You have probably heard it by now but Silicon Valley Bank went tits up, making it the second largest bank failure in America’s history. I know what it was. The “climate changed,” specifically bonds, which we’ll come to in a minute.
For a moment, it looked like anyone with over $250,000 in the bank would lose their money. Apparently more than 90% of deposits at SVB exceeded this figure. That was the situation until the Fed came in and bailed everyone out over the weekend.
A timely reminder that money in the bank is NOT YOURS.
You are an unsecured creditor in what may very well be an insolvent institution. Some countries don’t even have deposit insurance, and every penny can be taken.
Meanwhile, here’s a live shot of me surveying my gold hoard (very little in banks):
In all seriousness, the issue here for SVB is actually with bonds.
Jamie Quint explained this on Twitter:
– In 2021 SVB saw a mass influx in deposits, which jumped from $61.76bn at the end of 2019 to $189.20bn at the end of 2021.
– As deposits grew, SVB could not grow their loan book fast enough to generate the yield they wanted to see on this capital. As a result, they purchased a large amount (over $80bn!) in mortgage backed securities (MBS) with these deposits for their hold-to-maturity (HTM) portfolio.
– 97% of these MBS were 10+ year duration, with a weighted average yield of 1.56%.
– The issue is that as the Fed raised interest rates in 2022 and continued to do so through 2023, the value of SVB’s MBS plummeted. This is because investors can now purchase long-duration “risk-free” bonds from the Fed at a 2.5x higher yield.
– This is not a liquidity issue as long as SVB maintains their deposits, since these securities will pay out more than they cost eventually.
– However, yesterday afternoon, SVB announced that they had sold $21bn of their Available For Sale (AFS) securities at a $1.8bn loss, and were raising another $2.25bn in equity and debt. This came as a surprise to investors, who were under the impression that SVB had enough liquidity to avoid selling their AFS portfolio.
Basically, SVB made a fixed income investment, rates moved higher, decimating the value of those bonds and now their collateral base is crappy. They’d need to sell assets to shore up their balance sheet, call in loans, raise equity, or all of the above — none of which is accretive and all of which may in itself call into question the solvency of the bank. Well, as it turns out, they waited too long to do any of that to try to fix things. And now they’re gone.
JD’s manually curated links for God-fearing MAGA patriots
As we’ve been saying for years now, the unwinding of the bond market is going to create all manner of problems, many of which we’ve not even thought about. Anyone who is long bond duration is going to get hammered. The knock on effects promise to be substantial.
What to look out for? Banks, Insurances and Pension Funds.
Banks, insurance companies, and pension funds all own long-term paper at extremely low interest rates. Increasingly, they’ll be forced to compete with short-term treasuries, and they’ll lose. This is without them marking to market their balance sheets, which will come under enormous pressure. Consider a bond bought with a 1.25% coupon. When that same bond yields a mere 2.5%, the value of the bond gets cut in HALF. That’s a problem as all three of the above institutions will be forced to do one or all of the following in order to meet capital adequacy ratios:
- Raise equity capital, which is dilutive and will be taking place in an environment of risk aversion. Ouch!
- Liquidate some portion of their book in order to bring things back into line. Calling in loans in the midst of a market that is “risk off” means liquidity is poor or poorer than previously thought and prices crater quickly, especially with illiquid assets (think real estate, private equity, and so forth).
- Seek a saviour from a better capitalised competitor in order to stay alive. Naturally, any transaction like this will be done on terms rather favourable to the acquirer. Call it distressed debt investing.
But what retail does? Buy more of those.
Remember, retail investors have no idea about any of the above. All they see is headlines on the nightly news and they freak out. This is why “managing the press” is so important to the powers that be. If not “managed,” we see mass withdrawals from depositors seeking higher yields which itself results in a wave of bank failures and that itself results in further withdrawals. Did I mention you may want to hold some gold?
In any event, the market sensing risk immediately sold the banks. All of them.
To be fair, every major index was down. The Dow, the Spooz, Nasdaq — all of them.
We don’t particularly care since we’re not invested in banks. With respect to the indices, we’re not invested in these either. This doesn’t mean however that we couldn’t see some headwinds as a liquidity crisis could cause problems for all and sundry here.
Interestingly that “useless lump of rock” took a few blue pills and got a rise.
