Only the Strong will Survive....

The banking system has gotten massively

defensive since the end of November and

the latest data shows it's still at it

despite all the talk about soft Landings

the FED not cutting any more rates

inflation risks a soaring amount of

optimism Banks aren't lending what

they're doing is buying record amounts

of us treasuries and record amounts for

both dealer Banks as well as strictly

depository institutions and this isn't

just the us thing either we see exactly

the same thing going on for European

Banks there's no lending to the real

economy despite the rate cuts and the

clear promises for more from the ECB

banks in Europe are also piling up

massive amounts of government bonds too

and that's not all there was a major

eruption in dollar funding problems

during the past two months this not

interest rates or the Fed was the reason

why the dollar soared and had created so

much Havoc along the way and even if it

has calmed down the p couple of days the

monetary indications and the behavior of

banks say it's just a temporary reprieve

for a US economy that's allegedly on the

cusp of reaching its soft Landing or a

global economy that supposedly sees

brighter days ahead the world's banking

system isn't buying any of that it's

busy buying government bonds and I

haven't even mentioned China's banking

system so the question is why what is it

that Global banks are seeing and

preparing for by being so obviously

defensive trade Wars maybe but this goes

beyond those we've got money dealers

piling into a staggering amount of

treasury notes and bonds we've got

foreign governments who have mobilized a

ton of their own Reserve Holdings ass

sure sign of global dollar problems

we've got US Banks refusing to lend to

the real economy while also buying up a

record number of their own treasury

Holdings and European Banks as I said

doing exactly the same thing we've got

risk aversion every where in the banking

system when not only is the banking

system a reflection of economic

conditions it's also perceptions of

future conditions both economic as well

as as we've seen over the past month

monetary there are a number of monetary

indications that showed major dollar

problems along with the soaring dollar

as I said not interest rate

differentials not Central Bank policies

dollar

scarcity so we've got a bunch of

off-the-beaten path indications that are

very very important nonetheless as

George gam calls them these esoteric

indications and they're esoteric because

nobody really knows about them but

they're every bit as important starting

starting with primary dealers and their

Holdings of US Treasury coupons that's

bonds and notes as I talked about in the

middle of December dealer Holdings of

coupons began to really surge that final

week in November after Thanksgiving was

it trade Wars that was when Trump put

out his post on TR truth social

suggesting that he was going to impose

tariffs China Canada Mexico and everyone

else in between now dealer Holdings had

backed off slacked off after the carry

trade fireworks from August into no into

September so after September into

October dealers were holding Less

coupons which is actually a reflationary

positive signal around to about 195

billion combined the week of

Thanksgiving but from there as you can

see the amount the Holdings have Absol

Ely soared up until the latest week so

from from a record of 236.000 billion

back in August 7th that was the carry

trade High by December 11th the dealer

Holdings had already P surpassed that

record amount and by Christmas the week

of Christmas we're at

264.0 billion and they just kept on

going for the first couple weeks of

January the latest data that we have for

the week of January 15th a record a huge

record

277.50 billion in dealer Holdings of

coupons and

treasuries and then the question is why

now the mainstream has its own theories

because the mainstream has to continue

to defer to the central bank and

everything and I talked about this in

recent videos at euroall University's

memberships went over the interest rate

swap Market because there's a really

good correlation between interest rate

swap spreads and dealer Holdings of us

treasuries there's a connection there

but it has puzzled and astounded

mainstream academics because they can't

admit the FED isn't what everyone

believes it is so the Federal Reserve

has according to everyone else supplied

the world with a tremendous amount of

money when money dealers are saying not

the case the reason why they hold more

coupons especially is first of all

defensive because they're worried about

a collateral scarcity or collateral

shortage an interruption in the flow of

collateral that could become costly for

their own dealer activity so you want to

have as a defensive measure you want to

have us treasury coupons and bonds in

your inventory in case something goes

wrong and the more you think something

can go wrong the more likely you're

going to stack up that inventory but the

other reason the more likely reason the

more the more dealer likee reason is

when you anticipate that other people

are going to be on the wrong end of a

collateral shortage and therefore as a

