What will happen to Bordeaux if the banks go under?

[JimHow]

I was struck by that previous post from AKR on Haut Brion, how they didn't start making a profit until 1996, and even then only because of RMP. It's hard to make a profit out there with tight credit and a high cost of living. I'm seeing too many folks, Mr. Flaneur included, predicting wild things in the next two years in the banking world. As a small businessman here in Lewiston, Maine, I realize how hard it is to make a profit. It's a 24/7 effort. I'm wondering if the financial roof is about to cave in, but, more specific to this thread, when the banking collapse inevitably happens, will there be a collapse in already distressed wine regions in Bordeaux and elsewhere?

[JimHow]

It really struck me a few years back when we were at this aging "chateau" for Timmy's 50th birthday party.
It was a beautiful, bucolic spot, but clearly was a little worse for wear and neglected, like on the downward slop of some 1964 blanquito right banker.
I even suggested BWE should buy it! Turn it into some little micro garagiste property.
And I was like, how come such a beautiful spot can't make a go of it, other than as like an Air BnB?
I wonder how that property is doing today? What was the name of it Timmy?
I've seen this before, back in 1989, when we had a housing bubble and a fake economy.
It feels like things are about to break.

[JimHow]

I see that the Cathiards FINALLY opened their Napa property, complete with a 97 James Suckling rating of their first vintage.
Still... I'm guessing these olympian supermarket multi-millionaires must be over 80 now, two of the nicest people I've met, but now in their ninth decades they are finally feeling secure enough to open their California project? What if any role is the banking "uneasiness" playing in these financial decisions?

[robert goulet]

I was struck by that previous post from AKR on Haut Brion, how they didn't start making a profit until 1996, and even then only because of RMP. It's hard to make a profit out there with tight credit and a high cost of living. I'm seeing too many folks, Mr. Flaneur included, predicting wild things in the next two years in the banking world. As a small businessman here in Lewiston, Maine, I realize how hard it is to make a profit. It's a 24/7 effort. I'm wondering if the financial roof is about to cave in, but, more specific to this thread, when the banking collapse inevitably happens, will there be a collapse in already distressed wine regions in Bordeaux and elsewhere?

Jim...shit will most likely hit the fan and banks will need a bail out...banks are losing crazy $ on mortgages...I might have to go on a financial 3x bear EFT.

[jal]

I don't think so. I don't think a banking collapse is in the cards
I don't think SVB should have gone bust that quickly, it could have played differently: https://www.bloomberg.com/opinion/artic ... _web_share
First Republic was too exposed to Crypto.
Signature Bank lent to commercial real estate in NY and got caught by the pandemic and the WFH trend.
Credit Suisse has long been a time bomb that finally exploded.

In this environment, banks especially big banks should be making money, paying 3.00-4.00% to depositors, getting 4.75-5.00% from the Fed, no credit risk, no term mismatch. Their existing portfolios were under water and the Available for Sale bonds marked to market have shown a loss but they have all recovered very strongly in the last month.
I'm not overly pessimistic about the financial system, I may be wrong.

Climate change, declining demographics, inequality, divisiveness, mass shootings, the belligerence of Russia and China are all much more worrisome but they are for the (hopefully, very) long term.

[SF Ed]

+1 with Jacques

If you want to worry about systemic financial risk, I'd be much more worried about US government shutdowns and other black swans than bank failures, at least for the US.

I think there is much more risk in the system than is being priced (the VIX is too low), but I think the social/political risks right now are higher than the financial ones.

SF Ed

[Blanquito]

+2 with Jacques, except climate change is already here, already wreaking ecological, economic, and societal damage. And worse is coming fast/soon. So far, virtually every forecast to date on how climate change will play out has been too optimistic, eg rates of warming have been much closer to the worse case scenario (highs experienced in 2022 were forecast to only start in the 2050’s, etc). This is a five alarm fire that no one is taking seriously enough.

[stefan]

>>
big banks should be making money, paying 3.00-4.00% to depositors
>>

Bank of America is paying .06% money market to its top tier depositors! I would change if it were not so inconvenient to do so.

[Blanquito]

>>
big banks should be making money, paying 3.00-4.00% to depositors
>>

Bank of America is paying .06% money market to its top tier depositors! I would change if it were not so inconvenient to do so.

Yeah, Chase ain’t much better, but Vanguard’s money market is around 4.5%, so I moved cash over there (they’re smart and make it very easy/fast).

[jal]

Yeah, I tried to minimize some of the issues Ed and Patrick. They are scary.
A lot of money market funds are returning >4.50% besides Vanguard. I would look at US government MM funds to further minimize the risks
And one could always buy US Tbills through Treasury direct in denominations of $1,000, the 90 day Bill yields over 5% today, no need to change banks for that.

[AKR]

I think I'm personally ok with the cost of capital getting normalized a little, i.e. finding its true market market clearing level rather than a manipulated interest rate. That might mean estates/trade who have been sitting on vast piles of Bordeaux assuming it's an iron law of physics that prices must go up, will have to start rationalizing, and they too must mark their books, and riffing on financial accounting (CFA Level II flashbacks!) reprice the Hold To Maturity to Available for Sale.

[Comte Flaneur]

I don’t think we are in a 2008 situation but either the economy goes into recession - which means bond prices rally - or we have some kind of a banking crisis - as other skeletons fall out of other closets. A recession could itself cause banking stress.

There is too much about finance where the dog (finance, Wall St) is wagging the tail (the real world economy, Main Street). An inadequately regulated financial system like in the US - the non bank financial system is not only not regulated, the regulators don’t even understand it properly - after which interest rates have been at the ‘effective lower bound’ for about a decade - given all the nefarious actors attracted into the ‘shadow’ banking system - and given the moral hazard - just look what happened after SVB - makes it improbable that there are not other shoes to drop in the months ahead.

