Communicating The Market

Lately, there has been lots of talk about Banks.  It seems to have quite a lot of people upset or at the very least nervous. And while Banking system may be teetering–it is not for the reasons we assume.

In fact, much like the international chaos that is beating down developing economies and the interests they must pay on massive loans–the rise in interest rates has impact on over-leveraged banks with an entirrely utilitarian effect on the US economy.

If you are a business, entrepreneur, or investor you might migrate funds to larger banks, the too big to fail kind, but perhaps that would be premature.  On average, about 4-8 US banks fail per year and has done so with fairly regularly.  But this hysteria has a necessity; and from a strategic communications standpoint it has sensationalism written all over it.

At the top of the year in January FDIC executives were already discussing the concept of bailouts vs. bail-ins. Bail-ins are when you are given stock in some new entity should your bank bottom out.  That could be shares in the bank or even . . . CBDCs. 

Ad campaigns, PR and outreach campaigns start off well and often gain momentum in voice, tone and frequency. The messaging, images and ads are usually build-up to a major event or series of events. The current Bank panic uses the same metrics. We see how that in the initial days there has been changes with CPI  (Consumer Price Indexes), sudden pivots in interest rates and promises of lower rates.  The point is that messaging is such that we are in a panick about the state of finance in banking, investments and the cost of living. 

Remember, Silicon Valley Tech has–and likely continues to need a bailout–it has been crumbling precipitously for the last 8-12 months, if not longer .  Remember, many tech companies funded by venture funds have virtually no profit or operate on models that don’t make strong returns.  But more than Sillicon Valley valley, the US Treasury Bond Market needed a bailout.  In 2022 many of America’s largest buyers of T-Bonds were selling treasuries.   This meant people were dumping dollars–and not just people, but major nations were selling and not buying.

This was such a huge point that the Federal Reserve Chair went all of the way to Asia and African to have serious talks about it.  Federal reserves and investors everywhere were dumping dollars in favor of gold and other diverse currency holdings.  Some were likely just keeping that cash in the bank.

As you know, FDIC guarantees bank deposits up to 250,000 USD, but holdings of 1.5 million or 3 million are not covered. Deposits in access of 250,000 are uninsured.  That is money investors often put in various financial instruments like debt, property, or Gold.  That money the Fed could see to use to prop up the dollar and the T-bond attrition.  But the narrative here had to create a quick pivot. Could that pivot start at mass hysteria of bank failures prompting investors to move their money to treasuries?

This campaign helped to move billions of dollars out of banks and into treasury bonds which were being abandoned with the haste of a flash sale.  In the same way that scarcity can create gluts, the fear of loss can pivot people toward options that aren’t necessarily better or more useful for them.

You have to understand, Crisis campaigns leverage the public to act quickly.  They start with legitimate concerns in the market, but must be leveraged in such a way as to push the masses to act–and not just to act, but to act in a particular way.

The need to enact this campaign was seen early on in January when the Fed magically lowered interest rates from Historic highs.  When this happened, some investors moved to treasuries. Reuters reported on the shift in a report in mid January 2023. But the Fed does not actually want to lower interest rates.  So the question becomes,  how do you get people to buy treasuries when they are being dumped at record rates and you still need to keep rates high?  Well, you might change CPI calculations and make other tweaks to help you reposition the buyer and the product.  And then, you need something that spooks the market, a flash sale, an inflection point to move the stampede in the right direction.

Remember, the Fed can print as much paper money as it needs to bail out the banks–it’s a circular concept.  But it ultimately needs buyers of treasuries to sustain the printing.  And at the rate of treasury sell-offs and pivots to swaps and other forms of exchange by large and small players worldwide, there needed to be a pivot. If you are a business, you need to understand the slight of hand.

Currently, yields on US treasuries are tanking because investors are stampeding the market for “safe,” financial instruments to shelter their money according to an article by Daily FX. And the US treasuries are not alone–the from other rich developed nations saw the bump when Silicon Valley Bank tanked, Germany and Japan to name a few saw investors returning.

The plan it has worked for now.  Some investors are back buying treasury bills.  This creates a temporary solution for a major problem.  It’s a palpable stop-gap for an international business world hemorrhaging dollars.  Covid also played a major role as a stop-gap for bond sell offs, scaring buyers back to the dollar.  However, some have pivoted to gold, but the hope is that investors prop up the dollar through bonds and not banks long enough. This matters, because the US can always print more money to bail out banks, but what it needs most are buyers of the bonds which was the real issue of attrition.

When the UK had a run on its gilt market in 2022 after its prime minister debacle,  it was the Bank of England that had to buy up the bonds.  The market, unfortunately,  is not run by an invisible hand that is corrective and logical.  It is ran by the decisions, thoughts, projections and anxieties of buyers and sellers.  It is run by the liquidity permitted or restricted by financial leverage mechanisms like the Federal Reserve. 

Such mechanisms require campaigns that move people to act. And it is likely we will see more and more events similar to SVB.  Investors, businesses will have to be savvy about not  only the market, but those who seeking to leverage the market to act.  US banking may be on wobbly footing, and there may not be buyouts for other banks–even with Government promises to buyouts Sillicon Valley Bank depositors.  But it is not because the Fed does not have the means to do so by running the printing press all night. It may not, for the purpose of consolidating banking. You as a SME need to ask yourself what that means for you with less choice when small and regional banks are a thing of the past.

Campaigns of this kind are dire and they indicate major change.  The US bond market is the strength of the US dollar, so regulators are OK with sacrificing small and regional bank diversity to keep US treasuries alive.   This likely means you’ll have less choice and there is less competition, but this is likely a manufactured crisis which is not as threatening overall as a massive bond sell off.  In this instance, better a buyout than a sell off.

US small businesses and investors will have to be savvy in times to come. It is now. Important to both understand the market and how the market is communicated.

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