With so much counter party exposure, with trails no one could ever follow, now you can understand why Central banks keep this market up at any cost.
So, if we’re getting some late stage run for glory which sends us ever higher, I don’t buy for a moment that it’s the general population finally diving in. I could however see it being the bankers printing even more than they acknowledge they are.
The greatest trick the banksters and their corporate cronies have ever pulled is to convince you that you are weak and powerless without their governmental puppets and regulatory lapdogs to (pretend to) protect you. That is a lie. The people have always held that power in their own hands.
We’re still leaning long, but keeping position size a bit lower than normal. So far it’s been working for us nicely, and I figure it should continue for a while. But as we get closer to the December rate hike from the Fed’s, I think there’s going to be a bit of nervousness out there, and that could shake some trees.
This is the plain truth of the matter: The bankers love whatever ideas, systems, beliefs and revolutionary movements will allow them to have more power over the lives of others.
Massive Fed intervention in the markets is back with a $161-billion-a-week vengeance, and needless to say it's going to be exploding on the markets like an atom bomb.
He warned the two U.S. officials of a "contagion" - with the implication being close one bank and the whole economy could suffer. What happened? Federal prosecutors stood down.
And, now, 12 years after the Great Recession, one can reasonably argue that depositors and investors shouldn't have to doubt whether they can trust the way banks measure their financial strength.
And the winner is…
Mega money beast Goldman Sachs took back the crown for the top equity trading desk on Wall Street.
Revenue at the too big to fail bank edged out that of competitor Morgan Stanley, which is usually Number One.
Pull up a chair folks, we need to chat a bit. As I expected when news of 3 different banks went belly up, I got a lot of Emails from people in a bit of a panic. “What do I do?”” was a common theme.
The most common question was about gold. “Should I take my money out of the bank and buy gold?” Then there were the ones asking about “should I move my money to smaller local banks, or stay with the big one’s?” The list of questions is pretty long folks.
But to be honest with you and I try and be as much as I can, the questions sort of “bothered” me. If you’ve been reading what I write for any length of time, you should know the basic answers to these types of questions. Now I don’t want to sound snarky here at all, I’m just being serious. We’ve put out two articles a week for over 25 years. Every one of those type questions has been answered in the past.
Which means I either don’t get the message across properly, or some folks don’t “get” what I mean, and others simply don’t/didn’t believe that big trouble could come. But trouble will come. Remember the series I wrote about Dark Winter? I didn’t write that to show you that I know how to grow vegetables, or shoot guns. I did it because trouble is indeed in our future.
So let me see how much of this I can pack into a single article. We are in a debt based system. As completely bizarro as that sounds, our economy is based on the idea of ever rising debt levels. Let me ask you a question, how many times since say 1970 have you heard people in Congress say that they have to get spending under control and our National debt reduced? A hundred? Five hundred? And how has that worked out?
Here's the little secret that they don’t want you to know. They NEVER plan on paying back the debt. The system was designed to be milked for all they can get out of it. Very bright people many decades ago knew exactly how to create a stable vibrant economy, one backed by “something.” But they shelved that idea for a fiat, unbacked, unlimited debt deal. Why? Because if you can print so called money out of thin air, why not print the hell out of it, use it to build roads, and bridges, and military toys, and rockets and “stuff” you want? Then when the debts are at the most unimaginable levels, when it’s impossible to keep playing the whack-a-mole game, you simply default on it all, and then “restart” with a stable currency backed by something. Gold comes to mind.
Courtenay Brown and Neil Irwin open their Friday column with these startling headline-like declarations:
“Sunday night bank bailouts on both sides of the Atlantic. Joint announcements by global central banks. Fear and uncertainty sweeping markets.”
Brown and Irwin say the last 10 days have felt similar to the 2008 Great Recession.
But there are crucial differences, they point out, that lower the risk that recent events will have “the same seismic impact on the world economy” as back then.
Undoubtedly, the still-unfolding run on bank deposits has raised the odds of a recession, especially with a Fed’s hellbent focus on bringing down inflation at virtually whatever cost.
Crisis? What Crisis?
A lot of news competing for our attention – financial, political and otherwise – as a new week unfolds:
But here’s the story I want to highlight today:
David Hollerith reports today that depositors pulled another $126 billion out of U.S. banks in the week ending March 22nd – primarily from the nation's largest institutions.
