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Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside

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Speaker 1: my co host Matt Miller. Every business day we bring

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Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along

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Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast

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Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and

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Speaker 1: at Bloomberg dot com slash podcast. Let's get into the

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Speaker 1: details here of what actually happened at SVB. How should

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Speaker 1: we think about in the context of regional banks in general.

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Speaker 1: Let's bring in a couple of experts. These geeks do

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Speaker 1: this every day. They look at regional banks. Herman Chan

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Speaker 1: he covers the equity Arnold Kakuta, he covers the credit side.

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Speaker 1: Both for Bloomberg Intelligence. They're both in our Bloomberg Interactor,

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Speaker 1: a broker's studio today. We appreciate it. So Herman, let

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Speaker 1: me start with you. It seems painfully clear to me

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Speaker 1: that what happened in SVB is pretty much an SVB

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Speaker 1: type of thing, and it's probably not that indemniue. It's

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Speaker 1: an unique situation. They were absolutely horrible at managing their

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Speaker 1: duration risk, is what we're saying, Like so worse than

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Speaker 1: anybody else in the entire banking industry. What are you

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Speaker 1: telling your client's termoring about just the regional banks in general. Yeah,

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Speaker 1: it's a very dynamic market that we're in today. SBB

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Speaker 1: was indeed a unique bank that took on a lot

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Speaker 1: of interest rate risk, and the fact that their deposits

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Speaker 1: were exiting the door really exasperated their problems. What we're

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Speaker 1: seeing today. Let me quantify that. So I noticed on

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Speaker 1: the FAGO function on the Bloomberg terminal, if you're clicking

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Speaker 1: the balance sheet, you can see that they had at

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Speaker 1: the end of last year over ninety one billion dollars

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Speaker 1: in a hold to maturity portfolio. How much do you

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Speaker 1: think that was actually worth? So they were talking about

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Speaker 1: a fifteen billion dollars unrealized loss at the end of

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Speaker 1: the fourth quarter on that health of maturity perform at

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Speaker 1: the end of the fourth quarter, and since then we'd

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Speaker 1: seen the your treasury go above four percent, So probably

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Speaker 1: much bigger, correct, And if they would have taken a

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Speaker 1: loss on the health of maturity book, that effectively would

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Speaker 1: have wiped out their book value. Arnold, you cover the

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Speaker 1: credit side for all these banks. What's happening in the

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Speaker 1: credit markets for regional banks over the last four or

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Speaker 1: five days. Yeah, not good even even for the bigger

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Speaker 1: guys as well. It's just remarkably shocking how all this

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Speaker 1: can transpire in a day, right, and this is a

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Speaker 1: you know, investment grade credit maybe about three four billion

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Speaker 1: of debt, so it's not a huge per se, but

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Speaker 1: it's just quite shocking how this could transpire. So doing

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Speaker 1: what I'm doing, and I'd know nothing about a bank accounting,

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Speaker 1: and I'm pretty happy about that. This whole heald to

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Speaker 1: maturity thing. As Matt was just pointing out, I'm now

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Speaker 1: looking at the balance sheet on the FA function for

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Speaker 1: a lot of these companies. Is that what talking about

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Speaker 1: health to maturity? And how where should it be? A

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Speaker 1: what is it? Where should it be for most banks?

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Speaker 1: And where was it for SBB? YEH know, SBB, like

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Speaker 1: I think you know, as you guys mentioned fifteen billion

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Speaker 1: of unrealized losses in the healthy maturity, but I think

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Speaker 1: even the fourth quarter correct, which looks way worse on

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Speaker 1: March ninth. But but the thing is, I think the

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Speaker 1: important thing is is is the liquidity and the deposits, right,

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Speaker 1: and the velocity of these deposits um you know at SVB,

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Speaker 1: and in particular this you know tech community that was

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Speaker 1: very very tight, right tech NVC. You know, once they

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Speaker 1: started recognizing the stock was down thirty they recognize, oh,

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Speaker 1: they said, hey, there might be some risk there, take

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Speaker 1: your deposits out. So in that situation, you know, any

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Speaker 1: bank where you know, let's say twenty five percent or

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Speaker 1: more of whatever deposits fleeing, not many really can survive, right,

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Speaker 1: And so I think that is the situation. Can't they

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Speaker 1: borrow from other banks? Isn't there an overnight lending policy

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Speaker 1: at a very low rate so they can just take

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Speaker 1: the cash and then cover it at a certain point

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Speaker 1: point because those are collateralized right by by your liquid assets,

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Speaker 1: So it's only up to a certain point. So even

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Speaker 1: if some of these measures were necessarily in place before,

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Speaker 1: you know, could they have stemmed everything? Okay? Maybe maybe

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Speaker 1: yes or maybe no. But it's you know, when a

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Speaker 1: lot of these deposits run out the door at the

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Speaker 1: same time, you know, you can say I have this

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Speaker 1: much access to liquidity, but okay, over what time period? Right? Yeah?

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Speaker 1: If if like I think it was at forty two billion, right,

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Speaker 1: deposits tried to flee the door in a day at SVB,

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Speaker 1: and I think they had a total of one hundred

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Speaker 1: and seventy billion deposits, right, So and then they came

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Speaker 1: out that day with a negative one billion a cash account.

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Speaker 1: So that's that's what we that. Those are the numbers

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Speaker 1: we know. We only know that they tried to get

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Speaker 1: forty two million out customers tried to pull forty two

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Speaker 1: billion sorry out. We don't know how much actually came out,

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Speaker 1: So the remaining negative billion doesn't really mean very much.

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Speaker 1: So it's before you even kind of get to that.

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Speaker 1: So the fear is okay, yeah, there is that, um,

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Speaker 1: you know, solvency concern if they have to recognize that

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Speaker 1: fifteen billion loss. But before all that stuff, you know,

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Speaker 1: you die because of liquidity, right, And so I think

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Speaker 1: what needs to be addressed is, okay, fine, the unsure

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Speaker 1: deposit holders of SVB and SPNY, they were made whole,

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Speaker 1: but maybe something like that make that bigger guarantee to

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Speaker 1: the rest of the market. Right, what is stopping There's

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Speaker 1: nothing I happened to fed already implicitly done that. They

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Speaker 1: said in their in their memo yesterday that they have

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Speaker 1: a big enough backstop to cover the entirety of US deposits,

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Speaker 1: which is like nineteen trillion dollars. So even though they're

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Speaker 1: not saying, hey, we promise we got you, they're saying

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Speaker 1: we could get you if you need it. I mean,

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Speaker 1: I think the program that they've announced, I mean the

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Speaker 1: you know, you correct me if I'm wrong, But it's

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Speaker 1: it's a way for the banks to manage kind of

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Speaker 1: when they get the deposit outslow. Notice, oh, you can

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Speaker 1: pledge collateral to the FED at par right, but then

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Speaker 1: once it kind of glows below a certain amount, you know,

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Speaker 1: if deposits run out of the door. This is a

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Speaker 1: lifeblood of funding for these institutions. Right, if your blood

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Speaker 1: drains out so much, there's only so many like temporary

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Speaker 1: you know body that you know, what this issue really

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Speaker 1: hits telling you is that the posits are the source

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Speaker 1: of the value of banks, and when that value disappears,

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Speaker 1: then there's really get You don't have any legs to

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Speaker 1: really stand on. Hey, I only ask you one question.

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Speaker 1: You're talking to a really smart hedge fund manager who

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Speaker 1: invests in regional banks. What is he or she doing today?

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Speaker 1: Do you think there's net buyers or net sellers? Unfortunately,

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Speaker 1: it's it's not going to be helpful to the market today,

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Speaker 1: You're you're seeing a lot of fear and you're you're

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Speaker 1: not going to fight the tape no matter what you

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Speaker 1: think fundamentally, and selling M ANDT Bank because I don't

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Speaker 1: because it's down a little bit and I think it's

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Speaker 1: going to be brought down by some contanging risk. Why

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Speaker 1: am I not at there buying M ANDT Bank Because

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Speaker 1: I know it's a seein. If you think that these

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Speaker 1: banks are going to be around for a long run,

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Speaker 1: which I think MMT will be that, then it is

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Speaker 1: a buying opportunity. But you really have to pick your

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Speaker 1: spots because the contagion risk is looking to continue and

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Speaker 1: extend and we're in a some uncharted territories seasons. Are

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Speaker 1: there any other banks that have such uniform depositor base

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Speaker 1: as we saw with SVB? I mean all of its

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Speaker 1: depositors were like early tech startups and VC. So what

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Speaker 1: you're saying is, if you the banking community and the

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Speaker 1: analysts and the buy side are are looking at deposit

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Speaker 1: concentration and the concentration of assets above the FDIC insurance

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Speaker 1: limit uh SVB signature, those are are the ones that

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Speaker 1: have high business concentration that have very lumpy deposits, and

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Speaker 1: so that that's why you've seen them fall um. There

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Speaker 1: are others that have similar issues. This is crazy, you know, Matt.

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Speaker 1: Let's get these guys back at twelve or nine, okay,

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Speaker 1: because they're not going to have time. They have time.

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Speaker 1: When I tell them to be there, they'll be there.

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Speaker 1: These guys are the best. Herman Chin on a cocuta

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Speaker 1: that cover the equities of the credit side. He started

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Speaker 1: out saying, you guys are geeks, but now you're the best.

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Speaker 1: Now you did a good job. You're of the nerds

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Speaker 1: exactly the nerds, are you? Guys? Thanks so much for joining.

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Speaker 1: I want to get right into this segment. Joe Wisenthal,

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Speaker 1: host of Odd Lots podcast Bluebird News, joins us here, which,

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Speaker 1: by the way, thanks to his partner Tracy Alloy, that

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Speaker 1: is a great listen. I highly recommend now it's all

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Speaker 1: Tracy to be honest. Yeah, Joe, we're haven't you perfect

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Speaker 1: timing today? Perfect timing? Why the US backstop after svb's

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Speaker 1: failure is a bailout? I don't even know why. It's

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Speaker 1: a debate, Yeah, I don't. Someone someone this morning I

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Speaker 1: think Shinali Bassett suggested it was a non bailout bailout,

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Speaker 1: but it's a bailout equity out. Yeah, but here's the thing,

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Speaker 1: and this is why, like I mean, yes, in the

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Speaker 1: case of SVB, the equity was wiped out, but you know,

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Speaker 1: like a lot we misremember two thousand and eight City

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Speaker 1: Group sharers fell ninety eight percent that year. That was

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Speaker 1: a de facto equity wipeout. So even the most quintessential

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Speaker 1: parts you have City and AIG is. There should be

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Speaker 1: a reminder to people that even in the most famous

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Speaker 1: bailouts of all time, these were not some big shareholder rescues.

