SILICON VALLEY BANK - ANOTHER LEHMAN MOMENT? OR BUY THIS DIP?

14 March 2023

No. Not another Lehman moment. The system is safe though you wouldn't think so from the world reaction to the collapse of a relatively small bank. The Fed had to step in to save a run on the bank. Here's the story.

It seems that the bank was lending money to the Startup VC tech industry (... and also to the California wine industry curiously, the vineyards) 

and one of the conditions for a start-up fledgling company being granted a loan was that it must also choose SVB for its bank account 

So in other words SVB had a whole load of tech industry commercial account customers and almost no retail customer

 in fact 90% of the money flushing through the bank came from commercial tech, it seems, which is most unusual and highly unbalanced. That is a risk that regulators should have spotted especially as the CEO of the bank also sits on the regional Fed board (hmmmmm...).

The money its customers placed with it, SVB very wisely invested in American government bonds. Nothing safer, you would think -  these were long dated American government bonds meaning you are totally guaranteed to get back full par value at the end....if you hold it to the end, to maturity.

But like the LDI affair in the UK, interest rates started to go up up up some months ago, as we know, and this made it more and more difficult for some of its highly-indebted customers to repay their loan from their low startup revenues.

Some well-known celebrity (I forget his name) announced a few days ago that SVB was getting into difficulty - some customers were wanting to withdraw from their cash account to make loan repayments.

And so of course as soon as the word got around from that Bay area dinner table, many of the bank's customers started to get anxious and wanted to withdraw their money.

The money you remember had been put into safe long dated government bonds ... which now SVB had to sell, at whatever prices it could get.

It would have been ok if only the customers could have waited till the bonds could be sold at face (par) value ... the bank could have matched liabilities to assets according to the redemption dates of the bonds.

But they couldn't, the customers wanted their money now. So the bank was forced to sell off some of these bonds before maturity. But as we know, interest rates had risen since the bank had bought the bond, so the value of the bonds had fallen below par. The bank had to sell them off cheap, take a hit to its balance sheet. The bank had to mark the bonds to market prices ("mark to market" means you reconcile the value of your assets to market prices every three months, but this does not apply to long-dated bonds ... unless you sell them of course) and this is where the the assets were no longer able to cover the liabilities and why the Fed and FDIC had to step in, saving depositors but unlike 2008 this time the shareholders and unsecured Bond holders will pay and not the tax payers as in 2008. TO SAVE A RUN ON THE BANK.

Sad story. It is only a medium-sized bank with 210 billion dollars of assets, ie no risk to the banking system, and yet look at the, albeit temporary, damage to a fragile nervous world financial system from the uncertainty caused by this bank's collapse!

EPILOGUE 15 MARCH

1. BFTP will accept government bonds and similar at par value (most unusual) as collateral against insurance in the case of a bank needing to restructure, making bankruns a near impossibility.

2. They say the Fed will carry on raising rates until something breaks and it looks like something has just broken. So instead of 50 basis points at the next meeting it's more likely to be 25.

3. But the fight against inflation is ever more important - it is runni g at 10% now and that is on conventional measures - and this means the pause in Fed rate hikes can only be temporary.

4. HSBC UK has bought the bank for £1 which is a good deal for the UK albeit the HSBC share price fell 9% on the news.

5. Since the new BFTP guarantee referred to above does not cover uninsured loans, this is likely to reprice risk, raising the cost of capital for banks and thus lowering their margins and their share prices.

6. Yes this is a good moment to buy the dips and in particular tactical trades on regional US banks, or there is an ETF, $KRE, that specialises in regional US banks. It has fallen considerably and it's a good moment to buy and resell once price has reverted to the mean, given that there is now very little risk in future of similar bank runs.

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THE ROAD TO A NEW WORLD ORDER

10 March 2023

It is a really complicated lineup, global international relations. 

After the last war, America formalised its Order. An rules-based international foundational Order consists of three things. First, there is a set of fundamental values - Liberalism in this case  Second, a set of rules and the institutions to enforce them. Third, this is backed by a reserve trading currency and a military. The purpose of the American Order is to keep the world a safe place for trade and assure its hegemony.