money dealer you can take advantage of

that collateral scarcity by having

collateral in your inventory that you

can then rent out at a much higher price

so dealers being dealers smell

opportunity opportunity in deflationary

monetary conditions which is why dealer

Holdings of coupons therefore correspond

very strongly with lower swap spreads

more negative swap spreads and a whole

bunch of other Euro doll indications so

here we have from the week of November

the last week in November a sharp rise

in dealer Holdings of US Treasury

coupons at the same time the US Dollar

exchange value

soared and again we keep coming back to

that week November mber 27th remember we

talked about the t- bill auctions during

the the weeks immediately after that in

addition to the dollar value that was

screaming higher we also had a number of

other indications and a couple others

that I'll go in go over here that

suggested that the dollar the dollar

system was experiencing some real

disorder there especially December the

middle part of December heading toward

the end of last year and it spilled over

into the early part of this year now the

dollar exchange value has backed off

since the inauguration because president

Trump didn't immediately impose the

tariffs like he sounded like he said he

was going to do and instead um there's

there's a growing hope maybe that the

idea of terrorists themselves are

nothing more than a negotiating tactic

and then it won't ever come to that that

uh it won't ever come to needing to put

them in place because if the Trump

Administration gets What It Wants in

other areas maybe this is just leverage

using to get people to the negotiating

table and therefore there won't actually

be any trade restrictions well that's a

possibility and that could be one of the

reasons why we're seeing you know such

such major dollar issues in the system

ever since the end of November it's not

strictly about trade Wars this goes back

further than that as we'll see when we

go over the banking

data another one that goes along with

the same indications dealer Holdings of

us treasuries we also see that during

these same periods custody of US

Treasury assets at Federal Reserve Bank

of New York that's New York branch of

the FED these treasuries that are owned

by Foreign largely official institutions

those are foreign governments as well as

foreign central banks they Park their a

lot of their Reserve assets with the

Federal Reserve in New York because it's

there's a convenience of doing so so the

Federal Reserve Bank of New York holds

in custody trillions of us treasuries

that are owned by largely foreign

official institutions and those

treasuries tend to rise and fall those

treasury Holdings in custody tend to

rise and fall given the dollar

environment that they're operating

within so when you have a reflationary

period more risk-taking more dollars

available in the global Marketplace you

you tend to see more treasuries pile up

at the federal reserve's custody in New

York when we have dollar scarcity you

see these treasuries disappear because

foreign official institutions are using

them to plug in their dollar shortage

gaps so if they have a dollar funding

problem with their local banks they can

mobilize their us treasuries either

selling them to to liquidate them and

create and get dollar balances that can

then either lend or or use somehow in

their local jurisdiction or they use the

treasuries to borrow funds as collateral

transformation transfer ownership and

whole bunch of things that could

potentially happen that these treasuries

tend to disappear they get used during

periods of dollar

scarcity if you had any doubts about

that you can just see the timing here

when this takes place so while they've

been generally declining since August of

2023 you do see a very sharp drop again

late November 2024 into December and

January in fact another 80 billion 80.6

billion after the week of November 27th

right on through the first week in

January so another indication that shows

that foreign official institutions were

doing something with their US Treasury

Reserve assets during this period when

the dollar was surging and US primary

dealers were piling up record amounts of

Treasury coupon bonds it all fits

together these are all basically

different sides of the same euro dollar

coin so while there's a relationship

with trade Wars and the possibility of

tariffs being imposed and therefore

creating more negative pressures and

headwinds on an economy that's already

suffering suffering to begin with it's

really that suffering to begin with

that's the general background behind all

of these things that's really driving

the degree that we're seeing here why

are dealers becoming more risk averse

well they realize the background isn't

really good to begin with either money

or Finance or real economy therefore the

possibility of trade Wars is just

another negative that the that the

system would have to deal with and

probably isn't going to handle all that

well but going Beyond just what we see

in the monetary system over the last

couple months back for this background

behind it look at what the banks have

