Eye of the Hurricane (2023 Bank Crisis)

• Eye of the hurricane (2023 bank crisis)
• Shock Fed hike looks likely
• Build back better? With stone and bamboo
• The U.K.’s dash for cash
• Elon Musk: Scapegoat

Eye of the Hurricane (2023 Bank Crisis)

But… but… they said the 2023 bank crisis was over.

“I urge you to take strong action to address the alarming fallout from high interest rates and protect the safety of our financial system,” writes Sen. Elizabeth Warren (D-Massachusetts) in a letter to Treasury Secretary Janet Yellen. [Emphasis ours]

“In the letter,” says a CNBC story, “Warren argues that the rising rates helped trigger three market shifts that are now threatening the banking system: a decline in the value of banks’ bond portfolios, losses in commercial real estate and losses in the leveraged lending market.”

We have no love for Sen. Warren in these parts — but here she’s more astute than Secretary Yellen, who said infamously in 2017 that another 2008-level financial crisis was unlikely to occur “in our lifetimes.”

None of these “shifts” threatening the banks should come as a surprise if you’ve been keeping up with these daily bullets.

Just last week, for instance, we told you about academic research that found as many as three-quarters of U.S. banks may be doing the same stupid thing that ultimately took down Silicon Valley Bank in March.

That is, they’re exposed to losses in their bond holdings even though it would be trivially easy to hedge that risk with interest-rate swaps. But those hedges would cut into the banks’ precious profit margins — so they don’t do it. “Classic gambling” is how the researchers describe what’s happening.

Silicon Valley was the first of three banks to go down this past spring — along with Signature Bank and First Republic. Together, they make up the second-, third- and fourth-largest bank failures in U.S history, all in the space of less than two months.

The biggest, you wonder? Washington Mutual — in the fateful year of 2008.

Lehman Bros., you wonder? Lehman was an investment bank; here we’re talking only about commercial banks with FDIC-insured deposits.

But Lehman is appropriate to bring up today: “We find ourselves in the midst of yet another ‘Lehman’ moment,” warns Paradigm’s Jim Rickards.

“In 2008, I warned a senior member of Congress that a bomb was about to explode in the U.S. economy. Three weeks later, on Sept. 15, Lehman Bros. filed for bankruptcy — and the banking system imploded.”

The mechanics of the crisis this time will be different — but the potential impact is just as serious. Which brings us to another one of the three risks enumerated by Sen. Warren…

Banks are on track to lose up to $250 billion just on bad loans for office space.

That’s the assessment of Kyle Bass, the Texas-based hedge fund manager who anticipated and profited off the 2008 meltdown in subprime mortgages.

He says conventional wisdom is vastly underestimating the impact that the post-2020 work-from-home trend is having on demand for downtown office towers.

“Banks in the US will lose $200 billion, $250 billion in office over time here,” Bass told Bloomberg TV this week. “And there’s about $2 trillion of equity in the banks so it’s like a 10% hit to U.S. banking equity.”

When it comes to the bank crisis of 2023, we’re in the eye of the hurricane right now — with the “dirty” side of the storm soon to hit full-bore.

As Jim Rickards has reminded us these last several months, major financial storms have an eye — a quiet period in the midst of the turmoil, with the worst yet to come.

“The financial crisis in 1997–1998 had a quiet period in the winter of 1998,” he says. “The financial crisis of 2007–2009 had two quiet periods — one in the late fall of 2007, and another in the late summer of 2008.

“Both crises reemerged with even worse consequences after these quiet periods ran their course (after about four months in 1998 and 2007, and only one month in 2008).

Reminder: The first phase of this crisis wound down in early May with First Republic. We’re at 4½ months now.

Thus, “we should expect the current banking crisis to reemerge soon,” Jim says — with failures among non-too-big-to-fail banks with total assets in the $100–500 billion range and high ratios of uninsured-to-total deposits.”

Which banks are those?

