Beware the Sting in the Tail

Banking Crisis Is Back [The Daily Reckoning] June 05, 2024 [WEBSITE]( | [UNSUBSCRIBE]( Urgent Apple Announcement [James] On June 10, Apple is due for their biggest product launch of the past 40 years… where they'll announce their breakthrough product in artificial intelligence. A product that will affect the everyday consumer’s life more than any company to date… That’s why James Altucher is hosting a live event this Thursday, June 6 at 7:15 p.m. (ET)... He’s going to pull back the curtain on Apple’s AI reveal and give you all the details you need to target a 1,000% opportunity in the next year. [Click here to reserve your spot NOW for Thursday, June 6th at 7:15pm (ET)]( Clicking the link above automatically registers you for Apple’s 10X AI Announcement. By reserving your spot, you will receive event updates and offers. We will not share your email address with anyone. And you can opt-out at any time. [Privacy Policy.]( Beware the Sting in the Tail Annapolis, Maryland [Brian Maher] BRIAN MAHER Dear Reader, Beware the sting in the tail. In the context of today’s reckoning, beware the sting in the banking tail. Beginning March last year, the banking system absorbed a substantial clout. A score of regional banks sank to their knees… and plunged into receivership. By way of background: Their portfolios were loaded through with long-term Treasury bonds. The banks purchased these “safe” bonds in a period of severely depressed interest rates. In such a period as that bonds maintain an elevated value. They are lovely jewels. That is because bond prices and interest rates exist in antagonism… as the polar ends of the seesaw exist in antagonism. When interest rates take to the downswing bond prices take to the upswing. When interest rates take to the upswing bond prices take to the downswing. Thus these bonds represented beautiful portfolio assets in the period of severely depressed interest rates. These banks expected this period of severely depressed interest rates to run and run. Yet this period of severely depressed interest rates did not run and run. As inflationary prairie fires began fanning in 2022 the Federal Reserve unfurled the fire hoses and commenced a heroic firefighting operation. It got good water on the flames — flames which the Federal Reserve itself helped kindle. It undertook the most aggressive and dizzying interest rate raisings ever. In March 2022 the Federal Reserve’s target rate guttered along between 0.25% and 0.50%. Within 14 months the Federal Reserve’s target rate scraped the sky between 5% and 5.25%. Today it dangles between 5.25% and 5.50%. Thus the bonds that were oaken assets in the period of severely depressed interest rates… turned to sawdust assets in the period of rapidly elevating interest rates. Hence the subsequent unpleasantries. The regulatory authorities engineered a rescue to halt the contagion. Yet Jim Rickards warned the virus would break the cordon. He climbed upon his rooftop and shouted it would propagate in successive phases: Investors are relaxed because they believe the banking crisis is over. That’s a huge mistake. History shows that major financial crises unfold in stages and have a quiet period between the initial stage and the critical stage. Is the banking crisis entering the critical stage? Reports the heralded Kobeissi Letter: Unrealized losses on investment securities for banks jumped to $517 BILLION in Q1 2024. This is $39 billion higher than the $478 billion recorded in Q4 2023… Q1 2024 also marked the 10th consecutive quarter of unrealized losses, an even longer streak than during the 2008 Financial Crisis. As “higher for longer” (interest rates) returns, unrealized losses are likely to continue rising. Did the banking crisis ever really end? It has not ended — evidently. Thus the Federal Deposit Insurance Corporation chews its fingernails… and warns that 63 lenders verge upon the condition of bankruptcy. And so the Federal Reserve is crammed into a pickle jar. It is aware of the banking wobbles. They inform Mr. Powell and his fellows that they must dial the liquidity faucets rightward — that is, to the open position. Yet they have failed to cage the inflationary impulses they themselves set forth. They have gotten their hands upon inflation’s shirt. They have maneuvered it backwards. Yet they have failed to get it under lock and key, to reincarcerate the thing. They therefore hesitate to loosen up. A gorgeous conundrum! As reports the American Enterprise Institute: In 2021, the Fed chose to ignore the markedly expansionary fiscal policy stance when it kept flooding the market with liquidity. The net result was a surge in inflation by June 2022 to a multidecade high of over 9%. Today, it seems to be making the opposite mistake of keeping monetary policy tight on the eve of a banking crisis... Unfortunately, this raises the risk of a hard economic landing within the next year or so. Beware the sting in the tail… Below, Jim Rickards shows you why we’re confronting Stage II of the banking crisis. Read on. Regards, [Brian Maher] Brian Maher Managing Editor, The Daily Reckoning [feedback@dailyreckoning.com.](mailto:feedback@dailyreckoning.com) Editor’s note: This is a bit off topic. But it’s such a potentially big story, we feel compelled to bring it to your attention. In just five days from now, on June 10... Apple is due for their [biggest product launch of the past 40 years.]