What history says about the past. A basic appreciation of how valuation dictates the future can go a long way.

Why bonds produced such dreadful returns after 1945

In the 1940s, interest rates had been falling for the better part of 20 years as the Great Depression drove knee-jerk risk aversion, and hit record lows as various policies and incentives moved to cheaply finance wartime deficits. 

According to Yale economist Robert Shiller, 10-year Treasuries yielded 

• 5% in 1920, 
• 3% by 1935, and 
• 2% by the early 1940s. 

The consensus came to believe low rates were a permanent fixture. "Low Interest Rates for Long Time to Come," read one newspaper headline in 1945.

But as the saying goes, if something can't go on forever, it won't. 

• By 1957, 10-year Treasuries yielded 4%. 
• By 1967, 5%. 
• They breached 8% in 1970, and zoomed to 
• 15% by 1981 as inflation scorched the economy. 

Since bond prices move in the opposite direction of interest rates, this was devastating to returns. Deutsche Bank has an archive of Treasury returns in real (after inflation) terms, which tells the story:

Period	Average Annual Real Returns, 10-Year Treasuries
1940-1949	(2.5%)
1950-1959	(1.8%)
1960-1969	0.2%
1970-1979	(1.2%)

Source: Deutsche Bank Long Term Asset Return Study.

Don't underappreciate how awful this was. In real terms, $1,000 invested in 10-year Treasuries in 1940 would have been worth $584 by 1979 -- this for an investment often trumpeted as "risk-free."

Lessons

No one knows if the same performance will be repeated over the coming years. 

Japan is a good example of extremely low interest rates sticking around for decades. 

But the risks are obvious. 

• With 10-year Treasuries yielding 1.5%, there is virtually no chance of high returns over the next decade. 
• The odds of being hammered and suffering negative real returns are, however, quite good.

http://www.fool.com/investing/general/2012/07/10/stocks-or-bonds-the-easy-choice-.aspx

 

What does the bond market turmoil mean for investors?

US Treasuries have suffered the worst start since 1788 after falling by 9.8 per cent this year, triggering experts to question the 60/40 portfolio strategy

The bond market has suffered a record $10 trillion sell-off this year. AP

Harvey Jones

Jul 05, 2022

Investors fretting over this year’s $13 trillion global stock market crash may have overlooked similar carnage in a market that is actually more important for the global economy.

The bond market has also suffered a record $10tn sell-off and this could hit investors just as hard because a strange thing is happening.

Both shares and bonds are crashing at the same time. That is something financial experts say isn’t supposed to happen.

But in 2022, it is. Which means there is no hiding place for investors in this troubled year. There may also be an opportunity, if you are sharp.

Retail investors may pay little attention to the bond market but institutions and governments have been known to obsess over it.

For them, the bond market is the big one. It is about triple the size of the global stock market and plays an essential role in keeping economic activity ticking. At the end of last year, the bond market was worth about $120tn, against $41.8tn for global shares.

If the bond market gets bumpy, everybody is in for a rough ride.

Governments issue bonds to raise money for their spending while companies use them to generate the funds they need to grow. Both promise to pay investors a fixed rate of interest over a preset term, with a guarantee to return their original capital afterwards.

At maturity, the issuing government or company must repay the debt. If it cannot, there is trouble.

Bonds are traded by investors, which means their value can constantly change, depending on factors such as inflation, interest rates and demand. As is the case with shares, bond prices can rise and fall. Just not as much. Usually.

Ordinary investors rarely buy individual bonds but invest through a fund holding a spread of government or corporate bonds.

Bonds offer them a fixed rate of interest plus capital growth if prices rise, with fewer of the ups and downs you find with shares.

The two are supposed to be non-correlating assets. So, when shares fall, bonds are supposed to mitigate losses by standing firm.

The one thing they are not supposed to do is crash simultaneously. Yet, that is what is happening right now.

In doing so, they have destroyed a golden rule of portfolio planning.

For decades, financial planners said the safest way to generate steady, strong long-term returns is to invest 60 per cent of your money in shares and 40 per cent in bonds.

The classic 60/40 portfolio strategy has generated an impressive average return of 11.1 per cent a year over the past decade.

You can even buy exchange-traded funds (ETFs) that automatically deliver this, such as the BlackRock 60/40 Target Allocation Fund or the Vanguard 60% Stock/40% Bond Portfolio.

The writing was on the wall for the 60/40 strategy last year, as US large-cap stocks hit record-high valuations, while US Treasury government bond yields neared record lows.

“For all intents and purposes, we think investors have many reasons to be concerned that the 60/40 might be dead,” Nick Cunningham, vice president of strategic advisory solutions at Goldman Sachs Asset Management, said last October.

This will hit investors who had even never heard of the 60/40 rule because “we see shades of the classic 60/40 present in many portfolios due to an over-concentration in the most familiar asset classes", Mr Cunningham added.