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Speaker 1: And the arguments for why this different innocent depositors, people

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Speaker 1: that just wanted to get their money out. That was

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Speaker 1: why we did tarp at all. That people think was like, oh,

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Speaker 1: we're like protect the CEOs. Very look, of course there

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Speaker 1: are some details, different circumstances, very different, but fundamentally those

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Speaker 1: bailouts were not about protecting management. The AIG management was replaced,

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Speaker 1: the government installed Ben Moche and the summer of two

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Speaker 1: thousand and nine not that much different fundamentally a little bit,

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Speaker 1: but like this is what we call this is what

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Speaker 1: a bailout is. I think it's so clear that I

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Speaker 1: can't even believe anyone would question. Well, now that Joe

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Speaker 1: explain it to me, I get it now. I mean, look,

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Speaker 1: if you would have had you had depositors who were like, Okay,

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Speaker 1: we know FDIC insurance goes up to two hundred and

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Speaker 1: fifty thousand, but we're gonna put three billion dollars in there.

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Speaker 1: I mean, that's just a dumb risking is And now

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Speaker 1: they're getting bailed out, you know. I think, like, what

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Speaker 1: is the different between a bailout versus like the FDIC

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Speaker 1: just doing its job. I say, if you have if

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Speaker 1: you announced a new rule over the weekend that was

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Speaker 1: not in place, And the FED definitely did that because

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Speaker 1: they say, well, one of the key things it did

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Speaker 1: is for all banks they can now for the next

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Speaker 1: year pledge their treasure can be as at a part

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Speaker 1: at part, which is a pretty big thing after like

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Speaker 1: the mark to market hit right. So that's a de

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Speaker 1: facto capital injection that the FED did, which is another thing.

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Speaker 1: You don't want to start this bad policy, Joe. And

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Speaker 1: this goes back to two thousand. I'm gonna say I'll

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Speaker 1: say this, I'll say two things I don't feel like

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Speaker 1: comfortable assessing, like the exact implementation smarter people than me.

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Speaker 1: But you gotta stop a bank run, okay, and so

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Speaker 1: I mean I think that's clear. Look, there's multiple failures

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Speaker 1: would likely have happened today, and you just get those

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Speaker 1: don't stop on their own right once they get going.

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Speaker 1: You can't. No country can like have a wholesale run

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Speaker 1: on its banks. The interesting thing to me is that

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Speaker 1: they did just that, and I thought, yeah, no, I

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Speaker 1: mean exactly, there could be unintended consequences. Who knows what

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Speaker 1: they'll be. There will be, I'm sure, but they put

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Speaker 1: a stop to the bank run so swiftly that it

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Speaker 1: surprises me to see so many shares down today. Why

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Speaker 1: I am surprised too. I mean, it may just be

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Speaker 1: even still, I have to say, I'm surprised. And you know,

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Speaker 1: like to me, yesterday ended the debate about whether there

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Speaker 1: will ever be a cat on deposit insurance all deposits.

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Speaker 1: To my mind, that's what they're effectively doing. Yeah, and

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Speaker 1: I don't see It's like when when I just don't

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Speaker 1: see this, I think the debate is over that all.

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Speaker 1: If you have a deposit in the bank and they

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Speaker 1: might change the rgs so that banks have to be

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Speaker 1: more careful and have more liquid assets. But I think

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Speaker 1: basically the FED has told us that from here on out,

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Speaker 1: all deposits almost at any level are so does dot

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Speaker 1: Frank does? Should it? Do you think it will be

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Speaker 1: implemented down to smaller regional banks? So this is a

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Speaker 1: there's backstory here because I guess twenty eighteen, yeah, there

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Speaker 1: were a number people, including some SVB executives, who are

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Speaker 1: lobbying against Dodd Frank m overseeing or regulating banks with

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Speaker 1: smaller amounts of deposits like less than certain liquidity requirements,

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Speaker 1: ability to make drawals. You know, the thing is maybe

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Speaker 1: that will go into force right now. You know. The

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Speaker 1: other thing I'll say is, however, um, when you have

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Speaker 1: an instantaneous massive bank run, everyone that I'm not even

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Speaker 1: sure that more liquidity requirements actually would have saved them.

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Speaker 1: Maybe it would have a little bit, But the scale

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Speaker 1: of the demanded withdrawals on Friday it was like so

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Speaker 1: far like orders of magnitude off the charts. But it

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Speaker 1: does seem likely now that people are gonna look, but

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Speaker 1: it's gonna be tough. You know, there's like real like

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Speaker 1: fights I think the big fight that's coming, in my opinion,

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Speaker 1: is not even necessarily going to be about the degree

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Speaker 1: to which certain Dodd Frank requirements applied to some of

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Speaker 1: the smaller or sort of the regional banks. But like

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Speaker 1: the deeper fight is like, well, like Canada has like

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Speaker 1: six banks, like they know they don't have a really

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Speaker 1: a small bank. We have like thousands of thousands of

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Speaker 1: banks in this country. And I think there's gonna be

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Speaker 1: a fight now about like, well, why do we have

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Speaker 1: so many banks? And you're gonna like, and I think

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Speaker 1: it will be very intense. Do we want to just

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Speaker 1: have JP Morgan and City and Wells and a few others?

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Speaker 1: Why is that? Why do we have so many versus

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Speaker 1: say Canada, for example. I wish I knew the banking history,

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Speaker 1: and I think it has to do with like our

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Speaker 1: populist past. Yes, that there has been a deep discomfort

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Speaker 1: throughout American history about the centralization of banking power. And

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Speaker 1: I think that's like a very sort of like historical

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Speaker 1: like thing we associate with us that like a lot

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Speaker 1: of people do not want banking held in just a

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Speaker 1: few hands. And I think we still have that today.

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Speaker 1: But look a lot of people are asking. They're like, wait,

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Speaker 1: do I want to be exposed to a bank that

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Speaker 1: has very specific geography geographical exposure? I want to be

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Speaker 1: exposed to a bank that is just like exposure to

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Speaker 1: a specific industry, just open to chase a kin who cares?

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Speaker 1: We have one search engine globally, and we have like

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Speaker 1: three social networks, one of which is controlled by the Chinese.

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Speaker 1: I mean, we don't care about anything like that anymore. Well, right,

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Speaker 1: I think a lot of people are just gonna say,

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Speaker 1: you know what, I'll just go to a chase and

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Speaker 1: so I do think, you know, some of these moves

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Speaker 1: that we're seeing might not be bank run type panics,

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Speaker 1: but just could be like the expectation that a lot

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Speaker 1: of their depositors are going to migrate anyway, even if

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Speaker 1: they're not afraid. Do you think it's I mean, to me,

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Speaker 1: this may just be a silly little detail that I

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Speaker 1: can't get over, But they had a ninety one billion

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Speaker 1: dollars portfolio of holding mat charity securities and only one

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Speaker 1: hundred and seventy billion in deposits. It seems like the

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Speaker 1: worst mismanagement of duration risk of any bank in America.

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Speaker 1: I mean, I've been scanning the fays of every bank

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Speaker 1: I can pull up on the Bloomberg, and nobody had

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Speaker 1: that much. It does seem like it does seem something

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Speaker 1: was off. And again this is I talk about questions

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Speaker 1: that I personally don't feel particularly you know, I'm not

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Speaker 1: a no one should hire me as a bank risk manager.

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Speaker 1: It does seem there was something very strange about their arrangement.

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Speaker 1: But like I think, in a normal time, like I

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Speaker 1: also think that like why did everyone rush out of

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Speaker 1: this like bank that was like operating? People seem to

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Speaker 1: like in twenty four hours, this is the new world.

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Speaker 1: I do think like social media group chats what's happened

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Speaker 1: was also part of this. They announced like a couple

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Speaker 1: billion dollars in equity raise and an equity raise, and

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Speaker 1: all of a sudden, the most important vcas in California,

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Speaker 1: like everybody get out. Yeah it's odd. It's so it's

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Speaker 1: just like everything about this seems to like the way

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Speaker 1: I think about it is like everything about this sort

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Speaker 1: of like hit in this sort of like risk scenario

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Speaker 1: that just people were not thinking about, not anticipate a

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Speaker 1: very How about the signature bank that one kind of

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Speaker 1: surprised me over the weekend. I don't feel like I

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Speaker 1: don't know enough about it. But well, the thing is

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Speaker 1: is that they have really like got They leaned pretty

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Speaker 1: hard into crypto, and so if you look at their church,

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Speaker 1: it's not it was like silver Gate at silver Gate

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Speaker 1: a little bit, but they like sort and so then

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Speaker 1: they also have this sort of like outflow of deposits

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Speaker 1: because crypto is for the moment kind of a shrinking.

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Speaker 1: I saw a Bloomberg story, so obviously we all know

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Speaker 1: now that Circle had three billion, yeah at SBB of

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Speaker 1: the forty billion circulation. Then I saw some other stable

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Speaker 1: coin operators have much of their coins backed by Circle. Oh, yes,

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Speaker 1: that's right. And the funny thing is, yeah, so the

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Speaker 1: funny thing is a lot of the so called decentralized

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Speaker 1: stable coins algorithmic ones. They have other cryptocurrencies that automatically

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Speaker 1: serve as a form of collateral, but USDC usd coin

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Speaker 1: is the backing of some of these so called decentralized

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Speaker 1: even the d centralized ones are implicitly backed by dollars

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Speaker 1: in a regulated bank account. There is this is which

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Speaker 1: I mean, this is another conversation. There's a lot less

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Speaker 1: decentralization to crypto than the people in the industry, clear,

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Speaker 1: all right, So the US backstop for SVB was a

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Speaker 1: bailout obviously. Oh come on, alright. I mean, it's just

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Speaker 1: so silly to debate something like that. And I will

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Speaker 1: say the same thing to the rest of my life

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Speaker 1: about the raid at Marilago. To call it anything other

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Speaker 1: than a raid, it's just a silly attempt to be political.

