). Then the mining boom took off, and if your ideal job was marine biology, you were banking coin on a rail track in the Pilbara. It is what it is.

I did what your friends want to do, at about 31. Bailed the lot of it. One, because I could by that stage, and two, because life threatening illness kind of pushed me to do it, a little before I was ready to tbh. Almost as important was becoming a parent young, and seeing what happened to my Dad (sent to boarding schools at age 7!) - I determined I would always be around for the kids and for the most, was able to achieve that. Or at least half the time when work was busy and I was sent remote. So my gen still in the workforce have become hardarses that demand 50 hour weeks?

If we get a world where the mining deus ex machina isn't there, yeah, I wonder how that will go.

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Island Bay Tuesday, 7 Mar 2023 at 3:52pm

The people I've seen do well without any inheritance or assistance from parents have all started investing early. Small amounts to begin with - say a flat white a day and the Saturday morning smashed avo, to use a fat clichee - but it soon made a difference. Big enough for instance to buy cheap rental properties.

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dandandan Tuesday, 7 Mar 2023 at 5:29pm

I think it’s interesting to think about what shape a second run of the counterculture could take, but I’m aware how much nostalgia can play into it and a true expression of it can’t be premeditated. I’m around a lot of 19-25 year olds both for work (I’m lecturing again) but also in activist circles, and there’s a real genuine rejection of the expectations and norms placed before them - not exclusive to their age though of course. It’s a small niche, but they always start off that way. They want their time on earth to be theirs, for everyone to be looked after, and be free to put their labour into projects that matter.

I also see people who see their way out of the struggles people are in now is to accelerate their pathway through it and become beneficiaries of the system, rather than being part of the efforts to change the system change for all. They’re investing early and planning to become landlords to take a passive income from the labour of others, so that they can ultimately end up in the same place as the former group - in control p their time.

Housing is fundamental to it all, given we all need somewhere to live and that alternative housing becomes harder and harder - capitalism has a way of monetising everything. AirBnB for shacks/caravans/dll, Camplify for vans, HipCamp for patches of land etc etc etc. I’m sure there’s a more eloquent way to say it, but some people will find their freedom from the system by denying housing to others.

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dandandan Tuesday, 7 Mar 2023 at 6:04pm

Would love to read more about what bailing on all of it meant for you VJ!

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sypkan Tuesday, 7 Mar 2023 at 6:06pm

"...The key issue is property. The changing class dynamics are reflected by patterns of land ownership. House prices have grown three times faster than household income over the past two decades, as the OECD noted in 2019. In this new order, writes economist Thomas Piketty, ‘inherited wealth will make a comeback’. In France, inheritance as a share of GDP grew from roughly four per cent in 1950 to 15 per cent in 2010. Millennials who received bequests inherited more money than many workers make in a lifetime. The growing importance of inherited assets is even more pronounced in Germany, Britain and the US.

These trends have been exacerbated by a climate-driven housing policy that seeks to pack people into dense urban areas. Such policies are reversing 75 years of expanding property ownership in the US, Canada, the UK and Australia as well as other high-income countries. Property ownership, widely seen as key to middle-class status, is morphing into a rich man’s game. In the decade from 2010, the proportion of real-estate wealth in the US held by middle-class and working-class owners fell substantially, while that controlled by the wealthy grew from 28 per cent to 43 per cent. In this period, high-income households enjoyed 71 per cent of all gains from housing wealth, while the shares of middle- and lower-income families declined precipitously..."

https://www.spiked-online.com/2023/03/03/a-neo-feudal-war-on-the-people/

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velocityjohnno Tuesday, 7 Mar 2023 at 6:37pm

