Credit Suisse on Precipice – Gold & Silver Surge – SIFI > TBTF > Brrrrr

Unless you live under a rock, and certainly not a ‘pet’ gold rock, last night dished up yet more warnings of a global banking lead crisis where the impacts of rapidly rising interest rates into weakness inevitably see things break. Whilst Silicon Valley Bank was the canary in the mine, it was hardly a Systemically Important Bank (SIB) even from US standards but it was the match to the banking crisis flame.  On cue, last night saw a globally SIB, Credit Suisse (which we warned about last November here) show serious signs of failure. Credit Suisse traditionally sits firmly in 2 other acronyms, TBTF (too big to fail) but more formally as a SIFI. A systemically important financial institution is a financial institution or insurance company whose failure might trigger a financial crisis.

The market spoke in very clear terms last night and shares in the largest Swiss bank tanked even further, down another 25%, taking that to 98% since its 2000 highs and breaking decisively through the channel of support since then.

You may recall the key concern at the height of the GFC was all the unresolved, interrelated CDS’s (credit default swaps) in the system. If they failed the GFC was about to get a whole lot worse. So with that in mind, take a look at the spike in CDS spreads below compared to the GFC…

The above are 1 year spreads but the 5 year are comparatively worse as they speak to a market betting they won’t survive.  In a Macro Insiders flash update today, Raoul Pal said:

“and their 5-year credit default swap just exploded to 700+bps. It’s pretty clear that potential contagion fears over a dollar funding squeeze on EU banks and other big users of the Eurodollar markets is growing...”

The bank has been heavily supported to date by the Saudi’s, who have continually injected funds to be a 9.9%, and the largest single owner of the bank. The final blow to the share price yesterday came when Saudi National Bank Chairman Ammar Al Khudairy replied to a Bloomberg question as to whether they would be injecting more funds to support the bank:

"The answer is absolutely not, for many reasons outside the simplest reason, which is regulatory and statutory,"

And then, right no cue again, the Swiss National Bank issued a statement that they “will provide liquidity if necessary”.

US shares then rallied back to end the session with both the Dow and S&P500 down modestly (given the news) and NASDAQ just up. So how on earth do shares broadly ignore this you ask? Its simple. Here comes the money!!

Until this, the market had the ECB at 100% certain to raise rates tomorrow by 50bp. The market now is barely pricing in 25bp. Likewise the market now has the US Fed at even money to pause or just 25bp next week and pricing in over 100bps CUTS by years end! That was helped by more data overnight that inflation looks to be decisively easing.

So yes we may have a full crisis but the market is looking ahead at the money printing machines firing up again in response, and pricing that in.  So gold and silver surged last night despite a stronger dollar (and hence even stronger in AUD terms – up $50 overnight) as nothing loves this scenario more than gold and silver.  Gold and silver love a crisis and love the inevitable response of more printed currency, more global liquidity.  Here we go again….