( Bigger than the iPod… the MacBook… and even the iPhone. This launch is set to unlock trillions. Because Apple is set to announce their breakthrough product in artificial intelligence. A product that will affect the everyday consumer’s life more than any company to date. And anyone privy to these insider details prior to Apple’s big launch could be set to [profit 10X over the next 12 months.]( That’s why AI wiz James Altucher is hosting a live event tomorrow, June 6 at 7:15 p.m. (ET). James will pull back the curtain on Apple’s AI reveal and give you all the details you need to target a 1,000% opportunity in the next year. [Go here for details.]( Clicking the link above automatically registers you for Apple’s 10X AI Announcement. By reserving your spot, you will receive event updates and offers. We will not share your email address with anyone. And you can opt-out at any time. [Privacy Policy](. [< New Intel > Strange and Powerful AI Project Revealed]( Jim Rickards was recently passed some urgent new intelligence involving a $10 million A.I. project… That could have a massive and direct impact on your life. Everything you need to know is in this 2-minute AI briefing. [Click Here To Play His Urgent Message Now]( The Daily Reckoning Presents: “It seems that the quiet period is over and we are entering Stage II of the banking meltdown”… ****************************** Banking Crisis, Stage Two By Jim Rickards [Jim Rickards] JIM RICKARDS I’m sure you recall the banking crisis of March to May 2023. It began with the collapse of the little-known Silvergate Bank on March 8. This was followed the next day by the collapse of the much larger Silicon Valley Bank (SVB) on March 9. SVB had over $120 billion in uninsured deposits. Bank deposits over $250,000 each are not covered by FDIC insurance. Those depositors stood to lose all their money over the insured amount. This would have led to the collapse of hundreds of startup tech businesses in Silicon Valley that had placed their working capital on deposit at SVB. There were also much larger businesses such as Cisco and at least one large cryptocurrency exchange that had billions of dollars on deposit there. Those businesses would have taken huge write-downs based on the size of their uninsured deposits. On March 9, the FDIC said that indeed the excess deposits were uninsured, and depositors would get “receivership certificates” of uncertain value and zero liquidity instead. By March 11, the FDIC reversed course and said all deposits would be insured. The Federal Reserve intervened and said they would take any U.S. Treasury securities from member banks in exchange for par value in cash even if the bonds were only worth 80% of par (which most were). The Mother of All Bailouts That Sunday night they also closed Signature Bank, a New York-based bank with crypto links. The damage wasn’t done. On March 19, the Swiss National Bank forced a merge of UBS and Credit Suisse, one of the largest banks in the world. Credit Suisse was on the edge of insolvency. Finally, on May 1, First Republic Bank, with over $225 billion in assets, was ordered closed by the government and sold to JPMorgan. It was the mother of all bailouts and seemed to leave stock market investors unfazed. The issue was, and is: Once you’ve guaranteed every deposit and agreed to finance every bond at par value, what’s left in your bag of tricks? What can you do in the next crisis that you haven’t already done — except nationalize the banks? After five bank failures in two months and a trillion-dollar bailout by the government, the crisis seemed over. But that was false comfort. I wrote at the time that the crisis wasn’t over, that it was just halftime. Investors are relaxed because they believe the banking crisis is over. That’s a huge mistake. History shows that major financial crises unfold in stages and have a quiet period between the initial stage and the critical stage. When Slow-Motion Crisis Turns Real-Time This happened in 1994 when the spring bond market massacre seemed contained in the summer only to explode into the Mexican Tequila Crisis in December. It happened in 1997–98 when the Asian financial crisis calmed down in the winter of 1998 only to explode into the Russia-LTCM crisis the following August and September. It happened during the Global Financial Crisis when the original distress in August 2007 that seemed contained was followed by the failures of Bear Stearns, Fannie Mae, Freddie Mac and Lehman Bros. from March to September 2008. [Offer Pending: Please confirm your address…]( Your name is on a list of people eligible to claim the [“most dangerous book in America.”]( We with only 500 copies left, we may run out of stock soon. So, here’s how to claim your copy: - [Click this link to watch Jim's short message.]