Whenever the yield curve inverts as much as it has inverted in recent days, things break. First crypto, then the UK financial system (and prime minister), and now a large regional bank with outsized influence. The dominoes seem to be falling on cue and there is probably more to come.
Beyond all the statistical “proofs” to the contrary, there is a reason for why finance does not work in a world of negative carry which results when yield curves are inverted and where there is no incentive to lend long by borrowing short. Just as in physics where one can concoct all kinds of experiments to demonstrate the failure of gravity, it still makes more sense to heed gravity than to bet on it not having its way.
The full note on this important topic can be downloaded at this link: LTA Thinking – What’s Next For Investors After Silicon Valley Bank