WEBVTT - Silicon Valley Bank, Treasuries, and CPI 0:00:00.800 --> 0:00:04.040 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside 0:00:04.040 --> 0:00:06.920 my co host Matt Miller. Every business day, we bring 0:00:06.960 --> 0:00:11.520 you interviews from CEOs, market pros, and Bloomberg experts, along 0:00:11.520 --> 0:00:15.520 with essential market moving news. Find the Bloomberg Markets Podcast 0:00:15.600 --> 0:00:18.400 on Apple Podcasts or wherever you listen to podcasts, and 0:00:18.480 --> 0:00:22.360 at Bloomberg dot com slash podcast. Let's get to Ira Jersey. 0:00:22.360 --> 0:00:26.400 He's the interest rate dude UM for Bloomberg Intelligence. Ira. 0:00:26.720 --> 0:00:28.520 If I'm the Fed here, if I'm j Pale, I 0:00:28.640 --> 0:00:32.200 gotta continue to fight inflation. But I got a market 0:00:32.200 --> 0:00:34.800 that's spooked at there about the whole banking system. What 0:00:34.880 --> 0:00:37.560 do I do next week? Yeah, it winds up becoming 0:00:37.560 --> 0:00:41.000 a massive communication challenge. So I think that the feder 0:00:41.000 --> 0:00:44.239 Reserve will hike twenty five basis points and then UM 0:00:44.360 --> 0:00:46.960 say that, you know, we're ready to step in to 0:00:47.159 --> 0:00:49.839 provide be the lender of last resort, as is our mandate, 0:00:49.880 --> 0:00:53.480 and we do care about financial stability, so I think. 0:00:53.520 --> 0:00:56.320 But but like you said, you know, with inflation still 0:00:56.400 --> 0:01:00.880 running at you know, four tenths a month on headline inflation, 0:01:00.960 --> 0:01:03.840 there's very little reason to think that the Fed's actually 0:01:03.880 --> 0:01:05.280 going to cut. You know, I know that there's at 0:01:05.319 --> 0:01:08.320 least one or two banks out there saying that maybe 0:01:08.319 --> 0:01:10.200 the Fed's going to cut interest rates because of the 0:01:10.200 --> 0:01:13.399 financial stability issues. That's not going to happen. They're not 0:01:13.400 --> 0:01:15.920 going to cut much more likely to pause and then 0:01:15.959 --> 0:01:19.399 say we might restart hiking later than they would be 0:01:19.440 --> 0:01:22.880 to actually lower interest rates, because I think I've told 0:01:22.959 --> 0:01:24.640 you before, Paul, you know, I think we saw have 0:01:24.640 --> 0:01:26.679 a FED put, but that FED put is very far 0:01:26.680 --> 0:01:31.240 out of the money because inflation still is their key mandate. Yeah, 0:01:31.360 --> 0:01:34.720 we should remind our listeners that inflation did come in 0:01:34.800 --> 0:01:37.319 hotter than expected. If you're looking at the core number 0:01:37.680 --> 0:01:40.520 for CPI, so CPI X food and Energy month over 0:01:40.560 --> 0:01:43.280 month was up zero point five percent. We were looking 0:01:43.280 --> 0:01:45.680 for a gain of zero point four percent, and it's 0:01:45.680 --> 0:01:48.280 also higher than the zero point four percent gain that 0:01:48.320 --> 0:01:50.720 we saw in the previous month. So it's still a 0:01:51.000 --> 0:01:54.320 problem by the time we get to the FED meeting. 0:01:54.360 --> 0:01:56.200 So you think they're going to hike another twenty five 0:01:56.240 --> 0:02:00.440 basis points, that puts some at the upper range five percent, 0:02:00.520 --> 0:02:04.639 so four seventy five to five and markets still pricing 0:02:04.640 --> 0:02:07.160 and just a smidge more than that or it was 0:02:07.200 --> 0:02:09.760 a second ago in May. Do you think we're going 0:02:09.760 --> 0:02:11.760 to get another hike after that? Do they need to 0:02:11.800 --> 0:02:16.200 go to higher than five in terms of the target 0:02:16.320 --> 0:02:19.359 rate or is that going to be the ceiling? Well, man, 0:02:19.480 --> 0:02:21.720 I've been I've been talking to you about the fact 0:02:21.720 --> 0:02:23.840 that I think that now they're in calibration mode. So 0:02:23.919 --> 0:02:28.200 I think it really depends on the data and also 0:02:28.280 --> 0:02:31.080 at now you have to think the financial stability situation 0:02:31.200 --> 0:02:33.960 going forward. Right, So if if in the environment where 0:02:34.360 --> 