Old Crow Janet Yellen's Banking Medicine Show
Despite Yellen's proclamation that the banking sector was "sound" after Silicon Valley Bank's collapse, First Republic has shown us that the pain is only just beginning.
If you spent the last month listening to CNBC and government officials, Tuesday’s action in shares of First Republic Bank (FRC), shown below puking up shards of its own pelvis for the last 2 months, with increased vigor over the last 48 hours, may have surprised you.
After all, according to officials like Janet Yellen, the second largest banking collapse in history, Silicon Valley Bank, was nothing more than a meaningless aberration on the path to economic prosperity for all Americans - a lowly speedbump on Jerome Powell’s “final approach” to a soft landing. Why worry?
“I can reassure the members of the committee that our banking system remains sound, and that Americans can feel confident that their deposits will be there when they need them,” Yellen said back in mid-March.
That idea, of course, as I have been pointing out for the last few weeks, is bullshit.
I mean, deposits are “safe” in the sense that the Fed’s money printer could once again be utilized to “prevent” a crisis by prying open the inequality gap and redistributing purchasing power from the have nots to the haves - but that doesn’t magically somehow turn off the reality of what near 5% interest rates are doing to various balance sheets behind the scenes.
Which is exactly what we saw yesterday from First Republic Bank, which committed the cardinal sin of being a bank: admitting that you need to firesell assets.
As you’ll recall, this is exactly what spooked the market with Silicon Valley Bank. Now, First Republic is following down the same path. Ergo, despite deposits reportedly “stabilizing” for the bank when it reported earnings days ago, the market for FRC’s likely worthless equity collectively chewed up and shit out the bank’s equity on Tuesday - with likely follow through coming throughout the rest of the week.
As far as how I’m investing in this circus, here’s the plan I scribbled down on a cocktail napkin at 2AM.