With the collapse of Silicon Valley Bank, everyone is looking at the banking industry. Some think it has more room to fall, while others believe now is the best buying opportunity we have seen in a decade.
At this time, I believe it is too hard to pick which direction banks or the market overall is heading.
My reason for saying that is that very few people fully understand the real risk to the banking system at this time.
A few weeks ago, Wall Street banking analysts gave banks good stock ratings. Janet Yellen, the head of the Treasury Department, recently said the banking industry was healthy. Even Jerome Powell, Chairman of the Federal Reserve, recently sat in front of congress and testified that the banking system was solid and well-capitalized.
Well, that certainly wasn't the case for SVB.
While I understand that when Janet Yellen or Fed Chairman Powell make these statements, they are speaking about the whole industry, not one-off banks, as we saw during the financial crisis in 07-08, it only takes a few small cracks in the system to open the flood gates.
And when the 15th largest bank in the U.S. fails, it's hard to ignore that crack, despite the argument that SVB is different from most other banks because they lend to riskier clients in the form of 'start-up' businesses.
The argument that SVB is and was different may make sense, but if that is true, how do you explain Credit Suisse needing a $50 billion loan from the Swiss National Bank?
Finally, for years we have been told that the banks, both here in the U.S. and worldwide, have parts on their balance sheets that are referred to as 'black boxes.' These are certain businesses or investments that we, outsiders, will never get to see. We will never know what those parts of the bank's business look like, and thus, how can we fully understand how healthy or sick a bank is until it's too late?
Maybe you understand the banks better than I do and still want to invest in them, whether long or short; let me give you some exchange-traded funds that you can buy to profit from a bank industry move in either direction. Continue reading "ETFs To Play The Banking Situation"