0:02:36.919 they hike to five percent and then they um, they 0:02:36.960 --> 0:02:39.200 get a string of okay, maybe we get point threes 0:02:39.280 --> 0:02:43.160 for example on CPI UM and then we get additional 0:02:43.240 --> 0:02:46.200 volatility in the banking sector, then then that's the situation 0:02:46.240 --> 0:02:48.720 where the Fed may actually pause. But but I think 0:02:48.720 --> 0:02:52.079 that you know, cumulatively, they've obviously increased interest rates, you know, 0:02:52.200 --> 0:02:56.120 nearly nearly five percent UM, and you know that's quite 0:02:56.120 --> 0:02:58.840 a bit. And so I think at this point taking 0:02:58.840 --> 0:03:00.919 a pause and then saying, look, we're not going to 0:03:00.960 --> 0:03:03.840 be cutting anytime soon. And I think that's the important 0:03:03.880 --> 0:03:06.079 point that that J. Powell has to make is look, 0:03:06.639 --> 0:03:11.120 we're still fighting inflation even if we stop hiking interest rates. 0:03:11.160 --> 0:03:13.320 That doesn't mean that we're immediately going to be cutting. 0:03:13.880 --> 0:03:16.600 There was at one point yesterday we were pricing for 0:03:17.200 --> 0:03:19.640 seventy five bases points of interest rate cuts this year, 0:03:19.919 --> 0:03:22.560 and so so first get those out of the market, 0:03:22.600 --> 0:03:24.320 and if you can get those out of the market, 0:03:24.360 --> 0:03:28.040 then I think that that, you know, policy might be 0:03:28.120 --> 0:03:31.880 calibrated appropriately. Right if we have to think about this, 0:03:31.919 --> 0:03:35.400 Matt point four percent annualize that it's four point eight percent. 0:03:36.040 --> 0:03:38.440 That's exactly where basically where the Fed funds rate is 0:03:38.480 --> 0:03:40.520 going to be after they hike one more time, so 0:03:40.840 --> 0:03:44.720 they can say, hey, we're at you know, we're basically 0:03:44.720 --> 0:03:47.440 at a neutral Fed funds rate. Now we have to 0:03:47.480 --> 0:03:50.080 convince everyone that hey, we're not going to be cutting 0:03:50.200 --> 0:03:53.680 until that goes much lower. Is financial stability really still 0:03:53.720 --> 0:03:59.440 a problem? I mean, you know, SVB had an unbelievable 0:04:00.120 --> 0:04:08.080 rations mismatch, plus an incredibly uniform depositor base, and plus 0:04:08.120 --> 0:04:13.120 now you know there's no limit to deposit insurance. It's 0:04:13.160 --> 0:04:16.760 whatever you have in any financial institution that's regulated. So 0:04:17.720 --> 0:04:20.800 is there any reason to think we have a financial 0:04:20.800 --> 0:04:25.680 stability problem? M Well, you do in so far as 0:04:25.760 --> 0:04:30.719 if people don't have um their own Uh, if they're 0:04:30.720 --> 0:04:33.400 not confident in their financial institution, they might still pull 0:04:33.400 --> 0:04:36.200 their deposits out right, and that's that's your typical bank 0:04:36.279 --> 0:04:38.920 run and that's basically what happened to SVB. But now 0:04:38.920 --> 0:04:42.520 they can right, Fed's got your back. Well yeah so, 0:04:42.960 --> 0:04:45.480 but but keep in mind, like even during the financial crisis, 0:04:45.560 --> 0:04:49.080 the depositors rarely lose money in bank workouts, and I 0:04:49.120 --> 0:04:51.720 think that it's showing that the regulatory environment is working. 0:04:51.720 --> 0:04:54.040 And the reason is is because now you have all 0:04:54.040 --> 0:04:58.120 these other capital layers below depositors, where you know, equity 0:04:58.120 --> 0:05:02.640 holders and bondholders and equity holders, all of those people 0:05:02.880 --> 0:05:05.560 you know will potentially lose a lot of money, if 0:05:05.600 --> 0:05:09.640 not all of their money in their investments in those institutions. 0:05:09.680 --> 0:05:12.640 But but to make the depositors whole, um, So you know, 0:05:12.680 --> 0:05:15.400 you go back and look at watching the mutual or INDIMAC. 