Don’t Miss the Chance to Make Money From Silicon Valley Bank’s Mishaps
The last three days have been gut-wrenching for the market as I had to take care of some things outside of the office.
Luckily, I was still able to get in and manage some of my positions for all three of my services – Night Trader, Alpha Accelerators, and the Double Your Money Challenge.
All of those gains and the market ‘crash’ we just saw were all thanks to a lack of confidence in the market and financial institutions…
Specifically, I’m talking about Silicon Valley Bank (SVB), a name that is sending chills down the spines of start-ups and has bears foaming at the mouth.
Right now we are seeing a bit of a snowball effect on the market as SVB turns into a bank in New York, and it’ll continue to turn into more as everybody combs through the market with cautious eyes and starts to run away from the regional bank sector.
Now, I’m going to cut to the chase for those of you that don’t want to get ALL of the details.
If you want to make money on the short side of things right now, even when the regional banks are down over 10% and the big banks are playing the same tune, then what you have to do is wait…
This isn’t a game to try to play catchup with at the moment, the real money was made last week BEFORE the drop happened.
The premiums are going to be extremely high at the moment, so you need to let the dust settle and then pick the names apart one by one, that’s how you’ll get into this trade…
For me, this is a clear example of luck preferring the prepared trader, there’s no way to sugarcoat that as SVB running into these issues is something nearly nobody would have foreseen happening just two weeks ago – although you could tell something was brewing in the market.
What does the fallout of SVB look like?
Well, there is one thing that is ALWAYS consistent about the market – sentiment:
This is the psychology behind traders and what they do. And I’m sure we have all gotten the message by now that this market is 100% entirely controlled by traders…
We just spent the last year bouncing back and forth between Dispelife and Acceptance, and this is yet another sign that there is a problem in the market and we have not seen true capitulation.
Maybe, we would have if the market didn’t try to pick itself back up today and we were in freefall mode but that’s not what happened.
Why did it happen?
SVB had long-term bond exposure, that’s the short answer.
“But CJ” you ask “Bond exposure is common for banks and investors… Why does that matter?”
Well, this isn’t just a simple issue of having them and the value going down, they took their depositors’ cash and put them in longer-term bonds with the hopes of capitalizing on some potential gains.
But, when the Fed starts raising interest rates, the value of those bonds goes down…
That led to them looking to raise capital to support depositors trying to get their money out of the bank – and that’s when the tornado sirens started to go off…
It was a perfect storm of mismanagement of funds, fear from the members, and JPOW dropping a hammer on the market that turned into a full-on bank run – which put the nail in the coffin.
Now, this isn’t another Bear Stearns moment, it was just a mismanagement issue. And for what it’s worth they really just became over-leveraged and ignored the warning lights that the Fed was on the road ahead…
even though SVB was taking the dangerous road, the Fed came out and said they were putting in a backstop to help the depositors, and no, this is not a bailout of the banks…
They are doing this out of fear of contagion.
This is a subject that we don’t have the opportunity to talk about much but contagion is the spread of an economic crisis from one market or region to another – in this case to other banks.
And they were worried about people losing faith in the banking system and rushing to pull their money out as well – this is what causes the issue with SVB AND one of the primary causes of the great depression.
This is also what we are seeing right now with bigger banks that you wouldn’t expect to be touched by SVB, yet they are.
We are seeing the first leg of the move not where we are going to end up…
But that aside, the Fed now has this fear of people losing faith in financial institutions in the back of their minds and the whole world is watching as we get the CPI later this week.
If that number comes in at expectation you’ll see a huge bullish catalyst for the market as there isn’t as much fear in the market right now as you might expect.
But, why talk about unlikely scenarios, you can take a look around and see that housing prices are still high, new and used cars still getting more expensive, and Brandon just picked up a second job to keep up with his kids’ egg-eating habits, we are likely to see the market realize the reality of the situation and that’s when we will likely start to see the beginning stages of capitulation in the market.
This isn’t it, I’m going to just lay that on the table.
The Fed is not going to stop raising rates regardless of market expectations.
Jerome Powell already told you he wants rates higher for longer…
The market is not going to just switch to sunshine and rainbows because of this, and the aftermath is going to be worse than the impact…
Stick with me on the morning show – The Long and Short of it at 9:45 AM EST – over the next few weeks and we will continue to watch this market simmer.
As this event continues to unravel, remember what I said earlier – Now is NOT the time to go short the banks, but you can bet your top dollar that sticking with me I will let you know the exact time that we can truly capitalize on the mistakes that SVB made.
See you in the morning.
March 13 2023