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Bank Index Signals Bank Failures

November 2, 2018

A very significant, very loud, very nasty warning signal has been given. It is extremely important for those who choose to live in the world of reality, and not the fantasy world from the US financial markets. The Reich theme of sluggish economic recovery is a total lie, since the recession which began in 2006 has repeated each and every year since then. The deception is derived from the wrong (under-stated) price inflation used in supposedly real adjustments to the Gross Domestic Product. The significant negative signal is of the sharp decline in the BKX bank sector stock index. But first, consider that in 2007 and early 2008 the significant negative signals were:

  • the sharp decline in the Fannie Mae stock price

  • the sharp rise in the Lehman Brothers credit default swap contract rate.

The Fannie Mae (FNMA) stock had declined by over 90%, which almost always means imminent failure. It did fail. The Lehman CDSwap rate jumped 5-fold to 7-fold in a matter of months. Insiders always bail out first as they have access to better information. Lehman did not enter failure as much as it was killed. Both Goldman Sachs and JPMorgan bought huge swaths of Lehman bonds and never paid for them, forcing a liquidity shortage crisis which ended up killing the firm. Think of a plastic bag put over a bound victim’s head, as in murder. The Goldman Sachs second crime was receiving 100% payouts from their CDSwaps held by AIG, which was illegally killed off in order for GSachs to control its function. Other financial firms were given 65% payouts, and less. Such are events of the 2008 crime scene, which had a climax of the stolen $700 billion TARP Fund.

The US Bank sector stock index, called BKX, has fallen in a dangerous manner. It had fallen by 18% from its March go-go highs, with a slight bounce in progress, surely short covering. It signals a dire event on the near-term horizon, even the trigger of a major financial crisis. For the past year, the Jackass has warned of a Systemic Lehman Event that will engulf the entire Western financial system, bonds and banks, since nothing was fixed in the last ten years. In fact, all the errors from the 2007 subprime mortgage bond crisis have been repeated. To put it best, the system has tripled down (like in blackjack at the casino) on all the subprime era mistakes. Next comes the bigger broader and much more powerful financial crisis. Thus my name has been given to the Systemic Lehman Event, since all these errors in credit abuse and monetary abuse have been applied across the entire spectrum of sovereign bonds, corporate bonds, and major stock indexes. The USTreasury Bond has become the poster boy in subprime bonds, with USFed monetization, $trillion deficits, and absent buyers. The abuse has extended to secondary nation banking systems and the entire gaggle of Emerging Market nations. The Western banks have been lending funds to the EM nations for debt service payments, in order to avert their US$9 trillion debt default. They will die like flies trapped in windows during the midsummer heat.


This extremely negative signal has not received much attention. The big DJIA and S&P500 stock index declines, recoveries, and irregular behavior have received the majority of attention. The FANG stocks have also received much attention. Refer to FaceBook, Apple, NetFlix, and Google. Add Tesla to the FANG group as darlings whose wretched fundamentals do not match their lofty valuations. Of course, Apple has very big cash flow, big profits, and big cash reserves, but their future is indeed precarious for their fabrication sites. While much attention is given also to the USTreasury Bond yield (TNX), and its fanciful move above the perceived 3.0% line in the sand, the US Stock market internals are lousy, and volatility is rising. In the Jackass view, the big fat key signal is the bank sector index. The decline in the crude oil price from 74 to 66, with a strong potential for revisiting the 50s again, should cause alarm to the banks. They are deeply invested and vulnerable toward the energy sector, in particular with the shale sector. The shale sector is doomed, with poor EROI returns and dire volume with growing depletion. The Wall Street banks have had the shale sector on life support for a couple years.

The BKX bank sector index has declined in a manner often described as falling off the cliff. Its intermediate trend has been broken in a convincing manner. Also, and just as critical a signal, its bearish moving average (MA) crossover is in progress, and deserves close attention. Look out below. The USFed might be on high alert to support the big money center bank stocks, so as to soothe the danger signal. They might only succeed in causing a big waterfall decline. The Boyz are all about removing the thermometer from the patient with a fever. This BKX pig will be very hard to paint with lipstick, especially when it falls through the 90 support level, toward the 70 level in the next few months (or weeks). Expect a couple big US banks to endure a near death experience. It is not avoidable, given the imminent decline in the oil price. Not even gulf war drums and threats of choke points in the straits can help. Russia is the #1 oil supplier these days, and Iranian oil output is no longer obstructed.

The key here is the breakdown with bearish crossover in the MA series. The breakdown is a done deal, But the deadly crossover deserves a close watch, since observed by technical traders at banks and hedge funds the world over. Many use the 20-week MA and 50-week MA for this purpose, as a directional trend change indicator of high reliability. The BKX index is on the verge of the extremely critical bearish crossover. Suffice it to say that perhaps 90% of the time such a crossover results in at least two months of painful declines, huge losses, and the lit fuse for bigger problems in the sector. When it does cross and issue the ugly red light alarm, like in the next couple weeks, a lot of attention will be given it, by the legion of bank analysts. The talk will extend to the TNX and USTBond long yields. The TNX chart actually points to a move to 4.5% or so, which would ring bells around the entire world.