Hi Dan, bailing it... OK. I'd been working pretty hard as mining boom phase 1 came to a close and the GFC dawned. Run myself down. I remember a quick trip to sites Esperance/Ravy/Albany and back, about 14 hour days, an emergency run up to Karratha for what turned out to be a 22 hour day, home, and then a return up there shortly afterward that saw 22 days straight, out in the sun, up ladders and on roofs, 38 degrees, 80% humidity. Must've got a flu or infection, my body collapsed. Flown back to Perth, totally fucked and really worrying medical numbers, all sorts of tests done, diagnosis, and an announcement I had 5 years to live. So you could say the pressure was to throttle down the career. My boss was really good, he said come back in whatever form you can, but I realised my well paid days of flying all round Australia for my role on demand (and keeping half my time at home, going to the kindy show and tell days etc) were on the way out. We'd done well in the mad asset appreciation of the mining boom after a lost decade in the 90s, and what we'd learned in the 90s was to live very frugally. It was a bit earlier than I had planned, but the decision was made to cash in chips, travel around Oz again (first time sent was a huge work contract! So good!) with the kids, and enjoy what was left of this life. We home schooled, again. It was time to reduce stress, eat well, and live. And an amazing thing happened, I lived a lot longer than predicted, and my % of the condition reduced considerably.

There's been twists and turns, some for the worse like nearly dying again, some for the better like miracle treatments and getting to watch all our kids graduate high school, which I didn't know if I'd get to see. Take each day as it comes!

So that was the start of 'bailing it' but we all worked in the local community we live in, my reasons were definitely to do something I thought really mattered and lifted other's lives, good for the soul although not huge pay. Did that until covid, when yet again I was in the firing line, related to the condition once more. Currently debating if I can go back out there yet, I still want to help but gotta make sure I'm OK, too.

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indo-dreaming Tuesday, 7 Mar 2023 at 6:47pm
Nick Bone wrote:

Out of curiosity, instead of billion dollar profits, could banks not pass on interest rates? Hey now, you don’t have to run at a loss, hell, you can make millions and help millions too?

I know it’s probably a bit more complex than that so enlighten me..

Nah doesn't really work like that, if banks didnt pass on rate rises RBA would just raise interest rates higher, they raise interest rates for a reason

The theory goes something like, when its more expensive to borrow money, people will spend less, demand falls and so does the price of everyday goods and inflation is then kept in check.

So it would be silly for the banks to not pass on the rate rises, they would not only be screwing themselves over but preventing the reason why the RBA increase interest rates, they do sometimes not pass on the full rate rise as still competing against other banks for customers.

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Stok Tuesday, 7 Mar 2023 at 11:01pm

What about ways to limit non essential spending?

Could the gov maybe via the ATO tax you depending on how much non essential spending you've done during times of tightening monetary policy?

The idea would be not to hit the people struggling to keep their houses, but to close the wallets of those with just piles of assets and disposable income.

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Island Bay Wednesday, 8 Mar 2023 at 6:57am

"I’m around a lot of 19-25 year olds both for work (I’m lecturing again) but also in activist circles, and there’s a real genuine rejection of the expectations and norms placed before them - not exclusive to their age though of course. It’s a small niche, but they always start off that way. They want their time on earth to be theirs, for everyone to be looked after, and be free to put their labour into projects that matter."

Activists mostly want to change the world, so that they can do what they think is "meaningful", while others pay them. What they should be changing is of course themselves - and that goes for all of us.

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geek Wednesday, 8 Mar 2023 at 9:30am
Stok wrote:

What about ways to limit non essential spending?

Could the gov maybe via the ATO tax you depending on how much non essential spending you've done during times of tightening monetary policy?

The idea would be not to hit the people struggling to keep their houses, but to close the wallets of those with just piles of assets and disposable income.

Ideally yes, but like the negative gearing changes proposed by Shorten it will be a guaranteed way to lose an election if a government put the idea forward unfortunately. Maybe if the RBA's tools/mandate was updated so it could be achieved independently it might avoid that situation?

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kaiser Wednesday, 8 Mar 2023 at 10:36am

I’m not au fait enough with bond yields to be able to comment with any authority, but I do know that right now, they’re doing things they’ve never done before.

GSCO and VJ may be able to elaborate, but even to an untrained eye, it doesn’t bode well.