As this warning proves prescient, it may be worth looking at your portfolio to see how exposed you are to this double jeopardy.

This has been a challenging year across the board, says Jason Hollands, managing director of investment platform Bestinvest.

“2022 has seen one of the worst starts to a calendar year for core US assets on record,” he says.

US Treasuries have suffered the worst start to a year since 1788, according to Deutsche Bank, falling 9.8 per cent. Bloomberg

US Treasuries have suffered the worst start since 1788, according to Deutsche Bank, falling by 9.8 per cent. That isn’t supposed to happen to the bond market.

“At the same time, the S&P 500 Index of US shares has fallen 20.38 per cent, the worst first half for US equities since the Great Depression in 1932,” Mr Hollands says.

This is happening because central banks, led by the US Federal Reserve, are throwing monetary policy into a sharp reverse.

After decades of slashing interest rates and pumping out stimulus, they are tightening as fast as they dare to curb inflation.

“Central bankers have now yanked away the key supports for equity and bond markets that turbocharged them in 2020 and 2021,” Mr Hollands says.

Rising interest rates are bad news for shares because higher borrowing costs squeeze both businesses and consumers, hitting profits.

Bonds suffer because they pay a fixed rate of interest, which looks a lot less attractive when rates are rising and investors can earn higher yields elsewhere.

The stock and bond sell-off isn’t over yet despite signs of a recovery in recent days, says Fawad Razaqzada, market analyst at City Index and Forex.com.

Optimists convinced themselves that the Fed would curb rate increases for fear of tipping the US into recession, but this is a misreading.

“The Fed is in a hawkish mood. I think the start of another equity and bond market sell-off is nigh,” Mr Razaqzada says.

It is not all bad news, though.

Bonds do this odd thing that sometimes confuses private investors. When bond prices fall, yields rise.

While the bond price crash is bad news for existing holders, new bond investors are earning a higher rate of income. Yields on 10-year Treasuries have almost doubled from 1.63 per cent to 3.06 per cent this year.

Stock and bond market crashes have one thing in common. Both can throw up opportunities for forward-looking investors.

The Fed will continue to raise rates this year but it also wants room to cut when the US economy slips into recession as a result, probably in 2023, says Lisa Emsbo-Mattingly, managing director of asset allocation research at Fidelity Investments.

“If inflation comes down, real rates, which are yields minus the rate of inflation, could rise further into positive territory after being below zero for the past two years,” she says.

This would allow government bonds to carry out their old job of providing a steady level of income for lower-risk savers and pensioners. Bonds could then start making a meaningful contribution to that balanced 60/40 portfolio split again.

Bonds are cheaper than they were after this year’s dip and are starting to look better value for money.

It could soon be time to start buying bonds again, ideally before the Fed starts cutting rates next year to reverse the recession, at which point bond yields will fall again, Ms Emsbo-Mattingly says.

“But the window of opportunity for yield-seekers may be brief,” she says.

There are hundreds of bond ETFs to choose from, including iShares Core 1-5 Year USD Bond ETF, iShares Global Government Bond UCITS ETF (IGLO) or db x-trackers II Global Government Bond UCITS ETF.

Accurately timing bond fund purchases is no easier than timing the stock market, yet recent volatility is throwing up an opportunity.

It may even make bonds exciting.

Updated: July 05, 2022, 1:00 PM

https://www.thenationalnews.com/business/money/2022/07/05/what-does-the-bond-market-turmoil-mean-for-investors/?utm_source=paid+google&utm_medium=paidsearch&utm_campaign=us+uk+always+on&utm_term=&gclid=Cj0KCQjwtsCgBhDEARIsAE7RYh1ru7FE_OrhxgydUWGygjSPzvR2gW8TwdoBc7cuP1pnWRt4dXjGcFYaAslIEALw_wcB

Silicon Valley Bank receivership. WHO WILL GET PAID FIRST?

We encourage clients with SVB accounts in excess of the FDIC insured limit to contact the FDIC toll-free number at +1.866.799.0959, or as otherwise indicated here.

WHO WILL GET PAID FIRST?

The Federal Deposit Insurance Act specifies the order in which claims will be paid under the receivership as follows:

1. Secured claims
2. Administrative expenses of the FDIC as receiver
3. Insured deposits (the standard insurance amount is $250,000 per depositor, for each account ownership category)
4. Uninsured deposits
5. General/senior liabilities
6. Subordinated debt and similar liabilities
7. Shareholders of SVB and its parent, SVB Financial

SVB has been cited as having relied more heavily on large—and therefore uninsured—deposits than have other banks. This means that the amount of funds allocated for satisfying insured deposit claims in the tier immediately above uninsured deposits should be much smaller than at most banks with more traditional deposit bases. Assuming that the amount of secured claims and administrative expenses will also be relatively modest, this should mean that more funds will be available to satisfy the claims of uninsured depositors. Recoveries for uninsured depositors and creditors junior to them are not guaranteed by the FDIC and will more heavily depend on proceeds available from liquidation of SVB’s assets.

