MORE BANKS ARE COLLAPSING (How To Prepare)

What's up, Graham? It's guys here.

And if you thought the banking collapse was over, well, think again. In the middle of mass withdrawals and declining savings, First Republic could be the next bank to fail, even after two multi-billion dollar bailouts. In fact, their stock price has already fallen 95% year-to-date. 41% of their deposits are gone, and experts are saying that the bank is seeking another lifeline just to stay afloat.

This also comes at the same time that the Yuan has officially overtaken the US dollar as China's most used cross-border currency. A new debt ceiling proposal is about to be rejected by the Senate, and the latest GDP numbers came in below expectations, suggesting that our economy is indeed slowing down. So, with all of that said, we should really break down exactly what's going on, what this means for you, why some experts are now calling for stagflation, and the reason parrots are video calling other parrots to make themselves feel less lonely.

Anyway, before we go into that and the ways that you could potentially use this information to make money, I want to show you how to subscribe to Thrive if you haven't done that already. Once you click the button for the low cost of nothing, you'll get to see new updates like this every single week. As a thank you for doing that, here's a picture of a cookie. So, thank you guys so much, and now with that said, let's begin.

All right, so first we got to talk about the latest banking crisis because unfortunately, this is a situation that continues getting worse. See, all of this began about two months ago with the collapse of Silvergate, Signature, and the most prominent Silicon Valley Bank. At the time, each of these companies set a very specific clientele that was mainly focused around business banking of the tech industry, which meant the vast majority of their deposits were above the limits of FDIC insurance.

Now, typically this wouldn't be a huge issue, since banking failures are relatively uncommon, but in this case, with venture capital slowing down, more and more of their customers were drawing in their deposits, forcing banks to begin selling off their assets at a loss. This worried even more customers that the bank could potentially be facing some issues, which caused even more people to begin selling off until eventually they were shut down and overtaken by the FDIC.

As you would expect, this caused a panic throughout the entire industry because if one bank shuts down, who's to say that can't happen again? If everyone decides to withdraw their money, after all, banks are only required to keep a small portion of customer deposits available for withdrawal. So, if everyone rushes for the exit at the exact same time, that could be a disaster. Or wouldn't you know it? After 52 billion dollars were lost in market value, the Fed stepped in, and several banks received an injection of cash to stay afloat, including the topic of this video: First Republic Bank.

Though even though some could say that they were simply a victim of being jinxed by Jim Cramer, who called them a very good bank just days before their decline, on a more basic level, they did share a lot of similarities with Silicon Valley Bank, and that caused a large portion of their customer base to leave. At first, First Republic Bank tried to calm their clients down by saying that they had beyond a well-diversified deposit base, including over 60 billion dollars of available unused borrowing.

Although it quickly became apparent that the bank's issues weren't so much with their investments but instead their lending. As the Wall Street Journal pointed out, First Republic showed a large gap between the fair market value and the balance sheet value of their assets. All told, the fair market value is 26.9 billion dollars less than their balance sheet value, which basically means First Republic issued and held on to substantial loans from wealthy clients at low interest rates, and today those loans are worth substantially less if they, for whatever reason, had to sell them to raise up liquidity.

So, here's the thing. Banks don't just take your money and stuff it under a mattress; instead, they invest and loan it out to continue operations. If everyone wanted to take out their money at the exact same time, the bank would be forced to liquidate everything they have to raise up enough money, which would be very difficult without taking a loss. So, to prevent an all-out banking contagion, several larger banks put together a 30 billion dollar rescue package to keep First Republic afloat, along with the Federal Reserve bailout that allowed banks to borrow as much money as customers wanted to withdraw.

To be honest, that seemed to work quite well to calm everything down until just recently. On Monday, April 24th, First Republic reported that the deposits declined by 40 percent in the first quarter, which was way worse than expected. On top of that, this also included the 30 billion dollar cash injection that they were given by other banks, which meant, according to CNBC, if those deposits were excluded, First Republic's deposits would have fallen by more than 50 percent.

At the same time, their stock began to plummet while talks of a rescue plan began to surface after their statement that the bank was reviewing strategic options to help reshape its balance sheet. Advisors to the bank were also allegedly trying to sell the idea to other banks that letting First Republic fail would be even more expensive if it led to higher regulatory costs and fees. And there's also the idea that they would issue more stock to dilute current shareholders if that meant they could raise more capital.

Because of this volatility, U.S. Regulators were actually considering downgrading the entire bank, which would result in reduced borrowing capacity from the Federal Reserve and would further hurt their chances of successfully turning around. It also appears as though the government is no longer willing to step in to help, with sources saying that they refuse to intervene at this point. The bankers involved are reportedly still expecting a government takeover, while the government is hoping that First Republic could hash out a deal to ensure the firm doesn't fail and take some of their money with it.

Essentially, this is becoming like a game of chicken to see what happens first: a government takeover, a cash injection from other banks, or a collapse. And as of now, it's too early to tell what's going to happen. To be honest, I think the Wall Street Journal probably has the most balanced perspective of the entire situation. They say that First Republic is probably going to become a template for what happens with other banks, and the steps that they take today is probably going to have an effect on playing whack-a-mole with future issues.

