The Bottom Line for Investors on the Bank Failures

By TradeSmith Research Team

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When the price of just about everything goes haywire — as it has lately — how do you decide whether to buy… sell… or hold?

Or more importantly, now that Silvergate, Signature Bank, and Silicon Valley Bank have shut down…

  1. What does this mean for the economy?
  2. And does it present any specific, investable opportunities?
In today’s TradeSmith Daily, Senior Analyst Mike Burnick, Quantum Edge Pro Editor Jason Bodner, and Senior Crypto Analyst Joe Shew take on these big questions at the top of every investor’s mind.

What Just Happened? Is This 2008 All Over Again?

“From a financial standpoint, it doesn’t get more dramatic or anxiety-producing than having your money in a bank and finding out that bank has gone under,” Jason notes. However: “This is not the tip of the iceberg that’s about to develop into a full-blown crisis.”

Mike Burnick agrees. “What’s going on today is nowhere near as serious as 2008,” he wrote to his Dividends on Demand subscribers. “Today, banks are much stronger and better capitalized precisely because of the fallout from 2008.”

“In 2008 it took regulators months before making what should have been obvious moves to shore up the banking system. By that time, a crisis of confidence in banks had already taken hold,” he continues in Dividends on Demand.

This time, the Federal Reserve quickly announced a new “Bank Term Funding Program,” with the Treasury Department pledging up to $25 billion to make sure any other struggling banks can “meet the needs of all their depositors.”

Key word: “depositors” — not shareholders, or executives.

This isn’t bailing out bank CEOs and letting them reward themselves with huge bonuses.

Again… It’s different this time.

Silicon Valley Bank “invested heavily in U.S. Treasuries, which have been falling as interest rates have risen. Newer bonds carry higher rates, so older bonds are worth less. To raise money to meet withdrawals, the bank had to sell older Treasury bonds at losses,” Jason explains in his new free newsletter, Power Trends.

“To be fair, though, Treasuries are historically ‘the safest’ securities, and deposits kept simply in cash were getting roasted by inflation to the tune of 8% a year. This isn’t the kind of reckless and unscrupulous behavior that contributed to so many bank failures in the 2008 crisis. The bank was between a rock and a hard place and reached a breaking point. That breaking point has to get the Fed’s attention, and I see no other option beyond easing up on rate increases,” Bodner concludes in Power Trends

“I can guarantee you (as much as anything can be guaranteed in life) that the Fed does not want to fight inflation at the expense of our financial system. That is a losing proposition no matter how you slice it.”

Jason predicts that there will be rate cuts in 2024, but we all still have to wait to see what happens next week after the Fed meets.

According to the CME FedWatch Tool, these are the odds of a rate hike as of this writing:

Where Should Investors Turn Next?

Is it open season on regional bank stocks – whose stock prices were getting slashed up in the immediate aftermath but now have the Federal Reserve and the U.S. Treasury riding to the rescue?

Not quite, say our analysts.

“It’s too soon to even consider wading into this mess,” Mike writes in Dividends on Demand. “Banks that took big risks lending against cryptocurrency or catering exclusively to venture capitalists should fail,” Mike declares…

“Meanwhile, large, healthy, well-capitalized banks should be fine,” as the Fed considers them too big to fail anyway. And this is where Mike turned for his latest option trade for Dividends on Demand (learn more about Dividends on Demand here).

Jason concurs that “shares of the ‘best’ companies will continue to be high performers… These are the stocks with superior fundamentals, strong technicals, and lots of big money flowing in.” Tech and consumer discretionary stocks are the ones Bodner has his eye on for his subscriber portfolios.

But it’s not just stocks you can apply these criteria to anymore.

Joe Shew notes that Bitcoin (BTC), alongside gold, has run higher since the Fed injected fresh liquidity into the markets.

If you’re interested in a momentum trade on BTC now that the fog is starting to lift… Joe recommends that you look for confirmation first — namely, for BTC to break above its 200-week moving average at $25,500.

But Joe’s Crypto Advantage Society portfolio also features another crypto that’s poised for liftoff in the coming weeks: Litecoin (LTC).

If you’ve heard of the “halving” event for Bitcoin, which keeps a lid on new bitcoins being mined and happens every four years or so… Litecoin has its own halving coming up much sooner: August 2023.

Like Bitcoin, Litecoin has tended to run up in price before these halving events, and Joe considers it one to watch from here.

There’s also the buzz that’s sure to intensify around artificial intelligence (AI) with the launch of ChatGPT-4 last Tuesday.

Cryptos saw the biggest price gains during the first wave of AI excitement earlier this year… And Joe recommends you look at AI cryptos like SingularityNET (AGIX) this time around, too.

Whether large-cap stocks, options, or cryptos are more your cup of tea… It’s comforting to see our analysts finding so many different opportunities in these trying times. And we’ll be sure to keep you informed on all the hot trends they discover right here, in TradeSmith Daily.