The Silly Valley Bank Bailout Lingers

Watch Jim Rickards’ video right after you read this! [The Rude Awakening] March 14, 2023 [WEBSITE]( | [UNSUBSCRIBE]( The Silly Valley Bank Bailout Lingers - Now that we’ve got this bailout, what will the Fed do next? - If printing money solves the SIVB problem, where does that leave the Fed’s balance sheet? - Did this whole situation start when part of the cryptocurrency space got upended? External Advertisement [⚡ 2,467% Return on Israeli Laser Company?]( This advanced laser system is active in 80 countries around the world. And at the center of this massive market is a small firm in Israel. Our research shows that anyone who gets in today could see a return of 2,467%. But that's only if the company doesn't get taken over for a fast 300% gain first. [CLICK HERE to see how you can profit from this special opportunity >>]( [Click Here To Learn More]( [Sean Ring] SEAN RING Good morning from a gorgeous, bright Asti! I haven’t stopped shaking my head for two days. I’m still shocked, stunned, and disappointed with the Biden administration’s decision to bail out the depositors at Silly Valley Bank. It’s bad enough that Janet Yellen, the USeless Treasury Secretary, was briefed on the situation over a month ago. It’s worse that the President was separately briefed on SIVB when Yellen was. That’s two too many people who saw this coming and did nothing about it before a bailout was “necessary.” But I still hold that the best thing to do was nothing. Say it with me: Deregulation is okay when you let businesses (especially banks) fail. I’m still trying to understand what’s happening in the market. So, I’m going to take today to give it a closer look and then report back to you tomorrow. In the meantime, my friends and colleagues have put together [a fantastic half-hour video]( for you to watch, so you’re fully briefed on the situation. Pro tip: I watched it at 2x speed. That way, it only took 15 minutes, and I didn’t lose any of the messaging. The Man Himself, Jim Rickards; the smartest working analyst in the newsletter business, Dan Amoss; and our fearless leader/publisher, Matt Insley, have put together [a short video that’s well worth watching](. In today’s Rude, I will prep you for that video. Once you read this, you’ll be fully ready to absorb Jim’s, Dan’s, and Matt’s fantastic revelations. [Trump’s Nemesis Just TORPEDOED the U.S. Dollar]( [Click here to learn more]( This is the scenario we’ve been fearing… Instead of President Trump… We’ve got “Sleepy Joe” Biden behind the wheel. And now, a [sinister move that Biden just made]( could TORPEDO the U.S. dollar once and for all. In fact, thanks to this one move… Your dollars could be made worthless, or even CONFISCATED. Do NOT get caught off guard. [Click here to discover 4 EASY STEPS you can take to protect your wealth NOW](. [Click Here To Learn More]( Why Is This Genuinely a Bailout and Not a Bail-in? From Jim: So, Friday afternoon, they said, we're shutting the bank. All deposits up to $250,000 are fully insured. You'll get your money. They moved the deposits over to a new bank called the Deposit Corporation Bank of Santa Clara. Those under the $250,000, you'll get your money Monday morning, but everyone else… you're wiped out. By the way, they didn't freeze those deposits. Those deposits were gone. And they said, “What we're going to do is give you a certificate in place of the deposit. We'll tell you what it's worth. It's completely illiquid. You can't use it for anything. We're going to sell the assets, get the money, and see how much there is relative to these liabilities.” Um, and then we'll pay them off, you know, as and when possible. But it could be a year, could be longer. Who knows how long it will take to sell the assets or what they will be worth? Nobody knew. Well, if you're a startup and you got, let's say, $5 million in venture capital from Kleiner Perkins, and you had it all in Silicon Valley Bank, your $5 million is now gone. You hold a certificate of uncertain value but can't meet payroll. You might have a payroll Monday morning, you can't pay your vendors, you can't pay your rent, you can't pay the light bill, you can't do anything. You're out of business. And then, there would've been a wave of bankruptcies, which would've rippled through to the venture capital firms. These things always happen on a Friday. They always happen on Fridays because they need the weekend to figure it out. So, watch out for Fridays! So that's the story as of the end of the day Friday. So, over the course of the weekend, the Treasury’s Yellen's (you know, Ms. Clueless), Jay Powell, Martin Greenberg, the head of the FDIC, and I'm sure there's a lot of input from the White House from Lael Brainard. She just moved from the Fed to the White House. So, no one in the White House knows much about this, but she does. So, she's the White House kind of point person on this. So, they came up with a new plan. It was announced at 6:15 pm Sunday, which was no coincidence because six o'clock Sunday is when the futures start trading. And they opened down. So they changed our minds. They weren’t going to limit the insurance to $250,000. They just blew it away. Unlimited insurance, all depositors are fully insured. If you had $5 billion in the bank, you're getting $5 billion, not $250,000. That business of sticking to the deposit insurance and not paying for the rest that's called a bail-in. We're used to bailouts. We've seen those a lot. But the bail-in is “No, we're not going