Initially, this Order had to contend with a peer competitor, the "Soviet menace". Then in 1989, the Soviet Union collapsed, America had triumphed, and gree from peer competition America could switch its focus to sowing its vision of a borderless world where democratic nations could freely trade and their peoples enjoy peace, freedom, security and prosperity - basically, keep the shipping lanes open and America the top dog. American could now go where it wanted, evangelise its culture of freedom democracy and donuts, enjoy the attractiveness of the dollar to other nations. America could lead "the free world" and draw in power and money to an imperium founded in financial and military domination.

 to now having overcome one rival in 1991, the emergence of a new rival for America and re-emergence of its old chosen enemy to again contain.

We still think in terms of blocks : America + Europe + 1st island ring v. Asia or "the global South". But is this reality?

Because if you look objectively, you see this Western alliance, strong and unified - but then what is America doing wrecking its ally's economy blowing up the pipeline, demanding sanctions on Germany that limit its imports and soon sanction to reduce trade with China? - Turkey in NATO and soon in BRICS, Mexico will be joining - The Hse of Saud buying petrol from Russia, security from America, imports from China and, very significantly in a deal brokered by China, at the moment taking down the fence 1,400 years old with Iran - an India that won't take sides - the belt road and rail which is a dollar-free zone where most of the planet live and trade - the increasing power and membership of the SCO Shanghai Cooperation Organisation

?

Outside The West we see a fragmented world, a world where nation-states determine their own interests on a multitude of subjects and make independent transactions with each other accordingly, so a world of nation-states truly coming of age. It is not unipolar, not bipolar and not multi-polar, only the West remains as a block, the rest is a net of emancipted individual nations buying and vying with each other.

Will Europe go this way? Fragment? How relevent is the EU, is it doing its job and how long will it last?

So in my take on this mess, there is a sense and a direction. The world had one Order, that split, now it is fragmenting, the old Order isn't giving up without a fight,  maybe we are on the way to nation-states re-coalescing round a new world Order?

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WAR AND OUR UNIVERSAL CONNECTION

2 March 2023

Crimea has been Russian since 1783. Potemkin built it for Catherine the Great and populated it. Before that it was an Ottoman outpost. But originally, it was probably Minoan or Mycean.

It's been Russian for 350 years.

Sebastopol is home to the Russian navy. In geopolitics, Crimea is of literally vital importance to all Russia.

This war is aimed at taking away Russia's access to the Black Sea, containing weakening and changing the govt, and breaking up the Russian-speaking culture.

It's just because America will always want to knock out potential rivals. Its worry is a Russia-Germany, ie European, tie-up. Next, it will be the turn of the Chinese. We cannot go on living like this, it is a hell-on-earth.

The world is - imho - at the most dangerous moment in recorded history, mainly because the escalations will eventually go nuclear. We all need to step back, calm down and start talking. We need to think about what you might call our "universal connection" ... because if we're not careful, pretty soon we won't be connected any more!

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TERMS FOR A PEACE SETTLEMENT IN UKRAINE

26 February 2923

The Daily Telegraph put it this way, "we are out of ideas and lack a long term strategy", which is about right.

Fact is, Russia holds the initiative on the battlefield and China diplomatically.

We are sacrificing Ukrainian lives at up to 1,000 a day dead and wounded, to save Western face.

Ukraine will always be neutral and can never join NATO. It has never, in truth, possessed Crimea (peace to Kruschev) and never will. The Donbas prefers to be under Russian govt rule while Russia has taken or will keep Kharkiv and Zaporizhzhia. Kiev state needs overhauling and reform to give its Russian-speaking minorities the same rights as other Ukrainians, introduce democracy and free the opposition and eliminate the oligarchs and their corrupt practices.

In other words, a ceasefire and peace talks to end the stupidities.

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WHO IS DEFENDING EUROPE?

24 February 2023

In the States, there's Tulsi Gabbard who speaks the truth about this war. There was Gen Millie. Who else? And who is identifying the real threats to American hegemony that come from the neocons and this war? And who is speaking up for Europe and European independence and even our "greatness"?

Truth is, there's very little opposition to the "magical thinking" we are fed.

It's not surprising. For the last two decades leading countries from the Rest of the world outside the West have been growing restless, you might say, at the American Order. We move from cold war Bipolar world, to 1991 Unipolar, to since 2017 multipolar, with the SCO, BRICS, now Russia/China/Iran. Using its reserve currency status, America lives on credit and makes war and terrorises, in the name of "freedom and democracy" where it can't get its way.

That is the sweep of history and this war is simply accelerating America's exit as the Rest form alliances and build alternatives to the US Dollarand. That's reality.

But the magical thinking, ok call it propaganda, is needed to keep us calm while this process of being engorged takes place. 

