Transcript of Big Banks are worried, Is Wall Street Next?
Traders Reality
0:00It's a big day for the banks. JP Morgan,0:02City Bank, Wells Fargo, they're all0:05going to be coming up to the table today0:06to reveal what the story is with regards0:09to the banking sector. In this video,0:11I'm going to explain to you what we need0:13to be mindful of because whenever we see0:15high interest rates, usually the gang0:18that wins is the finance sector. But0:21that might not be the case. Check this0:23out. So, according to the Wall Street0:25Journal, there are three things that0:27banks need to take into consideration.0:29when it comes to their earnings.0:31Firstly, you've got this story here0:34where their focus is interest rates,0:37investment banking revenue and expenses.0:40Now, let's just break down each one. Of0:42course, interest rates is always going0:44to be a beneficial thing for banks0:46because quite simply any financial0:48products that they sell, they are going0:50to get the benefit of the fact that0:51interest rates are higher so they can0:53charge their clients more. Investment0:55banking revenues. Well, if the investor0:58is being active with his investments and1:01the bank is going to act on his behalf,1:03then the more the consumer is active and1:07present in the marketplace, the more the1:09bank can transact and effectively charge1:11them fees for handling their portfolios1:13and equally expenses. When it comes to1:16the expenses, banks are spending quite a1:19bit of cash in AI infrastructure just so1:22that they can keep ahead with the1:23competitive advantage given that they1:25don't want to miss out on any1:26opportunities to provide a service that1:29they are able to offer financial1:31products which are effectively AI1:34orientated because that's where1:35everything is going. We are in an age of1:38digital money like cryptocurrency. But1:41of course with AI, it's all about1:44selling the idea of convenience and1:46that's what banks are effectively1:47spending money on. Now, we've just had1:50some results or a word from the Bank of1:53America saying a couple of important1:55things. Now, the bank has turned around1:57and stated that if the 10-year yields1:59were to surge to 5.9%, then that would2:02prompt the investor to reallocate his2:05assets to the bonds. Why? because you're2:08getting nearly 6% on a 10-year bond.2:11That is very lucrative. As it stands,2:13the bonds market is starting to pull2:15back. You can see the 30-year pulling2:17back and of course the 10 year is2:18pulling back nearly down to 5.18%.2:21But with the bank's expectations that2:23they think that the rates could2:25effectively or the 10-year go to 6%2:27means that there is an underlying2:30pressure that is developing across the2:32board which would make the yields2:34themselves go to those levels because2:38something is still a problem and we know2:40that to be inflation. So it's clear as2:42day JP Morgan's earnings come through2:44and they miss expectations as bond2:47trading revenues fall. Most of these2:50banks do actually make a lot of money2:52when it comes to investors transacting2:54on specific asset classes. But if JP2:57Morgan's turning around saying that2:59there's not that much activity from3:00investors with regards to trading the3:03bonds, well, where is the activity? And3:06it's simple. It's in tech. Thing you've3:08got to understand is this. If the3:10finance sector is starting to slow down,3:13then of course it means that money is3:15not being put to work in terms of3:17financial products. Going back into the3:19article says that Goldman Sachs equity3:21traders smashed expectations in the3:23third quarter helping insulate the bank3:26from a decline in fixed income being3:28seen across Wall Street. So if there is3:31a slowdown in the financial products3:33that the banks would normally be3:35providing, it means that money is not3:37really it's not really being used. But3:40is it? Of course it is, cuz it's going3:43all the way over to tech. But then we3:46come across this impressive chart right3:48here.3:50This is the percentage of balance over3:52the n of the last 90 days delinquencies3:56for credit cards and it's starting to3:59increase aggressively.4:02That's not a good sign. So that4:04basically means money that is being4:05borrowed is effectively being given to4:07the consumer and the consumer spending4:08it and they're not able to make the4:11payments back. So, you know, we had this4:14same problem last time with the subprime4:17mortgage crisis. All this credit was4:19being distributed and then no one was4:22getting paid and that led to a very4:24infamous crash. But what's interesting4:26is people are saying that the AI market,4:29it's going to be a bubble and all of4:32this expenditure is not coming through.4:34Investors aren't seeing returns, but all4:36I'm seeing is earnings per share being4:38smashed every single time. So the key4:42thing that you've got to pay attention4:43to when it comes to the sectors is if4:46money is not going into the finance4:48sector from the investor then it's only4:50going elsewhere where there is activity4:53cuz fundamentally a bank provides a4:55service and if the service is not being4:58consumed then there's going to be less5:00of a return for the investors of that5:03company because they're not going to5:04receive a greater earnings per share for5:07holding on to the stock. But if we go5:09over to tech, all these companies are5:12absolutely tearing it apart. You've got5:14ASML Holdings that are going to be5:16releasing their earnings tomorrow. You5:17got TSMC who have