SL Advisors Talks Markets

An Op-Ed in the Washington Post last week suggested that unrealized losses on fixed income investments are likely much higher than the $640BN on held to maturity MBS. It was written by Sebastian Mallaby, who wrote about hedge funds in More Money Than God and has published several other finance books. Mallaby relies on two […]

Investors have reacted to the aftermath of Silicon Valley Bank’s (SVB) failure by assuming tighter credit conditions. This makes sense over the near term. The US banking system has been increasing duration risk, and while SVB was more reckless than most they were not alone. Piling into long term government bonds and mortgage-backed securities required […]

Commercial banks have long benefited from depositor lethargy regarding rates. Although we now have a de facto guarantee of all commercial banking deposits, not just those up to the $250K threshold, customers are likely to pay a little more attention to return and risk, which will force banks to be more competitive. On the asset […]

Silicon Valley Bank (SIVB) succumbed to poor risk management in holding long term bonds funded with demand deposits. If that’s all there was to banking we wouldn’t need many banks. But at a strategic level, Quantitative Easing (QE) as pursued for too long during the pandemic created the conditions for poor decisions. Central bank strategy […]

Real estate investors are keenly attuned to the Fed’s efforts to curb inflation. The Vanguard Real Estate Index Fund (VNQ) is down 18% over the past year, lagging the S&P500 which is –6% and the American Energy Independence Index (AEITR) which is –1%. Rising rates have cooled the hot property market that the Fed’s bond […]

From time to time we come across new companies and technologies that offer the potential to reduce emissions, thereby contributing to the energy transition. One recent example is Sea Forest, an Australian company developing a seaweed-based food additive for cattle that will reduce methane emissions (see How Seaweed Can Fight Global Warming). A few weeks […]

Casually following news of the energy transition can create the impression that the world is a few years away from running on solar power and windmills. The reality is that climate extremists have propagated two impractical beliefs that are impeding policies based on pragmatism. One is that solar and wind are the complete solution. The […]

The “energy” in midstream energy infrastructure is often the primary consideration of potential investors. It probably began with the increased investment during the shale revolution, and the energy transition generated questions about energy mix and stranded assets. But nowadays capital discipline beats growth capex while without energy security there is no transition. It’s time to […]

For anyone in finance, the US budget deficit has always been a looming disaster but rarely a current problem. It hasn’t been a political issue since Clinton ran for office and Jim Carville quipped that the bond market intimidated everybody. For a few brief years we had a budget surplus (1998-2001), but fiscal prudence long […]

A couple of weeks ago stocks and bonds looked vulnerable to strong data (see Confronting Asymmetric Risks). Since then the narrative of impending recession has been punctured by employment, retail sales and inflation figures that all surprised to the upside. Valuations based on the Equity Risk Premium (ERP) were only moderate. Since then, stocks are […]