Another bank goes bust... JPMorgan Chase buys First Republic... The second-largest bank failure in U.S. history... The government can't save everything... More famous last words... 'This part of the crisis is over'... It doesn't look like it...
 This is what failure looks like...
On a stock chart, at least. Here's the 12-month stock price chart for shares of San Francisco Bay area-based First Republic Bank (FRC), the latest one to fail... That's a 98% drop from February alone. It would have been a complete wipeout, but trading of these shares was halted today. I (Corey McLaughlin) wouldn't call this a "soft landing" for First Republic, or the U.S. banking system in general this year... How'd this happen?... Well, First Republic – another California tech-hotbed bank – was one of the regional banks that customers made a run on in March amid the failures of Silicon Valley Bank and Signature Bank. Just like the other two, First Republic was woefully mismanaged. It had lent out more money than it had in deposits, and its total assets were just below the Fed's "stress test" levels... As a result of underestimating or ignoring the impact of higher interest rates, the bank's balance sheet showed huge losses. As I reported in the March 16 Digest... San Francisco-based First Republic Bank (FRC) – whose balance sheet has among the most "uninsured deposits" in America and which has held-to-maturity securities rivaling Silicon Valley Bank's – saw its shares drop 35% this morning before reversing to a 10% gain. The move followed reports this afternoon that bigger banks like JPMorgan Chase (JPM) and Morgan Stanley (MS) were considering a cash infusion to the regional bank, whose debt was recently downgraded to "junk" by multiple ratings agencies. Late that day, 11 major banks got together to deposit $30 billion of freshly conceived "emergency" government funds onto First Republic's balance sheet to stem fears of a broader collapse of the bank – and regional banks across the country. Then most people, or certainly those in the mainstream media, forgot about it... And, as central bankers hoped, earnings season for banks recently showed that most were in decent positions. That held until a week ago, when First Republic's first-quarter earnings report revealed that customers had withdrawn more than $100 billion amid the March panic. After that admission, tantamount to saying the bank probably couldn't survive on its own, we got the latest drop on the above chart in the bottom right. More panic. On Friday, word got out that officials from the Federal Reserve, U.S. Treasury, and Federal Deposit Insurance Corporation ("FDIC") were trying to get a bank to take over First Republic. By this morning, it was official. This is what the 'rescue' looks like... One of the "too big to fail" banks, JPMorgan Chase, made a bid for First Republic's assets after California regulators seized the bank and put it in control of the FDIC in a government-driven deal. From CBS News... In a news conference on Monday to discuss the acquisition, JPMorgan CEO Jamie Dimon said that First Republic locations will be converted into JPMorgan wealth management centers over the next 18 months. JPMorgan will make a "modest" one-time $2.6 billion gain by acquiring First Republic but will also spend another $2 billion restructuring the regional bank, he added. "This acquisition modestly benefits our company overall, it is accretive to shareholders, it helps further advance our wealth strategy and it is complementary to our existing franchise," he said... JPMorgan will gain $92 billion in customer deposits and also absorb $173 billion in outstanding First Republic loans. If you live in the San Francisco area, your local First Republic branch will get a JPMorgan Chase sign on the wall and a JPMorgan Chase pen in the lobby sometime in the next 18 months. For everyone else, here's the deal... This is the second-largest bank failure in history... The honor used to go to Silicon Valley Bank, but First Republic was slightly larger with $229 billion in assets... Signature Bank, the third recent failure, was right behind both of them. So, three of the four largest-ever U.S. bank failures have now occurred in the past two months. (The biggest loser remains Washington Mutual's demise in 2008 amid the financial crisis.) To bulls, the story of bank failures ends here. First Republic, like Silicon Valley Bank, had many wealthy and business clients whose deposits exceeded the $250,000 covered by the FDIC. They made a run on their own bank, creating a spiral of problems. The bearish case – for this