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Here’s What “Please Just Do Something” Gets You

 
   
     
   
 
MAR 29 2023
 
 
Here’s What “Please Just Do Something” Gets You
   
DON YOCHAM
You Asked for It
 
 
 

In 2010, in an attempt to help shore up confidence in the banking system and avoid a repeat of the causes of the Great Financial Crisis, The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 mandated bank stress tests, also known as Comprehensive Capital Analysis and Review (CCAR) and Dodd-Frank Act Stress Tests (DFAST).

These stress tests were designed to assess the ability of large banks to withstand economic stress and financial shocks, such as a severe recession or a sharp decline in asset prices.

They were to be run every year in the hopes of revealing the banks’ capital adequacy, internal controls, risk management practices, and overall financial health.

To do this, the Fed created hypothetical scenarios that simulate adverse economic conditions, such as high unemployment, falling home prices, and a sharp decline in GDP. The scenarios also incorporate factors such as changes in interest rates, exchange rates, and commodity prices.

But as it turns out, the Fed didn’t really simulate anything.
The chart below, (don’t worry,I’ll walk you through it), shows just how much the Fed wiggled 5 of the most significant parameters included in the stress tests since the government stepped in thirteen years ago to help the situation.
 
 

The farther a line shoots out from the center, the more the Fed wiggled that parameter.

According to this analysis, the Fed tested the banks ability to withstand large moves in equities, housing prices, GDP, and unemployment by, well… assuming they wouldn’t move.

Each of these four parameters remained well within the “less stress” zone in every single stress test of the past twelve years.

Only short-term interest rates got any heat. But since the Fed knows that the Fed has full control over short-term rates, the Fed always assumed those rates would quickly fall back to zero.

Therefore, they didn’t really wiggle interest rates either.

You know, I always laughed whenever I heard someone cite the results of these stress tests as evidence of the soundness of our banking system.

I knew from the very beginning that these tests were nothing but another tool to mask the zombified, limping, fragile financial monster the Fed created with zero-percent rates and quantitative easing.

Turns out I was right to laugh.

Because it’s not as though the Fed never thought to test the banking system’s ability to withstand the effect higher for longer interest rates would have on bank bond portfolios – i.e, the exact problem stressing the banking system today.

They absolutely knew how much banks would suffer under a sustained rise in long-term interest rates scenario.

They just didn’t want to admit it.

Take What the Markets Give You.
 
JEFFRY TURNMIRE’S CHART OF THE WEEK
Make That Two Charts
 

Sometimes the market takes the long way around.

Despite rallies, sell-offs, spooks, and reliefs, the S&P has gone nowhere in 2 full years.

That’s right. Had you taken that sabbatical you dreamed of two years ago… and just now took the time to open your brokerage statement, you might think you didn’t miss anything.
 

But there’s another roundtrip that I find way more interesting.

According to this chart by Goldman Sachs, hedge funds are significantly underexposed to equities at the moment…
 
 

In fact, hedge fund net exposure to equities (which means subtracting short exposure from long exposure) is as low as it’s been in three years.

And that neutrality gives them plenty of scope to pile into equities once a rally gets underway.

As I’ve mentioned, I’m expecting a rally in stocks to happen soon. 

And this hedge fund dry powder definitely has the potential to turn a bullish move into a massive summer rally.

So, get stocks now and let hedge funds give you a free and profitable lift.

Have a great week!

Jeffry
 
JACK CARTER
Did you see Google's MASSIVE announcement?
 

Did you see Google’s MASSIVE AI announcement? 

Back on March 1st Google released its long awaited AI chatbot: Bard.

This caused a number of investors to put big bets on the potential rise of Google…

But they're doing it all wrong!

With the release of Bard has also come an incredible trade opportunity! 

But it's not what you think! 

I am going to show you that fundamental error I believe most Google traders are making right now… 

And introduce you to a completely different approach to leveraging Google stock that could generate AGGRESSIVE and CONSISTENT cash flow! 

Now, this opportunity is nothing new… 

It has actually been around for nearly two decades!

But prior to recent events it was only accessible for the wealthy elite. 

If you didn't have $250,000 handy you couldn't even think about taking advantage of it… 

But now thanks to a historic event, mainstream investors are able to tap into this monthly anomaly.

Let me show you how to act on this opportunity, the right way! 
 
Trade well, 

Jack
 
   
 
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