0:05:15.440 --> 0:05:16.880 You know, those are kind of some of the earlier 0:05:16.880 --> 0:05:22.040 banks that failed during the financial crisis, and even their depositors, um, 0:05:22.440 --> 0:05:24.520 even there's some of their large depositors, they were mostly 0:05:24.560 --> 0:05:27.240 made whole. So so keep in mind that when we 0:05:27.240 --> 0:05:29.839 talk about the deposit insurance being up there, it's not 0:05:29.839 --> 0:05:33.440 so much deposit insurance. The regulators and bank workouts always 0:05:33.440 --> 0:05:36.080 try to make the depositors whole as much as they can. Um. 0:05:36.120 --> 0:05:38.440 It's that you're only guaranteed to do that up to 0:05:38.640 --> 0:05:41.480 the FDIC limit, right, so, um so you have to 0:05:41.560 --> 0:05:43.360 keep that in mind. But but I think that there 0:05:43.440 --> 0:05:46.799 is still a risk that people are you know, get nervous, 0:05:46.800 --> 0:05:48.560 and they want to pull their money out of some 0:05:48.920 --> 0:05:51.800 certain banks that maybe they're not so sure about that 0:05:51.800 --> 0:05:53.839 they'll be able to get their money in a timely fashion. 0:05:53.920 --> 0:05:56.480 I think that that's that still remains at risk today. 0:05:56.520 --> 0:05:58.719 All Right, it's March madness. So I don't know how 0:05:58.800 --> 0:06:00.160 much free time I'm going to have here, But if 0:06:00.160 --> 0:06:02.400 I catch one soccer match over the next several days, 0:06:02.800 --> 0:06:05.320 which one is it? Uh? Yeah, you know, I hate 0:06:05.320 --> 0:06:07.640 to say this. I have not looked at the fixture 0:06:07.680 --> 0:06:11.080 list for this weekend. Um so that's resolutely horrible of me. Well, 0:06:11.240 --> 0:06:13.200 all right, we'll give us the third, give us the tense. 0:06:13.480 --> 0:06:17.479 Was something else going on? Yes, exactly, Rayal Central, New Jersey. 0:06:17.480 --> 0:06:19.360 Do I come down and catch a game? Yeah? Yeah, 0:06:19.400 --> 0:06:20.960 we we have a we have a match. We're playing 0:06:21.000 --> 0:06:24.200 Philadelphia Soccer Club this weekend, and if we win we'll 0:06:24.279 --> 0:06:27.120 we'll move up the third place. We we had a 0:06:27.120 --> 0:06:29.560 cup game this weekend the unfortunately we lost one nil 0:06:29.680 --> 0:06:32.640 to a very good team from the Jersey Shore. But 0:06:32.680 --> 0:06:35.479 if yeah, if we win this game, we'll jump up 0:06:35.520 --> 0:06:37.640 into third place and have a shot at second. So 0:06:37.800 --> 0:06:39.880 we're trying to move up the table here Rayal Central, 0:06:39.880 --> 0:06:41.919 New Jersey. How about that? Kids, You can check that 0:06:41.960 --> 0:06:45.800 out if you're in the area. IRA Jersey soccer club 0:06:46.360 --> 0:06:50.040 magnet as well as a interest rate strategist for Bloomberg Intelligence. 0:06:50.080 --> 0:06:51.840 He brings it all. We're gonna have more coming up. 0:06:52.120 --> 0:06:59.120 This is Bloomberg. There's still a little tech round table here. 0:06:59.120 --> 0:07:02.080 There's a lot of news there of course SVB. Then 0:07:02.080 --> 0:07:04.560 this morning we had the layoffs coming out of Meta, 0:07:04.800 --> 0:07:06.719 so lots to talk about. So we got a couple 0:07:06.720 --> 0:07:08.960 of our smart tech geeks joining us here in the 0:07:08.960 --> 0:07:11.760 Bloomberg Inactive broker studio. Dan, I've senior equity annals at 0:07:11.800 --> 0:07:16.760 web Bush Securities, Mandeep saying, senior tech annals for Bloomberg Intelligence, 0:07:16.800 --> 0:07:19.320 both here in our studio here. Hey, Dan, let's start 0:07:19.360 --> 0:07:24.000 with just SVB, the fallout for the valley. Some of 0:07:24.040 --> 0:07:25.840 the tech companies I know you cover I know you're 0:07:25.840 --> 0:07:27.920 tight with all the folks in the valley and the 0:07:28.000 --> 0:07:31.160 venture capital stuff. What's how are you getting business done 0:07:31.200 --> 0:07:36.120 day today? Look, they were the godfather of Silicon Valley banking, 0:07:36.480 --> 0:07:38.720 and I think that the impact here is going to 0:07:38.840 --> 0:07:41.360 be for I think many years to come in terms 0:07:41.360 --> 0:07:44.400 of the startups and for the tech world. So even 0:07:44.440 --> 0:07:46.560 though this has been ring fence in terms of the 0:07:46.560 --> 0:07:49.880 actual SVP the