Stocks and Finance

General
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I’m seeing a push on the Internets lately by a certain kind of person who is very mad that people are resisting officially declaring the current state of the economy a recession. There are edit wars going on Wikipedia about the definition of the word recession.

The economy is clearly fucked the fuck up. No question. Is it accurate to use the word “recession” to describe this economic downturn? Maybe it’s semantically correct maybe it’s not. I personally don’t care.

What I personally believe is that belief itself has a causal relationship with the state of the economy. Yes, at a certain point reality has its say. Supplies are too low, demand is too high. No amount of believing that supplies are plentiful can help you when your stomach is empty. But if people believe the economy is shit, they will behave in ways that cause it to become worse, and vice versa. We must avoid a downward spiral.

Therefore, regardless of whether it is accurate to call the current state of the economy a recession, I oppose those who are fighting to have it called as such. Some of them are pedants who will inadvertently cause harm. Many are right wing actors seeking to cause harm on purpose.

We should intentionally avoid using words like recession. Doing so will bolster confidence in the economy at least a tiny amount. And any amount of positive sentiment that we can maintain will translate into some material benefit, even if that benefit is just a brief delay of the inevitable.

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It is pretty amazing how much of global/macro economics is affected by belief, expectations, groupthink, etc… In positive and negative directions that can create or destroy “wealth” (a loaded term I know, but some people and entire economies can benefit or be harmed) and therefore affect real-world commerce and production, and ultimately political outcomes.

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Opposite take, the everything bubble is overdue for popping and the longer it is put off the worse it will be. People arguing against admitting a recession are not doing it because if nobody says recession X jobs will be saved, they are saying it because they want market sentiment to remain up for their investments/401k.

The sooner we have a real correction, the sooner housing costs return to a more normal level (they could and should go lower to the type of commodity pricing they had 50ish years ago). Also a recession would essentially cripple/destroy the entire crypto ecosystem and purge everything except big names like bitcoin and ethereum while salting the earth for retail investors to ever really meaningfully re-enter crypto again after getting burned.

I also feel that even if American economic sentiment remains high, that a recession is inevitable at this point with the eurozone staring down fuel rationing and extremely high energy prices this coming winter.

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Even with a good economy, fuel rationing should be a global policy for climate change reasons.

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I kinda come at it from the other direction, how could our beliefs, expectations, groupthink, etc. not affect the economy? Economic bedrock, that is to say, money having value, is a product of belief. That bits of paper and metal are worth a burger is itself a belief that if enough people don’t believe, the economy collapses.

That enough people believing us to be in recession affects the economy is how we get a recession is like the default position. To suggest otherwise would be extraordinary.

So yeah, chose your words carefully when it comes to the economy. It really does matter.

It’s like a jenga tower, where the bottom blocks are beliefs that are very ephemeral and only exist in our heads, and the blocks above it, hunger, climage change, wealth inequality, colonialism etc. etc etc. are much more concrete.

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Yeah that’s not going to stop the fact that heavy industry, govt offices and services, and personal home heating is going to become constrained in incredibly terrible ways unless a full negotiated war settlement and lifting of russian sanctions goes through. I understand your longer term point, but the immediate brutal reality is a crushing recession for Germany and the wider eurozone.

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Yes I’d love a move away from fossil fuels. Meanwhile, I’ll probably have to pay a few thousand euros extra to heat my home this winter compared to last winter. My girlfriend and I are already budgeting for it, and cutting back on other spending. This has nothing to do with anyone using the term “recession” or not.

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Bed Bath & Beyond has been having a bad time lately. And now the CFO just jumped off the 18th floor of a building in NYC and was under investigation for insider trading for a pump & dump scheme with the chairman of GameStop.

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Do it.

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Paywalled. Here’s a link.

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That’s interesting. I’m not getting a paywall.
Oh well. If anyone else is blocked, use figleaf’s link instead.

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I don’t know if anyone out here is following the Silicon Valley Bank (SIVB) fiasco. Let me break it down for you.

There is, well was, a bank called Silicon Valley Bank. It’s was a pretty normal bank. Business checking accounts, that sort of thing. Check out their web site. Totally normal traditional business banking stuff. https://www.svb.com/

It was formed in the '80s, and almost all of its clients were involve in Silicon Valley tech biz. When venture capitalists raised money from rich people they deposited it in their accounts at SVB. When they invested in tech startups, those tech startups also had accounts at SVB, and the money just transferred right over. Someone even told me that Apple keeps their money there, but I’m not sure how true that is. What is true is that hundreds of billions of dollars of the money that runs US tech was at this bank.

The bank was not doing anything non-traditional. It wasn’t into crypto. It’s been around for decades. Totally normal banking. So what happened?

Slight simplification, but the bank put a bunch of money into US bonds. 10 year bonds. Not bad interest rate. But the money is sort of locked in there for 10 years. At that the time they bought the bonds, no big deal. Perfectly normal thing for a bank to do. Then the economy got fucked the fuck up. People stopped investing in tech startups as much as before. Meanwhile the tech startups that existed were still spending the money they had.

The bank didn’t lose anyone’s money. It was just locked up in these bonds. They just ran of liquidity / cash on hand. Investors who knew shit was going down told people to get their money out quick, and that pushed that nail the rest of the way into the coffin with a Mary Poppins style run on the bank.

In under 24 hours the bank tried to raise money, tried to sell itself, falied to do so, and fell into receivership of the FDIC.

Check out that stock price fall up until they halted trading. Look at the volume spike!

Here’s the thing. I’m sure people in the US are aware that FDIC insurance covers $250k. That’s not much if your company has millions in the bank. The FDIC promised that by Monday people will be able to get their insured money. But most of the money deposited at this bank is uninsured. Oh no! What will happen?

This affect my employer and many many others. It’s not impossible that my paycheck bounces, in which case I will also bounce right into a work stoppage. That’s the worst case scenario which could hurt the whole economy very uh, bigly.

Best case scenario, everyone is made whole, and this is just a cool banking story, and a cautionary tale for the future. Awaiting further developments.

https://www.bloomberg.com/news/articles/2023-03-10/silicon-valley-bank-collapses-enters-fdic-receivership

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How would one know if a company banks with or relies on SVB? Is there a public list available or is that information that would need to be provided by the company itself?

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People tend not to go around telling everyone which bank they use. And banks basically never go around telling people who their customers are.

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An additional whisper I’m hearing. People are saying that the SVB bonds are trading at a price that indicates that the market expects a full bail-out or recovery and everyone being made whole.

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As intended. I don’t think its any big deal is capped at 250k, the FDIC insurance is there for consumer banking for societal stability.