American stock markets have plummeted. The reason is the banking crisis, at least that's what's being said. A great deal of fear is being unleashed on the market. This has caused both American stocks to plummet, and cryptocurrencies have experienced significant pullbacks. American stock markets have been very volatile since October 10th. There was a sharp decline, wondering if the trade war between China and the US would escalate. After that, things calmed down somewhat. Another bombshell like this dropped on October 16th. So, what's the big deal? Is there really a major crisis as thought, or is it being exaggerated again? I'll explain it all for you. You'll feel more comfortable and confident when you finish this article.

A local bank called Zions said it didn't think it would be able to recoup a loan it had made on October 16th, a $60 million loan. They said they were writing off $50 million of it as a loss. All hell broke loose. So, what difference does $60 million or $50 million make on an American scale, right? Such loans fail everywhere. But the market had been on edge for a while. In the US, you can use two different types of institutions to obtain a loan: banks and private lending funds. What's the advantage of these funds? They're not subject to the same regulations as banks. Therefore, they can charge high interest rates and lend to riskier institutions. In recent weeks, two large institutions to which these institutions had lent money went bankrupt. One is Tricolor, the other First Brands. First Brands is an automobile parts company, specifically dealing in spare parts for older cars. Tricolor is an interesting company. This is called subprime lending, which provides loans to undocumented foreigners who wouldn't normally qualify for loans—those foreigners Trump dislikes.

Some may remember. In 2008, mortgages were given to people who normally shouldn't have received loans. That's when all hell broke loose because they couldn't repay them. This is exactly what this company is providing loans to. Both of these institutions received loans from private lenders, the private financing institutions I mentioned earlier, to use for their businesses. Both collapsed suddenly, vanishing into thin air. Why did Tricolor collapse? It likely experienced difficulties with the subprime sector. Some of its creditors were forced abroad. New policies in the US led to the collapse of some of them, leaving them unable to find work. First Brands, on the other hand, appears to have been a bit of a fraud. It appears as if non-existent assets were being presented. Inventory was manipulated, and the lender was somehow deceived. America was uneasy about these developments. Yes, these aren't banks, but if lenders experience such problems, they'll stop lending. There could be a liquidity problem in the market. That was the concern, and I wonder if this could spread to banks?

As if that weren't enough, you know, balance sheets are coming out in America. Bank balance sheets are coming in. The largest bank is JP Morgan. Its balance sheet has arrived, and its CEO made the following statement while discussing the balance sheet: He said, "Two major institutions went bankrupt last week. Private lenders there have lost significant money. If you see a cockroach somewhere, it's not the only one." There might be a few more cockroaches. What did he mean? These types of private lenders—institutions that aren't banks but provide loans—may be even more likely to fail. Perhaps the market's risk of bad loans is higher. That's what he was saying. The market was disturbed by this. Private Lender even responded to JP Morgan's CEO. They bickered a bit, but they didn't seem to care much. But the news on October 16th kind of fueled the fire. What was the news? A small bank, a local bank called Zions, had failed on a loan.

Where Zions made the loan is important. A fund called Kenter. Kenter is actually one of these private lenders I mentioned earlier. In other words, it raises funds from the market. Borrowing from banks is part of this fund. Then it goes and lends these funds to unlikely places. I think one of the places it lends to is the two institutions I mentioned earlier, as well as other dangerous places. Moreover, rumors circulated that there was some corruption involved in the loan process between Kenter and the bank, and that the loan was used by Kenter, that loans were given to unsuspecting individuals, and that collateral was overstated. The bank then stated, "We've launched an investigation. We lent Kenter $60 million. We're currently deducting $50 million of that from our records. We don't think we'll get it back. We've lost $50 million."

