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The big news on The Street is that after yesterday’s collapse of First Republic Bank, the second largest bank failure in U.S. history which followed the third largest bank failure in U.S. history when Silicon Valley Bank went bust on 10 March—two days before the fourth largest bank failure in U.S. history when Signature Bank went under—is that Happy Days are Here again… and everything is just fine.
The three banks that failed earlier this year had $532 billion in assets which was more than the 25 banks that failed during the Panic of ’08 that had around $526 billion in assets. And most of the banks that failed during the Great Recession were small and medium size that were taken over by the “Bigs”… and that trend continues.
JP Morgan Chase, America’s largest bank, just became bigger after making a special deal with the Federal Reserve—which, as noted by the Financial Times, “would have been forbidden from buying First Republic on competition grounds”—its CEO Jamie Dimon declared, “This part of the crisis is over.”
Yes, this is Chairman and CEO of the JPMorgan Chase, which Wall Street on Parade notes “has racked up an unprecedented five felony counts and a rap sheet that is likely the envy of the Gambino crime family. And yet, the mainstream media continues to hold Dimon up as the wise and prudent wizard of Wall Street. (See “Jamie Dimon Tells 60 Minutes He’s a Patriot; There’s Good Reason to Think He’s a Crime Boss” and “JPMorgan’s Board Made Jamie Dimon a Billionaire as the Bank Rigged Markets, Laundered Money, and Admitted to Five Felony Counts.”)
So why not believe and do what Dimon said yesterday that he thinks the banking system “is very stable”? While there are still concerns over rising interest rates and the potential for a recession, “everyone should just take a deep breath.”
Apparently the banks were short of breath. When the markets closed yesterday the banking sector, of which a study last month showed that over 200 banks faced the same risk as the ones that recently failed, got hit hard:
1. Valley National, $VLY: -20 percent
2. Metropolitan Bank, $MCB: -18 percent
3. HomeStreet Bank, $HMST: -18 percent
4. HarborOne, $HONE: -11 percent
5. PacWest, $PACW: -10 percent
As we go to press, shares of small and large banks were sinking while regional banks PacWest and Western Alliance paused trading after shares slumped some 20 percent.
The “Bigs”
In America, where the Bankster Bandits are too-big-to-fail while the plantation workers of Slavelandia are taxed to pay for their failure. The “Bigs”—across the economic spectrum—keep getting bigger. As part of the deal, not only will the Federal Deposit Insurance Corporation take a $13 billion dollar hit from the losses from First Republic, they will give JP Morgan $50 billion to help finance the deal.
As The New York Times wrote today:
“But the resolution of First Republic has also brought to the fore long-running debates about whether some banks have become too big to fail partly because regulators have allowed or even encouraged them to acquire smaller financial institutions, especially during crises.
“‘Regulators view them as adults and business partners,’ said Tyler Gellasch, president of Healthy Markets Association, a Washington-based group that advocates greater transparency in the financial system, referring to big banks like JPMorgan. ‘They are too big to fail and they are afforded the privilege of being so.’
“He added that JPMorgan was likely to make a lot of money from the acquisition. JPMorgan said on Monday that it expected the deal to raise its profits this year by $500 million.
“JPMorgan will pay the F.D.I.C. $10.6 billion to acquire First Republic. The government agency expects to cover a loss of about $13 billion on First Republic’s assets.”
Yes, the Bankster Gangsters “are too big to fail and they are afforded the privilege of being so,” while they rack up record profits. In the first quarter of this year, JP Morgan Chase had racked up nearly $2.5 trillion in deposits.
Worst is Yet to Come
Take a trip to San Francisco. Walk the empty streets. Count the block after block of “For Lease” signs… and the homeless people sitting under them, if you can count that high. And speaking of “high,” fentanyl and crystal meth dealers are peddling their drugs across the city.
With an office vacancy rate of around 26 percent in the city, it is just four points better than the nation’s leader, Los Angeles, where some 30 percent of office space in the downtown area was “For Lease” at the end of last year, according to Colliers brokerage firm.
Warning what we had forecast three years ago and which we made one of our Top Trends for 2023, Office Building Bust, this is a headline in today’s Wall Street Journal “Defaults Roil L.A. Office Owner.”
Yes, the worst is yet to come. And with many of these office building owners having floating interest loans which have shorter terms than fixed-rate mortgages, with less money coming in and interest rates rising, there will be more defaults which will hit the banking sector hard… pushing more of them under.
