Damn if you do, damn if you don’t. If the US Fed raises key rates by 50 basis points, heaven knows how many more banks will fold up. If it doesn’t, then it looses credibility and inflation could not be reined in. In any case, the US Fed is already f*cked as it has been for quite a while behind the curve–the favorite term spewed by central bankers in all my years as a banking reporter. The era of cheap money has overstayed its welcome and has skewed the financial markets, causing overblown valuations in the venture capital and private equity spaces, for example. Because of this, the US Fed has little room to maneuver.
Some pundits have weighed in by saying that the US Fed is highly likely to keep its eye on the road and will not allow the collapse of SVB and Signature Bank–and the write off of USD 17bn worth of Credit Suisse AT1 bonds after the UBS takeover–to deter it from taming the raging inflation.
“(The write-off) may impact investor’s views of the bonds and how much they are willing to pay for them.”
Elisabeth Rudman, global head of financial institutions at DBRS Morningstar to CNBC
This loss of market confidence will drive the cost of funding for banks even higher.
Markets are all about perception and sense of stability. Authorities come out with pronouncements that they hope will calm the markets = perception. Bond prices, stock market, alternative assets…
Speaking of which, I just finished writing an article about alternative asset investing, which looks very attractive to me right now. Alternative assets have been tokenized and digitized to make them more tradeable (liquid) and affordable (in smaller chunks of securities) instead of buying a whole Banksy art worth USD 100,000, which is out of reach for ordinary retail investors like me. Instead of buying very rare wines and whiskey by the bottle, I can have a piece of it by holding a certificate that says I partly own that rare wine/spirit stashed somewhere in the vaults of a Swiss bank (securitize). Instead of holding a piece of paper, I hold a token that I can trade on a digital platform.
And it is a legit asset class. The Harvard Business Review said that in 2020, about half of the portfolio of the ultra-high-net-worth investors (worth USD 30m and up) are comprised of alternative assets.
Anyway, gotta sleep. I have a big interview tomorrow with a global aviation company.