You never really know you are in a crisis until you're really in it.
This week's events in the banking industry have resurrected painful memories of the 2008 financial system metal-down and the ensuing economic and investment market downturns from which it took several years to recover. The concerns are valid. When people deposit money in a bank they assume it is safe - that they will be able to use their debit card at the grocery store or gas station. American businesses that use their bank to deposit earnings and pay expenses depend on the stability of the financial system to operate. When that stability is threatened the whole economy is threatened. And, let's not talk about the economy as some sort of nebulous institution - the economy is made up of real people...you and me. When "it" is threatened, we are threatened. That's cause for concern - for more than just our investment portfolio. I have had heartbreaking phone-calls from clients and business owner's this week worried about their livelihoods. One client and I ruminated together that reading about the banking system's woes makes us feel like our lives are held together with duct-tape and bubblegum. But it is not. There are spiritual reasons for this that I'll let you determine and wrestle with on your own. But, strictly temporally speaking, our lives are held together.....literally. We are all in this together, and our common and separate interests compliment one another such that crises (like the one we feel like we're in right now) come and go, but human progress continues.
Silicon Valley Bank (SVB) failed this week. Much has been written about the reasons why, and I'll simply link to a good explanation here instead of explaining it again. Bottom-line, the expectation is that more banks (regionally) will probably struggle - and some fail - in the weeks ahead but the overall health of the financial system will help it to avoid the chaos we experienced 15 years ago. Still, this is just one more piece of bad news in an investment market already suffering from fears of high inflation, interest rate increases, geopolitical risks and high relative valuations. We've been warning of sustained market volatility for the past 2 or 3 years now - and we are seeing exactly what we expected. When valuations are fair to overvalued, any and every news event (big or small) causes noticeable market reactions - both negative and positive. As an investor, it helps to remember these moments in the context of all the "moments" that have occurred before. I use the following chart regularly to remind me where things are going:
Have you ever seen a School of Sardines? You may not like them on your dinner plate, but they are mesmerizing in the wild. Each fish swims independently, and yet they all swim in concert with the school to protect against threats. At times they are attacked and the school reacts violently. For a moment the school can disperse and look like it is every-fish-for-himself, but in less than a second it's back together again to achieve it's mission of survival. Our economy is like a school of sardines. We all make independent decisions, living our lives free of each other but generally swimming in the same direction together towards progress. When the school is assailed, we dart about in fear all over the place. But, we always find a way to come back together again. My advice for you this week - just keep swimming.