TSP Funds: Quicklook 10 March 2023

The rally had already rolled over, but the question remained if the short-term uptrend would hold. The mini (or emerging) bank crisis helped the SP500 break trend as well as fall below its 200-day moving average again.

I’ve gone into more detail on my market commentary page and even more on my access page.

The short take is the we just had the second largest bank failure in our history that held assets for business start-ups and wealthy individuals. Over 97% of its depositors had balances over the FDIC $250,000, so they will lose their money over the limit. Of course, billionaire Ackman is already calling for a bailout… socialism for the wealthy again.

The non-sp500 companies held in the TSP S fund includes a 16% weighting of financials. And these would be the smaller banks most affected by this little panic. Even the SP500 financial sector is taking a big hit.

Not to go into detail, but many banks invested in long duration bonds when they did not have to pay depositors to hold their money. They seemed to assume that rates would go back down before maturity. But long duration bonds lost significant capital as interest rates doubled and so they can not offload them without recording big losses. Like insolvency level losses.

So they wanted to hold to maturity.

But they are only getting 2-3% on these bonds while depositors are fleeing to 4-5% rates elsewhere. The mistake SVB made was actually trying to fix their capital situation with a large stock offering. An extremely diluting offer. And signaling they were in trouble. Depositors fled. The regulators shut the bank down Thursday night.

It’s getting interesting again,

Michael Bond


Categories: Perspectives