Submitted by Rim_World t3_11rf78p in wallstreetbets
I'll try to write this without the use of our usual degen language here and I'll refrain from using memes. Hope this helps some of you to take it more seriously this time.
"Depositors will have access to their money"
"Investors will lose their money ... that's how capitalism works."
In the last week, this struck me more than anything. Banks have had insurance to a reasonable amount and now we're promising people and businesses that they'll get their money (even over the insured limit) as long as they are just deposits and not on some risky investment. That's the message I get from Washington's wording. That should have cooled the markets down. Instead some people created the opposite narrative and it's getting dangerous for investors prone to FOMO.
On top of that, Federal Reserve is taking responsibility for the damage it's inflicted on banks by increasing rates too high too quickly. Despite the new bond buyback facility, if you fail, you're on your. That's what I get from the actions taken and words spoken in the last few days. Therefore I don't expect a dovish fed next week. Federal Reserve will increase their rates once again. IMO it will be another 25 bps. The rate of which it will increase in the next few meeting "will depend on the data" as Jerome Powell says at almost every meeting since last year Q3.
There is no reason higher interest rates should cause any more problems, because the fed will provide cash for MBSs and government bonds. So when they say it's not a bailout it's really not if they don't keep doing this forever. The only thing that favours banks at this point is the lack of consequences for over-extending right before interest rate hikes. Let's say they borrow for their MBS and bonds? What are they supposed to do with it now while FDIC watching them like a hawk?
I'm pleasantly surprised that FDIC is on top of things that they intervened the way they did when they had to. So this brings me to my next point, consequences. With no bailout for investors during this administration, investors in stocks should be extra careful where they put their money. The drop in banking stocks is fully justified. IMO they will decline further. If a bank fails, you will have your securities as long their books aren't baked and you will have your cash... eventually. But the bank will be no more. I suggest everyone takes a deep look at where their securities are, where their cash is. If you have gold or crypto, do you really want to keep it in a bank or exchange that you cannot trust. The next 6 moths is all about risk management... because some banks didn't do theirs right. And now we have real-life examples at nearly hundreds of billions of dollars of assets being risked because they overextended. It's not a conspiracy theory. This all happened.
We may see panic and even stock market closure for a day if when one of the larger banks go under. At a time of depleting savings and working class slowly running out of cash, this would create total chaos. I can even see Washington increasing the debt ceiling quickly when they need to supply cash to people and not banks this time. I see that as a more likely and a better fix than bailing out a bank.
Thanks for reading.
TL:DR The scenario I see has the fed increasing rates at 25bps until they can't and more banks going under in the next 6 months. You as investors may lose money on bank stocks and it may take time having access to your other investments and cash. What's guaranteed is only what's on your contract. No bailouts. Do yourself a favour and asses your risks and manage carefully.
P.S. This doesn't mean you can't or won't make money by being long. You can for a while until you can't.
Disclaimer: These are all my opinions and should not be your only source for making investment decisions.
Of course reddit had to break as I was typing this... sigh
While I was waiting to post this, Wells Fargo, $WFC, filed for $9.5 billion mixed shelf offering. Earlier in the year;
Wells Fargo, once the No. 1 player in mortgages, is stepping back from the housing market
But you know... everything is fine... this one comes to you from Jim.
edit: just added and deleted a couple of words near the end.