Markets are competitive. When every decision comes down to something as binary as “buy or sell”, every winner tends to come at the expense of a loser.
At first glance, however… there are no clear winners in this year’s banking crisis.
The leaders of Silicon Valley Bank have certainly lost – their company (worth $212 billion), their reputation, and probably part of their spirit. That’s not counting First Republic, Signature, Credit Suisse… you get the idea.
The bank’s depositors, as the FDIC will eventually return them whole, have lost temporary but extended access to their funds. In the case of Silicon Valley Bank, which cared for tech startups desperate for funds right now, that loss was even more severe.
The FDIC also lost. It used $22 billion of its recovery reserves, and now banks have been rated to fill the fund. (These banks also lost…)
And in terms of losses, investors are up to the C-suite of these failing banks.
Long before the bank went bankrupt, shares of Silicon Valley Bank fell from $755 per share to $100 before being delisted. That’s an 85% loss…and tens of billions of market capitalization completely destroyed.
The First Republic did even worse, losing over 98% of its value in the same time… Nearly $40 billion, down to less than $1 billion in just over a year.
So if all these actors lost, who could have won?
Traders, who are they?
There’s been more than enough spilled ink Why we are in a banking crisis.
That’s why I want to focus today on the small number of people who have actually benefited from this crisis and previous crises, and how you can do the same with much less risk than they ever took. .
A man’s trash…
Amid all the chaos of the failure of Silicon Valley Bank and Signature Bank this year, some smart short sellers were able to see the risks ahead of time…and make a windfall profit.
According to financial analyst firm Ortex, hedge funds were sitting on unrealized profits of $7.25 billion during the month of March. This made it the most profitable month for short sellers since the 2008 financial crisis.
And earlier this month, as First Republic fell, short sellers pocketed another $1.2 billion.
In all of these situations, one person’s trash quickly became another’s treasure.
If you are unfamiliar, short sellers bet against stocks and make money when they fall.
Now, opportunities like these don’t come around often. Markets generally go up – prolonged bear markets like the ones we are in now are rare throughout history.
This is why short sellers focus on what is often called particular situation – unique events where a confluence of factors come together and form a “perfect storm”.
With Silicon Valley Bank and other recent bank failures, it was the rapid rise in interest rates coupled with a slowdown in the technology sector. High interest rates damaged banks’ bond portfolios. Struggling tech companies had to withdraw more funds than SVB had.
This only became clear to most people in hindsight. But for smart short sellers, this was a special situation that they could see ahead and exploit.
This is far from the first time this has happened, and it certainly won’t be the last. In 2008, only a small number of short sellers saw the risks in the subprime mortgage market, understanding how quickly the contagion could spread to the stock market and even outside the United States. This is how Michael Burry won $800 million in his bets against the credit default mortgage bond swap market.
It goes back even further. George Soros “broke the Bank of England” by shorting the pound in such volume, he forced Britain to back down from an effort to peg its currency to other European economies. This trade brought him $1 billion, one of the biggest profits of all time.
And we can even look to Paul Tudor Jones, who made $100 million in a single day during the Black Monday stock market crash.
Now, I don’t recommend that you go out and start trying to short sell stocks yourself. First, the bullish market bias works against you. And second, shorting stocks is extremely risky for individual investors.
Shorting stocks involves borrowing stocks and putting them up for sale. If the stock goes down, you can buy back the shares you sold at a profit. If it goes up, however… you’re at unlimited risk. This can and has bankrupted many traders who did not manage their risk well.
However, everything I see says there will be more banking crises to come. Interest rates remain a huge problem for small and medium regional banks, in particular. And my research shows that nearly 300 publicly traded regional banks are at high risk of extreme losses in the coming months.
I want you to be a victor, not a victim, of what’s to come.
So here’s what I want you to do…
The short film “Off Wall Street”
As I said, shorting stocks is extremely risky for individual investors who don’t have the multi-billion dollar funds of hedge funds.
