Goldman Warns of Next Bank Failure | Market Rundown
June 1
Goldman is "concerned that liquidity could tighten significantly over June/July on combination of TGA rebuild and QT, leading to a pick up in volatility and underperformance for risk assets in H2.
Today:
Market Rundown
Goldman Warns of Next Thing to Break
Zen Moment: Herding Ducklings
1- Market Rundown
Good morning. The dollar is down 17. Bonds are softer in short dated reflecting growing expectations of a Fed pause as of yesterday. Stocks are all slightly positive up between 15 and 35 bps. Gold is up $2 after rallying $18 off the lows last night between 4 and 7 am. Silver is now unchanged after a similar recovery. Oil is down 30c. Grains are all bouncing, up about 1% on average. Crypto is down 75 to 150 bps.
Comment: Gold is captured right now in a marketmaker algo. Someone is accumulating again. When it gets too high, they smack it down. We are used to that part. But the buying keeps coming back in the same price area. Unless we get a price-break below 1967, assume someone is adding to a long position.
Three V-Shaped bottoms…
2- Goldman Warns of Next Thing to Break
TL/DR:
Goldman’s Trading desk put out an important forward- looking note the other day. Here is the event-horizon synopsis for subscribers.
The Treasury has to refill its checking account, aka the TGA
This refilling process will drain existing money currently used as banking reserves.
The RRP will function like money in the mattress for this, but if enough companies and money markets buy the new issuance of T-Bills coming (post the debt-ceiling deal), there will be too big a drain on liquidity at one time and a resultant lack of depositor money for some banks.
Lower liquidity will likely cause at least one other regional bank to go under, and will potentially force a liquidity driven sell-off in stocks.
Gold If this happens:
Normally decreased liquidity hits gold like any other asset, although less than stocks. However this is banking liquidity. Illiquid banks become insolvent banks. Bank Insolvency is why Gold rallied when SVB went under to begin with; thus as unlikely as it is to happen by surprise again, the calculus is relevant and worth understanding for the next thing that breaks. If something happens in June/July, you likely know why.