to use taxpayer money to bail out the rich guys. The depositors are actually going to lose." And this was something they produced in 2014. It was nine years ago. But the problem is, in nine years, there hasn't been a bankruptcy of this magnitude. They've never had a bank resolution in the whole nine years where they actually had to do what they said they were going to do, which was bail-in, not bail-out. They tore the bail-in rules up, threw it to one side, and bailed out all the depositors 100%. So, the FDIC did a 180 in 48 hours. I’m thrilled whenever Jim and I agree. He’s one smart cookie, you know! Wrap Up I will keep this short today because I want you [to watch the video](. No information is required, and certainly no credit card! Just click this pic and hit play. [Click here to learn more]( This emergency video briefing from Jim Rickards, Dan Amoss, and Matt Insley is where Jim breaks down everything you need to know about the past of SVB, the present of the FDIC, and THREE major pitfalls to keep an eye on in the coming days. Again, there’s no credit card needed for this one. This situation is so important that we want as many people as possible to [view this video](. Jim answers three critical questions: - Now that we’ve got this bailout, what will the Fed do next? - If printing money solves the SIVB problem, where does that leave the Fed’s balance sheet? - Did this whole situation start when part of the cryptocurrency space got upended? His answers may stun you… but not if you’ve read the Rude for a while. Tomorrow, I’ll have more market stuff for you. Until then, have a wonderful day. And watch the video! All the best, [Sean Ring] Sean Ring Editor, Rude Awakening In Case You Missed It… Be Angry. Yes, This is a Bailout. Yes, You’re Paying for It. - Jobless claims weren’t high enough. - Silicon Valley Bank gets crushed, down over 60% on the day. - Bitcoin gets hammered under $20,000. [Sean Ring] SEAN RING Good morning on this overcast morning in Northern Italy. To paraphrase Popeye, I’m utterly disgustipated on your behalf. [SJN] Whether by inflation or bank fees, you’re about to get poorer through no fault of your own. Jerome “Transitory” Powell, Janet “There won’t be another crisis in my lifetime” Yellen, and the FDIC - from now on pronounced “F-DICK” - have conspired to make you bail out Oprah, Meghan and Harry, and Nancy and Paul Pelosi. Yes, they’re all going to be fine, thanks to the unholy tripartite alliance, much to your detriment. In this piece, I may commit the sin of oversimplifying things. But it will make it easier for you to understand the overall concepts. That’s more important than getting caught in the weeds of detail. For more detail, I can’t encourage you enough to read my friend and colleague Dan Amoss’s report “It’s Not A Wonderful Life In Silicon Valley.” If you’re a Strategic Intelligence subscriber, it’ll already be in your inbox. In today’s Rude, I borrowed liberally from Dan’s work. Thanks, Dan! What Happened? First, let’s establish why even Treasury bonds are a risky investment in a rising rate environment. US treasury bonds are default risk-free, not price risk-free. That is, the US Treasury can print whatever money it needs to make its investors whole. So it will never default on its debts. But USTs certainly have price risk! Just look at the ETF known as the TLT, which holds long-dated Treasury bonds: [SJN] Just eyeballing this chart, you can see the TLT fell from a peak of about $150 to a trough of about $92.50. That’s a 38% loss! Not very risk-free, is it? But that’s what too many investors think. And that leads to enormous problems. Let’s look at an example of how bond prices move. In this case, we’ll use a 2-year bond with a coupon of 0.25% to match the initial upper bound on the fed funds rate. At issue, the bond will be priced at “par.” That means the issue price will be $100 (left-hand side). I’m using 100 as the principal instead of 1,000 - the usual UST face value - so you can see the percentage changes more easily. [SJN] Now let’s raise rates to 4.75%, as our dear chairman did. All else equal, our bond is now worth $91.60, a loss of $8.40. (Of course, that didn’t happen all at once. But we’re keeping this simple.) That loss feeds directly into the income statement, which feeds into the equity section of the balance sheet. But that’s only a two-year bond. What happens with a ten-year bond? [SJN] It’s much worse of a loss! Why? Because the bond is of a longer duration. Longer-dated bonds are far more susceptible to interest rate hikes than short-term bonds. The loss is now $35.17 when we go from a 0.25% upper rate bound to a 4.75% upper rate bound. The mathematics are deceptive. Powell didn’t raise rates by 4.50% (4.75% - 0.25%). He raised rates 18x (4.75% / 0.25% - 1). You must look at the change, and not the difference, to grasp how much he’s increased rates. These banks - most US banks - are loaded with Treasury paper thanks to [Basel III’s requirement to hold HQLA (high-quality liquid assets)](. “But Sean,” you say, “what else could they have done?” And the answer is easy - or should be - with CFOs. Buy interest rate swaps (payer swaps) to hedge your interest rate risk. And it’s amazing, but Silly Valley Bank didn’t do that! [New Biden Bucks Follow-Up Available Now]( Hey, it’s Jim Rickards. Since posting my original Biden Bucks presentation online, millions of people have viewed it. Snopes and the Associated Press have even attempted to “fact check” me and claim my warnings are false: [Click here to learn more]( Point being, my message has raised a storm and caused a lot of controversy. But in the time between my message and now, a lot of new developments have come to light. That’s why I’ve just released an update to my original prediction… one which will likely be even more controversial. [>> Click here now to access my new 2023 Biden Bucks follow-up](. [Click Here To Learn More]( Why Were These Losses So Needless? Because big banks will charge only a small spread to trade interest rate swaps. This should have happened: every time the SIVB CFO bought a long-duration, low-coupon bond, she should’ve immediately called JP Morgan, Goldman Sachs, or Bank of America to do a swap. The entire package would have looked something like this: [SJN] Credit: Sean Ring Ok, the UST is paying SIVB a 0.25% coupon. It’s fixed. There’s nothing you can do about that. But… you call up one of the big banks and swap out that 0.25% for a floating rate (either SOFR or USD LIBOR nowadays). The 0.25% “legs” cancel each other out, and SIVB would’ve been left with receiving a floating rate (minus the small spread). In this standard, everyday scenario for most banks worldwide, they’re now protected from rising rates. What they would inevitably lose on the bond will be made up by the SOFR/LIBOR leg of the swap. That’s how you immunize yourself from interest rate risk. It’s so damn simple what little hair I had on my head just fell out! It’s so common that according to the [Bank of International Settlements]( there are about $10 trillion in net notional interest rate swaps outstanding. Fancy Some Whine? Greg Becker, the CEO, was a member of the San Francisco Fed. Daniel Beck, the CFO, is a Freddie Mac veteran. Phil Cox, the COO, was at the bailed-out RBS for 23 years. Oh, it gets better: [SJN] Credit: [The Daily Mail]( That’s not so much a Board as a “Rogue’s Gallery.” But with no head of risk for that long, who’s minding the bond book? Answer: No one. And who’s paying for these boneheads’ mistakes? You are. Why? Because people like Bill Ackman and David Sacks scared the shit out of Biden’s government. The Bailout [SJN] [Ackman tweeted]( The gov’t has about 48 hours to fix a-soon-to-be-irreversible mistake. By allowing @SVB_Financial to fail without protecting all depositors, the world has woken up to what an uninsured deposit is — an unsecured illiquid claim on a failed bank. Absent @jpmorgan @citi or @BankofAmerica acquiring SVB before the open on Monday, a prospect I believe to be unlikely, or the gov’t guaranteeing all of SVB’s deposits, the giant sucking sound you will hear will be the withdrawal of substantially all uninsured deposits from all but the ‘systemically important banks’ (SIBs)... It’s ridiculous. Sure, there would have been fallout. But sometimes, that’s exactly what you need to fix the system. Of course, the government says there will be no taxpayer-funded bailout. Well, it’s not direct, but it’s a bailout. And it’s taxpayer-funded. The [Joint Statement reads]( (bolds mine): After receiving a recommendation from the boards of the FDIC and the Federal Reserve, and consulting with the President, Secretary Yellen approved actions enabling the FDIC to complete its resolution of Silicon Valley Bank, Santa Clara, California, in a manner that fully protects all depositors. Depositors will have access to all of their money starting Monday, March 13. No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer. We are also announcing a similar systemic risk exception for Signature Bank, New York, New York, which was closed today by its state chartering authority. All depositors of this institution will be made whole. As with the resolution of Silicon Valley Bank, no losses will be borne by the taxpayer. Shareholders and certain unsecured debtholders will not be protected. Senior management has also been removed. Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law. Ok, so the owners aren’t getting protected. So it’s technically not a bailout in the traditional sense. But depositors’ funds over $250,000 are getting bailed out. And how? By a “special assessment” on banks. And who ultimately pays for that? You. With your fees and commissions and anything else you pay your bank. And you are a taxpayer, are you not? As James Bond said in Goldeneye, “Governments change, but the lies stay the same.” Wrap Up Gold is up. Bitcoin is up. Oddly enough, stock futures are flat to down as I write. Bailouts have unintended consequences. This one will be no different. In your spare time, I can’t encourage you enough to read our [2023 Daily Reckoning Gold Buying Guide](. I hope it helps you in times like these. All the best, [Sean Ring] Sean Ring Editor, Rude Awakening [Paradigm]( ☰ ⊗ [ARCHIVE]( [ABOUT]( [Contact Us]( © 2023 Paradigm Press, LLC. 808 Saint Paul Street, Baltimore MD 21202. By submitting your email address, you consent to Paradigm Press, LLC. delivering daily email issues and advertisements. To end your Rude Awakening e-mail subscription and associated external offers sent from Rude Awakening, feel free to [click here.]( Please note: the mailbox associated with this email address is not monitored, so do not reply to this message. We welcome comments or suggestions at feedback@rudeawakening.info. This address is for feedback only. For questions about your account or to speak with customer service, [contact us here]( or call (844)-731-0984. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. 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