been doing for really quite a long

period of time before that we talked

about the economy that forgot how to

grow we've got a global banking system

that forgot how to lend it didn't forget

it doesn't want to lend and that's

really the point we're making here look

at the US banking system we see just for

total bank loans total bank loans they

started to slow down right around

September October of 2022 during that

crisis and then afterward as the entire

global economy that's the point at which

it forgot how to grow or started to

forget how to grow the banking system

suddenly forgot how to lend it wasn't

interest rates Rising it was risk

perceptions about the conditions in the

in the entire system from that point

forward so you have a real Trend change

that started to change late in 2022 but

really to again emphasizing this point

after Silicon Valley Bank in March and

April of

2023 you see the trend change in Bank

lending now it didn't contract it didn't

fall off a cliff and bank loans are

still growing in fact since July of 2023

Bank lending has been steadily Rising so

it doesn't look too bad it looks the

same is you know German GDP it's going

sideways to slightly higher in this case

with with bank lending but going back to

Silicon Valley Bank the week that it

failed Bank lending is only up about 4%

in almost two years which is not a good

number so it's it doesn't look too bad

but in any in many ways in anything that

really matters it actually is more than

lackluster it's worse than lackluster it

is it's a it's pretty substantial

contraction all of its own but a huge

chunk of that lend lending the increase

in lending is in loans to non-depository

financial institutions or investment

funds in fact during the same period

going back to Silicon Valley bank loans

to this class of borrower have soared by

28% at the same time when you when you

adjust for those loans and so you look

at loans just to the real economy or

mostly to the real economy there's all

this other lending to commercial real

estate and everything else but other

loans other than this category of borrow

have only increased by 2% during the

same period since Silicon Valley Bank in

March and April of

2023 so a huge chunk of the increase in

lending is to investment funds who are

doing a whole bunch of financial

activities rather than real economy

activities why because Banks perceive

that as relatively safe compared to say

lending to a commercial real estate

project which commercial real estate

loans have been basically flat or

lending to the real economy despite the

fact that everyone says it's a soft

Landing so banks are not behaving that

way and it's actually even worse when

you when you zoom out and look at this

stuff in context look at lending in

context look at the big picture Trend

the trend changed around 2015 for a

couple reasons we don't need to get into

here euro dollar number three reasons

but lending lending had dropped in the

immediate aftermath of the pandemic the

lockdowns in 2021 and then it soared

back in 202 2 up until that late 2022

crisis now people have argued that

lending was just it was too robust in

2022 and therefore it's just reverting

to the prior Trend and normalizing

nothing worse than that and total loans

are still above that post 25 Trend

because of a lot of it because of the

lending to these non-depository

financial institutions but when you

exclude those loans what you see is that

lending to everyone else including the

real economy is actually now falling be

behind the 20 post 2015 Trend so it's

not normalizing it's something else

entirely but then you zoom out even

further and look at the trends from say

just the entire 2010s or more

importantly going back to the longer run

the banking sector lending has really

dried up and fallen off by a lot so we

put it on a log scale and look at the

long run what you see is that credit

sworded in the 1980s and then it dropped

with the SNL crisis and by the way the

SNL crisis was a credit crisis not a

monetary crisis which is why lending got

back near to the trend throughout the

rest of the 1990s there a huge

difference between a monetary crisis and

a credit crisis even when it involves

the banking system so we had steady

loans in the 1990s after 94 these slight

dip with the dotcom

recession so in the middle 2000s credit

growth accelerated reverted back to the

trend as you'd expect but then the

massive drop in 2008 and not only the

massive drop but then a totally

different trend

afterward so while Bank lending had been

back to that post2 2008 Trend or gotten

near it in 20 in 2021 and 2022 since

then since that 2022 crisis Bank lending

either to the real economy or Bank

lending overall has dropped off yet

again so this is not normalization this

is very clear risk aversion Behavior

Banks don't want to lend they didn't

want to lend before and now they really

don't want to lend ever since 2022 and

23 ever since the banking crisis and its

aftermath the real economy forgot how to

grow because it didn't forget how to

grow and the banking sector forgot how

to lend because it didn't forget how to

how to lend it's becoming increasingly

risk averse even before we get to the

