SITREP for Friday, March 24, 2023

March 24, 2023 • Time to Enlightenment...6 minutes

There’s still only one big story right now: banks. And rather than being out of the woods, as many are hoping, I think we might have just gotten into the woods. Keep in mind that something the increased rates are designed to do is expose and break weaknesses in the financial system. 

This is harsh medicine and not something anyone welcomes but, when there’s a build-up of toxicity, this kind of cleanse is necessary. The problem is that you need to see it through, not quit just as it starts to have an effect. My view is that this is why the Fed and others continued with rate increases this week not despite the failure of some banks, but because of the failure of some banks. 

However, my view’s not what matters here: what matters is that SVB, First Republic, and Credit Suisse were part but not all of the problem and there may be more banking issues to come. 

If this is your first time receiving this email, greetings! These SITREPS (situation reports) contain updates on critical events and essential metrics for you to use in your decision-making. There’s a guide here and a detailed white paper about the small data approach to risk assessment here.

Let’s go.

But before we dive in, I’m curious…

  • Have you ever wished that there was a quicker way to update your risk scenarios? 

  • Looked for a faster way to build a crisis management plan? 

  • Wondered what it would be like if you could put together a training exercise in hours, not weeks?

I have. 

And, judging by the emails I get, so have a lot of other folks.

But as it turns out, there’s a solution to all of these problems and I’m building it over here. 

If you answered ‘yes’ to any of those questions, you’ll want to take a look.

Banks, Banks, Banks

After a tumultuous two weeks, things have calmed down in the banking sector over the past few days. Central bank assurances, UBS’s takeover of Credit Suisse, and the relatively orderly management of US Banks SVB and First Republic have dealt with the initial set of high-profile collapses. 

Some bankers are keen to say that everything is back on an even keel, but the majority of commentators point out that two worrying conditions remain. First, many banks are vulnerable if depositors rush to withdraw their cash. Most of these would be back-stopped by central banks so the cash might be safe, but the banks themselves wouldn’t survive. Second, and more importantly, is that people’s confidence in the banks has been shaken and it wouldn’t take much to tip customers into a panic about their bank.

So rather than being out of the woods, we might have just got past the first scary part on the edge. This is still something to keep a close eye on and to plan accordingly.

On to the numbers.

Key Metrics

90-Day Relative Values

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21-Day Trends

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Oil (Brent Crude)

Brent Crude is low for this 90-day interval. Prices decreased moderately over the last 21 days after significant fluctuation.

Iron and Steel

Iron and Steel is high for this 90-day interval. Prices ended relatively flat over the last 21 days after slight fluctuation.

Market Volatility

Market Volatility (VIX) is mid-range for this 90-day interval. The index increased sharply over the last 21 days after moderate fluctuation.

Wheat

Wheat is very low for this 90-day interval. Prices decreased moderately over the last 21 days after moderate fluctuation.

Shipping (FBX)

Shipping (FBX) is very low for this 90-day interval. Prices decreased moderately over the last 21 days after significant fluctuation.

Election Watch

Early voting has begun in Finland as April’s election approaches. Internationally, not much will change: support for Ukraine will remain strong no matter who wins the election and the country is now on a path to join NATO. Domestically, however, there may be changes to the country’s immigration stance and on other social issues if the right-wing National Coalition Party wins April’s vote. The NCP is only slightly ahead of the ruling Social Democrats in the polls so the results could still go either way next week.

  • 2 April: Finland, Parliament

  • 30 April: Paraguay, President, Senate and Chamber of Deputies

Palate Cleansers

(*Not safe for you, Mum…)

Kudos to Reality Labs

From idea….

…to execution

That’s it. Sorry for the short SITREP today but I’ll be back on Tuesday with some thoughts on crisis exercise planning. (And if that whets your appetite, you should definitely take a look at CrisisDojo.)

Disclaimer

These SITREPS are provided for informational and educational purposes only. Comments or observations are my own and do not reflect the opinions of any firms I am associated with.  The sources from which the metrics are derived are obtained from sources believed to be accurate and reliable, however due to the possibility of human and mechanical error or other factors, Andrew Sheves / Tarjuman LLC is not responsible for any errors or omissions.