WEBVTT - An Extended Breakdown of the Fed and Banks (Podcast) 0:00:00.840 --> 0:00:04.000 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside 0:00:04.040 --> 0:00:05.280 my co host Matt Miller. 0:00:05.640 --> 0:00:09.600 Every business day we bring you interviews from CEOs, market pros, 0:00:09.720 --> 0:00:13.600 and Bloomberg experts, along with essential market moving news. 0:00:14.160 --> 0:00:17.279 Find the Bloomberg Markets Podcast called Apple Podcasts or wherever 0:00:17.360 --> 0:00:20.480 you listen to podcasts, and at Bloomberg dot com slash podcast. 0:00:21.280 --> 0:00:22.960 Let's bring in some smart people who do this stuff 0:00:23.000 --> 0:00:24.240 for a living. We'll kind of see if you can 0:00:24.280 --> 0:00:26.079 break it down a little bit. Chris Whalen, founder of 0:00:26.079 --> 0:00:29.080 Whale and Global Advisors, joins us here and Hugh Henry 0:00:29.080 --> 0:00:32.200 have Aklectica Asset Management. They joined for an extended round 0:00:32.240 --> 0:00:36.440 table on what we might be seeing in these markets. Hugh, 0:00:36.440 --> 0:00:39.120 thanks so much for joining us here in our studio here. 0:00:39.520 --> 0:00:41.080 What do you make of the past few days that 0:00:41.200 --> 0:00:44.839 fed the ECB. We've got some banks kind of I 0:00:44.880 --> 0:00:46.839 don't know if it's crisis or not. That's debatable, but 0:00:46.840 --> 0:00:48.280 there's a lot going on out there. What do you 0:00:48.280 --> 0:00:48.680 make of it? 0:00:49.360 --> 0:00:52.680 I don't think it's debatable. Okay, you know this is 0:00:53.760 --> 0:00:58.840 and we went over the clip, but I mean, seriously, 0:00:58.960 --> 0:01:04.640 this this is real, right. I think the FED will 0:01:04.680 --> 0:01:09.560 stand charged with the greatest FED folly in a very 0:01:09.600 --> 0:01:10.040 long time. 0:01:10.120 --> 0:01:12.319 And in terms of raising rates too fast or what 0:01:13.120 --> 0:01:13.960 so or too late. 0:01:14.080 --> 0:01:18.240 So it is a fact that they raise rates fast, yeah, 0:01:18.319 --> 0:01:22.440 in terms of the timeline and the magnitude. And typically 0:01:22.760 --> 0:01:25.680 the FED doesn't do that. And there's a reason for 0:01:25.720 --> 0:01:29.520 that because your bank is effectively like a hedge fund. 0:01:29.800 --> 0:01:34.320 Yeah it has it gets the money from deposits, right, 0:01:34.520 --> 0:01:37.039 but there's no gate. Yeah, you can take like with 0:01:37.120 --> 0:01:39.039 a hedge fund, they insist. I mean, if you're in 0:01:39.080 --> 0:01:41.160 like one of those big hedge funds, try getting your 0:01:41.160 --> 0:01:42.959 money out. It takes you to like, you know, it 0:01:42.959 --> 0:01:45.720 takes you two years with that with the iPhone. With 0:01:45.760 --> 0:01:48.240 the banks, so the gate issue, right, But the other 0:01:48.320 --> 0:01:51.120 issue is that the assets are loans and it takes 0:01:51.320 --> 0:01:53.960 kind of like two years to reprice your loan book 0:01:54.360 --> 0:01:58.560 so that you can raise your CDs without destroying your 0:01:58.560 --> 0:02:01.280 net interest margin like with our going into losses. So 0:02:01.320 --> 0:02:03.960 the FED is cognizant of that, right, and it takes 0:02:04.000 --> 0:02:09.000 its time. This was an impatient Fed, okay, And then 0:02:09.040 --> 0:02:10.679 what we've discovered. 0:02:10.160 --> 0:02:12.800 Well, first two patient, right, and then impatient. 0:02:13.240 --> 0:02:17.040 Well, I think the world of economicists has changed profoundly. 