Thursday, March 16, 2023


A combination of factors have coalesced to make global banks uninvestable post-pandemic:

- Lack of regulation

- Bad investments

- Deposit exodus/higher interest rates

- Lack of depositor protection

- Lack of investor protection

The FDIC knew all along that a stealth bank run has been taking place for the past year. The first year of deposit outflows since 1948. Meaning by far the largest outflows in U.S. history:

"After years of earning next to nothing, depositors are discovering a trove of higher-yielding options like Treasury bills and money market funds as the Federal Reserve ratchets up benchmark interest rates. The shift has been so pronounced that commercial bank deposits fell last year for the first time since 1948 as net withdrawals hit $278 billion, according to Federal Deposit Insurance Corp. data"

The lenders getting hit hardest by rising funding costs are community and smaller regional banks"

Over this past week, the bank deposit outflow has become a torrent. Right after my last blog post when I said that no one knows what domino will fall next, Credit Suisse imploded the very next day. 

It was another "Black Swan event".

In this article, the former head of the FDIC confirms what I said in my earlier post about the "Minsky Moment" and depositor exodus due to uncertain protections:

March 15th, 2023:

FDIC May Need To Guarantee All Bank Deposits

"The Federal Deposit Insurance Corp may need to seek temporary guarantees for all uninsured U.S. bank deposits to stem a drain of funds from small and regional U.S. lenders following deposit bailouts for failed banks SVB Financial and Signature Bank, former FDIC chair Sheila Bair said on Wednesday"

Bair told Reuters that the "one-off" deposit guarantees for Silicon Valley Bank and Signature have left depositors elsewhere fearing for safety and fleeing to larger institutions"

The main issue, as I wrote in my Minsky blog post is that wealthy investors and companies with deposits > $250k don't know if they will get bailed out when the next bank fails. The FDIC fund has very limited funds that will be depleted by the blanket bailout of SVG and Signature. And, in order to guarantee ALL bank deposits without limit, the FDIC would need a vote from Congress. Which is very likely NOT forthcoming. 

Which is why the exodus has begun:

What we are witnessing now is the liquidation of regional stocks as a viable asset class:

This is the weekly volume as of Thursday close:

This BTFP stock market rally is a short-covering rally similar to the TARP rally in October 2008. When that rally ended, the market exploded lower. 

Today, the ECB tightened .5% which means they gave no allowance for the bank collapse taking place in real time. Which, guarantees the Fed will hike at least 1/4 pt next week as they move in lockstep.

Whereas the stock market is highly complacent, the bond market is seeing 2008 level distress. Note the disconnect between the Treasury Move index and the VIX:

The collapse in bond yields has caused a massive rotation to Tech stocks under the belief that they are a safe haven from global turmoil. Of course, nothing could be further from the truth. Investors are going out of the pan into the fire.

What today's Tech gamblers need to learn is that once a bubble bursts, it doesn't become a bubble again for a very long time. It took the Nasdaq 17 years to recover its Y2K high.  

For all of the various reasons that have led us to this lethal juncture, central banks are now doing now the EXACT opposite of what they did in 2008. They are tightening into a burgeoning credit crisis. 

Which means we have entered the most lethal financial crisis since 1930. 

In summary, the serial deregulation of criminality is coming to a final hard landing. 

When that happens, even the biggest dunce will understand the lessons learned in 1930 that stood for 70 years until the Idiocracy decided they were smarter than everyone who came before them.