KEY POV: We still believe cash is king, and a high cash position will provide great buying opportunities closer to the summer.

Thanks for watching. In this video, you’ll understand why we’ve been concerned about the economic cycle since early 2021. Now the cracks are clearly evident.

After his FOX Business interview last week, Eddie received a lot of questions about his comment, “in my opinion, there is nothing anyone can do to stop what has already happened.” There are macroeconomic factors at play that have a tremendous impact on where we go from here.

In our opinion, these are the macro dynamics that make KEY Advisors bearish:
a. Small businesses are closing their doors at a rate we have not seen since the great recession.
b. Subprime auto loan delinquencies are accelerating at a rate we have not seen since the great recession –
c. Commercial real estate will continue to be challenging due to lower demand for corporate and retail space (high occupancy rates). Companies will likely have to refinance their debt at 2-4x current levels. (increased cost of capital)
d. Consumer debt continues to pile up, and they are showing signs of exhaustion –

Additionally, we believe the math around this economic situation is commonsense:
Rising Cost of Capital (makes doing business and debt more expensive)
Subtract
Lower Consumer Demand (meaning less revenue while expenses increase)
Equals
A Hard Landing and Recession (less revenue, less demand, shrinking bottom lines)

On Wednesday, we feel there is a 50/50 chance that the Fed will increase interest rates by 25 basis points (0.25%) or potentially pass on raising rates in this cycle. Whatever their decision, we do not believe the market response will not have a lasting market impact. So what is not on the table? Decreasing interest rates. In the past, the Fed only reduced interest rates when we were amid dire economic conditions, and we believe we are not.

Bank failures and bankruptcies have begun, and we believe that this is the beginning of the cycle. This is a risky time to buy bear market bounces because we think the downside potential is much higher than the upside. This is why we have maintained a high cash position in our client portfolios.

Another critical topic less talked about is the debt ceiling debate that is on pause on Capitol Hill. As a country, we hit our debt ceiling limit in January, but the decision to increase that limit was pushed back by congress until Sept 30. However, the government’s ability to borrow using extraordinary measures will be exhausted between July and September 2023. Combining this issue with our economic downturn will have a compounding effect. The last time the U.S. hit its debt ceiling was in 2011. It was the first time that the federal government’s credit rating was downgraded, the stock markets saw downturns of double-digits, and it took months for the economy to recover.

In summary, it is our opinion that the hard landing cycle has already begun. The macroeconomic factors are the momentum behind our trajectory, and there is nothing anyone can do to reverse the impact. It is an excellent time to be in cash as we believe there will be a great buying opportunity closer to the summer as the markets decline and we feel the impact of the debt ceiling debate.

Sources:
•
• …(read more)

LEARN MORE ABOUT: Bank Failures

REVEALED: Best Investment During Inflation

HOW TO INVEST IN GOLD: Gold IRA Investing

HOW TO INVEST IN SILVER: Silver IRA Investing

The economic downturn caused by the COVID-19 pandemic is now beginning to visibly impact the banking world as well. As the pandemic has caused widespread unemployment, reduced consumer spending, and disrupted global supply chains, many banks are now facing a surge in loan defaults and shrinking profit margins.

The United States Federal Reserve has recently issued a warning that some of the country’s smaller regional banks could fail if the pandemic continues to linger and the economy doesn’t improve. Although the larger banks are better equipped to weather a financial crisis, the smaller ones may struggle to keep up with the economic turmoil.

In the coming months, we may see some small banks close shop and others merge to remain afloat. The entire banking industry could face an era of consolidation, with the larger banks acquiring the smaller ones as a survival strategy.

In the meantime, the government and central banks are working to inject liquidity into the market to support the banking industry. The Federal Reserve has lowered interest rates and launched a program to purchase bonds in an attempt to boost the availability of credit for businesses and individuals.

To prepare for any possible bank failures, customers should ensure that their deposits are fully insured by the Federal Deposit Insurance Corporation (FDIC). The FDIC insures deposits up to $250,000 per depositor per bank. Customers who hold more than $250,000 in their deposit accounts may want to spread their funds across multiple accounts or banks to ensure full coverage.

In conclusion, the COVID-19 pandemic has led to a wave of bankruptcy fears for many businesses, and now we’re starting to see the banking industry feeling the heat too. Banks will be forced to adapt, consolidate and adapt to stay afloat in the meantime. The government and central banks are also doing their best to keep the financial system in check, and customers should take precautions to make sure their deposits are protected as we navigate through the bumpy ride ahead.