0:02:17.120 --> 0:02:19.120 But we may come back to that. But yeah, and 0:02:19.160 --> 0:02:24.640 then impatient. But it's the deposit flight revealed. There's always 0:02:24.680 --> 0:02:28.280 a revelation in markets, and the revelation has been the 0:02:28.480 --> 0:02:34.240 conceit and the arrogance of a whole to maturity bond portfolio. 0:02:34.480 --> 0:02:38.960 And that was fine, okay when rates were stable, but 0:02:39.040 --> 0:02:43.880 when you aggressively hid them. And then with this technology jump, 0:02:43.960 --> 0:02:47.400 with the iPhone and with the deposit flight, suddenly you 0:02:47.600 --> 0:02:51.360 had to mark because deposits were fleeing, You had to 0:02:51.440 --> 0:02:57.000 reduce the HTM portfolio, and suddenly you discover that you've 0:02:57.040 --> 0:02:59.800 wiped out your shareholder funds. There was a FED report 0:03:00.120 --> 0:03:02.640 back I think to the twenty third of March, which revealed, 0:03:02.639 --> 0:03:06.240 as we know that total bank assets in the US 0:03:06.360 --> 0:03:08.800 twenty three trillion dollars. What does that give? Give us 0:03:08.840 --> 0:03:14.480 a reference? That's one time's GDP. Yeah, and you had 0:03:14.480 --> 0:03:19.480 about twenty three billion of shareholder funds in fractional reserves 0:03:19.520 --> 0:03:23.200 and we're kind of leveraged entities. But the marked market 0:03:23.320 --> 0:03:27.320 or the unmarked loss was two point three trillion dollars. Okay, Right, 0:03:27.360 --> 0:03:30.080 so we're talking about your metaphorically the kind of notion 0:03:30.120 --> 0:03:33.120 of the dead people walking the banking sector, and that's 0:03:33.240 --> 0:03:36.440 kind of I'm afraid that's on the Federal reserve. We 0:03:36.560 --> 0:03:39.880 are staring at a scenartio which is very similar to 0:03:39.960 --> 0:03:43.760 nineteen thirty where we had the widespread failure of the 0:03:43.880 --> 0:03:44.920 US banking community. 0:03:45.040 --> 0:03:46.880 Chris Whalen, what do you think about that? I want 0:03:46.880 --> 0:03:48.280 to bring you in here because you're one of the 0:03:48.480 --> 0:03:52.960 foremost bank analysts in the country. What do you think 0:03:53.000 --> 0:03:55.800 about Hugh's point that the FED really kind of has 0:03:55.840 --> 0:03:56.760 blood on its hands. 0:03:57.880 --> 0:04:00.280 Well, I think I totally agree with Hugh in the 0:04:00.520 --> 0:04:04.480 nineteen thirty metaphor is the correct one, because you know, 0:04:04.640 --> 0:04:08.559 this isn't the two thousand and eight which was basically 0:04:08.640 --> 0:04:12.119 just a bit of a tantrum around private mortgages. This 0:04:12.200 --> 0:04:18.000 is solvency. This is a FED induced you know, panic 0:04:18.920 --> 0:04:20.839 that looks a lot like the eighties. By the way, 0:04:20.880 --> 0:04:24.719 with Paul Volker, the last time we had benchmarks four 0:04:24.760 --> 0:04:27.800 or five points about bank deposit rates, it was back 0:04:27.839 --> 0:04:31.240 in the eighties. We destroyed the snls, but the snls 0:04:31.240 --> 0:04:35.920 didn't matter. These banks matter. That's the difference. And I 0:04:35.960 --> 0:04:39.120 think that the FED is badly miss you know, they 0:04:39.240 --> 0:04:43.720 panicked in twenty eighteen with the money market crisis in December. 0:04:44.080 --> 0:04:47.320 They started dumping reserves into the system the next year, 0:04:47.760 --> 0:04:50.320 a year before COVID. You can see it on the 0:04:50.320 --> 0:04:55.040 Bloomberg look at the index for Ginny May duration. Wonderful 0:04:55.120 --> 0:04:58.280 chart you guys have on the turbinil. It tells the story. 