Market Commentary – March 14, 2023
Hi, I’m Scott Kubie, president of Orchard Alliance. With the recent FDIC takeover of two banks and ongoing concern about rising interest rates, I hope this brief market commentary provides insight on the financial markets and how Orchard Alliance is well-positioned to weather market volatility.
I’m going to answer the following five questions:
1. Why are we experiencing some shakiness in markets?
2. What are the risks?
3. What are some events to watch for?
4. How is this affecting Orchard Alliance?
5. Should I be worried?
Let’s get started…
1. Why are we experiencing some shakiness in markets?
We’ve been in a period where rates were very low, and they’ve been increased steadily, even rapidly. That makes it not only more expensive to borrow, but it also makes it harder to borrow and exposes certain risk-taking. Silicon Valley Bank had a lot of overall risk in its depositor base, as well as how it managed its business and its focus on technology. Another bank that failed had a large investment in crypto. It created a lot of uncertainty. And one of the things I’ve learned from a long career in markets is that markets hate uncertainty.
2. What are the risks?
Well, “contagion” or maybe, putting it more easily, “Is there a next shoe that’s going to drop?” is really the risk that we focus on. Does this problem expand? And I think that risk is really quite well contained. The venture capital industry isn’t nearly as big as the mortgage industry was back in 2008 during the financial crisis. Also, while some of the banks that have failed are a decent size, they’re not as centrally important to the overall financial plumbing. Some of the reforms that were put in after the 2008 crisis are also helping make this a less worrisome event.
3. What are some events to watch for?
The Fed, the Treasury, and the FDIC have stepped in to back uninsured deposits, pushing down overall risk. Banks with concerns on their balance sheet are getting some outside investment. I think the one to watch most carefully is will the Federal Reserve back off the rate increases it has telegraphed and wants to do in the coming months. That would really reduce the pressure in a lot of areas.
4. How is this affecting Orchard Alliance?
Hardly at all. Our structure for decades has been focused on taking these types of events and making them a non-issue. We do not want to undermine our ability to produce a kingdom-return on your assets. We have for decades maintained a conservative approach. We maintain a reserve that is three to four times what is required in order to enhance our overall safety. We lend to churches, not crypto or venture capital. And churches have been weathering this overall challenge of COVID and increasing interest rates quite well.
5. Should I be worried?
Events like this are normal. Investors are paid to bear risk, and this is part of the risk we get paid to bear. The system has also shown itself to be very resilient. On a personal level, don’t let fear guide you. Christians are the most secure people about the things that matter most and should be the least affected by market volatility. At Orchard, we lend not to build churches, but we lend in order that more people can understand and connect with the peace that you have that is beyond worldly understanding.
Thank you.
As always, our team is available to assist and serve you whenever you need us.
Scott R. Kubie, CFA
President
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March 2023
March 14, 2023 |Scott Kubie
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Market Commentary – March 14, 2023
Hi, I’m Scott Kubie, president of Orchard Alliance. With the recent FDIC takeover of two banks and ongoing concern about rising interest rates, I hope this brief market commentary provides insight on the financial markets and how Orchard Alliance is well-positioned to weather market volatility.
I’m going to answer the following five questions:
1. Why are we experiencing some shakiness in markets?
2. What are the risks?
3. What are some events to watch for?
4. How is this affecting Orchard Alliance?
5. Should I be worried?
Let’s get started…
1. Why are we experiencing some shakiness in markets?
We’ve been in a period where rates were very low, and they’ve been increased steadily, even rapidly. That makes it not only more expensive to borrow, but it also makes it harder to borrow and exposes certain risk-taking. Silicon Valley Bank had a lot of overall risk in its depositor base, as well as how it managed its business and its focus on technology. Another bank that failed had a large investment in crypto. It created a lot of uncertainty. And one of the things I’ve learned from a long career in markets is that markets hate uncertainty.
2. What are the risks?
Well, “contagion” or maybe, putting it more easily, “Is there a next shoe that’s going to drop?” is really the risk that we focus on. Does this problem expand? And I think that risk is really quite well contained. The venture capital industry isn’t nearly as big as the mortgage industry was back in 2008 during the financial crisis. Also, while some of the banks that have failed are a decent size, they’re not as centrally important to the overall financial plumbing. Some of the reforms that were put in after the 2008 crisis are also helping make this a less worrisome event.
3. What are some events to watch for?
The Fed, the Treasury, and the FDIC have stepped in to back uninsured deposits, pushing down overall risk. Banks with concerns on their balance sheet are getting some outside investment. I think the one to watch most carefully is will the Federal Reserve back off the rate increases it has telegraphed and wants to do in the coming months. That would really reduce the pressure in a lot of areas.
4. How is this affecting Orchard Alliance?
Hardly at all. Our structure for decades has been focused on taking these types of events and making them a non-issue. We do not want to undermine our ability to produce a kingdom-return on your assets. We have for decades maintained a conservative approach. We maintain a reserve that is three to four times what is required in order to enhance our overall safety. We lend to churches, not crypto or venture capital. And churches have been weathering this overall challenge of COVID and increasing interest rates quite well.
5. Should I be worried?
Events like this are normal. Investors are paid to bear risk, and this is part of the risk we get paid to bear. The system has also shown itself to be very resilient. On a personal level, don’t let fear guide you. Christians are the most secure people about the things that matter most and should be the least affected by market volatility. At Orchard, we lend not to build churches, but we lend in order that more people can understand and connect with the peace that you have that is beyond worldly understanding.
Thank you.
As always, our team is available to assist and serve you whenever you need us.
Scott R. Kubie, CFA
President