The macroeconomic front is starting to get quite complicated.
Under the surface, there’s a covert financial war raging. It pits the globalist power structure and their “Great Reset” against the New York banking faction who want to save the legacy financial system.
At the same time we have a war in Eastern Europe… and now a war in the Levant. And various factions are trying hard to escalate them into something much bigger.
And if that weren’t chaotic enough, we’re at the very beginning of a massive liquidation of all the malinvestment that’s formed since the world’s top central banks collaborated in 2008 to drop their key interest rates to zero. The economy is about to cleanse itself of the uneconomical projects and zombie companies that produce too little value to be profitable.
Put it all together and there’s only one thing we can conclude for certain. We’re in for a bumpy ride.
We can see evidence of this if we assess the most recent quarterly earnings reports from two of America’s largest banks – JP Morgan and Bank of America.
I found these reports especially interesting because JP Morgan appears to be the de facto leader of the New York banking faction. Meanwhile, Bank of America is firmly in the globalist camp. They now talk about the implementation of “stakeholder capitalism” (the Great Reset) in the bank’s annual reports.
And the way each bank presented its earnings release signals that this is a case of dueling banks. And dueling agendas.
JP Morgan reported revenue growth of 21%. And the bank’s quarterly profit surged 35%. These are huge moves for such a large bank.
And this performance was driven by strong growth in net interest income. This is the difference between how much the bank receives from loans and how much it pays out on deposits—which is every bank’s core business.
As for Bank of America, it declared its best quarterly results in over ten years thanks largely to soaring “stock-trading revenue”. It’s right there in the headline:
This is curious.
At some point we each made a conscious decision regarding who we bank with. When considering our options, did any of us think, “hmm, I wonder which bank is going to trade stocks the best”?
Of course not.
We don’t want our bank trading stocks. That’s how banks get in trouble—being aggressive with the funds they are trusted to custody on behalf of depositors.
So why is Bank of America featuring its trading gains in its quarterly earnings report?
There’s an old saying in the banking industry. Good banks are focused on the 3-6-3 rule. It says if you want to be successful in the business, you pay 3% on deposits, you lend money out at 6%, and then you’re on the golf course by 3 p.m.
That’s sound banking in a nutshell. It’s all about net interest income. Nice and simple.
That is, as long as you manage your other costs.
In the banking world, these are called non-interest expenses. They consist of personnel costs (salaries), occupancy expenses, equipment leases, marketing costs, and professional fees.
Now, if we dig into the numbers buried in Bank of America’s earnings release, it generated $14.4 billion in net interest income—that’s its core business.
So far, so good.
But Bank of America’s non-interest expense was $15.8 billion. That means its operational costs exceeded the income from its core business.
If we compare that to JP Morgan – it generated $22.9 billion in net interest income. And its non-interest expense was just $3.1 billion.
It’s night and day.
JP Morgan’s business is doing great. Bank of America’s is not. That’s why it had to book stock-trading gains to make the bank’s quarterly numbers look okay.
What’s more, Bank of America reported unrealized losses in its bond portfolio of $131 billion. That’s largely because it bought over $200 billion worth of US Treasury bonds in 2020 when the 10-year Treasury rate hit all-time lows below 1%.
For context, the bank only purchased $30.4 billion worth of Treasuries in 2019 – when the yield it could have received was much higher. 10-year Treasuries yielded an average of 2.1% throughout 2019.
Remember, the value of a bond moves inverse to interest rates. When rates go up, bond prices go down.
In 2020, 10-year Treasuries paid an average of 0.89%. Today, the 10-year yields 4.8%.
The temptation here is to subtract one from the other and say that rates are up 3.91%… but that’s not correct. The 10-year Treasury now yields 439% more than it did in 2020. The calculation is: ((4.8%-0.89%)/0.89%).
So Bank of America effectively made one of the worst investments in history.
And why did it buy all those bonds yielding less than 1% in 2020?
Well, Bank of America first started talking up stakeholder capitalism that year. This refers to the system that the “Great Reset” seeks to impose upon us.
At the time, the Covid hysteria gave the globalist plot a tremendous window of opportunity. And the Biden administration here in the US made moves to implement it. That’s what lockdowns, contact tracing, and vaccine passports were all about.
It certainly looks like Bank of America upped its Treasury purchases in 2020 to help support the push for the Great Reset agenda amidst the Covid chaos.
They’ll never admit that, of course. But why else would they increase their Treasury purchases nearly 7x to earn less than 1%? Especially when they could have earned over 2% on the same investments just the year before…?
This is why I call Bank of America “King Globalist” among the US banks. The bank sacrificed its own fiscal health for the sake of the agenda.
The bottom line here is that Bank of America is not in great shape. But they are trying very hard to make the bank look good because they are desperate to maintain appearances.
Bank of America can’t afford to give ground to the top New York banks like JP Morgan. It’s not just bank versus bank. The struggle is really the Great Reset versus saving the legacy financial system.
And notice how the commentary from JP Morgan CEO Jamie Dimon was drastically different from that of Bank of America CEO Brian Moynihan.
Here’s Dimon:
“The war in Ukraine compounded by last week’s attacks on Israel may have far-reaching impacts on energy and food markets, global trade, and geopolitical relationships… This may be the most dangerous time the world has seen in decades. While we hope for the best, we prepare the firm for a broad range of outcomes.”
Meanwhile, Moynihan said that we’re in a “healthy but slowing economy”. No warnings. No caution. Just fluff.
By the way, I worked in Bank of America’s Special Assets Group (SAG) for several years. I didn’t realize it then, but it was all an operation to roll up America’s mid-market regional banks into the behemoth that Bank of America became.
As part of the SAG team, I was on Moynihan’s quarterly strategy calls. I’ve never heard somebody say so many words but convey so little meaning. The guy is a master of deception.
So my takeaway here is that the New York banking faction has the upper hand in its financial battle with the globalists. The Great Reset agenda has taken a major step backwards.
But that doesn’t mean the economy is in the clear.
The current administration in the US made it clear that they are happy to support both the war in the Ukraine and the war in the Middle East. Treasury Secretary Janet Yellen even went on record saying that the US can afford to do so.
Of course, it’s always those of us in the private sector who pay for wars and deficit financing—either through taxes or inflation, or both.
And wars on multiple fronts guarantees that we’ll see oil prices rise… which will put even more of a strain on the middle class and the domestic economy.
So I think it’s time to buckle up.
The next several years will be difficult for a lot of people. But that doesn’t mean we need to liquidate everything and hide in the basement.
If we look at history and read some eye-witness accounts, most people’s daily lives didn’t change too much through times of trouble—even through periods of war and chaos.
Most people got up and went to work each morning just like they always had. The local economies did their best to keep things going. And the financial markets continued to chop along.
I mention that because I don’t want this to be a message of doom and fear.
If we focus our investments in the right places – if we make our money bulletproof – we’re going to do fine in the years to come.
As I mentioned on Thursday, the areas we need to focus on are as follows:
- Reserve Assets
- World-Class Insurance
- Energy Renaissance
- Gold Equities
- Consumer Goods Inflation Hedges
These are the investments that will help us get to the other side. And that’s exactly what we should be focused on. We have to get through what’s coming.
If we can do so without losing the capital we’ve worked so hard to earn, we’ll be in a far better position than most.
We’ll break down each of these asset classes this week.
-Joe Withrow
P.S. For an in-depth crash course on exactly how to position our finances ahead of what’s coming, check out our Finance for Freedom program. More information right here.