And on the interest rate front, the big “news” is the Federal Reserve will raise interest rates 25 basis points tomorrow. Thus, when the loans come due many office building owners won’t be able to refinance their loans because it will cost them more to borrow because interest rates keep rising.
Echoing our warning of an Office Building Bust and the impact it will have on the banking system, last Saturday, in an interview published by the Financial Times, Berkshire Hathaway billionaire Charlie Munger warned that U.S. banks are packed with “bad loans” and that “bad times come” as property prices fall. “A lot of real estate isn’t so good anymore,” he said, and “We have a lot of troubled office buildings,” with “a lot of agony out there.”
LAST WEEK: STOCKS UP FOR THE WEEK AND THE MONTH
Equity markets rose last week, closing out April in positive territory after a series of encouraging earnings reports.
“The takeaway is, on balance, earnings have not been as bad as expected,” Mark Luschini, chief investment strategist at Janney Montgomery Scott, told The Wall Street Journal.
Tech and communications issues led the way up, continuing to outperform the broader market for the year with gains of 2.4 and 3.8 percent, respectively.
Last week, the Dow Jones Industrial Average and the Standard & Poor’s 500 index each added 0.9 percent. The NASDAQ took on another 1.3 percent.
For the month, the Dow grew by 2.5 percent, the NASDAQ 0.1 percent, and the S&P 1.5 percent.
Overall, markets remained relatively calm in April. Market moves tended to be small and volatility subdued as investors await signals from the Fed regarding its intentions after the central bank raises its key rate again this week.
However, individuals have grown more skeptical about stocks’ future.
Investor pessimism increased from 35.1 in the third week of April to 38.5 at the end of last month, according to a weekly index kept by the American Association of Individual Investors.
The 10-year treasury note’s yield moved down to 3.451 percent Friday from 3.491 percent the day before. Yields fall as bond prices rise with demand.
The note’s return has recorded its biggest two-month drop since April 2020.
Spot gold’s price rose 0.6 percent through the week, notching $1,990.15 at 5 p.m. U.S. EDT on 28 April. The price briefly broke above $2,000 on 26 April.
Brent crude slid 3.4 percent last week, breaking down through the $80 benchmark to trade at $79.54 at 5 p.m. U.S. EDT on 28 April. West Texas Intermediate fell 2.6 percent to $76.78.
Bitcoin gained 6.1 percent from Monday through 5 p.m. U.S. EDT on 28 April, trading at $29,288.50.
Abroad, markets were largely quiet last week.
The London FTSE 100 lost 0.7 percent; the pan-European Stoxx 600 shrank less than 0.1 percent.
Japan’s Nikkei ticked up 0.1 percent. The South Korean KOSPI gave up 1.5 percent.
In China, the Hong Kong Hang Seng dropped 0.5 percent, the CSI Composite was down less than 0.1 percent, and the tech-oriented SSE Composite took on less than 0.1 percent.
YESTERDAY: DOW STEADY AMID FIRST REPUBLIC FAILURE
The Dow Jones Industrial Average inched 46.46 points lower yesterday, or 0.14 percent, to end the day at 34,051.70 while the benchmark S&P 500 was down 0.04 percent to 4,167.87. The Nasdaq was off 0.11 percent to close at 12, 212.60.
The big news on The Street was First Republic Bank being seized by regulators and then largely sold to JPMorgan Chase. The San Francisco-based regional bank’s demise represented the U.S.’s second-largest bank failure.
Jamie Dimon, the head of JPMorgan Chase, told reporters in a conference call on Monday that he believes “this part of the crisis is over,” and said the financial system appears strong. He did say there is a risk other smaller banks could fall.
TREND FORECAST: As we detail above in our ECONOMIC UPDATE, despite the word on The Street that all is fine now that all is fine in the banking system, with some $5 trillion dollars of commercial office building loans on the bank’s books and the sector in steep decline, not only will the latest series of banking busts slow down credit growth, there will be more bank failures.
Also, considering the banking dangers ahead, tomorrow may be the last of the Fed’s interest rate hikes.
Yahoo Finance noted that JPMorgan did not take on the bank’s corporate debt or preferred stock, “meaning institutional investors will not be made whole” and investors in the bank may lose their money.