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gsco Wednesday, 8 Mar 2023 at 2:12pm

Do you mean that bond yields are a bit unusual right now?

This is definitely the case in Canada and US, where the yield curve is very inverted, meaning that yields (the interest rate) on bonds that mature in say a yr or two are quite a bit higher than yields on bonds that mature in say 10 or 20 years.

Canada is pretty out there: http://www.worldgovernmentbonds.com/country/canada/

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truebluebasher Wednesday, 8 Mar 2023 at 2:36pm

Govt Emergency Policy is Driving up Rent...(Here's How)
Experts say Rent Crisis has nothing to do with o/s Students?
Ordinarily CBDs cop a slight hit but 2023 1st Term is supercharged!

May 2021 Govt Emergency = Tax Exempt o/s Student Jobs 20hr/wk now includes Tourism / Hospitality
Resulting in Oz top Cities Tax Free 20hr/wk Work force > (Landlords up inner city Rent)

Jan 2022 Govt Emergency = Unlimited Tax Exempt Jobs for ALL o/s Students (Unlimited hours).
Govt : "During Emergency > won't investigate Dodgy Bosses for any offence or breach of VISA!" Besties!
Again! At the time Oz had much reduced existing Student Population with no incoming students!

o/s Student Union claims Study takes 40hrs/wk ...
"These students working 40hrs/wk must now surely qualify for an entirely different Work Visa?"

Uni Dean: "Why would Aussies need to Travel > Uni supplies Oz with a Rich Cultural Tapestry!"
2023 Cultural Tapestry / re: Masters Degrees in Exotic Languages > Tik Tok + WeChat

Jan 2023 China ends Emergency & bans 40,000 Chinese online students > Must return to Oz campuses!

Jan/Feb 2023 Australia Rental Crisis
Record post covid Jump in o/s students
Record accumulated Wealth of 3yrs locked down Chinese Parents
Record (1 year) Accumulated Oz Tax Free o/s Student Income
Record 620,000 OZ Emergency Tax Free "Unlimited" Employment Base
Record 40,000 Chinese online students have just been deported to Australia
Record Up Front Bond / 6 month Rent Payments
Record long queues of 200-300 Young Folk fight over same rooms
Record Hot Bedding 12 students / 3 bed House
Record 85% Rent Jumps Nov $100/wk Room > Jan $185/wk Room (42.5% mth)

Govt corners 620,000 wealthiest well versed students to work Tax Free in CBDs.
City Bosses & Landlords now own 7th Heaven...
Cheap Tax Free Labour > Untold Rent hikes (No "Emergency Policy" investigation)

Bio Health Student Visa Emergency finishes > end of June! (Capped at 48hrs / Fortnight)
Expect ACA backlash : "My Restaurant chain needs 1,000 tax free slaves...Now...I said! > Sack Albo!"

https://immi.homeaffairs.gov.au/visas/getting-a-visa/visa-listing/studen...
How does End of June Covid Student Emergency > fit with Oz Seasonal Covid Waves...
Crew can see for themselves...

"ALL" Oz 2020/21/22 Covid Waves Peak at End of March > Wk 2 May > End July
March wave is on time & rising now as expected...take care!

PS : tbb knows wot yer thinkin'...Wot about next week's news!
{Chinese Students sparking current Oz Covid Wave} ...each Student is Tested on Departure!

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velocityjohnno Wednesday, 8 Mar 2023 at 3:01pm

Canada IS pretty out there

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kaiser Wednesday, 8 Mar 2023 at 6:10pm
gsco wrote:

Do you mean that bond yields are a bit unusual right now?

This is definitely the case in Canada and US, where the yield curve is very inverted, meaning that yields (the interest rate) on bonds that mature in say a yr or two are quite a bit higher than yields on bonds that mature in say 10 or 20 years.