situation, I think it's really going to 0:07:50.000 --> 0:07:54.800 be a big change from a financing perspective. What's happened 0:07:54.840 --> 0:07:58.720 in the startup community. Well, do you think someone eventually 0:07:58.720 --> 0:08:01.679 comes in and takes that role. I mean, one bank, 0:08:03.480 --> 0:08:07.240 you know, reclaims the mantle of Silicon Valley godfather in 0:08:07.320 --> 0:08:11.120 terms of you know, the Sandhill customers. I think in theory, 0:08:11.440 --> 0:08:13.239 but I just don't see that it's going to happen 0:08:13.320 --> 0:08:15.880 because right now, the risk, especially with so many of 0:08:15.880 --> 0:08:19.360 these companies burning cash, spending money is like nineteen eighties 0:08:19.440 --> 0:08:22.320 rock stars as VP has obviously been a sup a 0:08:22.400 --> 0:08:24.920 black guy. And now what's going to happen is you're 0:08:24.960 --> 0:08:28.080 gonna see vcs that are gonna, of course be much 0:08:28.120 --> 0:08:32.120 more reliant in terms of from a funding perspective, and 0:08:32.160 --> 0:08:34.319 then a lot of the venture funding that they did, 0:08:34.320 --> 0:08:37.080 a lot of the venture financing that as Ab did. 0:08:37.480 --> 0:08:39.360 No big center money bank is going to do that 0:08:39.440 --> 0:08:41.920 a regional and that's going to be the issue now 0:08:41.960 --> 0:08:43.920 going forward. I think it's going to catalyze m Anda. 0:08:44.040 --> 0:08:46.640 I think Big Tax is going to accelerate that. And 0:08:46.679 --> 0:08:49.120 clearly there's many on the outside looking in. I think 0:08:49.120 --> 0:08:51.839 that Hubris is now going to start to be over 0:08:51.880 --> 0:08:55.360 in terms of valuation haircuts. Talking about Hubris maybe coming 0:08:55.400 --> 0:08:58.439 out of the Valley Meta laying off ten thousand employees, 0:08:58.760 --> 0:09:01.440 Man Deep just will simply what does this mean for 0:09:01.640 --> 0:09:06.120 the investment and the pivot towards the metaverse for our 0:09:06.200 --> 0:09:09.400 good friends at Facebook. So so far, what they have 0:09:09.520 --> 0:09:13.280 said is they're focused on efficiencies in the core business. 0:09:13.400 --> 0:09:16.920 They're not curtailing their ambitions on the metaverse side, although 0:09:18.040 --> 0:09:20.559 I think you can see how they are reducing their 0:09:20.640 --> 0:09:23.680 hiring for this year and they talked about you know, 0:09:23.720 --> 0:09:27.280 the open roles going away, So clearly there is focus 0:09:27.400 --> 0:09:30.600 on efficiencies. But my point over there is more around 0:09:30.600 --> 0:09:33.280 their R and D expense. They spend about thirty five 0:09:33.320 --> 0:09:36.960 billion dollars a year. Compare that to Apple and Microsoft's 0:09:37.040 --> 0:09:39.640 R and D expense it's around twenty five billion. So 0:09:39.720 --> 0:09:43.760 why is Facebook or Meta spending more when their revenue 0:09:43.760 --> 0:09:46.640 base is like half or even you know, one fourth 0:09:46.640 --> 0:09:49.760 of Apple size. And I think that's where all the 0:09:49.800 --> 0:09:52.439 tech companies are looking at their fixed costs and saying, 0:09:52.679 --> 0:09:54.600 do we really need to spend that much? And I 0:09:54.600 --> 0:09:57.280 think Meta is clearly leading that. So Dan, what do 0:09:57.280 --> 0:10:00.839 you think about that move? And it seems to me 0:10:00.960 --> 0:10:05.520 that Mark Zuckerberg at least is squaring himself up with 0:10:05.640 --> 0:10:08.120 investors who are worried about an interest rate regime that 0:10:08.280 --> 0:10:11.240 is here to stay, you know, higher rates for longer, 0:10:11.480 --> 0:10:14.439 and that name change came too soon because they might 0:10:14.480 --> 0:10:17.720 go back to Facebook because realistically, I think, you know, 0:10:17.720 --> 0:10:20.400 as Mandeep talked about, I mean, this is just a 0:10:20.440 --> 0:10:22.959 new world. And that's why Zuckerberg finally read the room. 0:10:23.000 --> 0:10:25.480 That's why the stocks you know, more than doubled from 0:10:25.480 --> 0:10:28.480 bomb because they need to cut significant cause double down 0:10:28.520 --> 0:10:31.199 on social media. And you look at the metaverse strategy. 