“We expect a wipe-out of common shareholders following FRC entering receivership and being sold to JPM,” David J. Chiaverini, Wedbush Securities equity analyst, David J. Chiaverini told clients, according to the report.
The yield on the 10-year Treasury hit 3.573 percent, which was up from 3.451 percent during Friday’s trading.
The latest banking turmoil comes days before the Federal Reserve announces its next interest rate move, that the gamblers on Wall Street believe will come in at about 25 basis points and move rates to 5 percent to 5.25 percent.
Derek Tang, an economist at LHMeyer, an economic consulting firm, told the Associated Press that Powell “wants to kind of tell the market, ‘Don’t relax. Don’t be complacent. We could still hike more if we think we need to, but we don’t know if we have to yet’.”
Elsewhere, London’s FTSE was up 38.99, or 0.50 percent, to 7,870.57 and the benchmark STOXX 600 was up 0.25 or 0.05 percent, to 466.89. Most Asian markets were closed on Monday for the Labor Day holidays. Tokyo’s Nikkei 225 index added 0.9 percent to 29,123.18. South Korea’s Kospi was up 0.8 percent to 2,522.09. Hong Kong’s Hang Seng was nearly unchanged and closed at 19,885.48.
Trading was closed in China for the Golden Week holidays.
TREND FORECAST: Small and regional banks will have to pay more interest to keep customers from shifting their money to megabanks they believe to be safer, which will mean they will become prey for the Jamie Dimons on Wall Street.
We forecast an uptick in bank buyouts this year as weaker small banks are subsumed by larger ones.
OIL: Brent crude for July delivery fell $1.02 yesterday to $79.31 a barrel and West Texas Intermediate, the benchmark U.S. crude, fell $1.12 to $75.66 a barrel.
TREND FORECAST: OPEC+ will do all it can to cut oil supply to keep prices high as demand weakens.
Peter McNall, a Third Bridge analyst, told Reuters that data out of China last weekend that showed China’s manufacturing purchasing managers’ index (PMI) fall to 49.2 in April from 51.9 in March was a “disappointment.”
“The market is highly dependent on what happens to China,” he said.
And while there are segments of the Chinese economy that have bounced back, the socioeconomic damage of the three year COVID War launched by China in January 2020, “The Year of the Rat,” is incalculable. Thus, there will be an economic bounce-back, but what has been lost is gone and the businesses that went out of business will not return in large numbers.
GOLD: Gold for June delivery fell $6.90 to $1,992.20 an ounce due to the strength of the U.S. dollar and increases in Treasuries.
Gold is widely seen as a hedge against inflation but—as a non-yielding asset—can lose some attention when competing with Treasuries as a safe-haven.
Ajay Kedia, director at Kedia Commodities in Mumbai, told Reuters that the precious metal can head towards $2,000 if the Fed indicates that it will soon pause rate hikes in its fight against inflation.
CBS’s Money Watch noted that gold hit $2,042.49 per ounce about two weeks ago and was approaching an all-time high of $2,069.40 that was reached in 2020.
TRENDPOST: Gerald Celente has said there is belief on The Street that the Federal Reserve will not keep raising interest rates, which means the dollar is going to go down. The dollar is only up because interest rates are up. When interest rates start going down, the dollar’s going to go down. And it’s going to go down big, and it’s going to go down hard. And we forecast gold prices rising very sharply.
BITCOIN: The world’s most popular crypto took a beating yesterday and was down $1,384.55 a coin as of 5:40 p.m. ET.
We’ve been reporting that bitcoin performed well during the failure of Silicon Valley Bank, but some analysts are trying to determine if that is the trend or a one-off.
Alex Thorn, head of firmwide research at Galaxy, told CNBC that it is “unclear whether the banking crisis narrative can continue to be a boon for bitcoin.”
“Outside of crypto-native factors, we expect a back-of-the-year macro environment to be characterized by tightening, recession, and an expanding multipolarity in the global economy, all of which can be supportive of gold and bitcoin,” he said.
TODAY: DOW DOWN AMID NEW BANKING FEARS, AS WE FORECAST
The Dow Jones Industrial Average gave up 367.17, or 1.08 percent, to close the day at 33,684.53 and the benchmark S&P 500 was down 48.29, or 1.16 percent, to 4,119.58. The tech-heavy Nasdaq was down 132.09, or 1.08 percent, to 12,080.51.
