‘Low interest rate’ junkies ignore US banking crisis

The stock market rally last week has been truly spectacular.

The stock rose Thursday and rose again on Friday. After the Federal Reserve Raises Interest Ratesnot because corporate earnings are killing it, inflation is subdued, or the economic forecast is very bright.

No, stocks have rebounded because there is a banking crisis and interest rates may fall soon. In other words, traders, like drug-addicted junkies, The Federal Reserve could resume giving them their amendments — Pumping “heroin” in the form of low interest rates to drug addicts, the US stock market.

That is correct. The modern stock market is an addict and just as unreliable as an addict. It leads you astray with false promises. It steals from you and feeds its habits, pretending when you have neither health nor strength. More than anything else, it needs help — treatment centers that, if you want, can get rid of the addiction to free money and allow prices to reflect the actual state of the U.S. economy and projected corporate profits.

Treatment, as we see it, is painful.that is Higher interest rates currently imposed by the Fed To quell food and fuel inflation and bloated financial assets. Cryptocurrencies, meme stocks, tech stocks and many others have recently crashed, exposing a toxic bubble that only free money can create and that rising interest rates can solve.

Now, the response to rising interest rates is poignantly exposing similar corruption within the banking system. In contrast to memetic stock-pumping retail traders, buttoned-down commercial bankers gambled wildly with commercial real estate and early-stage VC firms. They, too, are being crushed by higher interest rates as asset prices begin to wean away from their risk-on addiction.

More banks may fold

First Silicon Valley Bank, or SVB, and, at about the same time, Signature Banks succumbed to cold turkey. I’ve heard there are two dozen others. Both have very similar balance sheets to SVB and Signature. If things continue to get worse, they too are ready to fold and a sharp recession is guaranteed.

Again, this logic is not often seen in the stock market. In the stock market, he’s one of those silly giddy junkies who just made corrections as soon as they heard a rate cut was coming.

Thankfully, there are people on Wall Street who aren’t tall and can be trusted to speak frankly. Jamie Dimon of JP Morgan Larry Fink is head of money management giant BlackRock. Together they have nearly 100 years of risk management experience, and while D.C. folks fiddle with bromides about the strength of the banking system and stock traders drool about low interest rates, they ignore the noise. ing.

They know that stock traders are not the best barometers for the long-term health of the economy or the market itself. It’s more specific to the banking system than the stock market suggests. If we don’t get this right, we are headed for a wider collapse, a sharp recession, and a market crash.

save the first republic

One way they are doing this is probably to no avail, to save the First Republic Bank and finally sell. San Francisco-based former Rockstar Bank is no small fry. It has assets of over $200 billion. It targets wealthy people in technology and other major industries.

Unfortunately, it made some of the same terrible portfolio choices as SVB. That is, lending to businesses (tech and commercial real estate) that remain below the surface, resulting in a precarious deposit base that continues to pull out of accounts.

Dimon is trying to arrange a “club deal” to save the First Republic. That means selling after getting a commitment to put real capital into the bank (he recently crossed the $30 billion deposit injection). He and his subordinates are involved in private equity firms (former Treasury Secretary Steve Mnuchin, now he’s a PE banker), other banks, and possibly some like Warren Buffett and members of the Saudi royal family. I’m talking to the super-rich.

Meanwhile, Fink relays ideas to the White House on how to prevent the contagion from reaching epic proportions. This is just as successful as he was during the 2008 financial crisis, warning his contacts at DC that the crisis we may be facing is nothing like it. increase. Without government action, this would have plagued S&L decades ago.

So far, the White House doesn’t seem to take Fink’s word for it.Dimon’s Club deals and sales also seem to have stalled. As I first reported, bankers are considering subsidizing the federal government. It is capital in exchange for warrants that are repaid with a profit when the item is sold.

Yes, things can get pretty bad, so don’t trust addicts who trade stocks.