The Causey Consulting Podcast

⚠️ A Bad Sign, IMO ⚠️

January 27, 2023
Show Notes Transcript

Hello, Hello and thanks for tuning in. I wanted to hop on and record a special broadcast because I feel like it's that important. To some degree we will be putting on our tinfoil hats today. If that's not of interest to you skip this episode. If you're looking for sugar plums and gumdrops, unicorns and lollipops and a wonderful bed of roses, this is also not the place for you. If you would rather think about celebrity gossip, then going beyond the headlines and trying to piece together what on earth is happening right now? You are most assuredly in the wrong place. Just go back to whatever gossip you were focused on and forget about this. So we've had these glitches that have happened. And we've been told each time Don't worry, it's not any kind of warfare. This is not a maneuver against us. It's just Oopsy daisy human error. And we saw this sort of thing happen again, on the 24th. Over on Reuters, you can find the headline New York Stock Exchange glitch leads to busted trades and prompts investigation will drop a link to all these articles. You can find them please read them for yourself. A glitch at the New York Stock Exchange prevented the opening options for a slew of stocks on Tuesday, prompting widespread trading halts confusion over whether orders were being filled at correct prices and trades in more than 250 securities being busted. The stock exchange which is owned by intercontinental exchange said it system issue prevented the opening auctions in a subset of its listed securities. The stocks began trading without an opening print causing erroneous prices that the exchange said will be declared null and void. Such events are extremely rare, and we are thoroughly examining the day's activity to assure the highest level of resilience in our systems. New York Stock Exchange's Chief Operating Officer Michael Blau Grunde said in a statement, the New York Stock Exchange ended the day with a normal market closed and expected a regular open on Wednesday. And quote, hmm, does that not seem weird? I mean, even the CE O 's saying such events are extremely rare. That feels weird to me. I'll read just a little bit more from this article. The glitch, the most recent in a series since the flash crash of 2010 impacted stocks of major companies including ExxonMobil, three M, Verizon, McDonald's, Wells Fargo and Walmart. The companies did not immediately respond to a request for comment and quote. Hmm. So here's another flashback, in my mind, in my opinion. Here's another flashback to the Great Recession slash global financial crisis. Because we're told this was the most recent in a series since the flash crash of 2010. I feel like that's worth paying attention to. I'll read just a little more. What appears to have happened is a technical glitch where all of my opening orders on the New York Stock Exchange auto cancelled even though some of them should have been fulfilled, said Dennis Dick trader at Triple D trading. They have corrected that now. But this is going to be a big mess to clean up. The US Securities and Exchange Commission said it was reviewing the issue. The exact cost of the fallout from the glitch is unclear. But the cost to brokers and retail traders is likely to be in the eight figure range, according to a person at a major brokerage who spoke on the condition of anonymity because the matter is sensitive. And quote, hmm, hmm. Don't you find that odd? And then when you look at the companies that were involved, these are not small companies. These are major economic players. I have to say I find that odd. I do. I find it odd and unsettling. Okay, now, on the morning of January 25. There was a headline that popped up on the side panel for LinkedIn and it was almost like just a random OSI. It's titled banks see exodus of wealthy clients. Hmm. It's read from that. Fed up with big banks meager interest rates on checking and savings accounts, many wealthy Americans are pulling out their cash and investing in higher paying products. While the Federal Reserve has been and hiking rates for nearly a year. The typical savings account only pays a point three 3% interest rate the Wall Street Journal reports, but Treasury notes money market funds and brokered certificates certificates of deposit or CDs pay between four and 5% affluent customers are taking advantage of those higher rates, causing a flight of deposits. From banks wealth management, businesses, deposit deposits at the Bank of America's wealth unit sank 17% last year to $324 billion deposits in the consumer unit, meanwhile, fell only point 6% to 1 trillion in quote. Hmm. Interesting, a flight of deposits. Gosh, I wonder about that. Because see, when we look when we go through, and we take a look at the responses that are put forth here on LinkedIn that are publicized by LinkedIn, it's mostly just talking heads, in my opinion. It's just people sort of confirming this narrative of well, the wealthy folks are doing this because they want to get the most bang for their buck. Is that why mean? The headline is banks see exodus of wealthy clients and then in the article we find causing a flight of deposits? Hmm. So if there's a flight of deposits, and the banks are seeing an exodus of wealthy clients, Is it really because they want to take their money out and put it somewhere else? For the higher interest rate percentage? Is that the only reason? Is it. What do you think? When we click on the article that LinkedIn is referencing from the Wall Street Journal we find rich customers pull money from banks offering paltry interest rates. The byline reads, wealth management clients are moving deposits into higher yield treasuries and money market funds. Okay, so let's just be honest, this sounds a little bit like a sleepy dry, probably not very interesting. Finance article. No offense, if that's your bag, but hey, you know, is the average person going to say, You know what, I want to read about paltry interest