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The Best Trade to Exploit the 2023 Banking Crisis

by | May 5, 2023

I’ve received a lot of questions over the last 24 hours about the state of PacWest (PACW) and other community and regional banks taking a hit this week. Mainly… why are they going down?

PACW has snapped back by more than 80% in an insane short covering just a day after most people predicted its demise.

PacWest is a regional bank based in California with many deposits linked to the late-stage venture capital space. 

Following the demise of Silicon Valley Bank, the short sellers began to pile onto PACW. They nearly drove it out of existence. Shares plunged under $3.00 from over $29 just two months ago. 

PacWest, like many other banks, had feared a run on deposits. However, the bank stabilized its deposits at the end of March, and it built a defensive position in cash. 

Yet, the stock had fallen about 75% in the last few days. So what gives?

The “Banking Crisis” Contagion Doesn’t Care

Forget the fact this is another California bank whose regulator (the San Francisco Fed) has been asleep at the switch for years.

Its leader – San Francisco Fed Bank President Mary Daly – should be fired. So too, should one of her predecessors… Janet Yellen. 

The regulator failed to recommend a single enforcement decision during the ongoing demise of SVB Financial. So what are the odds that they missed PacWest’s situation too?

The thing about PacWest, is that they’re more of a traditional bank – brick and mortar – community loans and pens with little chains on the deposit desk. 

This wasn’t a reckless bank speculating on cryptocurrencies. They maintained a more conservative loan book. 

They also have a cash hoard. Investment bank Janney, setting a $12.50 price target for PACW yesterday, noted that the bank has enough cash to cover 188% of all deposits. 

Get that? Any amount of money that might flee the bank, it could cover (and assure its customers of the money’s security) nearly two times. 

If the contagion hit Pacwest… it could spread to comparable names like Comerica, Bank of Hawaii, and Western Alliance.

And if they fall, then it’s only a matter of time before we have to start worrying about the entire banking sector, including large Super Regional banks.

Many people are comparing this crisis to the 2008 Great Financial Crisis and the initial panic that built in the early days of the COVID crisis (people were withdrawing lots of cash, but not even putting it back into banks). 

This feels different. 

This is the first banking crisis that involves social media at a large scale. People are panicking about the security of the banking system. Americans don’t trust the economic system itself, as noted in a poll recently by Gallup. 

This is the share of Americans who are worried about the safety of their deposits by political party and household income.


banking crisis

While this is happening, short sellers are picking off institutions left and right. This happened in 2008 for a time. 

Without actual support from the government, we could have seen the implosion of Goldman Sachs and Morgan Stanley back in the day (they weren’t healthy at the time). 

There’s “banking crisis” chatter about manipulation, short-selling ethics, and a lot more. 

Regardless of where anyone sits, the problem remains the nature of fractional reserve banking – the system on which we operate – and the advantages held by Too Big To Fail banks like JPMorgan Chase (JPM) And Bank of America (BAC) compared to names like PacWest and Zion Bancorp (ZION)

This tweet perfectly summarizes the difference between a spot at the Federal Reserve’s trough and operating in the community banking industry.


banking crisis

How to Take Advantage

The real problem moving forward is that the collapse of community banks or ongoing consolidation hurts ordinary businesses and entrepreneurs nationwide. 

These banks lend for local construction. They handle payrolls for businesses with 200 or fewer people. They offer commercial and personal lending to communities. 

If these banks end up in the hands of JPM or BAC, does anyone think that those massive New York banks care about lending to small businesses in Cincinnati or Tulsa?

The Fed isn’t interested in defending these smaller institutions. And the FDIC is way behind (alongside Congress) in shoring up this mess. These systemic issues will persist, regardless of the short-term outcome. 

With that said, housing construction will require lending, particularly in the multi-family space. This is an industry that isn’t going away. But if community banks are drying up, and larger banks aren’t prepared to step in to fill the gap, someone has to do it.

That brings us to a value stock that has built its entire business model around multifamily loan generation in towns nationwide. 

This Trust currently pays double-digit income, and its assets are trading for nearly 65 cents on the dollar. 

Wall Street has a price target that is more than 25% higher than the current level. And it’s the brand new position in the Value Portfolio over at Tactical Wealth Investor

Sign up for Tactical Wealth Investor today, and you can tap into one of the best long-term value plays in the housing and financial markets – and take advantage of the volatility and uncertainty in the regional bank space – at the same time.

To your wealth,

Garrett signature
Garrett Baldwin

*This is for informational and educational purposes only. There is an inherent risk in trading, so trade at your own risk. 

Market Momentum is Red


Apple (AAPL) earnings helped turn this market higher. But investors should be cautious as volume remained relatively muted despite the rather lukewarm jobs report. This was a nice slow burn higher, but the markets still face a lot of uncertainty around the debt ceiling.

WRITTEN BY<br>Garrett Baldwin

Garrett Baldwin

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