For now, the FDIC has advised that insured depositors should have access to their accounts and insured funds on Monday, March 13, 2023. The FDIC has also announced it will pay uninsured depositors an advance dividend the week of March 13 and will issue receivership certificates for remaining amounts. Depositors will not have to file a claim for their advanced dividend. It is not known what percentage of uninsured deposits will be paid through next week’s advance; the closure order reports that at the close of business on March 9, 2023, due to a “run on the bank,” SVB had a negative cash balance of $958 million. Subsequent dividends are likely, although the amounts and timing of such distributions will be determined by the FDIC in its discretion.

WHAT ARE MY DISCLOSURE REQUIREMENTS AS A PUBLIC COMPANY?

Public companies should consider whether disclosure is required based on their specific facts and circumstances in coordination with their boards and trusted advisers. Any disclosure relating to the possible impact should be limited to the facts known at the time that the disclosure is made, and companies should exercise caution in drawing any definitive conclusions as to the materiality of impact given the evolving nature of the situation. Careful consideration should also be made to Regulation FD compliance, and any forward-looking statements should be identified as such and accompanied by meaningful cautionary language.

https://www.morganlewis.com/pubs/2023/03/silicon-valley-bank-collapse-initial-issues-raised

Kuroda's policies as Governor of the Bank of Japan (Summarised)

Kuroda's policies as Governor of the Bank of Japan during his full tenure

Haruhiko Kuroda served as the Governor of the Bank of Japan (BOJ) from 2013 to 2021. During his tenure, he implemented a monetary policy known as "Quantitative and Qualitative Monetary Easing (QQE)," which aimed to achieve the BOJ's 2% inflation target.

Under Kuroda's leadership, the BOJ pursued an aggressive monetary easing policy that involved massive purchases of Japanese government bonds, exchange-traded funds (ETFs), and real estate investment trusts (REITs) to inject liquidity into the economy and stimulate inflation. Kuroda also introduced negative interest rates to encourage banks to lend more and stimulate economic growth.

Despite these efforts, Japan struggled to achieve its inflation target, and Kuroda faced criticism for his policy's effectiveness. However, he maintained his commitment to the QQE policy throughout his tenure, citing the need to maintain a stable financial system and support economic growth.

The dates when policy was changed or implemented

Here are some of the key dates when Haruhiko Kuroda implemented or changed monetary policy during his tenure as Governor of the Bank of Japan:

March 14, 2013: Kuroda is appointed as Governor of the Bank of Japan, and introduces "Quantitative and Qualitative Monetary Easing (QQE)" as the central bank's primary monetary policy tool.

April 4, 2013: The BOJ announces its QQE policy, which includes a plan to purchase ¥50 trillion ($472 billion) of Japanese government bonds annually.

October 31, 2014: The BOJ expands its QQE policy, increasing its annual purchases of government bonds to ¥80 trillion ($729 billion).

January 29, 2016: The BOJ introduces negative interest rates, lowering its policy rate to -0.1%.

September 21, 2016: The BOJ announces a new policy framework called "Quantitative and Qualitative Monetary Easing with Yield Curve Control (QQEY)," which aims to keep the yield on 10-year Japanese government bonds at around 0%.

July 31, 2018: The BOJ makes minor changes to its QQEY policy, allowing for greater flexibility in its bond purchases.

March 15, 2021: Kuroda announces that he will step down as Governor of the Bank of Japan in April 2021, after serving for eight years.

At one stage the Central Bank of Japan became the biggest owner of Japanese equity

Yes, it is true that at one stage the Bank of Japan (BOJ) became the largest owner of Japanese equities.

Under Haruhiko Kuroda's leadership, the BOJ's quantitative easing policies involved not only purchasing massive amounts of Japanese government bonds, but also buying Japanese stocks through exchange-traded funds (ETFs). The BOJ's ETF purchases were aimed at increasing liquidity in the stock market, stimulating economic growth, and achieving its inflation target.

By September 2016, the BOJ's ETF holdings exceeded ¥20 trillion (approximately $186 billion), making it the largest shareholder in many major Japanese companies, including Toyota, Sony, and Fast Retailing (owner of the Uniqlo brand). At the time, the BOJ's holdings represented around 4% of the total market capitalization of the Tokyo Stock Exchange's first section.

While the BOJ's equity purchases have been controversial, Kuroda defended them as necessary to achieve the bank's monetary policy goals and maintain financial stability. However, some critics have raised concerns about the potential distortion of market forces and the risk of the BOJ becoming too influential in the Japanese economy.

