Investors should pay attention to whether the Fed sees the bank collapses as deflationary.The Federal Deposit Insurance Corporation has officially added Signature Bank and Silicon Valley BankBut even as US regulators moved swiftly to stop the contagion, it has already spread across the globe. Over the weekend, one of the world's largest financial institutions, Credit Suisse, made headlines after its stock had been in.
Bottom line is that investors have seen the smoke, but they don't necessarily know where the fire is coming from or how far it has spread, he said. Investors are reacting irrationally because they aren't sure if the financial system is on a stable footing or if there's more contagion to go. There's a growing view that the fallout from the Silicon Valley Bank and Credit Suisse crises could result in a credit crunch and create a deflationary environment. Credit is going to be much scarcer from here on out, and that's going to bring down inflation across the world, not just in the US, he said. This could usher in a US recession faster and harder than previously anticipated. For investors, the reaction has been to just sell now and ask questions later, he added.