( - Review your account information. - Confirm you’d like to accept Jim’s offer. And I’ll get your copy of the most dangerous book in the mail right away. [Click Here To Learn How To Claim Your Copy]( The average duration of these financial crises is about 20 months. This new crisis began 15 months ago. It could have five more months to run, if not longer. On the other hand, this crisis could reach the acute stage faster. That’s because of technology that makes a bank run move at the speed of light. With an iPhone you can initiate a $1 billion wire transfer from a failing bank while you’re waiting in line at McDonald’s. No need to line up around the block in the rain waiting your turn. In other words, the second stage of the crisis could erupt in even more dramatic fashion sooner than later. This slow-motion crisis can become a real-time crisis very quickly. The Dollar Itself Is at Stake In addition, the regulatory response is faster because they’ve seen this movie before. That begs the question of whether regulators are out of bullets because they’ve already guaranteed almost everything so they don’t have more rabbits to pull out of the hat. This could be the crisis where the panic moves from the banks to the dollar itself. If savers lose confidence in the Fed (we’re almost there) not only will the banks collapse, but the dollar will collapse also. At that point, the only solution is gold bullion. It’s also important to distinguish between individual bank failures and a systemic banking crisis. When individual banks fail, the depositors and creditors are usually protected but stockholders can get wiped out. In a systemic banking crisis, the contagion goes from bank to bank quickly, and the entire system has to be rescued with some combination of blanket deposit guarantees and unlimited QE. In the worst case, you either have to shut the banks (which FDR did in 1933) or nationalize them which some countries have done from time to time. Is Stage II Here? Either a single bank failure or a systemic crisis could happen at any moment. The actual trigger is a bit mysterious and mostly psychological because the fundamental problems have been there all along. Well, it seems that the quiet period is over and we are entering Stage II of the banking meltdown. According to the latest data from the FDIC, many banks could be at risk of failure as unrealized losses reached $517 billion in the first quarter of 2024, up from $478 billion in the last quarter of 2023. 40 banks with over $1 billion in assets have already reported unrealized losses higher than 50% of their equity capital. Over 200 smaller banks with lesser assets have issued the same reports. The bottom line is Stage II of the crisis is here, and the effects will be devastating to financial institutions and the stock market as a whole. We may not be able to prevent the crisis, but we can see it coming and prepare accordingly to preserve our wealth. Step one is to get gold. That will see you through the storm. Regards, Jim Rickards for The Daily Reckoning [feedback@dailyreckoning.com.](mailto:feedback@dailyreckoning.com) Ed. note: This is a bit off topic. But it’s such a potentially big story, we feel compelled to bring it to your attention. In just five days from now, on June 10... Apple is due for their [biggest product launch of the past 40 years.]( Bigger than the iPod… the Macbook… and even the iPhone. This launch is set to unlock trillions. Because Apple is set to announce their breakthrough product in artificial intelligence. A product that will affect the everyday consumer’s life more than any company to date. And anyone privy to these insider details prior to Apple’s big launch could be set to [profit 10x over the next 12 months.]( That’s why AI wiz James Altucher is hosting a live event tomorrow, June 6 at 7:15 p.m. (ET). James will pull back the curtain on Apple’s AI reveal and give you all the details you need to target a 1,000% opportunity in the next year. [Go here for details.]( Clicking the link above automatically registers you for Apple’s 10X AI Announcement. By reserving your spot, you will receive event updates and offers. We will not share your email address with anyone. And you can opt-out at any time. [Privacy Policy](. Thank you for reading The Daily Reckoning! We greatly value your questions and comments. Please send all feedback to [feedback@dailyreckoning.com.](mailto:feedback@dailyreckoning.com) [Brian Maher] [Brian Maher]( is the Daily Reckoning's Managing Editor. Before signing on to Agora Financial, he was an independent researcher and writer who covered economics, politics and international affairs. His work has appeared in the Asia Times and other news outlets around the world. He holds a Master's degree in Defense & Strategic Studies. --------------------------------------------------------------- [Jim Rickards] [James G. Rickards]( is the editor of Strategic Intelligence. He is an American lawyer, economist, and investment banker with 35 years of experience working in capital markets on Wall Street. 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