just being the start of more failures – is that this kind of thing could really happen to any bank... If enough people take enough money out at one time, any bank is in danger. Still, I can't stop thinking... If this is a "soft landing" – like Fed Chair Jerome Powell as recently as a month or two ago said is still possible – what's the hard one going to feel like? Unemployment hasn't spiked yet, and the powers that be haven't yet "called" a formal recession. But I challenge anyone to tell me that three of the four largest U.S. bank failures happening in the past two months is an insignificant sign of stress in the financial system. I extend that challenge to JPMorgan Chase CEO Jamie Dimon. He added the following statement to the "famous last words" department today during a call with Wall Street analysts after the deal for First Republic was announced... There are only so many banks that were offsides this way. There may be another smaller one, but this pretty much resolves them all. This part of the crisis is over. This part? That means he thinks there will be another part, right? It's entirely possible – even likely. They can't save everything... This outcome, notably, tells us the U.S. government doesn't want to get into the business of offering unlimited insurance on every single bank deposit. It can't afford to. The FDIC, Fed, and Treasury worked together to guarantee all deposits (including those over the FDIC's $250,000 limit) at Silicon Valley and Signature. This time around, it didn't offer that concession while it brokered the JPMorgan Chase takeover. This approach also keeps First Republic's assets off the Fed's balance sheet. That's an important point, given that the Fed is purporting to fight inflation that remains at 40-year highs... and is starting down a prolonged debt-ceiling "debate" that will probably ultimately get resolved, but maybe not without panic stirring about the economy and markets. In other words, if you think the U.S. government can and will come to the rescue of everything, it can't... or, at least, it isn't willing to right now... If it were, it wouldn't have brokered this deal and let a bigger bank take over First Republic's troubled assets instead of coming up with some new emergency-funding plan. This deal sets a precedent for more bank consolidation should more panics like these emerge soon, but only assuming the JPMorgan Chases of the world are willing to keep buying. That might not always be the case... if stresses in the banking system pile up ahead. More reason for 'tightening'... Already, banks and lenders have been reacting to this sentiment and defensively tightening lending standards, typically a sign of recession. As we shared in the March 14 Digest via our friend and DailyWealth Trader editor Chris Igou, according to an index that tracks U.S. banks' lending practices, the bar to get a loan from banks, on balance, has been getting higher and higher. As Chris wrote... In the first quarter of this year, 44.8% of banks reported tighter lending. The problem becomes clear when we look at the percentage of tightening banks relative to the past four U.S. recessions. In 1990, 2001, 2008, and 2020, bank loan standards soared. And on all four occasions, the spike preceded a recession. Take a look... 
This is a big warning sign of a hard landing... and a possible recession ahead. As Chris said, "tightening" may not be the most spectacular banking story in the market today. But it might be one of the most reliable. For now, though, Mr. Market says ho-hum... The major indexes and bond yields were largely unchanged today... In a sign of apathy to this entire story, the financial sector of the S&P 500 was down a few tenths of one percent. Still, there were moves below the surface. JPMorgan Chase shares were up about 2%, while regional banks that aren't all that different from First Republic showed weakness. In particular, PacWest (PACW) shares were down nearly 11%. PacWest and certain other regional banks look closer to the picture of failure we began with today than many folks might realize... And even if they can survive, panic is never far away with the threat of a hard landing ahead. So, to end, a reminder: Avoid the garbage stocks. Own shares of high-quality businesses with great balance sheets that don't need $30 billion of their friends' funding to delay their collapses by two months. Our editors and analysts continue to recommend new buys even amid these volatile, uncertain times. Like Dan said on Friday, "you can – and should – still invest." Just remember that the biggest winners in the past 