Are Troubled Banks Bullish for Stocks?

Deutsche Bank appears to be in trouble … why Luke Lango sees the banking crisis as bullish … a clean tech megatrend from Eric Fry … are we headed back to $5-per-gallon gas?

Another day, another troubled bank…Shares of Deutsche Bank, Germany’s largest bank, have lost a fifth of their value this month, and are down double-digits as I write Friday morning following a spike in credit default swaps last night.If you’re less familiar with a credit default swap, you might think of it as a form of insurance for a company’s bondholders, protecting them against default.This is rather important to Deutsche Bank bondholders as they just watched $17 billion worth of Credit Suisse bonds go up in smoke as the Swiss bank rolled over, resulting in a sale to rival UBS.From CNBC:

The emergency rescue of Credit Suisse by UBS, in the wake of the collapse of U.S.-based Silicon Valley Bank, has triggered contagion concern among investors, which was deepened by further monetary policy tightening from the U.S. Federal Reserve on Wednesday.Swiss and global regulators and central banks had hoped that the brokering of Credit Suisse’s sale to its domestic rival would help calm the markets, but investors clearly remain unconvinced that the deal will be enough to contain the stress in the banking sector.Deutsche Bank’s additional tier-one (AT1) bonds — an asset class that hit the headlines this week after the controversial write-down of Credit Suisse’s AT1s as part of its rescue deal — also sold off sharply.

Counterintuitively, is this banking turmoil actually bullish for stocks?

Our hypergrowth expert Luke Lango says that’s what historical data indicate.Let’s jump to Luke’s recent issue of Hypergrowth Investing:

Sometimes, bad news is good news. History says that’s the case for the recent string of high-profile bank failures.

After profiling the recent string of bank failures, Luke focuses on the historical relationship between the timing of past bank failures and a stock market surge:

Did you know that bank crises tend to mark the end of bear markets and the start of new bull markets?It’s true. They’re the ultimate contrarian buy indicator.The 1974 bear market ended when New York’s Franklin National Bank went under in October 1974. That very same month, a nasty bear market (in which stocks dropped nearly 50%) ended. Over the next six years, the stock market soared 125% higher.The 1984 stock market crash ended when Continental Illinois – a huge bank with over $100 billion in inflation-adjusted assets at the time – failed in May of that year. Over the next three years and change, the market powered more than 100% higher.The 1987/88 stock market crash ended in the summer of 1988, when both First Republic Bank and American Savings & Loans failed – two banks with combined inflation-adjusted assets of about $150 billion. Over the next year, stocks jumped 35%. Over the next five years, they soared about 70%.Time and time again, bank failures have marked the ending of bear markets and the start of new bull markets.

Luke explains that this dynamic often plays out because banks are usually the last domino to fall during times of economic crisis.But they don’t fail “suddenly.” They go down after months of deteriorating conditions, after business and consumers have already suffered, which usually correlates to the final innings of the crisis.Back to Luke:

Importantly, when banks do fail, the government usually comes to the rescue. And when the government starts rescuing things, economic crises usually end, and recoveries usually begin…Indeed, bank failures are usually very bullish for stocks because they signal impending government stimulus, which helps stem economic demise and promote an economic recovery…

So, how does Luke recommend investors play what he calls “Operation Save the Market”?Top-tier innovation and technology stocks.Back to his issue:

…You shouldn’t capitalize on it by just buying an ETF that tracks the S&P 500.Rather, you should buy the individual stocks that will lead this coming new bull market breakout.Luckily, we’ve analyzed tons of data and conducted rigorous quantitative analysis to find these breakout stocks.You can find out about those market-leading stocks right here…The smart money recognizes the huge opportunity that is presenting itself today in stocks, and they’re capitalizing on it. 

This will be fascinating to watch. We’ll keep you updated.

Speaking of “Smart Money,” that’s the name of Eric Fry’s free investment newsletter – and on Wednesday, he profiled an investment idea that could measure in the trillions of dollars

Eric is our macro expert. He identifies the massive political, social, and economic currents that are shaping global markets. After pinpointing the most influential ones, he digs deeper, finding the best specific investments that are poised to capitalize on those macro trends.As you’re likely aware, one of the most significant macro trends of today is the push toward green energy. In particular, Eric likes “green hydrogen.”From his latest issue of Smart Money:

“Green hydrogen” is the new kid in town. Think of it as the love child of water and renewable energy. Green hydrogen results when a renewable energy facility powers an electrolyzer that splits water into hydrogen and oxygen.Conceptually, therefore, green hydrogen is the ultimate carbon-free fuel. It combines a limitless supply of water with renewable energy to create a zero-emission fuel.

