The Bank Panic du Jour

It's Credit Suisse's turn... Fear reigns... This is just the beginning... Why panics can happen... The Fed's only options... The moment gold investors have been waiting for... The math to back it up... [Stansberry Research Logo] Delivering World-Class Financial Research Since 1999 [Stansberry Digest] It's Credit Suisse's turn... Fear reigns... This is just the beginning... Why panics can happen... The Fed's only options... The moment gold investors have been waiting for... The math to back it up... --------------------------------------------------------------- Wake up, read the headlines, see another bank panic... Today's top story comes from over in Europe, with long-embattled bank Credit Suisse (CS)... U.S.-traded shares of the Swiss bank closed down nearly 20% today, and they were down as much as 30% this morning. The sell-off followed remarks from the chairman of Credit Suisse's largest shareholder, the Saudi National Bank (can't make this stuff up), that the Saudis wouldn't add to their 9.9% share of the Swiss bank... SNB Chairman Ammar Al Khudairy cited "regulatory reasons." In his telling, exceeding a 10% threshold would attract more attention from Saudi, Swiss, and European regulators. Read into that what you will. The point is, enough other people took the Saudi bank chair's comments as a warning against putting more money into Credit Suisse... Especially given the recent failure of Silicon Valley Bank and others here in the U.S., the markets responded furiously to the SNB decision. European stock indexes were down around 4% across the board. In the U.S., financial stocks dropped 3% and the major indexes were in the red all day, with the small-cap Russell 2000 finishing down almost 2%. Maybe the sell-off of Credit Suisse shares and bonds, and other stocks, in the past 24 hours is an overblown reaction. (Late Wednesday, the Swiss National Bank said it would provide liquidity to Credit Suisse if necessary, but that the bank was currently well capitalized.) But what the appropriate or rational market reaction might be doesn't matter. What is happening does. Panic is in the air in the financial world... And that tells us something important on its own. Today, I (Corey McLaughlin) will explain what that is... And as I'll also discuss, while stock and bond movement has been wildly volatile lately, this big string of moments for the markets could actually give a huge boost in the longer run for another asset class. We have some math that proves it. But first, fear reigns... Al Khudairy said the Saudi National Bank was happy with an ongoing turnaround plan by executives at Credit Suisse. But that did nothing to prevent a sell-off in shares and the bank's bonds. As the Wall Street Journal reported today... Prices on Credit Suisse bail-in bonds, which get wiped out in case the bank runs into serious trouble, fell sharply. Bid prices on the 2027 bonds on Tradeweb slid to 31 cents on the dollar from 72 cents the day before. They traded close to 90 cents at the start of the month. Credit Suisse has been the problem child of European banking for several years. Repeated scandals and financial losses have hammered the 166-year-old bank, which combines a wealth-management business catering to the world's elite rich with a Wall Street investment bank. The lender has cycled through executives and has made repeated stabs at stabilizing its reputation among investors. A $4 billion share sale in the autumn, which brought in deep-pocketed investors from the Middle East, gave the bank more time to sort out its situation. But it has nonetheless faced an exodus of client withdrawals. I'm a long-term optimist. Otherwise, what's the point of anything, really? But when it comes to the economy and markets today, I'm also a realist. That makes me lean toward the side of [Dr. Doom]( whom we quoted yesterday... The start of the 'lag effects'... We're only beginning to experience what economists call the "long and variable lag" effects of central banks' interest-rate hikes. Silicon Valley Bank's stuff didn't hit the fan until about 18 months after management made its biggest mistake: classifying the bank's long-term Treasurys as "held to maturity" to disguise its unrealized losses on those bonds. When the bank announced it was selling shares to raise capital, folks found out that the bank was quietly down $16 billion on those assets. Enough big clients panicked... and made a run on the bank. Credit Suisse has had big problems for years, but only now have we seen its troubles make global headlines and its shares sell off so sharply. That same Wall Street Journal story about Credit Suisse's