0:04:58.720 --> 0:05:01.640 So by the time we get to COVID, the duration 0:05:01.839 --> 0:05:05.839 on two point two trillion dollars in Giny MA securities 0:05:05.960 --> 0:05:08.479 is one, which is almost impossible. 0:05:08.760 --> 0:05:11.400 But Chris, I mean we we've heard from some analysts 0:05:11.440 --> 0:05:14.160 that most or a lot of these I would say 0:05:14.200 --> 0:05:18.520 most of these banks they have enough capital. 0:05:18.560 --> 0:05:21.200 And let's talk specifically about pac West. I had our 0:05:21.560 --> 0:05:24.840 regional banks analyst in here, Herman Chan. He said they 0:05:24.839 --> 0:05:27.520 have one hundred and eighty eight percent assets to deposits. 0:05:28.600 --> 0:05:31.479 I know, but it doesn't matter. These are going concerns. 0:05:31.800 --> 0:05:34.559 When the stock price gets two point three times buck, 0:05:34.880 --> 0:05:37.120 that tells you that the bank's going out of business. 0:05:38.400 --> 0:05:41.240 It's like the politicians. They get voted on every day 0:05:41.279 --> 0:05:44.440 in the stock market. Right, we're voting on pack West 0:05:44.560 --> 0:05:45.120 this morning. 0:05:45.720 --> 0:05:49.560 And you explains to me like I'm five, okay, if 0:05:49.640 --> 0:05:52.279 every if every deposit goes into pack West and says 0:05:52.320 --> 0:05:54.000 I want my money out. They can have it out 0:05:54.440 --> 0:05:56.120 as far as I understand it right now. 0:05:56.600 --> 0:06:00.279 No, you're thinking of this like it's a wonderful life. No, 0:06:00.839 --> 0:06:03.440 that's not the way financial markets work. They want to 0:06:03.480 --> 0:06:06.320 know that that bank is a going concern, and when 0:06:06.360 --> 0:06:11.280 the stock price gets as low, the business counterparties back away, 0:06:11.960 --> 0:06:14.240 and the formula and the bloomberg by the way that 0:06:14.360 --> 0:06:18.240 generates probability of default is geared off of the equity price. 0:06:18.839 --> 0:06:21.560 Uh huh, okay, what do you think the hedge funds use? 0:06:22.240 --> 0:06:23.240 That's how it works. 0:06:23.720 --> 0:06:29.400 So I'm typing it in right now, Jack W Equity DRSK. 0:06:29.640 --> 0:06:32.800 What is it like four hundred basis points? 0:06:32.200 --> 0:06:33.440 So yeah. 0:06:34.279 --> 0:06:36.520 So my point is there's a lot of banks behind 0:06:36.560 --> 0:06:39.320 this flat and you know I own Western Alliance. I 0:06:39.360 --> 0:06:42.680 love that bank Ato point seven times book. I think 0:06:42.720 --> 0:06:45.200 they'll be fine. They had already traded off because the 0:06:45.279 --> 0:06:47.719 mortgage market had come off. That was one of the 0:06:47.720 --> 0:06:50.640 best performing banks in the country in twenty twenty one. 0:06:51.640 --> 0:06:54.680 So you know what's happened is the FED wants to 0:06:54.720 --> 0:06:59.440 pretend that they can have a traditional anti inflation scenario 0:07:00.200 --> 0:07:03.839 raising target rates, but they're ignoring the manipulation of the 0:07:03.960 --> 0:07:06.560 bond market that came with quantitative es. 0:07:06.839 --> 0:07:10.040 Let me get you in here, because the securities. You 0:07:10.120 --> 0:07:12.560 made your money and your name by figuring out how 0:07:12.640 --> 0:07:14.840 this kind of thing is going to play out? Right, 0:07:15.680 --> 0:07:17.800 how does how does this look to you right now? 0:07:17.880 --> 0:07:21.520 I mean we've had a few days of this sixty, 0:07:22.160 --> 0:07:25.400 you know, fifty percent drops in these bank prices, and 0:07:25.480 --> 0:07:28.320 yet the FED came out yesterday and said, you know, 0:07:28.880 --> 0:07:30.880 the US banking system is sound and resilient. 