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What you won’t see or hear on the news.
Credence.
Why is silver soaring? The banks are in trouble. These details are public: Berkshire (BRK) sold 260 million shares of $BAC at $41, for proceeds of $10.6B. But Berkshire still owns more than $30 billion worth of $BAC. But probably not for long: here's what's not public, yet.
Berkshire has also sold all of its commercial banks, except Citi, since early 2020. Sold 100% of its 346 million shares in $WFC; Sold 100% of its 150 million shares in $USB; Sold 100% of its 60 million shares in $JPM; Sold 100% of its 12 million shares in $GS.
And Buffett isn' the only well-connected asset manager to dump every American bank. Dalio's Bridgewater (the largest hedge fund in the world) dumped over $100 million of Bank of America and virtually every bank stock too, including: JP Morgan (JPM), Bank of America (BAC), Wells Fargo (WFC), Goldman Sachs (GS), Morgan Stanley (MS), Bank of Hawaii (BOH), PNC Financial (PNC), Citizens Financial (CFG), and Capital One Financial (COF). Why?
The reason: there's a $1 trillion+ hole in the commercial banks' balance sheets. No one currently at the Fed Reserve is willing to talk about these issues, but here's what Thomas Hoenig, former vice chairman of the Federal Reserve, said:
"Guys, I only want to know one question, how long before you fail? Not how complicated you can make the formula to confuse me and certainly confuse the public."
Hoenig is not just any central banker. He was the head of the St. Louis Fed for 20 years ('91-2011) and has long been among the 2-3 most respected central bankers, ever, at the Fed. What Hoenig warned about is: current regulations do not match economic reality.
"Risk-weighted capital flat-out misleads, the only thing a real bank investor wants to know is how much real equity capital is there. That tells the investor how prepared the bank is to absorb a shock, no matter where it comes from on the balance sheet."
Buffett is a “real” bank investor. So is Dalio. But, as you can tell by $BAC's share price, which is trading at near all-time high multiples, most of the public is not. In fact, NOBODY in the mainstream media has bothered to tell the public anything about the truly enormous scope of these problems. I wonder why...
How bad is it? Quoting from the St. Louis Fed's Bank Capital Analysis report of June 30, 2022: Since 2019, banks increased securities holdings by $2.0 trillion, increasing the share of securities as a percentage of total assets to 33.7% in the second quarter of 2022 from 17.8%
Let me make sure you understand what that means. It means that fully one-third of the reserves of our biggest banks are deeply “underwater.” That's because they bought $2 trillion worth of long-term bonds (and mortgages) at interest rates around 1%.
The real market value of these assets has plummeted because of rising interest rates. It was soaring losses on these assets, which led to the run on deposits in the spring of 2023 at Silicon Valley Bank, Signature Bank, and First Republic Bank.
These banks didn't fail because they made bad loans. They failed because they owned long-dated Treasury bonds. Total losses on those bank failures were $40 billion. How in the hell did this happen? Mr. Hoenig explained:
"It's a political process. It's not a market process. The market no longer determines capital in the financial, especially in the banking industry. It's now politicians, lobbyists, and the regulators who have to battle it out among themselves."
"Therefore, you get these non-market solutions like risk-weighted capital. And banks are incentivized to increasingly leverage their balance sheets. And, thanks to the ‘financial repression' of the COVID era, when the Fed's bond buying binges took long term rates to below 1%, there was an enormous amount of interest rate risk in the U.S. bond market back in the summer of 2020."
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