On top of that, it's a very unique situation because if larger banks bail them out, they could very well be throwing good money after bad. But if they let them fail, that creates higher expenses for all the other banks through larger assessments. That's why it's incredibly important to see exactly how this develops, because the last thing anyone wants to see is an ongoing banking crisis, even if Jim Cramer says they're buying.

Of course, separate from that, while we're on the topic of dollars, China just found a way around them entirely, because the Yuan has just overtaken the U.S. as their most used cross-border currency. That's a bit of background. Since 2010, China has been on a path of slowly reducing its reliance on the U.S. dollar. It's speculated that around that time, the United States launched its first 600 billion round of stimulus, which caused the dollar to depreciate and applied pressure on China to keep their currency stable.

Over time, along with tariffs, this resulted in China relying less and less on the U.S. dollar until it came to a head in 2020, when they created a financial alliance with Russia to ditch the dollar altogether amid sanctions. Essentially, all of this is simply referred to as the dollarization, which in basic terms suggests replacing the U.S. dollar as the world's reserve currency or at least reducing its dominance by introducing more competition.

In terms of whether or not this is cause for concern, it just depends on how you look at it. On a global scale, the truth is really not that much has changed, and the Yuan is only used in 4.5% of all transactions worldwide, which is really not that much to worry about. But it is a sign that the dominance of the U.S. dollar is indeed shrinking, and that is something to be mindful of, even though for the near future it could very well add up to nothing.

But speaking of shrinkage, things are certainly slowing down for the U.S. economy with GDP falling to 1.1%. As CNBC reports, the slowdown in growth is due to a decline in private inventory investment and a deceleration in non-residential fixed investment. Or, I guess they could have said more simply put, companies are investing in buying less because consumer spending is often down.

This is really good news for retail investors because this means that the Federal Reserve's plan is working: inflation is slowing down and there's a chance they may pause sooner than expected. It's also really solidified that they're almost certainly going to be going with a 0.25 interest rate increase on their next meeting on May 3rd, with an 87 percent likelihood being priced into the market. So, even though falling GDP is in any other market bad news, today bad news is good.

If we continue seeing the economy slow down, that may very well be reason for the stock market to celebrate. Of course, it's still too early to tell if we'll see the dreaded stagflation, which occurs when inflation is high while growth is low, which is kind of what we're seeing now. But if inflation continues cooling down, or at least begins to level off, we might be able to avert the so-called hard landing that everyone's been worrying about now for almost a year.

And finally, we gotta talk about the debt ceiling, which is getting no closer to a resolution. See, the United States has a limit in terms of how much money the country could borrow. It was previously set at 31.4 trillion dollars, but that was already hit back in January. This means unless Congress agrees to a higher budget, the United States is scheduled to run out of money and default as early as June, which would be a nightmare for the entire country.

As a result, the House passed a bill that would extend the debt ceiling by another one and a half trillion dollars. However, in that bill were a variety of spending cuts, concessions, and other measures that would remove most of the provisions that were enacted through the last few years to bolster the economy. Because of that, the Senate is expected to reject the entire proposal altogether and instead reiterate that the budget should be increased at the same time that current spending initiatives remain in place.

Or, I guess more simply put, Democrats want to spend more money while Republicans want to spend less, and both sides have to come to an agreement if something is to pass, which to me sounds like a nightmare. Today, we currently have about 60 days left until the United States is scheduled to default, which no one actually believes is going to happen. But then again, sometimes politics makes absolutely no sense, and that's why I choose to make YouTube videos here in a half-converted garage instead of trying to convince people for national spending policies.

But overall, in terms of my thoughts on everything, let's start with First Republic Bank. I would expect for most people, they're probably not going to be directly affected by this unless they own stock in the company, are an investor in the bank itself, or you have a whole bunch of cash with them. Just like every other bank failure this year, I would expect that if something were to happen, account holders would be okay, while investors get wiped out — unless, of course, there's some sort of rescue.

But again, that's just my best guess. Really, the biggest concern, in my opinion, is that if the bank does fail, it sets the stage that the banking crisis is not over yet. It sends panic for people to wonder who's next, and if enough people believe a bank will fail, they might start withdrawing their money.

Now, in terms of China though, at this point, it doesn't surprise me. China has been actively trying to distance themselves from the United States, and with the recent sanctions on Russia, they're using this as an opportunity to gain market share globally. It’s still not an issue, and it currently only impacts cross-border transactions with nearby countries wanting to do business with China. But it is something to be mindful of because they are expanding at a rapid rate.

It's separate from all of that though. This does really serve as a good reminder of why it's important to stay invested, with the market having recently posted its best day since January. Look, I know it can sometimes be tempting to want to sell everything when the market is down, for fear that maybe it'll go even lower. But study after study has shown that those who stay invested long term see the largest returns than those who exit and wait for the ideal time to buy.

That's why I just continue to dollar cost average into the markets on a regular basis through the ups and the downs. Long term, I'm really hoping for the best. Oh, and also, if you want to get a head start on that, you could get a free stock slice worth all the way up to a thousand dollars with our sponsor, public.com, when you use the link down below in the description and make a deposit with the code Graham.

Enjoy! Thank you so much for watching, and until next time.