Black Swans

A black swan is the nickname given to an unexpected event that negatively impacts the entire market. Something like, say, um, Silicone Valley Bank going under last Friday?

The news tanked the markets, and set off a huge concern over whether or not other banks will follow suit.

Already you’re hearing some doomsayers suggest we’re looking at 2008 all over again. 

The fact of the matter is, it will likely look different even if it gets worse. Both the FDIC and the Federal Reserve and jointing looking for ways to step in to stabilize the situation (as no one really wins if confidence in the banking system is lost).

The problem is not the swans – it’s the lemmings.  If enough people get scared and act en mass, it doesn’t really matter what is actually happening. THAT will be what is happening: panic and negativity. 

A lot happened over the weekend. It sounds like account holders at SVB are going to be made whole. So, at least so far, bank customers haven’t lost any money.  But that hasn’t stopped many from suggesting the end of the world is on its way.

We’ll continue to watch as the situation unfolds. For now, the damage has been done. 

The volatility index (VIX) spiked huge on Friday. Futures are suggesting more downside on Monday morning. And policy makers still have to meet — so interest rates?  Who knows?

What we do know is the Fed is not stuck between a rock and a hard place. Raise rates again, and other banks could have problems. Don’t raise rates, and inflation continues to ravage the economy. 

The choices ahead could be tough. If inflation does not show meaningful declines in the numbers this week, markets may view this as a significant negative.  

Stay tuned…