0:07:31.680 --> 0:07:37.520 Yeah, lyyer puns on fire. So you know, I mean, 0:07:37.520 --> 0:07:42.600 I'm now really representing acid capitalism. You know, the eclectica 0:07:42.680 --> 0:07:44.560 is no more. This is the world of us at capitalism. 0:07:44.760 --> 0:07:50.480 There are occasional ripples through risk assets when people kind 0:07:50.480 --> 0:07:53.280 of get excited with this notion that the Treasury might 0:07:53.400 --> 0:07:57.040 come in and ensure old deposits. I want to tell 0:07:57.040 --> 0:08:01.520 you that we are past the point of relevancy for 0:08:01.640 --> 0:08:06.040 that procedure, my fear, and I do not say this lightly. 0:08:06.080 --> 0:08:12.080 I've given it great consideration given the peril present peril 0:08:12.160 --> 0:08:17.160 with regard to the magnitude of losses on security portfolios 0:08:17.360 --> 0:08:21.680 held within predominantly the regional banks. Okay, you have to 0:08:21.720 --> 0:08:24.600 cast your mind back to nineteen thirty four and the 0:08:24.600 --> 0:08:27.640 Gold Reserve Act back then, as everyone knows, the US 0:08:27.720 --> 0:08:31.400 citizens in their gold was confiscated. I can actually conceive 0:08:32.000 --> 0:08:34.920 of a federal or Treasury rule coming in and saying 0:08:35.080 --> 0:08:37.880 for the next one hundred and eighty days, you can't 0:08:37.960 --> 0:08:41.160 pull your money out of the banking sector. 0:08:41.200 --> 0:08:41.920 That would be terrified. 0:08:41.960 --> 0:08:43.800 That would be terrified. But let me tell you that 0:08:43.840 --> 0:08:47.800 the issue people are the deposit flight today is not 0:08:47.960 --> 0:08:52.640 people fearing uninsured deposits. It's people saying I'm getting paid 0:08:52.640 --> 0:08:55.680 ten basis points on a CD I need five hundred. 0:08:55.920 --> 0:09:00.760 And what was castraphic about yesterday was the FED raised 0:09:00.840 --> 0:09:03.840 hate hiked again. It went, hey, why don't we just 0:09:04.200 --> 0:09:09.280 encourage more deposit flight. They are do gooders, but they're 0:09:09.360 --> 0:09:12.760 incompetent and they're not seeing the picture. We are on 0:09:12.800 --> 0:09:16.560 the verge of a catastrophe which will rival two thousand 0:09:16.640 --> 0:09:16.959 and eight. 0:09:17.120 --> 0:09:20.240 They keep trying to separate. You know, every FED speaker 0:09:20.240 --> 0:09:21.679 you've heard the last couple of weeks says they want 0:09:21.679 --> 0:09:24.079 to separate monetary policy on the one side with financial 0:09:24.080 --> 0:09:25.560 stability on the other, and they don't want to mix 0:09:25.600 --> 0:09:28.680 the two. Right and and the FED fundraid is a 0:09:28.679 --> 0:09:30.920 monetary policy tool. Chris, what do you think because I've 0:09:30.920 --> 0:09:33.800 asked a lot of people, you know, who do you 0:09:33.880 --> 0:09:36.920 blame for the collapse of SBB, Who do you blame 0:09:38.200 --> 0:09:41.680 for the collapse of signature? And now a first Republic? 0:09:42.040 --> 0:09:42.840 Is it possibly? 