While US Treasury Secretary, Janet Yellen, continues lying to our collective faces posturing that the US Banking system is safe, sober up and take note.
A recent academic study just revealed that one in four, or close to 1,200 US banks are now at risk of a Bank Run leading them to bankruptcy.
We'll get into the details of this important study shortly, but first a bit of a breakdown by Hugh Hendry last week, detailing how nearly instant ACH capital outflows from US Banks may end up causing a bank crisis larger than this country has ever had.
Wall Street On Parade writes, "The study focuses on unrealized losses on assets on the books of U.S. banks in a category called “held to maturity,” which under current accounting rules does not have to be marked to market, as well as unrealized losses on debt securities that also have not been marked to market, unless they are sold, for example, to raise cash to pay fleeing depositors. The professors find that “The U.S. banking system’s market value of those assets is $2.2 trillion lower than suggested by their book value of assets accounting for loan portfolios held to maturity.”
Then take into account the speed of the internet and falling bank stocks, the toxic combination allows fear to spread faster than ever before, and pulling one's cash via ACH outflows is merely a few clicks on the internet.
This building bank crisis is only starting.
But let's stop focusing on the small fry regional bank failures ahead, and rather focus on four bloated megabanks who on a real mark to market basis could also be bankrupt zombies waiting to be run on.
This academic study goes deeper to focus on the concentration of uninsured deposits in the US banking system, in which nearly 1/2 reside within G-SIBs like JP Morgan, Bank of America, Wells Fargo, and Citibank.
The study stated point blank, "Out of the 10 largest insolvent banks, 1 has assets above $1 Trillion, 3 have assets between $200 Billion and $1 Trillion, 3 have assets between $100 Billion and $200 Billion and the remaining 3 have assets between $50 Billion and $100 Billion.”
Wall Street on Parade stated they do not know which of the four mega banks the authors are referring to. We asked via email if they would identify the bank but they declined. Short sellers will, undoubtedly, drill down in the regulatory data filed by the four banks to determine the name of the bank in the study.
I got my guess, and of the four mega banks listed here, my belief is that before this US bank crisis ends, one of these supposedly too big to fail banks will no longer exist.
So where have much of the bank capital outflows been running to?
A building that will set on fire later on. Money Market funds broke the buck in the 2008 GFC, and the US Government Accountability Office cites that they were under massive pressure during Covid. When the next major liquidity spillover event hits, the time in which everyone and their brother is asking for their capital back. The SEC will be there allowing money market fund redemption gating (meaning only so much can be withdrawn so fast) and for a small redemption fee of course. Good luck.
This Bank failure cartoon was recently published by China Daily. A country I wouldn't put a dime of my capital inside given their lack of respect for the rule of law, property rights, legit accounting standards, transparency, and their lack of respect for human rights.
And while the Chinese banking system is an even worse mess and black box than the USA at the moment, this week there was some gold related Chinese bank system news which made headlines.
Apparently some Chinese banks are going to begin allowing regular fiat yuan savers to easily open up gold and precious metals wallets. What some overly excited onlookers think is the first step to gold monetization in China!
Well, call me a cynic and hold your China gold moon horses.
If you know anything about the Hong Kong and Chinese gold markets, you'ld know that mass paper gold accounts have existed there for decades. And paper gold accounts are often a function for spot price gamblers to take swings at short term price movements. They are not there for bullion redemption.
You can think of Asian paper gold accounts as unsecured Western ETFs like GLD, IAU, or SLV. Places where bullion buying capital goes to have a gamble at price action, while then only owning counterparty risks, and not owning physical bullion outright.
There are some big Chinese bank names involved in this report, including China Construction Bank and the Postal Savings Bank of China. The former being a G-SIB or Global Systemically important bank.
And reportedly gold and precious metal wallet savers will be allowed to take physical redemptions in the form of bullion.
Juxtapose that with our mega zombie banks who wouldn't dare talk with you about getting physical bullion unless perhaps you were a high net worth investor or institution and even then perhaps only if they could profit off and perhaps front run your trading plans.
Here in the western world Metals Focus does have a few authors who are based out of China.
