- Stocks fall on fears of a total banking system collapse
- Financial leaders warn this may only be the beginning of a global meltdown
- Advisors recommend moving wealth into precious metals to protect it
Markets Plummet as Banks Fail
The Dow plummeted 500 points on fears of a total banking system failure. After the rapid fall of three banks in a week, investors are fleeing the shaky sector. Market leaders and credit rating services warn this is just the beginning. Advisors recommend diversifying away from paper and digital assets into precious metals.
Panic is growing as Credit Suisse bank is in danger of failing next. Its shares fell more than 31%, dragging down the European Bank sector. US big bank shares declined in sympathy. Citigroup and Wells Fargo shed nearly 6% and 5%. Goldman Sachs and Bank of America fell around 5.5% and 2.5%, respectively.1
Charles Schwab, founder of the investment firm bearing his name, lost $3 billion after the SVB collapse. Shares of Charles Schwab dropped over 20% during a massive sell off. Traders fear banks like Schwab, with large bond holdings with long maturities, might be forced to sell everything to cover a rush of deposit withdrawals. And suffer the same fate as SVB.2
The stunning collapse of Silicon Valley Bank and Signature Bank tie back to the Fed’s aggressive rate hikes. Rates rose as the Federal Reserve battled record high inflation. SVB found itself with some $16 billion in unrealized losses from long-dated Treasury’s it held. As yields rose, it eroded the value of those bonds. This created liquidity issues for the bank. SVB had to sell those bonds at a loss to meet obligations.
Financial Leader’s Warning
Financial experts are flashing warning signs. Billionaire Ray Dalio is the founder of Bridgewater Associates. He said the SVB failure shows the growing cracks in the global financial system. “This bank failure is a ‘canary in the coal mine,’” Dalio said.
Dalio believes it signals a new era after central bank rate hikes. He expects more problems in debt and credit markets. The impact of interest rate hikes is “producing this classic dynamic of dominos falling.”3
Blackrock CEO Larry Fink warned banks may need to pull back on lending to shore up their balance sheets. He anticipates stricter banking regulations as a result. And Pershing Square Capital Management founder Bill Ackman says more banks will fail despite US government intervention.
Credit Rating Cut
Moody’s Investor Service cut the outlook on the US banking system from stable to negative. They said other institutions with unrealized losses or uninsured depositors could still be at risk. Moody’s blamed the cut on the bank failures and the need for a dramatic government rescue plan.
The Federal Reserve established a facility to ensure that institutions hit with liquidity problems would have access to cash. The Treasury Department backstopped the program with $25 billion in funds. They guaranteed those with more than $250,000 at SVB and Signature would have access to their funds.
Diversify with Precious Metals
The banking crisis has all but vanquished investor bets that the American economy can avoid a recession. Moody expects the US economy to fall into recession later this year. With the banks failing, investors are flocking to protect their wealth with precious metals. Gold and silver exist independent of the banking system. The Fed may be forced to stop interest rate hikes to squash the spreading failures. A halt in interest rate hikes only strengthens the case for gold. Lower rates and persistent inflation should result in higher prices for gold. Investors should act quickly before the situation worsens. Contact today to learn more about how a Gold IRA can protect your funds.