The largest 25 banks in the U.S. by asset size lost $90 billion (on a seasonally adjusted basis), according to the Fed.
Smaller banks, which suffered a huge run the previous week as regional lenders Silicon Valley and Signature Banks were going bust, were able to stabilize their assets, gaining back $6 billion.
Total industry deposits fell to $17.3 trillion, down 4.4% from the same week a year ago – the lowest level since July 2021.
Hollerith says the new numbers reinforce some trends that were already in place.
For example, deposits had been falling at all banks before the Silicon Valley failure in the first two months of 2023. Deposits for all banks were also down 5% annually in last year’s 4th quarter.
Many observers attribute this systemic shift to pressure being applied by the Fed’s aggressive (obsessive?) campaign to bring down inflation closer to its 2% target.
During the early part of the pandemic, when interest rates were virtually zero, banks were drenched in deposits.
When the Fed started raising those rates last March to cool the economy, customers who had deposits began seeking out places with higher yields.
The first year-over-year deposit decline for all banks came in the 2nd quarter of 2022.
As we’ve pointed out, some of this money has been flowing to money market funds, which are offering investors a rate of return in the range of 4-5%.
Since January 1st, investors have poured over $500 billion into those funds, according to too big to fail Bank of America.
That’s the highest quarterly inflow since a peak earlier in the pandemic, and another $60 billion was added to these funds in the past week.
Government and banking officials have been working to prevent massive deposit outflows in the aftermath of last month’s bank failures.
Federal regulators pledged to cover all depositors at both banks they seized, hoping that would calm any panic, and also promised to help other regional banks if needed.
Eleven megabanks also decided to provide another troubled regional lender, First Republic, with $30 billion in uninsured deposits to stabilize its dire situation.
The challenge that outflowing deposits create for all banks is that if they raise rates on their deposits to keep or attract customers, their profits fall, making shareholders wary.
But if they lose too many customers, as SVB did, they lose critical assets and may have to sell assets, like long-term Treasuries, at a loss to cover withdrawals.
SVB customers withdrew $42 billion in one day, leaving the bank with a negative cash balance of $958 million, forcing regulators to seize the bank, which was the 16th largest in the U.S.
“The banking system is sound and resilient.”
That’s what the Federal Reserve’s press release on Wednesday said in the statement announcing another 25 basis point interest rate hike.
Sound and resilient.
A few hours later, multiple media sources reported that PacWest Bank is exploring strategic options, including a possible sale.
Is PacWest the Next to Fail?
Shares of PacWest stock were already down about 80% since February. After the news hit, the stock took another 50% nosedive.
In fact, since January 1st, its share price has tanked – having fallen from $22.95 to a new 52-week low of $3.17 as of yesterday’s market close.
Bloomberg’s Joe Wiesenthal noted in his Thursday column that “overall, the ‘banking system’ may be sound and resilient, but there's clearly anxiety surrounding individual banks that hasn't gone away.”
PacWest sank over 50% in early trading and was halted multiple times because of volatility.
At the same time, Tennessee-based First Horizon Bank also fell 33% after the regional lender and TD Bank announced that they were terminating their merger agreement.
The banks jointly said that the move was because of uncertainty around when (not if) TD would receive regulatory approval for the deal and was not related to First Horizon.
Other notable declines included a drop of 38% for Western Alliance and 12% for Zions Bancorp. The SIPDER S&P Regional Banking ETF (KRE) was down more than 5%.
Western Alliance’s fall came despite the company advising Wednesday evening that deposits have grown since the end of March.
KBW CEO Tom Michaud said, “That hasn’t taken the heat off of the stock, or the bond prices. Investors are very nervous.
“And I think what they’re nervous about is the fact that Silicon Valley lost 75% of their deposits in 36 hours. There’s not a bank in the world that could really sustain that.”
“The banking system is sound and resilient.”
That’s what the Federal Reserve’s press release said on Wednesday in the statement announcing another 25 basis point interest rate hike.
Sound and resilient.
A few hours later, multiple media sources reported that PacWest Bank is exploring strategic options, including a possible sale.
