Office Hours Recap 03/10/2023

Office Hours is an hour long Zoom call we have on Friday’s from 2-3pm ET. The event is exclusive to Epsilon Theory members and is a great way to hear Ben’s thoughts on markets, politics, and current events. Every Monday I post a brief recap of the previous OH. This is not a transcription of the call and doesn’t cover everything. But it does outline the main conversations we had.

Before this was posted on the ET Forum, but we’re moving it to the front page so more people can see the recap and understand the opportunities of Office Hours.

These are the major topics and ideas we discussed during the 03/10/2023 Office Hours as well as some of the biggest takeaways. If you have something you want to add to the conversation, let us know in the comments and join us next time.

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Silicon Valley Bank:

This week Office Hours focused on one topic, the chaos surrounding SVB and other banks. It’s personal for us as I’m sure it is for many people here. Now is the time to utilize the pack and come together to share our experiences to plan the best path forward.

Ben summed up the situation pretty easily. “What always causes a bank to fail is you have a mismatch between your assets and your liabilities. Maybe you have a terrible mismatch on duration. Meaning that your liabilities are short term immediate and your assets…not so much.” There’s just no way around the business of banking. Which is that you, “take in deposits, and you owe that money immediately, and then you loan that money out. You are borrowing short and lending long. A credit difference or a duration difference isn’t bad. That’s what makes the business. But that is at the heart of when a bank fails. When that mismatch is so pronounced that you have a liquidity crisis.” SVB has been insolvent since last September. That’s not what killed them. It was the illiquidity that killed them.

A lot of people on the call were worried that this could start a chain reaction or a slow slide for other banks. Ben’s not convinced that’ll be the case. One of the things that makes SVB different from other regional banks “is that most of the accounts were way about 250,000, so they were uninsured.” As one reader pointed out in the chat, 150 billion of the 170 billion in deposits were uninsured. Most regional banks don’t deal with that many accounts with that much money.

So how is this going to play out? Ben’s heard all the 07/08 comparisons, but he told us that, “in my heart of hearts I actually think all those deposits are going to be fine. I really do. I actually think, and this sounds crazy, I think that, with some sort of time involved here, there is a buyer for Silicon Valley Bank. And the FDIC will find one. They will do a shotgun marriage and there will be a buyer. A big bank with a big balance sheet. And I really believe all those uninsured deposits are going to be fine.”

We’re sure to continue this conversation at the next Office Hours and I encourage you to join us if you have the time. We’ll be meeting from 2-3pm EST on Zoom. Check out the Forum for the link and more information. If there’s a question you have for Ben and the group, post it on the Forum. It’s the best and fastest way to reach a community of intelligent and creative thinkers.

We’d love to hear your thoughts on these ideas and hope that you’ll join us next time. If you haven’t already, sign up to access the Forum and Office Hours.

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