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More Runs on The Banks

More runs on banks this week, equities decline in value, and yet U.S. Treasuries decline? TLT was down by 1.25%? So, the markets seemed to see more safety in gold and silver and even in Bitcoin this week. The chart above put out by Crescat Capital’s Kevin Smith shows that the total amount of losses due to bank runs is already ~$560 million, compared to ~ $400 million in the 2008 financial crisis. Equally disturbing is that, so far, there are only a handful of banks contributing to total losses. The reason for this run is well understood to be caused by rising rates that are causing people, starved for yield, to pull money out of the banks to buy money market funds that provide a fair return. Yet I can’t blame Jerome Powell for doing what he is doing. If we are to ever preserve capitalism, we have to allow the capital markets to work, rather than have them constantly manipulated by the Fed. The “Fed Put” and the general market rot and zombie companies that have built up over the years from permissive money printing must stop if any semblance of capitalism is going to survive. Powell tried to assure the markets that our banking system is sound despite the fact that bank deposit losses are accelerating, especially for small banks (red line). But even large bank (blue line) and foreign bank deposit hemorrhaging is accelerating.

The fact that gold and silver were seen as a safe haven this week while Treasuries were ignored suggests to me that the markets do not believe Powell’s assurances that our banking system is strong. I would also point out that this week the average monthly gold price so far in May has hit a new high of $2,105.60. As you can see from my gold chart above on your right, the triple top has been broken. When triple tops are broken, it usually portends a major move higher.

Many people are critical of Jerome Powell’s tough stance but I’m actually applauding it because if the mal investments and zombie companies that have built up over the years are not rooted out and there isn’t a return to market pricing capital again, we are headed for a full-fledged socialist dictatorship. The Fed Put has to be done away with and I think that is what Powell is trying to do. But with that, we are just now starting to feel a bit of pain. Wait until the top few stocks that are holding up the equity markets start to crater. One of the few people who seem to have suggested Powell will try to do the right thing and purge our economy of its carcinogens is Danielle DiMartino Booth, who sent me an email this week, stating, “I do so hope that I am wrong and that the U.S. economy can somehow subsist without needing zero interest rate policy that invites the scourge of socialism.” I totally agree with Danielle. Meanwhile, gold, which as Alasdair Macleod points out, is always money. Everything else is credit. The markets are coming to grips with that fact and I believe owning gold can help turn hard times into good times for those who own it. Gold shares like Brixton Metals will shine too.

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