Tag: Financial Select Sector SPDR ETF (XLF)

As Banks Collapse, Start Looking Ahead

Posted on by Matt Thalman

Almost two months ago, I wrote about how you could buy exchange-traded funds, both long or short, to play what, at the time, we were told was a one-off banking crisis with just Silicone Valley Bank.

The point at the time was that it was unlikely that Silicone Valley Bank was the only bank that took on outsized risks, and therefore it was unlikely they would be the only bank that would have problems.

Fast forward almost two months. We have had three banks, Silicone Valley included, fail in the U.S., and Credit Suisse needing a loan from the Swiss Nationals bank. We have also, more recently, had several bank stocks take massive noise dives as investors fear they are the next bank to fail. And we even had Pacific West Bank announce that they are looking at potential sale options and strategies to sure up the company.

We can all sit here and believe what Janet Yellen and Federal Reserve Chairman Powell tell us about the financial sector's health and go on with our day.

But, while the overall financial sector may very well be as healthy as they claim it is, a lot of banks, both big and small, are seeing their stock prices tank. And as an investor, when I see this type of price destruction, I immediately think, "Am I missing a good or even great investment opportunity while this plays out?"

As I said two months ago, I can't tell you if the banks will go higher or lower in the near future from where they sit today; I am not that intelligent.

But I know that the big banks, not the regional ones, will survive this crisis in the long run. And, based on history, i.e. the 2007-2008 financial crisis, the big banks are likely to get even more significant.

If anyone thought the big banks were "too big to fail in 2008," they are even more prominent today. Hence, they are indeed too big to fail today.

Furthermore, since the bank was failing, JPMorgan Chase just bought most of First Republic Bank's assets. That move has made JPMorgan even larger; big banks are getting even bigger. Continue reading "As Banks Collapse, Start Looking Ahead" →

ETFs To Play The Banking Situation

Posted on by Matt Thalman

With the collapse of Silicon Valley Bank, everyone is looking at the banking industry. Some think it has more room to fall, while others believe now is the best buying opportunity we have seen in a decade.

At this time, I believe it is too hard to pick which direction banks or the market overall is heading.

My reason for saying that is that very few people fully understand the real risk to the banking system at this time.

A few weeks ago, Wall Street banking analysts gave banks good stock ratings. Janet Yellen, the head of the Treasury Department, recently said the banking industry was healthy. Even Jerome Powell, Chairman of the Federal Reserve, recently sat in front of congress and testified that the banking system was solid and well-capitalized.

Well, that certainly wasn't the case for SVB.

While I understand that when Janet Yellen or Fed Chairman Powell make these statements, they are speaking about the whole industry, not one-off banks, as we saw during the financial crisis in 07-08, it only takes a few small cracks in the system to open the flood gates.

And when the 15th largest bank in the U.S. fails, it's hard to ignore that crack, despite the argument that SVB is different from most other banks because they lend to riskier clients in the form of 'start-up' businesses.

The argument that SVB is and was different may make sense, but if that is true, how do you explain Credit Suisse needing a $50 billion loan from the Swiss National Bank?

Finally, for years we have been told that the banks, both here in the U.S. and worldwide, have parts on their balance sheets that are referred to as 'black boxes.' These are certain businesses or investments that we, outsiders, will never get to see. We will never know what those parts of the bank's business look like, and thus, how can we fully understand how healthy or sick a bank is until it's too late?

Maybe you understand the banks better than I do and still want to invest in them, whether long or short; let me give you some exchange-traded funds that you can buy to profit from a bank industry move in either direction. Continue reading "ETFs To Play The Banking Situation" →