A few months ago, we began a commentary in this space with these words: “Bank runs start slowly. Then they pick up speed and lines form. Too bad for the stragglers.”
We were writing in December about the runs at cryptocurrency platforms FTX and BlockFi. Both halted withdrawals and filed for bankruptcy.
That was the “slowly” phase.
Big Bank Bail-ins
Now we are in the “picking up speed” phase as trading was temporarily halted in dozens of bank stocks as share prices plummeted on Monday under the shadow of the sudden closing of Silicon Valley Bank, Silvergate, and Signature banks.
Wall Street still knows where to turn in a crisis: gold and silver prices surged as the banks closed.
Here is an eye-opening chart of the collapsing S&P regional bank ETF price this month:
Now, with Silicon Valley Bank and Signature Bank depositors getting “bailed-in” by what hedge funder Kyle Bass calls “an accounting gimmick,” a Fed monetary policy pivot to suspend the inflation fight and a Central Bank Digital Currency (CBDC) have both lurched into view.
The Fed, Inflation, and the Need for Gold
The widespread belief that the Fed would keep raising interest rates until something broke was so frequently repeated that it became a meme. Something indeed appears to have broken because it is equally widely assumed now that the Fed will call a timeout on its effort to end inflation. An expected 50-basis-point rate hike later this month seems unlikely. Perhaps a much less consequential 25-basis-point hike or even none at all will be the result.
The Consumer Price Index (CPI) climbed 6% in the 12 months ending in February. Six percent inflation in 1969 was a major crisis in President Richard Nixon’s first year in office. Today, six percent inflation is being viewed as another reason to call a timeout in the inflation fight.
This abrupt change in policy expectations warns against being lulled into complacency and underscores the importance of having a wealth protection plan that relies on gold and silver.
The Fed’s Role in the Bank Collapse
One final thought. Well-run banks in stable economies don’t just collapse. If one does collapse, it probably doesn’t fit the description of “well-run.”
And no one can call our economy stable. Stable economies are not deep in inflation and deeper in debt.
One or two banks can be badly managed or engage in unsound practices at any time. But economists have a term called “cluster of errors,” which they use when policy errors have misled entire institutions or segments of the economy into making the same mistakes at the same time.
Years of interest rate repression by the Fed contrived bond yields unsustainably low. Silicon Valley Bank was caught with a portfolio of low-interest rate bonds that tumbled in value as rates rose. The Fed has papered over its losses for now. But it would be wise to remain alert to other corners of the economy that have bond portfolios of diminishing value.
Gold and silver represent a haven of safety from clusters of policy errors like interest rate repression and money printing.
If you’re interested in investing in precious metals, let us provide you with a free one-on-one consultation.
Red Rock Disclaimer
The opinions, beliefs, and viewpoints expressed in this article do not necessarily reflect the opinions, beliefs, and viewpoints of Red Rock Secured LLC or the official policies of Red Rock Secured LLC. Red Rock Secured LLC is not a financial advisor, is not licensed to provide investment or tax advice, and neither provides investment nor financial advice. Red Rock is a product specialist that can help evaluate your precious metals purchase options.