You know how bullish I am.
And by now, long term readers will also know precisely why.
However, it doesn’t mean I’m completely blinded to the myriad of difficulties many economies still face.
Here’s the rub.
Whilst things are about to go completely over the top, with the greatest wealth creation event still ahead of us, the truth below the waterline isn’t quite as rosy.
As credit creation turns towards ever more speculative endeavors, the “real” economy will become deprived of the credit it needs to promote and sustain productive growth.
The Bill Will Come Due
This leads to future problems which during the good times simply no one is interested in knowing about, let alone solving.
But the bill for this will be due. One day.
Therefore, whilst my gaze is firmly focused on the opportunities that will become apparent during the final stage of the 18.6-year real estate cycle for myself and my subscribers, I’m still wary enough to keep tabs on where these future problems may arise from.
And here is why.
Anyone else smile inside when they see the big banks taking the fight to Congress…on December 7 of all dates?
(If you didn’t know December 7 is a “Gann date” – meaning a lot of pivotal events occur on that day throughout history. Subscribers of my premium newsletter know all about the importance of these dates in their trading.)
Now, if you ask most average Americans if their biggest banks are short of a few dollars today, I’m sure I would receive a lot of rolled eyes back in return.
Frankly, all the banks which attended this oversight hearing are absolutely swimming in cash.
So what are they fighting Congress about?
From the above Bloomberg article (bolded text is my own highlighting):
The heads of Wall Street’s giants warned that everyday Americans will be made to pay if banks are forced to meet higher standards aimed at preventing financial meltdowns like the regional bank disaster earlier this year.
Congress is looking to force banks to set aside more cash as a buffer against losses. But JPMorgan’s Jamie Dimon, Goldman Sachs’s David Solomon, and Citigroup’s Jane Fraser, among others, told lawmakers on Capitol Hill their institutions were safe.
In a move that should surprise absolutely no one, these banks would much rather not place their mountains of cash and turn them into capital buffers.
Instead, they would rather punish you by forcing customers to pay much higher fees and endure higher interest rates on credit cards and loans instead.
Forewarned Is Forearmed
This is the future of every American taxpayer alive a few years from now.
When you consider the fact that we’re due to see these same banks fight tooth and nail for market share right on the cusp of a speculative frenzy of credit creation, anything which may impact upon their ability to lend will be fought.
Hence this “fight” on Capitol Hill.
Here’s the irony…
It’s that insatiable appetite for higher earnings that ultimately causes these same banks to collapse once we pass the expected U.S. land market peak later this decade.
The falling value of the collateral this land represents means all the loans made against that same land turns from good debt to bad debt.
And if previous real estate cycles are any guide, these same banks will no longer be fighting Congress.
Oh no!
They will instead go cap in hand asking for their help from going insolvent. Which, if they did fall in line today and build adequate capital buffers, they arguably wouldn’t need to.
See the irony here?
Forewarned is forearmed.
Expect these banks to win this fight, expect them to then fight amongst themselves to outlend each other.
And then, finally, watch as they crawl on their hands and knees to the U.S. government asking for your taxpayer dollars to bail them out.
Don’t worry about this today. It’s not due to come crashing down… yet.
But don’t stop watching what these same U.S. banks do moving forwards, either.
Regards,
Phil Anderson
Editor, Cycles Trading with Phil Anderson
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