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

The stock market “rebalancing” is a polite way to put it. Energy and health care are getting a healthy boost. But tech hardware and software makers are still getting dressed down and have been asked to report to the principal’s office.

The great rotation underway has triggered a series of “Hindenburg Omens.” Five have occurred in recent weeks.

The S&P 500 has traded in a 3.7% range over the past two months — less than half the 20-year median of 8.6%. One of the tightest ranges in modern history.

In trader parlance, the indexes are “flat,” a setup that often materializes before a sell-off at the top after a multi-year bull market.

Goldman Sachs told its own traders to be aware that institutional trading activity resembles a VIX reading near 35. Rather than a reading of 20, where the VIX has been trading over that same 2-month period.

The U.S. software ETF, IGV, tested its April 2025 lows last week and trades roughly 35% below its peak. The “SaaS-pocalypse” in software companies reflects the fear of Citrini’s 2028 scenario happening in real time. That divergence now exceeds the spread seen at the peak of the Great Financial Crisis.

Under the surface, the “great rotation” we wrote about last week is threatening to widen.

Despite its overly-educated 40-million-plus population, on a GDP per capita basis Canada is null. Collectively, the Great White North would rank as America’s second-lowest state, coming in above Mississippi, but below Alabama.

SpaceX is the most valuable private startup in history — and if its success continues, it might become the most valuable public company in history.

After all, as Musk famously said in 2023, “I have never lost money for those who invest in me and I am not starting now.”

For investors, SpaceX has been a wild, joyful ride — and now the journey continues!