Credit defaults, regional banks collapsing, liquidity drying up, gold hitting record highs, and the Fed poised to intervene again.

All of this together paints the same pattern that always precedes major shocks: the system begins to dry up before things change.

Understand what's at stake!

1️⃣ The first domino has fallen: regional banks plummet again

Shares of Zions (-13%), Western Alliance (-12%), and First Horizon (-3%) plummeted after fears of further losses from nonperforming loans and other factors—explained below.

It all started with the bankruptcies of First Brands Group and Tricolor Holdings, which brought to light long-standing problems in the American credit system.

2️⃣ The First Brands case raised a major alarm.

The auto parts company vanished with $2 billion, leaving losses at several banks and asset management companies.

The episode revealed the extent of the fragility of US corporate credit—a highly interconnected system in which no one knows exactly who bears the ultimate risk.

3️⃣ Jamie Dimon issued the strongest warning yet

The JPMorgan CEO, who lived through 2008 from the eye of the storm, compared the cases of Tricolor Holdings and First Brands to the first signs of the subprime crisis.

"When you see one cockroach, there are probably more. Everyone should be alert," he said.

JPMorgan itself lost $170 million with the Tricolor collapse — and Dimon made it clear: the problem is returning in the shadows of credit.

4️⃣ Behind this lies modern "shadow banking."

Much of this risk is hidden in the private credit market, which already totals $2 trillion.

These are loans outside the traditional banking system—transferred in a chain, with little transparency and high leverage.

This was precisely the type of mechanism that preceded the 2008 crisis, only now with different names and instruments.

5️⃣ While credit shows signs of weakness, the backdrop worsens

The Fed's bank reserves have fallen below $3 trillion, a level the central bank itself considers the "red line" between abundant and scarce liquidity.

When reserves dwindle, banks become more cautious, restrict lending to each other, and the repo market begins to strain—the same symptom that preceded 2019.

6️⃣ The liquidity cushion has also dried up — and this explains the rise in SOFR.

The Reverse Repo Facility (RRP), created during the pandemic to absorb excess bank cash, reached US$2.5 trillion in 2022 and is now virtually zero.

Money Market Funds, the RRP's main creditors, had three possible options: – leave the money parked in the RRP; – buy Treasuries; – or lend to banks in the repo market, which defines SOFR.

7️⃣ The first sign of real stress has already appeared

With the RRP drying up and funds already sitting in Treasuries, there was a lack of liquidity to lend to banks—and the cost of overnight cash soared.

The market went into defensive mode: the system still works, but the gears began to creak.

The use of the Standing Repo Facility (SRF)—which provides emergency liquidity to banks—soared to $6.75 billion, the highest level since the pandemic.

And this time, it's not an end-of-quarter effect (for the balance sheet): it's a lack of cash.

8️⃣ Powell already knows what's ahead

This week, the Fed chairman admitted that he could halt the balance sheet tightening "in the coming months"—ending the liquidity drain earlier than expected.

Goldman Sachs is talking about February, Barclays is talking about January.

But if the pressure continues, the Fed will be forced to inject money again—via repo, QE, or a new emergency program.

9️⃣ And it's in this context that gold soars.

With the system showing signs of liquidity shortages and the Fed close to ending its tightening, the flow of money has gone where it always goes in times of uncertainty: real assets.

Gold broke $4,300, is now approaching $4,400, becoming the first asset in history to be worth over $30 trillion, and today is the most visible reflection of the global flight of confidence in paper money.

Credit, liquidity, and confidence are all eroding simultaneously—and the Fed is cornered. Gold, Treasuries, and crypto are reacting before the stock markets, showing that the search for protection has begun.