Greg Fleming: How to invest in a bursting bubble

<p>Silicon Valley Bank’s meltdown this week was partly because it had been investing customer deposits in US Treasuries, considered one of the world’s safest investments, without hedging the risk of interest rates rising. </p><p>Last year was the first since 1870 that bonds and equities both experienced an annual decline, as the interest rate shock destroyed the value of assets in almost all classes. </p><p>Investors have been rushing to redesign their portfolios as the style of investing, which had worked so well in the years post-global financial crisis, somewhat fell apart. </p><p>Speaking in interest.co.nz's <a href="https://www.interest.co.nz/of-interest-podcasts" target="_blank"><i><strong>Of Interest podcast</strong></i></a>, Greg Fleming, head of global diversified funds at Salt Funds, said fiscal and monetary stimulus during the pandemic had created several parallel bubbles which are now deflating. </p><p>"We had an extraordinary amount of money sloshing around after Covid triggered that super-stimulus; not just fiscal stimulus but also central bank stimulus."</p><p>“That amount of money sloshing around the system had to find a home. Many markets took that money, some as solid as residential property, others as ethereal as ethereum.” </p><p>Bubbles in both dependable and speculative markets have been deflating and bringing investment portfolios with them. </p><p>Silicon Valley Bank, for example, was at the heart of the venture capital boom which occurred in 2021 as cashed up investors looked for places to invest all the excess liquidity they found themselves holding. </p><p>Deposits rushed into the bank as start-ups raised big funding rounds and Silicon Valley Bank invested that cash in treasury bonds. </p><p>But it couldn’t last, start-ups stopped depositing money when venture capitalists stopped writing them checks in 2022 and sky-rocketing rates depleted the value of the bank’s bonds. </p><p>It's a classic boom and bust story. The economy got too hot, the bank grew too fast, and it imploded when condi