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Speaker 1: I mean, oh, that was a test. It was obviously

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Speaker 1: a raid. Alright, alright, alright, Joe, what all right? Joe,

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Speaker 1: thanks so much. We really appreciated. Joe Wisenthal, host of

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Speaker 1: Odd Lots podcasts along with Tracy Alloway for He's from

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Speaker 1: Bloomberg News, as is Tracy. Odd Lots podcast really really good,

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Speaker 1: one of my most popular ones out there. So take

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Speaker 1: a listen, boy. The mark sent bouncing around open down

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Speaker 1: pretty significantly, bounced up and now down a little bit.

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Speaker 1: So market trying to digest what's going on. Market unrushed

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Speaker 1: leavable to your treasury down fifty five basis point four

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Speaker 1: point zero three percent. We were just at five percent, dude, exactly.

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Speaker 1: I mean on Monday when I was last year, a

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Speaker 1: week ago before I was struck down by COVID nineteen.

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Speaker 1: We were talking about the entire yield curve above four percent.

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Speaker 1: Now I'm looking at a tenure that's three forty five.

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Speaker 1: I know, just amazing, so big, big moves there. Let's

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Speaker 1: check in with a professional has to deal with this

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Speaker 1: stuff every day. Efan Devitt, chief investment officer for Moneta Group. Ifan,

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Speaker 1: thanks so much for joining us. What do you make

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Speaker 1: of the last I don't know. Seventy two hours. We've

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Speaker 1: kind of learned once again to except we forgot it

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Speaker 1: what a bank run looks like. Yes we have. We're

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Speaker 1: seeing bank round by smartphone or by Twitter. Certainly at

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Speaker 1: the moment it's a whole new feel when everything can

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Speaker 1: be communicated real time. Look, we have been dealing with

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Speaker 1: our clients. We've been fielding calls. I will say it's

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Speaker 1: not a drill. We are very much engaged now in

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Speaker 1: assuring clients around the safety of their say, their custody

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Speaker 1: accounts and money of which will not be would not

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Speaker 1: have been with it with a small regional bank. But

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Speaker 1: we're looking also we're fielding questions around money market funds.

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Speaker 1: We're also seeing some concern about the different sectors, particularly

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Speaker 1: the financial sector, which clearly took a hit on Friday. Overall, though,

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Speaker 1: we're looking at context, and we're looking at the way

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Speaker 1: these institutions have mobilized so quickly and so effectively to

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Speaker 1: address this problem. This is almost like a repeat of

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Speaker 1: what we saw going on in the UK around the

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Speaker 1: time of another liquidity crisis, which was around the pension

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Speaker 1: songs of LDI. We saw the Bank of England. They're

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Speaker 1: mobilizing very quickly. So I think there hasn't some lessons learned, however,

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Speaker 1: from these great financial crisis. However, what we're also seeing

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Speaker 1: is this for something in the sense that we actually

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Speaker 1: thought the banks were very robusted, that was the characterization

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Speaker 1: of the financial institutions this time around. Did we miss this?

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Speaker 1: Did financial analysts miss this? Very likely in the case

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Speaker 1: of SBB. Now it's going to be a question of friends.

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Speaker 1: They going through the other financial institutions to see who's

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Speaker 1: in the same boat. Well, I went through all of

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Speaker 1: the US listed US banks to see if anybody had

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Speaker 1: as big whole to maturity portfolio relative to deposits as SVB,

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Speaker 1: and nobody else had it even close. I mean they

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Speaker 1: they were about fifty percent of their whole to maturity

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Speaker 1: as was about fifty percent of their total depositor base.

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Speaker 1: So it does seem very unique in that sense. You

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Speaker 1: say there have been questions raised about money markets. Is

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Speaker 1: there a possibility that they also have a duration mismatch. No,

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Speaker 1: we don't think so. I think it's just that whole

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Speaker 1: affect of the money markets breaking the book, which is

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Speaker 1: of course what we saw financial crisis that has clearly

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Speaker 1: lingered very much in the memory. We see that most

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Speaker 1: money market, especially that the ones that are back by

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Speaker 1: the full space and credit of the US government very safe.

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Speaker 1: We see that for the most part, these are we

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Speaker 1: don't think there's any concern they're they're they're run by

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Speaker 1: robust institutions. They're not in these longer duration assets. But

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Speaker 1: we still we have to make clients feel at ease,

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Speaker 1: and we have to verify that we need and we're

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Speaker 1: still in a process of discoveries getting that assurance from

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Speaker 1: the very large group. So many, so many banks getting

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Speaker 1: punished today, which is puzzling to a lot after you'd

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Speaker 1: after you had this fed backstop, Are there opportunities that

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Speaker 1: offer you opportunities even in terms of getting in there

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Speaker 1: and buying something that everyone's too scared to own absolutely.

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Speaker 1: What we are saying is this is, as I mentioned before,

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Speaker 1: liquidity crisis, not a solvency crisis. It could have become

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Speaker 1: a solvency crisis how the institutions and the government institutions

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Speaker 1: not stepped in. But in any case there will be

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Speaker 1: now some definitely, just as there was after O nine,

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Speaker 1: there will be opportunities to step in. Generally, we are

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Speaker 1: consonants in the large diversified institutions that they will be

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Speaker 1: in the position to provide rescue entities in this situation,

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Speaker 1: and and there will be opportunity. And anytime there's a

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Speaker 1: massive set off indiscriminate as we've seen, they're going to

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Speaker 1: be opportunities. Now it's a question of just patients trusting

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Speaker 1: our equipment in the sense of trusting the managers that

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Speaker 1: we've chosen for our clients. And overall, the equity exposure

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Speaker 1: is really minimal. You know, we're looking at maybe at

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Speaker 1: most one two percent in one or two smid portlios

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Speaker 1: client hrount exposed to the equity loss in this bank.

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Speaker 1: It's just that kind of systemic effect that this kind

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Speaker 1: of chill will create on the other side, on the

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Speaker 1: other side of the coin, EF What does this mean

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Speaker 1: for the feder Reserve? Does that maybe give them some

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Speaker 1: pause in kind of their rate hiking movements? What do

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Speaker 1: you what do you think? Really good question, and I

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Speaker 1: don't think I'd agree that this is going to radically

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Speaker 1: undermine the position that their position around heightening. It certainly

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Speaker 1: may mean the resolve around that fifty place point rise

427
00:22:49,119 --> 00:22:51,520
Speaker 1: that everyone thought was coming. That's going to be changed

428
00:22:51,560 --> 00:22:53,919
Speaker 1: quite significantly. Now what I see from the FED is

429
00:22:53,920 --> 00:22:58,120
Speaker 1: we're still looking at this. They're still frosty indicators around employments. Now,

430
00:22:58,160 --> 00:23:01,679
Speaker 1: certainly this will puncture some of that enthusiasm that's been

431
00:23:01,720 --> 00:23:03,679
Speaker 1: in markets up to now, some of that kind of

432
00:23:03,680 --> 00:23:07,520
Speaker 1: ongoing consumer optimism that seemed so resilient in the face

433
00:23:07,600 --> 00:23:10,840
Speaker 1: of so many, so many indicators to the contrary. So

434
00:23:11,000 --> 00:23:13,480
Speaker 1: I don't see them reversing course. I do see them

435
00:23:13,480 --> 00:23:17,280
Speaker 1: perhaps taking a pause or having another repeat of that

436
00:23:17,720 --> 00:23:20,040
Speaker 1: that the acceleration gesture, which was a course of twenty

437
00:23:20,040 --> 00:23:22,800
Speaker 1: five basis point rise. I think there will definitely have

438
00:23:22,840 --> 00:23:25,200
Speaker 1: to salt in the rhetoric. Now, this is that thing

439
00:23:25,200 --> 00:23:28,440
Speaker 1: which broke which people said that we'll see race rising

440
00:23:28,480 --> 00:23:31,199
Speaker 1: until something breaks for has we've seen that now and

441
00:23:31,359 --> 00:23:33,320
Speaker 1: so there will be a pause that alat has not

442
00:23:33,400 --> 00:23:39,399
Speaker 1: changed at the same time. Yeah, like the structural inflation

443
00:23:40,720 --> 00:23:45,359
Speaker 1: that we see. So does the FED then come back

444
00:23:45,400 --> 00:23:48,600
Speaker 1: and keep going? I mean, right now World Industry Probability

445
00:23:48,680 --> 00:23:51,040
Speaker 1: screen on the bloomber Terminal WORP, I'm sure you use

446
00:23:51,080 --> 00:23:56,200
Speaker 1: it all the time, has the highest peak at four

447
00:23:56,400 --> 00:24:02,119
Speaker 1: seventy seven in May. Does keep going. I think it

448
00:24:02,200 --> 00:24:04,720
Speaker 1: keeps going at a slower pace. I don't, As I said,

449
00:24:04,760 --> 00:24:06,960
Speaker 1: I don't think that that that many the fundamentals have

450
00:24:07,040 --> 00:24:09,640
Speaker 1: changed here at all, And I think that that we're

451
00:24:09,760 --> 00:24:14,040
Speaker 1: very much looking at at the FED staying focused on

452
00:24:14,040 --> 00:24:15,920
Speaker 1: that inflation target. We don't know what inflation is going

453
00:24:15,920 --> 00:24:18,480
Speaker 1: to do now, but there there will certainly be sub

454
00:24:18,520 --> 00:24:21,240
Speaker 1: some dude consumer sentiment which may well lead to remaining

455
00:24:21,280 --> 00:24:26,480
Speaker 1: in of spending. So you are you, guys at Manetta

456
00:24:26,520 --> 00:24:28,880
Speaker 1: buying on this weakness? Are you just kind of trying

457
00:24:28,920 --> 00:24:30,400
Speaker 1: to stay out of the way of it for the

458
00:24:30,440 --> 00:24:34,040
Speaker 1: next several days. We're doing no buying at the moment.