Canada is pretty out there: http://www.worldgovernmentbonds.com/country/canada/

If you can show the US 10s30s and the 2s10s curve graphs - sorry I don’t know how to paste them here. Unprecedented in some respects. This might work:

https://www.forexlive.com/news/us-2s30s-curve-inverts-20220401/amp/

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donweather Wednesday, 8 Mar 2023 at 6:38pm
velocityjohnno wrote:

Canada IS pretty out there

https://www.youtube.com/watch?v=Gj1Zd8A_NEQ

Ok, I'm booking my flights to Canada as we speak!!! ;)

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gsco Wednesday, 8 Mar 2023 at 7:21pm

Typical to look at 10yr vs 1yr and 10yr vs 2yr (US yields btw):

source

And here's the 10yr vs 3mth, with recession periods marked:

source

Basically, the US yield curve is the most inverted it has been since bout 1980.

An inverted 10yr vs 3mth yield curve has predicted every recession in the above graph's time period, and right now it is very inverted.

Some theory: The yield curve has embedded in it people's expectations of future short-term interest rates/yields (forward rates). So a highly inverted yield curve means that people are expecting shorter term yields/rates to be much lower in the future than they are right now. The most likely reason for short-term rates/yields falling so much in the future would be if the US economy went into recession in the future, and hence the Fed needed to start reducing the Fed funds rate (analogous to our cash rate). It is in this sense that the yield curve is used to predict future economic outcomes like recession vs expansion.

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leonardselephantfeet Thursday, 9 Mar 2023 at 3:31pm
Wilhelm Scream wrote:

haha golden bung eye moments

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frog Saturday, 11 Mar 2023 at 11:21am

Buckle up:

"Michael Hartnett's warning that "The Fed will tighten until something breaks".

Well, something just broke..."

https://www.zerohedge.com/markets/worst-lehman-banks-break-world-again

SVB's collapse - the second biggest US bank failure in history:
https://www.zerohedge.com/markets/silicon-valley-bank-crashes-65-halted-...

The financial pipes started to freeze up in 2022 (Credit Suisse, UK Gilt crisis - but both given a brief flush of warm water to keep them fluid)

Banking / financial insiders who influence the yield curve most have seen the ice forming for 12 months.

The pipes are hidden away from most of us though until a big one like SVB breaks.

How many more are freezing up?

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velocityjohnno Saturday, 11 Mar 2023 at 3:05pm

Here is a break down of the mechanics of how that bank got itself into trouble:

https://www.zerohedge.com/markets/300-billion-reasons-why-svb-contagion-...

This is what the QE cheap credit tide receding looks like. Now we see what happens.

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frog Saturday, 11 Mar 2023 at 5:28pm

" ...... other banks are hardly doing much better, to wit: Bank of America's unrealized loss (i.e., the market-value gap between its HTB book and fair value) represents 43% of combined total equity; at State Street it is 27%; at Wells it is 25%, at US Bancorp it is 24% and so on..."
" if depositor confidence in the regional/small bank sector is now shot - and after both Silvergate and SIVB it very well may be"

A little bit of history repeating:

If you've never heard the song or watched the video - do yourself a f.... It is a classic.

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gsco Saturday, 11 Mar 2023 at 5:49pm

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velocityjohnno Saturday, 11 Mar 2023 at 8:43pm

HTM (Held To Maturity) is the 'Mark to Fantasy' from 2008-9

Isn't it interesting that the save in the previous crisis can be the fuel for the next...

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gsco Saturday, 11 Mar 2023 at 9:40pm

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:

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.

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velocityjohnno Saturday, 11 Mar 2023 at 10:31pm

No hedging and that's interesting too. First comment in link:
"Would a bank normally hedge the duration risk of HTM securities?" to which Mr Wang replies "No, and that's a good point, but not everything was HTM"
If you hold to maturity you're going to declare the value of it as what you paid until then, so would many banks bother to hedge? Especially given the entire past decade until half way through last year? I wonder if their risk officers would have a contingency plan for exactly what has just happened in the last 9 months or so.

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velocityjohnno Saturday, 11 Mar 2023 at 10:32pm

Anyway, it's getting beyond my knowledge, let's see how it progresses.