0:09:42.960 --> 0:09:43.120 You know? 0:09:43.160 --> 0:09:45.120 The FED raising rates five hundred basis points in a 0:09:45.160 --> 0:09:51.000 year and two a man. Until today, everyone has said no, Well. 0:09:50.720 --> 0:09:53.480 Look, these banks did stupid things. I've written about the 0:09:53.640 --> 0:09:57.560 Silicon Valley particularly, But the key thing is that the 0:09:57.640 --> 0:10:01.199 FED is in a very and dantic sort of way. 0:10:01.240 --> 0:10:03.520 And I love what your guest has been saying. By 0:10:03.520 --> 0:10:06.440 the way, I totally agree, but they want to continue 0:10:06.480 --> 0:10:10.920 to think they can separate monetary policy from financial policy 0:10:11.240 --> 0:10:14.320 when we execute monetary policy in the bond market. For 0:10:14.400 --> 0:10:18.040 Christ's sake, it's not credible for the chairman of the 0:10:18.040 --> 0:10:20.440 FED to get up and tell us yesterday that the 0:10:20.480 --> 0:10:24.360 banking system is fine when the FDIC has already published 0:10:24.400 --> 0:10:28.720 numbers to show that it's insolvent. Okay, the two agencies 0:10:28.800 --> 0:10:30.880 need to talk to one another, and I've spoken to 0:10:30.920 --> 0:10:33.000 governors about this in the past. You know, I worked 0:10:33.000 --> 0:10:35.280 at the FED in New York. They don't talk to 0:10:35.320 --> 0:10:38.320 the Bank supervision people, and when they were on the hill, 0:10:38.679 --> 0:10:41.480 you saw a vice chairman Barr. He was asked, did 0:10:41.480 --> 0:10:45.240 you talk to the bank supervisory staff about your monetary policy, 0:10:45.520 --> 0:10:49.840 about quantitative easing? And the answer is numb. So I 0:10:49.880 --> 0:10:53.079 think we should make economists where ankle bracelets are really do. 0:10:53.760 --> 0:10:56.800 These are the most dangerous people in our society right now, 0:10:57.080 --> 0:10:59.600 and they are going to crash the system. It is very, 0:10:59.760 --> 0:11:01.800 very close to nineteen thirty three months. 0:11:02.040 --> 0:11:05.600 Yeah, yeah, you we had it. Seems like a lot 0:11:05.600 --> 0:11:07.800 of folks are saying we had JP Morgan come in 0:11:07.840 --> 0:11:10.720 and buy First Republic, but Jamie Diamond he can't be 0:11:11.000 --> 0:11:14.280 literally JP Morgan and go out and support the system. 0:11:15.120 --> 0:11:17.840 You have a solution. Do you feel like our regulators 0:11:17.880 --> 0:11:20.080 need to do something now? And if so, what would 0:11:20.080 --> 0:11:20.360 that be. 0:11:21.760 --> 0:11:27.679 Yeah, it's called zup, It's called we gotta be humble 0:11:27.800 --> 0:11:31.280 and we gotta say we kind of got this wrong. 0:11:31.679 --> 0:11:32.320 My point. 0:11:32.320 --> 0:11:36.160 Hey, listen, we've got debt which is approximately four times 0:11:36.440 --> 0:11:40.640 the economy. Okay, We've got interest rates which are five percent. Okay, 0:11:40.800 --> 0:11:44.080 if we make the comparison with Jay's idle, mister Volka, 0:11:44.120 --> 0:11:47.120 in the seventies, we had twenty percent interest rates, and 0:11:47.120 --> 0:11:50.320 we had debt which was one time's GDP. We've gone 0:11:50.520 --> 0:11:54.320 back to the future. Effectively, we're at the point where 0:11:54.320 --> 0:11:56.200 the FED was at twenty percent interest rates and it 0:11:56.280 --> 0:11:58.200 was breaking everything in nineteen eighty two. 0:11:58.720 --> 0:12:00.920 Say in nineteen eighty two we had twenty percent rates 0:12:00.920 --> 0:12:02.360 and what was debt to one time? 0:12:02.600 --> 0:12:05.240 Well, one times twenty is twenty, right, and now we're 0:12:05.280 --> 0:12:08.600 at four times debt and we're five five and a quarter, right, 0:12:08.600 --> 0:12:11.679 So we've actually surpassed right where we're all So, Jay, 0:12:11.760 --> 0:12:14.720 you did it? Okay, Now get your ass and get 0:12:14.760 --> 0:12:17.360 those