News Coverage for ‘Flation

Some observers of the banking sector say that contagion is unlikely in the wake of those recent bank failures which have been so widely reported (Business Insider, March 11):

Buy the dip in banks as the Silicon Valley Bank crisis is unlikely to spread, Goldman Sachs says

However, there may be a greater risk of more banks going under than some people expect.

Here’s news from Fox Business (March 18):

Study finds 186 banks vulnerable to SVB-like collapse

The study created a scenario where half of 186 banks’ depositors withdrew their funds

Relatedly, the following is from a section titled “Safe Banking” in the recently published March Elliott Wave Theorist:

In Last Chance to Conquer the Crash, there is an entire chapter titled “How to Find a Safe Bank.” Numerous issues of The Elliott Wave Theorist and The Elliott Wave Financial Forecast have warned that banks are vulnerable and that a bear market would reveal that fact. ….  

Have we been paranoid, or is everyone else whistling show tunes on the deck of the Titanic? I think the shock and surprise expressed over the collapse of the 16th-largest bank in the U.S., Silicon Valley Bank (SVB), answer that question:

SVB’s Lightning Collapse Stuns Banking Industry

The rapid unraveling of SVB Financial Group has blindsided the banking industry after years of stability

The speed of the SVB crash blindsided observers and stunned markets, wiping out more than $100 billion in market value for U.S. banks in two days.

And yet (of course),

“We do not believe there is contagion risk for the rest of the banking sector,” said [the] CEO of an investment research firm. “The deposit base from the major banks is much more diversified than SVB and the big banks are in good financial health.”

Observe that all these people were caught off guard because they were too optimistic, yet they feel compelled to reiterate that they remain optimistic!

Nothing is going to get better in the stock market until the headlines and comments flip 180 degrees to express widespread pessimism. When that happens, you can start making your buy list.

Financial crazes have a way of flaming out.

As prominent examples — meme stocks, special-purpose acquisition companies (SPACs) and non-fungible tokens (NFTs) have all seen major setbacks since their glory days during the past few years.

Regarding one of those, here’s a March 13 news item from Reuters:

Meta Platforms Inc is cutting off support for digital collectibles or non-fungible tokens (NFTs) on its platforms less than a year after rolling it out…

The flaming out of financial crazes is part of what Elliott Wave International’s Global Market Perspective calls “The Everything Bust” – a deflation of most (if not all) risk-asset prices across the board.

This chart and commentary from the March issue of the Global Market Perspective focuses on special purpose acquisition companies:

The chart shows that the IPOX SPAC Index peaked … on February 17, 2021. In March 2021, Alex Rodriguez, the former New York Yankee third baseman, joined the “Blank Check Derby” as the CEO of Slam Corp. with the promise of purchasing an unknown company in the entertainment industry. EWFF reminded readers, “When jocks and other celebrities are viewed as savvy investment professionals, an uptrend of some significance is surely ending.” We classified the deal as an “ultimate harbinger of the next bear market.” The SPAC index has declined 51% from its peak. …  [W]e called for caution when SPACs topped in 2021 and stated, “In the annals of the coming bear market many stories of SPACtacular failures will be told.” Many of those failures are rolling in now, and still there is little evidence of caution. Most of the tragedies lie ahead.

By now, most everyone who keeps up with financial news has learned of the collapse of Silicon Valley Bank – the largest U.S. bank failure since 2008.

A well-known financial TV host links that bank failure with deflation (CNBC, March 10):

There’s nothing more deflationary than the collapse of a highly-indebted bank, says [Mad Money host]

Elliott Wave International agrees that the failure of Silicon Valley Bank is part and parcel of a developing deflation.

Bank runs were widespread during the deflationary depression of 1929-1933, and this quote from Robert Prechter’s Last Chance to Conquer the Crash starts off with that:

Between 1929 and 1933, 9000 banks in the United States closed their doors. President Roosevelt shut down all banks for a short time after his inauguration. In December 2001, the government of Argentina froze virtually all bank deposits, barring customers from withdrawing the money they thought they had. In 2013, banks in Cypress were ordered closed. Sometimes such restrictions happen naturally, when banks fail; sometimes they are imposed. Sometimes the restrictions are temporary; sometimes they remain in place for a long time. In 2008-2009, some U.S. banks came under pressure of insolvency, just as the first edition of Conquer the Crash predicted. Fed bailouts kept most of them open. In the next depression, bank runs and mass closings are far more probable. The first edition of CTC also noted that depositors would become concerned about bank risks and move their money from weak banks to strong banks, making the weak banks weaker and the strong banks stronger. This is just what happened in 2008-2009. A Washington Post article noted that one of the banks listed in the first edition of CTC as safer than most had received a windfall of migratory deposits. When the next wave of banking problems hits, the shift will be even more pronounced.

Many people believe their deposits are safe when they see a bank’s Federal Deposit Insurance Corp. sticker.

However, during a time of widespread bank failures, it’s highly unlikely that the F.D.I.C. will have enough resources to cover all deposits.

An important step you can take now is to make sure your deposits are with a financially strong bank (or banks). Last Chance to Conquer the Crash provides insights on this subject.

It’s getting tougher for U.S. businesses to get loans from banks these days.

This could be a signal that a recession is just ahead.

Here’s a March 2 news items from S&P Global:

The number of banks reporting tightening standards for large commercial borrowers is close to the peaks experienced over the last four recessions… .

The March Elliott Wave Financial Forecast provided more insight with this chart and commentary:

The chart shows [a] classic sign of a credit squeeze. In the Federal Reserve Board’s latest bank lending survey, 43.8% of responding institutions said they are tightening standards on commercial loans to small firms. Four times from 1990 to 2020, banks tightened their lending standards to the same extent or more; each time, a recession was approaching or already underway as shown by the grey shaded areas.

Sorry – your services will not be needed after all.

In a nutshell, that’s the message increasing numbers of the newly hired are receiving.

Here’s a Feb. 22 headline from the Los Angeles Times:

People are losing jobs before they even start, throwing lives into chaos

Rescinded job offers were more common during the dot.com bust of 2000 and the 2007-2009 financial crisis.

Perhaps a financial downturn is unfolding which is on par (or worse) with those two episodes.

Here’s a perspective from the February Elliott Wave Financial Forecast (commentary below the chart):

The steep decline shown on this chart is the year-over-year change in temp help hiring. In December, the yearly change went negative for the first time since the aftermath of the recession of 2020. Negative readings on this indicator foreshadowed all three of the most recent recessions. There was one false signal, a brief negative reading in 2016. But that episode saw little in the way of an accompanying bear market, so the current case is more like those of 2000, 2007 and 2020.

Economists view the temp sector “as an early warning indicator,” although Bloomberg reports that many now say “a plausible interpretation is that temp work is simply normalizing” in the wake of pandemic-related hiring quirks. But the modern equivalent of the help-wanted advertising index suggests the current hiring freeze is more than temporary. Long-time readers will recall that years ago, help-wanted ads were a very dependable harbinger of economic change. In December 2007, when help-wanted advertising was still a thing and Monster.com was the top Internet site for job postings, [The Elliott Wave Financial Forecast] cited sharp declines in both areas and stated they signaled that “a recession is at hand.” The biggest economic contraction since the Great Depression was in fact already underway.