Tonight at 7:00 p.m. EDT Jim is convening a live Zoom call where he’ll furnish a sneak-peek list of banks at the critical level for going under in the coming weeks. You’ll learn…

• The exact reason why these banks are at risk...
• The names of some of these banks (due to the timing and variables at hand, this list is pending)...
• The exact steps you should take to protect you and your family.

“Not only will you learn how to protect yourself,” Jim promises, “but how you stand to make a potential fortune from these kinds of crisis moments that you’ll never see in a ‘normal’ market.

The live Zoom call gets underway tonight at 7:00 p.m. EDT. We still have available spaces as we write — but with less than six hours to go before the event, they’re filling up quickly.

It takes only 10 seconds to register: Here’s the link on Zoom’s website.

The Markets Today: Shock Fed Hike Looks More Likely

Jim Rickards’ totally out-there call that the Federal Reserve will raise interest rates next week? The day’s economic numbers are making it look a little less fringe-y.

To recap: The overwhelming Wall Street consensus is that the Fed will leave rates alone next Wednesday. But Jim is going against the grain big-time — certain that the Fed will jack rates up again to cool the economy and try to keep a lid on inflation.

We got three significant economic numbers this morning. And across the board, they came in hotter than expected…

• First-time jobless claims: Only 220,000 in the week gone by. The four-week average is at its lowest level in six months. By this measure at least, the labor market is still tight

• Wholesale inflation: Up 0.7% from July to August. Among dozens of Wall Street economists polled by Econoday, no one expected a number this high

• Retail sales: Up 0.6% from July to August — triple the consensus Wall Street guess. If you back out auto sales (because they’re volatile month-to-month) and gasoline sales (rising gas prices will skew the number), you still end up with a hotter-than-expected 0.2% jump.

But for the moment, Wall Street couldn’t care less: The buzz is all about the IPO of Arm Holdings, the British designer of semiconductors.

Arm traded publicly in the past, and with great success; in fact, it was Paradigm tech specialist Ray Blanco’s first recommendation to readers in 2010. Then it went private in 2016. Now it’s going public again today on the Nasdaq — at $51 a share. Trading opened just after noontime at $56.10.

Whether it’s the Arm buzz or something else, the major U.S. averages are all solidly in the green: The S&P 500 is up nearly three-quarters of a percent, within a hair’s breadth of 4,500 again.

Meanwhile, no progress to report on the United Auto Workers’ dispute with the Detroit automakers, with a contract deadline looming tonight. UAW president Shawn Fain confirmed plans to strike at factories here and there, rather than everyone all at once.

Precious metals are treading water, gold at $1,909 and silver at $22.65.

Crude has pushed over $90 a barrel — another high last seen in November 2022. Credit where it’s due: This is the level Paradigm trading pro Alan Knuckman forecast during an interview with Fox Business back on Aug. 7.

The move has been impressive, for sure — up $12 a barrel in three weeks even though the U.S. dollar has been strengthening against other major currencies most of that time.

If $90 can hold, look for $100 before year-end.

Build Back Better — with Stone and Bamboo

In case you had any doubts that the climate change hustlers are out to wreck your first-world lifestyle… a new United Nations report should be a real eye-opener.

When you think about it, the foundation of that first-world lifestyle is steel and concrete — the very materials the UN report says must be curbed to halt global warming, er, global boiling I guess they call it now.

The report was prepared by the UN Environment Program along with the Yale Center for Ecosystems + Architecture along with the Global Alliance for Buildings and Construction.

“Until recently,” says the UN’s Sheila Aggarwal-Khan, “most buildings were constructed using locally sourced earth, stone, timber and bamboo. Yet modern materials such as concrete and steel often give only the illusion of durability, usually ending up in landfills and contributing to the growing climate crisis.”

Solution? “Shift to ethically and sustainably sourced renewable bio-based building materials, including timber, bamboo and biomass,” says the press release accompanying the report.

“Government regulation and enforcement is also required across all phases of the building life cycle — from extraction through end-of-use — to ensure transparency in labelling, effective international building codes and certification schemes.”