sell-off quoted a former executive board member of the European Central Bank, Lorenzo Bini Smaghi. Following the Silicon Bank Valley failure, he said... When one part of the financial system goes into crisis, it's normal for there to be some contagion to the whole system, as investors tend to wonder, "Who's next?" In other words, when other bad businesses' warts come to light, the market might react more strongly to issues they shrugged off in the past. Enough people with money in the markets are already on edge... After a brutal 2022 in the markets, anyone who lost 20% or 30% of their portfolio surely doesn't want to lose any more. And I don't know many analysts who believe we've seen a real "capitulation" point of the broad bear market of the past 14 months. This is why panics can happen... The folks who made a run on Silicon Valley Bank probably weren't actually going to lose access to their money – until they all pulled it out at roughly the same time based on the fear that they would. Of course, then the Federal Reserve and Treasury stepped in to guarantee everyone would get their money back... reinforcing the idea that "we'll all be saved anyway" and that banks can continue to take risks with other people's money. All this negative sentiment overshadowed some good news... Today, the producer price index ("PPI") part of the inflation equation actually came in lower than expectations. This is typically a leading indicator for the consumer price index ("CPI"). Everyone at the Fed is sure to notice these numbers. They're also reading the headlines and thinking about all this: U.S. regional banks getting hammered one day... European banks two days later... Um, what's next? If the Fed doesn't pause its rate hikes next week, and things keep getting worse for the markets, it probably won't take long... Before long, the Fed could start cutting rates. And since 1955, this reversal has marked the true end of each bear market. On the other hand... if the Fed's concerns about banks and stocks make it stop inflation-fighting rate hikes too early, then disinflation might happen a slower pace than the Fed hopes. Here's where that leaves you... If you've followed our standard advice at Stansberry Research, you already own shares of high-quality businesses as part of a well-diversified portfolio aligned with your financial goals. From there, the bigger point is to simply know the climate that we're in. Global central banks have gone on a "tightening" spree not seen in decades. A major war is still ongoing. Inflation is still at decadeslong highs. There will be consequences... and they might just be starting. On the brighter side – see, it's not all doom – there will be opportunities for long-term investors. First, owning shares of high-quality businesses and avoiding the disasters and overleveraged businesses is a recipe worth following... Values of great companies could rise again if rate hikes peak. Conversely, these businesses could keep generating gobs of cash if inflation persists and keep rewarding shareholders even if more downside for stocks generally is ahead. On the other end, the many "zombie" companies that can't afford to pay the interest on their own debts could be closer to collapse. I know our editors and analysts are busy researching potential opportunities in their various publications to take advantage of this recent volatility. There's one other winner from all of this... I mentioned in [Monday's Digest]( about Silicon Valley Bank's failure that gold and bond prices could rise as a result... That's not because of the bank's failure on its own, but because the Fed might pause rate hikes earlier than expected in response. A Fed pause could lead to a slower pace of disinflation and weaken the dollar compared with other currencies as other central banks around the world keep hiking their rates. To close things out today, our in-house quantitative analyst, Matthew Poltorak, will explain a bit more about why this is. Specifically, he'll show why a weaker dollar suggests a higher future gold price. As I think you'll see, he has some compelling data and research to back up the idea. Matthew takes things from here... Gold investors have been waiting... and waiting... For nearly three years, gold bulls have been waiting for large returns... Pick your argument for why, but a big one is that 40-year-high inflation should help a precious metal that's considered an inflation hedge. But it hasn't happened. From the onset of the pandemic in February 2020 until November 2022, gold barely budged... dropping about 1%. But as I (Matthew Poltorak) will explain today, that is all set to change if one