Michael Howell said SVB failed on interest rate risk, and it’s Washington who now controls the sharemarket’s PE multiple.
Veteran bond trader and capital markets economist Michael Howell said the origin of Silicon Valley Bank’s collapse lies with the US Federal Reserve’s failure to read the path of interest rates in the world’s largest economy, rather than SVB’s asset quality.
“The problem wasn’t that [SVB] had bad loans; they had bad assets and if you want to blame anybody you can say SVB’s risk management was questionable,” he said. “But the Fed overall told people 18 months ago that they were going to keep interest rates low for a long time and they changed their mind because of inflation, so a lot of this is on the Fed because they’ve been hiking so aggressively.”
“The US economy has a much smaller economic footprint, but it has a huge financial footprint,” said Mr Howell. “China by contrast has a huge economic, industrial footprint, and small financial markets impact. So, really, China controls the earnings number, and Washington controls the PE [multiple].
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