Remember that in 2018 Trump - under pressure from the nefarious financial sector lobbyists - rolled back a lot of the Obama-led Dodd Frank legislation so medium sized banks are not properly regulated. Commercial real estate is an area to watch.

The San Francisco Fed failed dismally and was asleep at the wheel with SVB - the CEO or Chair of SVB was on the board of the SF Fed. The regional Feds are owned by the banks. This is a classic case of regulatory capture. The regulatees have social family weekends - white water rafting, mountain biking weekends etc - with the regulators who are mainly third rate losers on mediocre pay who are not good enough to work in investment banks - the system is rotten and corrupt. More sh1t is likely to hit the fan.

[jal]

We'll probably read all about it in a Michael Lewis book in five years

[AKR]

I think he's working on the SBF crypto one first.

[JimHow]

I'm just a country lawyer from Maine but I've seen this shit before and I know something's not right.
Securing up my wine cellar and my properties and battening down the hatches, getting ready to apply for Medicare in June, hoping the shit show doesn't explode before Joe gets reelected, then we can regroup. Myself, I'm buying into Ian's trepidation and expecting the worst, hoping for the best.

[RPCV]

I am with you, Jim....worse before it gets better.

[jal]

So much for a banking collapse. JPMorgan Chase posts record revenue that tops expectations on higher rates

[JimHow]

Ha ha well that's good to know!
If JPMorgan Chase is doing well we're all safe.

[JCNorthway]

Yet Jamie Dimon still says he expects a recession ahead.

[jal]

Ha ha well that's good to know!
If JPMorgan Chase is doing well we're all safe.

Hmmm, so you don't want banks to collapse but if they do well, you have a problem? What am I not getting?

[jal]

Yet Jamie Dimon still says he expects a recession ahead.

Yes he does, most banks increased their loan reserves.

From Bloomberg:

Bank earnings season is upon us, offering a glimpse into how lenders navigated a tumultuous quarter that included the collapse of three smaller banks.

Wall Street giants JPMorgan, Citi and Wells Fargo raked in windfalls from the higher interest rates that upended smaller banks.
JPMorgan also reported an unexpected increase in deposits.
But all three banks boosted stockpiles for potentially soured loans, signaling a worsened economic outlook. Citi’s loan loss provisions more than doubled.
Also noteworthy: Wells Fargo said it’s reviewing its $35 billion office loans portfolio for ways to decrease risk amid shakiness in the commercial real estate market.
Big bank stocks rose, but tech dragged equities lower as traders mulled the possibility of more rate hikes this year.

[JimHow]

Indeed, Jacques. The American banking system has been a global beacon of honesty and prosperity for all. The world is a better place because of the honesty and integrity of the American bankers. What’s not to trust.

[jal]

Indeed, Jacques. The American banking system has been a global beacon of honesty and prosperity for all. The world is a better place because of the honesty and integrity of the American bankers. What’s not to trust.

Jim,
You may be saying this in sarcasm but I do think it's mainly true.
I am not saying Jamie Dimon is Jimmy Stewart but just like in every walk of life, there are good and honest people along with corrupt and dishonest ones.
But I have worked with many banks, JP Morgan Chase has never tried to take advantage of me as a client, same with Blackrock, BofA, Morgan Stanley, Citi and many others. On the contrary, whenever there was an issue, they always tried to solve it to the mutual satisfaction of everyone involved. They were also always upfront with their representations of what they could and could not do.
The only firm I swore I would never work with was Goldman Sachs. I always had a bad experience with these guys.
I would love to know the opinion of the other BWE'ers who work in finance, Arv and Ian for instance. I have retired some years ago, I am no longer in touch and maybe things have changed but is the American Banking System corrupt? Is it greedy to the point of trying to screw the customer and the system? Or is it something much worse i.e. outright lying and cheating in order to grow at all costs?

[AKR]

My life observation is that the big regulated US financial services providers (SIFIs) are predictable and tend to follow their own policies closely. One doesn't see strange cowboy behavior, especially as institutions get larger.

Smaller sized financials, and foreign ones, do more strange stuff. Most of the time, 'innovation' leads to poor outcomes in the financial world. Boring, sober bankers are safe. Just contrast the parts of the world that have historically had poor financial prudential supervision - Japan, India, Argentina and so on - and one can see the reduction on societal output.

One consequence of the regulatory framework is that it gives a lot of advantage to larger firms who can afford the technology, legal, regulatory etc. staff/investments to be in a business line. And as the competition decreases, the remaining firms can indulge in oligopolistic practices, versus both their customers and vendors/labor.

[RPCV]

Lots of jitters lately. Hope the regionals with IR exposure are shoring up.

[JimHow]

I like my little credit union. I just want a simple life in retirement. Medicare this fall, social security in a couple years, no debt, two houses, my little Corolla, four vacation trips per year, my wine cellar, stay someplace warm for a month or six weeks in the winter, keep my fingers in the practice of law to keep my mind sharp, read the books I've been putting off for years, my little nest egg. I'm not asking for much after 50-plus years of working my nuts off. Can we please just not fuck this up.

[Comte Flaneur]

The banking crisis ain’t really getting better is it?

Ok a dead cat balance today in the regional bank index

KRE is the regional bank ETF

But 48% of Americans are nervous about the safety of their bank deposits - yikes!

[Comte Flaneur]

Yikes!

https://news.gallup.com/poll/505439/hal ... banks.aspx

The sh1te could be about to hit the fan

[Racer Chris]

So is this a buying opportunity for KRE?