Investors on the street are growing increasingly concerned about the state of the economy after recent bank failures, the debt ceiling, and future actions from the Federal Reserve.
The 10-year Treasury yield fell 14 basis points to 3.43 percent.
Elsewhere, London’s FTSE was down 97.54, or 1.24 percent, to 7,773.03 and the benchmark STOXX600 shed 6.02, or 1.29 percent, to close the day at 460.87.
In Asia, Japan’s Nikkei was up 34.77, or 0.12 percent, to 29,157.95 and Hong Kong’s Hang Seng gained 39.24, or 0.20 percent, to 19,933.81. South Korea’s Kospi was up 22.86, or 0.91 percent, to 2,524.39. Markets in China were closed for the holiday.
TREND FORECAST: The Banking bust has just begun. As interest rates rise, more money will flow from the banks into more profitable investments. And when the Office Building Bust hits the banks and there are more bank failures, the money flowing out will dramatically increase.
OIL: Brent crude fell $4, or 5.04 percent, to $75.31 a barrel and the U.S. benchmark West Texas Intermediate fell $4.03, or 5.33 percent, to $71.61.
Oil prices hit their lowest levels since December 2020, according to Bloomberg. U.S. Crude is down by about 13 percent since 12 April based largely on concerns of a major economic slowdown in the U.S. and a slower post-COVID recovery than anticipated in China.
Oil traders are considering the Fed’s next move.
The CME Group’s FedWatch tool indicates that The Street sees a 97 percent chance of a 25 basis-point rate hike.
Investors will also try to determine if Fed Head Jay Powell will signal at tomorrow’s announcement any kind of rate-hike pause in the future.
Mike Wilson, an equity strategist at Morgan Stanley, said in a note to investors today that he believes the Fed will keep rates elevated through the end of the year.
“Should the message delivered at this meeting lead to a re-pricing of bond market expectations for rate cuts in the second half of ’23 (i.e., rate cuts get priced out, leading to an implied path that’s more in line with our economists’ view for a pause), that could ultimately be a negative surprise for equities,” Wilson said in a Monday note, according to Yahoo! Finance.
TRENDPOST: The Trends Journal has identified oil prices as a wildcard that is nearly impossible to forecast because of global risks and uncertainties. OPEC+ continues to cut but can’t keep up with the global economic slowdown. We note in this week’s issue that the war drums continue to sound in the Middle East as tensions between Israel and Iran intensify.
GOLD: The yellow metal saw gains today and was trading up $33.50 an ounce, or 1.68 percent, to $2,016.
The precious metal is considered by many investors to be a financial safe-haven in times of economic uncertainty. Gold prices jumped today on news that job openings fell to 9.6 million, which marks the lowest level since 2021. Layoffs also increased to 1.8 million in March.
Investors turned to gold amid new concerns about banking risks.
TREND FORECAST: Gerald Celente has forecast that gold prices will be much higher than their current levels, but the strength of the dollar due to high interest rates have been a drag on the precious metal. But as forecast and detailed in Trends Journals, dollar dominance is coming to an end.
Already down 8.3 percent since it peaked in September, according to the WSJ Dollar Index, this is the worst start of a year for the dollar since 2018. Thus, when the Federal Reserve stops raising interest rates the dollar will decline and gold prices will move higher.
Also pushing down the dollar, again as we have greatly detailed in Trends Journals, is that many nations will no longer tolerate U.S. economic or military hegemony and are pulling away from the U.S. and forming new alliances.
We maintain our forecast for gold prices to be in the $2,200 range by year’s end…or before.
BITCOIN: The world’s most popular crypto currency continues to see big swings in value and was trading up $673.70, or 2.40 percent, to $28,748.20 as of 4:38 p.m. ET.
Crypto traders are considering the Fed’s next move to combat inflation and have also been keeping an eye on the debt-ceiling fight playing out in Washington.
Janet Yellen, the head of the U.S. Treasury, warned that the government could run out of money to pay its bills by 1 June. Congress would have to either raise the debt ceiling or suspend any limit. Economists widely agree that if an agreement is not reached, the result would be financial turmoil for stocks and could result in a global economic meltdown.
Geoff Kendrick, the head of FX research at Standard Chartered, said bitcoin could increase by $20,000 in the unlikely event that a debt deal is not reached, which would be a 68 percent jump from current levels, according to Business Insider.