Nobody Knows and (Almost) Everybody Is Wrong

Overconfidence, aliens, and storytelling... Taking stock of the bank 'crisis'... What Doc Eifrig thinks about it... Armageddon is most likely off the table... A great way to profit from the fear... A stock that has returned 20% a year...

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Is the run on banks over?

There are two ways to answer this question... And I (Corey McLaughlin) don't mean "yes or no," but "with certainty" or "with uncertainty."

And if someone answers this question with certainty, there are three possibilities. That person is overconfident... has an other-worldly ability to know the future with 100% accuracy... or has an agenda.

The first behavior can be dangerous. The second would be alien. The third would be someone like JPMorgan Chase CEO Jamie Dimon – who declared "this part of the crisis is over" a few weeks ago. Well, as our friend and colleague Dan Ferris wrote on Friday, the big-bank CEO is "Duke of Manhattan, Protector of the Banking Realm, and Defender of the Status Quo." He always has a story to tell.

Skepticism is warranted. Here, we call the balls and strikes as we see them, and we haven't professed to know for sure what pitch is coming next.

Dimon's latest quote is that maybe the regional banking crisis isn't over, but "we're at the tail end" of it. All right, then... Here's what I would tell a good friend if they asked: Nobody knows for sure and everybody is wrong, but it looks like the worst of the run on regional banks is over.

When you weigh the odds...

Ask a lot of successful investors who have been in the markets for a long time... and survived bear markets, recessions, wars, whatever... and they often refer to the concept of "risk management." They don't profess to know the future, but they spend time preparing for various outcomes – and make bets based on their analysis, beliefs, and their goals.

Sure, you can get lucky with one trade one time, but you can also get unlucky one time, too. And if that happens multiple times, your portfolio could be back where it started, or worse. Risk management – limiting potential downside should you be wrong, while seeking upside – prevents this sort of scenario.

Practically, this can mean using tools like predetermined or trailing-stop losses (many Stansberry Research editors recommend setting those stops at a 25% drop) that will tell your brain and fingers to "sell" when your heart says otherwise. It can also mean spreading out your risk across a well-diversified portfolio so any one loss doesn't kill you.

And when it comes to considering where to invest your money, it means weighing the odds.

And this brings me back to the banking crisis... It has been the mainstream financial story of 2023, but there are probably a few things you haven't heard about it.

Recently, Stansberry Research partner Dr. David "Doc" Eifrig caught his Retirement Millionaire subscribers up with a great analysis of what to look at beyond the headlines. Today, I want to share some highlights, and then explain how you can get all the details and sample Doc's terrific work for less than $50 if you don't already have access.

First off, everybody has been talking about banks...

The topic's popularity tells us something on its own. As Doc shared in this month's issue of his signature Retirement Millionaire newsletter...

No one cared about regional banks until this year. Then look at how Google searches for "regional banks" skyrocketed in March...

So, public interest in the failures of Silicon Valley Bank, Signature Bank, and First Republic (which was seized by regulators and taken over by JPMorgan Chase) has been high. This is for a good reason. These banks had around $550 billion in combined assets.

But here's the thing that you probably haven't heard in the mainstream media... As Doc wrote recently in his free Health & Wealth Bulletin, according to the Federal Deposit Insurance Corporation ("FDIC"), since October 1, 2000, 566 banks have failed in the U.S.

Most of these failures (more than 500) occurred between the onset of the financial crisis in 2008 and 2015... But 18 banks have failed since the start of 2017, back when the economy was relatively healthy.

True, the most recent failures involved larger banks than most of the others we've seen in the past 20 years. And they've happened in a rate-hiking cycle driven by the Federal Reserve that most investors have never seen unless they were in the markets in the 1970s.

I am not saying "everything is OK," but the point is that bank failures are not the rarest of events... This fact might not sit well or sound completely satisfying, but it's true. And we bring it up because the idea provides important context and serves as a good reminder...

When a "story" hits the mainstream and it seems like everyone is talking about it, that means the prevailing sentiment around that story has usually peaked... And it will go back to being largely ignored in popular media like before.

That's what we're seeing with regional banks now... And it's something we'll continue to see time and again on any number of topics.

This pattern about sentiment goes for times of peak greed (like the top of a bull market) or peak fear (like the COVID-19 panic bottom). This is why rather than going with the crowd, the most profitable strategy over the long run is selling when most people are greedy and buying when most are scared.

Then we look at what banks are actually doing...

I have written to you lately about tightening credit conditions at banks. This was already happening in the Federal Reserve's higher-than-zero interest-rate era and has picked up since the recent regional bank failures... In short, more banks are hesitant to make loans.

This is significant, but again it's important to look at the trend in context. If you take nothing else from today's Digest, take this chart that Doc shared with Retirement Millionaire subscribers...

One thing we've been paying close attention to lately is the Federal Reserve's H.8 report, which shows the balance sheets of banks in the U.S. In the latest report, the amount of "loans and leases" – an indicator of outstanding credit – does show that banks are pulling back. But it's not enough to make this a particularly notable contraction just yet.