rates? Probably not. So in this article, we find wealthy savers are starting to take their cash out of bank accounts in search of higher yields. Big banks are still paying paltry interest on checking and savings accounts despite the Federal Reserve's steepest rate increases in decades. Their wealth management customers are done waiting, they are moving the extra savings they accumulated during the pandemic. Okay, into products whose rates have more closely tracked the Fed. I'll button for a minute to say remember what we heard Davos from Oxfam about how this wealthy 1% generated an absurd amount of money during the pandemic. So okay, I'm sure they do have some, if you're ultra wealthy, I'm sure you do have some extra savings that you've accumulated. That part I don't doubt. The typical savings account is paying a point three 3% interest rate according to the Federal Deposit Insurance Corp, Treasury notes, money market funds and broker certificates of deposit, meanwhile, are all paying between four and 5%. Every time the Fed hikes, the opportunity cost of leaving idle cash in low yielding accounts increases, said Jason Goldberg, an analyst at Barclays you're saying consumers who have extra cash being proactive with it and quote, okay, maybe is not what you think is going on. So every time that the Fed does a rate hike, theoretically, at least you should be making more in the interest rate on money that you're putting in savings money that you have entrusted to the bank, to hold for you. It should be your money should be making money for you, theoretically, at least. And so this commentator from Barclays is telling us you're seeing consumers who have extra cash being proactive with it. Is that the only thing that's going on here? I don't know. Let's continue to read. bank deposits sit in different business units. The biggest banks wealth management businesses hold billions of dollars in deposits for customers whose investments they manage their bread and butter banking customers also accumulated extra savings during the pandemic, though they are now spending some of it. Despite higher yields available elsewhere, they have so far largely opted to keep what's left in their bank accounts. The divergence was on display in Bank of America's fourth quarter earnings earlier this month. deposits at the banks wealth unit which includes Merrill Lynch, Wealth Management fell seven 10% in 2022 to 324 billion deposits in the consumer unit fell 2.6% to 1 trillion. And quote several things going on there. Okay, so let's make sure that that tinfoil hat is on good and secure. Is this being used as an excuse for the banks to say, well, all these affluent people took their money out. And so that's why we're not solvent. I don't know. The other thing is look at the disparity between the clients that are in these wealth management units, and okay, the contributions fell 17% whereas deposits in the consumer unit, which let's presume that's just peons, and plebs just good old working class Americans, deposits in the consumer unit fell only by point 6%. Remember that Buffalo Springfield song? There's something happened in here and what it is ain't exactly clear. Well, I mean, I think it kind of might be clear, though. I mean, don't you does not seem to you like people with some money. I mean, like some real for real money to the point where they're considered a wealth management client, Lottie doll by the bank. They kind of seem to know something that the average john and jane Q public does not. Or maybe that's just me, maybe my tinfoil hat is on way too tightly. It's affecting the blood flow to my brain. Maybe I just don't get it. But, you know, I feel like that disparity should be telling us something. I'll continue to read. affluent customers moved money into money market funds, and Treasury's chief executive Brian Moynihan said on a call with analysts, while the typical consumer banking customers simply had less extra money to make such investments. Well, yeah, no Sherlock, the bank paid just point zero 6% on consumer deposits in the fourth quarter, and point eight 8% on US interest bearing deposits across all businesses. Merrill Lynch customers can now earn a 3.98% rate on an account with a minimum $100,000 opening deposit and quote, right, okay, because your average working class person who's living paycheck to paycheck, doing what they can to get by, they go into the store and a carton of eggs is priced at a point that's obscene. You know, they're just trying to buy breakfast for the family, and it's a struggle. And then okay, so Merrill Lynch, customers can now earn almost a 4% interest rate on an account with a minimum opening deposit of 100k 100 grand more than one a lot of people make in an entire year. Oh, sure. Mere chump change all I just sort of picture like, you know, the old old timers, twisting the wax mustache around drinking brandy and smoking cigars in their country club. I'll read the flight of wealth deposits poses a big business issue for firms such as Charles Schwab, which relies on the extra cash that investors leave in their accounts for a large part of its revenue. The biggest US banks have a wider range of businesses, they also accumulated so many extra deposits at the start of the pandemic, that losing some isn't a huge problem. Still, they are trying to stem outflows by offering higher interest rates to their wealthy clientele. Yeah, that feels like a lot of important information to me about the solvency of these banks, about the behavior of the wealthy people. What kind of posts do they have their finger on? You know, I have tried. I have tried to be on here on the air. Anytime that I see something, whether it's labor market or job market specific, or whether it's just the broader economy, because let's be real, all of these markets are intertwined. The stock market doesn't exist in a vacuum. Neither does the housing market, neither does the labor market. These things matter. And so I've been trying to be on the air and on my blog as much