This didn't end there; another local bank, Western Alliance, said, "We've also loaned money to Kenter, so we're in danger too." We're launching an investigation. These are internal investigations, not external investigations. I wonder if the employees committed any fraud during the issuance of these loans? Was there a bribe involved? What's going on? They first make a provision to determine whether this money can be collected. They say, "Let's write off this loan for now. Maybe because we won't be able to allocate it." Then they launch an investigation. When this news broke on October 16th, the GCI, the index of smaller banks in the US, fell significantly. It's their ETF. It's one of the largest. Later, there was some concern among the larger banks. The XLF is the main ETF of the larger banks, and it fell. JP Morgan fell around 2%. In fact, the GCI ETF, one of the larger banks, fell close to 9-10%.

That's how chaos unfolded. This fear then spread everywhere. People were right to be afraid. Because credit markets are crucial. For example, the 2008 crisis erupted due to problems with mortgage loans. If the credit system grinds to a halt, the entire country becomes suffocated, and in such situations, investors think, "Let's sell first, we'll see what happens later," as they experienced in 2008, and they sell everything they have. There were massive sell-offs not just in bank stocks, but in technology companies, in every sector you can imagine. The stock market was frankly a bit inflated. Especially in technologies like quantum computers, which weren't profitable or generating any revenue, there were incredibly inflated valuations. And those things plummeted.

So, what do I think? First of all, we should always be wary of problems on the banking side. Because if banks grind to a halt, if the credit system grinds to a halt, the entire economy grinds to a halt. So, do these events suggest something like that? No. I've listened to plenty of commentators. These are the views of many. They say these are problems inherent in the banking sector, which has developed under unique circumstances and doesn't spread to the general public. Because remember, the big banks are completely outside of this. After the 2008 crisis, very strict regulations were imposed on smaller banks. Regulations are a bit looser for smaller banks. Those regulations were particularly loosened during Trump's first term. They can lend a little more easily. But the real problem lies with private lenders. Private lenders also have relatively limited influence on the stock market.

Moreover, in the cases I've described, there seems to be a pattern of fraud. It would be absurd to say that the entire American banking system is rigged. Therefore, there doesn't seem to be any systemic risk, but as I said, people are in a sell-first-and-see-later mode. This is why stock markets have suffered a significant sell-off. What percentage are banks lending to each other in the repo market? There's data that measures this: SOFR data, which you can see on Trading View. It's also moved up a bit. What does that mean? It sounds like there's a cash shortage. It seems like banks are a bit hesitant to lend to each other. That was another major news item that frightened the markets. This isn't the first time we've experienced a crisis like this.

At the beginning of 2024, if I'm not mistaken, two local banks in the US went bankrupt, and they were directly transferred to the government. They were transferred to government funds. There was a similar fear back then, wondering if there would be a problem that would spread to the financial system. Later, the Fed intervened, printing money, buying these banks, providing incentives for large banks to buy them, and so on, and they resolved the problem. I believe the same thing will happen again. The funds here are much smaller anyway. Neither bank is talking about any financial stress. They're just saying this loan has failed. So, frankly, I think this is an exaggerated fear. It will subside in the coming days. If the situation is as I think it is, meaning there's no systemic financial crisis, then new buying opportunities are opening up.

Of course, no one knows what the stock market will do next. We're not fortune tellers. But remember, the Fed is lowering interest rates. Last week, Powell said they would also ease monetary restrictions. So, it looks like they'll switch to monetary expansion. That's something that will ease the market. The atmosphere for peace seems to be getting a little stronger. The war between Hamas and Israel is over. At least now, there's a ceasefire. Trump announced that he'll meet with Putin again soon. There's hope there. The Sino-American trade war is going badly, but we know they'll reach a conclusion. On the other hand, regulations will be loosened next year. Consequently, the economic climate seems to be easing. Given all these circumstances, I honestly don't pay much attention to the latest developments. I think our direction is still upward. While I say upward, it's important to be a bit cautious. We shouldn't rush to buy the bottom right now. Technically, stock markets have broken down a bit. We need to see if they hold above the 50-day moving averages for a while. They're there now, but if they break below the 50-day range, the 200-day range risk could come into play. It's worth being a little cautious, but I personally believe I'm inclined to buy the bottom later. Despite all the reasons, I think everything is still a mess. New opportunities are emerging amidst this chaos.