What did Kuroda's policies aim to achieve?

Haruhiko Kuroda, during his tenure as the Governor of the Bank of Japan, implemented monetary policies aimed at achieving two main goals: stimulating economic growth and achieving the bank's inflation target of 2%.

To achieve these goals, Kuroda implemented a monetary policy known as "Quantitative and Qualitative Monetary Easing (QQE)." This policy involved the BOJ purchasing massive amounts of Japanese government bonds, exchange-traded funds (ETFs), and real estate investment trusts (REITs) to inject liquidity into the economy and stimulate inflation. Kuroda also introduced negative interest rates to encourage banks to lend more and stimulate economic growth.

The goal of this policy was to create an environment where firms and households were more willing to spend and invest, thereby boosting economic activity and achieving the 2% inflation target. Kuroda believed that by using these measures to increase liquidity and lower borrowing costs, the BOJ could stimulate demand and help support economic growth.

Were these objectives achieved and why?

During Haruhiko Kuroda's tenure as Governor of the Bank of Japan (BOJ), the bank's efforts to achieve its inflation target of 2% and stimulate economic growth through its monetary policy were largely unsuccessful.

Despite implementing aggressive monetary easing policies such as Quantitative and Qualitative Monetary Easing (QQE), the BOJ struggled to achieve its inflation target. Inflation remained persistently low, averaging around 0.5% annually during Kuroda's tenure. This was due to various factors such as an aging population, weak consumer demand, and global economic uncertainty.

The BOJ's policy of purchasing exchange-traded funds (ETFs) and real estate investment trusts (REITs) also made the bank the largest shareholder in many major Japanese companies. While this policy helped to support the stock market and boost corporate profits, it did not translate into higher wages or increased consumer spending, which would have supported economic growth.

Despite these challenges, some analysts argue that the BOJ's monetary policies helped to stabilize the economy and prevent deflation. The BOJ's policies kept borrowing costs low, which helped support consumer spending and investment. The policies also helped to weaken the yen, which supported Japan's export-driven economy.

In summary, while the BOJ's efforts to achieve its inflation target and stimulate economic growth were largely unsuccessful during Kuroda's tenure, the bank's policies may have helped to prevent a more severe economic downturn and stabilize the economy.

How did Kuroda's policy impact the wage earners in Japan?

Haruhiko Kuroda's monetary policy during his tenure as Governor of the Bank of Japan (BOJ) had a mixed impact on wage earners in Japan.

On the one hand, Kuroda's policy of aggressive monetary easing, including purchasing massive amounts of Japanese government bonds, was intended to stimulate economic growth and increase inflation, which in turn would lead to higher wages. However, despite these efforts, wage growth in Japan remained sluggish during Kuroda's tenure.

One factor that contributed to the lack of wage growth was the slow pace of structural reforms in Japan, which Kuroda had limited control over. Additionally, many Japanese companies remained hesitant to raise wages even as corporate profits increased, due to concerns about the uncertain economic outlook and the need to maintain competitiveness.

On the other hand, Kuroda's policy of purchasing exchange-traded funds (ETFs) and real estate investment trusts (REITs) helped support the stock market, which in turn benefited wage earners who held stocks or stock-based retirement savings plans. The policy also helped support corporate profits, which could potentially lead to increased hiring and wage growth in the future.

Overall, while Kuroda's monetary policy had limited success in boosting wage growth in Japan, it may have indirectly benefited wage earners through its support of the stock market and corporate profits. However, the impact on wage earners was mixed and ultimately limited by structural challenges in the Japanese economy.

How has Kuroda's policy impacted the savers?

Haruhiko Kuroda's monetary policy during his tenure as Governor of the Bank of Japan (BOJ) had a mixed impact on savers in Japan.

On the one hand, Kuroda's policy of aggressive monetary easing, including keeping interest rates low and purchasing massive amounts of Japanese government bonds, had a negative impact on savers. These policies meant that interest rates on savings accounts and government bonds remained low, providing savers with little to no return on their investments.

On the other hand, Kuroda's policy of purchasing exchange-traded funds (ETFs) and real estate investment trusts (REITs) helped support the stock market, which in turn benefited savers who held stocks or stock-based retirement savings plans. Additionally, the policy of negative interest rates was intended to stimulate economic growth, which could potentially lead to higher returns on other types of investments.

Overall, Kuroda's monetary policy had a negative impact on savers who relied on traditional savings accounts or government bonds for their investments. However, savers who held stocks or stock-based retirement savings plans may have indirectly benefited from the policy's support of the stock market.

The Japan stock market from 1970s to now

The Japanese stock market, also known as the Nikkei, has experienced significant ups and downs since the 1970s. Here is a brief overview of its history:

1970s: The Japanese economy experienced rapid growth during this decade, and the Nikkei reached its peak in 1973, closing at 6,251.12. However, the market suffered a significant downturn in 1974 due to the oil crisis, with the Nikkei dropping to 3,251.83.

