Regional bank woes spark market jitters, Gold soars to $4,340, bonds rally as investors go risk-off

Like we’ve been saying… all we need is one negative headline to light the fuse — and we got it. This time it wasn’t China, tariffs, or the government shutdown. Nope – It’s CREDIT CONCERNS and the regional banks. The KRE (S&P Regional Bank ETF) lost 6%, Zions Bancorp down 13%, Western Alliance off 11% — both revealing they were “the victims of fraud.” And that was all we needed to light the fire….

Stocks lost ground – the Dow down 300 pts or 0.65%, the S&P down 42 pts or 0.6%, the Nasdaq down 107 pts or 0.5%, the Russell down 52 pts or 2.1% - now the Transports bucked the trend and rose by 160 pts or 1% - think falling oil prices, the Equal Weight S&P lost xxx or 1%, while the Mag 7 lost 130 pts or 0.4%.

Away from the Regionals that were down 6% - 10 of the 11 S&P Sectors gave way – Financials down the most at -2.8%, Energy -1.2%, Utilities & Communications – 1.1%, Consumer Discretionary – 1%, Basic Materials & Consumer Staples – 0.7%, Industrials – 0.65%, Real Estate – 0.3% while Healthcare lost 0.2%. Tech was the only gainer at +0.1%.

The contra trades were the winners – the DOG + 0.7%, SH + 0.7%, PSQ + 0.4%, VIXY + 10%, SPXS + 2%.

Look - Zions took a $50 million charge-off for a loan underwritten by one of its subsidiaries, California Bank and Trust - while Western Alliance admitted to making a similar loan to the same borrower. Why didn’t this raise some eyebrows? Why didn’t shared borrower data flag risks? I’m sure we’ll get some kind of explanation…. but for now -

I don’t know about you — but if I was handing out $50 million to a borrower, I’d like to think that I knew who was on the other side of that deal and what the risk was. – In any event – the banks say they were deceived by ‘misrepresentations in commercial loan agreements’ – leaving me to ask: WHERE WERE THE LAWYERS? Apparently they were asleep.

In any event - do you remember March of 2023 – when the REGIONAL banks had an issue? Does the name Silicon Valley Bank bring up any memories? Do you remember how this bank collapsed under the weight of complete and total mismanagement, Interest rate risk, liquidity mismatch and REGULATORY FAILURE – think Mary Daly – President of the San Fran FED….? Is it a coincidence that both these banks are regulated by guess who? Mary Daly and the San Francisco FED!

Let me jog your memory - Do you remember how the US gov’t /FED backstopped and contained the ‘issue’? Do you remember how they want crawling to Jamie Dimon (JPM) with hat in hand begging to be saved? Yeah – well, here it is – coming back to bite us in the ass.

That bailout taught (some) regional banks that they didn’t need to clean up their act because the gov’t has their back. Why tighten up risk controls when your protected? Now we’ve got Zions and Western Alliance tripping over the same fraudulent borrower— Ok – but before we light the place on fire – understand that both these banks are small (although they are similar in size to SVB)– so is it really a big issue? Does it really suggest that the whole banking industry is in trouble?

No, it does not (at least for me), but what it does suggest is that the markets are a bit anxious, credit concerns are real (recall the Tricolor Holdings issue that hit JPM in the 3rd qtr.), valuations are rich and stretched – I mean how long have we been discussing this? No one should be surprised that the market sold off - and is weak again this morning.

Add in the ongoing US shutdown, the lack of economic data, and the rising trade tensions and it all makes sense that the market sold off, but it is not a reason to run for the exits if you are a long term investor.

Yesterday we also learned that the monthly Treasury statement did have some good news…. We have strong private sector growth, and constrained spending. September showed a SURPLUS $198 billion (think receipts vs. outlays) which is RARE – and was the largest surplus in any September on record and as Scotty tells us it was 147% higher than last year. The annual deficit shrank to $1.775 trillion down from $1.817 trillion. FY 2025’s Deficit to GDP is now projected to be UNDER 6%.... and under 3% by 2028 – that is GOOD news.

Bonds continued to rally - The TLT gained 0.75% while the TLH is up 0.7% and that has caused yields to plunge…the 10 yr which had tested 4% earlier in the week – tested it again and it failed to hold….sending the yield to 3.95%. The chart suggests that we could see the 10-yr test as low as 3.85%. The 30 yr fell as well and is now yielding 4.57%.