This seems to be exactly what our global leaders are pushing for. So, why is green hydrogen not already the leader of the clean tech boom?Eric flags two issues: 1) green hydrogen is more expensive than grey hydrogen (though “grey” isn’t nearly as eco-friendly as green), and 2) green hydrogen technologies haven’t achieved the scale to drive prices down to competitive levels.But Eric believes this could be changing. If so, the investment opportunity is enormous.Back to his issue:

Bank of America Corp. (BAC) compared the current phase of the hydrogen market to the smartphone market just before the first iPhone launched, or the 1999-era internet, just as companies like Amazon were emerging.The bank estimates that hydrogen will generate 24% of our energy needs by 2050, creating as much as $11 trillion in investment opportunities over the next three decades.Therefore, even though some investors might consider green hydrogen to be a “tomorrow fuel,” I believe it has become a “today opportunity.” 

To give you a starting place for your green hydrogen investment research, check out Ballard Power Systems (BLDP) and Fuelcell Energy (FCEL). Though not official recommendations, they’re both leaders in the space. To learn more about Eric’s preferred investments as an Investment Report subscriber, click here.Here’s Eric’s bottom line:

Both the private sector and national governments are pouring billions of dollars into green hydrogen production. Importantly, this massive investment is just beginning to sweep across the renewable energy industry.Bottom line: I believe hydrogen, especially “green hydrogen,” will become an increasingly vital clean technology, due mostly to its unique ability to decarbonize heavy industry and revolutionize clean mobility.

Finally, spring officially arrived on Monday, and right on cue, crude oil prices began climbing.

Before easing this morning on news of the latest banking upheaval, the price for West Texas Intermediate (WTI) crude had popped 6% between Monday and yesterday afternoon.Here’s legendary investor Louis Navellier having a little fun with the surge, while also acknowledging the seasonal reality of rising oil prices. From his Special Market Update podcast in Platinum Growth Club:

As soon as spring showed up, energy heads higher.It’s headed higher because demand goes up in the spring. It’s seasonal, folks. It’s been doing it every year since I’ve been alive. That’s why I’ve been so confident that crude oil would go higher.

Here’s an illustration of Louis’ point.

It’s a “seasonality” chart of WTI prices. It’s showing higher prices in the spring and summer, while also some higher prices in the winter (reflecting higher heating bills).

Chart showing the average, seasonally-adjusted price of WTI crude, revealing high prices in the spring/summer

Louis then directed his listeners to Wednesday’s crude oil inventory report, pointing out another big drop in gasoline distillate inventories.As you would guess, lower gasoline inventories are likely to result in higher prices at the pump. And according to Reuters, this could be the beginning of another run-up in gasoline prices as we head toward summer:

U.S. motorists face a repeat of last summer’s high gasoline prices, analysts warned on Wednesday, with fuel stockpiles heading towards multi-year lows ahead of the peak summer driving season that begins in two months.Retail gasoline prices, now averaging $3.44 a gallon nationwide, hit a record $5.02 a gallon last June as crude oil prices jumped on Russia’s invasion of Ukraine and the waning of COVID-19 travel curbs unleashed pent up travel demand.Vehicle travel in the U.S. started the year 5.6% higher than last year, leading to a drop in gasoline stockpiles for five straight weeks.Last week’s 6 million-barrel drawdown was the biggest since September 2021, leaving inventories at 229.6 million barrels, their lowest for this time of the year since 2015, according to weekly government data.

Now, while this appears bullish for energy prices, if we look big picture, the price of West Texas Intermediate (WTI) crude just hit a new 52-week low before spring’s arrival on Monday.Is that a reason for caution?Louis leaves no room for misinterpretation:

Whoever was bearish on oil has made a mistake…

As a reminder, Louis sees WTI headed back to $100 this summer. As I write, it trades at about $69 a barrel.If Louis is right, this looks like a great time to initiate new oil-related position. If you’d like his help in identifying the strongest picks as a Platinum Growth Club subscriber, click here.Meanwhile, we’ll keep you updated on all the stories here in the Digest.Have a good evening,Jeff Remsburg

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