The Banking Crisis in Silicon Valley and the Dilemma of Making New Cars

The collapse of a $200 billion bank reminded the world of the fear of 2008.

Rome was not built in a day, nor was the crisis caused in a day. It took Silicon Valley Bank (SVB) only 48 hours from the news of financing to the suspension of Thunder, from panic run to bankruptcy, but the increasingly unstable world financial environment actually started at the beginning of last year at the latest.

The question is nothing more than when and where the first thunder exploded.

A fragile bank

Last year's turmoil in individual village banks has actually reminded people who don't care much about the economic environment on weekdays: banks that are extremely rich in the eyes of the public are actually very fragile at some time.

This is not cold knowledge. The operation of modern commercial banks is based on the credit currency system. The reason why banks can issue a large number of loans with a small amount of their own funds is because all commercial banks as a whole will almost only turn loans into deposits, at most, the loans released by Bank A will become deposits of another Bank B, and rarely exist in cash.

Paper money corresponds to the base currency issued by the central bank, and commercial banks can create 100% loans with, for example, 8% base currency; But this 100% loan hardly exists in the form of cash, but directly becomes the deposit figure of other commercial banks. Loans and deposits are only the increase or decrease of accounts between banks.

In this example, the central bank only issued 8% of the base currency, but the credit system of commercial banks was enlarged, creating social 100% wealth. This process is called "money creation", the red line of "8%" is the reserve ratio set by the central bank, and the ratio between "8%" and "100%" is the so-called money multiplier.

It can be said that everything we enjoy today is inseparable from the process of creating money by credit.

Therefore, banks are extremely vulnerable to panic-stricken large-scale runs. Depositors don't need to empty all their bank accounts (of course, this is impossible). Just when the single-digit reserves in the hands of commercial banks are exhausted, "there are assets on the balance sheet but no cash to take" will kill the banks.

Of course, under normal circumstances, for mature economies, the probability of a large-scale run is extremely small. The existence of reserve is generally to deal with the risk of bank run, and the level of statutory reserve ratio also reflects the assessment of financial risk level by regulatory agencies to some extent.

However, we should know that from 2022 at the latest, "normal situation" has become more and more extravagant.

Behind the curve

Today, the technology stocks of Silicon Valley Bank, FTX, Sri Lanka and China and the United States exploded, the Rolex bubble burst, and cryptocurrency and graphics cards collapsed in the periphery. The bubble burst time node of all high-valued risky assets is highly consistent with the Fed's rate hike and contraction since 2022.

The problem of Silicon Valley banks has been very clear: since the epidemic, the deposits of a large number of depositors have increased from $76 billion to nearly $200 billion in a year and a half, and most of these deposit funds have been used to buy low-risk US Treasury bonds and MBS bonds; Unfortunately, the "low risk" of these assets soon became a thing of the past.

As we all know, in 2020, in order to cope with the epidemic (and the US stocks that were blown four times in eight trading days in March), the US dollar launched an unprecedented round of water release. In two years, the Fed's balance sheet has rapidly expanded from about $4 trillion to nearly $9 trillion, and the benchmark interest rate of the US dollar has almost dropped to zero.

This gave birth to the epidemic prosperity of the American stock market, but it always had to be paid back.

202 1 when the price in the United States was just abnormal, the Federal Reserve and the ostriches on Wall Street firmly believed that "inflation was only temporary", which was the pot of supply chain disorder caused by the epidemic and refused to take intervention measures in advance (or even continue QE). Until the end of the year, inflation could not be contained with the naked eye, and the "temporary inflation theory" finally went bankrupt, and QT, interest rate increase and table contraction were put on the agenda.

So that Federal Reserve Chairman Bauer finally had to admit that he misjudged the situation. Due to the Fed's underestimation and lagging understanding of the nature of inflation, from the end of 20021to 2022, it had to accelerate the end of QE(Taper) ahead of schedule, and then began to raise interest rates in March and predicted the contraction, followed by an unprecedented increase of 50 or even 75 basis points.

Slow step by step, slow step by step. Because of the lag in the start time of intervention, the action range has to exceed market expectations again and again. On the one hand, interest rates have risen too fast, and more importantly, the Fed has been "behind the curve" for a long time, so there have been repeated actions that caught the market off guard, such as 75 basis points for four consecutive times in the second half of 2022.

We should know that the general controversy at the end of 20021was "whether to raise interest rates next year", and at the beginning of 2022, we also vowed that "raising interest rates does not mean shrinking the table immediately". However, we immediately witnessed "50 basis points for the first time in 22 years", and the next month ushered in "75 basis points for the first time in 28 years"-the news really can't understand the bound book, which is a scene of great popularity.

The rapidly rising benchmark interest rate has raised the interest rate level of the whole financial market. The interest rate of US Treasury bonds is generally considered as a risk-free interest rate. With the benchmark interest rate rising from 0.25% to 4.5% in just one year, the yield of short-term government bonds, which is most sensitive to the market interest rate level, has also soared.

It should be noted that the national debt is often discounted (such as the issue price of 95 yuan Zhong 100 yuan), and the national debt yield to maturity is inversely proportional to the national debt price. If the yield to maturity increases, it naturally means that the price of government bonds will fall. On the other hand, when the benchmark interest rate increases rapidly, the yield of national debt increases and the asset value of national debt holders depreciates.

