Almost two months ago, I wrote about how you could buy exchange-traded funds, both long or short, to play what, at the time, we were told was a one-off banking crisis with just Silicone Valley Bank.
The point at the time was that it was unlikely that Silicone Valley Bank was the only bank that took on outsized risks, and therefore it was unlikely they would be the only bank that would have problems.
Fast forward almost two months. We have had three banks, Silicone Valley included, fail in the U.S., and Credit Suisse needing a loan from the Swiss Nationals bank. We have also, more recently, had several bank stocks take massive noise dives as investors fear they are the next bank to fail. And we even had Pacific West Bank announce that they are looking at potential sale options and strategies to sure up the company.
We can all sit here and believe what Janet Yellen and Federal Reserve Chairman Powell tell us about the financial sector's health and go on with our day.
But, while the overall financial sector may very well be as healthy as they claim it is, a lot of banks, both big and small, are seeing their stock prices tank. And as an investor, when I see this type of price destruction, I immediately think, "Am I missing a good or even great investment opportunity while this plays out?"
As I said two months ago, I can't tell you if the banks will go higher or lower in the near future from where they sit today; I am not that intelligent.
But I know that the big banks, not the regional ones, will survive this crisis in the long run. And, based on history, i.e. the 2007-2008 financial crisis, the big banks are likely to get even more significant.
If anyone thought the big banks were "too big to fail in 2008," they are even more prominent today. Hence, they are indeed too big to fail today.
Furthermore, since the bank was failing, JPMorgan Chase just bought most of First Republic Bank's assets. That move has made JPMorgan even larger; big banks are getting even bigger. Continue reading "As Banks Collapse, Start Looking Ahead"