Three years ago, just as we were beginning the rally off the 2200SPX region when the "Covid Crash" came to an end, I began to outline my long-term expectations to the members of ElliottWaveTrader and The Market Pinball Wizard at Seeking Alpha.
Although my original expectation was that the market was going to exceed the 5000SPX region first, I began asking them to prepare for what I saw as an impending long-term bear market on the horizon.
So, many of our members began to ask me how they can prepare. One of the issues I told them that I foresaw was another financial crisis. While it may not be triggered through the housing market, I outlined that there were many issues on the horizon that were going to cause major challenges for the banks across the United States. Even more so, I foresaw major issues in some of the largest banks in the country.
This led me to begin to research how strong our banking sector was at its core. So, a little over two years ago, we partnered with Renaissance Research and began to look for some of the strongest banks we could find in the United States. And, to be honest, we did not think it would be as difficult as it was to come up with a top 15 strongest banks list.
In this process, one of our first actions was to come up with a methodology through which we could identify the stronger banks. And, we have published that methodology on Saferbankingresearch.com:
Then a little over a year ago, we opened the doors at saferbankingresearch.com in order to guide our clients as to some of the safest banks in which they could house their hard-earned money. And, over the course of the past year, we have written many public articles outlining the issues we see in many of the larger banks. Take note that most of the articles are prefaced with "Is Your Bank Safe?" Moreover, we began writing these articles well before this became the hot topic it is today, as we were trying to prepare you before the issues came to light.
In fact, several weeks before the SVB debacle became public, we warned that the main issue that brought SVB down was being overlooked by the Fed in its new stress test process.
As we outlined:
"Maturity mismatch is also being ignored
This is another major issue that is not being tested by the Fed. Many U.S. banks have a large maturity mismatch between their assets and liabilities. For example, in our recent article on Capital One, we showed that 84% of the bank's securities have maturities longer than 10 years. Capital One does not disclose the average maturity of its deposit book, which is a major part of its liabilities; however, it's highly likely that it is much less than 10 years, especially given that Capital One currently does not offer deposits with a term of more than five years. Such a maturity mismatch between the bank's assets and liabilities would likely lead to major liquidity issues in a volatile environment and be a significant risk for depositors."
Yet, this is just the tip of the iceberg. Even though we may move through this issue in the next couple of months, there are many more ticking time bombs hidden in plain sight on the balance sheets of the largest banks (not to mention the off-balance sheet issues).
What is most interesting is that this current banking debacle seems to be pushing money into the largest of the institutions, as they are seen as being the "safer" places to house your money. Yet, nothing could be further from the truth. This is truly a case of "out of the frying pan and into the fire."
Again, I strongly urge you to read our public articles linked above regarding some of the largest banks in the United States. Moreover, I strongly urge you to do your own due diligence as well. It is your hard-earned money, so it is your responsibility to make sure it is safe as possible for yourself and your loved ones.
While I cannot tell you the timing with which these issues will come to light, I will tell you that the FDIC will not be able to stem the tide once the avalanche begins in earnest. Rather, I think we will be seeing "bail-ins" imported to the shores of the United States.
If you would like to learn more about this issue, feel free to read this article we wrote back in 2016 when Goldman Sachs opened their doors to take the public deposit money:
I know many believe that the Dodd-Frank Act authorized "bail-ins." Yet, the only relevant section that I could find in the actual language of the law addressed the fact that they will no longer use "bail-outs" as was seen during the 2008 financial crisis. Therefore, I have seen no law yet authorizing "bail-ins." And when I ask those that believe it does authorize it to show me the chapter and verse of the law, no one has yet been able to point to the actual language in the law.
Even though there may not be applicable law on the books that clearly authorizes "bail-ins" yet, I am quite certain that, when faced with the necessity for that process, it will either be passed quite quickly, or the powers that will be fashion something that they claim fits the current statutory framework. So, do not fool yourselves. One way or another, it will be used in the United States.
As I urged my clients to begin preparing over a year ago, I sincerely hope that you do not shrug off what has been occurring of late in the banking industry. You need to begin to prepare yourself. This is only the tip of the iceberg. While you still have time to prepare, I strongly urge you to engage in deep due diligence regarding the banks which currently house your hard-earned money.
It's only a matter of time before the tsunami is coming. It's time to seek higher ground while you still can. As Ben Franklin once wisely noted, "by failing to prepare, you are preparing to fail."