thing happens. Following this story can ensure you are part of the first significant returns in gold of the decade... Why is gold set up for this run?... The answer lies in the high correlation between the U.S. dollar and gold prices. Correlation essentially means how closely two assets' returns mirror one other. A negative correlation is when two assets move in opposite directions at the same time. And as I will detail, the dollar and gold have a negative correlation... The U.S. Dollar Index – which measures the greenback's value against the world's other top currencies – had been steadily increasing since 2021. In November 2022, though, that long-term trend officially reversed into a 10% decline that lasted through February 1. The dollar rallied a bit over the past month, but it's still well below last fall's peak... And this fall in the dollar is exactly what gold investors needed. You can look at a chart like the one below and see the negative correlation between the dollar and gold going back to 2006... Look at the way that gold and the U.S. Dollar Index often make simultaneous, but inverse moves. This chart is a clear visual demonstration of negative correlation over a long time frame. But it doesn't tell the whole story... What about the details? How often does that negative correlation exist? What about on smaller scales? What about different time periods? That's where the math comes in... We can mathematically calculate the correlation coefficient over different time periods. A correlation coefficient ranges from -1 to 1. A perfect negative correlation is -1, 0 indicates no correlation at all, and 1 is a perfect positive correlation. Here's what the dollar and gold's correlation looks like on these timelines... The data points show the performance of the dollar and the performance of gold over the same weekly, monthly, or yearly time periods since 2006... As you can see, a negative trend line is clear in all three, and it becomes a much better fit in the yearly sampled chart. Logically, this makes sense. Correlating weekly or monthly returns leaves us with a fair bit of noise. But yearly returns take out most of the day-to-day volatility. The correlation coefficient for the dollar and gold over the past 15 years for yearly returns was -0.68, indicating a strong negative correlation. And most important, it means the dollar's long-term moves are a much more reliable signal for gold returns than its short-term moves. While there is a negative correlation between the dollar and gold over shorter time periods, the correlation is not as strong. Less correlation means less reliability that a falling dollar will signal higher gold prices. So while we don't want to focus on short-term dollar moves to predict gold prices, we can learn a lot if we review a broader time frame... So, let's look long term at the U.S. dollar... Fed Chair Jerome Powell recently stated that it may take more rate hikes than anticipated to tame inflation. While this may be the case, we could also be near the peak of the federal-funds rate for this hiking cycle given the bank upheaval we've seen since Powell's remarks. Rate hikes tend to strengthen the dollar, while rate cuts hurt the dollar's value relative to other assets. So if interest rates peak and then start to decline again, it means we can expect a falling dollar. Also, think about the context... In Europe, inflation is even higher than in the U.S., and rates are slightly lower. That means the European Central Bank has more room to hike rates. This could strengthen currencies abroad while the dollar at least remains steady, which would also weaken the dollar's relative value. And it's looking more and more likely that the dollar will level off at best, rather than grow stronger from here. After the disastrous collapse of Silicon Valley Bank and Signature Bank, many are saying the Fed rate hikes may be finished. The fear has shifted from inflation to the risk of a ripple effect through the banking sector, and then the broader economy. Where the big question last week was whether the Fed would raise rates by a quarter or a half of a percent, there is now significant debate as to whether the Fed should raise rates at all when it meets next week. Either option – a 25-basis-point hike or nothing – supports the case for a weaker dollar. And as we now know, a weaker dollar is a strong sign that gold should rally. Already, gold is up 6% in the past week. Don't be left out of gold's first bull run in this decade. Follow the math and get long gold as the dollar continues to tumble. They're Raising Rates Into a Recession Veteran trader Todd "Bubba" Horwitz joined Dan