At the same time, the opportunity before us today is one you cannot afford to ignore.
I have identified a number of special situations in the current banking crisis – just as Paul Tudor Jones, George Soros, Michael Burry and many others have done before me.
But I will not recommend any of my short-stock subscribers. The risks are far too great.
Instead, I recommend some sort of Off-Wall Street Trading that few people know… or if they know, they don’t know how to take advantage of it.
This trade is not much different from buying a share of stock in your brokerage account. However, it has the potential to increase multiples faster than any stock market position, especially during volatile times like the one we are currently experiencing.
To give you an idea of the potential, let me introduce you to a profession that I recently recommended to my followers.
On April 18, I explained why the mainstream media called too soon for an end to the banking crisis. The price action in a certain niche of the banking sector did not reflect this, and the sector (still) had huge exposure to an asset that is on the verge of rapidly losing value.
So I recommended a trade for the sector.
Now take this… Three weeks and two days later, we got exactly what I was looking for. Our aim continued to drop as the problems of the First Republic became more apparent. And we pocketed more than 70% gain on part of the position (we still keep the rest open for further gains).
There are no limits to opportunities like this as the banking industry continues to navigate this difficult time.
In fact, next week I’ll be presenting my recent findings on the current banking crisis, including the nearly 300 banks that are at high risk of failure right now.
And next to that, I’ll show you exactly how I plan to double down, even triple my followers money as these bank failures continue to occur.
To ensure you have access to this urgent information as soon as it is posted online, enter your name here.
To good profits,
Adam O’DellEditor, 10X Stocks
Apollo is one of the largest and most successful private equity firms in the world. So when CEO Marc Rowan speaks, I tend to pay attention.
Earlier this month, Rowan said we could be heading for a “recession without recession”. This looks a little different from past recessions…and leaves many economists scratching their heads.
Recession without a recession sounds absurd, but Rowan could really be onto something. He sees asset price deflation, which will hit the wealthiest and upper middle class Americans especially hard.
But we may not see the other tell-tale signs of a typical recession, such as a sharp rise in unemployment. Even as companies mostly report mixed earnings and weak prospects, the unemployment rate is ridiculously low at 3.5%.
When I was in college, my economics professors taught us that “full employment” actually meant an unemployment rate of around 4% – because there will always be a number of people between jobs, or simply unemployable.
This 4% was always an estimate, and economics is not an exact science. But at 3.5%, our unemployment rate is lower than what was generally thought possible… or at least sustainable.
Again, it was also a time of population growth. Every year we had a new group of young workers to launch into the economy.
That really hasn’t been the case over the past decade, as working-age population growth has been slow due to steep declines in birth rates and declining immigration.
So it’s very possible that we won’t have widespread unemployment this time around.
Hey, we’ll take whatever good news we can get.
But an “asset price” recession will still not be fun. We have benefited from 15 years of ultra-loose monetary policy from the Federal Reserve. This disproportionately benefited the “investor class” as the trillions of dollars created by the Fed and other central banks drove up the prices of stocks, real estate and just about anything that could be bought or sold.
And the “investor class” is not a bunch of old Monopoly Man-like guys sitting around a table smoking cigars and comparing their golf handicaps.
If you have a good portion of your savings in your home equity or in your 401(k) plan, you also fall into the investor category.
Deleveraging is painful. This means reducing debt in the face of higher interest rates.
This has been the reality of Japan since the early 1990s. The Nikkei was in near continuous decline for more than two decades. It finally turned around in the early 2010s, but is still far from its highs of 30 years ago.
If you’re an agile investor, that’s not necessarily something to worry about. There are always short-term trading opportunities, no matter what the broader market is doing.
As he mentioned today, Adam O’Dell has identified a way to potentially make massive profits if, as he expects, the asset price recession causes another wave of stress in the banking sector.
If you want to learn more, be sure to watch his brand new webinar which will be released next week, May 31st. Book your place here.
And good weekend !
Charles SizemoreChief Editor, The edge of the banyan