E Pluribus Unum: The Rise of a New Banking Era

The emergency takeover from JP Morgan on Monday was intended to send the message that all is fine in the banking system. “Nothing to see here.”

Except all is not fine.

Tuesday witnessed the collapse of several other regional bank stocks. Trading was halted on Los Angeles-based PacWest which tumbled more than 27%. Tuesday also witnessed Phoenix-based lender Western Alliance sink 15%, Dallas-based Comerica bank losing 12%, and Cleveland, Ohio-based KeyCorp bank falling 9%.

Despite the collapse in regional bank stocks, it’s hard to call it a “crisis” when it goes mostly unnoticed by Wall Street. More than likely the market is eagerly anticipating more and more free money coming from the Fed.

Nick Timaraos at the Wall Street Journal reported today that the U.S. The Treasury will design a program to buy back government debt with plans to execute purchases beginning next year for “liquidity support purposes” noting that the Treasury has not done this since 2000. It begs the question, If the U.S. Treasury market is the most liquid market in the world, then why do we need liquidity support?

Perhaps the Treasury can see the debt crisis unfolding in real time.

We note that debt crises always happen in what we are told is the “safest” asset. In 2008 it was the credit default swaps around the housing market - which had “never experienced a serious downturn historically. Today it’s the “safe” Treasury bond that banks were forced to hold which has lost significant value as interest rates have risen.

What will the Fed do when this crisis in the regional banks spreads to the entire market?

He will print.

Last week, Warren Buffett proposed a bet for charity to anyone foolish enough to take him up on it. Buffett, in an interview on CNBC, was willing to bet anyone $1 million for charity that “no depositor would lose $1 of their deposits over the next 12 months.” The offer was intended to instill calm. Banks are built on trust. If Buffett says deposits are safe we should believe him, right?

Buffett doesn’t make bets he is going to lose.

In 2007, Ted Seides, a hedge fund manager and co-founder of Protege Partners, bet Warren Buffett $1 million for charity that a portfolio of hedge funds would outperform the S&P 500 over the course of a decade. Buffett selected a low-cost S&P 500 index fund as his investment vehicle, while Seides chose a selection of five hedge funds. The bet ended in 2017 with Buffett winning the bet, as the S&P 500 dramatically outperformed the hedge fund portfolio by a wide margin.

What did Buffett know then? He knew that the Federal Reserve was about to go on a massive balance sheet-expanding buying spree that would pin interest rates at zero percent for a decade and lift all stock prices. An ape owning the index would beat all active managers.

He was right.

What does Buffett know now? Buffet knows what we have long suspected, the FDIC now has an unlimited backstop of the US government. As more and more banks fail, we should know that all depositors will be saved. We should listen to Buffet.

Do not get caught up in the reality of math.

According to the Brookings Institute, the FDIC Fund held $128.2 billion, about 1.27% of all insured deposits. This means that the FDIC only has enough money to cover 1 in 78 depositors. Focus instead on the underlying promise of Buffett.

The government will not let any depositor lose even as the total amount of assets held by banks that have failed have exploded to all-time highs.

We are living within the Biden “New” New Deal.

Can you see gold priced at $3600 in January of next year? If history is our guide that may be exactly where they are headed.

Of course, the short term is not where we suggest shifting the focus. Instead, and with an understanding that we now have unlimited deposit insurance, consider where we are headed over the longer term.

We believe we are headed for a central bank digital currency. It will mean an end for modern-day banking and a one currency backed by the government. It’s the inevitable conclusion to our progression over the last ninety years and will mark the full reset we predict in The Great Devaluation.

"E pluribus unum" is a Latin phrase that means "Out of many, one." It is the traditional motto of the United States of America and appears on the Great Seal of the United States, as well as on many U.S. coins and currency. The motto represents the idea that, despite being a diverse nation made up of many different people and cultures, the United States is unified as one country. The phrase has been used to express the concept of unity in many different contexts, including politics, religion, and philosophy.

It may now also best describe the future of our banking system.

A central bank digital currency is the main thing to be worried about now.

In other news...

According to the Telegraph, Saudi Arabia is preparing to offer 35-year-old soccer star, Lionel Messi, a contract for $400 million…per year! A hundred million here, a hundred million there, and pretty soon you’re talking about real money, at least for Messi.

In other other news... Gold prices launched by over 2% at the open 90 minutes ago, hitting an all-time $2,072 per ounce.

Source: https://twitter.com/TaviCosta/status/1653416959629987845

Of course, there is only one way to cover the underfunded FDIC, through more money printing.

Pay attention to history. We are sitting inside 1933 all over again. The FDIC was created in March of 1933 in the midst of what had been over 9000 bank failures from 1930 through 1933. The insurance was intended to calm depositors who were moving their money out of the banks. The original coverage was up to $2500. Gold prices were $20 at the time.

Five weeks ago, our FDIC insurance limit was $250,000, a 100X increase in the last 90 years.

Not coincidentally, gold prices have risen 100X as well, from $20 in 1933 to $2000 today.

It’s why we should all pay attention to the “new floor” for gold prices. Those that remember history will appreciate that just 10 months after creating FDIC insurance to calm depositors, Franklin Delano Roosevelt, with the swipe of a pen and as a part of his New Deal, repriced the dollar against gold and changed the gold price from $20 to $36.

Why should we expect anything different from gold prices over the next 10 months?

We are living within the Biden “New” New Deal.

Can you see gold priced at $3600 in January of next year? If history is our guide that may be exactly where they are headed.