0:10:31.240 --> 0:10:33.720 When you look what they're investing, it's good money after 0:10:33.800 --> 0:10:36.840 bad and I think this is really it's a pivotable 0:10:36.960 --> 0:10:40.640 time for Zuckerberg. But clearly you see a new Zuckerberg 0:10:40.760 --> 0:10:44.079 in terms of how he's acting, especially on the cost side, 0:10:44.120 --> 0:10:47.720 and that's why the stock wall streets rewarded. Yeah, and interesting, 0:10:47.880 --> 0:10:50.800 all right, I want to pivot to Uber and Lyft 0:10:50.840 --> 0:10:54.040 because there was an interesting story that I really found interesting. 0:10:55.760 --> 0:11:00.000 California says that these drivers are in fact gig workers 0:11:00.080 --> 0:11:02.760 an appeals court right back in Prop twenty two. Yeah, 0:11:02.800 --> 0:11:05.199 and to me, that's kind of existential to the entire 0:11:05.280 --> 0:11:07.560 business model. If you don't have that ruling, you don't 0:11:07.559 --> 0:11:10.160 have a company. A business MENTEEP talkers about kind of 0:11:10.200 --> 0:11:12.640 what you learn there and what it means for these companies. Yeah. 0:11:12.679 --> 0:11:15.200 So look, if you are operating in the US as 0:11:15.240 --> 0:11:18.160 a gig economy company, this is huge because it's setting 0:11:18.200 --> 0:11:21.040 up a precedent where all these companies can operate with 0:11:21.080 --> 0:11:23.520 the current business model. They don't have to do anything 0:11:23.559 --> 0:11:26.920 in terms of changing their cost structure, and we've seen 0:11:27.000 --> 0:11:30.800 with Uber they are clearly showing operating leverage. So to me, 0:11:30.960 --> 0:11:34.000 this is a positive sign that the scale players in 0:11:34.000 --> 0:11:38.000 this business, your Uber and door Dash will likely benefit 0:11:38.160 --> 0:11:41.880 more simply because they have that organic driver supply growth, 0:11:41.920 --> 0:11:44.760 which is what you need for driving top line. And 0:11:44.800 --> 0:11:47.880 if the cost structure isn't changing. I think the incremental 0:11:47.920 --> 0:11:51.000 margin will be much higher than it was before. What 0:11:51.040 --> 0:11:53.600 do you think about those companies, Dan, Look, I think 0:11:53.720 --> 0:11:56.840 Uber it's a winner. Take Off, I mean, right now, Lift, 0:11:57.800 --> 0:12:00.200 I go back, that was probably the worst common it's 0:12:00.200 --> 0:12:02.920 called top three that I've heard in twenty two years. 0:12:03.400 --> 0:12:06.079 They're the little brother Uber and right now, I mean 0:12:06.120 --> 0:12:09.720 they just have an ever psych uphill battle competing in 0:12:09.760 --> 0:12:12.319 an environment where it's no more free money. So I'm 0:12:12.360 --> 0:12:15.160 looking at just the A and R page Dan, under 0:12:15.200 --> 0:12:18.040 your bio for your recommendations, you've got a neutral on 0:12:18.200 --> 0:12:21.480 Lift and outperform on Uber. So you're not just saying 0:12:21.480 --> 0:12:24.960 to buy this rat ride sharing thing. You're saying you 0:12:25.000 --> 0:12:27.520 need to be selective. Oh yeah, I think Uber is 0:12:27.559 --> 0:12:29.680 the way to play it. I mean Lift right now, 0:12:30.240 --> 0:12:32.320 I mean that feels like sort of jump in front 0:12:32.320 --> 0:12:36.280 of a train relative to what's happening in that business. 0:12:36.280 --> 0:12:39.680 And it feels like the management team doggate the homework 0:12:39.760 --> 0:12:43.600 next time as the weather, maybe they could blame you know, traffic, 0:12:43.640 --> 0:12:45.760 and then that's been the problem in terms of just 0:12:46.240 --> 0:12:49.120 no comfort in terms of this management team, the way 0:12:49.200 --> 0:12:53.400 they navigate, and you mentioned the rates environment, right, man, Deep, 0:12:54.120 --> 0:12:57.679 this rates environment seems to be something that texeos are 0:12:57.720 --> 0:13:01.640 waking up to. Mark Zuckerberg says, I think we should 0:13:01.679 --> 0:13:03.320 this is a direct quote. I think we should prepare 0:13:03.320 --> 0:13:06.400 ourselves for the possibility that this new economic reality will 0:13:06.440 --> 0:13:11.760 continue for many years. Hello. Yeah, Well look, I think 0:13:11.840 --> 0:13:14.840 all these are long duration of stocks. So when you 0:13:14.880 --> 0:13:17.440 think about, you know, the terminal value of these businesses, 0:13:17.480 --> 0:13:20.520 you have to discount them at the rate where VR 0:13:20.679 --> 0:13:24.679 right now. And that's where you will never see software 0:13:24.720 --> 0:13:27.840 or an internet company trading at forty fifty times sales anymore. 