Hey There Income Hunter,
A return of the bank crisis did not take long.
As I wrote recently, a credit crunch just doesn’t go away.
Jerome Powell sent every soldier he had into the fields to tell anyone who would listen that the banks were fine.
They haven’t been fine since rates were zero back in 2021.
Once rates started rising and deposits started shrinking they just hid their losses and now are exposed.
We could see another failure very soon..
Today, I’ll share a list of 11 banks that may be next to go.
Moody’s Downgrades 11 Regional Banks
Moody’s Investors Service downgraded 11 regional banks on Friday.
The agency suggested higher interest rates plus recent bank failures have ignited greater instability.
The Downgrades Included:
- US Bancorp (Ticker: USB) – $682bn in assets
- Zions Bank (Ticker: ZION) – $89bn
- Bank of Hawaii (Ticker: BOH) – $24bn
- Western Alliance Bancorp (Ticker: WAL)
- First Republic Bank (Ticker:FRC)
- Associated Bancorp (Ticker: ASB)
- Comerica Inc. (Ticker: CMA)
- First Hawaii Inc. (Ticker: FHB)
- Intrust Financial Corp
- Washington federal inc. (Ticker: WAFD)
- UMB Financial Corp (Ticker: UMBF)
Moody’s said the strains in the way banks are managing their assets and liabilities are becoming increasingly evident.
Regional Banks Getting Hit on Both Sides of the Balance Sheet
Banks’ deposits (liabilities) have taken another turn down and could trigger more bank runs.
Their assets (loans & leases) are shrinking at a rapid rate … and that is very damaging to the economy as businesses refinance maturing loans.
This may just be the beginning of a prolonged drop in loans because the banks will need to preserve their cash as depositors withdraw funds and move them to money markets.
What’s the Trade?
The major industries rolled over today and traded below the hedge wall, which is the area of the market where the option dealers hold a neutral gamma trading book. It’s the point where they are balanced. Below the hedge wall dealers take on negative gamma risk.
This means as they buy puts from traders and investors they must sell an increasing amount of stock to maintain a balanced book.
This is their situation heading into today and additional catalysts that may provoke more selling will accelerate the down trade.
Yesterday, I chose to sell two call spreads above the market as SPX back-tested the hedge wall, as you can see below:
The spread expired worthless, and I collected a same-day $120. 0DTE options are great for these types of trades.
So, the trade for the next couple of days is to sell rallies towards the 4100 level …
Look for a move to 4050 and possibly 4000 before longer-term buyers come in.
Stay tuned for more intel on the banks and a shift in Fed policy
And in the meantime …
Live and Trade With Passion My Friend,
Griff