This is also easy to understand: when the deposit interest rate rises rapidly from a low level, if the bond price and yield remain unchanged, the attraction to deposits will decrease, and people tend to throw in government bonds for deposits. When the price of national debt decreases, the yield will increase until there is a reasonable spread with the deposit interest rate again.

The yield of one-year American bonds has plummeted recently because of the thunder and rain of Silicon Valley banks.

Up to 55% of the total assets of Silicon Valley banks are fixed-income assets (simply understood as bonds), including US Treasury bonds. With the US dollar raising interest rates many times than expected in the past year, the yield of US bonds rose and the price of US bonds continued to fall. Silicon Valley banks holding a large number of such assets naturally suffered heavy losses.

At the same time, don't forget that as the benchmark interest rate rises, banks have to give depositors higher deposit interest rates to keep their money. A large number of bond assets of Silicon Valley banks (43% of which are intended to be held until maturity) are depreciating every day, so it is difficult to give high interest rates, which leads to the outflow of depositors until the last moment of March.

By the way, in the two months from the end of last year to the beginning of this year, as the US economic data showed that inflation had cooled down (unfortunately, it was temporary), there was a wave of optimism in the financial market, and even the Fed turned to cut interest rates during the year. However, at the end of February, the price of PCE in the United States suddenly reversed, inflation unexpectedly (not) warmed up again, and the final possibility of interest rate cut during the year quickly shattered. ...

Don't stand up if you can't see your head.

The test of the new force

It suddenly occurred to me that our autocarweekly is a car number.

If you surf the Internet frequently enough and have a good memory, you should still remember the wailing of Wei Xiaoli, Tesla, RIVIAN and Lucid in the American stock market last year. Until today, the share price of the new forces has not recovered, and the best ideal of recovery is only about half of the two highs in 20 years and 22 years, not to mention Weilai and Tucki.

For a long time in the past, the new forces didn't know what profit KPI was when they were born. All the focus is on seizing the market and expanding the share. Spending money requires more skill than saving money. The annual loss is astronomical. It is good news that the loss has narrowed and the gross profit margin has moved in the positive direction, which has supported the stock price and market value.

Today, only the ideal among the new forces has achieved a quarterly profit. Even the ideal with the clearest profit prospect only takes the "break-even" in 2023 as the annual goal.

Before the Fed starts to raise interest rates in 2022, "not making money" will not be regarded as a problem at all. The long-term interest rate of the US dollar is close to zero, which determines that the financing environment is highly relaxed, the financing cost is at a historical low for a long time, and the growth rate far exceeds the profitability. Remember that 2021XX Market Value Exceeds Volkswagen/Toyota/a traditional car company frequently made headlines?

Nobody cares when your business model can support itself. People only care about whether you have enough wonderful stories to convince others to "double at least next year"

However, when the interest rate jumped from 0 to 4.5% to everyone's surprise, the yield of American bonds, the anchor of asset pricing, once exceeded 5% (risk-free), and there was a realistic possibility of further raising interest rates and maintaining high interest rates for a long time. If the new forces can't start making stable profits to support themselves before the cash reserves are exhausted, they will face much higher financing costs than before.

Under the pressure of earlier-than-expected profits, they will have to speed up their growth and shorten the period from grabbing share to making money. It's not enough to cook once a year. You have to grow fast to get tickets.

At the end of the commodity market, residents' surplus savings made headlines at the beginning of the year, and the focus of the automobile market seems to be shifting from BBA and Wei Xiaoli to the economic market represented by BYD. Several backward new forces with relatively isolated positioning, some of which have been unable to even send out monthly sales.

Of course, traditional car companies are also facing challenges, such as the recent large-scale subsidies, but everyone's "car life" stage is different and is much less affected by financing costs. A large proportion of outstanding enterprises in traditional automobile enterprises have certain anti-risk ability in their operating conditions; And the new forces in the rising growth channel, even the head players are still struggling to turn losses.

Of course, on the bright side, the high interest rate environment will eventually squeeze out the bubble: eliminate all individuals who do not create real value. Whether it's Tencent JD.COM. COM's anti-corruption, business reduction and rectification, or the early "economic independence" of new car manufacturers by reducing costs and increasing efficiency, are all aimed at bringing order out of chaos, drawing cakes by PPT and screening "doing the right thing".

Last year, Musk said that he "expected" a recession because "money has been spent on fools for too long." Of course, we all know that Silicon Valley banks may lead to a crisis of systemic risk, which is definitely not worth gloating about. However, as far as we are concerned, there is no need to be overly pessimistic. In fact, with the progress of science and technology, risks should be commonplace in a longer and longer life.

Many people like to quote Keynes's sentence, "In the long run, we will all die." However, what Keynes wants to express is that in the long run, the law will always play the role of getting everything back on track, but if we sit idly by and don't take the initiative to attack, then we may be the "price" in the process of getting back on track.

No winter is insurmountable, but not everyone can stand spring.

1933 At the end of the Great Depression, the United States established a deposit insurance system according to Keynes's pamphlet "General Theory of Employment, Interest and Money". However, they didn't expect that in a few decades, up to 94% of the deposits of a Silicon Valley bank would exceed the insurance limit of $250,000.

This article comes from autocarweekly, the author of Che Yi, and the copyright belongs to the author. Please contact the author in any form. The content only represents the author's point of view and has nothing to do with the car reform.