0:13:28.120 --> 0:13:31.320 And I think that's the realization everyone is having that 0:13:31.400 --> 0:13:33.719 there is a cap in terms of the multiple these 0:13:33.760 --> 0:13:37.600 companies can trade at all. Right, let's pivot to digital advertising. 0:13:38.480 --> 0:13:41.680 I'm thinking meta, you know, all that kind of stuff Google, 0:13:42.720 --> 0:13:45.640 Where are we in that trend? Man, Deep? Because I mean, 0:13:46.040 --> 0:13:48.120 you know, when I was covering these stocks, they were 0:13:48.120 --> 0:13:50.200 going nothing but up. So I don't know what you 0:13:50.200 --> 0:13:51.960 guys are doing. And that's because I had this secular 0:13:52.000 --> 0:13:54.640 twenty percent growth story in digital ad spending and I 0:13:54.640 --> 0:13:57.520 don't know where it was coming from, radio, TV, wherever? 0:13:58.240 --> 0:14:01.559 Where what's the story there? Now? Look, there will always 0:14:01.679 --> 0:14:05.120 be a secular kind of transition from linear TV to 0:14:06.240 --> 0:14:09.600 the digital app platforms, and that trend is intact. I 0:14:09.640 --> 0:14:12.719 think with connected TV you're probably going to see some 0:14:12.760 --> 0:14:16.840 more tailwinds. The problem with digital ad businesses it's discretion 0:14:16.920 --> 0:14:19.760 or even you compare it to a software business where 0:14:19.800 --> 0:14:22.600 you still have to, you know, keep your business running 0:14:22.600 --> 0:14:25.760 and you require that software. On the other hand, ads 0:14:25.840 --> 0:14:27.880 can be shut on and off. And right now we're 0:14:27.920 --> 0:14:31.640 in an environment where businesses are focused on costs and 0:14:31.720 --> 0:14:34.360 the easiest thing to cut is your ad spend. So 0:14:34.600 --> 0:14:36.480 I do think this is going to last a while, 0:14:36.560 --> 0:14:39.680 but we will rebound and the cyclical aspect will come 0:14:39.680 --> 0:14:41.600 into play, you know, once we are in a lower 0:14:41.680 --> 0:14:45.040 rate and a better economic growth environment. How concerned are 0:14:45.080 --> 0:14:48.000 you Dan about that? I mean, look, I think you're 0:14:48.080 --> 0:14:52.600 seeing just the digital advertising headwinds, the Appleios privacy issues. 0:14:52.640 --> 0:14:55.680 If continue to sort of be there slow an economy, 0:14:55.760 --> 0:14:57.720 I do think a lot of bad news been baked in. 0:14:57.760 --> 0:15:00.240 That's where a lot of these stocks are bouncing, you know, 0:15:00.320 --> 0:15:02.560 And I think now you're starting to see the cut, 0:15:02.640 --> 0:15:05.760 so we's now you're preserved in the bottom line in 0:15:05.800 --> 0:15:09.240 this environment. That's why tech stocks are rallying, and even 0:15:09.280 --> 0:15:12.920 now the SVP, you know, Fed's basically handcuffed. That feels 0:15:12.960 --> 0:15:15.640 like that's gonna be positive in terms of what we're 0:15:15.680 --> 0:15:18.400 seeing on hikes four attack and that's sort of this 0:15:18.520 --> 0:15:20.720 dynamic that's pointing out with this sort of tago war 0:15:21.480 --> 0:15:24.680 Fed's handcuffed. Yeah, I mean, this is exactly what I 0:15:24.720 --> 0:15:29.720 was thinking on Sunday after the bailout, really on Friday 0:15:29.760 --> 0:15:35.160 after the bank was taken it seemed like this is 0:15:35.440 --> 0:15:37.640 this is something that's something that broke that we were 0:15:37.680 --> 0:15:40.040 waiting for, and now they're done. But the question is 0:15:40.080 --> 0:15:42.720 does that continue, especially if we keep getting you know, 0:15:43.000 --> 0:15:47.480 half percent month over month