The Coming Implosion
Give it 12 months or less, as the venture capitalists’ books are going to begin to be forced to mark-to-market their positions is going to be epic. I say they’re going to be forced to do this because most VC funded firms have 12 months of runway, and pray tell, who’s going to keep lending money to mostly (not all mind) cash incinerating Silicon Valley startups? So start your stopwatches and let’s clock back in 12 months from now or so (probably less).
Take a look at this Joint Statement by Treasury, Federal Reserve, and FDIC
The following statement was released by Secretary of the Treasury Janet L. Yellen, Federal Reserve Board Chair Jerome H. Powell, and FDIC Chairman Martin J. Gruenberg:
Today we are taking decisive actions to protect the U.S. economy by strengthening public confidence in our banking system. This step will ensure that the U.S. banking system continues to perform its vital roles of protecting deposits and providing access to credit to households and businesses in a manner that promotes strong and sustainable economic growth.
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.
Finally, the Federal Reserve Board on Sunday announced it will make available additional funding to eligible depository institutions to help assure banks have the ability to meet the needs of all their depositors.
The U.S. banking system remains resilient and on a solid foundation, in large part due to reforms that were made after the financial crisis that ensured better safeguards for the banking industry. Those reforms combined with today’s actions demonstrate our commitment to take the necessary steps to ensure that depositors’ savings remain safe.
Imagine being a conservative bank that did the right thing. You now pay for the folly of your competitors who completely pha-cdup. Communism.
The little midget woman assured everyone that this is NOT a bailout. So there’s that.
SVB is a warning sign not an isolated event.
It is a function of the risks that are out there. Anyone with long duration fixed income assets bought anywhere from 2008 onwards is holding increasingly worthless paper. The ramifications of this will be profound.
What nobody is talking about, and for the life of me, I can’t figure out why, is that this has implications on the international front. Imagine, for a moment, you’re China. You see all this going down. You realize that the Fed can’t “tame inflation” while simultaneously bailing out the banks. It’s one or the other, and they’ve just announced they’ll bail out the banks. It is worth remembering China holds roughly a trillion in US debt.
Now, add to that the neocons threatening war with China, and you can see that there is a non zero risk that China tries to get out of the kitchen first and sells their US bonds. I know that’s what I’d do.
For whatever is worth, my favorite bank in this environment is something akin to Gringotts.
International Man’s Note: The Western system is undergoing substantial changes, and the signs of moral decay, corruption, and increasing debt are impossible to ignore. With the Great Reset in motion, the United Nations, World Economic Forum, IMF, WHO, World Bank, and Davos man are all promoting a unified agenda that will affect us all.
To get ahead of the chaos, download our free PDF report “Clash of the Systems: Thoughts on Investing at a Unique Point in Time” by clicking here.
Article cross-posted from International Man.
Bypass Big Tech Censors
Two Storms, One Harvest
Every food crisis in living memory has been a one-shock event. The 2008 price spike was a commodity bubble. The 2020 shortages were a logistics failure. The 2022 grain scare was a war on one exporter’s ports. Each time, the system bent, adjusted, and recovered, and each time the experts assured us afterward that global markets are simply too big and too diversified to fail.
What nobody in Washington seems eager to discuss is that 2026 is shaping up to be something the modern food system has never actually faced. Two independent shocks, one climatic and one geopolitical, are converging on the same harvest cycle at the same time. Not sequentially. Simultaneously.
Start with the weather. The Pacific Ocean is currently building toward what forecasters now openly call a record event. NOAA’s Climate Prediction Center puts the odds of at least a strong El Niño near 88 percent, with roughly two in three odds it reaches “very strong” status, the tier reserved for perhaps three or four events in the entire satellite era. Every major global model now projects a median peak in Super El Niño territory, and most of them project it exceeding the 2015-16 event, which until now held the modern record. Sea surface anomalies were already brushing the super threshold in mid-July, months before these events normally peak. The atmosphere has already shifted into El Niño mode, and the event is forecast to crest in late fall and early winter.
This is not about “climate change.” It’s about the standard cycles of weather, and the cycle we’re currently in is one that has likely devastated societies in the past. We’re better prepared as a society today, but not all Americans are equally prepared.
