What is Really Bugging the Banks

Preface: Give me a stock clerk with a goal and I will give a man who will make history. Give me a man without a goal and I will give a stock clerk – J.C. Penny

What is Really Bugging the Banks

……The problem is banks cannot pay depositors anything close to what they can now receive from a risk-free T-bill yield. Otherwise, they would be paying depositors more than they are currently receiving from a good percentage of their assets, and their profit margins would disappear. However, if banks don’t begin offering much better rates to their customers’ liquid deposits, it will lead to more money fleeing the banking system, which is a drain on reserves and curbs banks’ ability to lend. This exacerbates the drain on reserves already occurring from the Fed’s ongoing QT program. Banks are then forced to sell assets to meet liquidity requirements, which then puts further downward price pressure on these same assets and attenuates banking reserves further…….…..In other words, we have yet to see the recession become manifest, which is so very clearly predicted by the National Federation of Independent Business’ small business survey, the Index of Leading Economic Indicators, plunging money supply growth rates, the soaring net percentage of banks that are tightening lending standards, and inverted yield curves. The Fed’s additional 25bp rate hike after the May FOMC meeting will serve to exacerbate and expedite the coming recession. And, once that economic contraction finally does arrive, we can expect the stress in the banking system to greatly intensify……..

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Michael Pento is the President and Founder of Pento Portfolio Strategies with more than 30 years of professional investment experience. He worked on the floor of the NYSE during the mid-’90s. Pento served as an economist for both Delta Global and EuroPacific Capital.

Disclaimer: This blog is for educational purposes only and is not to be construed nor used as investment, tax or legal advice. Contact your advisors to discuss your specific situation.

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