Take a Deep Breath

💨 You can almost taste it

A man taking a big breath, in the style of a Philip Guston painting (made with DALL•E 2)

1. Now exhale. You are likely part of the 99% sucking in unhealthy levels of air pollutants, according to a new study by the Lancet Planetary Health journal. Between mass industrial activity, wildfires, coal-burning power plants, deforestation, vehicle emissions, and now weekly hazardous train derailments, humans have been abusing the air we all breathe. The pollutants can cause heart disease or lung cancer.
   
   When I lived in Beijing, there would be winter days in which the air quality index would read 500+ and a look outside confirmed it was an “inside” day. Beijingers would refer to this blanket of pollution as “fog”, as if evoking a pastoral scene of life in the countryside.
   
   Leaving Beijing produced a noticeable positive effect on my health, but now it appears nowhere is safe. This already happens in East Asia, but it might be a good idea to be mindful of the AQI and continue to wear masks in this post-Covid world. Or don’t. In the end, death comes for us all the same.
   

2. Europeans, particularly the French, are very sensitive about the cultural goods they produce. It’s only Champagne if it comes from the Champagne region of France, otherwise it’s just sparkling wine, as the meme goes. They believe strongly that goods historically produced in certain regions must be created in a particular way, and that those inspired should not have a claim to the same name. The most recent case has to do with cheese.
   
   American companies, having no monetizable culture of their own beyond Cheez-Wiz and semi-automatic weapons, voraciously copy European products, if not in process certainly in name. The latest case pit US cheesemakers against Swiss and French cheesemakers in a showdown to determine whether “gruyere” was a generic type of cheese or one produced only in the region of Gruyère, Switzerland.
   
   After hearing the case, a US circuit judge, also a comedian, wrote, “Like a fine cheese, this case has matured and is ripe for our review.” The three-judge panel sided with the US cheese producers. The disappointed Europeans vow to appeal.
   

3. Silicon Valley Bank, a bank the vast majority of people have never heard of until 48 hours ago, failed yesterday. The collapse ranks as the second largest American bank failure since the 2008 financial crisis (Washington Mutual remains the holder of that ignominious title).
   
   How did this happen? And so quickly? At this point, it looks to be a perfect maelstrom of bad management decisions, central banking policy, and good old fashioned fear.
   
   The Federal Reserve’s recent raising of interest rates (it now costs more to borrow money) had an outsized impact on SBV’s clients, primarily the startup and venture capital investor class. As capital became harder to come by, the bank’s clients began withdrawing to meet their liquidity needs. This on its own should not have been a problem.
   
   In 2021, SBV was swimming in cash and couldn’t loan it out fast enough. They parked their excess funds in 10-year Treasury bonds at an average 1.79% yield. Two years later, the economic picture has changed dramatically. Inflation continues to ravage the United States and the Federal Reserve decides to raise interest rates in an attempt to combat it. A side effect of the rise in interest rates is that these long term bonds ended up underwater.
   
   Enter bad management decisions. Earlier this week, investors noticed that SVB had sold its portfolio of bonds, bringing in $21 billion but realizing a paper loss of $1.8 billion. Concurrently, SVB announced a stock sale, hoping to raise $2.25 billion. They also announced the sale of $500 million in additional stock to private equity firm, General Atlantic. These three actions sent confused and scared investors scrambling and a sell off was on, with the bank’s share price losing 60% of it’s value in one day. VC funds advised their startup founders to pull their money. It seems everyone had the same idea as images began appearing on twitter of long lines of Patagonia wearing nerds waiting nervously. This VC told a story of how one of his founders managed to get a cashier’s check for “a sizable sum” and rushed to deposit it in his personal account at another bank.
   
   Not everyone was so lucky. Roku announced that 26%, or $487 million, of its cash was stuck at SVB. (Sidenote: Roku has $1.87 billion in cash lying around? What the fuck?)
   
   Yesterday, SVB’s share price sunk another 60% in pre-market trading. Not long after, the FDIC stepped in and announced SVB would close and enter into FDIC receivership. Just like that, the 16th largest bank in the US failed. It’s still unclear what fall out this may or may not have. I’ve read that SVB’s failure is not indicative of the health of the banking sector in general, but I’ve also seen ETFs tracking regional and small banks, who presumably also hold underwater bonds and are susceptible to the same kinds of capital pressures, trending downwards.
   

4. Last week, I said this week’s newsletter would focus entirely on China. I lied. As I got down to writing this week, I realized what I actually wanted to do was a deep dive into what China is. For that, I’m going to need a bit more time. Today’s last story does have to do with China, however.
   
   China brokered a peace deal between Saudi Arabia and Iran. These two regional enemies have been in indirect war for the better part of a half century, most recently in the Yemeni civil war. It’s not done yet, the two sides have agreed to continue talks and to establish normal diplomatic relations.
   
   For something as monumental as this, you would think there would be wall to wall coverage. The New York Times has the story below a lead story on Ron DeSantis. CNN has it in the second column below the story on the SVB collapse. Fox News doesn’t mention the story at all, though it does have a second-level banner link that simply reads “CHINA THREAT”. You have to scroll all the way down to the World section to see the first mention in the Washington Post. It is the 67th thread on /r/worldnews 10 hours after the story was posted.
   
   The American news media and social media spent a week breathlessly chasing a balloon, but when something of real significance happens it is downplayed or outright ignored. China will continue to take a central role in world affairs and it doesn’t bode well when the media class doesn’t think this matters to the American people. Oh well, at least we have gruyere*!