Yo Pit Crazies,
Stocks are looking up today after Apple Inc (Ticker: AAPL) posted better than expected revenue in iPhone sales. Overall earnings are not growing, but that’s not stopping traders from bidding AAPL up to near record levels.
That’s for a blog next week, but Big Tech is still weathering the storm very well.
What’s not weathering the storm is the regional banks. Main Street banks that lend to businesses all across the country are getting decimated for what seems like no reason.
Recent JPow testimony revealed the banks that went under know what is going on. I get the reason the banks are soft, but this is more orchestrated. It seems like every hedge fund is shorting them and there is no bid.
AAPL is $15 from all time highs and the SPDR KBW Regional Banking Index ETF (Ticker: KRE) is at multi year lows?
Time to do a little walk through history and see what happened the last time banks were under stress.
The 2008 Financial Crisis Was a Mess
No one would lend to each other since they didn’t know what was going on with toxic securities. Banks right now own treasuries and while they have losses on them, it’s not like they are marked to 0.
The real issue is hedge funds have been shorting regional banks aggressively, and they continue to do so. A large majority of the banks are sound and recently reported earnings. From a market point of view, there are no buyers right now. Nobody can trust what they see so the banks keep going down and down, where the shorts hope they trigger a run.
It feels like this is a manufactured issue by hedge funds not a real one. The Fed could take a play out of 2008 and say no more opening short positions in certain names. As a reminder, the FDIC mandated banks hold treasuries.
The current problems are 100% government created. At this point, sticking it to the shorts may not be a bad idea.
Money continues to flow into Big Tech and out of small banks. I don’t get the valuations but that’s what it is.
KRE might be worth a nibble down here.
To Your Trading Success,
AG