Market Crash Red Flag: What Wells Fargo just Said

hey everyone meet kevin here i've been

giving the a wells fargo

credit align cancellation issue a lot of

thought

and why it could be actually happening

and what implications that might have

for the broader market so let's talk

about this a little bit

first of all in case you don't know i

guess you haven't heard yet wells fargo

declared that all of a sudden

anyone with a personal line of credit is

getting their personal line of credit

cancelled now here's something that's

very important to know about

lines of credit the lines of credit are

like

credit cards but they usually carry

lower interest rates

the cool thing about lines of credit is

you only pay interest on them generally

interest only

when you use the line of credit so if

you have a home equity line of credit

which i'm a big fan of

i can write a check from a line of

credit if i need to or not so for

example

i have a 125 000 line of credit on my

house

if i want to write a check from that for

125 000 i can do that and it's like cash

then i pay interest on the balance

that's outstanding i repay that over

time

however i want to repay it and then i

stop paying interest on that money it's

very very convenient

i see lines of credit as a very good

emergency

fund and they're also a relatively safe

emergency fund

for example home equity lines of credit

which those aren't getting cancelled

those usually carry lower interest rates

and

the collateral is real estate personal

lines of credit those carry slightly

higher interest rates but they give

folks

a line for emergency purposes or if they

want

access to cheaper credit than credit

cards could offer

now why is wells fargo ending these

personal lines of credit

potentially dangerous and risky well in

my opinion

first of all there are a few issues here

the first issue is you're removing

liquidity from people that is people

have less access to cash

when people have less access to cash you

first of all reduce consumption which is

a big problem so a side effect of having

less liquidity is reduced consumption

that hurts the economy that hurts growth

that's bad now it's just wells fargo but

then again wells fargo is a big company

okay it's part of the big four bank of

america city chase right

big big big company so it's a big deal

so liquidity is obviously an issue

consumption can go down growth can go

down with individuals who would

otherwise be able to use their personal

lines of credit

now what else is an issue well the other

issue of not having access to this

liquidity

is you potentially end up driving these

individuals who had personal lines of

credit

into riskier forms of credit such as

credit cards or personal loans

now the reason personal loans are

riskier than personal lines of credit

is because again with the line of credit

you're only using the money when you've

spent it you're only paying interest on

the money when you spend it you go into

wells fargo and you go on a personal

loan for 100 grand they give you a

hundred grand

you're paying interest on that whether

you need the money or not that's a

problem that's that's an issue in my

opinion

i'd rather have a line of credit now you

do have

credit cards as an option as a line of

credit at wells fargo which is something

they said oh we got personal loans and

credit cards

but you got to be out of your mind to

pay the interest rate on credit cards so

sometimes

exceed 20 20 20 to 24 it's absolutely

nuts

it's highway robbery you should never

pay a dime of interest on some of these

ridiculous credit cards

so that's very risky in my opinion and

it's dangerous

and so what does that potentially do

well in my opinion it potentially drives

folks

into using margin on maybe investments

that they have such as stocks

now unfortunately margin is risky

because if your

underlying collateral falls beneath a

certain point because the stock market

corrects or whatever

well all of a sudden you could get

liquidated and so you're forced into the

situation where either you don't have an

emergency fund or use margin as an

emergency fund or to fund your

consumption

or you use more expensive credit cards

and all those things are worse for the

consumer it's worse for wells fargo

customers

less access to liquidity is bad for the

economy it's bad for wells fargo

customers

now wells fargo is probably looking at

this as a profit driver because they're

like oh well

if people are using these lines of

credit they have all this access to

credit but maybe they're not

using it all well let's take away that

opportunity from folks

and force them into higher interest rate

products that's that's the only thing

that makes sense to me because remember

businesses are

and this is why you know look i'm a big

fan of free market capitalism and

everything but

you know sometimes business motives are

misaligned with

societal motives and one of those could

be the fact that

if wells fargo is saying oh well people

have all this access to credit but

they're not paying any interest on this

because they're not using it

ah well uh how about we force them into