All the nonsense that some readers who post on the DT, FT or Economist seem to believe, the role of the MSM in giving the correct swerves from the MoD to the general public...it is all to keep us in our place, believing it will all turn out for the best, rather than our leaders having to face us with reality and get massive public disobedience. It was a bit like that with covid.

But it doesn't have to be like this. If only brave politicians in Europe would stand up and call a spade a spade and create a vision for Europe instead of this hopeless, impotent, fawning at the coat-tails of America.

There's Orban and Giorgia Meloni and a couple of voices in the EU..who else?

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SAVE OUR PLANET FROM THESE OAVES

It is very easy for any mature person to attack Joe Biden and the neo cons on the conduct of its relations with Russia war, in the light of the coming scarcities of batural materials, price hikes and damage to the planet.

After all, for the last 70 or 80 years we have enjoyed an abundance of energy, commodities and products & services and all at low prices and a clean planet as well.

Now, we are entering a time where most of what we want and need will be in shorter supply, and higher in price than we can really afford, and in addition we risk destroying the very planet on which we live.

So any mature person would see terminating this war as an immediate priority, and getting back to important subjects like climate change and the energy transition as priority. 

Basically, they would say, let's save what we've got and become more efficient and effective in how we deliver growth - if there is any growth left - growth and prosperity, stop soiling our beautiful planet and avoid damaging physical conflicts.

Please, no negative replies or further warmongering. Concentrate on winning the battle to get these oaves round a negotiating table.

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WHAT DOES VICTORY IN UKRAINE LOOK LIKE?

19 February 2023

Hungarian Prime Minister Viktor Orban cautioned Europe on Saturday that it could sleepwalk into a direct armed confrontation with Russia by sending increasingly deadly weapons to Ukraine.

https://sputniknews.com/20230218/hungarys-orban-says-europe-may-end-up-sending-troops-to-ukraine-1107582191.html

"If you supply weapons, provide satellite data, train soldiers of one of the warring parties and have its entire government on your payroll, while imposing sanctions on the other party, whatever you call it but you are at war," Orban said.

At what point does the SMO end and Russia says that now the two parties are in a direct conflict ie at war with each other?

The debate at the moment is about what victory looks like.  Is it Zelensky's defn : Ukraine has reoccupied all land within its internationally defined legal border, war damages to cover rebuilding, Putin at The Hague?

Or is it something less emotional, more realisable : country divided like Korea with DMZ, the EU admits Ukraine and rebuilds its part of the country plus Ukraine gets security guarantees though not NATO membership per se, forget The Hague.

Could Russia be balkanised? 

Could Russia become like France : has an imperial, militaristic and colonial past ; but is also an "open society"(*)? 

Could Asia be flipped 180° on the vertical along the Mackinder line?

There are wars where one side soundly beats the other...then you get an insurgency...and a counter-insurgency (Iraq).

There are wars that trundle forever, dites "wars of attrition", where each grinds down the other and the host country is wrecked, till one side runs out of willpower or of ammo (Afghanistan). 

The worry here is of a third type of war, a war  of obliteration where the host country is the battlefield and one side obliterates some or all of that fated country (Ukraine?).

Maybe America is stocking up for a post-nuclear Ukraine. Who know? Noone knows, not at the present, not yet. Just keep shovelling in the billions, pile on the sanctions and wait till the supply lines break or there's an "accident" too many (Nord Stream).

(*) K. R. Popper, The Open Society and Its Enemies

Karl Popper defined the open society as one "in which an individual is confronted with personal decisions" as opposed to a "magical or tribal or collectivist society."

He considered that only democracy provides an institutional mechanism for reform and leadership change without the need for bloodshed, revolution or coup d'etat.

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WHY AMERICA'S STRATEGY IS DOOMED

8 February 2022

This war with Russia goes back a long way. Why and how to find a permanent peace?

There was The Great Schism even, that's how far back. But the basic fundamental truth is (my opinion) found in the geography. Russia is a huge plain without natural borders, hence v likely it will have one regime, be one country ... one empire in a sense, as fighting originally united all the tribes.

Russia from the Urals to the Atlantic? That is the threat - a land power against a sea power.

As the plain drops down into eastern Europe, there are a series of natural breaks - Baltic Sea, Carpathian mountains, to name but two of nine. So this separates Russia, the country, from Europe.

But those natural breaks, or obstacles, have  gaps - through which Russia has been invaded over 50 times... even Canada has invaded Russia.