Two major factors are at work right here, right now, which will render harm to the bond market and add support to the Gold market. By the way, Gold is capitalized since a currency, like the USDollar and Euro and Ruble and RMB and JapYen. The first important critical gold factor is that the USTreasury Bond market is suffering damage. The spiraling $22 trillion debt has gathered considerable attention, as has the over $1 trillion annual USGovt deficit. The reasons are many for the recently emerging concern. Foreigners no longer expect ever to receive repayment for the financed USGovt debt. They see the US as using the Dollar as a weapon across the globe, with numerous sanctions and SWIFT obstructions. They see the USDollar as financing predatory wars, often with war crimes against the civilian population. They see the USEconomy as enjoying imports without proper payment, just more IOU coupons. Lastly, the foreign bond holders are shifting their bank reserves from USTBonds to Gold in a gradual process.

The second factor is equally ominous. The rise in the bond yields has brought about some nasty consequences. The USGovt borrowing costs finally have exceeded the combined USGovt tax income. This is surely a Third World currency crisis signal that has finally hit the USDollar, deeply tarnishing its image. The USTBond is the global subprime bond. Look for the foreign dumping of USTBonds to continue. But also look for some sort of highly destructive internal derivative accident to occur. There is simply too much pressure on the derivative machinery, and too much leverage involved. With each official USFed rate hike, the leverage increases, inviting an accident.


Lead off with a preface. It warrants mention on the darling dog dung stocks. We have FaceBook and other clownish pet rocks like NetFlix and Tesla suffering horrendous declines. FaceBook actually lost $150 billion in market cap on a single day earlier this year. That was a clear clarion call for a wind shift. The FB stock has suffered its own bearish MA crossover and will inevitably come down with a vengeance. Next Citigroup has broken down. It has not crossed over yet, but very likely will soon. The BKX bank sector declines must occur with coincident declines in major bank stocks. The Citigroup (C) stock has high resemblance to the BKX chart, and might serve well as a bellwether indicator. It would be a day to celebrate if this criminal organization suffered massive capital losses, and faced criminal prosecution, and had its executive including Robert Rubin on the firing line. He is a criminal, responsible for among other things the theft of the $5 billion Native American giant court award many years ago. He is credited with having an important hand in inventing bank derivatives.

Rumors are flying around that Citigroup has enormous exposure in a few key high-risk areas. They might be subject to narcotics withdrawal, by that meant removal of narco funds and the cuts (fees) earned in money laundering. Both the Afghan sources and Saudi channels are being sharply reduced in vital Trump projects. They might have significant energy sector exposure. They might have ruinous derivative exposure. Both JPMorgan (JPM) and Goldman Sachs (GS) stocks are also in trouble, their patterned decline almost as ugly as the Citi wreckage scene. Curiously, the non-Wall Street big bank not in any dire situation for their stock is Wells Fargo (WFC). A safe bet is that Citigroup stock will fall below critical 65 support, and gather negative news.


The smell a Systemic Lehman Event is in the air, a putrid stench easily recalled from ten years ago. Very soon a new crisis is certain to slam the nation and Western world. At least one or two big US banks are going to experience a near death experience. Despite their systemically important status, they will fall, threaten failure, and solicit bailouts. When the bank failures strike Western Europe, the Italian banks might fail all together. This event will precipitate the failure of Deutsche Bank and at least two major French banks. Refer to Societe Generale and PNB Paribas. Since 2008, nothing has been fixed. The credit abuse is horrific and systemic. The monetary abuse is horrific and systemic. The bank insolvency is horrific and systemic. Their narco money laundering dependence is horrific and systemic. The USTreasury Bond is the gigantic subprime global bond. It will face a major global challenge by the Eastern superpowers, as they work steadily toward implementing the Gold Standard. Nothing can stop the process, a magnificent pathogenesis that demands debt restructure.


The Russians and Chinese will not back down to USGovt and USMilitary pressure. The weaponized USDollar and the nuclear threats do not deter them. The rogue nation is the United States. The subprime bond is the USGovt debt security. It bears Third World fundamentals, and will be treated as such. The lit fuse will be Western bank declines and Emerging Market debt default. The winner will be Gold during the next global financial crisis. Many are its signals, and the BKX bank stock index is only one of several such signals. In 2008 and 2009, the safe haven during the crisis was clearly USTBond. Not this time, as Gold will take the safe haven mantle. The entire global bond market will be shaken to its core. Gold will hit the scene with trade payment, then with bank reserves management. The fact that Gold has such lousy sentiment is the final confirmation, a contrary indicator.


Jim Willie

Jim Willie

Jim Willie CB, also known as the “Golden Jackass”, is an insightful and forward-thinking writer and analyst of today's events, the economy and markets. In 2004 he launched the popular website that offers his articles of original “out of the box” thinking as well as content from top analysts and authors. He also has a popular and affordable subscription-based newsletter service, The Hat Trick Letter, which you can learn more about here.  

Jim Willie Background

Jim Willie has experience in three fields of statistical practice during 23 industry years after earning a Statistics PhD at Carnegie Mellon University. The career began at Digital Equipment Corp in Metro Boston, where two positions involved quality control procedures used worldwide and marketing research for the computer industry. An engineering spec was authored, and my group worked through a transition with UNIX. The next post was at Staples HQ in Metro Boston, where work focused on forecasting and sales analysis for their retail business amidst tremendous growth.

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