How Silicon Valley Bank's Failure Could Have Spread Far and Wide; People Are Investing in Bonds Again – Once They Figure Them Out; Google Devising Radical Search Changes to Beat Back A.I. Rivals; Icebergs in Antarctica
1) This new study confirms what I expected: that last month's crisis in the banking system – the lifeblood of any modern economy – could have spread quickly, widely, and catastrophically had the government not acted decisively: How Silicon Valley Bank's Failure Could Have Spread Far and Wide. Excerpt:
The federal government's rescue of two failed banks last month has drawn criticism from some lawmakers and investors, who accuse the Biden administration and the Federal Reserve of bailing out wealthy customers in California and New York and sticking bank customers in Middle America with the bill.
But new data help explain why government officials declared the failures of Silicon Valley Bank and Signature Bank to be a risk to not just their customers, but also the entire financial system. The numbers suggest that a run on deposits at those two banks could have set off a cascading series of bank failures, crippling small businesses and economic activity across wide parts of the country...
That sort of credit paralysis, the researchers estimate, could afflict nearly half the counties in Missouri, Tennessee, and Mississippi – and every county in Vermont, Maine, and Hawaii.
I appreciate conservatives' concerns about the long-term risks of bailouts, but these folks may want to rethink their objections given how reliant their communities are on small banks:
Two-thirds of the counties in Texas and four-fifths of the counties in West Virginia could have a paralyzing number of their banks go under in the event of even a medium-sized run on deposits, the researchers calculate.
In counties across the country, smaller banks are crucial engines of economic activity. In 95% of counties, Goldman Sachs researchers recently estimated, at least 70% of small business lending comes from smaller and regional banks. Those banks, the Goldman researchers warned, are pulling back on lending "disproportionately" in the wake of the Silicon Valley Bank collapse.
The good news for investors is that the recent turmoil in the banking sector has resulted in indiscriminate selling and a number of oversold stocks of good companies – the proverbial "babies being thrown out with the bathwater."
We've identified five of them, which we'll be sharing exclusively with subscribers of our Empire Investment Report newsletter on Wednesday after the market close. If you aren't already a subscriber, you can learn how to subscribe and get on the list to receive this issue the moment it's released by clicking here.
2) The rise in interest rates has made investing in bonds much more attractive. Here's a smart guide in the Wall Street Journal: People Are Investing in Bonds Again – Once They Figure Them Out. Excerpt:
Conventional investing wisdom dictates a 60-40 split between stocks and bonds. But in the recent prolonged era of low yields, the share of bonds in many portfolios was much lower. That's starting to change.
After more than a decade of uninspiring returns, bonds have started to pay out real money. Over the course of 2022, a 2-year Treasury note went from yielding less than 1% annually to more than 4%. Last September was the first time since 2007 when more than 85% of fixed-income assets paid out more than 4%, according to the asset-management firm BlackRock...
As bond returns have picked up, retail investors' interest in buying bonds has surged, government data shows. Sales of Treasury bills, which mature in a year or less, totaled $16.6 billion in March on the government site TreasuryDirect, up from $2.4 billion a year earlier. U.S. households and nonprofits' collective bondholdings rose to $4.52 trillion in the fourth quarter from $3.14 trillion a year earlier, according to the Federal Reserve.
"For 15 years, the bond market we have today hasn't existed," said Kevin McPartland, head of market-structure research at Coalition Greenwich, a data and analytics firm. "That means this is the first time in a lot of people's investing lives when bonds are a real alternative to stocks."
3) This article on the front page of today's New York Times focuses on how Alphabet (GOOGL) subsidiary Google is scrambling to address the challenge posed by artificial intelligence...
I think odds are very good that the company will succeed, so the stock remains one of my favorites. Google Devising Radical Search Changes to Beat Back A.I. Rivals. Excerpt:
Google's employees were shocked when they learned in March that the South Korean consumer electronics giant Samsung was considering replacing Google with Microsoft's Bing as the default search engine on its devices.
For years, Bing had been a search engine also-ran. But it became a lot more interesting to industry insiders when it recently added new artificial intelligence technology.
Google's reaction to the Samsung threat was "panic," according to internal messages reviewed by the New York Times. An estimated $3 billion in annual revenue was at stake with the Samsung contract. An additional $20 billion is tied to a similar Apple contract that will be up for renewal this year.
A.I. competitors like the new Bing are quickly becoming the most serious threat to Google's search business in 25 years, and in response, Google is racing to build an all-new search engine powered by the technology. It is also upgrading the existing one with A.I. features, according to internal documents reviewed by the Times.
The new features, under the project name Magi, are being created by designers, engineers and executives working in so-called sprint rooms to tweak and test the latest versions. The new search engine would offer users a far more personalized experience than the company's current service, attempting to anticipate users' needs.
4) I've written about and shared a lot of photos of the scenery and wildlife we saw in Antarctica, but the icebergs were so spectacular that they're worthy of their own mention. Their shapes and colors boggled my mind every day...
I had heard that 90% of an iceberg is typically below water, but that's not always true – and it explains the incredible shapes of some of them. You see, the part of the iceberg that's in the water melts faster than what's above, so eventually the iceberg gets top-heavy and rises out of the water, tilts sideways, or suddenly flips over. So the most amazing shapes we saw were not, as I had initially assumed, carved by the sun/wind/rain, but by underwater currents! (For more on icebergs, see Wikipedia here.)
Below are some of my favorite pictures, and I posted more on Facebook here:
Best regards,
Whitney
P.S. I welcome your feedback at WTDfeedback@empirefinancialresearch.com.