events since November 27th last

year what banks have been doing going

back to late 2023 is Bond rally is they

have been piling in government bonds and

other forms of safe assets too like us

mortgage bonds so Banks haven't been

lending but they have been buying safety

and liquidity by the bucket load so

going back to November 2023 when the

bond rally really got started US Banks

have bought a combined well the their

Holdings of US Treasury assets and

agency Securities has increased by $

41.9 billion during that time now that

total had tailed off at the end of

October 2024 the bond pause since the

since the the rally in the middle of

last year but that was entirely because

Banks stopped buying mortgage bonds they

didn't want any mortgage bonds since the

end of last October instead what they've

been doing is they've been piling in

specifically US Treasury to be clear I'm

not talking about the treasury Holdings

Among Us primary dealers that I just

went over in the earlier part of this

video These are treasury Holdings from

all depository institutions so these are

not the primary dealers these are what

we consider regular Banks and so dep

repository institutions they're piling

into us treasuries in addition to the

fact that primary dealers are doing the

same thing in their bond inventories and

so just US Treasury Securities alone US

Banks have added

27.7 billion since November of 2023 so a

quarter trillion in US Treasury Holdings

since the end of 2023 so at the same

time they don't want to lend to the real

economy they are more than willing

despite the fact that bond prices have

gone up and down along the way they're

more than willing to buy a ton of safety

and

liquidity and as I said in the

introduction the same thing has been

happening in Europe I went over that in

the previous video but just briefly to

go over the stats there last year

through the month of November which is

the latest data we have from the ECB

Bank lending in Europe was increased by

222.000 billion of it was lending to n

non mfis or non-monetary financial

institution Financial fir in other words

the same investment funds in Europe that

US banks are lending to in the United

States same type of investment funds in

Europe excluding those lending to the

real economy in 2024 in Europe only

increased by 1224 billion euros which is

basically nothing that's a rounding

error at the same time however last year

through November European Banks added a

whopping 232.103

increase in their Holdings including

31.6 billion in November

alone so even before we get to the trade

Wars and the possibility of trade Wars

at the end of November into December and

January when the US dollar absolutely

soared the banking sector has been

increasingly defensive really

consistently defensive ever since the

banking crisis in

2023 as the real economy has failed to

recover cover has failed to achieve its

soft Landing in the US and then the rest

of the world China and everything else

the risks are piling up not going away

and the banking sector is not just

acting like it it is acting on those

perceptions so while the US banks are

don't want to lend to the real economy

piling up safety and liquidity we also

have monetary indications that suggested

first of all a less than ideal

background even before we got to the end

of 2024 and then the possibility of

trade Wars which could could potentially

make an already bad situation even worse

it became a real Global dollar matter so

there the dollar exchange value was

screaming higher us primary dealers were

hoarding US Treasury coupons notes and

bonds at in record amounts and really a

record acceleration we see that foreign

official institutions were using a ton

of their own treasuries to try to fill

in these dollar shortage gaps and not

really not not really being all that

effective doing so so you've got the

background the economic background the

financial background increasingly risk

averse Banks everywhere the United

States and Europe plus you've got

monetary problems that really developed

and escalated over the last couple

months and despite the fact that things

look a little better over the last

couple of days this Behavior has

continued right on through the middle

and now late January so it isn't just a

one-time thing or about one thing you

got the entire Global monetary system

and banking system again we haven't

talked about China here they

increasingly risk averse because

contrary to all mainstream claims soft

Landing in the United States recovery in

Europe China getting its crap together

none of those things are actually

happening and all of the risks to the

real economy remain on the downside

especially given the fact that we're

starting with an economy that forgot how

to grow it didn't forget it just can't

and the banking system right along with

it that doesn't know how to lend of

course it knows how to lend it won't

lend because the conditions aren't there

for it to lend so we've got financial

problems economic problems and for the

last couple months monetary problems on

top what was the role of non-banks in

all of this risk aversion dollar

scarcity business what are non-banks