Banking Crisis Gets Worse

This is as bad as it gets.

A full banking crisis has suddenly rushed across the horizon toward us.

Not only was Credit Suisse revalued over the weekend at half its Friday market close, such valuation required the zeroing of many bond holders stakes and massive government guarantees on losses UBS might suffer as a result of this purchase of Credit Suisse.

Of equal, if not greater concern, were comments out of Washington. Bizarrely US Secretary of State Antony Blinken, who should not be commenting on interest rates and the Federal Reserve, came out and said this banking crisis means the Fed is finished hiking rates.

This screams free for all crises in the Biden administration.

It also raises the question as to whether the US President is up to the job of dealing with this full blown banking crisis?

We are now in the realms of a full-blown historic crisis where what happens is that regardless of what the authorities do, investors will simply want out.

Seeing this all as incredibly complex and worrisome on a whole range of levels.

From the fact that some Credit Suisse bonds were completely ruthlessly zeroed by authorities in the UBS purchase, that so many so-called isolated specific circumstances bank collapses continue to happen, to extreme measures having already been taken by Washington, but the crisis continues to spread across the USA and Europe.

Not only are investors now totally spooked, but as this news spreads, some depositors in some banks across Europe and the USA will be looking to withdraw their funds.

This is now far worse that the Global Financial Crisis.

We are truly teetering on the edge of a very deep abyss indeed.

Every bank, banking economist and strategist around the world today will be talking about how these developments and actions by authorities will stabilise markets and reassure depositors. They are talking their books. They are talking their own very survival.

We have never been this close to a full on run on multiple banks.

Fractional banking issues have always been there, but they have now entered the mainstream conversation front and centre. The previous leveraged upside is now turning into leveraged downside risk.

It is very likely that stocks in general will also be sold off.

If we are wrong in these views, traders and investors will have plenty of opportunity to buy back in later.

The only appropriate strategy for the time being is to play defence with all asset classes portfolio holdings.

Market insights and analysis from Clifford Bennett, Chief Economist at ACY Securities

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