Steve Cortes: “The bond market is revolting against Biden’s inflationary policies. Inflation is out of control, and it’s going to get worse.”
“And now here we are with the real-world ramifications of a bond market revolt: a massive bank failure with legitimate worries that there are more to come.”
It’s not looking good for the banking sector — after the markets hit numerous bank stocks hard this morning.
Shares of First Republic Bank tanked by nearly 70% in pre-market trading on Monday before trading in the stock halted — just hours after federal regulators announced that they would step in and assume control of failed lenders Silicon Valley Bank and Signature Bank.
The San Francisco-based First Republic Bank, a regional lender with more than $216 billion in assets under management, was last down 67% at $27.08 before its trading was halted for volatility.
Trading was halted despite President Biden addressing the burgeoning crisis.
The trading for over thirty banks was halted — prompting popular Twitter personality Ian Mile Cheong to ask, “Is the bank collapse happening in real-time?”
Panic in the banking sector impelled President Joe Biden to reassure Americans that their deposits are “safe.”
He stated, “Americans can have confidence that the banking system is safe. Your deposits will be there when you need them. Small businesses across the country, the deposit accounts at these banks can breathe easier knowing they’ll be able to pay their workers and pay their bills.”
In this four-and-a-half-minute speech, Biden announced:
• “The government regulator in charge, the FDIC (Federal Deposit Insurance Corporation), took control of Silicon Valley bank’s assets. And over the weekend, it took control of Signature Bank’s assets.”
• “All customers who had deposits in these banks can rest assured they’ll be protected. And they’ll have access to their money as of today. … No losses will be borne by the taxpayers.”
• “The management of these banks will be fired. If the bank is taken over by FDIC, the people running the bank should not work there anymore.”
• “Investors in the banks will not be protected; they knowingly took a risk. And when the risk didn’t pay off, investors lose their money.”
President Biden reiterated, “Americans can rest assured that our banking system is safe. Your deposits are safe.”
Former Wall Street trader and strategist Steve Cortes is not so optimistic.
He made an appearance on Steve Bannon’s War Room Monday to give his interpretation of the current state of the economy.
“Cortes, your theory of the case is ‘Hey, Bannon. This is 10x worse than 2008.’ Why is that Steve Cortes?” asked Steve Bannon.
Mr. Cortes responded, “I think it’s a more dangerous moment in many ways than 2008 and 2009. And here’s why.”
• We went into the 2008-2009 crisis “with the federal balance sheets, both on the fiscal and monetary side, in relatively good shape,” explained Mr. Cortes. Our Federal debt at that time was $8 trillion. Now it is above $31 trillion.
• “The Fed balance sheet heading into 08-09 was $1 trillion. And it had been stable there for a very long time, a very manageable amount, actually, for a country as big as the United States. It is now $9 trillion.”
Here’s the point: “The credit card has already maxed the national credit card.”
“So we are heading into this crisis in a far more precarious, far weaker financial condition, which means we will have a lot less ammunition to throw at any crisis,” conveyed Mr. Cortes. “That is the reality right now.”
Steve Cortes stressed, “This wasn’t some sudden storm right that happened upon us.”
Instead, he argues, “this inflationary nightmare has been steadily building ever since Biden took office.”
Last March, Mr. Cortes tweeted, “The yield curve inverted this week (March 19, 2022) because of Biden’s inflation explosion. Even for those who don’t follow capital markets closely, this ominous bond market sign points to a recession — and likely a severe one.”
“A yield curve is used as a benchmark for other debt in the market, such as mortgage rates or bank lending rates, and it is used to predict changes in economic output and growth.” — Investopedia
As Steve Cortes stated in March 2022, the yield curve inverted. “An inverted yield curve is rare but is strongly suggestive of a severe economic slowdown. Historically, the impact of an inverted yield curve has been to warn that a recession is coming.” — Investopedia
And since World War II, Steve Cortes denoted, “the yield curve has a near-perfect record of predicting severe recessions.”
Bottom line, per Steve Cortes: “The bond market is revolting against Biden’s inflationary policies. Inflation is out of control, and it’s going to get worse.”
“And now here we are with the real-world ramifications of a bond market revolt: a massive bank failure with legitimate worries that there are more to come,” he lamented. “Because other banks, they may not have some of the particular problems of SVB, particularly its dependence on tech, but other banks do have similar problems regarding bond holdings — bond holdings that were once considered safe — that have now been destroyed because of Joe Biden.”
Mr. Cortes then displays an eye-opening chart.
The chart below displays global equity and bond returns each year since 1999. As you can see, 2020 (green dot) saw growth in both equity and bond returns. The year 2021 (purple dot) saw growth in equity returns and losses in bond returns. And last year, 2022 (red dot), was a “massive outlier” — seeing about a 15% loss in both equity and bond returns.
“Both stocks and bonds got crushed concurrently because of Joe Biden and because of stagflation (inflation exceeds economic growth) — something we haven’t seen in this country, thankfully, since the 1970s,” reported Mr. Cortes.
The following chart from the FDIC “should scare the hell out of every American,” expressed Steve Cortes.
This chart displays unrealized gains and losses on investment securities at FDIC-insured banks over the past 15 years. The last four quarters are nothing short of a disaster.
“Banks generally are responsible, generally hold safe bonds with their money, and you don’t have wild swings,” stated Mr. Cortez, “until look at the last few bars on this chart — what has happened in recent quarters. The massive amount of unrealized losses [that is] sitting in bank portfolios because of Biden’s inflation.”
“So this isn’t just a storm. It is a tsunami. It is a hurricane!” exclaimed Mr. Cortes.
“And it is raging all around us whether we choose to ignore it or not. Corporate media is not going to tell you about it. Joe Biden’s going to lie to you. Yellen is going to lie through her teeth and tell you that you’re not on the hook for this. You are on the hook for this. Okay? And here’s perhaps the worst consequence of all going forward: it’s giving the Fed an excuse to stop fighting inflation. So the inflation that is crushing middle-class prosperity already in this country is going to continue, and it is going to worsen. That’s the reality. If you’re having a hard time right now paying your utility bill — paying your car loan, it’s going to get worse for you because of what Joe Biden is doing. And because of this crisis over the weekend, that’s just simply the sad economic reality.”
And “we may very well be at the beginning of this crisis.”
Mr. Cortes argues, “If the Fed stops fighting inflation, and if we have sustained high inflation in this country, which I believe we are going to, we will have societal chaos. Mark my words because when people cannot pay for the necessities of life — when they can’t pay for food and energy, believe me, this is a volatile country. Okay? … We’re not a docile people. And if this inflation remains at these levels or higher, there will be chaos.”
Steve Cortes paints a grim picture of the future, but keep in mind that no one knows for sure what will happen. The future looks scary, but the last thing you want to do is panic — because once fear corrupts the mind, rational thinking cannot exist. Chances are it is going to be a bumpy ride, but so long as you have enough food and water, loving family and friends, odds are — similar to The Great Depression — you’ll find a way to endure such times.
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