MARCH 2023


It’s 6:00 AM Pacific as I begin to write, and the equity market futures have been flipping from mildly positive to triple-digit negative all morning. The collapse and subsequent takeover of Silicon Valley Bank and then Signature Bank by the U.S. FDIC (Federal Deposit Insurance Corporation) have caused all capital market investors to pause and take stock. Undoubtedly, some will panic, and their actions will permanently impair their wealth. Others will work up the intestinal fortitude to stay calm and look for opportunities to capitalize on the chaos. We are concentrating on the latter.

For the record, we owned neither bank, and pre-panic, say close of business last Wednesday, our exposure to the banking industry was minimal and continues to be that way today. By way of example, our core process The Dividend Value Discipline™ has a two per cent allocation to the iShares S&P/TSX Capped Financials Index ETF, whereas our Keep More Income strategy owns a two per cent position in the Royal Bank of Canada. In a nutshell, we are extremely underweight financials.

In terms of short-term performance, as of Friday’s close, all our $CAD-based mandates were positive on a year-to-date basis, with the exception of the Next Cycle Resource Fund, which was mid-single-digit negative. I would be remiss in not mentioning, it is also the mandate where I see the most upside.

What follows are some bullet points on what we know, what is unknowable and questions that are running through our minds, the answers of most of which will only become knowable in due time.

  • U.S. President Biden, the FDIC and the U.S. Federal Reserve have effectively guaranteed all depositors of both the Silicon Valley Bank and the Signature Bank. This action has certainly stabilized markets far more than they would be otherwise, but it does beg the question, does that mean that all FDIC banks have an unlimited guarantee (the official FDIC is $250,000) and thus, absolve all depositors from their individual responsibility? What are the long-term moral hazard consequences of such a move?
  • There is a lot of blame to go around and most of the issues can be traced back to a mismatching of funds – taking in short term liabilities (bank deposits) and investing those deposits long term. The buck stops with the banking executives who should know better, but it also falls to regulators who missed the mismatch entirely and finally, to U.S. Federal Reserve Board who let interest rates get unrealistically low, thus seeding inflation and then deciding to hike interest rates faster than any time in history to fight the same. It should be noted that U.S. Federal Reserve Chair Jerome Powell has a habit of pushing on things until they break. He did it in the late 2018, raising rates until we had the market cratered and then, promptly reversed course in early 2019. More recently, he opined for months that inflation was transitionary and left the Fed Funds rate at zero per cent, and then only when it became undeniable that it wasn’t, hit the gas raising the Fed Funds rate from zero to 4.5 per cent within a year. Three strikes and you are out?
  • Banks are going to pull in their horns – lending standards that were already getting tough are likely to get tougher still, and this will slow our economy. That is why we are seeing the resource and industrial sectors selling off. Our take is that it’s short term thinking, we haven’t even got started on spending the $65 billion U.S. infrastructure deal, not to mention the global supply crunch in both energy and metals.
  • Those higher lending standards will translate to a slowing economy, i.e., downward pressure on inflation, which is why we got the rapid fire interest rate increases in the first place. Fed Chair Powell has already displayed that both his feet are on the gas or both feet on the brakes, so do we get a lower Fed rate in the months ahead and is it time to buy bonds? That is certainly what the market is forecasting today and recall that the market is a forward-looking animal.

Charts courtesy of


  • Because of lingering doubt about the above questions, there has been a huge flight to safety, and you can see it with the bidding up of the iShares 1-3 Year Treasury Bond ETF, where the underlying assets are short-term U.S. government guaranteed bonds. It has also shown some modest doubt on the safety of the $USD and we are seeing sell-off this morning as gold rallies – yes, we have some exposure within The Dividend Value Discipline™, the Keep More Income and the Next Cycle Resource Fund.

Charts courtesy of

So, here is how to help yourself today – scratch around and find some cash, turn over the couch, go through your old jeans and check your account balances at the bank – more is better J! On Friday, we booked a $400,000, 1-year GIC with an unlimited guarantee at five per cent. This morning, I can still do that, but I do not believe that is going to last more than a day or two. Is it right for you? Maybe, but if you do find some cash, please reach out and we will do our best to get it allocated in sync with your plan while maximizing the opportunity.

In the interim, we are head down, doing our best to capitalize on opportunities presented and please recall within all our discretionary programs, when we buy for you, we buy for us, same time, same price.

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