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Bank of America investment strategists weighed in on the ongoing banking crisis in the United States, which prompted banks to borrow $165 billion from the Federal Reserve, including a record $153B from the discount window.
They remind investors that the world has experienced 14 big recessions in the last 150 years. These were triggered mostly by wars, emergency health situations, and banking crises.
“Emergency borrowing…tighter bank lending standards…small business credit crunch…higher unemployment…ain’t nothing new under the sun,” the strategists wrote in a client note.
They add that Wall Street may be too big to fail given that it is the “6x size of Main Street.”
“In US banking crisis past 10 days crypto/silver were “long panic” plays, long 2-year Treasuries-short banks the “long contagion” play, FAANG stocks a “long deflation” play; when trades unwind policy panic working & crisis over,” they further noted.
Discussing the trades, the strategists urged investors to sell the dollar, stocks, and credit. They see the current year as a tipping point for U.S. assets.
“Stock lows to be tested one last time coming months: we say ‘sell the last Fed hike’ correct strategy, as in inflationary ’70s/’80s (stocks fell in 3 months post-last hike in ’70s/’80s)… ‘buy the last hike’ worked in disinflationary past 2 decades,” they concluded.
As far as flows for the week to Wednesday are concerned, the strategists noted a “huge” $112.7B inflow to cash.
