Banks right now are hoarding cash. They’re desperately trying to crash the markets. In this article, I am going to go over exactly why. Because many people may think that the banks don’t want to crash the markets or hedge funds don’t want to crash the markets.
They may think that they only want the market to go up. But people, that is not true. Banks and hedge funds are opportunists, and they’re going to take huge advantage of the market crash because it doesn’t affect them. It is your money that they’re losing, not theirs. And then when they need money, they can just call up Papa Powell, and get a trillion dollars like that.
Hey, Papa Powell, can I have a trillion? Sure, you can have a trillion dollars, JPMorgan. That’s all I got. But in all seriousness now, people, let’s get into the news, the facts and the data, how banks and hedge funds are hoarding cash, and how they’re spreading fear and desperately trying to crash the markets. But we can also use this as a huge buying opportunity that may be coming ahead.
So, everyone, let’s get into it. Well, I’m sure you’ve been seeing lots of things like this in the media, everyone. Goldman sees Fed hiking seven times in 2022 instead of five. Again, what are we seeing? We’re seeing banks saying the Fed’s going to rate five times and Goldman Sachs saying no seven times, then JP Morgan saying no eight times.
We can see this is a targeted campaign by the hedge funds, by the investment banks to spread fear out there to cause panic and to cause a crash. But later in the video, I want to go over how it could actually be much worse than this and how nobody is preparing for a scenario where it’s going to be much more rate hikes than seven or eight. And there’s a huge debate going on right now at Wall Street whether the Federal Reserve will lift interest rates by zero point 25% in March or by half a percentage point. Listen to this. While many Fed officials are not in favor of bigger rate hikes.
Louis Fed President James Bullet said he supports raising interest rates by a full percentage point by the start of July, including the first half-point rate hike since 2000, in response to the hottest inflation in four decades. And you know what? I completely agree with the Fed President, James Bullard. And I think the other Fed presidents got to get on board. But unfortunately, they’re very dovish.
They don’t want to hurt their retirement portfolio. So they’re saying, look, we can afford to take our time here, people. They cannot afford it. The middle class is getting destroyed. They are getting decimated right now.
They need to do something about this inflation right now. Yes, they can afford it with their million-dollar portfolios. But the middle class cannot afford another 10% increase in living costs. And our favorite Bank, Deutsche Bank, they’re now weighing in on the situation as well. Deutsche Bank economist has said that inflation data means a 50% basis point hike in March is now their base case.
Economists at Deutsche Bank tip further moves of 25 basis points percentage at every meeting this year except for November, bringing the total increase in the Fed fundraising in 2022 to one point 0.75%. And HSBC has also joined the party, predicting there will be a half a percent increase in March as well. But you know what I’ve been hearing a lot lately. I’ve been hearing people saying, well, don’t worry, the markets have already priced in all these rate hikes.
And don’t worry because, during past times when the Federal Reserve has lifted interest rates, the markets have continued their rally. Well, everyone, this time is very different. Let’s start off with 1983. We can see here that the price to earnings ratio of stocks was 18.7, so much lower than today at 22.8. In 1986, it was 14.8. In 1988 it was 12.5.
And what happened in 1999, if I remember correctly, things didn’t turn out too great. We had the biggest tech stock market crash of history. The.com crash and what have we had in 2000 and 2021, everyone, we’ve had a boom of profitless growth, tech stocks. And what has started to happen, they’ve already started to crash. And some people may think that this is a bottom, but during the.com crash, many stocks fell up to 95%.
Looking back to more recent times in history, in 2004, again, the valuations, the P/E ratios was 19.4%. In 2016, the last time the Federal Reserve started lifting interest rates was only 19.3. So Bank of America for some reason is saying it’s 22.8. But the data I had is saying it’s 35.
My latest data is showing P/E at 25.5. So, yes, what normally happens in the stock market is they try to price in Federal Reserve rate hikes before it happens. That’s why when the Federal Reserve does start lifting interest rates, we won’t see a sell-off because we’re seeing a sell-off now. But what you have to know is this time the stock market is starting at much higher valuations.
And the only reason we’ve had stocks go so parabolic is that the FED (still) prints money like crazy. There is no other alternative. A lot of retirees that maybe didn’t want to invest in the stock market, but had no choice but to go in the stock market because the 10 year US Treasury yield fell to 0.6%. But what if the ten-year yield goes back up to 5%? A lot of these retirees or risk-off investors go back into bonds to get a pretty decent return of 5%.