rates down to zero. Other thing's gonna blow up. 0:12:17.360 --> 0:12:19.280 Where do you get four hundred times? Do you four 0:12:19.360 --> 0:12:20.200 hundred percent GDP? 0:12:20.320 --> 0:12:20.720 Where are you? 0:12:20.840 --> 0:12:24.800 Okay? I'm We're like three point six seven or something, right, 0:12:24.800 --> 0:12:26.760 and I'm running up to the neatest destiny point. But 0:12:27.000 --> 0:12:30.920 if you add government debt, household debt, financial debt, industrial dead, you. 0:12:30.840 --> 0:12:33.400 Get yeah, just real quickly, guys come across a Bloomberg terminal, 0:12:33.800 --> 0:12:38.360 another red headline. Western Alliance Moll's options including a potential sale. 0:12:38.600 --> 0:12:41.280 So here we go. Yeah, it's a Financial Times. You 0:12:41.400 --> 0:12:43.000 want to credit the Financial Times. 0:12:43.200 --> 0:12:46.679 I think if we have another major bank failure. J 0:12:46.920 --> 0:12:50.360 Powells can have to his sign and this system cannot 0:12:50.400 --> 0:12:55.080 tolerate that kind of uh, you know, coming to Jesus 0:12:55.080 --> 0:12:57.040 if you will, on the part of an agency like 0:12:57.080 --> 0:12:59.440 the FED, because we depend on them to get it right, 0:13:00.160 --> 0:13:02.640 and when they don't get it right, you know, to 0:13:03.080 --> 0:13:05.600 the earlier comment, what should they have done? They should 0:13:05.640 --> 0:13:07.640 have gotten FED funds up to three and a half 0:13:07.760 --> 0:13:11.280 or four and sold assets. That was the astute thing 0:13:11.360 --> 0:13:14.600 to do given their past policy moves. But instead they're 0:13:14.640 --> 0:13:17.720 pretending it's twenty years ago and they could just raise 0:13:18.320 --> 0:13:20.720 you know, target rates as fast as they want to 0:13:20.760 --> 0:13:24.400 reclaim their credibility, because that's what's really driving this. I 0:13:24.440 --> 0:13:26.720 want a panic of Powell. And then you had the 0:13:26.760 --> 0:13:29.720 fact that they were caught out on inflation and they 0:13:29.760 --> 0:13:33.040 were so embarrassed as an agency that now they've tried 0:13:33.080 --> 0:13:36.199 to regain their credibility in what eighteen. 0:13:35.840 --> 0:13:39.400 Months, right, I want to reset this. Just so listeners understand, 0:13:39.440 --> 0:13:41.800 we're talking to Hugh Henry, who was the founder of Eclectica. 0:13:42.000 --> 0:13:44.240 Now he's a surfer and a hotelier. 0:13:45.320 --> 0:13:48.840 I tweet I'm the Acid and he's. 0:13:48.679 --> 0:13:51.400 On Twitter, and then we're and then we're talking about 0:13:51.440 --> 0:13:55.280 to Chris Whalen, I'm going to say, for me at 0:13:55.360 --> 0:13:59.000 least one of the foremost banking analysts in the country, 0:13:59.760 --> 0:14:04.160 and of course he's also the chairman of Whaling Global Advisors. 0:14:04.200 --> 0:14:07.560 We had yesterday pack West saying they're gonna look at 0:14:07.559 --> 0:14:10.280 strategic options, including the possibility of a sale. Their shares 0:14:10.320 --> 0:14:13.000 now are down more than fifty or fifty percent. Western 0:14:13.040 --> 0:14:15.760 Alliance now is saying it's smalling options, including a potential 0:14:15.840 --> 0:14:18.720 sit sale, and their shares are down about thirty percent. 0:14:19.280 --> 0:14:20.800 Haulted there for Western Alliance. 