BETWEEN A ROCK AND A HARD PLACE

What we are witnessing in real-time is Lehman 2.0. Unfortunately, stock gamblers are always the last to know...

The right shoulder has now been amply confirmed as being the locus of global collapse. The dominoes are falling. A week ago, few people had ever heard of Silvergate Bank, Silicon Valley Bank (SVB), and Signature Bank - aka. the "Si" banks. Now they're all collapsed. The second (SVB) and third (Signature) largest bank failures in U.S. history in less than one week.

Recall that March 2021 was the peak for the pandemic IPO junk bubble. Two years later, the Silicon Valley bank collapsed.  Coincidence? No. Then, March 2022 was the first leg down of the Crypto collapse. One year later TWO Crypto banks collapsed. Coincidence? No. The Crypto "DeFi" movement has totally imploded and now it's imploding the traditional banking system. 

Who knows what will be the next domino to fall, no one saw these ones coming. 

Or did they?

Notwithstanding Fed members jettisoning stock in junk banks days ahead of collapse, most pundits are calling these bank failures a Black Swan event, meaning none of them saw it coming. And yet this bank collapse was totally predictable in the context of central banks tightening into an incipient credit crisis - which itself was the direct result of the super stimulus global central banks used during the pandemic. 

Central banks caused this crisis from over-easing to over-tightening.  

 

Today, was CPI day and while it's slowly coming down, it's still at 6%. The Fed is now boxed in between banks failing and a CPI that will sky-rocket if they stop hiking rates. In other words, the Minsky Moment has already started and it's unstoppable. 

Here we see the Fed took their foot off the gas in 2007 due to the housing bubble, and the CPI sky-rocketed from 1.5% to 5.5%. Of course, the same thing happened to Volcker back in 1980 when he prematurely stopped tightening. He was very quickly forced to restart tightening when the economy was in recession.

Imagine if the CPI rebounded back to 9%. That's the bull case right now. A cessation of tightening followed by a shock restart later this year. 

In summary, we are one week away from the Fed making an even bigger monetary policy error. And no surprise the market is rallying due to their first bailout.

The BTFP rally. What else?