as I can to provide the research and allow you to draw your own conclusions. Just my opinion, like Dennis Miller has always said, this is just my opinion. And I could be wrong. But I feel like mainstream mass media, as well as all of these gossip sites. The gossip sites just want to keep you distracted on silly nonsense that is not ever going to do anything important in your life. If you know about who some Kardashian is dating, or this celebrity got a divorce and that celebrity says they're pregnant. Is that ever going to really impact your life at all? I'm going to assume probably not Whereas when we start talking about the solvency of your bank, when we start talking about the interest rates, we're talking about layoffs and hiring freezes. Um, yeah, that most assuredly can impact your life. Of course it can. So let's just be Bob over for a moment to another article. If we go on American, we find an interesting study, a brief history of US bank failures, I'll drop a link to it. As I always say, please go visit these sites for your self, make your own decisions, draw your own conclusion, you may find something in the data or in these news articles, that speaks to you differently than it does to me, go and check all of these things out for yourself. So I'll read a little bit from this post for you. Now, bank failures are not uncommon during times of economic stress from the first financial panic of 1819 wasn't the first financial panic I don't think so. Okay, from the first financial panic of 1819, to the COVID 19 pandemic, several major economic events have caused banks to fail at high rates. Fortunately, the losses associated with bank failures are no longer a threat to individuals and businesses that secure adequate FDIC coverage for their funds. In quote, I have my own opinions about that. I sort of think that whenever we look into some of the behind the scenes conversations that have taken place between the FDIC and the Treasury about where is that money actually at? I mean, is there like a vault with how many billions of dollars ready to go so that the FDIC can really back this money is that vault really full of that money? I'll let you draw your own conclusions about that. But let's get into this article a little bit more. In his short history, the US has seen its share of economic panics that have resulted in runs on banks and bank collapses. Although the COVID 19 pandemic and the Great Recession of 2009 are still very fresh in our minds, it makes sense to start at the beginning. I mean, the COVID 19 pandemic probably is still fresh. in everybody's mind. It's still ongoing. But I honestly don't think that the Great Recession slash global financial crisis is that fresh in people's minds, not as much as it should be. Those of us who who remember, we still sort of have the battle scars and the emotional trauma of going through that and having to make some very tough decisions. We remember. But I just go back to that documentary, where that former VP said, the public always forgets, that seems to be the case, I don't know, kind of where that information goes, once it's brain dumped. But it's sad. So they go on in this article to detail the panic of 1819, the panic of 1837, the panic of 1873, the panic of 1907, the Great Depression and stock market crash of 1929. The savings and loan crisis of the 1980s and 90s Oh, yes. And the great recession, then we get into the COVID 19 pandemic of 2020. So in more recent times, we find, while only a few banks collapsed, during the most recent recession, the threat of bank failures remains a key concern for companies with significant cash reserves and quote, now, am I sitting here telling you that I think these stories about wealthy people moving their money out of the banks, that that means your local bank is going to collapse tomorrow? No. emphatically? No, that's not what I'm telling you. I think it's possible that wealthy people moving their money out of the banks can have a couple of different models, not a couple of different multiple different reasons behind it. Maybe you know what, at face value, it's exactly what we're being told. Maybe it just is that they want to take advantage of higher interest rates somewhere else, and they feel like they're just not getting a good enough deal from a bank. Maybe they are worried about the bank's solvency. Maybe they feel like if you don't hold it, you don't own it, and they're concerned about what's going on with these banks. Maybe this is being posited as an excuse a future excuse. Well, you know, golly, gosh, gee, bang whiz, we try. We were doing everything correctly. But the wealthy people in these wealth management accounts, they kind of panicked, or they gave us a raw deal. They wanted more money somewhere else. So even though we as the banks, we were doing everything, right, we just got the shaft from these wealthy folks that took their money out. And so that's why we're having problems. I feel like that's entirely possible. I also feel like it's entirely possible that people who are playing games at a much higher level than the average working class As person I think they are privy to information that we as the common folk or not. I do I'm sorry. If that sounds tinfoil hat to you. Oh, well get over it. You know, we just saw the WEF meeting over there at Davos, do you really think that these power brokers don't go into these meetings and have closed door conversations about the future of the world? Get real. Me. I don't know how else to say it. So on a not unrelated note, over on Bloomberg not on some weird fringe side fringe left fringe right alt media, but on Bloomberg, there was an op ed published on January the 20th. I will drop a link please again, go read this for yourself. Check it out for yourself. There was an op ed published titled gold bugs Oh, much to Central Bank buying. The byline reads bullion has rallied back above 1900 An ounce yet despite cooling inflation, the Fed doesn't look done. So that also feels interesting to me. And I'll read