And this week they point out that feedback from bank branches in China suggest that bullish price action in gold has prompted fresh interest from investors who might not traditionally buy gold bullion.
In other words, higher net worth Chinese are beginning to buy gold bullion. And the additional premium being paid on gold bullion in China over the last year compared to international spot prices reflects the sense of urgency of late in China to acquire physical gold bullion.
It also helps that the PBOC or Chinese central bank has publicly reported buying more official gold bullion over the past 6 months in a row, while the rest of the global central banks on net have been buying gold bullion since 2022 began in volumes not seen since before World War II.
So there, you have it. The US bank system has many, many more bank runs and failures to come. While China is buying bullion to the tune one of their megabanks is reportedly now beginning to offer gold savings accounts with immediate redemptions of the real physical precious thing.
This week in silver and gold spot price action we saw a large selloff in spot silver and steady sideways consolidation for spot gold in fiat Fed note terms.
The spot silver price closes this week at $24 oz, with a large selloff likely spurred on by supposedly lower price inflation data but really most likely algorithm trading switching from a net long silver positions to ones longer in gold, as we saw the spot gold silver ratio climb from the high 70s to now end the week at 84.
Take advantage of silver spot price weakness while it lasts.
This first one a look at general energy heavily weighted commodity values vs. stocks or equity valuations. Stocks are a rip off at the moment while commodities will have another raging secular bull market to come while stocks enjoy a prolonged bear market to nowhere but less in real value terms in time.
Speaking of time, this chart says what I just told you using gold as the measuring balance. The best precious commodity to use in trying to ascertain real value data over the long duration.
Well this S&P 500 US stocks / by the gold price chart shape and history suggests to me gold bullion owners will likely outperform the S&P 500 by more than 4 fold as this decade plays out into the next.
The good news is that polls illustrate that young people are increasingly understanding that both stocks and crypto currencies are often a rip off. And they are getting better clued into the long term value proposition that gold bullion offers at the moment.
Speaking of cryptos, Visual Capitalist had this interesting illustration of the carnage and failures in that market over the last decade.
According to CoinMarketCap there are approximately 9,600 cryptos left or at least those the deem worth supplying dynamic price data for.
I predict that the number of fatalities will surpass 9,000 as we proceed with Operation Central Bank, which aims to tarnish the reputation of the crypto currency markets and pave the way for the introduction of CBDC systems.
Between failing banks, and seemingly lawless crypto markets, large government central banks will be ready for citizens to begin holding direct CBDC accounts with them when the time is right.
Moving to the clown show that is the US fiscal and financial debt quagmire.
Thus far in 2023, deficits are exploding in sizes way larger than last year. Stop me if you think that trend is going to reverse anytime soon.
Interest on our rolling Federal Debt of near $32 trillion is now hitting almost $1 trillion per quarter. Good thing the US Treasury can tell the NY Fed to punch the silver laced keyboard 13 times, so we can always BRRR the deficits and pay the interest expenses. Of course, this nonsense won't last... but for now this is the criminal fiat financialized system we live in.
Finally to close, one of the world's best investors based on annual performance for decades running, Stan Druckenmiller gave a 40 minute discussion at the USC Business school and it was published and highly aggregated this week in headlines.
Stan stated the obvious, many many more bank bankruptcies and other corporate bankruptcies of all flavors and sizes are coming.
He reportedly stated he is in gold and silver right now with the caveat he can change his mind in a week or two.
He also hammered home a point he has been making since at least 2014, that forget the ballooning $32 trillion hard US Federal debt at the moment.
If we added the net present value of unfunded, unsaved for promise piles like social security, medicare, etc. This graphic would basically be 7-fold in size.
In real terms without a time machine or free abundant energy for all, the easiest way and the typical historical way to solve this is the fiat reserve currency high inflation real value loss release valve.
While easterners and especially eastern central banks know this, and they are acting on it as well, we all should be acquiring prudent bullion positions before it gets prohibitively more costly to do so.
That is all for this week's SD Bullion Market Update.
As always to you out there, take great care of yourselves and those you love.