Too big to fail vs too small to care

Lets take a look at the two sides of the US banking system to see if opportunities exist. We’ll compare the “too big to fail” large capped banks (via a few individual stocks) to the “too small to bother with” US regionals.

To start: Most of the smaller commercial and office space debt in the US has been through the smaller regional banking system. And there are alot of them! The US has more than 4000 banks in the US and 500 mutual banks! Clearly, the Fed is in a pickle if the situation gets too out of hand with this plethora of vulnerable lenders.

A main area of concern within the CRE (commercial real estate side) is office rental. In Canada, we just witnessed a win for civil servants to hold the “right” to stay home and work in their pajamas – a new precedent unheard of pre-pandemic. This trend has been seen in the US as well. Here’s a chart from TD illustrating the decline in US office space.

Meanwhile, mortgages on CRE properties are coming due…and that’s a bit of a problem – given the above.


The KRE chart below illustrates the epic plunge by the sector. After breaking support in the mid-$50’s, the ETF is down to an old resistance (new support) level near $38. You can see the RSI oversold signal on the chart, along with early divergence on the MACD histogram. The bottom pane is moneyflow, which may, perhaps, kinda be finding some support right now….

Clearly, this would be a trade, which would ONLY be entered upon a few days of positive movement, for the uber-risk orientated investor. That wouldn’t be me.

Are there any opportunities in the sector? Well, one could possibly look for regional banks in states with governments who lead less restrictive business strategies during the pandemic – combined with a strong business immigration trend. Witness Florida, who were leaders in re-opening their businesses. The  historically high immigration to that state from more restrictive states has seen residents and businesses  seeking more freedom, less tax, and better weather. The chart below, courtesy TD Bank, highlights this.  Note Tampa and Miami at the bottom of the vacancy rates. So, while the stress on regional banks is pretty wide-spread, there may be a few gems in the group for investors willing to do a bit of digging. I have not done any work in this potential opportunity, but its food for thought…

Meanwhile, the bigger banks are showing more promise. Here’s Bank of America. Note the early signs of an oversold bounce in RSI and MACD. Moneyflow is basing. We’d like to see a move over $30 before becoming truly interested, but its worthy of watching.

Wells Fargo looks to be caught in a sideways channel. If it can hold about $38, it may hit $48. Some signs of momentum strength are appearing. Wait for a confirmation of support to hold.

JP Morgan certainly paints a different picture to the regionals. Its struggling to break $140 resistance right now, but if that breaks its conceivable that we could see the $165 area tested.

Finally, the last of the big US banks, Citibank. Another stock caught within a support/resistance channel. No signs of building momentum. A break through $53 would target $70-ish. Whatever the case, this chart is clearly more of a safe haven than taking on the regional banks in your portfolio.


We don’t hold any exposure to US banks or financials at this time. However, we are keeping an eye on the group. Seasonality ends a bit later than the broad indices for the group–into June rather than May. Speculators might be more interested in the regionals, particularly any with higher exposure to Florida. The above charts might provide some neartermed trading guidance in the large caps. We shall see how this all plays out.



  • Keith: My question relates to the inflated US currency and investing in US markets (ie S&P 500) vs investing only in Canada.
    Do you believe the US $ can retrench sufficently to offset the capital appreciation of US equity? In other words if a Canadian investor with say $1m or less, might they avoid significant exposure to the US market for fear of reducing their capital gains when they convert back to CDN$, either trading inside of 2023, or even holding through 2024/25?

    • Daddyo – the C$ has had super strong support near $0.72 vs USD since 2017. Yes, we saw a lower point in 2020 as the pandemic pushed money to the greenback in “flight to safety” mode – but beyond that its been $0.72 that has been the very significant floor. Given that we are only a penny or so away from that point, I feel that – to your point – there may be strength in the C$ (after some possible neartemred weakness to perhaps test $0.72-ish). How much will the loonie rise? Hard to say. It really dependent on commodities, bank rate, and credit scores. But technically, I’d say its a fair bet to suggest that, after any test nearing $0.72, we may see a bounce to $0.75. That is where we have seen minor resistance for the loonie. If that is the case, it would impact USD stocks. But…possibly not enough to matter significantly if you have stocks that might make (say) 10% return….
      Hope that helps

  • The Dow Jones US Bank index says it all…falling off a cliff, not unlike Titanic sinking catastrophe. Better to keep your cash under your mattress than leave it in a US regional bank.YD threw in the towel today. on First Horizon. Strangely, gold is not a panacea for deposits.


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