1980s: This decade saw the Japanese stock market experience unprecedented growth, with the Nikkei hitting a peak of 38,915.87 in 1989. This period of rapid expansion is often referred to as the "bubble economy" due to the inflated stock and real estate prices.

1990s: The bubble economy eventually burst in the early 1990s, leading to a prolonged period of economic stagnation in Japan known as the "Lost Decade." The Nikkei suffered significant losses, dropping below 10,000 in 1992 and remaining below that level for most of the decade.

2000s: The Nikkei gradually recovered in the 2000s, although it still experienced significant volatility. The market reached a high of 18,138.04 in 2007, but this was followed by a sharp decline during the global financial crisis in 2008.

2010s: The Nikkei continued to recover in the 2010s, reaching a high of 24,448.07 in 2018. However, the market also experienced significant fluctuations due to factors such as the earthquake and tsunami in 2011 and geopolitical tensions.

2020s: In 2020, the Nikkei, like most global stock markets, experienced a significant downturn due to the COVID-19 pandemic. However, it has since recovered and has been trading at relatively stable levels in 2021 and 2022.

Silicon Valley Bank Fails After Run on Deposits

 Silicon Valley Bank Fails After Run on Deposits

The Federal Deposit Insurance Corporation took control of the bank’s assets on Friday. The failure raised concerns that other banks could face problems, too.

Silicon Valley Bank’s headquarters in Santa Clara, Calif., on Friday. Founded in 1983, Silicon Valley Bank was a big lender to tech start-ups.

By Emily Flitter and Rob Copeland

Emily Flitter and Rob Copeland cover Wall Street and finance.

March 10, 2023

Updated 9:42 p.m. ET

One of the most prominent lenders in the world of technology start-ups, struggling under the weight of ill-fated decisions and panicked customers, collapsed on Friday, forcing the federal government to step in.

The Federal Deposit Insurance Corporation said on Friday that it would take over Silicon Valley Bank, a 40-year-old institution based in Santa Clara, Calif. The bank’s failure is the second-largest in U.S. history, and the largest since the financial crisis of 2008.

The move put nearly $175 billion in customer deposits under the regulator’s control. While the swift downfall of the nation’s 16th largest bank evoked memories of the global financial panic of a decade and a half ago, it did not immediately touch off fears of widespread destruction in the financial industry or the global economy.

Silicon Valley Bank’s failure came two days after its emergency moves to handle withdrawal requests and a precipitous decline in the value of its investment holdings shocked Wall Street and depositors, sending its stock careening. The bank, which had $209 billion in assets at the end of 2022, had been working with financial advisers until Friday morning to find a buyer, a person with knowledge of the negotiations said.

While the woes facing Silicon Valley Bank are unique to it, a financial contagion appeared to spread through parts of the banking sector, prompting Treasury Secretary Janet Yellen to publicly reassure investors that the banking system was resilient.

Investors dumped stocks of peers of Silicon Valley Bank, including First Republic, Signature Bank and Western Alliance, many of which cater to start-up clients and have similar investment portfolios.

Trading in shares of at least five banks was halted repeatedly throughout the day as their steep declines triggered stock exchange volatility limits.

By comparison, some of the nation’s largest banks appeared more insulated from the fallout. After a slump on Thursday, shares of JPMorgan, Wells Fargo and Citigroup all were generally flat on Friday.

That’s because the biggest banks operate in a vastly different world. Their capital requirements are more stringent and they also have far broader deposit bases than banks like Silicon Valley, which do not attract masses of retail customers. Regulators have also tried to keep the big banks from focusing too heavily in a single area of business, and they have largely stayed away from riskier assets like cryptocurrencies.

Greg Becker, the president and chief executive of Silicon Valley Bank, last year. The bank’s downward spiral accelerated this week.

“I don’t think that this is an issue for the big banks — that’s the good news, they’re diversified,” said Sheila Bair, former chair of the F.D.I.C. Ms. Bair added that since the largest banks were required to hold cash equivalents even against the safest forms of government debt, they should be expected to have plenty of liquidity.

On Friday, Ms. Yellen discussed the issues surrounding Silicon Valley Bank with banking regulators, according to a statement from the Treasury Department.

Representatives from the Federal Reserve and the F.D.I.C. also held a bipartisan briefing for members of Congress organized by Maxine Waters, a Democrat from California and the ranking member of the House Financial Services Committee, according to a person familiar with the matter.

Silicon Valley Bank’s downward spiral accelerated with incredible speed this week, but its troubles have been brewing for more than a year. Founded in 1983, the bank had long been a go-to lender for start-ups and their executives.

Though the bank advertised itself as a “partner for the innovation economy,” some decidedly old-fashioned decisions led to this moment.

