Banking Crisis Expands—Meltdown #2 On Deck

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[Chart courtesy of]

  1. Moving the markets

As I posted before, once you find a cockroach in your house, you can be assured it’s not the only one. That is akin to a banking system that got addicted to low bond yields and is now trying to deal with and operate in an environment of higher rates, which means that one banking failure can rapidly spread.

We did not have to wait too long, because today, Credit Suisse (CH), a bank with a large international presence and considerable investments in the US stock markets stumbled toward a collapse.

I had to laugh out loud when a few days ago the banking giant announced that it had found “certain material weakness in our internal control over financial reporting” for the past couple of years. One look at a long-term chart tells you that this firm has had issues for almost a decade.

Throwing gasoline on that fire was the Saudi National Bank, CH’s largest investor, by announcing they could not provide any more funding. Ouch! Swiss National Bank then stepped up to the plate stating that “they will provide liquidity, if necessary,” which stopped the bleeding for the time being.  

Still, I think Silicon’s bank turmoil was only the first domino to fall, and it looks that Europe will have to deal with its own crisis, as their banking stocks crashed 7% today. For sure, this is only the beginning, and things will likely spread around the globe.

The major indexes slumped all day but managed to limit their early losses, yet the banking bailout plan still left the regionals sharply in the red since Friday.  

Bond yields dropped with the 2-year dumping to its lowest since September 2022, as ZeroHedge pointed out. Fed rate-hike expectations crashed again with the markets pricing in over 100bps of rate-cuts by the end of this year.

Interesting was the divergence between the US Dollar, which rallied over 1%, while Gold also advanced but only gained 0.54%. To me, that means that traders are starting to recognize that Gold is the ultimate flight to safety when a financial system starts to deteriorate.

2. “Buy” Cycle Suggestions

For the current Buy cycle, which started on 12/1/2022, I suggested you reference my then current StatSheet for ETF selections. However, if you came on board later, you may want to look at the most recent version, which is published and posted every Thursday at 6:30 pm PST.

I also recommend for you to consider your risk tolerance when making your selections by dropping down more towards the middle of the M-Index rankings, should you tend to be more risk adverse. Likewise, a partial initial exposure to the markets, say 33% to start with, will reduce your risk in case of a sudden directional turnaround.

We are living in times of great uncertainty, with economic fundamentals steadily deteriorating, which will eventually affect earnings negatively and, by association, stock prices. I can see this current Buy signal to be short lived, say to the end of the year, and would not be surprised if it ends at some point in January.

In my advisor practice, we are therefore looking for limited exposure in value, some growth and dividend ETFs. Of course, gold has been a core holding for a long time.

With all investments, I recommend the use of a trailing sell stop in the range of 8-12% to limit your downside risk.

3. Trend Tracking Indexes (TTIs)

Our TTIs plunged, as the banking crisis worsened due to Credit Suisse entering the party. As I mentioned, in my advisor practice we have been liquidating those positions, which had triggered their respective sell stops. We now only hold gold and very limited equity exposure via 1 ETF.

The markets are facing great uncertainty, and I’d rather be safely on the sidelines early, as opposed to being late and watch more downside risk develop.

Our Domestic TTI has now been hovering below its trend line for four days in a row but not by a great enough margin to call this current “Buy” cycle to be over. However, we are getting very close.

This is how we closed 03/15/2023:

Domestic TTI: -2.00% below its M/A (prior close -0.61%)—Buy signal effective 12/1/2022.

International TTI: +1.87% above its M/A (prior close +4.33%)—Buy signal effective 12/1/2022.

All linked charts above are courtesy of Bloomberg via ZeroHedge.

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