459
00:24:34,080 --> 00:24:37,119
Speaker 1: We are very much assuring clients about the safety of

460
00:24:37,160 --> 00:24:41,400
Speaker 1: ore deposits. We're looking at the possibility of contagion. We

461
00:24:41,480 --> 00:24:44,560
Speaker 1: are staying focused, which has been a core equity exposure

462
00:24:44,560 --> 00:24:47,320
Speaker 1: that we've had for some time, and we're trusting our managers.

463
00:24:47,320 --> 00:24:49,520
Speaker 1: Were in constant dialog with our managers. As I said,

464
00:24:49,560 --> 00:24:52,200
Speaker 1: this isn't a drill, but we are fully engaged around

465
00:24:52,280 --> 00:24:55,760
Speaker 1: this and we you know, our fundamental long term outlook

466
00:24:55,800 --> 00:24:59,440
Speaker 1: for the markets for different afflect classes haven't changed. Heck

467
00:24:59,440 --> 00:25:01,679
Speaker 1: of a lot better then it would have been had

468
00:25:01,720 --> 00:25:03,800
Speaker 1: the Fed not stepped in last night, don't you think.

469
00:25:03,800 --> 00:25:06,320
Speaker 1: I mean I was freaking out all weekend and then

470
00:25:06,359 --> 00:25:08,480
Speaker 1: when we got that at six fifteen, I thought, oh good,

471
00:25:08,520 --> 00:25:12,040
Speaker 1: I can get some sleep now. That was a critical

472
00:25:12,280 --> 00:25:14,720
Speaker 1: move absolutely all right, Ifan, thank you so much for

473
00:25:14,800 --> 00:25:18,400
Speaker 1: joining us. Efan Devitt, chief investment Officer of Manetta Group.

474
00:25:18,600 --> 00:25:21,240
Speaker 1: Kind of standing on the sidelines here, letting the market

475
00:25:21,320 --> 00:25:26,800
Speaker 1: kind of sort itself out. Let's go see what's going

476
00:25:26,800 --> 00:25:29,080
Speaker 1: on in the UK as it relates to SBB. We

477
00:25:29,200 --> 00:25:32,199
Speaker 1: do that with doctor Richard portis professor at the London

478
00:25:32,240 --> 00:25:36,080
Speaker 1: Business School. So doctor portis this Silicon Valley bank now

479
00:25:36,119 --> 00:25:38,080
Speaker 1: signature bank in New York. It has been front and

480
00:25:38,160 --> 00:25:42,280
Speaker 1: center for markets here and certainly for here Bloomberg News.

481
00:25:42,800 --> 00:25:44,919
Speaker 1: What's the feeling. Just give us a sense of kind

482
00:25:44,960 --> 00:25:48,800
Speaker 1: of how you're viewing it from the UK and what

483
00:25:49,000 --> 00:25:54,600
Speaker 1: is HSBC seeing in the SVB business in UK. Well,

484
00:25:54,680 --> 00:25:57,040
Speaker 1: let's start with the last question. It's a good business

485
00:25:57,880 --> 00:26:04,440
Speaker 1: and the the tech firms, the innovative firms that HSBC

486
00:26:04,680 --> 00:26:08,080
Speaker 1: will have a customers. That's a very good business. And

487
00:26:08,280 --> 00:26:11,280
Speaker 1: buying it for one pound, that's a very good deal.

488
00:26:11,880 --> 00:26:16,720
Speaker 1: Look back, Baring Brothers was sold for one pound in

489
00:26:16,840 --> 00:26:21,240
Speaker 1: nineteen ninety six and the Dutch buyers did very well

490
00:26:21,240 --> 00:26:25,280
Speaker 1: with that. So I don't think that's an issue, huh.

491
00:26:25,320 --> 00:26:29,000
Speaker 1: Now the issue is why did it come to that

492
00:26:29,640 --> 00:26:33,320
Speaker 1: and was there a regulatory failure on this side of

493
00:26:33,359 --> 00:26:36,159
Speaker 1: the Atlantic as well as on the other side of

494
00:26:36,200 --> 00:26:40,120
Speaker 1: the Atlantic where there surely was a regulatory failure and

495
00:26:40,520 --> 00:26:44,679
Speaker 1: bad risk management. I don't think we know enough about

496
00:26:44,800 --> 00:26:49,520
Speaker 1: the subsidiary, the London subsidiary to know about its risk

497
00:26:49,600 --> 00:26:54,199
Speaker 1: management and whether it was just brought down by contagion

498
00:26:54,359 --> 00:27:00,800
Speaker 1: from the from the parent bank. That's not obvious from

499
00:27:00,800 --> 00:27:03,240
Speaker 1: the data we have right now, doctor Poros. We had

500
00:27:03,600 --> 00:27:06,879
Speaker 1: pretty swift action from the Federal Reserve together with the

501
00:27:06,920 --> 00:27:12,920
Speaker 1: FDIC and the Treasury, and that seems to have contained

502
00:27:12,960 --> 00:27:16,080
Speaker 1: any fears of a bank run certainly in this country.

503
00:27:16,240 --> 00:27:18,960
Speaker 1: Do you think we're going to see similar statements from

504
00:27:19,960 --> 00:27:23,399
Speaker 1: regulators around the world. Is there any concern of a

505
00:27:23,440 --> 00:27:27,000
Speaker 1: bank run at a bank in the UK in Europe

506
00:27:27,480 --> 00:27:30,480
Speaker 1: that needs to be stopped. I don't think there's any

507
00:27:30,480 --> 00:27:34,080
Speaker 1: concern for a bank run in the UK. I do

508
00:27:34,200 --> 00:27:40,840
Speaker 1: think that the SPV story here does suggest that somebody

509
00:27:41,280 --> 00:27:46,560
Speaker 1: wasn't watching closely enough, but that's another matter. We are

510
00:27:46,720 --> 00:27:51,800
Speaker 1: in general watching well and banks are well capitalized, and

511
00:27:52,240 --> 00:27:57,320
Speaker 1: there's no risk of a bank run here. I think myself,

512
00:27:57,400 --> 00:27:59,720
Speaker 1: by the way, that there are risks in the United

513
00:27:59,760 --> 00:28:05,359
Speaker 1: States still despite the FEDS actions, You've seen big outflows

514
00:28:05,359 --> 00:28:10,720
Speaker 1: of funds from some of the regional banks, and it's

515
00:28:10,760 --> 00:28:12,480
Speaker 1: not clear how that's going to play out yet. But

516
00:28:12,800 --> 00:28:15,960
Speaker 1: that's another matter. Why why why we were talking about

517
00:28:16,000 --> 00:28:18,439
Speaker 1: this earlier. Maybe you can help us with an answer.

518
00:28:18,560 --> 00:28:23,000
Speaker 1: Canada apparently has only six banks, big banks, but six

519
00:28:23,440 --> 00:28:26,040
Speaker 1: that served the entire country. Here in the US, I

520
00:28:26,040 --> 00:28:28,119
Speaker 1: don't know how many thousands of banks we have, but

521
00:28:28,480 --> 00:28:33,639
Speaker 1: about five thousand. Actually, Why is the market here so fragmented?

522
00:28:35,080 --> 00:28:38,680
Speaker 1: That is a very interesting historical question and is partly

523
00:28:38,720 --> 00:28:43,400
Speaker 1: because of state regulation, which is significant. It was the

524
00:28:43,760 --> 00:28:50,720
Speaker 1: New York state regulator that shut down signature right over

525
00:28:50,760 --> 00:28:54,520
Speaker 1: the weekend. It wasn't the federal regulators. So you've got

526
00:28:54,920 --> 00:28:58,320
Speaker 1: um individual states. There has been a fair amount of

527
00:28:58,360 --> 00:29:03,719
Speaker 1: consolidation over the past and fifteen years, but but it

528
00:29:03,800 --> 00:29:06,680
Speaker 1: hasn't been at the regional level. It's been at the

529
00:29:06,760 --> 00:29:11,080
Speaker 1: national level. So the American system is still very fragmented,

530
00:29:11,840 --> 00:29:18,080
Speaker 1: that's for sure. The British is not the continental Some

531
00:29:18,280 --> 00:29:23,480
Speaker 1: continental countries very fragmented, Germany for example, So it varies

532
00:29:23,520 --> 00:29:27,160
Speaker 1: a lot in the European Union. So doctor Ports, in

533
00:29:27,160 --> 00:29:30,280
Speaker 1: your opinion, with a just a smidge bit of hindsight,

534
00:29:30,720 --> 00:29:32,920
Speaker 1: did the system work here in a case of Silicon

535
00:29:32,960 --> 00:29:37,479
Speaker 1: Valley Bank. It's not hindsight, excuse me. It's regulatory failure

536
00:29:37,920 --> 00:29:41,160
Speaker 1: that was partly historically built in by Congress and by

537
00:29:41,200 --> 00:29:47,760
Speaker 1: the Fed. By the FEDS acceptance of not imposing on

538
00:29:48,200 --> 00:29:52,680
Speaker 1: so called small banks. Turned out, it turned the SBP

539
00:29:52,920 --> 00:29:56,560
Speaker 1: wasn't a small bank. Yeah, not imposing on small banks

540
00:29:56,560 --> 00:30:00,880
Speaker 1: the same the same requirements for the quidity, et cetera,

541
00:30:01,200 --> 00:30:04,280
Speaker 1: as we're imposed on large banks. That's a regulatory failure

542
00:30:04,960 --> 00:30:08,840
Speaker 1: and it was enshrined by Congress. By the way, in

543
00:30:08,920 --> 00:30:14,600
Speaker 1: two thousand and eighteen. So um, so the the blame

544
00:30:15,560 --> 00:30:18,760
Speaker 1: is widespread. And then you look at the credit rating agencies.