Flush with cash from high-flying start-ups that had raised a lot of money from venture capitalists, Silicon Valley Bank did what all banks do: It kept a fraction of the deposits on hand and invested the rest with the hope of earning a return. In particular, the bank put a large share of customer deposits into long-dated Treasury bonds and mortgage bonds which promised modest, steady returns when interest rates were low.

That had worked well for years. The bank’s deposits doubled to $102 billion at the end of 2020 from $49 billion in 2018. One year later, in 2021, it had $189.2 billion in its coffers as start-ups and technology companies enjoyed heady profits during the pandemic.

But it bought huge amounts of bonds just before the Federal Reserve began to raise interest rates a little more than a year ago, then failed to make provisions for the possibility that interest rates would rise very quickly. As rates rose, those holdings became less attractive because newer government bonds paid more in interest.

That might not have mattered so long as the bank’s clients didn’t ask for their money back. But because the gusher of start-up funding slowed at the same time as interest rates were rising, the bank’s clients began to withdraw more of their money.

To pay those redemption requests, Silicon Valley Bank sold off some of its investments. In its surprise disclosure on Wednesday, the bank admitted that it had lost nearly $2 billion when it was all but forced sell some of its holdings.

“It’s the classic Jimmy Stewart problem,” said Ms. Bair, referring to the actor who played a banker trying to stave off a bank run in the film “It’s a Wonderful Life.” “If everybody starts withdrawing money all at once, the bank has to start selling some of its assets to give money back to depositors.”

Those fears set off investor worries about some of the regional banks. Like Silicon Valley Bank, Signature Bank is also a lender that caters to the start-up community. It’s perhaps best known for its connections to former President Donald J. Trump and his family.

First Republic Bank, a San Francisco-based lender focused on wealth management and private banking services for high net worth clients in the tech industry, warned recently that its ability to earn profits is being hampered by rising interest rates. Its Phoenix-based peer in the wealth management industry, Western Alliance Bank, is facing similar pressures.

Separately, another bank, Silvergate, said on Wednesday that it was shutting down its operations and liquidating after suffering heavy losses from its exposure to the cryptocurrency industry.

A First Republic spokesman responded to a request for comment by sharing a filing the bank made to the Securities and Exchange Commission on Friday stating that its deposit base was “strong and very-well diversified” and that its “liquidity position remains very strong.”

A Western Alliance spokeswoman pointed to a news release by the bank on Friday describing the condition of its balance sheet. “Deposits remain strong,” the statement said. “Asset quality remains excellent.”

Representatives of Signature and Silicon Valley Bank had no comment. Representatives for the Federal Reserve and F.D.I.C. declined to comment.

Some banking experts on Friday pointed out that a bank as large as Silicon Valley Bank might have managed its interest rate risks better had parts of the Dodd-Frank financial-regulatory package, put in place after the 2008 crisis, not been rolled back under President Trump.

In 2018, Mr. Trump signed a bill that lessened regulatory scrutiny for many regional banks. Silicon Valley Bank’s chief executive, Greg Becker, was a strong supporter of the change, which reduced how frequently banks with assets between $100 billion and $250 billion had to submit to stress tests by the Fed.

At the end of 2016, Silicon Valley Bank’s asset size was $45 billion. It had jumped to more than $115 billion by the end of 2020.

Friday’s upheaval raised uncomfortable parallels to the 2008 financial crisis. Although it’s not uncommon for small banks to fail, the last time a bank of this magnitude unraveled was in 2008, when the F.D.I.C. took over Washington Mutual.

The F.D.I.C. rarely takes over banks when the markets are open, preferring to put a failing institution into receivership on a Friday after business has closed for the weekend. But the banking regulator put out a news release in the first few hours of trading on Friday, saying that it created a new bank, the National Bank of Santa Clara, to hold the deposits and other assets of the failed one.

The regulator said that the new entity would be operating by Monday and that checks issued by the old bank would continue to clear. While customers with deposits of up to $250,000 — the maximum covered by F.D.I.C. insurance — will be made whole, there’s no guarantee that depositors with larger amounts in their accounts will get all of their money back.

Those customers will be given certificates for their uninsured funds, meaning they would be among the first in line to be paid back with funds recovered while the F.D.I.C. holds Silicon Valley Bank in receivership — although they might not get all of their money back.

When the California bank IndyMac failed in July 2008, it, like Silicon Valley Bank, did not have an immediate buyer. The F.D.I.C. held IndyMac in receivership until March 2009, and large depositors eventually only received 50 percent of their uninsured funds back. When Washington Mutual was bought by JPMorgan Chase, account holders were made whole.

Emily Flitter covers finance. She is the author of “The White Wall: How Big Finance Bankrupts Black America.” @FlitterOnFraud

Rob Copeland covers Wall Street and banking. @realrobcopeland

https://www.nytimes.com/2023/03/10/business/silicon-valley-bank-stock.html

Growth Stocks

How to select growth stocks?