from this op ed for you now. The one I like is gold's relationship with real interest rates. It makes intuitive sense because of the metals negative carry and there's a decent inverse correlation over time that held during much of 2022. As the Federal Reserve raised rates at the fastest clip in decades, and investors bolted from precious metal funds. Now gold has rallied again, back above $1,900 an ounce and only 7% off its all time peak. Yet. Despite cooling inflation, the Fed doesn't look done, and using weekly data back to 2000. Regression of gold versus yields on 10 year Inflation Protected treasuries a proxy for real rates already implies a price roughly 50% lower than today's aversion to alternatives offers one explanation. Apart from cryptos collapse, stocks and bonds both served up negative returns last year, a confluence observed in only 2% of all 12 month periods since 1926. According to the Goldman Sachs Group. Another source of support is central banks buying gold as rising rates ding the value of US Treasuries holdings, and potentially to circumvent sanctions on trading with Russia. Net central bank purchases through the first three quarters of last year accounted for fully half of the growth in demand for gold and hit their highest level since 1967. Just as the post war dollar peg to bouillon began collapsing, it turns out gold bugs Oh, much, much of their recent cheer to the currency Miss managers, which should make them uncomfortable in more ways than one and quote. Yeah, let's go back. I want to really hone in on this. Another source of support is central banks buying gold as rising rates during the value of US Treasury holdings and potentially to circumvent sanctions on trading with Russia. Net central bank purchases through the first three quarters of last year accounted for fully half the growth in demand for gold and hit their highest level since 1967. Just as the post war dollar peg to bully on began collapsing, it turns out gold bugs Oh, much of their recent cheer to the currency Miss managers, which should make them uncomfortable in more ways than one and, quote connect the dots long on the law. Okay, so we've got wealthy folks moving their monies around. They don't know what maybe maybe that's true. Maybe they just don't feel like they're getting a good enough deal at their normal bank or their normal Wealth Management Facility and they want to take advantage of something else. You have central bank's buying up a crapload of gold. high cash why would that be? Why would these wealthy people be moving their money? Why would central banks be buying up gold? Hmm. You know, I don't know. I don't know. Again, maybe that tinfoil hat is just a little too tight on my old noggin, but It really to me, in my opinion, from my perspective, which is all I can offer you, it seems like something's going on some kind of change, some kind of issue is afoot, and they know it. Now you're not supposed to know it, you're supposed to sit down and shut up and get back in that cube will call, go back to the office, damn it, you don't need to work at home anymore, you need to get back in the cube farm for collaboration and team building and high fives around the water cooler and all that crap. Just go on back to the cubicle. And don't worry about anything else that's going on in the greater world or the greater economy. There's nothing to see here, people move along, move along. But for me, the more that I get told, there's nothing to see here. There's no story here, there's no reason to pick at the scab, the more I think that there probably is something to see, there probably is something important that I ought to pay attention to. I can't tell you what to do. I am not an economist, a billionaire, a hedge fund manager for billionaires. I'm not a power broker, I don't sit on the WEF, I don't get invited to any of these big fancy meetings, to drink spring water, and eat sustainably sourced fish in Switzerland and whatever else. That's not me. I don't give you advice or telling you what to do. And I definitely am not going to sit here and be like, well, you just need to put your money in a can in the backyard like great granny did or hide it under the mattress. I'm not going to tell anybody to do that. In today's world. God only knows what could happen if you did that. So I'm not going to tell anybody to do that. I'm not going to tell you to go to the bank right now and cause a bank run and have a big panic. No. To me, nothing is about panic. It's about preparation. So you don't have to panic. You don't have to be scared. You can start to rough out a game plan whether that's a job loss Survival Plan, or whether that's Oh God, oh, God, what if we have to go through another great recession slash global financial crisis? What if we really are getting ready to have another two to three year period? That just completely sucks? In my mind, it's better to see that coming. I'm the type of person that I always say if you got to stab me stab me in the chest not in the back. Let me see the dagger coming and let me know it was you. To me, a sneaky slimy backstabber is the worst, own up to your sins, be honest about what you're doing. However, the onus is on you, in my opinion, to caveat him tour to stay informed and have good critical thinking be reasonable, be rational about things. That seems to be a dying art nowadays. So what does all of this mean? I leave you to draw your own conclusions on it. Why are central banks buying up gold? What's going on with the currency? What's going on with these interest rates? What's going on with wealthy people saying screw it, and taking their money out of banks and moving it somewhere else? I leave you to draw your own conclusions on that. I feel like it's important for you to come to your own conclusions on that. If nobody else is going to synthesize this information for you and say, Hey, go read these stories and make up your own mind. I will be that person. Stay safe, stay sane. And I will see you in the next episode.