Silicon Valley Bank Collapse and the Aftermath: Market Commentary from Cabana’s CEO – March 15, 2023

1 year ago

  • Share this:

Stocks entered free fall over the past few trading days as a huge bank (Silicon Valley Bank) failed due to a run on deposits coupled with bond losses resulting from the pace and size of interest rate hikes over the past year. Almost immediately, two other banks suffered the same fate. The Federal Reserve and the U.S. Treasury enacted emergency provisions over the weekend and have put in place a new program to backstop depositors’ money in failing banks. This represents a recognition by the Fed and others that these events may very well be the first crack in a potential systemic threat to the financial system. Bond yields have dropped precipitously in a flight to safety and bet that the Fed will have to stop raising rates in order to prevent a collapse in the banking sector.  

I have discussed many times over the past year how extraordinary the rate hikes have been as well as the difficulty they have created in managing risk within portfolios. It is very tough when “safe assets” like treasuries and other fixed income investments are getting hit as hard or harder than stocks. All this has been felt at Cabana and now appears to be coming to light elsewhere. Banks borrow money from depositors and pay those depositors short term interest rates. They then invest that money by loaning it out and receiving interest based on longer term rates. They also buy what they believe to be “safe assets” like longer dated treasuries. The Fed raised short term rates so far and so fast that banks’ investments in longer duration assets became worth less than the value of the shorter-term investments that they were paying interest on. This upside-down condition was discovered, and customers got spooked and began withdrawing money that the bank didn’t have. The bank then had to sell those underwater longer-term investments at huge losses. Ultimately, the bank went broke and did it in a matter of hours. Scary stuff indeed and is the stark reality of what can happen when you obliterate the bond market and create the most severely inverted yield curve in many decades (if not in history). Our central bank has done all this in the name of fighting inflation caused by the printing and distribution of trillions of dollars beginning with the financial crisis and reaching a crescendo during the Covid pandemic. As I see it, too many dollars chasing too few goods = inflation. Ironically, the Fed and Treasury are dealing with this current threat by doing what they always do, which is print some more money, thus creating more inflation.  

I will not get overly analytical here but for those of you who want a good lesson in how we got to this point (as well as how our central bank works), I suggest reading The Creature from Jekyll Island.   

The broad indices (DOW, S&P 500, Russell 2000) have now broken major technical support at the 50- and 200-day moving average and appear on their way to testing the October lows. The S&P 500 bounced off some support at 3800 on Monday but given all that is going on I suspect that level may fail, and we will see lower prices. The CPI number that came out Tuesday was in line with expectations and suggests inflation is still hanging around. This puts the Fed in a real dilemma leading up to its March meeting next week. Do they stick to their plan and keep hiking, knowing that banks and perhaps lots of other institutions are breaking-or do they back off and hope the breaking that is already baked in will do the job in slowing down the economy? I have seen talking heads all over the place take both sides of this. I certainly don’t know, but it seems to me that anything is possible over the next few days. 

At Cabana, we remain bearish and in our Safety Valve Level 2 allocation.  


January 17, 2024

This material is prepared by Cabana LLC, dba Cabana Asset Management and/or its affiliates (together “Cabana”) for informational purposes only and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. This material may only be distributed in its original format and may not be altered or reproduced without the prior written consent of CabanaThe opinions expressed reflect the judgement of the author, are as of the date of its publication and may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and nonproprietary sources deemed by Cabana to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by Cabana, its officers, employees or agents.  

“CARA” is Cabana’s Cyclical Asset Reallocation Algorithm. Scenes assigned as per the judgment of The Cabana Group. Scene names and number of scenes have changed over time in an effort to obtain efficiencies and provide clarity of investment objective. 

This material may contain ‘forward looking’ information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the reader. Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy. All investment strategies have the potential for profit or loss. All strategies have different degrees of risk. There is no guarantee that any specific investment or strategy will be suitable or profitable for a particular client. The information provided here is neither tax nor legal advice. Investors should speak to their tax professional for specific information regarding their tax situation. Investment involves risk including possible loss of principal.  

Cabana LLC, dba Cabana Asset Management (“Cabana”), is an SEC registered investment adviser with offices in Fayetteville, AR and Plano, TX. The firm only transacts business in states where it is properly registered or is exempted from registration requirements. Registration as an investment adviser is not an endorsement of the firm by securities regulators and does not mean the adviser has achieved a specific level of skill or ability. Additional information regarding Cabana, including its fees, can be found in Cabana’s Form ADV Part 2A or Form CRS. A copy of which is available upon request or online at 

Past performance is no guarantee of future results. All investment strategies have different degrees of risk and the corresponding potential for profit or loss. Asset allocation and diversification will not necessarily improve returns and cannot eliminate the risk of investment losses. “Target Drawdown” is merely a descriptive term used to describe the general strategy and objective of the portfolio, it is not a guarantee, nor should it be construed to suggest safety or protection from loss. There is no guarantee that portfolio performance will remain consistent with the targeted drawdown parameter. While risk tolerance and targeted “drawdown” are identified on the front end for each portfolio, Cabana’s algorithm does not take any one client’s situation into account and there is no guarantee that Cabana’s strategies will be suitable for any investor. Investors and advisors should not simply rely on the name of any portfolio to determine what is suitable. It is the responsibility of investment advisors to determine what is suitable for their clients. Cabana manages assets on multiple custodial platforms. Performance results for specific investors will vary based upon differences in associated costs and asset availability.  

Cabana claims compliance with the Global Investment Performance Standards (GIPS®). GIPS® is a trademark of the CFA Institute. The CFA Institute does not endorse or promote this organization, nor does it warrant the accuracy or quality of the content contained herein. To receive a GIPS Report and/or a firm’s list of composite/pooled fund descriptions please email your request to

All recommendations made in the prior 12 months are available upon request. Cabana’s allocation history is available here. For additional information regarding our services, including performance disclosures and award methodology, please visit 

Commonly used index/benchmark definitions:  

All indices and categories are unmanaged and an individual cannot invest directly in an index or category. Index returns do not include fees or expenses. Benchmark indices will likely materially differ from Cabana’s portfolio strategies. Detailed information as to how the returns are calculated can be obtained online from the following link: 

Morningstar’s Moderate Target Risk index  follows a moderate equity risk preference and is based on well-established asset allocation methodology from Ibbotson Associates, a Morningstar company.  

Morningstar’s Tactical Allocation category includes portfolios that seek to provide capital appreciation and income by actively shifting allocations across investments. These portfolios have material shifts across equity regions, and bond sectors on a frequent basis. 

The S&P 500 Index is a market-capitalization weighted stock market index of 500 widely held large-cap stocks often used as a proxy for the U.S. stock market.  

The Russell 2000 and 3000 indices are market-capitalization weighted stock market indices that include, respectively, 2000 and 3000 of the most widely-held stocks and are often used as proxies for the U.S. stock market. 

The Nasdaq Composite Index is a market-weight capitalization index that covers more than 3,000 stocks listed on the Nasdaq Stock Market. What is the Nasdaq Composite, and What Companies are in It? | Nasdaq