Also, margin debt is at record levels. So margin costs are going to go up for a lot of investors. So you’re going to have a lot of investors sell off the margin. And we’ve seen a lot of YouTubers that have been playing with margin lately have got absolutely wrecked. And margin debt and the stock market is very correlated.
So we see a lot of margin debt dumping. I think we’re going to see more selling pressure for stocks. But many people have also said the Federal Reserve won’t do anything and this inflation will be good for the stock market. Well, the Bank of America and many people are saying it could actually be much, much worse. Listen to this.
Bank of America strategists believe that risk to equities would be greater if the Fed did nothing. Runaway inflation would likely compress S&P 500 multiples and cut into earnings. And that’s exactly what we’re seeing this past earning season in the stock market. We’ve seen revenue go up, but that’s simply because of inflation and people having to spend more or pay more for the same items. We’ve also seen for some companies, inflation and the supply chain issues have actually hurt their profit margins and hurt their revenue growth.
So it’ll be very interesting to see what the Q1 results are for on banks’ the next earning season. But we’ve just got some new critical bit of information on what the 1% is doing with their money right now and what these banks’ wealthy clients are doing. Bank of America clients haven’t been this bearish on tech stocks since 2006. The is rate hike path is seen as a major risk for tech.
Equity allocations dropped to 31% overweight from 55% in January. Tech stocks have fallen to their lowest since 2006. So look what these wealthy clients are doing. Bank of America’s global fund manager survey shows investors are piling into cash. Cash is their highest position at 38%, equity 31%, commodities 31%, and bonds negative 72%. You may think why investors piling into cash right now. If inflation is surging and they say cash is trash, you don’t want to be in cash right now. And yes, that is true over the long term. But if you only lose 7% to inflation, that’s better than losing 20 or 30% if stocks continue to fall further.
But again, going back to what I was talking about at the beginning, everyone, banks have been preparing for this and banks are going to profit massively if the stock market crashes. And maybe they want it to crash because look at this, everyone. This is what the banks have been doing for the past year. They’ve been pulling more and more cash at the Federal Reserve reverse repo markets. Since 2021, they’re parking 70 billion USD a day.
But that has since surged now and banks are now parking over a trillion dollars and it did hit around 2 trillion every single day at the Federal Reserve waiting for the crash to come. And then they’re going to use this cash they are holding at the Federal Reserve to go up and buy the mega dip. Do you have all these bank scenes going to be seven, eight rate hikes? What nobody is talking about and what nobody is preparing for is the unthinkable, everyone, what if inflation doesn’t go away? What if inflation goes worse and what if they have to Jack interest rates up to meet inflation if inflation gets up to 15%?
Or the CPI finally shows the real inflation rate of 15% and the Federal Reserve over a two-year time frame? Because remember, don’t get caught up in the short term. What if over a two-year time frame they have to lift interest rates up to 15% to get inflation down? Now, I know you may think this is impossible and it will never happen. And why I’m not saying it’s going to definitely happen.
It still is a risk that I think we have to be prepared for because even though the 80s may seem like a lifetime ago, people, when you look over history, a 40-year time frame is a very small time frame and it is not unthinkable that this couldn’t happen again. And this surging crazy inflation is a price we’re paying for our leaders for central banks kicking the can down the road for the past 40 years. They can’t just keep doing it forever, everyone. So you’re probably thinking, okay, what can we do right now to protect ourselves and take advantage of the possible opportunities that are going to be coming ahead?
I’ve been saying this sell-off isn’t over and you have to be patient. Don’t just FOMO into these rallies because there are going to be rallies in bear markets. But the overall trend I think is we’re heading lower and what I’m doing personally is I’m waiting for stocks on average to fall 30 or 40% from their all-time highs. Again, we’ll have to continue to look at the data but then I’ll have a margin of safety and I’m not going to go all-in at one time because like I said nobody can predict the bottom, nobody can predict the market but you can get a good chunk in the macroeconomic cycle. So what I’ll do is then I’ll start dollar-cost-averaging in and I’m also a long-term believer in Bitcoin.
We’ve seen if banks have started freezing people’s bank accounts, people have been using Bitcoin as an alternative. So I think Bitcoin does have a good use case long-term for situations like that. Again, I’m waiting for Bitcoin to fall between 25,000 and 20,000 for me to start buying back into Bitcoin because even though we’ve had a recent rally in Bitcoin we are in a bear market and it’s going to head lower. But everyone that’s just my thoughts and opinions and my perspective on the situation. I’m open to debate, open to discussion.
We are in a bad economic situation and the geopolitical tension won’t help.