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#kenmcelroy #economy #siliconvalleybank…(read more)
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In recent years, we have seen a lot of banks failing and it looks like we may see more of it in the near future. One of the banks that has been in the news lately is Silicon Valley Bank. So what is this bank and what does its potential failure mean for us moving forward?
Silicon Valley Bank is a bank that primarily focuses on providing services to venture capitalists, entrepreneurs, and start-up companies in the technology industry. Its headquarters are located in Santa Clara, California, the heart of Silicon Valley. The bank was founded in 1983 and since then, it has become one of the go-to banks for start-ups and venture capital firms. However, as we have seen in the past, even banks with a solid reputation and a large clientele can fail.
The potential failure of Silicon Valley Bank could have significant consequences for the technology industry. The bank’s clients include some of the biggest names in the tech world, and if it were to fail, it would leave many of these companies without a banking partner. This could make it difficult for these businesses to continue operating, as they would have trouble obtaining financing and carrying out daily banking activities.
One of the reasons Silicon Valley Bank is at risk is because of its heavy concentration in the tech industry. The tech industry is an incredibly dynamic and fast-paced industry, which means that its clients are generally riskier than those in other industries. In addition, the industry is prone to rapid changes in market conditions, which can make it difficult for banks to accurately assess the risk of their loans.
Moving forward, it is important for banks like Silicon Valley Bank to diversify their portfolios and reduce their reliance on any one industry. This could help to mitigate the risk of a bank failure and ensure that clients are not left in the lurch if their bank fails. However, this is easier said than done, especially for banks that have built their reputations on catering to a specific industry.
In conclusion, the potential failure of Silicon Valley Bank is a cause for concern for the technology industry and for the broader banking sector. It highlights the need for banks to diversify their portfolios and reduce their reliance on any one industry. It also underscores the importance of careful risk assessment in the tech industry, where market conditions can change rapidly. Regardless of the outcome of Silicon Valley Bank, it is clear that the banking industry must continue to evolve and adapt to the ever-changing business landscape.
Why you are gem trying to see both sides. You make results strong but understanding.
For protection you can transfer it to a land trust. The can’t call the loan in a land trust.
As for the property management issue.
I called the real-estate board in my state. Didn't need to go to court. Got my rent on time from that point forward.
At around the 25 minute mark Ken asked what else is affected by the rise of the FFR! I would be as bold to say anything that deals with dollars, quite literally everything, will be affected. My reasoning:
Businesses are almost the same as RE with the exception of their assets that pays the outstanding loan(s) is their business model whether it be product or service. RE is a service based industry with massive added tax benefits such as a cleaning service.
So let’s say company ABC makes shoes.
Asset: The sales of shoes and potentially the brand
Now when you look at company ABC’s 10k (because for simplicity company ABC is publicly traded) the balance sheet you will see massive amounts of debt! Now the reason for this debt could very well be to expand, forward golden parachutes, nice pay raises and the like. Not every business needs to split their stock to fund their endeavors! Splitting is a safer but way more expensive way of funding expansion or whatever the agenda is!
Again, for simplicity sake, these loans are similar to commercial RE loans so they’re either 5/1 or 7/1 ARM (using mortgage to bring understanding and again) or if they were expanding physical plants then a mortgage!
So a good company will have enough cash reserves (on the balance sheet under assets) to pay all their debts (on the balance sheet under liability) on their balance sheet without having to liquidate their assets
A decent company will have enough cash reserves to pay for the majority of their loans without having to liquidate assets or liquidate some
And a poor company will not be able to pay their loans back with their cash reserves without selling the “lions share” of their assets such as machines, trucks, plants etc! Which will render the company insolvent in most cases because no assets, no way to generate cash flow, no cash flow, no way to pay off debt or employees!
So when the FFR goes up as it has been these teaser rates are going to come due in the next few years and the company’s who are over leveraged are going to fail and the good ones are gonna get their hand slapped! This is the Lag Ken keeps talking about because these loans haven’t matured yet and the balloon isn’t due yet! 2021 was a massive year for growth so around 2025-26 if the majority of these companies don’t refi these loans they’re in some serious trouble!
Hence where the famous Buffet quote comes from “when the tide goes out you’re going to know who has been swimming without their trunks”
And when that happens that’s when the sharks come out and the real money is made!
That’s part of the reason we see massive layoffs in times like this because it’s no secrete that a company’s largest expense is it’s employees. So, cut employees to save capital to be able to pay your monthly note!
Ken and Danille! Great stream! I just listened from Starbucks. I am thankful that the funds on my Starbucks card is still accessible. I think I am going to make a withdraw after I leave this comment. Cheers!
What about the roll back of Dodd Frank? That is the real issue. It allowed SVB to fly under the radar and make questionable decisions without ever getting stress tested. They would have been forced to maintain a certain level of liquidity. Would have prevented this from happening.
Ken are you renegotiating on your pricing for construction projects and how are you doing that?
Capitalism will prevail. We need to open the flow of funds to real estate investment like Reagon did in 80's–double digit depreciation. Opportunities will make the flow of money to the real estate markets
I think they will hold interest rates.
We already have wage inflation! Fast food companies are paying $19.00 per hour!
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Great video. My Idea is: Could You Talk About ARV- or How You Calculate After Repair Value-With The Aim To Do a BRRRR With One R- standing for refinance?? Thank you.
Great info, thank you
Thank you both of you for the information.
Ken, do you invest in multifamily outside of the US? Would you ever consider it? Thanks for what you do!
GT bank in Ghana
Cramer has pumped so many stocks that dumped or went bankrupt just ahead of a recession. He needs to be investigated
If the US gov bail in they r just pushing for a bigger crises in the future
Inverse Cramer FTW always and forever
Don't all banks handle bonds the same way?
How am I supposed to click on a QR code while on my phone?
I read two stories on Fox about this. 1. The criminals who ran the bank when they knew they were in trouble, immediately sold their stock in the bank, and 2. they also passed out bonuses. Sounds like 2008 bankers, remember?
Enjoyed the show. Thank you for your willingness to share knowledge. Appreciate it.
2yr treasury down 100 basis points in 3 days… never happened ever
I wonder if OnlyFans was on SVB lol
Ken, what I don't understand is they had 14Bn in cash and 26Bn in treasuries. 40Bn in liquid assets for withdrawals. They for some reason elected to raise capital through an equity round but that failed and they opted to sell there 10 yr MBS position taking a large loss. It was the announcement of the last two that caused the bank run. Why bother announcing that??? Just hold the position until it matures at par and you have no issue. I believe there was a large derivative position at play here and it's a systematic problem throughout the banking industry. Your thoughts…
Countries outside the USA are not upset that the dollar is the hegemon currency, they are upset that the USA uses the dollar to wage economic wars against countries that do not comply with the Wishes of the Empire, they are horrified by the theft of russian assets, they are afraid with the "col
or revolutions" financed with dollars.