545
00:30:19,000 --> 00:30:22,000
Speaker 1: Excuse me, we go back to two thousand and seven,

546
00:30:22,040 --> 00:30:25,760
Speaker 1: two thousand and eight. What you know what provoked the

547
00:30:25,960 --> 00:30:30,719
Speaker 1: final collapse of SBB. Part of it was Moody's downgrading

548
00:30:30,760 --> 00:30:36,280
Speaker 1: them when on Wednesday, right up until Wednesday, they were

549
00:30:36,320 --> 00:30:41,360
Speaker 1: a three. Excuse me? Um, you know, so, um, we've

550
00:30:41,440 --> 00:30:45,200
Speaker 1: got regulatory we've got bad risk management. Yeah. Of course

551
00:30:45,360 --> 00:30:49,800
Speaker 1: SPP didn't have a chief risk officer between April two

552
00:30:49,640 --> 00:30:54,120
Speaker 1: thousand twenty two and January of this year. What how

553
00:30:54,160 --> 00:30:58,680
Speaker 1: could the regulators not see that and do something about it.

554
00:30:59,360 --> 00:31:02,080
Speaker 1: There's also that a lot of talk about the uniformity

555
00:31:02,240 --> 00:31:06,400
Speaker 1: of their deposit base, and a lot of people have

556
00:31:06,480 --> 00:31:08,520
Speaker 1: said you'd be hard pressed to find another bank in

557
00:31:08,520 --> 00:31:11,240
Speaker 1: the US that has such a uniform deposit bases. And

558
00:31:11,520 --> 00:31:14,680
Speaker 1: almost everyone who was a depositor there was a tech

559
00:31:14,760 --> 00:31:18,120
Speaker 1: company or a venture capitalist. Of course, there were a

560
00:31:18,120 --> 00:31:21,280
Speaker 1: few wineries in there as well, but everybody wants a

561
00:31:21,280 --> 00:31:25,520
Speaker 1: piece of those. It's very important. But it is that

562
00:31:25,600 --> 00:31:27,720
Speaker 1: the kind of thing that regulators need to be watching

563
00:31:27,720 --> 00:31:30,640
Speaker 1: out for, because you know, if it's a small community

564
00:31:30,800 --> 00:31:34,479
Speaker 1: of concentrated people, and Peter Teel all of a sudden says, hey,

565
00:31:34,480 --> 00:31:37,920
Speaker 1: everybody get rid of this, everybody selling your position at SVB.

566
00:31:38,160 --> 00:31:42,160
Speaker 1: Then all of a sudden it happens. It herd behavior.

567
00:31:42,160 --> 00:31:45,840
Speaker 1: Herd behavior is what we call it. And of course

568
00:31:45,880 --> 00:31:49,000
Speaker 1: it's more likely when you have such a homo genius

569
00:31:49,600 --> 00:31:54,640
Speaker 1: close knit community of big depositors. It's not clear that

570
00:31:54,640 --> 00:31:58,920
Speaker 1: that holds for many other, many other banking institutions. I

571
00:31:59,120 --> 00:32:08,720
Speaker 1: hear them the tech firms in the SBB subjidiary are

572
00:32:09,200 --> 00:32:13,120
Speaker 1: not They're not as big as the American was, their

573
00:32:13,160 --> 00:32:17,120
Speaker 1: deposits are not as big, and so forth. But um,

574
00:32:17,360 --> 00:32:19,840
Speaker 1: there was of course at risk of her behavior there.

575
00:32:20,600 --> 00:32:23,240
Speaker 1: So that's one reason I'm sure why the Bank of

576
00:32:23,280 --> 00:32:27,440
Speaker 1: England acted. Doctor Portis. New York Governor Kathy Hokel said

577
00:32:27,480 --> 00:32:30,960
Speaker 1: the takeover of Signature Bank by federal regulators on Sunday

578
00:32:31,080 --> 00:32:35,560
Speaker 1: quote was not a bailout. Do you agree? Sorry, the

579
00:32:35,680 --> 00:32:41,600
Speaker 1: takeover of Signature Bank in particular on Sunday, to be clear,

580
00:32:41,720 --> 00:32:44,880
Speaker 1: to be a clear, doctor, everybody seems to be at pains,

581
00:32:45,320 --> 00:32:49,520
Speaker 1: including Jeremy hunt Um in terms of the UK arm

582
00:32:50,080 --> 00:32:54,719
Speaker 1: but also regulators and politicians here to say, hey, this

583
00:32:54,840 --> 00:32:58,280
Speaker 1: was not a bailout. You know, look elsewhere, move on,

584
00:32:58,680 --> 00:33:01,400
Speaker 1: nothing happening here. Why are they so worried that this

585
00:33:01,480 --> 00:33:06,080
Speaker 1: was a bailout because of what we call moral hazard,

586
00:33:07,320 --> 00:33:11,200
Speaker 1: which leads to immoral behavior. That is to say that

587
00:33:12,280 --> 00:33:18,480
Speaker 1: if you bail out old depositors, then everybody thinks that

588
00:33:18,520 --> 00:33:21,600
Speaker 1: you're going to bail them out next time around, and

589
00:33:22,080 --> 00:33:26,400
Speaker 1: that there and therefore you get people taking riskier decisions

590
00:33:26,400 --> 00:33:29,240
Speaker 1: than they would otherwise in the belief that they'll get

591
00:33:29,240 --> 00:33:33,000
Speaker 1: bailed out if things go back. And that was after

592
00:33:34,320 --> 00:33:38,960
Speaker 1: bear Sterns got rescued in February two thousand and eight.

593
00:33:41,040 --> 00:33:44,680
Speaker 1: Nothing was done, okay, and so you came to Layman,

594
00:33:45,440 --> 00:33:50,800
Speaker 1: and then the FED decided, no, you know, we don't

595
00:33:50,840 --> 00:33:53,040
Speaker 1: want to create that moral hazard, we don't want to bailout.

596
00:33:53,440 --> 00:33:57,960
Speaker 1: And then look what happened. Okay. So so that's one

597
00:33:58,000 --> 00:34:01,400
Speaker 1: of the reasons why why more serious regulation was introduced,

598
00:34:01,880 --> 00:34:07,800
Speaker 1: because because the system, the politicians, and the financial sector

599
00:34:08,600 --> 00:34:12,040
Speaker 1: realized that we didn't want to go there anymore, right,

600
00:34:13,080 --> 00:34:17,520
Speaker 1: you know. So uh, and that's you know, this, this

601
00:34:17,719 --> 00:34:24,000
Speaker 1: bailout of all depositors is I think a risky decision

602
00:34:24,080 --> 00:34:30,319
Speaker 1: to have made and what will be the fallout from

603
00:34:30,360 --> 00:34:37,520
Speaker 1: that going forward? It may well be that that depositors.

604
00:34:37,600 --> 00:34:39,719
Speaker 1: Now I say, well, oh well, you know, I don't

605
00:34:39,719 --> 00:34:42,239
Speaker 1: have to worry about it, right right, all right, so

606
00:34:42,280 --> 00:34:44,160
Speaker 1: we'll have to see our doctor Richard Porters. Thank you

607
00:34:44,160 --> 00:34:46,719
Speaker 1: so much for joining us, doctor Richard Porters, professor at

608
00:34:46,719 --> 00:34:52,280
Speaker 1: the London Business School. Right now, all right, Uh, let's

609
00:34:52,640 --> 00:34:55,480
Speaker 1: talk a little bit more about what exactly happened here

610
00:34:55,600 --> 00:34:59,719
Speaker 1: at SVB with a company that is connected, at least

611
00:34:59,760 --> 00:35:04,239
Speaker 1: in a some small way. Mountain is a television a

612
00:35:04,239 --> 00:35:10,720
Speaker 1: connected television marketing platform, and Mark Douglas is the CEO

613
00:35:10,800 --> 00:35:13,840
Speaker 1: and co founder of the company. He joins us now

614
00:35:14,480 --> 00:35:20,560
Speaker 1: via satellite from Miami. Where are you, Mark, I'm actually

615
00:35:20,560 --> 00:35:23,520
Speaker 1: in Dallas, Texas? Dallas, Okay, I never know, dude, I

616
00:35:23,600 --> 00:35:26,640
Speaker 1: never know where executive travel a lot. That's true, all right,

617
00:35:26,680 --> 00:35:29,680
Speaker 1: so you do. And but I think I found it

618
00:35:29,719 --> 00:35:32,600
Speaker 1: interesting to hear. I think this morning or last night

619
00:35:33,160 --> 00:35:37,320
Speaker 1: one of our mutual buddies told me that SVB actually

620
00:35:37,320 --> 00:35:40,520
Speaker 1: had a one percent stake in Mountain. Why is that?

621
00:35:40,560 --> 00:35:44,279
Speaker 1: Were they an investor because you got some funding from them?

622
00:35:44,400 --> 00:35:48,440
Speaker 1: Or how did that work out. Yeah, so SBB to

623
00:35:48,560 --> 00:35:52,719
Speaker 1: explain that SBB is unlike really any other banks, So

624
00:35:53,400 --> 00:35:56,319
Speaker 1: Pilcom Valley Bank. I think everyone at this point knows

625
00:35:56,360 --> 00:36:00,440
Speaker 1: that essentially half of all tech companies banks with Silicon

626
00:36:00,600 --> 00:36:04,040
Speaker 1: Valley Bank, and for merging companies, newly funded companies, the

627
00:36:04,160 --> 00:36:07,560
Speaker 1: percentage was even higher than that. And the reason for

628
00:36:07,600 --> 00:36:11,920
Speaker 1: that is Silcom Valley Bank was once you got funded,

629
00:36:11,960 --> 00:36:15,840
Speaker 1: you raised twenty million dollars, was then willing to provide

630
00:36:15,840 --> 00:36:19,520
Speaker 1: you receivables loans and what's called venture debt loans. Essentially,

631
00:36:19,560 --> 00:36:22,879
Speaker 1: if you raised twenty million, they'll loan you another two

632
00:36:22,880 --> 00:36:26,040
Speaker 1: million on top of that receivable zones to just run

633
00:36:26,080 --> 00:36:30,400
Speaker 1: your business when most other banks wouldn't and there and

634
00:36:30,520 --> 00:36:34,120
Speaker 1: those loans were actually very safe because they were backed

635
00:36:34,120 --> 00:36:37,239
Speaker 1: by your cash in Silcom Valley Bank that you were

636
00:36:37,280 --> 00:36:41,040
Speaker 1: required to keep there. But they also took warrants on

637
00:36:41,080 --> 00:36:45,440
Speaker 1: those long So any company, most companies that had a

638
00:36:45,440 --> 00:36:48,800
Speaker 1: loan agreement with Silicon Valley Bank, Silcom Valley Bank wound

639
00:36:48,880 --> 00:36:52,080
Speaker 1: up with a small steak in their company and that

640
00:36:52,360 --> 00:36:55,760
Speaker 1: the aggregate of that is an interesting asset on their books.

