Yes, Banks Can Still Spark the Next Crisis

With record retail money goosing the stock indexes higher, while insiders and hedge funds sell into the rally… we’re left wondering how long the rally can sustain itself.

In addition to the record buying of AI stocks, the speculative options market is at its highest level ever recorded.

Big Tech earnings have kept the party going on Wall Street, for the most part. The S&P 500, the Dow and the Nasdaq are all rallying today after a quick sell-off on Friday.

At times like this, you can only guess which snowflake will be the last to make the snowpack start sliding…

Here’s one hiding in plain sight: unrealized losses in the banking industry.

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Although there’s been some improvement, banks continue to operate under steep losses.

In March-May 2023, we saw 3 of the top 5 largest bank failures in US history.

The market barely noticed. Headline financial news barely discussed it. The Fed among other Wall Street actors were credited with swooping in and saving the day, just in time. Again.

The message is: Don’t worry, in a crisis, bank losses will be transferred from the banks to the taxpayers.

Easy peasy. Right?

Not so fast.

We’ve published research showing the Fed’s balance sheet has been even worse off than the regional banks since September of 2022.

And it still is.

The critical thing to remember, even amid relatively calm markets, is that there will be a next crisis. When it does happen, sectors sitting on “potential” losses will use the opportunity to “realize” those losses.

And so on.

Creating a self-reinforcing cascade of calamity. The next one could envelop the nation’s central bank at a very inopportune moment… for politicians, bankers and speculators.

~ Addison

With record retail money goosing the stock indexes higher, while insiders and hedge funds sell into the rally… we’re left wondering how long the rally can sustain itself.

In addition to the record buying of AI stocks, the speculative options market is at its highest level ever recorded.

Big Tech earnings have kept the party going on Wall Street, for the most part. The S&P 500, the Dow and the Nasdaq are all rallying today after a quick sell-off on Friday.

At times like this, you can only guess which snowflake will be the last to make the snowpack start sliding…

Here’s one hiding in plain sight: unrealized losses in the banking industry.

Turn Your Images On

Although there’s been some improvement, banks continue to operate under steep losses.

In March-May 2023, we saw 3 of the top 5 largest bank failures in US history.

The market barely noticed. Headline financial news barely discussed it. The Fed among other Wall Street actors were credited with swooping in and saving the day, just in time. Again.

The message is: Don’t worry, in a crisis, bank losses will be transferred from the banks to the taxpayers.

Easy peasy. Right?

Not so fast.

We’ve published research showing the Fed’s balance sheet has been even worse off than the regional banks since September of 2022.

And it still is.

And so on.

Creating a self-reinforcing cascade of calamity. The next one could envelop the nation’s central bank at a very inopportune moment… for politicians, bankers and speculators.

~ Addison

Gold has led people to do the most brilliant, the most brave, the most inventive, the most innovative and the most terrible things. ‘More men have been knocked off balance by gold than by love,’ runs the saying, usually attributed to Benjamin Disraeli. Where gold is concerned, emotion, not logic, prevails. Even in today’s markets it is a speculative asset whose price is driven by greed and fear, not by fundamental production numbers.

Fresh GDP data — the Commerce Department revised Q2 growth upward to 3.3% — fueling the rally. Investors cheered the “Goldilocks” read: strong enough to keep the music going, not hot enough (at least on paper) to derail hopes for a Fed pivot.

Even the oddball tickers joined in. Perhaps as fittingly as Lego, Build-A-Bear Workshop popped after beating earnings forecasts, on track for its fifth consecutive record year, thanks to digital expansion.

Neither represents a bellwether of industrial might — but in this market, even teddy bears roar.

In modern finance theory, only U.S. T-bills are considered risk-free assets.

Central banks are telling us they believe the real risk-free asset is gold.

Our Grey Swan research shows exactly how the dynamic between government finance and gold is playing out in real time.

When we compare apples to apples—median home prices to median household income, both annualized—we get a much more nuanced picture. Housing has indeed become less affordable, with the price-to-income ratio climbing from roughly 3.5 in 1984 to about 5.3 today. In other words, the typical American family now has to work much harder to afford the same home.

But notice something crucial: the steepest increases coincide precisely with periods of massive government intervention. The post-dot-com bubble recovery fueled by Fed easy money after 2001. The housing bubble inflated by government-backed mortgages and Fannie Mae shenanigans. The recent explosion driven by unprecedented monetary stimulus and COVID lockdown policies.

Neither represents a bellwether of industrial might — but in this market, even teddy bears roar.

In modern finance theory, only U.S. T-bills are considered risk-free assets.

Central banks are telling us they believe the real risk-free asset is gold.

Our Grey Swan research shows exactly how the dynamic between government finance and gold is playing out in real time.