Swimming Naked

Swimming Naked

March 17, 2023

Happy St. Patrick’s Day! As we end another interesting and volatile week in markets, we wanted to share some updates and observations.

1. Warren Buffet has some great quotes, but nothing could be more apropos right now then his classic, “You don’t find out who’s been swimming naked until the tide goes out.”

Weak players fail when monetary policy tightens. Businesses who have been operating without proper risk controls get exposed and die. It happens in every cycle. This time it’s been the failure of two banks with a concentrated client base and lackluster risk controls - Silicon Valley Bank and Signature Bank. There may be more failures to come before this rate hiking cycle is all said and done – a bank, a hedge fund, an over levered small cap company? Who knows, but at this point it doesn’t appear to be systemic.

2. Add this to the long list of “things I’ve never seen before.” Yesterday, it was announced that 11 banks are coming to the rescue of their rival, First Republic Bank. This is another bank that has been seeing huge customer outflows because of their high deposit amounts above the FDIC limit. It’s been reported that the Big Four (BofA, Wells, Citi, and JP Morgan Chase) will each contribute $5 billion to shore up the finances of the struggling bank and improve confidence in the banking sector as a whole. Several other banks are contributing at lower levels.


I’m not sure how rare this inter-bank support is, but I do see it as a strong sign we may be turning the corner on the current fiasco.

3. With all that’s been going on, you may be wondering about the health of Charles Schwab and Co, our primary custodian for client assets. Schwab is effectively two businesses: an investment brokerage and a bank. Some context may be helpful:

  • Schwab’s primary business is as a brokerage firm. The SEC’s Customer Protection Rule requires your assets to be held in segregated accounts. Schwab cannot use them to run their banking business, and thus are protected against creditors’ claims. Brokerage firms are structured differently than the banks that are in the news right now.

We currently have no concerns about Schwab’s financial position.

You can read more information on the protection of client brokerage assets here:


  • Schwab’s banking side is well capitalized and doesn’t resemble Silicon Valley Bank for several reasons.

Here are some highlights from a company release this week (emphasis mine):

  • “Schwab has a broad base of high-quality customers across multiple lines of business, capital well in excess of regulatory requirements, a high-quality and relatively small loan book, and a conservative investment portfolio that is 80% comprised of securities backed by the U.S. Treasury and various government agencies.”
  • “We believe one of the best indicators of the strength and stability of the firm is our client activity. Our February results show that clients entrusted Schwab with more than $41.7 billion in net new assets – our second-strongest February ever following our strongest January ever. Our growth and momentum have continued in March, with daily net new assets of over $2 billion per trading day month-to-date, including Thursday and Friday of last week.”
  • “Collectively, more than 80% of client cash held at Schwab Bank is insured dollar-for-dollar by the FDIC. According to S&P Global Market Intelligence, that percentage is among the highest of the top 100 U.S. banks. As a comparison, the banks in the news the last few days have between 2% and 20% of their deposits insured.”
  • “Schwab does not have any direct business relationship with Silicon Valley Bank or Signature Bank, so we do not have exposure to any direct credit risk from either.”

You can read the release here:


Schwab is a publicly traded company, and the stock price took a hit among the turmoil. The biggest concern being voiced about Schwab’s stock is in relation to its value as an investment rather than its ability to operate its business. The question is whether Schwab will be able to generate the same near-term profits given the shift in client cash from their bank to their own money market funds.

In a further show of confidence in the business, it’s been widely reported this week that Schwab’s CEO, Walt Bettinger, personally purchased 50,000 shares of Schwab stock Tuesday morning - worth an estimated $3,000,000. (Standard disclosure, this is not a recommendation to buy Schwab stock.)

Here’s Walt Bettinger’s interviewed on CNBC this week addressing Schwab’s current financial position:


4. Credit Suisse is well, still Credit Suisse. They are once again under pressure after having struggled through more than 10 years of scandals and mismanagement. By all accounts the bank side of their business has been well capitalized but they’re now facing higher levels of customer withdrawals. Another case of a weak player being exposed in a tightening cycle. The Swiss National Bank (the country’s central bank) just offered them $50 billion to shore up their finances and build confidence in the overall banking system. Credit Suisse accepted so they should be good for now… but who knows.

5. What will Powell do? According to the CME Group FedWatch Tool, the odds have swung back heavily in favor of the Fed hiking rates by 0.25% at their next meeting March 22nd. The odds were about 50/50 just yesterday between no rate hike at all and a hike of 0.25%. Just one week ago there was a 68% probability of a 0.50% rate hike. Things are changing rapidly right now.


*Source: CME Group FedWatch Tool

6. While it’s been a pretty wild couple of weeks, this is the standard stuff long-term investors are required to put up with to achieve their goals. I appreciate that it doesn’t make it any less worrisome when you’re in the thick of it. Markets and the economy will eventually heal, just as they have in the past.

For now, the US government is committing to the stability of the banking system. They sent a strong message this week that they will back customer deposits of Silicon Valley Bank and Signature Bank, even those above the FDIC limit.

It still remains a best practice to hold no more than the $250,000 FDIC insurance limit per depositor, per insured, for each account ownership group at the bank. The remainder can be held in higher yielding money market accounts, short-term bonds, etc.

Anyone with excess cash above their “sleep at night fund” should consider adding to their long-term portfolio here. Even with attractive short-term rates (roughly 4.5% for a money market), those rates aren’t guaranteed forever. As history has shown, growing and maintaining wealth does require some risk taking.

No, you probably won’t perfectly time your entry into stocks or bonds for this cycle. Yes, you’ll likely be subject to more volatility before things get on a firmer path. It’s ok, that’s the deal.

I’ll leave you with a long-term chart going back to 1998. You can see the difference in wealth creation between investing $1,000,000 in a basic 60% global stock/40% bond portfolio (purple) versus short-term treasuries (blue) and money markets (orange). Even with the recent downward trend, investing in a diversified portfolio has delivered more than $2 million in additional growth versus short-term bonds or money markets.


As always, we will continue to monitor the data and keep you informed.

Please reach out if we can be of any assistance.

Happy Planning,



Boyd Wealth Management, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.