Market Musings 190323: Panicked By The Shadow Of 2008

19th Mar '23 by Edmund Shing

8 comments 2292 reads

Market Musings 190323:
Panicked by the shadow of 2008

What a week!

Summary:

Waiting for further news on US regional banks, Credit Suisse
European banks have suffered a huge reverse after a huge run-up since October
Crude oil, oil & gas sector have been battered by increased recession fears
Look to European Value - oil & gas, insurance companies
Gold has been a big recent winner - look at royalty companies

Huge uncertainty returns

After a period of recovery since October last year, markets have plunged back into crisis mode this week on the back of soaring banking worries.

Since October last year, decent gains still in stocks (ex US banks)

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Source: tradingview.com

Two seismic shocks have reverberated through financial markets, both emanating from the banking sector. Firstly, the failure of US regional banks Silicon Valley Bank and Signature Bank. Secondly , there has then followed the dramatic loss of confidence in Credit Suisse in Europe.

These two events have hammered the Euro STOXX Banks sector, which up to then has been leading European bourses higher over the last few months (up 50% from the October lows to recent peak, but down 18% since then in just over a week).

Eurozone banks have given back over half of their gains since October

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Source: tradingview.com

There has been huge amount of comment already on Silicon Valley Bank and its failure to hedge interest rate risk, so I don't propose to spend a lot of time here, other than to say that it seems to have been a huge failure of management and in particular, of risk control due to the laxer regulation in the US on midsize banks that exists on the largest banks.

But given the huge drop in regional bank share prices down 29% In a matter of weeks, questions remain clearly over the robustness of the US regional banking industry. First Republic Bank has just been shored up effectively through capital injections from a number of the largest US banks.

And now apparently, Warren Buffett has also been approached regarding investing in US regional banks - we expect to hear more news on this in due course.

With regards to Credit…

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KevinS1

19th Mar '23

Thanks Edmund. I agree with all you say. It is just a question of finding some additional capital to invest and then trying to time it right - albeit we will never get the timing perfect.

I am feeling the pain from my commodity and oil&gas holdings which have been falling for a while, but feel these still offer fantastic value and so may continue to top up things like Serica Energy (LON:SQZ) and Ecora Resources (LON:ECOR) .

TEIN

A very comprehensive and reassuring macro picture Edmund, just the tonic needed to calm ones thoughts ahead of who knows what this week. Your analysis and perspective is always appreciated. Sit it out. Opportunity knocks.

Saxonboy57

20th Mar '23

Thank you for a very comprehensive and sensible article. "Don't panic Captain "

Pentago

Interesting that some investors are apparently bailing out of well capitalised UK banks and Insurers then rolling the proceeds into cryptocurrency, surely the definition of lunacy! Thanks Edmund, a thoughtful piece, also interesting to see potential interest rate cut beneficiaries starting to outperform on a relative basis.

davidjwestby

There is very little comment about the insurance sector which tends to own lots of bonds to match their IBNR liabilities in general insurance or to match annuities and long-term liabilities in life insurance. One hopes that these portfolios are being professionally managed, but it would need only one largish insurer to have to admit that it got these asset liability mismatches badly wrong for another cycle of doom and gloom to knock everything back down again. The temptation to grab extra yield by extending duration is always present. The sector has been really quiet during the crisis; hopefully justifiably. The high dividend yields of insurers is one warning sign of investor concern.

Rusty2

Well banks and insurers shares are falling and Bitcoin is going up, so maybe not so crazy. Not something I would do myself.

The Scribe

A fascinating article. Thank you for your synopsis.

Charles Mitchell

21st Mar '23

Interesting comments. I do not buy oil and gas investments for personal reasons- I have a long term holding in a small gold mining company that used to be called Amara Mining (Cluff Gold before) and now Perseus mining.

I have more confidence in Banks than it seems many- but have very limited exposure through Metro Bank (LON:MTRO) and Secure Trust Bank (LON:STB) which are not mainstream.

My concerns at the moment- strangely for a natural optimist is I fear something is around the corner that could cause more upset. Could be Trump's arrest (if it happens or not) , Ukraine- not sure. so doing nothing investment wise and remaining 95% invested.

Hard lessons learnt in the last quarter of the C20th realised selling too late was easy as was buying too soon.

Market Musings 190323: Panicked by the shadow of 2008