Don’t say I didn’t warn you … here are just a few of my recent editorials, which are accessible for free right here.

• • • Consumers Signal Crash Landing 
    • Yellen’s Soft Landing Call is BS
    • Flash Crash Window is Open
    • Powell Has Gone Off the Rails

And this is just the beginning … 

The next couple of years will be met with mini-crashes across multiple asset classes followed by more injections of newly printed, devalued dollars.

Rinse and repeat until every last investor realizes the Fed has been running a ponzi scheme for decades. 

And the house of cards built along the way is beginning to fall.

Allow me to lay out the scenario for you …  

The 1980s Savings and Loan (S&L) Crisis 

The mini crisis we are now facing resembles the 1980s S&L crisis, which was known at the time as the “biggest bank heist in history”.

Almost a thousand S&L’s failed, which cost taxpayers $125 billion.  

The trigger for the S&L crisis was set in motion by the Reagan administration’s deregulation of the industry. The intention was to incentivize banks to lend more. 

Hmm, Let’s take a closer look……

• • • The US Government guaranteed all S&L deposits 
    • It then authorized zero money-down loans with no restrictions on interest rates offered to the public to attract deposits. The size of the industry exploded.
    • S&Ls were allowed to invest their deposits in risky investments like raw land and massive hotel and other development projects. 
    • It then used accounting gimmicks to post record profits in spite of significant losses on those risky investments. 

S&L 2.0

The 2023 version of the S&L crisis is no different, except today’s S&Ls (regional banks) were enabled to borrow funds (deposits) at 0% interest rates …

They were then free to invest them in non-profitable start-ups or cars and homes, whose prices were inflated by decades of money printing.

SVB Financial Group (Ticker: SIVB) is the poster child. They are the 18th largest bank with $212 billion in assets … 

$120 billion are securities

• • •  $57.7bn are Held to Maturity (HTM) Mortgage Backed Securities 
    • $10.5bn are collateralized mortgage obligations (CMO) 
    • $26BN are Available for Sale (AFS) securities. 

$173 billion in liabilities (deposits) include:

• • • $21.5 bn FDIC deposits
    • $151.5 bn uninsured deposits

Once the management team confirmed they faced a “Liquidity Crisis” it sparked an industry-wide bank crisis and a depositors’ run on the banks. 

This set off a chain of events:

• • • SIVB sold $21 billion of its AFS securities to buy shorter-duration Treasuries, considered to be the safe haven investment. They lost $1.8bn on the sale.
    • Publicly announced raising $2.2bn of equity; $1.75bn common and $.5bn preferred, which failed. The bank is now for sale.  

Today’s Accounting Gimmick

In 2009, regulators suspended the transparency of banks’ marking their assets to the daily mark …

They instead allowed them to split their asset holdings into two components: 

• • • The available for sale (AFS) bucket, which would be marked to market and could be sold to sure-up liquidity.
    • The held to maturity (HTM) bucket, enabled the banks to hold debt securities at cost, implying they would be held to maturity.

The Fed chart below illustrates the massive growth in financial assets held at all commercial banks.

Fast forward to today, and the Federal Reserve is crushing this house of cards that was made up of bank stocks and bonds …

The Fed’s tightening cycle, which raised interest rates and crushed stock and bond prices at the fastest pace in history, has popped the 40-year everything bubble.

Net Unrealized Loss

The accounting gimmick of HTM securities is now exposed, and banks will race to sell assets and realize their “unrealized losses” that are exposed.

The chart below illustrates the fragility of the regional banking sector (% of small bank reserves to assets, black line).

As you can see, regional banks lack the capital buffer that large banks are required to hold (blue line). This makes them extremely vulnerable to a run on the banks.

What’s The Trade? 

This crisis will reverse the inversion of the yield curve. The US 2-year Treasury bond yield is 1% higher than the US 10-year Treasury bond yield.

This spread will begin to shift back towards normal as the Fed will be forced to pause rate hikes. 

Here are a few tradable ideas to take advantage of the impact this crisis will have on markets. 

You can buy the 2yr Average Maturity Treasury Bond ETF (Ticker: SHY) and sell the longer iShares 25+ Maturity Treasury Bond ETF (Ticker: TLT). 

You can also sell the iShares High Yield Corporate Bond ETF (Ticker: HYG) and buy the less risky iShares Investment Grade Corporate Bond ETF (Ticker: LQD). 

Lastly, Gold appears to be bottoming and should soar as the dollar will weaken as collateral damage to the massive bank assets sales to come. 

Power Income Trader has a model portfolio designed to take advantage of the Fed pause and its impact on the markets. 

I educate subscribers on the macro forces that drive market trends and send multiple trades a week that are exclusive to my subscribers.

I’ll be going live on Monday to talk about this crisis more in depth, and the plays you should make to profit off of it.

Become a Power Income Trader and join me!

I see massive moves coming, and understanding the driving forces will maximize your returns …

Live and Trade With Passion My Friend,

Griff