Strategy Note /

Like A Hurricane

  • Just as one was getting sick of the never ending inflation saga, here comes SVB's implosion like a hurricane.

  • We see it as more akin to last Fall's UK LDI mini crisis than a systemic worry; note that KRE RSI is at 17, XLF's is 24.

  • BTE jobs data + Fed concerned about bank risk reduces rates sharply, caps the $ and sets up ST crisis as LT buying opp.

Jay Pelosky
Jay Pelosky

TPW Founder & Global Strategist

TPW Advisory
10 March 2023
Published byTPW Advisory

Just when one was getting sick & tired of the never ending inflation saga along comes something straight out of the blue – like a hurricane to paraphrase Neil Young & Crazy Horse. In this case it’s the crypto collapse with a sting in its tail which took down Silvergate Capital Corp & Silicon Valley Bank (SVB) in a matter of days, upending even the top tier jobs #.


Neil & the band came up with that tune back in 1977 (personal confession – Live Rust is one of my go tos for gym workouts) and today one can read about how SVB parallels not quite the 1970s but the S&L crisis of the early 80s. This seems overwrought to me but guys I respect like Larry McDonald of Bear Traps is sounding the 5 alarm fire on this.


I respect Larry a lot but to me this has a good chance of being more like last Fall’s UK LDI crisis than a takedown of the US financial system, even the small bank part of it. It could also be a signal as to what kind of shape the private equity and VC space is in vs the public markets who have already taken significant pain, unlike the private space. Much like the LDI crisis (which I called “a tempest in a tea pot” on BTV IRT) the SVB saga has some specifics which suggest limited extension to other banks, especially the large and systemically important ones.


Both Silvergate & SVB had a very specific focus on the crypto, venture and start up space; the same folks who after the winter of discontent have been burning thru their cash positions, liquidating deposits and becoming super nervous nellies about what might happen to their shrinking cash base. No cash = out of biz so when well respected Silicon Valley VC’s start telling their wanna bes to get their money out, that’s what the wanna bes will do and thus here we are – a basic bank run.


Yesterday’s extension from SVB into the regional banks with KRE, a main ETF for the space, down 8% on 8x its daily volume while big bank ETF XLF fell 4% on 2x av volume suggests some real fear is out there.  Alternatively, when an elephant tries to get thru a key hole it gets cut up – when everyone wants to sell KRE on the same day the price goes down big just like when everyone wants to get their money out of the same bank at the same time banks fail. Note that the ST RSI for KRE is now at 17, deeply oversold, while the same stat for XLF is at 24, also quite oversold.