Selecting growth stocks can be a challenging task, but there are a few key factors to consider when evaluating potential investments. Here are a few strategies that may help you identify growth stocks:

Look for companies with strong revenue and earnings growth: Companies that have consistently grown their revenues and earnings over time are more likely to continue growing in the future. Look for companies with strong revenue and earnings growth rates, and compare them to industry averages.

Look for companies with a competitive advantage: Companies that have a sustainable competitive advantage, such as a strong brand, proprietary technology, or a large market share, are more likely to continue growing in the future.

Look for companies with a solid management team: A strong management team is essential for a company's long-term growth. Look for companies with a track record of success and a clear vision for the future.

Look for companies in growing industries: Companies that operate in growing industries, such as technology, healthcare, or renewable energy, are more likely to benefit from long-term growth trends in those industries.

Look at valuation metrics: Growth stocks tend to trade at higher valuations than value stocks, so it's important to consider a company's price-to-earnings (P/E) ratio, price-to-sales (P/S) ratio, and other valuation metrics to ensure that you are getting a good deal.

Do your own research: It's important to conduct thorough research on the companies you are considering investing in. Look at their financial statements, management team, and industry trends to identify companies with strong fundamentals and growth potential.

It's worth noting that past performance is not a guarantee of future results and that investing in the stock market carries risk. It's always good to do your own research, invest in a diverse set of assets, and have a well-defined investment strategy that aligns with your financial goals.

What are the risks of investing in growth stocks?

Investing in growth stocks can be a great way to achieve strong returns, but it also comes with certain risks. Here are a few of the risks to consider when investing in growth stocks:

High Valuation Risk: Growth stocks tend to trade at higher valuations than value stocks, so there's a risk that the stock's price may not be justified by the company's fundamentals. High valuation can lead to a stock to be overpriced and may result in disappointment in future returns.

Earnings Risk: Growth stocks often have high expectations for earnings growth, which means that if a company misses its earnings estimates, its stock price may drop. This can be especially true for companies that have high P/E ratios.

Industry Risk: Companies that operate in a specific industry are subject to the risks of that industry. For example, companies in the technology sector are subject to rapid technological change, while companies in the healthcare sector may be subject to changes in government regulations.

Interest rate Risk: Growth stocks are sensitive to changes in interest rates, as they are more reliant on future earnings than current dividends. When interest rates rise, the value of future earnings may decrease, causing the stock price to fall.

Concentration Risk: Investing in a small number of growth stocks can lead to concentration risk, which means that if one of the stocks in your portfolio performs poorly, it can have a significant impact on your overall returns.

Political and Economic Risk: Political and economic events such as war, natural disasters, and changes in government policies can also impact a growth stock's performance.

It's important to keep in mind that investing in growth stocks carries a higher level of risk than investing in value stocks. It's important to diversify your portfolio, do your own research and have a well-defined investment strategy that aligns with your financial goals and risk tolerance.

Where to find value stocks?

Value stocks can be found in a variety of places, but here are a few strategies to help you identify potential investments:

Financial Statements: Look for companies that have strong financials, such as a low price-to-earnings (P/E) ratio and a high return on equity (ROE). These companies may be undervalued by the market and have the potential for strong returns.

Dividend Yielding Stocks: Companies that pay dividends tend to be more established and financially stable, and can be a good source of income. Dividend-paying companies are often considered as value stocks.

Out-of-Favor Industries: Look for companies that operate in out-of-favor industries, such as retail or energy. These companies may be undervalued by the market due to negative industry trends, but may have strong fundamentals and the potential for a turnaround.

Screening tools: There are various screening tools available online, such as Finviz, that can help you filter stocks by various fundamental and technical criteria, such as P/E ratio, ROE, dividend yield, and more.

Research: Do your own research by reading financial statements, analyst reports, and other financial publications to identify companies that may be undervalued by the market.

Professional guidance: Consider seeking the guidance of a professional financial advisor or money manager who specializes in value investing and can help you identify potential investments based on your investment goals and risk tolerance.

It's worth noting that past performance is not a guarantee of future results and that investing in the stock market carries risk. It's always good to do your own research, invest in a diverse set of assets, and have a well-defined investment strategy that aligns with your financial goals and risk tolerance.

Property Developers - Rising Interest Rates and Costs Add to Woes

Kenanga Research & Investment

Property Developers - Rising Interest Rates and Costs Add to Woes

kiasutrader

Publish date: Fri, 13 Jan 2023, 09:08 AM

We maintain NEUTRAL on the sector as it continues to be weighed down by oversupply and cautious lending by the banks, while housing affordability is eroding on the back of rising interest rates and soaring construction cost, not to mention the already high household debt to GDP ratio in Malaysia. Our key concerns going into 2023 are developers’ elevated net debt levels and tight cashflows, exacerbated by higher interest rates. Our top sector picks are developers with strong sales despite the tough operating environment, translating to cash flows that anchor good dividends, namely, ECOWLD (OP; TP: RM0.83) and IOIPG (OP; TP: RM1.60).