Is PacWest the Next to Fail?
Shares of PacWest stock were already down about 80% since February. After the news hit, the stock took another 50% nosedive.
In fact, since January 1st, its share price has tanked – having fallen from $22.95 to a new 52-week low of $3.17 as of yesterday’s market close.
Bloomberg’s Joe Wiesenthal noted in his Thursday column that “overall, the ‘banking system’ may be sound and resilient, but there's clearly anxiety surrounding individual banks that hasn't gone away.”
PacWest sank over 50% in early trading and was halted multiple times because of volatility.
At the same time, Tennessee-based First Horizon Bank also fell 33% after the regional lender and TD Bank announced that they were terminating their merger agreement.
The banks jointly said that the move was because of uncertainty around when (not if) TD would receive regulatory approval for the deal and was not related to First Horizon.
Other notable declines included a drop of 38% for Western Alliance and 12% for Zions Bancorp. The SIPDER S&P Regional Banking ETF (KRE) was down more than 5%.
Western Alliance’s fall came despite the company advising Wednesday evening that deposits have grown since the end of March.
KBW CEO Tom Michaud said, “That hasn’t taken the heat off of the stock, or the bond prices. Investors are very nervous.
“And I think what they’re nervous about is the fact that Silicon Valley lost 75% of their deposits in 36 hours. There’s not a bank in the world that could really sustain that.”
I’ve been trying to climb out of crisis mode lately.
Soulful Bob Marley keeps replaying in my head: “Don’t worry ‘bout a ‘ting. Cause every little ‘ting gonna be alright…”
But as we get ready to head into another spring weekend, I’ve been finding it hard to find a meaningful and timely topic to write about that doesn’t entail some impending disaster, tragedy or danger.
There’s the Inflation Crisis…
Fed governor Michelle Bowman traveled all the way to Germany to tell a crowd attending an ECB symposium that the Fed will likely have to continue raising interest rates if price growth and the jobs market don’t further cool down.
She's clearly an outlier right now. Over 83% of Fed Funds Rate futures traders on the CME believe the Fed will (although not necessarily should) pause rate hikes at the Fed's next meeting in mid-June.
I think they should have paused a few months ago -- mainly to avoid the coming recession -- but that's another story for another time.
(FYI...inflation, as measured by the CPI – All Urban Index, increased 4.9% year-over-year in April. Core inflation, which excludes food and energy prices, rose 5.5% annually – despite a 12.6% fall in oil and other energy commodities.)
And the Debt Crisis…
The government is another day closer to X Day when it runs out of extraordinary measures to continuing paying its bills – and when global financial markets start to implode.
But with President Biden and House Speaker McCarthy delaying until next week their next “negotiating” pow wow that had been scheduled for today – while their staffs presumably get closer to a blueprint for compromise, I’m waiting to write about that, too.
So, the Banking Crisis…
Tuesday the yield on the ten year hit 4.757%. Just three weeks ago the market would have a hissy fit plunge when it came close to just 4.3%
For months on end I’ve been suggesting that some form of credit market/debt market “event” was going to happen and if/when it does, all hell will break out. But, what could it be? The Japan carry trade collapse? A major bank has to “bail in” it’s depositors to save itself? A massive commercial real estate default? I don’t know which one, but something’s lurking out there.
Once again, Pam and Russ Martens have grabbed our attention with another zinger.
In today’s Wall Street on Parade newsletter, they feature Michael Hsu, the acting director of the Office of the Comptroller of the Currency (OCC).
The OCC charters, regulates, and supervises national banks, federally chartered savings associations and federal branches and agencies of foreign banks in the U.S.
They stand beside the Federal Reserve as a major regulator of banking institutions.
Specifically, the Martens write about how Hsu “undermined [already declining] public trust in the U.S. banking system” when he approved JPMorgan Chase’s acquisition of failed First Republic Bank in May.
(By now, readers know that JPMorgan Chase is America’s largest – and, by some measures, the riskiest – bank in the nation.)
The Martens go on to note that Hsu’s response to that “collapse in public trust” was to, yes, issue a survey measuring public trust in, yes (again), banks.
The Martens tie much of Americans’ lack of trust to the number of unlawful acts committed by the largest of the too big to fail banks over the last 23 years.