This "flattening" looks more like 2001, when we faced a recession that was driven more by stocks than by credit, rather than the steeper contractions in the Great Recession and the COVID-19 crash...

The H.8 data tell us that we're looking at a simple credit contraction right now, not a crunch... and definitely not a crash. Recent earnings reports show that some banks are struggling with profitability, but not with their balance sheets.

Now, this isn't to say credit conditions cannot or will not worsen. They probably will at least somewhat before banks are more inclined to lend again, on balance. Nor does it mean that more bank runs can't happen... or that there aren't more nuances to consider...

One of the dirty big secrets of American finance is that if enough people take enough money out of the same bank at the same time, that bank will fail. That's what happened with Silicon Valley Bank, whose clients were mostly tech investors in California, in about a day...

We recently learned that customers of fellow Cali-based regional bank PacWest (PACW), for example, began pulling deposits out of the bank a few weeks ago when the bank's stock started cratering. It looked a whole lot like what led to the other three bank failures we've seen this year, except for the last critical piece to keep the trend going: a failure.

In this month's Retirement Millionaire, Doc also pointed out that regulators know that regional banks have taken on greater importance since the 2008 and 2009 financial crisis. They have a greater share of assets in the overall banking system than back then.

Add it all up – extreme pessimistic sentiment, a reality not "as bad" as it might appear right now, and reasons for regulators to step in should more things go wrong – and Doc and his team are confident the worst of the regional banking "crisis" is behind us. As he wrote...

We'll most likely avoid any type of Armageddon.

As long-term investors, this is the type of useful conclusion you can reasonably make and act on. Rather than an overconfident prediction or baseless claim, it's useful to think through things this way... and weigh the findings within your framework and goals for your money.

In Doc's case, he went on to recommend buying shares of a great, relatively little-known business with a tremendous track record that is positioned to profit from current trends in banking. But the market has unfairly punished it for its association with regional banks.

This is an opportunity...

Remember that from 2008 to 2015, more than 500 federally insured banks failed. Even during that period, this "picks and shovels" financial business Doc is recommending actually grew its sales every year.

It has a history of rewarding shareholders and has increased its dividend every year since 1992, a period that includes three recessions. And today, Doc says this company has a "rock-solid balance sheet."

Even better, its shares are trading near a five-year low, making the upside attractive while most of the potential downside has already occurred. Since 1986, this stock has returned nearly 20% per year, almost double the S&P 500 Index. And Doc and his team expect the performance to continue for a long, long time.

Always keep in mind, nobody else's agenda matters as much for your money as your own. Today, if you're looking to put money to work in a high-quality business with a history of rewarding shareholders, this one certainly qualifies.

Existing Retirement Millionaire subscribers and Stansberry Alliance members can find Doc's full analysis of the banking sector today and all the details on this new pick here. And if you don't yet subscribe to Doc's signature service, hear his latest message for more information on how to get started today for as little as $49.

At the link, you'll get Doc's take on a "reversal window" that he sees upcoming for the stock market... why having too much cash on the sidelines right now might be a bad idea... and how to join the thousands of people who already follow Doc's research.

And, short on time? You can move through this video message and offer at your own pace by reading through a transcript. Not only that, I can tell you that you can try Doc's work risk-free for 30 days, with a full money-back guarantee. So click here for all the details.

New 52-week highs (as of 5/15/23): ABB (ABB), iShares MSCI Mexico Fund (EWW), Innodata (INOD), OMRON (OMRNY), Invesco S&P 500 BuyWrite Fund (PBP), Flutter Entertainment (PDYPY), PulteGroup (PHM), and Roper Technologies (ROP).

In today's mailbag, some more takes on Lance Armstrong, stemming from yesterday's mail... In case you missed it, the controversial cyclist – who is an investor in a venture-capital firm focused on health and wellness – will be among the presenters at our annual Stansberry Conference this October in Las Vegas. For more information on the event, including the rest of our speaker lineup thus far and how to grab a ticket, click here... And, as always, send your feedback, comments, and questions to feedback@stansberryresearch.com.

"Hi, many firm opinions about Lance. Yes, he did cheat, he owned up. I am a cyclist of 48 years, so probably know which way the wind blows. Taking drugs was endemic during his period, how could a cyclist weighing more than 2 stone over Armstrong stay with him on the hills? All the top cyclists are pencil slim, yet in Armstrong's period many were bulkier.

"He does not come across as a role model, but he has done his best to atone. He came to New Zealand a few years ago and cycled in Auckland on an easy ride to allow us to share with him a ride. Thousands turned up and felt the better for the short experience." – Paid-up subscriber David R.

"All he had to say when he got busted was, 'I'm sorry, I was really trying to keep up with my opponents.' Instead, he tried to bash everybody he could. And even his Oprah interview was a half-baked apology. If he would have said sorry then most people would forgive him. Examples all over the place on how forgiving we are, especially with his Livestrong Foundation..." – Paid-up subscriber Christopher K.

All the best,

Corey McLaughlin
Baltimore, Maryland
May 16, 2023