Once more, the smiley-face on the transition to “green energy” has come off to reveal the scowl of tyranny beneath. You expect a seamless transition to electric vehicles powered by solar and wind? Forget it. As we documented again in July, the best case involves driving less and turning down the thermostat. The worst case entails a 30% reduction in your daily caloric intake and a family of four confined to a living space of 640 square feet.

And now it seems that dwelling is supposed to be built with stone and bamboo…

The U.K.’s Dash for Cash

We pause in what’s too often a dirge of doom for what might be good news.

“Cash payments increased in the U.K. for the first time in a decade last year,” reports the Financial Times. The volume of cash payments grew 7% during 2022.

From where we sit, more cash equals more privacy — and more potential pushback against the introduction of a CBDC, a central bank digital currency.

Granted, that’s not the motivation for the upsurge in cash — and in fact, debit card payments grew faster. Instead, “It’s something we do tend to see in times of falling consumer confidence and economic uncertainty,” says Adrian Buckle, UK Finance head of research. “We saw this in 2008.”

We were already onto the trend in the summer of last year, when cash withdrawals and deposits at British post offices registered a noticeable uptick. Cash is a reliable way to budget during tight times: “People will be taking out cash and physically putting it into pots, saying ‘this is what I have for bills, this is what I have for food and this is what’s left,’” said Natalie Ceeney of a pro-cash organization called Cash Action Group.

And as we mentioned this year, it’s caught on stateside among Gen Z. As of last May, the hashtag #cashstuffing has had 1.1 billion views on TikTok.

Elon Musk, Scapegoat

Time for some unfinished business from the mailbag…

“I read a report,” a reader wrote a few days ago, “that Elon Musk had shut down Ukrainian access to his Starlink satellites upon learning that Ukraine (or the CIA?) had launched a massive underwater explosive-laden drone attack against the Russian naval fleet off Crimea.

“Not wanting to potentially start a nuclear conflict, Musk said ‘no more.’ Starlink was designed for communication like Netflix, etc.

“Makes damn good sense in my opinion — but then the Biden administration sics the Justice Department on SpaceX over trumped up employment charges?

“The worm turns.”

Dave responds: Well, as we’ve chronicled since at least 2020, there’s any number of things Musk has done over time to offend the powers that be. Hard to draw a straight line between Starlink and the Justice Department lawsuit.

But the reaction to the Starlink revelation — it turns up in the new Walter Isaacson biography — has been positively unhinged. MSNBC host Rachel Maddow said Musk was “intervening to try to stop Ukraine from winning the war.”

“Congress needs to investigate what’s happened here,” tut-tutted the aforementioned Sen. Elizabeth Warren, “and whether we have adequate tools to make sure foreign policy is conducted by the government and not by one billionaire.”

For one thing — and Isaacson himself has acknowledged this point — Starlink had never been activated over Crimea because doing so would have run afoul of U.S. sanctions against Russia. The Ukrainian government asked Musk to take the provocative step of activating Starlink over Crimea. Musk has subsequently said if the request came from the White House, he would have gone along.

“The frenzy of attacks on Elon illustrates how no good deed goes unpunished,” writes David Sacks — who along with Musk belonged to the “PayPal mafia” in that company’s early days.

“He originally provided Starlink to the Ukrainians as an act of charity. There was never a contract and they weren’t formally a customer, just a recipient of free aid that Elon volunteered. Had he not done that, there would be no controversy today.”

Sacks points out that with Ukraine’s vaunted summer counteroffensive having failed to achieve its aims, the Beltway crowd is looking for a scapegoat.

“A new culprit must be found to shift the blame for the foolish plan to run tanks into minefields and to throw human waves at prepared defenses with no air support or element of surprise. Most importantly, the scapegoat must be someone that neocons and the MSM can agree to hate and vilify.

“Elon Musk fits the bill nicely.”

Best regards,

 

 

 

 

Dave Gonigam
Managing editor, Paradigm Pressroom's 5 Bullets