The banking system in the U.S. is sound.
Janet Yellen, US Treasury Secretary
If the banking system is in such good shape why did a group of big banks need to deposit $30B at First Republic?
The better question is, where were the layers of Federal oversight as this unfolded? Just to name a few, the Comptroller of the Currency, the Treasury Dept., the FDIC, and the FED all failed to open the ‘window’ and flood Silicon Valley Bank with enough overnight lending to meet the withdrawals?
Worse, KPMG CPAs had issued ‘clean opinions’ on Silicon Valley, Signature Bank (note Barney Frank pocketed $2.4M while on that board before the collapse) and First Republic? Ironically First Republic needed funds exactly 15 years to the day that Bear Stearns failed. What am I getting for my $31,000 tax bill from the Federal Government?
The big picture is this. Interest rates rose from 1942 to 1981. By 1981 one could make double-digit returns on a safe CD, so why invest in stocks. The top in rates, low in bond prices reversed as Paul Volcker raised rates higher still, marking the peak for inflation. A final low in stocks occurred the next year in 1982.
The new bull market was born, which lasted until November 2021-January 2022. Rates have risen sharply since the March 2020 low. And investors are slowly realizing stocks can go down and stay down as demonstrated by the ups and downs of this week. The reverse of 1982-1984 is now underway. Investors will be abandoning stocks for safer Treasury notes and CDs. A new bear market in stocks is underway.
Central banks have a universal solution for those companies with debt problems, take on more debt! The second largest bank in Switzerland, Credit Suisse, now trades at 25% of its book value.
No one wants to buy the stock at that discount, so what to do? The Swiss Central Bank proposes to loan up to $54B dollars. Who ever heard of anyone re-paying a $54B loan? Credit Suisse lost the equivalent of its entire year net income, $5B, on one client and has yet to recover. In my presentations on that Archegos financial disaster, I wondered to the audience, how many more Archegos deals are out there we don’t know about? We are finding out now.
Investors are exiting oil investments, crude oil broke the $70 support, now trading at $66.42. This is also a sign of economic weakness, less demand for crude oil. The move to electric everything is overdone. There is not enough grid and all these trucks, planes, and ships are not going electric. Let’s watch for a coming low in the energy markets.
I mentioned Nustar NS, which continues to fall in price, now yielding 10% dividend. Patience is needed waiting for a final low.
