Yesterday, banking stocks plunged in the US following problems at Silicon Valley Bank (SVB). Contagion caused share prices of other banks to fall as investors worried whether other banks were vulnerable to the same problems as SVB. Sentiment caused stocks to crash across America, spreading to the rest of the world. Today UK banking stocks are down by up to 5%. That appears harmful, especially if you hold many banking stocks, but it can also be an opportunity to buy. I was tempted to buy HSBA, down over 5%, but will it bounce back tomorrow?
Contagion is something of which we should always be aware. One fear that yesterday’s events brought to mind is the value of banks’ central bank bonds. Bond prices have been falling as inflation and interest rates rise. Silicon Valley Bank was forced into a fire sale of the bonds they were holding. The same could happen to any UK bank whose assets are falling with lower bond prices.
Cost of Living
The cost of living crisis is still a big problem for many households and will get worse when interest rates rise in a couple of weeks. Many are asking why the experts believe that high-interest rates bring down inflation. It doesn’t seem to work, interest rates have gone up, but inflation hasn’t fallen for ordinary people. People are cutting back so there is less money slushing around the economy but the government has been slow to cut back spending on things like HS2. Much of the government action and Bank of England interventions have been too little too late. Interventions should be targeted as well to help the most vulnerable.
Thrifty & frugal
Being thrifty and frugal can get us through this cost of living crisis although for me, that would be no change! I suspect those people who are still wearing summer shorts in the depth of winter and would never be seen in a jumper because it would tarnish their image are still getting their tattoos. Simply saying no to fashion and trends can save a substantial amount of money with the bonus that people might take you more seriously. I don’t have any tattoos, I rarely wear designer brands, and I am always looking for and aware of special offers and money saving opportunities.
The US markets will open in about 30 minutes and I am interested in what they will do. Will banks continue to fall or will they rebound? Whatever they do, there could be contagion to UK markets so it is worth watching.
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