Hey There Income Hunters,
All things considered, the market closed very well yesterday.
Especially when you consider the news out of Wells Fargo (Ticker: WFC).
WFC only announced that it is shutting down all existing personal lines of credit!?
It’s a move that will leave many customers without a critical source of liquidity …
Plus customers may be penalized for the bank’s decision, making it more difficult for them to get loans from a new source.
This type of maneuver usually does not go unnoticed by the markets.
Added to the Fed’s reverse repo plan and the highest consumer credit card borrowing in history, it tells me we may not see another new all-time high for a while …
And today may even be the start of a meaningful correction.
Money Supply Dropping Like a Stone
The chart below shows the most recent year-over-year money supply numbers …
And they are sliding down a steep slope.
This seems to be a common theme now in all parts of the markets and is definitely a sign the stock market may not hold on much longer.
Read my letter from yesterday to see how the Fed may be working behind the scenes to burst the asset bubbles themselves.
Think about this for a second …
Here are a couple of moves by the Fed that lead me to believe that they are orchestrating a market meltdown:
- They reinstated post-2008 capital requirements on banks a couple of months ago, even though the banks said it could lead to a liquidity crunch.
- They not only expanded the reverse repo facility but raised the rates to soak up even more money.
- Yesterday, they announced they will begin selling corporate bonds into the system to unwind the Secondary Market Corporate Credit Facility they launched in March 2020.
I could understand if they were initiating these moves when the government was injecting fiscal stimulus at the same time — but that’s not the case.
In fact, Congress and President Biden are also adding uncertainty because the market is unsure if it will get a meaningful infrastructure spending bill or not this year.
Check out What’s Happening to Bank Deposits
Bank deposits are also starting to head down now.
After the Wells Fargo announcement today, it makes you wonder how much trouble banks may be in …
We know Janet Yellen has zero love for the banks …
This just may be part of a larger scheme to cut banks out and change the Federal Reserve act of 1913 so the Fed and Treasury can print money and lend directly to the consumer.
We know this is the ultimate goal and the way they are acting, maybe they are closer than we think.
And there’s another major sign the Fed is not concerned about the health of the banks…
Yield Curve Flattening Is Squeezing Bank Profit Margins
A wide 2-year/10-year yield curve spread is a major contributor to bank profits since it allows them to borrow at low rates and lend at high rates.
Well, since the beginning of June, the spread has narrowed by almost .60%, and you can see from the chart above what that has done to the Financial Sector ETF (Ticker: XLF).
XLF was down another 2% yesterday.
That is not a good sign for the major banks.
Bring It Home
I came in long the VIX July 28 16/21 call spread.
I closed it out yesterday for a 36% gain and opened a SPDR S&P 500 Trust ETF (Ticker: SPY) 427/427 put spread to Aug. 18.
I may be early, however, my gut tells me a decent correction is coming.
The sad thing is the Fed may be the catalyst.
Live and Trade With Passion My Friends,