641
00:36:56,000 --> 00:36:58,719
Speaker 1: So that means they may own small steaks and Airbnb

642
00:36:59,320 --> 00:37:02,680
Speaker 1: or you know they do with Mountain and other companies

643
00:37:02,719 --> 00:37:06,319
Speaker 1: that that's going to be an interesting asset to die

644
00:37:06,360 --> 00:37:09,200
Speaker 1: best of in the future. But that's how that comes about,

645
00:37:09,320 --> 00:37:12,480
Speaker 1: and that was true for many many companies. What does

646
00:37:12,520 --> 00:37:15,480
Speaker 1: that mean in terms of you had to keep money there?

647
00:37:15,480 --> 00:37:20,319
Speaker 1: Then essentially your deposits weren't cash You could just pull

648
00:37:20,360 --> 00:37:23,480
Speaker 1: out on Thursday, even if Peter Teel advised you to

649
00:37:23,520 --> 00:37:29,000
Speaker 1: do so. I wonder how many deposits they have like that. Yeah,

650
00:37:29,040 --> 00:37:34,279
Speaker 1: so that is a substantial Essentially all of their loan

651
00:37:34,320 --> 00:37:39,000
Speaker 1: agreements or a very substantial portion loan agreements would require

652
00:37:39,080 --> 00:37:42,239
Speaker 1: you to bank all of your money with Silicon Valley Bank,

653
00:37:42,560 --> 00:37:45,800
Speaker 1: and usually you have more money than the loan agreement.

654
00:37:45,920 --> 00:37:48,520
Speaker 1: So if they had loan agreements a seventy four billion dollars,

655
00:37:48,560 --> 00:37:51,759
Speaker 1: that means they had a substantial amount of cash that

656
00:37:51,880 --> 00:37:56,200
Speaker 1: could not be withdrawn. And so on Thursday, I think

657
00:37:56,280 --> 00:37:59,920
Speaker 1: myself and other folks like Mark Schuster, who's a found

658
00:38:00,120 --> 00:38:03,120
Speaker 1: but from Venus and other folks were saying withdrawals who

659
00:38:03,239 --> 00:38:06,319
Speaker 1: going to have to slow down? Because there are just

660
00:38:06,480 --> 00:38:10,760
Speaker 1: so many Silicon Value Bank customers that literally cannot withdraw

661
00:38:10,960 --> 00:38:14,680
Speaker 1: money because of all the intertwined loan agreements they had

662
00:38:14,719 --> 00:38:17,040
Speaker 1: with them, and that was going to be a stabilizing force.

663
00:38:17,440 --> 00:38:20,759
Speaker 1: But obviously the government made a different decision and shut

664
00:38:20,800 --> 00:38:25,400
Speaker 1: the bank down within hours essentially that of that occurring.

665
00:38:25,600 --> 00:38:28,279
Speaker 1: So this is really unusual. This is not like your

666
00:38:28,320 --> 00:38:32,320
Speaker 1: typical retail bank that has average deposits of six thousand

667
00:38:32,320 --> 00:38:37,160
Speaker 1: dollars and then loans out on thirty year mortgages. Silkoon

668
00:38:37,239 --> 00:38:40,520
Speaker 1: Value Bank had average deposits of over a quarter of

669
00:38:40,520 --> 00:38:43,600
Speaker 1: a million dollars usually you know, over ten million dollars,

670
00:38:43,920 --> 00:38:47,399
Speaker 1: and the loans were these revolving receivables lines which were

671
00:38:47,440 --> 00:38:50,640
Speaker 1: against the invoices you sent to customers and had to

672
00:38:50,680 --> 00:38:53,680
Speaker 1: be paid within the next sixty days. It was it's

673
00:38:53,800 --> 00:38:58,640
Speaker 1: unlike any other bank in that regard. And yeah, did

674
00:38:59,040 --> 00:39:03,320
Speaker 1: did you end or your company have money deposits at

675
00:39:03,600 --> 00:39:06,840
Speaker 1: SVB And if so, what do you think your recovery

676
00:39:06,840 --> 00:39:10,279
Speaker 1: will be? Well, so we at that we kind of

677
00:39:10,719 --> 00:39:15,480
Speaker 1: so the largest most successful companies at a certain point

678
00:39:15,600 --> 00:39:21,120
Speaker 1: outgrow SVB because you need now global banking facilities and

679
00:39:22,000 --> 00:39:25,480
Speaker 1: other facilities. So we actually had reached the point where

680
00:39:26,040 --> 00:39:31,520
Speaker 1: we were no longer SVB customer, and so you know,

681
00:39:31,640 --> 00:39:34,399
Speaker 1: and quite frankly, if companies didn't grow to that point,

682
00:39:34,480 --> 00:39:36,920
Speaker 1: Silton Valley Bank would have even more than half of

683
00:39:36,960 --> 00:39:41,239
Speaker 1: all startups. So essentially, this is the interesting part. The

684
00:39:41,280 --> 00:39:44,840
Speaker 1: companies that could withdraw money were the youngest ones that

685
00:39:44,960 --> 00:39:48,879
Speaker 1: didn't yet have loan agreements. The companies that couldn't were

686
00:39:48,880 --> 00:39:53,520
Speaker 1: the emerging and mid sized companies that couldn't withdraw money

687
00:39:53,719 --> 00:39:56,279
Speaker 1: because they were successful and had all these loan It

688
00:39:56,360 --> 00:39:58,640
Speaker 1: had loan agreements with sub and then the very law

689
00:39:58,719 --> 00:40:00,960
Speaker 1: and as you got larger and law archer, you eventually,

690
00:40:01,400 --> 00:40:04,319
Speaker 1: you know, went with a more global bank. And so

691
00:40:04,400 --> 00:40:08,480
Speaker 1: it's it's an interesting it's a very unique cohorted customers.

692
00:40:08,520 --> 00:40:10,719
Speaker 1: And the other thing to keep in mind is when

693
00:40:10,760 --> 00:40:13,799
Speaker 1: you raise money from a venture capitalists, you're not going

694
00:40:13,840 --> 00:40:16,440
Speaker 1: to risk any of them money on anything but growing

695
00:40:16,520 --> 00:40:19,040
Speaker 1: your business. So if you raise twenty four million dollars

696
00:40:19,280 --> 00:40:21,760
Speaker 1: and you want that money to go for twenty four months,

697
00:40:22,560 --> 00:40:24,799
Speaker 1: so you're gonna spend a million dollars a month, it

698
00:40:24,840 --> 00:40:28,080
Speaker 1: gave SVB a lot of predictability on the rate at

699
00:40:28,120 --> 00:40:31,440
Speaker 1: which you were going to withdraw that money. And ultimately,

700
00:40:31,480 --> 00:40:34,800
Speaker 1: what this crisis seems to be about is that SVB

701
00:40:35,239 --> 00:40:39,000
Speaker 1: misjudge that startups we're going to need to withdraw their

702
00:40:39,120 --> 00:40:43,400
Speaker 1: cash a little faster, and then you know, didn't fully

703
00:40:43,480 --> 00:40:46,359
Speaker 1: have the cash on hand to do to deal with

704
00:40:46,400 --> 00:40:50,960
Speaker 1: the increased rate of withdrawals, even though there was tremendous

705
00:40:51,000 --> 00:40:54,319
Speaker 1: stable cash in the bank. And that's we got just

706
00:40:54,400 --> 00:40:56,440
Speaker 1: about a minute left here, Mark. But I wonder what

707
00:40:56,520 --> 00:40:59,440
Speaker 1: kind of problems you think this causes, at least in

708
00:40:59,480 --> 00:41:01,439
Speaker 1: the short term. I can imagine it's hard to pay

709
00:41:01,440 --> 00:41:04,520
Speaker 1: bills to companies whose only bank account was at SVB

710
00:41:05,680 --> 00:41:09,200
Speaker 1: and their lines of credit that won't be h met

711
00:41:09,239 --> 00:41:10,759
Speaker 1: as far as I can tell, Like, what are the

712
00:41:10,800 --> 00:41:12,760
Speaker 1: what are the worries that you have for your peers

713
00:41:12,760 --> 00:41:16,120
Speaker 1: that haven't uh, you know that needed SVB. Yeah, so

714
00:41:16,280 --> 00:41:19,799
Speaker 1: pure cast flows, So you couldn't as a Friday give

715
00:41:19,880 --> 00:41:22,320
Speaker 1: money out of the bank to set up for payroll.

716
00:41:22,719 --> 00:41:25,719
Speaker 1: You couldn't get money to pay the loan. So in

717
00:41:25,800 --> 00:41:29,839
Speaker 1: other words, I started having other tech companies eat send

718
00:41:29,920 --> 00:41:32,879
Speaker 1: emails to my company to not pay them because they

719
00:41:32,960 --> 00:41:36,000
Speaker 1: literally had no way to pay the CAST ironically, which

720
00:41:36,000 --> 00:41:39,279
Speaker 1: would have given sv BE more cash on Friday. So

721
00:41:39,320 --> 00:41:42,080
Speaker 1: it's just really a cash flow problem in the near term.

