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 latest FOX Business interview, 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 increasing rates in this cycle. Whatever their decision, we do not believe the market response will not have a lasting market impact. What is not on the table? Decreasing interest rates. In the past, the Fed only decreased interest rates when we were in the midst of 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 believe 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.
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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 a good 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.

Stay in touch:
• Visit us at: www.keywealthmgmt.com
• Follow us at: twitter.com/KeyAdvisorsLLC
• Follow Eddie at: twitter.com/commonsensebull
• www.linkedin.com/company/key-advisors-group-llc/…(read more)

LEARN MORE ABOUT: Bank Failures

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We Are Starting to See Bank Failures, Now What?

The global financial crisis in 2008 shattered economies around the world, and it left a lasting impact on the banking sector. Governments implemented strict regulations and supervision to ensure that the mistakes and risky behavior that led to the crisis were not repeated. However, as we navigate through the unprecedented times brought on by the COVID-19 pandemic, we are starting to witness the strains on banks once again.

The economic fallout from the pandemic has severely hit businesses and individuals alike. Millions have lost their jobs, and companies have shut down, unable to weather the storm. This has translated into rising loan defaults and deteriorating asset quality for banks, putting immense pressure on their balance sheets.

As a result, the possibility of bank failures is becoming a real concern. When a bank fails, it signifies that it is no longer able to meet its obligations to depositors or creditors, and it requires intervention from regulators or other banks to address the situation. The aftermath of a bank failure can have severe consequences for the financial system, and it is imperative that appropriate actions are taken promptly.

So, what steps can be taken when a bank faces failure? Firstly, regulators need to ensure that depositors’ funds are protected. Deposit insurance schemes, commonly established by governments, provide a safety net for depositors by guaranteeing a certain amount (usually up to a specified limit) of their deposits. This helps maintain public confidence in the banking system and prevents potential bank runs.

Secondly, regulators and governments may need to intervene to stabilize the bank. This may involve injecting capital, organizing mergers with stronger banks, or providing liquidity support. These measures aim to prevent the bank’s failure from triggering a domino effect on other financial institutions and the broader economy.

Moreover, a thorough examination of the failed bank’s operations and identifying the root causes of its failure is essential. This assessment enables regulators to implement corrective measures and avoid similar issues in the future. It is crucial to hold individuals accountable for any misconduct or mismanagement that contributed to the bank’s downfall.

To prevent future bank failures, regulators must closely monitor the financial health of banks, conduct stress tests at regular intervals, and ensure compliance with prudent risk management practices. Early identification of potential weaknesses can help take preemptive actions, such as requiring banks to raise additional capital or to divest risky assets.

Furthermore, enhancing transparency and disclosure in the banking sector is critical. Investors and depositors need access to accurate and timely information to make informed decisions regarding their investments and deposits. This promotes market discipline and reduces the scope for fraudulent activities.

Lastly, collaboration between regulators at the national and international levels is vital. In an increasingly interconnected financial world, a failure in one jurisdiction can quickly spread and have far-reaching implications. Coordinated efforts in regulation, supervision, and crisis management facilitate effective responses during times of distress.

As we witness the unfolding economic fallout from the COVID-19 pandemic, the risk of bank failures is becoming more evident. However, by adhering to robust regulatory frameworks, strengthening risk management practices, and improving transparency, we can mitigate the impact and safeguard the stability of the banking sector. Timely intervention and the implementation of rigorous corrective measures are crucial to ensure that the mistakes of the past are not repeated, and trust in the banking system can be restored.