Good morning, here's what the Oilman has for you today:

• Bison Interests: Worried About a Recession

• Banking x Cleantech x DEI = Silicon Valley Bank

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Bison Interests: Worried About a Recession

Josh Young heads up Bison Interests. When he talks, we listen. Here's what he has to say:

The Federal Reserve has been aggressively raising the federal funds rate to tame inflation, which may lead to a recession

The Federal Reserve is aggressively raising the federal funds rate to control inflation.

This tightening cycle is one of the most aggressive in decades, and the Fed may continue to raise rates beyond their initial target if inflation persists.

In the past, rapid Fed tightening in response to higher inflation has preceded a recession.

Some investors and economic participants who expected a "Fed pivot" earlier in the cycle were caught off guard by the Fed's determination to continue raising rates, leaving them unprepared for the higher cost of capital.

The yield curve has inverted, indicating a high probability of a recession

The market is focused on the yield curve, specifically the difference between 2-year and 10-year US government bond yields.

When short-term yields are higher than long-term yields, it may indicate investor concerns about a recession.

The yield curve has historically predicted U.S. recessions with accuracy and should be monitored closely.

The yield curve inverted in July 2022 and has been steepening since, with the 10-year and 2-year yields currently at a 30-year low of -1%. Bloomberg estimates a 71% probability of a recession based on the current slope of the yield curve.

The housing market and commercial real estate are both under pressure due to rising interest rates

The housing market is a crucial indicator of economic health, as most people's wealth is tied to their home equity, and construction is a major employer.

Declining real estate prices and construction activity can signal an unhealthy economy. Real estate prices and building activity peaked in mid-2022 and have been falling due to rising interest rates.

Higher interest payments make it harder for people to own homes and reduce the capital available to buy homes, putting further pressure on prices.

Housing affordability in the US is at a multi-decade low. The commercial real estate market, valued at around $21 trillion, is also under significant pressure due to higher rates and remote work.

Office building real estate is particularly affected, with the trend of working from home hurting revenues, while $92 billion of nonbank office debt will mature this year.

What to do?

Josh points out that market timing is hard, and rarely profitable, and suggests focusing on longterm equity fundamentals.

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Banking x Cleantech x DEI = Silicon Valley Bank

Silicon Valley Bank's failure on March 10th has been at the top of every social media feed and every news story.

This situation is a morality tale in focusing on all the wrong things.

Instead of focusing on risk management

SVB's Jay Ersapah led initiatives such as a Pride campaign and blog emphasizing mental health awareness for LGBTQ+ youth.

SVB had no Chief Risk Officer for 8 months, but Ersapah took the CRO lead in Europe.

Despite Ersapah's focus on DEI and social issues, the bank abruptly shut down due to liquidity issues.

Home Depot co-founder Bernie Marcus blamed it on "woke" policies.

SVB formed a dedicated cleantech practice over 15 years ago

The bank had over 1,550 prominent clients in the climate technology and sustainability sector, like Sunrun and Sunnova Energy.

Sunrun, it's stock down due to SVB exposure, stated that it held cash deposits of almost $80 million with SVB and that the bank was one of the lenders in two of its credit facilities.

Sunnova views its exposure as negligible, though one of its subsidiaries is part of a credit facility with SVB as a lender.

SVB recently committed $5 billion in loans and investments towards sustainability efforts.

To date, SVB had committed $3.2B and financed "62% of community solar financings to date led or participated in by SVB."

And what's the end result?

The end result is the second worst bank run in U.S. history, and a bailout for depositors.

Around the Digital Patch

💰 Saudi Aramco makes bank: $161B.☢️ Oklahoma Governor rejects Ohio spill waste from feds. 🛑 Biden blocks 16 million acres of Alaskan federal land from drilling.

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