I hope you weren’t invested in bank stocks this week… because it was a mess out there.
On Monday, the federal government took control of First Republic Bank (FRC), which had been in a six-week-long free fall, and sold it to JPMorgan Chase & Co. (JPM). This failure marks the second-largest U.S. bank failure ever.
Then, in Wednesday’s Federal Open Market Committee (FOMC) statement, the Federal Reserve announced a 25-basis point rate hike. This marks the Fed’s 10th straight interest rate hike and puts the federal funds rate target range to 5.0% to 5.25%, which is its highest level since September 2007.
Following the Fed’s statement, regional banks like First Horizon Corporation (FHN), Western Alliance Bancorporation (WAL), and PacWest Bancorp (PACW) took dives, falling around 30%, 40% and 50%, respectively.
Plus, just about every other U.S. bank stock – large and small – was significantly down as well.
That was just this week…
And while PacWest and the other regionals are rebounding this morning as I write, banks have been suffering much more than just a tough week…
In fact, it’s been disaster after disaster over the last few months. I don’t anticipate it getting better in the near future. A Fed rate hike pause is not set in stone… the yield curve remains inverted.
We may not be in a full-on banking crisis, but we’re awfully close to one
(That’s why I’ve scheduled a live Emergency Banking Briefing on Tuesday, May 9, at 7 p.m. Eastern time about the current banking shock and what investors need to do now in order to prepare. Plus, I’ll detail how an announcement in the coming weeks could change your financial future for good. Click here to reserve your spot today.)
That said, I have to assume that most of you were not invested in bank stocks this week – or during this entire spate of bank failures. After all, my artificial intelligence-enabled stock rating system started making regional banks “Sells” last fall… long before Silicon Valley Bank went bust back in March. (More on that that system tomorrow.)
Now, longtime readers will know that I rarely, if ever, recommend banking stocks… and for good reason.
So, in today’s Market 360, I’ll explain why I don’t like banking stocks and how I’ve helped my readers avoid past banking crisis.
Then, I’ll detail how you can prepare for the upcoming banking shock…
“Putting Lipstick on a Pig”
I’ve said it before and I’ll say it again: I’m not a fan of the banks.
The reason is simple: I am an ex-banking regulator. I spent the late ’70s and early ’80s as an industry development analyst at the Federal Home Loan Bank of San Francisco.
And today’s banking crisis brings back some memories.
Back then, the yield curve was severely inverted.
I spent my days merging losing financial institutions together to make them qualify for Federal Savings and Loan Insurance Corp. of insurance (now the FDIC handles this). Essentially, I would take the larger financial institution and merge it into the smaller, but would re-amortize its assets (e.g., its loan portfolio) to make the combined financial institution look better.
Even though I could never fix the combined institution’s cash flow, I helped them kick the can down the road because an inverted yield curve is lethal for banks.
I used to “put lipstick on a pig” – and the experience scarred me for life.
We’re in a similar situation to the late 1970s and early 1980s, in that the yield curve has been inverted since July 2022, meaning short-term interest rates are higher than long-term interest rates.
It’s no surprise that reginal banks like First Republic Bank ran into problems.
The fact is, as long as the yield curve remains inverted, there is risk that other banks could fail the Federal Reserve’s capital requirements.
That spells disaster for smaller banking stocks.
How to Position Yourself – Before the Next Bank Shock
Investors were blindsided by the recent bank failures… but my readers and I weren’t.
In fact, I warned folks to stay away from Silicon Valley Bank, Signature, First Republic, and Credit Suisse months before they collapsed – all thanks to my system.
Plus, I’ll tell you more about the potential for an upcoming banking shock, and how it could leave millions of folks left behind… and why you don’t have to be one of them.
If you follow my playbook, you’ll have the chance to double your money over and over again in 2023 as the chaos unfolds.
I’m going to give you all the details in a special online interview on Tuesday, May 9, at 7 p.m. Eastern time. It’s live, so make sure you’re there on time!
Plus, as a special added bonus you’ll be able to submit any questions you may have for me live during an interactive Q&A session.
If you’ve already booked your spot for the LIVE Emergency Banking Briefing, I encourage you to mark your calendar now.