Serious households have started doing the quiet math on their own. Grocery bills tell part of the story, and the forecast maps tell the rest, which is why long-term food storage has moved from fringe hobby to mainstream line item in the family budget, with established suppliers like Heaven’s Harvest seeing demand from people who five years ago would have rolled their eyes at the idea. That instinct is not paranoia. It is pattern recognition, and the pattern is worth walking through carefully.
Editor’s Note: Heaven’s Harvest IS a sponsor, but the warnings of this article are real and would be written even if we didn’t have a survival food sponsor. With that said, those who take advantage of what they offer can use promo code “Patriot” for 15% off.
The Fertilizer Clock Is Already Running
While the Pacific warms, the second shock has been unfolding in the Strait of Hormuz. The conflict with Iran turned the world’s most important energy chokepoint into a contested waterway, and the consequences reach far beyond the gas pump. Roughly a third of global fertilizer trade moves through Hormuz, and the disruption sent urea prices up 86 percent year over year by March, with a 53 percent jump in a single month.
The World Bank projects energy prices rising about 24 percent in 2026 and fertilizer about 31 percent. By its own accounting, fertilizer prices ran 35 percent higher in the first five months of this year than the same period last year.
Here is the mechanism the nightly news will not explain. Fertilizer is not a grocery item. It is a time-delayed input. The nitrogen a farmer in Iowa or Punjab could not afford to apply this spring does not show up as a problem this spring. It shows up as a thinner harvest six to twelve months later.
The World Bank’s own food security brief concedes that the effects of reduced applications earlier this season “are likely to become visible only later in harvest outcomes.” Translate that from institutional language into plain English and it means this. The damage is already done, it is already in the ground, and we are simply waiting for it to arrive on the shelf.
Now check the calendar. Six to twelve months from the spring planting season lands us squarely in late 2026 and early 2027. Which is precisely when the strongest El Niño in the instrumental record is forecast to peak, bringing its signature droughts to Southeast Asia, Australia, southern Africa, northern Brazil, and South Asia, the very regions that grow the world’s rice, sugar, and oilseeds.
The World Bank warns openly that a strong El Niño “could disrupt multiple crop belts simultaneously” on top of the conflict-driven input costs. Their baseline projection assumes the Middle East disruptions ease by autumn. What in the last two years of Middle East history suggests that assumption is safe?
The System Has No Slack Left
The comfortable answer is that global markets always adjust. But adjustment requires slack, and the slack is gone. Global cereal production is expected to decline from last year’s records even before El Niño does its work. The UN World Food Programme, hardly a den of right-wing preppers, is calling this the most significant disruption to its supply chains since Covid and the invasion of Ukraine, and its supply chain director put the stakes bluntly.
Today’s supply chain challenges are tomorrow’s hunger crisis.
There is also a political dimension that markets cannot price. When food gets scarce, governments do not behave like economists. They behave like politicians. Export bans, hoarding mandates, and panic buying at the national level turned the modest rice shortfall of 2008 into a global crisis, and analysts are already warning that import-dependent nations are the first dominoes.
The 2015-16 Super El Niño, a far weaker event than what is now forecast, threw tens of millions into food stress across Africa and Asia. This one is projected to be stronger, and it arrives with fertilizer already rationed by price and shipping lanes already contested by missiles.
What Joseph Knew
Scripture does not treat preparation for lean years as faithlessness. It treats it as wisdom delivered in advance to those willing to act on it.
Behold, there come seven years of great plenty throughout all the land of Egypt: And there shall arise after them seven years of famine; and all the plenty shall be forgotten in the land of Egypt.
Joseph did not respond to that warning with a hashtag or a committee. He stored grain during the years of abundance, and when the famine came, Egypt stood while its neighbors begged. The lesson is not that famine is certain. It is that the time to prepare is precisely when preparation still looks optional.
Nobody who filled a pantry in a year of plenty has ever regretted it, and nobody standing in an empty aisle has ever been glad he waited for certainty.
None of this calls for panic, and panic is the enemy of sound judgment anyway. It calls for the same unglamorous prudence our grandparents considered ordinary. Keep some cash margin, know your local growers, and put real food in deep storage while it is cheap and available, because the entire arc of this story is that cheap and available is a closing window.
Families looking for a straightforward place to start can visit Heaven’s Harvest and use promo code Patriot for 15 percent off long-term storable food. The forecasts may yet soften, the strait may yet reopen, and we should pray they do. But hope is a fine thing to hold and a foolish thing to eat.