Ferris and me on the latest episode of the Stansberry Investor Hour podcast. Horwitz warned that a mess is ahead because of what the Fed has already done... [Click here]( to listen to this episode right now. And to catch all of the videos and podcasts from the Stansberry Research team, be sure to [visit our Stansberry Investor platform]( anytime. --------------------------------------------------------------- Recommended Links: # [Bank Collapse Causes Gold Prices to Soar]( Friday's bank collapse sent shock waves throughout the financial industry... Silicon Valley Bank was the second-largest bank in American history to fail, and investors have started piling into the safety and security of gold. But if you're not taking advantage of a little-known way to invest for around $5 today, you're missing out. [Click here for full details](. --------------------------------------------------------------- # [Up 588% in Three Years – and a BUY Today]( No analysts at Stansberry Research are currently recommending this stock, but a widely followed name is speaking out about it in a big way. [Get the recommendation 100% free on this page here](. --------------------------------------------------------------- New 52-week highs (as of 3/14/23): Hershey (HSY), inTEST (INTT), NeoGenomics (NEO), and Flutter Entertainment (PDYPY). In today's mailbag, feedback on [yesterday's Digest]( where we cited government inflation data and talked more about the Silicon Valley Bank failure... Do you have a question or comment? E-mail us at feedback@stansberryresearch.com. "Hi Stansberry Research, Thank you, I am grateful!... Food prices are up more than 10%. That's an understatement. You may multiply that number by five to seven. That's how much more expensive food has become since 2022. "I find it deceiving to read any media understating the price of food, our main survival condition. Please, do not undermine consumers of groceries economies, as many are feeling the pain of high food prices." – Paid-up subscriber J.J. Corey McLaughlin comment: Thanks for the note. We generally quote government data mostly because it's what other investors base decisions on, not because we necessarily believe it... Like you said, a lot of food prices are up more than 10% since last year. And recognizing this is important. Yesterday, we were simply saying that based on the way the government calculates the consumer price index ("CPI"), food prices rose an average of 10% last month from a year before. "Corey, Excellent article. It seems you covered all the important points on who is to blame for the SVB run and subsequent actions. I personally think the repeal of Glass-Steagall is absurd but you know this longest bull market in history had on complainers. "To my way of thinking there is a point which never seems to come up and that is that regardless of who is at fault for these collapses we have $31 trillion in budget debt and really $130 trillion in debt if one includes Social Security and Medicare, which are undoubtedly part of the U.S. debt. "For a $26 trillion economy that shouts, claims, screams, proves something is wrong and undoubtedly crises will develop. "Furthermore why isn't it corrected? Why is it ignored? When obviously there is tremendous moral hazard and everyone knows it. That's exactly why the Fed, FDIC and Treasury all pull all these 'Save Everything moves', that is why the Fed pivots so easily, because they are all afraid to let the bankruptcy be paid for by the corrupt or leveraged players that made the mistakes. "Spending money that no one has saved, that wasn't earned, is just too much fun for the politicians to correct when they can just charge society over the long haul, through inflation. The politicians have nothing to gain from providing economic stability. That requires discipline and who wants that in a society where everything bad is someone else's fault." – Paid-up subscriber Al M. "Clarification. [Greg Becker, the now-former Silicon Valley Bank CEO] was/is the president of the SF Fed. I'd say that makes it even worse and considering the Fed just got over a massive insider trading scandal for those trading before COVID and all these CEOs and other insiders of SVB dumping stock since January, I'd say they knew s*** was bad for a while. I'd also like to include Barney Frank of Signature. He was on the board of directors there. What this really comes down to is a bailout of the rich again and the little guy getting screwed again..." – Paid-up subscriber James S. McLaughlin comment: Thanks, James. Yes, we mentioned the Becker connection to the Fed on Monday. As of Friday, he's no longer on the board of directors of