core inflation increases. Yeah, I 0:15:47.480 --> 0:15:49.920 don't know, I'm i'm supplies. We haven't seen just smart 0:15:49.960 --> 0:15:52.800 experience back in a great financial crisis that we didn't 0:15:53.080 --> 0:15:55.280 go to bed Sunday night with announcement that x y 0:15:55.360 --> 0:15:58.200 Z Bank had bought SVB, and we haven't seen a 0:15:58.320 --> 0:16:00.720 huge surprise. And we heard a member of Congress tell 0:16:00.800 --> 0:16:03.920 Joe Matthew on sound On that there was an offer, 0:16:04.960 --> 0:16:08.400 but the regulators rejected it. Have you heard that too, Dan, 0:16:08.760 --> 0:16:11.000 Yean look, And I think that was just something where 0:16:11.600 --> 0:16:13.680 the last thing warned was the contague and they need 0:16:13.680 --> 0:16:15.960 to ring fence. And yep, all right, guys, good stuff. 0:16:16.000 --> 0:16:18.520 Thanks so much for coming in to the studio here 0:16:18.560 --> 0:16:21.320 today talking all things tech. We love doing that. Dan, 0:16:21.440 --> 0:16:23.920 I've senior equity annalys at web Bush Securities and Man 0:16:23.920 --> 0:16:28.359 Deep Seeing he's a senior technology annals at Bloomberg in intelligence. 0:16:28.600 --> 0:16:31.000 Both in our study here talking all things tech, SVB 0:16:31.640 --> 0:16:34.520 seems to have been as Dan was just suggesting, perhaps 0:16:34.960 --> 0:16:36.640 ring fence a little bit in terms of that risk. 0:16:37.000 --> 0:16:38.840 That's what the market's kind of telling you here. The 0:16:38.920 --> 0:16:41.520 SMP up one point eight percent, and I said yesterday, Matt, 0:16:41.800 --> 0:16:43.320 I thought we'd have a two percent to move up 0:16:43.360 --> 0:16:45.520 in the market yesterday. But I guess people didn't want 0:16:45.520 --> 0:16:47.640 to get in front of that CPI print today. But 0:16:47.640 --> 0:16:53.160 they're certainly coming in with both feet right now. You know, 0:16:53.280 --> 0:16:56.200 you pick a look at today's CPI print and you 0:16:56.200 --> 0:16:57.880 could say you can make the argument that Fen's got 0:16:57.920 --> 0:16:59.800 some more work to do there. But if you're the 0:17:00.680 --> 0:17:03.720 you gotta recognize we've got some bank instability in the 0:17:03.760 --> 0:17:05.560 system here. What are you supposed to do? Let's check 0:17:05.600 --> 0:17:09.000 in with a real expert on some of these issues 0:17:09.040 --> 0:17:13.280 that can maybe give us some headway here. Chevine Yeltakindane 0:17:13.440 --> 0:17:18.200 at the University of Rochester Business School joins us. Cheven, 0:17:18.359 --> 0:17:21.840 thank you, Chevine, thank you so much for joining us here. Again, 0:17:21.880 --> 0:17:24.359 what do you think our Federal Reserve does because they 0:17:24.400 --> 0:17:28.119 have a balancing act visa v inflation and what's happening 0:17:28.160 --> 0:17:33.119 in the banking system. Oh? Absolutely, Hi. Their job just 0:17:33.200 --> 0:17:36.040 got a lot harder over the last week, for sure, 0:17:36.480 --> 0:17:38.080 when we were just waiting for the kind of the 0:17:38.160 --> 0:17:42.680 unemployment report and the inflation numbers this week and last week, 0:17:43.520 --> 0:17:47.720 SVBS collapsed along with its signature bank. This has now 0:17:47.800 --> 0:17:51.600 become a lot harder. And because we see some of 0:17:51.640 --> 0:17:56.119 the repercussions of banks or certain types of institutions not 0:17:56.240 --> 0:17:59.879 taking into account interest rate risk, they're gonna have to 0:18:00.000 --> 0:18:05.119 ounce is very very tightly. It's a tight rope. So, 0:18:05.640 --> 0:18:09.359 uh should mean Matt Miller here? Um, I wonder if 0:18:09.359 --> 0:18:11.399 you think the Fed made the right move along with 0:18:11.440 --> 0:18:15.080 the other regulators involved and the Treasury in terms of 0:18:15.119 --> 0:18:18.440 bailing out the depositors of this bank. It wasn't like, 0:18:18.520 --> 0:18:21.720 you know, uh, mom and pop. This wasn't Joe Plummer 0:18:21.720 --> 0:18:25.600 in the Midwest. These were you know, the wealthiest people 0:18:26.280 --> 0:18:29.720 from from Sandhill Road and tech startups. You