This is why Russia seeks (historically) to expand westward - it is to take and to plug those gaps, for its security.

This makes Russia's "near abroad" the most likely theatre for war in the world.

Bearing this in mind, personally I would favour Russia joining western military and economic alliances. But alas, America, Europe's "protector" won't have this and prefers war.

Why does America want war (when Europe wants peace.. at least, its interests lie in peace)? To weaken all potential rivals : Europe (Russia and Germany) today ; China tomorrow ; (yesterday was the Middle East and they messed that up too).

So I don't have a lot of confidence in America's ability to solve this problem. NATO advancement is now about cutting Russia off from its warm water ports, stopping Russian-speakers from cultural assembly and regime change in Moscow with breaking Russia up into small states that can be divide and rule.

None of these three prongs will work - we'd all be incinerated first!

The fundamental cause of this war can be found in geography, the politics of security (International Relations), and America's answer - to nobble all rivals - is OK, but not by a strategy of war. War does not suit Europe. But peace in Europe does not suit America and this is an absolutely ruthless war with no winners.

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PREPARING TO CONCEDE UKRAINIAN TERRITORY

7 February 2023

The reshuffle in Kiev began with the replacement of the comm director a couple of weeks back.

The new MoDefence is much closer to Washington.

Is America, who manages this war, replacing tje Zelensky govt with its own? ...And Zelensky?

The Americans have been telling Zelensky to pull out of Bakmut before it's lost and the best Ukraonian troops with it.

There's also been multiple warnings - from RAND, CSNA, Wadington Post articles...ieAmerican advisors and the Pentagon - that this war is draining The West's resources at a time when it should be preparing for the real threat.

And thirdly, plans have been floated amongst the Am foreign policy elite to partition up Ukraine. Only Blinken and Nuland oppose.

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THE CASE FOR NUCLEAR IN UKRAINE

5 February 2023

Nuclear will happen if Russia concludes it will otherwise cease to exist. This would be in Ukraine itself, only in Ukraine, and in this case the West would not respond with nuclear, imho.

Unless America re-prioritises this conflict (on its own initiative, America withdraws or negotiates), there is the risk that America use nuclear. This could provoke a Russian nuclear response outside Ukraine, and we'd be in WW3 and incineration.

An intriguing possibility is if America could take out all Russian nuclear before Russia had time to respond. Intriguing, but impossible.

Neither side can, currently, accept a defeat; plus, there is no "off-ramp" or way out without loss of face.

The most promising conclusion would be a negotiated split of Ukraine between Russia, Ukraine and possibly Poland. Zelensky - front-line responsibility for the conduct of the war - would have to go, a verifiable neutrality with balance of power installed, and very sadly Ukraine would have to accept the loss or injury of perhaps 200,000 of its citizens, as well as a nation-state with rump-staus only and probably dependent on Moscow.

What to do?

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A LESSON IN FLATTERY

4 February 2023

https://youtu.be/xwPq7xAKi9I

Fully agree with Tucker's analysis and conclusions. The way he sensationalises is so funny and that is why people watch him.

After all, what has he just said?

 Boris went to Washington to promote a world war, but refused an invitation to appear on Tucker's show because he is afraid of the questions he'd face.

It would be a war for democracy except the people haven't been consulted and don't want it.

 Consider the position of Lindsay Grahame: a neo-con on foreign policy and an extreme liberal on immigration. (A neo liberal is a no-borders virtue-signaler - the "neo" part - who puts everyone first irrespective of where, which nation-state, on the planet they live.)

Grahame successfully argued for sending Abram tanks to Ukraine and now wants the US to send F16 fighter jets. He also opposed Trump on the wall.

Sending F16 fighter jets would mean America becoming directly involved in a war with a nuclear-armed superpower, and from there it's a short step to exchanges of nuclear missiles and thereafter ... oblivion.

 Now here is something that needs explaining : how can LG be an extreme neocon and an extreme liberal, yet also be  Trump's no.1 supporter in the Senate and campaign for and with Trump?

MAGA Trump, who pulls America out of wars and attacks NATO, America's creature for making war ; and Trump who wants a wall built and who believes in national borders. 

And the answer is that Grahame believes Trump will get the Republican nomination and be the next POTUS, and through Ottoman-style flattery of telling the ruler what he wants to hear, thriugh flattery Grahame seeks to subvert Trump's policies. As he did with Biden's on sending in the Abrams.

 Prefer direct assault and honest crticism to falsehood, flattery and subversion.

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