722
00:41:42,120 --> 00:41:45,480
Speaker 1: In the but it'll give resolved, it appears because the

723
00:41:45,560 --> 00:41:48,600
Speaker 1: government is saying that they're going to return one hundred

724
00:41:48,640 --> 00:41:51,839
Speaker 1: percent of the money in the long term. There's no

725
00:41:51,920 --> 00:41:55,200
Speaker 1: other source for these kinds of loans for receivables, loans

726
00:41:55,640 --> 00:41:59,000
Speaker 1: for you know that the kind of lending and facilities

727
00:41:59,040 --> 00:42:03,960
Speaker 1: that SVB IT did for these emerging startups having lots

728
00:42:03,960 --> 00:42:07,520
Speaker 1: of casts and just needing banking services that a typical

729
00:42:07,600 --> 00:42:10,880
Speaker 1: bank would not provide a startup. And so that's going

730
00:42:10,960 --> 00:42:13,439
Speaker 1: to create a lot of hardship in the very near term.

731
00:42:13,480 --> 00:42:16,240
Speaker 1: And just where do you go to get a line

732
00:42:16,239 --> 00:42:19,200
Speaker 1: of credit for an office when your brand new startup,

733
00:42:19,480 --> 00:42:21,439
Speaker 1: even though you have ten million dollars in the bank

734
00:42:21,480 --> 00:42:23,960
Speaker 1: from Aventa Capolas. So it's just going to cause a

735
00:42:24,040 --> 00:42:26,719
Speaker 1: lot of heartache and pain for all of these new

736
00:42:26,960 --> 00:42:30,799
Speaker 1: up and coming companies because these typical big banks just

737
00:42:30,840 --> 00:42:33,160
Speaker 1: don't understand them, even though they have a lot of

738
00:42:33,200 --> 00:42:35,680
Speaker 1: casts that they just raised. All right, Mark, thanks so

739
00:42:35,760 --> 00:42:37,799
Speaker 1: much for taking the time. We really appreciate getting your

740
00:42:37,880 --> 00:42:40,880
Speaker 1: perspective right on the ground there. Mark Douglas, President and

741
00:42:40,960 --> 00:42:44,120
Speaker 1: CEO of Mountain getting the latest perspective of kind of

742
00:42:44,120 --> 00:42:47,400
Speaker 1: what this means for the up and upstart companies in

743
00:42:47,480 --> 00:42:50,120
Speaker 1: Silicon Valley in technology going to be a real challenge

744
00:42:50,160 --> 00:42:55,920
Speaker 1: for them going forward as this situation gets unwelcome. After

745
00:42:55,960 --> 00:42:59,479
Speaker 1: the lists, reading everything I can on this SVB issue

746
00:42:59,600 --> 00:43:02,239
Speaker 1: elsa intra bank, I think I've got an understanding of

747
00:43:02,280 --> 00:43:06,480
Speaker 1: what happened, okay, but our next guest is gonna show

748
00:43:06,480 --> 00:43:09,800
Speaker 1: me how much more I still don't know. And it

749
00:43:09,920 --> 00:43:13,680
Speaker 1: happens every time. John Author's senior editor for Bloomberg Opinion

750
00:43:13,719 --> 00:43:16,839
Speaker 1: joints us here in a Bloomberg Interactive Broker studio. John,

751
00:43:16,920 --> 00:43:18,440
Speaker 1: let me just start with what you and I think

752
00:43:18,480 --> 00:43:21,560
Speaker 1: Matt were talking about. And you know Joe Wisenthal from

753
00:43:21,560 --> 00:43:24,479
Speaker 1: Bloomberg News and Odd Lott's podcast was in here earlier

754
00:43:24,480 --> 00:43:27,120
Speaker 1: because he wrote a piece today saying, of course it's

755
00:43:27,120 --> 00:43:31,359
Speaker 1: a bailout. What say you? Is this a bailout? Your

756
00:43:31,440 --> 00:43:35,959
Speaker 1: governor Kathy Holkel says it's not. A bailout has come

757
00:43:36,040 --> 00:43:41,160
Speaker 1: to be meant thoroughly pejoratively. It's certainly in some way

758
00:43:41,719 --> 00:43:46,560
Speaker 1: a riscue, which is perhaps a less loaded synonym for

759
00:43:46,760 --> 00:43:51,359
Speaker 1: a bailout. I guess the question is whose money goes

760
00:43:51,400 --> 00:43:56,000
Speaker 1: towards it and who precisely gets bailed out. So what

761
00:43:56,160 --> 00:44:00,400
Speaker 1: was most controversially No. Eight was that taxpayers money bailed

762
00:44:00,480 --> 00:44:06,680
Speaker 1: out rich people running banks and the rest of the country.

763
00:44:06,719 --> 00:44:10,840
Speaker 1: I mean, that's exactly what I think is just I

764
00:44:11,719 --> 00:44:18,000
Speaker 1: didn't mind top rescuing my credit cards, my ability to

765
00:44:18,040 --> 00:44:19,960
Speaker 1: get money out of an ATM, my ability to get

766
00:44:20,000 --> 00:44:22,879
Speaker 1: paid my paycheck. That this was the thing that people

767
00:44:22,920 --> 00:44:27,120
Speaker 1: didn't understand. Let the banks fail means let my bank

768
00:44:27,200 --> 00:44:29,680
Speaker 1: fail and at least for a while, cut me off

769
00:44:29,719 --> 00:44:32,440
Speaker 1: from access to my money, which is what happened for

770
00:44:32,440 --> 00:44:36,920
Speaker 1: two weeks in Greece when they had the Grexit crisis.

771
00:44:37,520 --> 00:44:40,040
Speaker 1: Little remembered now because of what happened the year after

772
00:44:41,719 --> 00:44:46,759
Speaker 1: and that, but that single handedly created a depression in

773
00:44:46,800 --> 00:44:49,439
Speaker 1: Grease two weeks of not having access to your bank,

774
00:44:50,560 --> 00:44:54,520
Speaker 1: that was That's what we're talking about. So if we're

775
00:44:54,520 --> 00:44:58,520
Speaker 1: talking about some kind of coordinate action to stop the

776
00:44:58,560 --> 00:45:02,799
Speaker 1: banking system, which is in here urrently unstable because of

777
00:45:02,840 --> 00:45:05,680
Speaker 1: fractional reserve banking, because if everybody wants to take their

778
00:45:05,680 --> 00:45:07,719
Speaker 1: money out at the same time, even the best run

779
00:45:07,800 --> 00:45:11,640
Speaker 1: bank will fail, then then yeah, there needn't be anything

780
00:45:11,680 --> 00:45:15,239
Speaker 1: pejorative about it. The recent people are dancing around the

781
00:45:15,280 --> 00:45:17,600
Speaker 1: topic of whether this is a bailout is because it's

782
00:45:17,640 --> 00:45:22,640
Speaker 1: been decided politically in the discourse, I think, mainly because

783
00:45:23,680 --> 00:45:27,320
Speaker 1: nobody got punished for two thousand and eight that bailouts

784
00:45:27,320 --> 00:45:30,160
Speaker 1: of add Therefore, we have to say that this is

785
00:45:30,520 --> 00:45:35,160
Speaker 1: not bad as it stands at the moment. Well, if

786
00:45:35,239 --> 00:45:37,840
Speaker 1: so far it's not, I mean, look, there could be unintended,

787
00:45:38,360 --> 00:45:42,359
Speaker 1: unintended consequences. I think right now, we're happy that there

788
00:45:42,400 --> 00:45:45,719
Speaker 1: are no more runs on banks, right That's that's the

789
00:45:45,760 --> 00:45:47,920
Speaker 1: good thing that they fed the FDIC and the Treasury

790
00:45:48,000 --> 00:45:52,240
Speaker 1: did yesterday's they start people from freaking out and pulling

791
00:45:52,239 --> 00:45:54,760
Speaker 1: their money out of a ton of other regional banks.

792
00:45:54,920 --> 00:46:00,160
Speaker 1: I'm not totally sure we can say that yet. If

793
00:46:00,200 --> 00:46:03,880
Speaker 1: you look at what's happened to two year bond yields,

794
00:46:04,160 --> 00:46:08,880
Speaker 1: somebody has been spending a lot of money buying short

795
00:46:08,960 --> 00:46:13,439
Speaker 1: dated bonds today. It's the biggest fall in bond yield

796
00:46:13,520 --> 00:46:16,760
Speaker 1: two year bond yields since Black Monday in nineteen eighty seven.

797
00:46:18,120 --> 00:46:21,440
Speaker 1: That money had to come from somewhere, and I suspect

798
00:46:21,560 --> 00:46:24,640
Speaker 1: quite a bit of it will have come from uninsured

799
00:46:25,000 --> 00:46:28,640
Speaker 1: deposits at smaller banks. We need to find out. More Similarly,

800
00:46:28,640 --> 00:46:31,880
Speaker 1: if you look at the share price, plainly, quite rightly,

801
00:46:31,920 --> 00:46:35,319
Speaker 1: if anybody is bearing the brunt of it this, it

802
00:46:35,400 --> 00:46:39,280
Speaker 1: will be bank shareholders. Because this is going to damage

803
00:46:39,920 --> 00:46:43,200
Speaker 1: profits for banks across the system because because of the

804
00:46:43,920 --> 00:46:47,880
Speaker 1: extra levy on them for bank insurance, for deposited insurance,

805
00:46:48,800 --> 00:46:53,400
Speaker 1: and certainly what's happened to the retail bank index is

806
00:46:53,600 --> 00:46:58,839
Speaker 1: pretty spectacular the way, are there still uninsured deposits at

807
00:46:58,920 --> 00:47:05,839
Speaker 1: US banks? Or are all deposits insured now? Effectively, at

808
00:47:05,920 --> 00:47:12,840
Speaker 1: this point you could say that, yes, all deposits are insured,

809
00:47:12,880 --> 00:47:16,080
Speaker 1: but the bank, the government is still saying, but even

810
00:47:16,120 --> 00:47:20,520
Speaker 1: if we come in in the very first resort, ultimately

811
00:47:20,680 --> 00:47:23,440
Speaker 1: it's going to be the banking system that pays, because

812
00:47:23,440 --> 00:47:27,640
Speaker 1: we're going to levy extra deposit insurance premiums. And that's

813
00:47:27,640 --> 00:47:32,320
Speaker 1: what government Hogle is essentially saying, right, yes, And given