15 years, when money was cheap, may not continue to lead in the next, higher-rate era. | | | | Fed Insider: Wall Street Has It Wrong Joseph Wang, a former trader for the Federal Reserve, spoke with our editor-at-large Daniela Cambone. He says the central bank will keep raising interest rates to fight inflation while intervening if "something bad happens" with the banking system... Click here to watch this video right now. For more free video content, subscribe to our Stansberry Research YouTube channel... and don't forget to follow us on Facebook, Instagram, LinkedIn, and Twitter. | | | | | New 52-week highs (as of 4/28/23): Berkshire Hathaway (BRK-B), Copart (CPRT), iShares MSCI Mexico Fund (EWW), iShares U.S. Home Construction Fund (ITB), Eli Lilly (LLY), London Stock Exchange Group (LNSTY), McDonald's (MCD), Meta Platforms (META), Microsoft (MSFT), O'Reilly Automotive (ORLY), Flutter Entertainment (PDYPY), PulteGroup (PHM), Starbucks (SBUX), and Unilever (UL). In today's mailbag, feedback on Dan's latest Friday essay... and Bryan Beach's Masters Series essay on Saturday... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com. Hello Dan, Good commentary on today's Digest. I believe that there are two key reasons that the country is not being realistic about relying on green energy and discouraging oil and fossil fuels. First, most people have no idea how anything works (i.e. they are technically inept) and; Second, the companies that are pushing bad ideas are afraid to push back on what the government is advocating. Similar to Star Wars, they will let the wookiee win." – Paid-up subscriber Antonio S. "I don't understand these people. I keep telling nephews and nieces that oil isn't just for gasoline. They just laugh. I feel sorry for this generation when [they] can't get food, water, fuel, etc." – Paid-up subscriber Jim S. "Mr. Dan, I just finished plowing my way through your post-Annapolis newsletter and concluded that it reflects the current investing world. "I am retired which means I may remember a few recessions... I am a relatively recent (3 yr) Dan reader and I agree in your assessment to stick to the hard stuff – copper, coal, oil. It seems so complacent having to wait for paint to dry. Patience, they call it. Much like your latest newsletter. I don't remember ever reading so eagerly your words and not getting an insight into a new idea from you. When a new idea comes you will let us know. "Your last newsletter is a reflection for today's investor. There are too few new ideas that will set you right. If you already got the hard stuff, good, now be patient. Looking forward to your next words." – Paid-up subscriber John V. "Mr. Ferris, sincere apologies if this makes me a keyboard cowboy – superficiality not intended. As an Alliance member, reading most of the Stansberry professionals, it's my impression that there is a very broad consensus among them that there will be a lengthy sideways market following a fairly significant decline in the market. Timing of the decline unknown, but probably be within 2023, early '24... "If that is the overall Stansberry consensus I'm inclined to trust it. Accordingly it seems illogical to me to pursue even a recommended value stock investment at this point. Acknowledging that the point in a decline at which to 'pull the trigger' on planned purchases is subjective, a significant decline at least is recognizable. I don't consider myself 'on the fence' so much as 'waiting.' I think this is a common stance among your readers and would appreciate your comments." – Stansberry Alliance member Randall W. Dan Ferris comment: Randall, I can't give individual investment advice... But generally speaking, a strategy that depends on the ability to make accurate predictions will fail. And it'll likely fail catastrophically. I think we're in a bear market that'll take the S&P 500 down as much as 75%. I also think there'll be a sideways market for many years. But nobody knows the future. So I'm constantly reminding my readers that we consider these future scenarios to prepare for them, not to bet our whole retirement on them. Don't bet on your ability to predict the future – or mine. Bet on your ability to prepare for a wide variety of outcomes. Bet on your ability to control risk. My Stansberry colleagues all have their own ways of dealing with risk. By all means, be prudent or even cautious... But don't make the mistake of being so scared to invest that you sit on the sidelines for years waiting for a potentially wrong prediction to come true. "Bryan, Great article! You nailed it. We all get so tied up in the race to predict earnings that we often ignore the most important things. However, companies themselves have gotten so focused on quarterly earnings that they exacerbate the issue. "You noted the financial machinations that companies go through when attempting to peg a quarterly number (think GE/Jeff Immelt, Keith Sheridan). The thing is the quarterly earnings focus happens with almost every company, so no wonder we all get caught up in the hype. "Thanks for the reality check." – Paid-up subscriber John H. All the best, Corey McLaughlin
