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The Can Hath Been Kicked... Now What?

Posted October 02, 2023

Zach Scheidt

By Zach Scheidt

The Can Hath Been Kicked... Now What?

You can breathe a sigh of relief… for now.

Congress got its act together and passed a bill to fund the government mere hours before a government shutdown that would have caused serious damage.

Finally, our elected officials are doing their job and keeping our best interest in mind! Okay, just kidding...

The sad truth is our politicians simply kicked the can down the road. The stopgap bill will only fund the government through mid-November.

And I guarantee we’ll see more bickering and continued risk of a government shutdown as we approach this next deadline.

Fortunately, one area of the market could vault higher as a direct result of this half-measure passed by Congress.

The Silver Lining From Congress' Failure

We previously talked about how big investment banks are benefiting from some key market dynamics. To summarize the main points: 

  • New IPOs are being listed, creating lucrative underwriting fees for banks.
  • Corporate bonds are maturing, requiring corporations to sell new bonds again, generating fees for investment banks.
  • Mergers and acquisitions are picking up. And most of these deals require the help of investment banks to get the agreements over the finish line.

So what does the investment banking business have to do with a government shutdown?

Well, most of these deals require approvals from the Securities & Exchange Commission (SEC), the Financial Investment Regulatory Authority (FINRA), or some other government body.

And when the federal government is shut down, these entities can't process the necessary approvals.

So here we are at the beginning of October.

Companies need to access the public markets and take advantage of the services provided by these investment banks.

And they have to get these deals done before the next government shutdown scare coming up in mid-November.

Otherwise, these companies could get locked out of the financial markets. And who knows what the broad market (or the company balance sheets) will be like when the government reopens.

A Few Key Banks to Consider

The largest blue-chip investment banks stand to benefit the most from this limited time window for underwriting. 

So as corporations scramble to access capital markets, the too-big-to-fail banks rake in fees day after day. A few names to consider include:

  • Goldman Sachs (GS)
  • JPMorgan Chase (JPM)
  • Morgan Stanley (MS)
  • and Bank of America (BAC)

Remember, these aren’t as vulnerable as regional banks. These investment banks generate profits from Wall Street services, as opposed to traditional bank lending.

Regional banks have deposit customers who are steadily moving capital away, leaving these banks with less money to lend and shrinking assets thanks to higher interest rates.

In other words, avoid small regional banks like the plague!

But larger financial institutions like the ones listed above have the implicit backstop of the federal government.

They have business lines that are helped by higher interest rates, instead of pressured by our current rate environment.

And for now, these banks are set to enjoy a blitz of new high-profit business as the next government shutdown deadline looms.

See You in Vegas!

I'm wrapping up this note in the Atlanta airport where I'm about to board a plane for Las Vegas to attend the Paradigm Shift Summit at the Bellagio.

If you're attending the conference, please be sure to say hello! 

I'll be at the venue all day and look forward to shaking your hand and hearing more about your retirement plans.

Of course, my team and I are not registered to give individual investment advice. So I can't give you specific guidance with your investments.

But I guarantee you'll find the conference informative and will have plenty of new investment ideas to consider from the conference.

Safe travels if you’re on the road. And if not, stay tuned. We’ll keep you in the loop!

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