814
00:47:32,360 --> 00:47:35,200
Speaker 1: that the great majority of US do have money on

815
00:47:35,320 --> 00:47:40,040
Speaker 1: deposit with banks, and the great majority of US do

816
00:47:40,120 --> 00:47:43,279
Speaker 1: pay tax, ultimately taxpayers are going to have to pay

817
00:47:43,280 --> 00:47:48,400
Speaker 1: for this. That said, a functioning banking system is a

818
00:47:48,480 --> 00:47:52,879
Speaker 1: public good, so if something goes wrong with it, presumably

819
00:47:52,920 --> 00:47:57,960
Speaker 1: it's not unreasonable for us to have to pay something

820
00:47:58,000 --> 00:48:01,120
Speaker 1: towards making sure it carries on. Yes, that in terms

821
00:48:01,120 --> 00:48:04,239
Speaker 1: of getting back to the angels dancing on the head

822
00:48:04,280 --> 00:48:06,480
Speaker 1: of a pin or whatever, you could say, it's not

823
00:48:06,800 --> 00:48:11,480
Speaker 1: a public bailout because it will ultimately, we are being told,

824
00:48:12,320 --> 00:48:16,160
Speaker 1: come from other banks, depositors, from the levy that's paid

825
00:48:16,200 --> 00:48:18,759
Speaker 1: on the well until you get to the this new

826
00:48:20,040 --> 00:48:23,680
Speaker 1: facility that was opened up by the FED. Now you

827
00:48:23,719 --> 00:48:28,359
Speaker 1: can take assets that maybe worth only half of par

828
00:48:28,800 --> 00:48:33,200
Speaker 1: yes and get the par as using them as collateral.

829
00:48:34,080 --> 00:48:39,759
Speaker 1: That's yes. I can myself live with that because if

830
00:48:39,760 --> 00:48:44,160
Speaker 1: this is a liquidity crisis, and I think it is

831
00:48:44,239 --> 00:48:47,839
Speaker 1: more of a crisis of liquidity than solvency, then this

832
00:48:47,920 --> 00:48:50,200
Speaker 1: is a way to deal with that liquidity crisis. Banks

833
00:48:50,200 --> 00:48:55,120
Speaker 1: are sitting on a bunch of bonds that whose value

834
00:48:55,160 --> 00:48:58,720
Speaker 1: has gone down dramatically. That needn't matter if they hold

835
00:48:58,760 --> 00:49:03,879
Speaker 1: them until term. If they have a run and need

836
00:49:03,920 --> 00:49:06,239
Speaker 1: to sell bonds for a loss, then things get very

837
00:49:06,320 --> 00:49:12,600
Speaker 1: much uglier. This is a sensible way I hope of

838
00:49:13,320 --> 00:49:16,840
Speaker 1: doing away with that liquidity issue. I don't myself have

839
00:49:16,920 --> 00:49:21,919
Speaker 1: a conceptual problem with what the Fed is doing there.

840
00:49:23,120 --> 00:49:26,200
Speaker 1: The issue is whether people are going to believe that

841
00:49:26,320 --> 00:49:28,799
Speaker 1: it can be done. There's a twenty five billion dollar

842
00:49:28,840 --> 00:49:32,120
Speaker 1: capacity so far. The hope is that the mere presence

843
00:49:32,160 --> 00:49:35,120
Speaker 1: of this facility means that there is much less angst

844
00:49:35,280 --> 00:49:37,720
Speaker 1: and it never gets called on, which is what happened

845
00:49:37,760 --> 00:49:40,680
Speaker 1: with some of the rescues back in twenty five billion.

846
00:49:40,800 --> 00:49:44,360
Speaker 1: Then they say that they can issue four times that amount,

847
00:49:44,400 --> 00:49:49,000
Speaker 1: and then they can keep taking hits from the treasury

848
00:49:49,080 --> 00:49:53,319
Speaker 1: at twenty five billion apiece. It seems like limitlessly if

849
00:49:53,480 --> 00:49:59,239
Speaker 1: I guess, I mean, certainly, the ultimate potential scale of

850
00:49:59,360 --> 00:50:04,640
Speaker 1: the losses is enormous. That's it. Capitalism does have some

851
00:50:04,960 --> 00:50:10,040
Speaker 1: self balancing mechanisms. Given that bonds have just gained in

852
00:50:10,200 --> 00:50:13,520
Speaker 1: value in a way that hasn't been seen in years,

853
00:50:14,640 --> 00:50:20,160
Speaker 1: you could argue that the wave, the effect of what's

854
00:50:20,160 --> 00:50:25,000
Speaker 1: happened to SVP, SVB is to rescue everybody else who

855
00:50:25,000 --> 00:50:28,640
Speaker 1: has large holdings of bonds that are underwater. Whatever the

856
00:50:28,680 --> 00:50:31,839
Speaker 1: losses are that banks are sitting on, and I don't know,

857
00:50:32,840 --> 00:50:35,080
Speaker 1: I do know that they're less than they were because

858
00:50:35,239 --> 00:50:37,359
Speaker 1: the value of bonds has just shut up. Yes, of course,

859
00:50:37,400 --> 00:50:40,440
Speaker 1: all right, so John, let's fast forward to tomorrow. We

860
00:50:40,480 --> 00:50:42,879
Speaker 1: can get the take a view off of this train wreck,

861
00:50:42,920 --> 00:50:46,920
Speaker 1: which is the SVBS or the world CPI. Yeah, I

862
00:50:46,960 --> 00:50:50,520
Speaker 1: thought I was going to spend all day writing about that. Yes, exactly.

863
00:50:50,600 --> 00:50:53,880
Speaker 1: So does this give I mean, if we look at

864
00:50:53,880 --> 00:50:56,759
Speaker 1: the warp function, boy, that's changing just the last few days.

865
00:50:56,560 --> 00:50:58,759
Speaker 1: Has it ever? Has it taken it off? There is

866
00:50:58,800 --> 00:51:01,560
Speaker 1: fifty basis points now after table is twenty five? Maybe

867
00:51:01,600 --> 00:51:03,640
Speaker 1: after table are they going to start cutting this year?

868
00:51:04,719 --> 00:51:12,280
Speaker 1: I think fifty is off the table unless the CPI

869
00:51:12,520 --> 00:51:18,600
Speaker 1: print tomorrow is very very strong. Evidently people are now

870
00:51:18,680 --> 00:51:23,719
Speaker 1: reckoning the work function, which for listeners that that's how

871
00:51:23,760 --> 00:51:28,120
Speaker 1: Bloomberg derives predicted FED funds prices from futures market. If

872
00:51:28,160 --> 00:51:30,160
Speaker 1: you believe the work function, then twenty five is off

873
00:51:30,200 --> 00:51:35,799
Speaker 1: as well. Yeah, yeah, I am not totally convinced of that.

874
00:51:36,120 --> 00:51:38,359
Speaker 1: I think what the curve at the moment is telling

875
00:51:38,440 --> 00:51:43,080
Speaker 1: on work is this is going to be the beginning

876
00:51:43,480 --> 00:51:49,080
Speaker 1: of a recession that the Fed has now completed its

877
00:51:49,120 --> 00:51:53,960
Speaker 1: mission of tightening until something's something breaks, something has now broken,

878
00:51:54,400 --> 00:51:57,359
Speaker 1: Banking is going to be much tighter. We finally are

879
00:51:57,400 --> 00:52:00,440
Speaker 1: going to tighten the financial conditions and the Fed can

880
00:52:00,640 --> 00:52:06,560
Speaker 1: start to ease. That's that's what it's saying. I suspect

881
00:52:06,680 --> 00:52:10,280
Speaker 1: it's right if we get a very hot CPI reports,

882
00:52:10,320 --> 00:52:15,360
Speaker 1: I'm not sure that the current numbers can be fulfilled

883
00:52:15,400 --> 00:52:16,920
Speaker 1: by the fit all right, So I'm gonna take a

884
00:52:16,920 --> 00:52:21,719
Speaker 1: snapshot of the WI RP GO function today, look at

885
00:52:21,719 --> 00:52:23,239
Speaker 1: it tomorrow and see if it changes. I mean it

886
00:52:23,360 --> 00:52:25,680
Speaker 1: changed a lot. When I came in at three, yep,

887
00:52:25,840 --> 00:52:27,400
Speaker 1: it looked a heck of a lot different than when

888
00:52:27,400 --> 00:52:29,799
Speaker 1: I went on are at five, yep. It looks a

889
00:52:29,800 --> 00:52:33,440
Speaker 1: lot different. Now marketson movie before finding my call him

890
00:52:33,440 --> 00:52:37,960
Speaker 1: at midnight, it was barely changed from Friday, and that

891
00:52:38,040 --> 00:52:40,839
Speaker 1: was not the case. We could work a late day.

892
00:52:41,600 --> 00:52:43,680
Speaker 1: That was not the case when I woke up. So

893
00:52:43,800 --> 00:52:45,880
Speaker 1: the rate, what the interest rates you're telling you, is

894
00:52:46,000 --> 00:52:48,040
Speaker 1: maybe not as high, not as long, and maybe some

895
00:52:48,200 --> 00:52:50,560
Speaker 1: rate cuts later in the year. John Author, Senior editor

896
00:52:50,600 --> 00:52:53,880
Speaker 1: for Bloomberg Opinion. Thanks so much. We appreciate that. Thanks

897
00:52:53,880 --> 00:52:57,360
Speaker 1: for listening to the Bloomberg Markets podcast. You can subscribe

898
00:52:57,360 --> 00:53:01,120
Speaker 1: and listen to interviews with Apple Podcasts or whatever podcast

899
00:53:01,160 --> 00:53:04,680
Speaker 1: platform you prefer. I'm Matt Miller. I'm on Twitter at

900
00:53:04,760 --> 00:53:07,960
Speaker 1: Matt Miller nineteen seventy three. And I'm fall Sweeney. I'm

901
00:53:08,000 --> 00:53:10,440
Speaker 1: on Twitter at p. T. Sweeney before the podcast. You

902
00:53:10,480 --> 00:53:12,839
Speaker 1: can always catch us worldwide at Bloomberg Radio