Michael’s CIO (Check-It-Out) Report on the weeks just past — events, sarcasm, and global macro reflections
March 13, 2023
THEME: Everything Contradictory All At Once
In business, global politics, and economics, there are elements of contradiction. “Everything Everywhere All at Once” (EEAO) won 7 of the 11 Oscars it was nominated for 🙌🏽 and is the theme for this week’s newsletter.
GL🌍BAL BIZNOMIC$
SVBust: Silicon Valley Bank stock closed at $268 on Wednesday, at $106 on Thursday, then fell to $39 in overnight trading, and never reopened on Friday. On the heels of Silvergate Capital’s abrupt crypto-bank shutdown, SVB “failed” and entered FDIC receivership! Signature Bank, about half of SVB’s size, was shut down on Sunday🚫 Respectively, they are the 2nd and 3rd largest FDIC insured banks ever to go under—HSBC bought Silicon Valley Bank UK for 1£
Thalweg—bottom of the valley: SVB “failed” because of a duration mismatch in its balance sheet that resulted in massive realized and unrealized losses on its bond portfolio and a classic run on the bank as depositors withdrew $42 billion!—Other bank stocks fell in sympathy, especially those with huge exposure to startup banking and potential balance sheet duration mismatch—SVB and Signature were well-established banks that will be missed🌄
Buy The Fed Paper (BTFP): On Sunday, the Fed announced that they will make all SVB and Signature Bank of New York depositors whole while providing assurances through a new Bank Term Funding Program (BTFP) that depositors at various well capitalized banks are safe. However a lot of questions remain as to the mechanics of BTFP and whether there will be a stigma for any bank that uses it. The Fed’s announcement indicates that the “Fed put” seems to be alive and well regarding critical aspects of the economy (i.e., 65,000 startups tied to SVB and other people and firms tied to Signature Bank in New York) but not for bank investors. Companies can now make payroll and PE/VC funds and companies that have remaining SVB and Signature Bank exposure have access to all their capital😌— The overarching message: The Fed is bailing out bank depositors not investors! The market will continue to hunt for weakness amongst banks
VC-2-VCC? Another question is whether venture capital (VC) is shifting towards venture contraction correction (VCC). We’ve been seeking new VC opportunities that can take advantage of lower valuations from the coming malaise. Large tech giants with huge purses may also take advantage of the disquiet by buying promising technology for a song🎶
FedUp: The Fed is trying to fight inflation and raise unemployment, but if we examine secondary and tertiary effects, it may be doing the opposite. As noted before, by raising interest rates, the Fed makes the financing of capital expenditures (capex) more expensive. Capex allows companies to expand, improve capital efficiency, and lower costs. If companies are prohibited from using capital to improve efficiency, guess what they have to do? Hire more labor! Thus, higher interest rates restrain companies form lowering production costs, which would reduce inflation, and persuades them to hire more labor instead—ironic😲!—Of course, if Powell does push us into recession by following Volker’s playbook, unemployment is certain to increase😵
Kawaii: Japan’s QT does not stand for “cutie”, but for “quantitative tightening”, a reversal of decades of easy money from the central bank. We wrote about this last November [see April in Japan] and were quoted about it by NIKKEI last month. Bank of Japan’s yield curve control could end by mid-year, interest rates may rise to a positive 0.1% by next year, inflation may hover around 2%, and 10-year bond yields could rise above 1.5%, all while Japan rebuilds its national defense🚀capabilities and automakers figure out how to compete in an EV🚘world—Huge regime shifts for Japan and its Yen💴
Strike! Anti-government protests in France, Israel, Greece, and Georgia over raising the age for receiving pensions, loss of judicial independence, a horrific train crash, and a foreign influencer bill (which has been revoked) respectively—Note: Georgia continues to pursue European Union candidacy status
CONTENT
adidas⛰: Adidas shuttered its Yeezy👟collaboration at a cost of $1.3 billion in inventory. But the company has started an all-new label – adidas Sportswear—to bring the latest textile technology, performance, and comfort to everyday wear. Some may question their violet mountainlike leopard🐆prints or circus🎪tent stripes 🤔🙄😳but it’s a refreshing change that also plays into Gen Alpha, the successor demographic cohort to Gen Z!⚡
SUI: Drunk shoppers spent $14 billion in 2022; one in six Americans shopped under the influence🍹—shoes, clothing, accessories, and food were the most popular items; pets, artwork, and motor vehicles were lower on the list🙊
PERSONAL
QUOTES: Running Point and I were quoted twice in two USA Today articles regarding I bond investments—still offering a good yield! By Reuters regarding Costco’s latest earnings and revenue results—Costco needs to remain relevant as demographics shift! By Chime, discussing how to remain financially stable during periods of high inflation💸. And by U.S. News & World Report regarding how investors should determine their risk🎲tolerance and level of market anxiety😬
C stores: We were quoted in a special report by The Food Institute regarding the evolution of convenience stores🏪—It’s about automation, loyalty, appeal, trendiness, and exclusivity!
Family: Spoke last week at Family Office Club’s well attended Private Investor Summit in the South Bay
Privates: Find me March 28 at ALTSLA in downtown Los Angeles
Keeping it REal: Was invited to speak April 4 at Carmo’s The US Institutional Real Estate Meeting West—Great asset class at the right price
CFA: Looking forward to speak April 19 at CFA Orange County’s 2023 Wealth Management Symposium with a distinguished panel of other CIOs
Make it a great week😊
Michael
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Michael Ashley Schulman, CFA
Partner & Chief Investment Officer
Running Point Capital Advisors, your family office
“We deliver custom investment solutions, family office services, innovations, and unique perspectives to you and your family—we are your family office—you can emphasize your enjoyments, priorities, and legacy.”
Disclosure: The opinions expressed are those of Running Point Capital Advisors, LLC (Running Point) and are subject to change without notice. The opinions referenced are as of the date of publication, may be modified due to changes in the market or economic conditions, and may not necessarily come to pass. Forward-looking statements cannot be guaranteed. Running Point is an investment adviser registered with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training. More information about Running Point’s investment advisory services and fees can be found in its Form ADV Part 2, which is available upon request. RP-23-22
