This morning, the news seems to have spread around the world that Credit Suisse is an undead zombie bank in Switzerland. did you know who? Oh wait – everyone knew for a long time. public secret. Single digit stock price. come. I meet with my financial advisor at industry events and cocktail parties. The other man also frowned and chuckled nervously, “Not bad around Madison Square Park…” I say it to soften the moment. “You got an outdoor Shake Shack…”
Anyway, this shouldn’t be surprising.
In the first place, the entity itself was Frankenstein. let me talk This is out of the dome so not all the details are correct.
First Boston, a highly regarded investment banking firm in the 1920s, faced some difficult times in the late 1970s, and European bank Credit Suisse sold large amounts of its shares in exchange for stability. was successful in purchasing the chocolate? All I can remember was the 70’s.
It turns out that Larry Fink (yes, that Larry Fink) was trying to trade First Boston mortgages and compete with Solomon Brothers maniacs. It didn’t work. Fink’s bet fell through due to unexpected interest rates and prepayment risks (which I’ll discuss on another occasion), and the 50-year-old financial institution was once considered big money. lost his $100 million. Fink has joined Blackstone. Blackstone was a privately held investment firm that was in its infancy at the time. He then started BlackRock’s wealth management division. BlackRock’s asset management division was spun off and sold to become the largest asset manager on the planet. You can google all of these, but they’re not that important to today’s story.
In any event, Europeans invested in First Boston and bought the rest of the company ten years later in the late 80’s to form Credit Suisse First Boston. The combined entity then swallows the more boasted and famous name in the streets: Donaldson Lufkin Jenrette (DLJ, if there was one). There is a Swiss named Oscar or Oliver who is in charge of everything. Failed from day one. We had the dotcom crash, and a few years later we had the financial crisis. CS has been embroiled in scandal and loss for 10 years from two crises and has no chance of succeeding as a consolidated entity.it has everytime It was a disaster, but there were some great parts (wealth management, certain fixed income trading desks, wealth management, a little bit of underwriting, etc.).
Now, everyone has renewed concerns about their ability to survive after the Saudis announced they had finished writing a check to help this monster. got it. It is a large global bank that acts as a counterparty to everyone and everyone.this company everytime confusion. It’s not a shock. They sell off some of their best businesses, and the Swiss government can decide who they want to be in charge of the rest. life goes on. But this is what everyone is worried about now.
Here’s the good news. Last week, an investor finally put one of his most important arrows back in his quiver. Bonds are working again. Government bonds are risk-off. This is important.
A month ago, State Street (SHY) 1- to 3-year Treasury Bond ETFs had a 0.78 correlation with the SPY ETF, making equities and short-term Treasurys basically a co-directional bet. It’s a mess. That should not be. Short-term government bonds should not move in the stock market. And of course it can’t be for long because sooner or later the asset allocator will have to allocate one or the other.
Finally, this correlation was broken. It dropped from almost 80% to 30% and then dropped further. Over the past few days they have been inversely correlated and this is exactly what you need to see happen in a panicked market. Annoyed me a lot (not to mention everyone’s return). Bonds and equities went up and down together based on how panicked or relieved we were about the inflation picture from one week to the next. We are now more worried about the financial system than inflation, and this synchronous skating routine between stocks and bonds is over.
which is good. Risk-off positions must take risk-off actions. Otherwise the whole concept would be sabotaged. So we’re doing it for us again.