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.
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