Cryptocurrencies are also being negatively impacted by all this. Money is also flowing into gold. There's an incredible upward movement in gold right now. I think it's become a FOMO movement. In other words, it's lost its fundamental logic. What was the fundamental logic? The US dollar is weakening. Because they're going to print a lot of dollars. In this case, let's protect ourselves and buy gold. Central banks abroad, especially China, are saying, "Let's get out of US bonds and into gold." It's safer; America is in trouble. Okay, that makes sense, but the momentum it's gaining right now is a bit exaggerated. It looks like they'll sell it somewhere. If they do, crypto will generate money again. The reason there's not much money flowing into crypto right now is because people around the world are in a bit of a risk-off mode. In other words, they're in a risk-off mode. There's a significant gain in gold. Moreover, it's perceived as a lower-risk asset. Gold is accessible to everyone.

However, buying and selling Bitcoin is still something many people are unaware of, and hesitant about. The cryptocurrency crash was very sharp. It gave those who already distrusted crypto even more reason to distrust it. There's a 100% chance that major thefts are taking place in this market. I don't want to blame anyone, but the liquidations that day were quite extraordinary. That's why money is hesitant to get into crypto right now. If it does, it will likely first go to Bitcoin and Ethereum. It's worth observing the gold price movement for this. However, the US dollar has fallen significantly. The decline of the US dollar is beneficial to crypto. I think if this gold issue reaches a balance, there will be a resurgence of money flowing into crypto.

The problems in the US economy could worsen America in the long run. But right now, in the short to medium term, I don't think the Trump administration will allow a stock market crash. They have plenty of resources to do so. The Fed's interest rates are quite high, and they can lower them. The Fed was tightening the currency; it could loosen it again. They have these tools at their disposal. On the one hand, Trump says he's reached an agreement with China. In fact, a reporter asks him, "Are you serious about 100% tariffs on China?" He says no. This has helped the market recover somewhat. So, there might be a flood of news from those supporters as well. There are midterm elections in America next year. Trump doesn't want the stock market to fall until the midterm elections. I've read some very absurd comments saying they actually want the market to fall. No, it's not. What people don't read is this. Yes, I initially thought that, but there was also the idea that the government would also start saving. The government abandoned saving.

The government says it can solve this problem with economic growth. How can economic growth happen? It happens when citizens consume. However, if citizens don't consume, there's no economic growth. The income inequality in America is very serious. That's why the number of people who can consume is quite low. The latest data shows that 10% of Americans own 50% of the assets. Why are they consuming? Their morale is high right now. Because they're making good money in the stock market. In other words, when stock market returns drop, many Americans will be quite demoralized. There's no such income in real estate right now. A certain number of people play the gold side, so it's difficult to say if gold is profitable. It doesn't provide a sense of wealth. Rather, it provides a sense of protection.

The stock market, on the other hand, provides a sense of wealth and prosperity. This, in turn, drives people to consume. A breakdown in that area will also hurt consumers. In this case, an economic contraction could begin in the US. I'm sure Trump doesn't want this. He has a very critical election ahead of him. The days are drawing closer, and the public is not entirely happy with some of his decisions. He needs to get things straightened out as soon as possible. So, to summarize, for now, I don't see much risk in the financial system, but I will be monitoring it closely. It's a bit difficult to understand the American financial system; it has very complex financial products. That's why, when it crashed in 2008, we didn't understand why; we had a hard time understanding it later. This time, there might be similarly complex products. But I've been thinking for a while that private lending institutions could be a problem. But what's happening now isn't such a massive issue, and yes, some other banks could implode. But I don't think there's any systemic risk that could spill over into a major bank yet. As long as that's not the case, we can continue our work. At least that's my view.