Market Problems

An up to date discussion of the current state of the markets:  

April 20, 2023

Dear WEALTHTRACK Subscriber,

No one knows more about the banking system than Jamie Dimon, Chairman and Chief Executive Officer of JPMorgan Chase. He is considered to be the best financial executive in the country, leading the nation’s largest and strongest bank. 

In his most recent annual letter, always worth a read, Dimon weighed in on the recent turmoil in the banking system both here and abroad. 

Among his major points:

The recent failures of Silicon Valley Bank (SVB) in the United States and Credit Suisse in Europe, and the related stress in the banking system, underscore that simply satisfying regulatory requirements is not sufficient. Risks are abundant, and managing those risks requires constant and vigilant scrutiny as the world evolves. 

Regarding the current disruption in the U.S. banking system, most of the risks were hiding in plain sight. Interest rate exposure, the fair value of held-to-maturity (HTM) portfolios and the amount of SVB’s uninsured deposits were always known… 

It is unlikely that any recent change in regulatory requirements would have made a difference in what followed. Instead, the rapid rise of interest rates placed heightened focus on the potential for rapid deterioration of the fair value of HTM portfolios and, in this case, the lack of stickiness of certain uninsured deposits. 

Ironically, banks were incented to own very safe government securities because they were considered highly liquid by regulators and carried very low capital requirements.

Even worse, the stress testing based on the scenario devised by the Federal Reserve Board (the Fed) never incorporated interest rates at higher levels.       

He added: As I write this letter, the current crisis is not yet over, and even when it is behind us, there will be repercussions from it for years to come.

There is a lot to unpack in Dimon’s comments which is why we asked this week’s guest to join us. He is WEALTHTRACK “Great Investor” Bill Wilby who has appeared with us exclusively since his retirement from professional money management well over a decade ago.

Now an active private investor managing his own retirement account, Wilby was the portfolio manager of the award-winning Oppenheimer Global Fund which was ranked number one in its category for the 12 years he ran it.

Wilby is a graduate of West Point. He recently stepped down from the committee running the school’s endowment. He has a PhD in International Monetary Economics and has held various international finance and investment positions at top financial institutions including the Federal Reserve Bank of Chicago.   

Wilby retired at the market’s peak in 2007 - talk about timing - because he was concerned about the risks in the financial system. In this weekend’s episode, he will discuss what he sees as the problems with U.S. Treasuries and why financials are uninvestable. 

Plus, in our exclusive EXTRA feature, Wilby shares a book recommendation that’s been an eye-opener for him about the critical role semiconductor chips play in powering the world economy. He calls chips the “new oil.” 

If you miss the show on public television, you can watch it on our website over the weekend, along with our past programs and our guests’ One Investment recommendations.  You can also find the WEALTHTRACK podcast on Stitcher and SoundCloud as well as iTunes and Spotify.

Have a spectacular weekend and make the week ahead a healthy, profitable and productive one!

Best regards,

Consuelo