know, kids 0:18:29.720 --> 0:18:32.360 who are going to work at places with ping pong 0:18:32.440 --> 0:18:36.160 tables in the cafeteria. So you know, was it necessary 0:18:36.200 --> 0:18:40.920 and does it create moral hazard? Oh? It absolutely creates 0:18:40.960 --> 0:18:45.119 moral hazard because you know, every time you come exposed 0:18:45.520 --> 0:18:49.959 after the damage in Bindom to create more insurances than 0:18:50.800 --> 0:18:52.840 you know, not bailing out the bank, but bailing out 0:18:52.840 --> 0:18:57.560 the depositors, it certainly creates moral hazard. But what's interesting 0:18:57.560 --> 0:19:00.600 about this are two things that one of which you've mentioned. 0:19:00.640 --> 0:19:03.320 One of them is that this is not your regular 0:19:03.480 --> 0:19:07.960 kind of retail deposit bank very much. So we have 0:19:08.080 --> 0:19:11.800 these very very large deposits in this bank from a 0:19:11.920 --> 0:19:16.159 very concentrated industry base, mostly the tech sectors, some of 0:19:16.200 --> 0:19:20.880 which is encrypto as we so uc DC. And at 0:19:20.880 --> 0:19:24.280 the same time, you know, this was whereas it was 0:19:24.320 --> 0:19:28.120 the sixteenth largest bank in the United States, it certainly 0:19:28.240 --> 0:19:31.200 wasn't large enough to also get the scrutiny it needs 0:19:31.240 --> 0:19:35.040 in terms of naging its risk. So did they do 0:19:35.119 --> 0:19:37.800 the right policy? I would have liked to have had 0:19:38.240 --> 0:19:40.800 heard from the FED and FDIC that they will be 0:19:40.840 --> 0:19:44.919 guaranteeing the deposits of not just these two banks, but 0:19:45.280 --> 0:19:49.960 all banking, you know, throughout the banking sector, because what 0:19:50.760 --> 0:19:52.959 is now going to still be on the minds of 0:19:53.000 --> 0:19:56.240 any depositor within higher than two hundred and fifty k 0:19:56.400 --> 0:19:59.080 deposit is well, is my bank safe? I mean I've 0:19:59.119 --> 0:20:02.479 just received any emails from my own bank saying we're safe, 0:20:02.640 --> 0:20:04.720 you know, don't take out your deposits. I mean, not 0:20:04.800 --> 0:20:08.439 exactly those words, but but well, you don't have to 0:20:08.480 --> 0:20:11.359 worry now, I mean, didn't the FED implicitly say we 0:20:11.480 --> 0:20:14.280 got your back, don't worry about the insurance level. I mean, 0:20:14.280 --> 0:20:17.760 that's a joke. Carson Block from Muddy Waters said, you know, 0:20:19.240 --> 0:20:23.080 corporate depositors should be expected to manage their counterparty risk, 0:20:23.160 --> 0:20:27.240 but bailing out uninsured depositors SVB, which are mostly corporates, 0:20:27.400 --> 0:20:32.280 further infantilizes markets by sending the message that such risk 0:20:32.440 --> 0:20:37.600 management is anachronistic. Wow. Yes, I don't disagree with you. 0:20:37.640 --> 0:20:40.920 I mean I do think that you know, this wasn't 0:20:40.960 --> 0:20:45.119 something completely unexpected. Yes, we've seen an increased, uh you know, 0:20:45.280 --> 0:20:49.080 quick increase and interest rates over the last year. But 0:20:50.000 --> 0:20:53.359 for anybody who's who who is in risk management in 0:20:53.440 --> 0:20:56.159 terms of understanding the maturity structure. This is not a 0:20:56.240 --> 0:20:58.719 liquidity issue. You can think about the FED coming in 0:20:58.760 --> 0:21:03.680 and providing some liquid This is an insolvent bank. They 0:21:03.720 --> 0:21:07.560 manage their assets very badly compared to especially the kind 0:21:07.560 --> 0:21:11.160 of deposits that they were getting very short termed very 0:21:11.440 --> 0:21:14.560 large deposit. And we still don't know what else is 0:21:14.600 --> 0:21:16.800 on their books. You know, we know about the Treasury 0:21:16.840 --> 0:21:19.840 bonds and we know that they sold those that are lost, 0:21:20.040 --> 0:21:22.760 but we have no idea about the other loans and 0:21:22.840 --> 0:21:26.320 investments that they have made. Huge, huge issue for the 0:21:26.400 --> 0:21:29.480 FED going forward, and the amount of FED backup that's 0:21:29.520 --> 0:21:32.199