”Correct and right are two different things. As are facts and truth.”— Louise Penny, The Madness of Crowds
Today I received a signal from the Tennis Buddy Indicator (TBI). My tennis buddies are all of a certain age. They have enough money to be worried about it. Either worried about missing opportunities to grow their wealth… or worried they’re going to lose it through inflation or bad advice from some money manager who doesn’t know what they’re doing.
I have a pretty good idea what is on the average individual investor’s mind by listening to them chat.
I haven’t played tennis since the beginning of the year because I wrenched my back trying to hit an overhead. Last night I showed up to play at the court. One of my buddies came over. He’d listened to our live webinar on The Anatomy of a Bust.
“Did you know it was happening before you prepared the broadcast?”
“That’s awesome, dude!” And then raised his hand for a high five. “How?”
“Following the trend,” I answered. “We knew there was going to be some knock-on effects from the crypto exchange FTX going ‘poof.’ Banks with exposure to crypto seemed like likely candidates.”
Silvergate, Silicon Valley, Signature and First Republic all fit the bill. Of course, hindsight is 20/20, isn’t it? And in a bust, the banks go first.
News came out this morning that Charles Schwab, the $7 trillion dollar behemoth pioneer for self-directed investing, is under stress, and with almost no exposure to crypto. Bloomberg reports:
On the surface, Charles Schwab being swept up in the wave of recent financial meltdowns makes little sense. The firm, a half-century mainstay in the brokerage industry, isn’t overexposed to crypto, startups or venture capital. Fewer than 20% of Schwab’s depositors exceed the FDIC’s $250,000 insurance cap, compared with about 90% at the now-defunct Silicon Valley Bank. And with 34 million accounts, an army of financial advisers and more than $7 trillion of assets, it towers over regional institutions.
And yet, Schwab shares are down nearly a quarter since March 8, 2023.
The firm is loaded up with “safe” long-dated bonds. Since rate hikes began in earnest last year, it turns out those bonds aren’t so safe. Currently, Schwab is carrying $29 billion in unrealized losses on its books.
Those same higher interest rates are encouraging Schwab’s customers to remove money from the very accounts that built the business.
Yesterday, Bank of England Governor Andrew Bailey warned that “the age of social media and digital banking is causing lightning-quick bank runs” after the “sudden” collapse of the regional banks.
Schwab’s recent experience proves the digital age of crowds can impact more than just banks with exposure to crypto. No doubt my tennis buddies will be chatting about Schwab on Friday when we meet next. You know, they’re of a certain age.
Follow your own bliss,
The Wiggin Sessions
P.S. “It is striking that that happened very quickly — word gets around,” Andrew Baily said Monday after a speech at the London School of Economics. “This is very different from the Northern Rock-style queue outside the branch type thing.”
In the digital age, we will have no black and white photos of men and women standing outside of banks waiting for their paper money to be distributed. Those photos are merely symbolic. But the crowd? It still acts the same.
Addison Wiggin is an American writer, publisher, and filmmaker. He was the founder of Agora Financial and publisher for 18 years. An acclaimed New York Times best-selling author, his books include: Financial Reckoning Day, Empire of Debt, The Demise of the Dollar, and The Little Book of the Shrinking Dollar. Addison is also the writer and executive producer of the documentary I.O.U.S.A., an exposé on the national debt, shortlisted for an Academy Award in 2008. He lives in Baltimore, Maryland with his family. Addison started his latest project, The Wiggin Sessions, powered by Consilience Financial, in March 2020. He films from a homegrown studio in his basement.