Not out of the woods. We expect operating environment for developers to remain challenging in 2023. We foresee unfavourable industry trends during much of 2022 to persist into 2023. These include: 

(i) soft prices as reflected in a weak house price index as seen in a QoQ contraction in 3Q2022 despite the rising construction and land costs, and 

(ii) the still elevated household debt to GDP ratio at 85% in 1H2022.

While the loan approval rate for 10M2022 already recovered back to pre-pandemic levels of 43%, it is still pale in comparison to 45-51% seen during the upcycle in 2011-2014. Meanwhile, housing affordability is eroding on the back of rising interest rates and soaring construction cost. Property developers are struggling to pass on higher construction cost to end-buyers as price hikes will hurt take-up, putting the viability of the new launches at risk. Most of them choose to sacrifice on margins.

Overhang eases but remains high. Based on NAPIC’s latest 3Q2022 publication, there was some reduction in units in circulation (which includes overhang and unsold under construction units) against the peak recorded in 2021. Despite the reprieve, we note that there is still a long way towards recovery as units in circulation are still rather high versus historical levels – creating price competition and pressure for new unit launches.

A bright spot in landed homes. Since the onset of the pandemic, we note that prices for terrace homes were the only sub-segment that have shown notable growth while prices of high-rises and detached homes have either declined or only grew marginally. Taking cue from such trend, we believe developers focusing on landed townships, i.e. ECOWLD, IOIPG, and SIMEPROP (OP; TP: RM0.55) will fare better than the rest.

Balance sheet concerns linger. Going into 2023, we grow increasingly cautious over developers’ high borrowings levels which would translate to higher financing costs and potential liquidity crunch. Already faced with a tough operating climate, developers’ earnings will be hurt further by the high financial leverage. Developers under our coverage have all shown increased net debt levels over the pandemic, with the exception of ECOWLD and UOADEV (MP; TP: RM1.75).

Overall, we reiterate our top picks being developers with strong cash flows that could anchor good dividends, namely, ECOWLD and IOIPG. We like ECOWLD for its strong branding and prudent cashflow management while IOIPG is for its hidden value within in its prime investment properties in the Klang Valley, Singapore and China, which could potentially be unlocked via a REIT.

Source: Kenanga Research - 13 Jan 2023

https://klse.i3investor.com/web/blog/detail/kenangaresearch/2023-01-13-story-h-301086692-Property_Developers_Rising_Interest_Rates_and_Costs_Add_to_Woes

How a RM 6 bil company falls into liquidation

 

Serba Dinamik seeking legal advice over winding-up order

https://www.theedgemarkets.com/node/651239

Insider purchases

Insider purchases and sales are noteworthy milestones but no road map to investing success.

You're building a mosaic to decide whether you want to be invested in a company, this is just one piece of the puzzle.

But be careful before you follow in a CEO's footsteps. Knowing how much stock to put into an insider's actions, literally and figuratively, is a tricky business.

The most important aspect that the lay investor should keep in mind is that it is a first screen. Despite that caveat, though, "it's the best one that I know of".

When you see an executive put large sums of money on the line, clearly that's a signal that he feels very confident, but that doesn't necessarily mean that the stock's going to go up.

Some insider buying maybe just simply window dressing or a statement to investors.

It's possible that smaller purchases could be aimed largely at drumming up more buying.

They may hope that the publicity of their having bought will have a positive effect on the direction of the market price.

UK credit card rates reach record in new blow to consumers. Average annual percentage rate for the products is now 30.4%.

Publish date: Tue, 10 Jan 2023

UK shoppers taking out new credit cards face record-high interest rates on their bills.

The average annual percentage rate for the products is now 30.4%, according to Moneyfacts Group Plc, which began compiling the data in June 2006. That includes fees and is up from 26% a year ago.

Shoppers in Britain are putting more money on their credit cards as the highest inflation in 40 years erodes savings built up during the pandemic. They splurged on their cards before Christmas, spending £1.2 billion in November, triple the amount of the previous month.

Holiday spending has so far helped retailers surprise to the upside in earnings, with shoppers paying out more than £12 billion on groceries alone for the festivities.

That expenditure was driven in part by food inflation, which has contributed to a cost of living crisis that’s expected to leave families £2,100 worse off.

As well as increasing rates, credit card providers have been making their terms less attractive on average. Over the past 12 months, balance transfer fees have risen and the interest-free balance transfer term has shrunk, the Moneyfacts data show.

  - Bloomberg