Baltimore, Maryland
May 1, 2023
Stansberry Research Top 10 Open Recommendations Top 10 highest-returning open positions across all Stansberry Research portfolios | Stock | Buy Date | Return | Publication | Analyst | MSFT
Microsoft | 11/11/10 | 1,112.4% | Retirement Millionaire | Doc | MSFT
Microsoft | 02/10/12 | 958.8% | Stansberry's Investment Advisory | Porter | ADP
Automatic Data | 10/09/08 | 790.2% | Extreme Value | Ferris | HSY
Hershey | 12/07/07 | 659.3% | Stansberry's Investment Advisory | Porter | wstETH
Wrapped Staked Ethereum | 02/21/20 | 639.5% | Stansberry Innovations Report | Wade | WRB
W.R. Berkley | 03/16/12 | 517.4% | Stansberry's Investment Advisory | Porter | BRK.B
Berkshire Hathaway | 04/01/09 | 482.5% | Retirement Millionaire | Doc | AFG
American Financial | 10/12/12 | 415.7% | Stansberry's Investment Advisory | Porter | FSMEX
Fidelity Sel Med | 09/03/08 | 316.6% | Retirement Millionaire | Doc | ALS-T
Altius Minerals | 02/16/09 | 306.8% | Extreme Value | Ferris | Please note: Securities appearing in the Top 10 are not necessarily recommended buys at current prices. The list reflects the best-performing positions currently in the model portfolio of any Stansberry Research publication. The buy date reflects when the editor recommended the investment in the listed publication, and the return shows its performance since that date. To learn if a security is still a recommended buy today, you must be a subscriber to that publication and refer to the most recent portfolio.
| Top 10 Totals | | 4 | Stansberry's Investment Advisory | Porter | | 3 | Retirement Millionaire | Doc | | 2 | Extreme Value | Ferris | | 1 | Stansberry Innovations Report | Wade | Top 5 Crypto Capital Open Recommendations Top 5 highest-returning open positions in the Crypto Capital model portfolio | Stock | Buy Date | Return | Publication | Analyst | wstETH
Wrapped Staked Ethereum | 12/07/18 | 1,508.0% | Crypto Capital | Wade | ONE-USD
Harmony | 12/16/19 | 1,166.3% | Crypto Capital | Wade | POLY/USD
Polymath | 05/19/20 | 1,065.2% | Crypto Capital | Wade | MATIC/USD
Polygon | 02/25/21 | 891.7% | Crypto Capital | Wade | BTC/USD
Bitcoin | 11/27/18 | 680.8% | Crypto Capital | Wade | Please note: Securities appearing in the Top 5 are not necessarily recommended buys at current prices. The list reflects the best-performing positions currently in the Crypto Capital model portfolio. The buy date reflects when the recommendation was made, and the return shows its performance since that date. To learn if it's still a recommended buy today, you must be a subscriber and refer to the most recent portfolio.
Stansberry Research Hall of Fame Top 10 all-time, highest-returning closed positions across all Stansberry portfolios | Investment | Symbol | Duration | Gain | Publication | Analyst | | Nvidia^* | NVDA | 5.96 years | 1,466% | Venture Tech. | Lashmet | | Band Protocol crypto | | 0.32 years | 1,169% | Crypto Capital | Wade | | Terra crypto | | 0.41 years | 1,164% | Crypto Capital | Wade | | Inovio Pharma.^ | INO | 1.01 years | 1,139% | Venture Tech. | Lashmet | | Seabridge Gold^ | SA | 4.20 years | 995% | Sjug Conf. | Sjuggerud | | Frontier crypto | | 0.08 years | 978% | Crypto Capital | Wade | | Binance Coin crypto | | 1.78 years | 963% | Crypto Capital | Wade | | Nvidia^* | NVDA | 4.12 years | 777% | Venture Tech. | Lashmet | | Intellia Therapeutics | NTLA | 1.95 years | 775% | Amer. Moonshots | Root | | Rite Aid 8.5% bond | | 4.97 years | 773% | True Income | Williams | ^ These gains occurred with a partial position in the respective stocks.
* The two partial positions in Nvidia were part of a single recommendation. Editor Dave Lashmet closed the first leg of the position in November 2016 for a gain of about 108%. Then, he closed the second leg in July 2020 for a 777% return. And finally, in May 2022, he booked a 1,466% return on the final leg. Subscribers who followed his advice on Nvidia could've recorded a total weighted average gain of more than 600%. | 
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