What I think about the Silicon Valley Bank situation
https://www.linkedin.com/pulse/what-i-think-silicon-valley-bank-situation-ray-dalio/
Because a) we are in the early stage of the contraction phase of this cycle and b) the amount of leveraged long holding of assets is large, it is likely that this bank failure will be followed by many more problems before the contraction phase of the cycle runs its course. Before the contraction phase of the cycle ends, history and logic have shown that there will be 1) forced sales of assets at very low prices that require big losses to be reported and cause further contractions in lending, 2) equity dilution, i.e., selling at prices that are at significant discounts to conservative estimates of the present values of their future cash flows, 3) attractive acquisition prices for strong synergistic companies to buy distressed ones, 4) credit problems being a negative for markets and the economy, and eventually 5) the Fed easing and bank regulators providing money, credit, and guarantees because the problem becomes system-threatening.
While people are now not thinking about the next interest rate cut and QE of the Fed, we should because the timing of these is probably less than about a year away and that will have big effects. I think that there is a good chance that it will produce a big decline in the value of money. So, it looks likely to me that the financial/economic picture over the next year or two will be tough.
Let’s remember that it is being accompanied by the internal conflict dynamic (most importantly the 2024 US elections that are coming up) and the external conflict dynamic (most importantly the US-China conflict and the US-NATO-Russia conflict, though others like that with Iran are notable). All of these conflicts affect each other. This setup implies to me that there is a significant risk that there will be 1) bad financial and economic conditions at a time of 2) bad internal conflict and 3) bad international conflicts—with the world being leveraged long. In a nutshell, it looks to me like the next two years will be a very risky time.