come out with5:19projected results going to be smashing5:22investors expectations. So the tech5:25market is being fueled by the optimism5:27from the investor who is seeing in black5:30and white that these companies are5:32actually making money and they've got a5:34lot of cash reserves too. So this is5:36where the banks are in a little bit of a5:38situation. Firstly, if the banks see5:41that interest rates are starting to get5:43increased, then of course that means any5:45financial products that they sell,5:47they're going to effectively achieve a5:49better return on those products because5:51interest rates have gone up and5:53naturally they're going to increase5:54their cost of their services in the5:56financial products. Now, if you're on a5:58fixed 30-year mortgage with the US, then6:02of course you don't have to worry about6:03any interest rate increases because6:05you're in a fixed rate. But6:07fundamentally, if the bank starts to see6:09that the interest rates are still high6:12or with the projection of it being6:13increased in the future, they have to6:15look at where we are in the economy and6:17is the consumer actually sustaining6:20itself. Are they actually spending6:22money? But the problem is is if oil's6:24price keeps going up, then we know that6:26there's going to be a prioritization on6:28the consumer because he's not going to6:30be spending his money too often. Now,6:33the problem that we've really got is, is6:35it possible to assume that there's one6:37sector that is going to cause inflation6:40across the board? Well, according to6:42Goulsby, he says that AI is an inflation6:45problem. Why? Well, quite simply because6:48all these companies are consuming6:50dollars, spending dollars and thus6:52increasing the value of the dollar and6:54then equally investors are looking and6:56saying hold on if inflation is coming in6:58higher which they are projecting in7:00tomorrow's read we've got that they're7:02expecting a 2.5% increase yearon year7:05for the core CPI data with the idea that7:08on month they're expecting an increase7:11at 0.6% 6% it's safe to say that the7:14investors expectations of the yields in7:16the future are leaning more to the idea7:19of it hitting possibly 5 spot 9% Bank of7:22America and Goldman Sachs who believe7:24that the yields on the 10-year are going7:25to come in at 6%. So the real question7:28is this is AI going to create inflation7:33or is the foreign investor and the7:36domestic investor of US debt does he7:38believe that the Fed and the US7:40government are going to be able to7:42control this persistent inflation that7:44they've got? Well, we need to identify a7:47couple of things. Firstly, oil's price.7:49If oil's price goes down, that takes7:50away the idea of inflationary worries.7:53Why? Because when oil's price goes up,7:55it means that investors are effectively7:56transacting on dollars. And of course,7:59consumers, businesses who are taking on8:00oil are effectively using dollars. So8:03that keeps the dollar high. Equally, if8:06AI is spending so much money, well, what8:08are they spending? They're spending8:10dollars. So, as the NASDAQ keeps on8:12moving up because investors are seeing8:14that Nvidia is going into partnerships,8:16Google is releasing a new LLM or8:18something is happening in the tech8:19market, then investors are going to want8:21to transact on that and use their8:22dollars, which then does back the idea8:24that Goulsby saying that the AI story is8:27going to lead to more inflation. Well,8:30in my opinion, it's going to. Why?8:31Because they're not going to stop8:32spending money in AI. For every time you8:35spend money and you see a return, you're8:37not going to stop spending money, are8:39you? Now, some of you have come with8:41some very interesting comments in the8:43comments section. Um, you know, you put8:45your views across and I respect that.8:47Uh, what what what we've got to really8:49understand is the the perception of the8:51investor. If he believes that we are in8:54a good environment, then your yields on8:56the dollar will be lower because there8:57is faith in the monetary system for the9:00better word. But there isn't faith,9:02which is why the 10ear is still at 5%,9:04the 30 years is at 5.4, 5.6. Mortgage9:07rates have gone up. So, we already know9:09there's going to be a bit of a slowdown9:11in the mortgage environment. Well, banks9:13confirmed that this morning, and they're9:15saying that their trading activities and9:17equities are doing great. Goldman Sachs,9:20of course, they are. Nvidia's nearly at9:21all-time highs with a market cap of $69:23trillion. Google only 5% away from its9:25all-time high. Microsoft, the same9:27story. So, of course, you're going to be9:29earning money from there. But that's not9:31enough to sustain the idea that the9:33economy is doing well. If Goldman Sachs,9:35JP Morgan, and of course, Black Rockck9:38with their earnings tomorrow, if they9:39all turn around and say, well, they have9:41done, but if Black Rockck turns around9:42and say that there's been a slowdown in9:44the number of debt that is being9:45underwritten by them in terms of9:48financial products that they produce,9:49then we know that there is this slowdown9:52happening and if money is not9:53circulating, then it can lead to an9:55economic slowdown.9:58But AI isn't slowing down.10:01And basically, how long are you going to10:03ride the gravy train for? I'm not saying10:06it's never going to stop. It's just not10:08going to slow down. With that being10:10said, mad love and respect. Pace.
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