Now yesterday we had some people screaming for a 50-bps cut because of the regional banking issue – to which I say – Stop already – how is a 50-bps cut going to stop the stupidity of failed management and failed regulatory oversight? Come on! 25 bps is more than enough for now, let’s not get crazy.

Oil – continues to fall…yesterday it lost 1.4% and this morning it is down another 1.1% - trading at $56.82….Remember – we discussed that we could test the lows of $55 oil before year end – as of right now – we are $1.82 away from that target. The fall in oil prices a direct result of ‘drill baby drill’ and the increased production by OPEC. I will remind you; this is not a demand issue at all – demand is fine – this is a direct result of oversupply – period the end. And that is not a negative.

Gold! Do I need to tell you where that is? Up $13 today on top of the surge of the $120 surge yesterday (think regional banks) – taking it into another new century for gold…. $4300. This morning, we are trading at $4340. The story is the same…. Geo-political turmoil, lack of eco data, gov’t shutdown, trade tensions with China, and now another new Regional Banking Crisis! Gold is the ultimate safe haven asset!

US futures are teasing lower…..- It’s Friday, it’s been a long couple of weeks, the tone is more negative than positive, blah, blah, blah…. – do not despair…. Dow futures are down 240 pts, S&P’s down 54, Nasdaq is down 240 pts while the Russell is down 32. Once again – we won’t get any eco data, and the regional bank story will be THE story…the algo’s will focus on the negatives…..and that will provide the opportunity for the savvy investor.

European markets are all lower…. some in the media trying to blame it on OUR latest regional banking issue….to which I would say – REALLY? Do you think Europeans are worried about 2 small US regional banks? Have they even heard of Zion’s and Western Alliance? Come on, now…Let’s be serious – Now mkts there could be lower because they are worried about whether any of their banks are as mismanaged as those two! That’s fair – but if they are not, then this too will become a non-event. Mkts across the zone are all down more than 1.25%. Germany seeing the most pressure down 2.25%.

The S&P closed at 6,629, down 42 points. Over the past week, we’ve watched the index back off and test trendline support twice at 6,550 — and held both times. If nothing changes between now and the opening bell, we’ll likely test that level again at 9:30 a.m.

Here’s the thing — my gut says it won’t hold this time. And when that happens, the algos will shift into a more aggressive sell mode. Buyers will step aside to see just how determined the sellers really are.

Technically, the chart suggests we should find initial support around 6,500. If that gives way, then a move toward 6,350–6,400 wouldn’t be a surprise (not necessarily today, but soon enough).

In any event, a pullback to 6,500 only represents about a 3.5% move off the top — hardly anything to lose sleep over. Even 6,350 would only be 6% off the highs — still well within the boundaries of a normal trading range.

Here’s your new countdown:

12 days until the next Fed decision.

42 days until Black Friday.

And only 69 days until Christmas.

Try the grilled rib-eye arrabiata

Arrabiata - is the Italian word for angry - and it seems like everyone is angry (at NVDA) right now. Created in Rome - this sauce is simple to make and gets it anger from the red chili pepper.... Today we are serving this over a grilled rib-eye - now you can use any cut of steak you like - but I love a good grilled Rib-eye....

You will need: olive oil, onion, garlic, red wine, sugar, crushed red pepper (or chili peppers if you want hot, hot, hot), lemon juice, oregano, s&p, crushed tomatoes, tomato paste and chopped parsley....

Light the grill - season the Rib- eye - massage with a bit of olive oil, and s&p - set aside.

In a large pot (or deep sauté pan) on med-hi - heat up olive oil and garlic.... sauté a bit - but do not burn - 3 mins or so.... Now add sliced onion and sauté until soft - like 5 mins more. Next - add 1/2 cup of red wine, 1/2 tblspn of sugar, fresh squeezed lemon juice (about 1 tblspn), oregano, bit of tomato paste and a 28 oz can of kitchen ready crushed tomatoes (not in puree - just crushed tomatoes), crushed red pepper (or crushed chili pepper if you prefer) - bring to a boil and then reduce to simmer and cook for 15/20 mins....

Now - grill the steak to your liking - med rare is always nice.... remove and slice across the grain. Make a bed of the Arrabiata sauce on the plate and place the sliced steak on top. Enjoy with a mixed green salad and a nice bottle of Brunello di Montalcino.