The Banking Crisis That Was

Three of the largest five bank failures in US history happened between March and May of 2023: Silicon Valley, Signature and First Republic.

Most investors are barely aware. The collapse in regional banking was quickly papered over by a Federal Reserve program to buy the bad bonds at face value.

A full-blown crisis was narrowly averted, but it didn’t go away.

Yesterday, Zions Bancorporation and Western Alliance Bank dropped 13% and 10% respectively, dragging the S&P 500 down with them.

In pre-market trade this morning, the broader banking sector also got whacked. JP Morgan was down 1.5%, while Citi fell 1.9% and Bank of America was down 2.9%. In Europe, meanwhile, the regional Stoxx Banking Index fell almost 3%.

The Federal Reserve stopped tracking “unrealized losses” at regional banks in 2022. But occasionally, a snippet of data will come to light, like this piece from the FDIC earlier this year:

Turn Your Images On

America’s regional banks are sitting on substantial losses (Source: FDIC)

For individual investors, yesterday’s headline selloffs are worth paying attention to. In a credit crisis, banks go first.

~ Addison

P.S. “The private credit market is showing signs of cracking too,” notes Andrew Packer. The popular alternative asset class has notoriously opaque reporting requirements. Andrew digs into private credit in the October Grey Swan Bulletin – which will hit members’ inboxes (as soon as Addison gets his lead on Anduril and Palmer Luckey written!)

Much like Treasury Secretary Scott Bessent alludes to financing the national debt, stress in banks and in the credit market is the leading edge of a broader crisis in debt financing. That’s another reason to like the precious metals here.

Gold at $4,300 isn’t a mania. Silver above $50 isn’t a panic. They’re the visible signs of trust sliding down the pyramid to safer assets.

Check out the Dollar 2.0: The Final Countdown replay, right here.

If you have any questions for us about the market, send them our way now to: feedback@greyswanfraternity.com.

Three of the largest five bank failures in US history happened between March and May of 2023: Silicon Valley, Signature and First Republic.

Most investors are barely aware. The collapse in regional banking was quickly papered over by a Federal Reserve program to buy the bad bonds at face value.

A full-blown crisis was narrowly averted, but it didn’t go away.

Yesterday, Zions Bancorporation and Western Alliance Bank dropped 13% and 10% respectively, dragging the S&P 500 down with them.

The Federal Reserve stopped tracking “unrealized losses” at regional banks in 2022. But occasionally, a snippet of data will come to light, like this piece from the FDIC earlier this year:

Turn Your Images On

America’s regional banks are sitting on substantial losses (Source: FDIC)

For individual investors, yesterday’s headline selloffs are worth paying attention to. In a credit crisis, banks go first.

~ Addison

Gold at $4,300 isn’t a mania. Silver above $50 isn’t a panic. They’re the visible signs of trust sliding down the pyramid to safer assets.

Check out the Dollar 2.0: The Final Countdown replay, right here.

If you have any questions for us about the market, send them our way now to: feedback@greyswanfraternity.com.

During a Fed rate cut cycle, bond yields follow, which typically means bond prices tick higher. If you buy bonds now, you’ll be getting in ahead of the crowd.

And if this tech wreck shapes up anything like 2000-01, investors will want to get out fast. Despite the debt mess in Washington, bonds will again look “safe.”

One minor bonus: if you buy now, you’ll lock in higher yields before the next Fed rate cut, which is expected to come one week from today.

But Green is describing more than just a new calculation. He’s talking about a new form of misery.’ It’s a poverty where you may still have most of the accoutrements of middle-class life. But your relationship with the financial elite has changed: you are indentured to the credit industry — for life.

Historically, when the Fed has cut into inflation above 3%, one of two outcomes tends to follow:

A brief reprieve, followed by a larger inflation wave (see: 1970s).

A crisis born from cheap money rather than expensive money (see: housing in the 2000s).

We are heading into another round of cuts with:

• A still-bloated balance sheet

• A new digital plumbing that auto-funds the Treasury

• Hard-asset markets flashing warning lights

Paul Tudor Jones summed it up in one dry quip: interest expense is now one of Washington’s largest bills; commodities are “ridiculously under-owned”; and “all roads lead to inflation.”

The Fed’s flip from QT to easing doesn’t end this inflation episode. It likely begins its next season.

The question investors should ask themselves isn’t whether this trend is sustainable – it isn’t.

Instead, they should ask if the $2 trillion increase in Google’s market cap has sucked capital away from other promising parts of the market – and if so, where investors can expect a rally when Google reverses.