(Justin Vaughn, Editor, Options Trading Report)
In the aftermath of the bank failures, and as regulators dig deep, the reality of unacceptable bank practices emerge, poor leadership and extreme greediness. In the recent rash of failures, bank leaders in general lacked good qualifications, did not have basic skills and were unscrupulous, intent on ‘filling’ their pockets, and that of their ‘cronies.’ First Republic Bank is the epitome of every aspect ‘gone wrong.’ Led by its founder, it was surrounded by sons, daughters, relatives, and old-time cronies, all of whom were not qualified to transact banking policies. They were given carte-blanche authority, with no knowledge. As the founder led the way the bank suffered…with an unbelievably poor loan portfolio, and unacceptable investments- dragging the bank to failure. As the deception unfolded and massive withdrawals drained the bank, the FDIC rushed in closing down First Republic. Silicon Valley Bank, (SVB) suffered equally, with $210 billion in assets, and an unbelievable $16 billion in questionable loans, an unheard of ratio in the banking industry. Fortunately, both Janet Yellen, Treasury Secretary and Jerome Powell have suggested large depositors will ‘come out whole.’
U.S. stocks were up and down on Monday with some good news that North Carolina Citizens Bank was agreeing to purchase the bulk of SVB. Several large banks have offered monetary assistance and possible takeovers of both Signature and First Republic, softening the crisis and giving ‘solace’ to bank investors and traders. As the day progressed, and after all the maneuvering when the bank failures came to light, bank stocks showed some positive signs as most began to slowly recover, a process after digesting a week of negative announcements. The Senate Banking Committee will set hearings to discuss and analyze the recent bank failures. Michael Barr, Federal Reserve Vice Chair wrote in a note ahead of the proceedings on Monday that the “banks’ failure reeked of mismanagement.” He specifically mentioned the SVB failure and noted that the bank had a focus on the “Technology and Venture Capital Sector and Crypto areas, risky sectors.” The bank failures are a ‘black-eye’ for the banking industry, yet maybe…an eye-opener!
As the first quarter finalizes, the Nasdaq Composite is up a positive 12%, the S&P 500 is up 3% and the Dow Jones Industrial Average has fallen 2%, good numbers for the first quarter, much better than the previous pandemic infested years, with the indices falling double digits. Stocks were strong across the board Wednesday and Thursday as the banking debacle subsided even more, What was initially thought to be a major U.S. banking crisis, was contained to a few banks, and controlled. The indices reacted positively, staying even or slightly up. The tech-heavy Nasdaq Composite was reassuring with the strong rebound of the high techs, as investors and traders began churning again.
Gold is raising its ‘shining head’…again hitting $2,014.90 last week, its highest level since the start of the Russian Invasion of Ukraine. Uneasy investors, burdened with much negative news, the continuing banking crisis, inflationary complications and recession fears, are getting serious about investing in gold funds. Nearly $1.26 billion flowed into gold funds last week. “During periods of confidence being lost in the financial system or big draw-down periods, it tends to be when gold does best,” said Todd Jones, chief investment officer at Gratus Capital in Atlanta. As gold trends in the $1,950 to $2,000 range, and heavy buying continues, will the glittering metal slowly forge ahead?
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RUMBLINGS ON THE STREET
Ben Levisohn, Writer of this week’s UP & DOWN WALL STREET, in Barron’s “The percentage of U.S. government debt held by foreigners has fallen to 29.3% from 39.2% at the end of 2019. Gold has been a beneficiary–central banks bought about $70 billion, or 1,136 metric tons of gold in 2022, according to the World Gold Council–and it’s one that investors, in or outside the U.S., might want to look at. Gold has had a great start to the year.”
Janet Yellen, hm Treasury Secretary, in congressional testimony, Barron’s “I have not discussed or considered anything having to do with blanket insurance or guarantees of all deposits.”
Oliver Chen, Senior Equity Research Analyst, TD Cowen, Barron’s “We are seeing consumers return to pre pandemic behaviors–things we were talking about 10 years ago, such as shopping close to need, shopping during events, looking for promotions. The problem, which has been consistent but sequentially improving, is that inventories can’t adjust that fast. Also, when stimulus dollars were flowing, consumers weren’t that price–sensitive because they had money in their pockets. Now the sensitivity has increased.”
Rep. Josh Gottheiner (Dem. N.J.) a member of the house Intelligence Committee, who has long advocated for a ban or sale of TikTok, WSJ “There’s a groundswell of support for this, from Americans and elected officials on both sides of the aisle, as we see that this one app gives the (Chinese Communist Party) the ability to control what a generation of kids see and consume, “ said Rep. Gottheimer