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Everything Is Sound

Everything is just fine. The banking system is sound. Janet Yellen, one of the three culprits along with Bernanke and to the biggest extent, Powell, says so. If the banking system is just fine:

How and why did a couple of biggies go under?

Why have just about all financial stocks, for lack of a better word, crashed in recent weeks? Emphasis is on the regionals.

After getting a $30 billion bail out by 11 large banks, why did First Republic Bank drop 33% the next day?

After getting a $54 billion bail out (not a typo), why has there been a rush and we mean rush to have Credit Suisse get bought in some way, shape or form by UBS this weekend before markets open on Monday? Oh yeah…with government guarantees…meaning tax payer guarantees.

Why are we being told that senior White House officials are talking with the great Warren Buffett?

Maybe our rusty abacus is not working but why are we hearing banks tapped the fed (the tax payer) in past days for a serious amount of cake?

Why are we hearing that the MBCA (Mid-size Bank Coalition of America) proposed to the FDIC (the tax payer) to insure all deposits for the next 2 years?

Why are there reports of even after getting a $30 billion bail out, First Republic Bank is trying to, in one form or another, be sold and quickly? This looks to be true for other banks.

Go look up BTFP. Why is there talk of up to $ 2 trillion of back up for the banks?

Sure! Everything is sound says Janet Yellen just like she told us inflation was transitory. On top of that, the president says any moves will not cost a tax payer a dime! Who is he trying to kid? Feel better now?

And now we wait with bated breath for the man who created all the massive distortions that caused this. Yes…playing God with the biggest market in the world will do that. You were warned! We have news for you. Just like he was blind and waaaaay behind inflation as the yield market skyrocketed, he is now waaaaay behind the other way as yields have plunged. He didn’t listen while they were on their way up. Will he listen as they are on their way down and in record fashion? Not sure it even matters if he raises a wee bit, does nothing or even decides to lower rates. Of course, markets will jump in the near term depending on what he does but real yields have already done the job. The 10 year sits at 3.395% while Mr. Powell sits at 4.5-4.75%. And why wait until Wednesday? Shouldn’t have he already showed his hand? A waiting game while people are worried about their deposits in banks? Sure!

We suspect if CS and FRC get sold with government (tax payer) guarantees, markets will be happy near term. If Warren gets involved, suspect that would add to some happiness. But then, who’s next? That’s quite a good question. As we enter this week, seems like desperation by the chieftains is at hand.

As we enter this week, pretty much the only game in town is the continued recent relative strength in bigger cap technology/semiconductors. You can also add a very strong move in gold and gold stocks but gold stocks continue to under-perform the metal badly. Most other areas of the market are now deeply stretched, extended and oversold and could randomly bounce at any time. The vicious drop has not been limited to financials but many other areas including energy, industrials, commodities…ok, just about everything.

No matter what, this will all end up on our backs…for the gargantuan mistakes they made. They used us in 08 to the tune of $800 billion with no return. That number looks to be a drop in the bucket compared to what comes down the pike.


  1. Hi Gary
    Just a small fry investor who hasn’t figured out that I was wrong to be fiscally responsible and pay off my debts, work for a living and save for old age.
    So could the bond market be wrong too? You say institutions are parking money in big tech with high liquidity, but could they also be parking in bonds? How can anyone think that a bond investor will be pleased with a 3.5% return if held 10 years when there is continuous fiscal irresponsibility and risk of stagflation?. My limited channel checks are saying that so much money is coming out of DC that local and state governments don’t know where to spend it. I agree that J “Put” Powell has been weak, but he has just been complicit with the fiscal insanity and if he didn’t, he would be replaced with someone worse.
    My faint hope is that government shrinks down to a size where markets can reform the macro and individuals can rebuild the micro. I so admire your parents long term relationship and I am sure if given the power they could fix it brick by brick

  2. Nailed it. We’ve got to get you on cable much, much more often. Cheers! (Sort of)

  3. Gary, I enjoy listening to your frank daily updates. What’s going on from the so called experts? Where were the banking inspectors? Asleep at the wheel again? Why is the market continuing to ding all the banks/financials??
    Can you please forward me the books you recommend reading on bear markets? You’ve mentioned some in your talks but missed the names.
    Thanks again and keep up the good work!!
    Arthur Way

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