Market Trends 2023 – Q2

The Weight of the Evidence

TLA continuously researches and monitors economic and market
trends on behalf of the families we serve. The weight of the
evidence informed us to be defensive the last few quarters and we
remain so.

The first quarter of 2023 saw a rebound from lows, especially for
the more speculative equity sectors that suffered the most in
2022. We are skeptical that this is sustainable given current headwinds.
Our portfolios remain decidedly non-speculative.

In the fixed-income markets, shorter-term yields have returned
to more “normal” rates and remain attractive. Longer-term rates
have remained stubbornly low. Therefore, we are not yet ready to
allocate to longer-term maturities. This leads us to recent
headlines about Silicon Valley Bank and lessons to be learned.

SVB promoted and catered to a very concentrated customer base in
the high-tech ecosystem. They served as both investment bankers
for these companies and commercial bankers for these same
companies and executives. These conflicting roles fueled fast
growth within this high-tech ecosystem and encouraged these
customers to deposit their ever-growing capital into the bank well
beyond FDIC insurance limits with no obvious economic
advantage (ie- higher interest rates.) Over 90% of the deposits at
SVB exceeded the FDIC insurance limits. It took just one tweet
from a hedge fund manager to scare enough depositors to create a
“run” on the bank.

In addition, SVB mismatched its assets to its liabilities, so that
when SVB clients wished to withdraw (short-term) deposits, SVB
was forced to sell too many long-term bonds at losses.