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gsco Sunday, 12 Mar 2023 at 8:57am

They had an unusually (and evidently unmanageably) large HTM bond holding relative to other banks and to their equity capital.

The irony and contradiction in people arguing that hedging interest rate risk is not consistent with the HTM (hold to maturity) classification is that SVB...um...er...sold a large chunk of their HTM holding before maturity - they didn't hold it until maturity...

The point I was making is that the balance sheet restructuring that they just did very recently which led to their failure - selling long duration bond holdings, buying shorter duration bonds, funding with longer duration debt - is what a bank does at the bottom of the interest rate cycle when interest rates are expected to start increasing (as ZeroHedge mentions).

But they're doing the restructuring right now when we may possibly be close to the top of the interest rate cycle, and in doing so they would have been setting themselves up to lose even more money if interest rates started to fall again (which is what the yield curve is predicting).

It's hard to comprehend how SVB could get things so wrong and backwards...

It's not hard to comprehend why the bank failed, and it's not due to the HTM classification or quantitative easing and now aggressive interest rate increases.

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etarip Sunday, 12 Mar 2023 at 8:58am

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?

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gsco Sunday, 12 Mar 2023 at 9:14am

will look into it a bit later (heading out) but the question of whether to bail a bank out depends on a lot more things than whether its failure was self inflicted. And there's lots of different ways a bank can be bailed out.

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frog Sunday, 12 Mar 2023 at 9:32am

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.

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sypkan Sunday, 12 Mar 2023 at 12:55pm

are these dudes really worth their big pay packets?

"In his testimony to Congress earlier this week, Federal Reserve chair Jay Powell indicated “the ultimate level of interest rates is likely to be higher than previously anticipated” and “restoring price stability will probably require that we maintain a restrictive stance for some time”. This was the tough Fed on display, and markets accordingly tanked. Yet a few weeks earlier, Powell had set the financial markets off to the races when he said, “We can now say, for the first time, the disinflationary process has started.” Financial markets, used to years of easy money, celebrate at the slightest indication that the Fed will soften policy, making its task harder. Yet they are not the only market that is not currently co-operating..."

maybe they are... to the big end of town...

it just feels like one big pumping and dumping operation now - trying to extract every last dollar out of the little man - before big end runs off with all the loot...

again...

'late stage capitalism'

by it by accident, design... or just plain clueless, cupboard is bare desperation...

nothing bodes well for little man

https://www.ft.com/content/f789eed9-cb22-46f6-a9ad-dd450e999179?segmentI...

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frog Sunday, 12 Mar 2023 at 2:19pm

The Federal reserve is a private banking cartel and core function is to protect the banking system (and especially profit its member banks).

The economic agendas it now has been given front and centre as its responsibilities are overreach - beyond its ability to control to any great degree.

Decades ago the Fed was not seen as very powerful or relevant to the day to day of markets and economies. Post Paul Volker supposedlly slaying the inflation dragon in the 80s, it actively built a myth of power as it was realised that this myth actually magnified its powers.
Ben Bernanke said the truth - that it is 95% talk.

But now it is partly trapped by its own myth of expectations.

Its levers are weaker than the breathless media reporting suggest.

Its data is backwards looking and can't measure massive financial flows that are hugely important because no-one can. They can see but shadows.

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donweather Sunday, 12 Mar 2023 at 3:45pm
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.

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donweather Sunday, 12 Mar 2023 at 3:48pm
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-...

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kaiser Sunday, 12 Mar 2023 at 4:53pm

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

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gsco Sunday, 12 Mar 2023 at 6:29pm
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":

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velocityjohnno Sunday, 12 Mar 2023 at 9:51pm
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frog Monday, 13 Mar 2023 at 9:15am

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.

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gsco Monday, 13 Mar 2023 at 9:56am

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...

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frog Monday, 13 Mar 2023 at 11:31am

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."

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gsco Monday, 13 Mar 2023 at 12:05pm

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.