something where they have to pay us

interest

i almost feel like there's a like a a

secret profit motive here that wells

fargo is going for

and if that's not true then wells fargo

should come out and give us a real

reason because right now they're not

giving us a

real reason uh and it's scary to me

because it makes me wonder

what's gonna happen at other banks is

this the first of many now i don't want

to you know come across it's like fear

mongering or whatever but you always

want to look at that if one of the big

four is doing it

what i mean either look the other banks

can look at this and go great more

customers for us

wonderful go switch from jpmorga from

from wells fargo and go to jpmore

whatever go to the other banks uh but

the the danger is that this had some

kind of precedent that we're going to

get rid of personal lines of credit

because here's the thing

during the pandemic home equity lines of

credit have been much harder to come by

a lot of banks aren't even doing home

equity lines of credit anymore banks a

lot of banks used to do

rental property lines of credit after

the pandemic they're not doing these

anymore

so it's really interesting because

really what you're doing is you're

eliminating

uh equity well liquidity opportunities

for people and you're

pushing them into riskier forms of debt

credit card debt or margin

and here's the thing margin rates the

main data that came out

highest levels we've ever seen before

over 830 billion dollars

i thought maybe the margin that a few

months ago i was saying hopefully

we start seeing margin debt go down and

we start seeing a deceleration of people

using debt

no we haven't seen that we're seeing

more debt flowing into the stock market

uh so uh it makes me nervous especially

if

folks uh emergency levers are being

taken away and they're being forced into

higher credit

or higher interest rate bearing accounts

to have liquidity

and potentially other banks follow suit

robbing folks of

consuming power that slows down the

economy that slows down growth

and all of this is honestly quite ironic

because banks have they're flush with

cash they got too much money they got

too much cash so

part of me wonders the other possible

reason is

if it's not a profit motive for banks

then it has to be a risk aversion

uh you know reason for wells fargo to do

this in other words our banks worried

that

markets are are inflated we're starting

to see a slowdown in the economy we're

seeing

real disposable income go down we're

seeing consumption go down we're seeing

credit card transactions go down we're

seeing mobility data going out

going down just month over month over

the last few months here which makes

sense

get a big explosion at the reopening and

people kind of go back to settling into

a normal average

uh like a pre-pandemic average but look

if the stock market is valuing companies

and all of a sudden these new massive

growth metrics and then companies like

wells fargo are going oh man

you know we we have too much potential

for people to take debt out there it's

too risky

because if we have a bubble or something

that pops which i you know look

i'll give you my odds at a moment well

then maybe wells fargo is trying to

mitigate their risk

that way by making sure people don't

have access to all this money during a

potential crash

which sucks because you want cash during

a crash so you can buy the dip right

but anyway maybe maybe that's what wells

fargo is doing maybe they're

they're their administrators or their

executives are going look

they're not profitable now because

people aren't using them maybe i mean

that's one option or the other option is

hey

if we're going into a market correction

we don't want folks being able to take

out a bunch of debt

uh in in a correction which does happen

like in in the recession in 2008

uh we we saw credit lines get frozen

it's one of the first things that

happened credit lines got frozen when

the pandemic came

in february of last year i warned

everybody i said folks

draw down your lines of credit and what

that means is you literally go

to your credit lines and you take all

the money out and you go park it

somewhere else maybe even at a different

bank you usually don't have to do that

but you could park it at a different

bank and why are you doing that you're

doing it so you have access to that

money before they freeze your credit

line

so i don't know it's weird now regarding

odds

i still think i still believe we're i

may have revised this up a little bit

okay i was saying like

five to fifteen percent chance of an s p

correction of somewhere between fifteen

to twenty percent

i i think that's maybe closer to fifteen

to twenty percent now

and this is something we've been talking

about over the last few days just some

indications that we're seeing

uh we've talked about another video so

anyway i i am a little bit worried about

this

wells fargo thing being a little bit of

a sort of a

it's a red flag put it that way it's a

red flag i don't know let me know what

you think thanks so much for watching

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one bye