The Day after First Republic Bank is taken over by JPMorgan
‘Merely a flesh wound’ - Monte Python
I find it be bewildering that after one of the largest bank takeover’s in history, the stock market seems to be fairly calm. Granted this is the week the Federal Reserve meets and most likely will raise Fed Funds Rate by 25 basis points, It still should not overshadow the fact that bank assets are still under water. Depositors are leaving their local and regional banks for money market accounts that pay better along with the federal reserve that continues to destroy that banking sector.
I know I’ve spent some time on this banking thing, but I do believe it is a significant warning sign of the state of the US financial system. Below is a chart of the asset values of banks as of the end of Q3 2022.
This totals $1 trillion dollar in losses if they where valued at mark to market. If you include US bankloan portfolios, you would find that at fair value, majority of the US banks are insolvent. As a customer at Regions Bank, which is a regional bank in the south, I am disturbed by the idea that one day I could walk up to one of my local branch and find out their doors are closed. The bigger is the stress that it puts on the FDIC insurance that we all depend on. At some point that fund runs out. With the idea that it could happen, I believe this is why you’re seeing so many large depositors move their moneys to money market accounts along with the fact they get paid higher yields.
For Subscribers, I hope this explains why my idea portfolio is allocated as it is. I do believe the Fed will raise interest rates 25 basis points this week. Janet Yellen‘s publicize statement about meeting the debt ceiling by June 1could cause markets to get really out of whack, very quickly as we enter the summer months and low trading volume.
Just remember this one fact. Sinkholes do not collapse from the top, but rather originate many layers below.