Rudi’s View: Fear & Greed (Rinse & Repeat)

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Always an independent thinker, Rudi has not shied away from making big out-of-consensus predictions that proved accurate later on. When Rio Tinto shares surged above $120 he wrote investors should sell. In mid-2008 he warned investors not to hold on to equities in oil producers. In August 2008 he predicted the largest sell-off in commodities stocks was about to follow. In 2009 he suggested Australian banks were an excellent buy. Between 2011 and 2015 Rudi consistently maintained investors were better off avoiding exposure to commodities and to commodities stocks. Post GFC, he dedicated his research to finding All-Weather Performers. See also "All-Weather Performers" on this website, as well as the Special Reports section.

Rudi's View | Mar 15 2023

In this week's Weekly Insights:

-Fear & Greed (Rinse & Repeat)
-February Results: Final Notes & Observations


By Rudi Filapek-Vandyck, Editor

Fear & Greed (Rinse & Repeat)

...and as it turned out, yet again, all roads that started off from the Federal Reserve's tightening policy lead to the next US bank failure.

Few of us, investors in Australia, would have heard about Silicon Valley Bank before the week past, but we're going to hear and read a lot about it in the days and weeks coming.

On Monday morning, when FNArena has also been struck by a tech failure at the datacentre that hosts our website, the most important news is that deposit holders will get their money back, in full, while bond holders and shareholders will pay the ultimate price of risk.

This likely means even a sniff of a full-blown banking crisis in the US, let alone worldwide, has most likely been averted. This is not a re-run of 2008, though we all need to be aware the situation remains fluid and unexpected developments can still come out of the proverbial woodwork.

It's early days, but enough details have already been published to underpin one firm conclusion: 'SVB' failed because of insufficient risk management. Whether this is the result of managerial incompetence or simply greed shall always remain the topic of biased debates, but if I were a betting man I'd back the second option (with some incompetence thrown in as the proverbial cherry).

Picture this: prior to joining SVB as Chief Administrative Officer, Joseph Gentile was the Chief Financial Officer at Lehman Brothers' Global Investment Bank up until 2007, one year before Lehman collapsed and effectively deepened the Global Financial Crisis. Not wanting to single out this particular persona, but sometimes, indeed, reality does beat imagination.

Another interesting fact is SVB seems to have exploited a change in the regulatory requirements by former president Trump in 2018.

Equally important: any direct exposures by banks or companies in Australia should be minimal. Canva, not listed, has direct exposure while funds manager Pengana stands to lose -2% in its International Equities Fund. Some smaller tech companies, including Whispir ((WSP)), might have a deposit with SVB, but these should be recovered under the freshly launched US government guarantee.

The Federal Reserve also announced on Sunday it would make additional funding available through a new Bank Term Funding Program. Anyone dreaming of the Fed winding back QT or re-starting QE, or cutting interest rates is a victim of wishful thinking. Interest rates will still go higher, and stay higher-for-longer.

Bond yields, however, are falling because of investors' knee-jerk response to seek safety first and ask questions later.



February Results: Final Notes & Observations

The things we can control, and the ones we don't...

I know many among you value the service we built here at FNArena (and new additions are in the works). Truth is, FNArena and its multitude in data and tools equally forms an integral part of my personal daily routines and market observations & insights, so when power problems at the datacentre makes accessing the website no longer possible, I too am robbed of my primary tools and data.

Hence why last week's promise to zoom in on the February performances of All-Weather Companies and their outlook has been postponed until next week.

So for now... let's look into the final observations from other expert voices.

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One of the segments that surprised in a positive manner in February were contractors and engineers servicing mining, energy companies and infrastructure projects. As pointed out by analysts at Macquarie, when the dust settled over the February results season, the sector had generated more 'beats' than 'misses', which was quite rare this time around.

Two of the stand-out performances were delivered by Ventia Services ((VNT)) and Seven Group Holdings ((SVW)), the broker believes.

The most negative disappointment was reserved for Downer EDI ((DOW)).

Macquarie acknowledges the macro outlook remains supportive for the sector, with spending on mining and infrastructure projects unmistakably supportive, but the broker warns investors should not ignore the 'micro', i.e. the company-specific dynamics and characteristics.

Macquarie's sector coverage is limited to six companies, and only three are rated Outperform: Ventia Services, Seven Group Holdings and Worley ((WOR)).

Monadelphous ((MND)), Downer EDI and NRW Holdings ((NWH)) are all rated Neutral.


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