0:14:20.920 --> 0:14:24.520 I'm I'm good getting goosebumps to some extent because this 0:14:24.560 --> 0:14:26.640 is so scary and so dramatic. But I don't know 0:14:26.680 --> 0:14:28.440 if I'm just not smart enough to push back against 0:14:28.480 --> 0:14:32.160 these two geniuses. Here we have a listener writing in 0:14:32.200 --> 0:14:35.440 and asks of Hugh, do you think any of this 0:14:35.560 --> 0:14:37.280 is imminent? And then he's got a list of three things, 0:14:37.320 --> 0:14:40.720 government intervention, deposit guarantees, or a ban on short sailing. 0:14:41.240 --> 0:14:44.120 Oh Heaven's buns on short selling. Let's bond the truth. 0:14:44.440 --> 0:14:48.120 Let's pretend. I mean, I think is are we in 0:14:48.160 --> 0:14:50.560 a real crisis here? That's about snowball. 0:14:51.160 --> 0:14:53.800 This is wild Coyoto we've gone over the cliff. THEO 0:14:54.080 --> 0:14:57.360 what happened yesterday. The FOMC is no longer relevant. Right, 0:14:57.600 --> 0:15:01.160 policy's too tight. Policy will be like I say, my 0:15:01.200 --> 0:15:04.360 one fear if you're talking about government regulation, government intervention, 0:15:05.200 --> 0:15:07.640 and I don't say it lightly, but I fear that 0:15:07.680 --> 0:15:11.200 they may have to get the deposit base of the 0:15:11.360 --> 0:15:13.200 US within the banking sector. 0:15:13.400 --> 0:15:15.120 I agree, that's Chris. 0:15:15.120 --> 0:15:17.400 Do you really think that that regulators are going to 0:15:17.440 --> 0:15:20.320 put up gates? I mean, that would cause the biggest 0:15:20.360 --> 0:15:22.600 bank run since the nineteen thirties. 0:15:22.600 --> 0:15:26.440 I imagine that's what happens when the central bank injects 0:15:26.520 --> 0:15:30.360 volatility into this system. That's what they have done. You know, 0:15:30.400 --> 0:15:34.600 to Hugh's earlier point, right, you can't move interest rates 0:15:34.640 --> 0:15:37.600 this much when the average coupon in the mortgage space 0:15:37.720 --> 0:15:41.760 is three percent. Everyone listen, solve it, just do the math, right, 0:15:42.040 --> 0:15:45.160 But unfortunately these PhDs that the FED can't do math. 0:15:46.600 --> 0:15:49.880 So but I guess, just my again, I'm not you 0:15:49.960 --> 0:15:52.040 guys are the experts, but their focus, or one of 0:15:52.040 --> 0:15:54.800 their key focus, is to fight inflation. So if the 0:15:54.840 --> 0:15:56.720 only tool they have or one of the main tools 0:15:56.720 --> 0:15:59.600 they have, is raising interest rates, do you suggest that 0:15:59.640 --> 0:16:02.840 they should have stopped at three percent or something like that, 0:16:02.960 --> 0:16:04.040 or they just go to best. 0:16:04.360 --> 0:16:06.400 I want to let me take that one. Let me 0:16:06.440 --> 0:16:09.200 take one, because what we are seeing here is we 0:16:09.320 --> 0:16:13.040 are seeing the crucifixion of the common man on the 0:16:13.120 --> 0:16:17.200 cross of the vanity of JPOW. In twenty twenty, Jpower 0:16:17.320 --> 0:16:22.760 went on US prime television, daytime television and he said, folks, 0:16:22.840 --> 0:16:25.480 we got this. We are we at the Federal Reserve. 0:16:25.640 --> 0:16:29.840 We're printing money. I was like, J, don'll send you 0:16:29.880 --> 0:16:33.880 to prison. You're not allowed. You have no federal sanction 0:16:34.000 --> 0:16:36.760 to print money. What are you doing. But again, the 0:16:37.200 --> 0:16:40.080 Fed business is in the business of camouflage. To see, 0:16:40.120 --> 0:16:42.760 it's in the business of aura. We are all powerful. 0:16:42.840 --> 0:16:44.880 And so it made that comment. And then you get 0:16:44.880 --> 0:16:48.960 this profound supply shop which was COVID right, and prices 0:16:49.000 --> 0:16:52.800 get elevated, and people go, hey, J, you're printing money. 