As the current banking crisis continues, it pays to look back at the last to determine what we can expect next.

And a year before the 2008 Financial Crisis, you could have spotted dozens of warning signs…

The first warning sign was the fall of Wall Street titan Bear Stearns.

In early 2007, Bear Stearns had a market cap of $20 billion. Its stock traded for $172 per share.

A year later, the company narrowly avoided bankruptcy when J.P Morgan swooped in and bought it for $10 per share on March 16, 2008. Just like that, the 85-year-old investment bank was no more.

After Bear Stearns collapsed, Washington and Wall Street stepped in to stabilize the banking system.

For instance, the Federal Reserve opened the discount window from overnight to 90 days – something it hadn’t done since the Great Depression.

[The discount window provides banks with funding to manage their liquidity risks. It’s essentially a credit line to avoid bank runs by depositors.]

And Congress passed – and President George W. Bush signed – the 2008 Housing and Economic Recovery Act to strengthen the housing market with up to $300 billion in guarantees.

The measures calmed the markets. Everyone thought the worst was over as stocks rallied in the summer.

On March 17, 2008, J.P. Morgan CFO, Michael Cavanagh stated:

Having taken Bear Stearns out of the problem category, and the strong action by the Federal Reserve, we would anticipate the market will behave quite differently on Monday than it was Thursday or Friday.

As all of this was going on, I was running my own hedge fund. And I remember saying to myself, “These people are insane. This isn’t over. Bear Stearns is a massive firm. There’s no way this doesn’t have a compound effect.”

I believed Wall Street and the governments’ measures to contain the contagion was the equivalent of using a cork to plug a gaping hole in the Hoover Dam.

Sure, the steps they took after Bear Stearns imploded worked for a while.

After the March 2008 lows, the market rallied 9% to 1,408 in May 2008… recovering more than half its losses.

Then, bam! The dam burst.

The major banks began dropping like flies…

In September 2008, Washington Mutual went under… Then we witnessed the granddaddy of all bankruptcies, Lehman Brothers…

The 158-year-old firm Lehman Brothers had a record $613 billion in debt when it filed for bankruptcy on September 15, 2008.

By November 2008, the market had hit a low of 806… a 43% drop from its October 2007 high.

Chart

Here’s why I’m telling you this: We’re currently seeing a similar crisis play out in the banking system.

In other words, we’re facing a “Bear Stearns moment.”

And if this crisis isn’t contained, we could be headed toward a full-blown Lehman Brothers-like crisis.

When all was said and done, $10.2 trillion had been wiped out, ruining the retirement of millions of Americans.

More than 8.7 million Americans lost their jobs… and nearly 10 million people lost their homes.

If you lived through the Lehman collapse, I’m sure you’re still haunted by the ghosts of 2008. That’s why you need to prepare now for a similar crisis.

The Current “Bear Stearns Moment”

Last month, we saw largest banking collapses since the 2008 Financial Crisis.

And just like they did after Bear Stearns went under in 2008, Wall Street and the feds have stepped in to protect the banking system.

In the first two weeks of the crisis, the Federal Reserve initiated an emergency bank-lending facility to provide over $300 billion of liquidity to banks.

To prevent a bank run, U.S. regulators suspended the $250,000 insurance cap set by the FDIC. That meant regulators would insure depositors who had more than $250,000 in their banking accounts.

Like in 2008, the big banks pumped billions of dollars into the financial system to keep smaller banks afloat. By the end of March, the entire banking system saw over $150 billion move from smaller banks to larger ones.

In my opinion, these half measures are like covering a gaping wound with a Band-Aid. This crisis is far from over.

That’s why I call what we’re witnessing now in the banking system a “Bear Stearns moment.”

What Could Cause the Next Lehman-Like Collapse

During the 2008 Financial Crisis, toxic subprime loans brought down the banking system. This time around, I believe it will be a credit crunch.

As you know, the Fed has been hiking interest rates to battle persistent inflation.

Last month, it raised the benchmark interest rate by 25 basis points. It’s the Fed’s ninth rate hike since March 2022.

Meanwhile, Fed Chairman Jerome Powell has encouraged banks to tighten their credit, which will eventually lead to a “credit crunch.”

During a credit crunch, banks significantly tighten their lending standards. Loans become much tougher to get.

And as banks demand more money for the perceived higher risk of making loans in a credit crunch environment, interest rates go higher.

According to some initial analyst views, a credit crunch could be the equivalent of a 1.5% interest rate increase.

More concerning is this…

Higher yields on debt have caused investors to flee to government bonds. That’s created the steepest yield curve inversion since 1981.

Historically, yield curve inversions have been an accurate predictor of recessions.

According to the Federal Reserve Bank of San Francisco, an inverted yield curve has predicted all 10 recessions since 1955. That’s an impressive track record.

As you can see below, an inversion of the yield curve has preceded each of the last four recessions.

Chart

When you add it all up, you can see why we’re in a “Bear Stearns” moment… and not a “Lehman moment” that would signal the climax of this current crisis.

How to Protect Yourself In This Environment

Friends, I don’t have a crystal ball. So I can’t say whether the measures taken by Wall Street and federal regulators to prevent another Lehman-like crisis will work out.

Regardless, I want to prepare you for the possibility the market and economy might get much worse before they get better.

Fortunately, there’s a way to do that. You can get the absolute safest asset right now at its best valuation in 15 years.

I’m talking about U.S. Treasuries.

Treasuries are the debt obligations of the U.S. government, issued by the U.S. Treasury Department. The full faith and credit of the U.S. government secure the payments of that debt. (In other words, the government’s power to tax.)

This quality is why we call Treasuries a “risk-free” investment.

Unless the U.S. government goes bankrupt (a highly unlikely event), you’ll receive your entire principal back, provided you hold these securities to maturity.

Personally, I’m buying short-term Treasuries. These are T-Bills issued for periods as short as 30 days and for as long as two years.

Right now, you can earn yields over 4% on these types of Treasuries.

I know that doesn’t seem like a lot. But by comparison, a savings account at J.P. Morgan Chase yields about 0.01%. And Wells Fargo will give you 10x the return… with a whopping 0.1% interest rate.

So T-Bills yield 4x to 40x times more than parking your cash in traditional bank accounts.

(In the April issue of my flagship The Palm Beach Letter, I show you exactly how to buy and “ladder” T-Bills for even higher yields. Subscribers can read the issue right here.)

While many are still hoping for a “soft landing” in the economy, the warning signs – including a credit crunch and inverted yield curve – indicate a looming recession.

Rather than wait for a crisis to break out, you can act defensively by parking your cash in an essentially “risk-free” asset – plus earn up to 40x more yield on your cash than you can from a traditional bank account until the storm clouds clear.

Let the Game Come to You!

Big T

P.S. If you’re looking for another way to boost your income in this volatile market, there’s a tiny subsector of crypto market that I believe will benefit from a coming “buying panic.”

Unlike most cryptocurrencies, these tokens are programmed to pay you monthly income on top of capital gains. And they’re set to benefit from a surge of activity coming to one of crypto’s largest networks as early as next week.

I recently held a special event about these crypto-income tokens. During the event, I explained what this catalyst is and how they’ll benefit from it.

For a limited time, you can stream it right here.