A piece of breaking news like this one should have sent markets into panic mode: “China Weighs Injecting $142 Billion of Capital Into Top Banks“. However, due to a boiling frog syndrome that is trapping the vast majority of the public, both retail and professional, no one is feeling the water temperature rising.
We have had plenty of signs so far that something was very wrong not only in the economy, despite public agencies’ best efforts to hide it behind politically seasonally adjusted data (“THE PROOF THAT THE US BLS IS MAKING UP NUMBERS OUT OF THIN AIR“), but also in the financial system:
- IS THE MARKET PRICING A FED CUT OR IS A NEW BANKING CRISIS ABOUT TO SPARK AGAIN?
- THE US YIELD CURVE IS SCREAMING “DANGER!” AND ONCE AGAIN NOBODY IS LISTENING
- IS WARREN BUFFETT STARTING TO BE WORRIED ABOUT BANK OF AMERICA’S SOLVENCY?
The vast majority decided to take no precautions because when “everything is awesome” you will be considered a fool to stay out of such a great market (“WE HAVE NO ALTERNATIVE BUT TO RIDE STOCKS UNTIL THEY RUN”). What’s going to happen now?
First of all, you will see a sudden increase in scrutiny of financial institution books, something I did and repeated multiple times already when nobody cared (“WHICH BANKS ARE AT RISK OF GOING BUST IN A LIQUIDITY CRISIS? – EPISODE 2“) and in the process we already spotted banks being in very tough waters:
- NORINCHUKIN BANK CHAOS CAN TRIGGER AT ANY MOMENT
- NOT ONLY IS NORINCHUKIN ABOUT TO LIVE THROUGH THE 2008 NIGHTMARE AGAIN, BUT MANY JAPANESE BANKS ARE IN THE SAME SITUATION
- UBS’ GAMES OF SMOKE AND MIRRORS TO HIDE ITS GIANT PROBLEMS
- UBS Q1-24 RESULTS REVIEW – THE “LA LA LAND” BANK
- IS $NYCB THE CANARY IN THE $UBS COAL MINE?
- GOLDMAN SACHS Q2-24: WHAT A (RIDICULOUS) FAIRY TALE
- IS HSBC CEO “UNEXPECTEDLY” LEAVING BECAUSE THE BANK WON’T BE ABLE TO HIDE ITS PROBLEMS FOR MUCH LONGER?
- WELLS FARGO – A CASE OF TOO MUCH WINDOW DRESSING AND TOO LITTLE COLLATERAL?
- MEANWHILE STOCKS ENJOY THE HEAVENS, BANKS ARE GOING THROUGH HELL
- WITHOUT THE FED BTFP, BANKS WILL NOW HAVE A HARDER TIME TO “HIDE TILL MATURITY” THEIR LOSSES
That banks were in horrible shape wasn’t a mystery to anyone since (disappointed and distressed) bankers have been sharing their frustration for so long now, but nobody was listening to them, preferring the cheerful words of the executives bragging about fudged financial statements:
- WHAT BULL MARKET? ALL-TIME HIGH DESPAIR AMONG BANKERS
- GET READY, INSIDERS TOLD ME A HORRIBLE BANKS’ EARNINGS SEASON IS ABOUT TO BEGIN
- EVERYONE IN UBS IS LOOKING FOR A LIFEBOAT TO ESCAPE THE SINKING TITANIC
Don’t worry though, since Central Banks have your back and they don’t even pretend to hide it anymore: “WHAT IF BANKS ARE COORDINATING WITH THE FED TO LIQUIDATE TENS OF BILLIONS OF TROUBLED JPY CARRY TRADE POSITIONS?“. There is a “small” problem though: for the very first time in history, Central Banks themselves are insolvent, and it’s hidden in plain sight on their balance sheets: “HOW CAN THE #FED BAILOUT BANKS WHEN THIS TIME IT NEEDS A BAILOUT ITSELF TO BEGIN WITH?“. Mark my words, more and more people are starting to figure this out, escaping from the boiling frog syndrome, and when enough people do, it will be very hard to absorb the amount of selling that is going to hit markets, particularly stocks.
The third important aspect is that, while everyone may think that even if central banks fail, the governments will be able to step in and bail out everyone again as it happened in 2008 or 2020, I’m afraid this is not the case anymore: “FINANCIAL MARKETS REACHED A “SINGULARITY” NO ONE WANTS TO DEAL WITH“. As a matter of fact, governments and central banks are trapped in a vicious circle that makes them dependent on each other:
- One side needs the government to pick up the bill to repay for its capital deficit (aka insolvency)
- The other side needs central banks to keep monetizing their deficit spending because the population cannot support a higher level of taxation paired with draconian spending cuts that are what’s really needed to break the vicious circle.
Where is all this leading to? Simple answer: “FED ACTION TODAY MARKS THE BEGINNING OF THE END OF THE FIAT MONETARY SYSTEM EXPERIMENT“.
When will everything unfold? No one can time the market and be careful to listen to whom pretends to do it. From the holistic analysis I put together several days ago a potential answer is Q1-25 but, again, this is as reliable as holding a finger in the air considering how many moving parts are at play and how incredibly complex today’s market is (“HOW LONG WILL THIS BUBBLE LAST? IT LOOKS LIKE TILL Q1-2025“)
Again, don’t worry though, there is always an end to every tunnel, and even if we are heading through tough times, if you act correctly, what comes next is a lifetime opportunity to build unbelievable wealth both in stocks (“THE FORGOTTEN LESSON FROM EVERY CRASH SINCE 1929: BE A BUYER WHEN THERE IS NO HOPE LEFT IN MARKETS“) and eventually even in crypto. For the latter, the biggest asset manager in the world has been preparing for it already (“IS THIS BLACKROCK’S MASTER PLAN FOR BITCOIN?“).
I hope this article has been helpful to truly understand what’s really going on and you take the right precautions ahead of time.