the San Francisco regional Fed bank... He wasn't the president, but definitely close enough! As a final note... After talking last week about how we were aiming to keep Digests on the shorter end, I realize this week's editions are on the longer side... But we've got banks failing. If there's any time that calls for running long, it's now. All the best, Corey McLaughlin with Matthew Poltorak Baltimore, Maryland March 15, 2023 --------------------------------------------------------------- Stansberry Research Top 10 Open Recommendations Top 10 highest-returning open positions across all Stansberry Research portfolios Stock Buy Date Return Publication Analyst MSFT Microsoft 11/11/10 939.9% Retirement Millionaire Doc MSFT Microsoft 02/10/12 807.7% Stansberry's Investment Advisory Porter ADP Automatic Data 10/09/08 769.2% Extreme Value Ferris ETH/USD Ethereum 02/21/20 598.0% Stansberry Innovations Report Wade HSY Hershey 12/07/07 582.8% Stansberry's Investment Advisory Porter WRB W.R. Berkley 03/16/12 538.7% Stansberry's Investment Advisory Porter BRK.B Berkshire Hathaway 04/01/09 441.4% Retirement Millionaire Doc AFG American Financial 10/12/12 406.3% Stansberry's Investment Advisory Porter ALS-T Altius Minerals 02/16/09 329.5% Extreme Value Ferris FSMEX Fidelity Sel Med 09/03/08 301.2% Retirement Millionaire Doc Please note: Securities appearing in the Top 10 are not necessarily recommended buys at current prices. The list reflects the best-performing positions currently in the model portfolio of any Stansberry Research publication. The buy date reflects when the editor recommended the investment in the listed publication, and the return shows its performance since that date. To learn if a security is still a recommended buy today, you must be a subscriber to that publication and refer to the most recent portfolio. --------------------------------------------------------------- Top 10 Totals 4 Stansberry's Investment Advisory Porter 3 Retirement Millionaire Doc 2 Extreme Value Ferris 1 Stansberry Innovations Report Wade --------------------------------------------------------------- Top 5 Crypto Capital Open Recommendations Top 5 highest-returning open positions in the Crypto Capital model portfolio Stock Buy Date Return Publication Analyst ETH/USD Ethereum 12/07/18 1,362.5% Crypto Capital Wade ONE-USD Harmony 12/16/19 1,172.1% Crypto Capital Wade POLY/USD Polymath 05/19/20 1,054.7% Crypto Capital Wade MATIC/USD Polygon 02/25/21 947.3% Crypto Capital Wade BTC/USD Bitcoin 11/27/18 558.8% Crypto Capital Wade Please note: Securities appearing in the Top 5 are not necessarily recommended buys at current prices. The list reflects the best-performing positions currently in the Crypto Capital model portfolio. The buy date reflects when the recommendation was made, and the return shows its performance since that date. To learn if it's still a recommended buy today, you must be a subscriber and refer to the most recent portfolio. --------------------------------------------------------------- Stansberry Research Hall of Fame Top 10 all-time, highest-returning closed positions across all Stansberry portfolios Investment Symbol Duration Gain Publication Analyst Nvidia^* NVDA 5.96 years 1,466% Venture Tech. Lashmet Band Protocol crypto 0.32 years 1,169% Crypto Capital Wade Terra crypto 0.41 years 1,164% Crypto Capital Wade Inovio Pharma.^ INO 1.01 years 1,139% Venture Tech. Lashmet Seabridge Gold^ SA 4.20 years 995% Sjug Conf. Sjuggerud Frontier crypto 0.08 years 978% Crypto Capital Wade Binance Coin crypto 1.78 years 963% Crypto Capital Wade Nvidia^* NVDA 4.12 years 777% Venture Tech. Lashmet Intellia Therapeutics NTLA 1.95 years 775% Amer. Moonshots Root Rite Aid 8.5% bond 4.97 years 773% True Income Williams ^ These gains occurred with a partial position in the respective stocks. * The two partial positions in Nvidia were part of a single recommendation. Editor Dave Lashmet closed the first leg of the position in November 2016 for a gain of about 108%. Then, he closed the second leg in July 2020 for a 777% return. And finally, in May 2022, he booked a 1,466% return on the final leg. Subscribers who followed his advice on Nvidia could've recorded a total weighted average gain of more than 600%. You have received this e-mail as part of your subscription to Stansberry Digest. If you no longer want to receive e-mails from Stansberry Digest [click here](. Published by Stansberry Research. You’re receiving this e-mail at {EMAIL}. Stansberry Research welcomes comments or suggestions at feedback@stansberryresearch.com. This address is for feedback only. 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