0:16:52.920 --> 0:16:55.760 And now prices are like running double digit and J 0:16:56.080 --> 0:16:59.520 went in to meltdown in terms of the institution and 0:16:59.600 --> 0:17:03.160 the repidity of the rate hikes was to protect and 0:17:03.240 --> 0:17:07.560 safeguard and pull back that comment that they had printed money. 0:17:07.880 --> 0:17:13.440 Inflation I believe is transitory. I'm now with bad deflationary 0:17:13.520 --> 0:17:17.399 money running through the banking sector. I would anticipate that 0:17:17.480 --> 0:17:20.000 we're going to see prices that, hey, this in ninety days. 0:17:20.359 --> 0:17:21.879 CPI is going to be running at three and a 0:17:21.880 --> 0:17:23.680 half percent. By the end of the year, then we're 0:17:23.680 --> 0:17:25.119 going to be close to zero again. We're going to 0:17:25.160 --> 0:17:26.320 be low the Fed's target. 0:17:26.760 --> 0:17:27.879 Chris is terrifying. 0:17:28.160 --> 0:17:31.280 What do you think, Well, no, but to his point, 0:17:31.359 --> 0:17:33.920 if you're a banker right now and you're trying to survive, 0:17:33.960 --> 0:17:36.679 what have you done? You told your loan officers to 0:17:36.720 --> 0:17:39.719 step back and turn it down. So you know, this 0:17:39.800 --> 0:17:42.880 economy is going to slow down because the supplier credit 0:17:43.280 --> 0:17:45.840 from the banking system, from the bond market is going 0:17:45.880 --> 0:17:50.080 to be greatly reduced. Because everybody who's got this problem 0:17:50.160 --> 0:17:52.760 we've been talking about with interest rates, it's got to 0:17:52.840 --> 0:17:55.439 raise cash. Everything is for sale. 0:17:55.760 --> 0:17:56.119 So J. 0:17:56.320 --> 0:17:59.040 Powell has basically put the whole banking industry, and I 0:17:59.119 --> 0:18:01.840 mean big and small banks. Don't think the big guys 0:18:01.840 --> 0:18:04.520 are immune here. They're all for sale now. They're all 0:18:04.560 --> 0:18:07.640 in liquidation mode. And I think the FED is going 0:18:07.680 --> 0:18:10.960 to come out of this greatly weakened. I think you're 0:18:10.960 --> 0:18:14.240 going to see Powell force to resign and then I think, yell, 0:18:14.320 --> 0:18:16.840 and I'll be following them out the door because you. 0:18:16.800 --> 0:18:20.760 Know, Chris, do you believe that's. 0:18:19.640 --> 0:18:20.440 Ceiling this week? 0:18:20.520 --> 0:18:20.680 Right? 0:18:20.960 --> 0:18:21.280 Yeah? 0:18:22.040 --> 0:18:25.040 Well, now we have a tsunami. Before the tsunami, do 0:18:25.119 --> 0:18:28.479 you believe that the that regulators could put up gates 0:18:28.480 --> 0:18:29.200 to deposits? 0:18:29.800 --> 0:18:33.400 Yes, it's inevitable. It's very third world, But here we are. 0:18:33.600 --> 0:18:37.040 You know, we've got to start practicing, practicing our Portuguese. 0:18:37.640 --> 0:18:40.000 I really think, you know, I worked in the emerging 0:18:40.040 --> 0:18:42.480 markets years ago, and it is scary to me watching 0:18:42.520 --> 0:18:45.720 this because it's like deja voo. And it's not just 0:18:45.760 --> 0:18:48.919 Wiley coyote. I think that's very clear. But it is 0:18:48.960 --> 0:18:53.240 the hubris and the personal convenience of J. Powell and 0:18:53.280 --> 0:18:55.479 the other members of the FED board that we're seeing. 0:18:55.680 --> 0:18:58.879 They're not acting in the public interest right now. They're 0:18:58.880 --> 0:19:01.280 covering their ass because they don't want to admit they 0:19:01.280 --> 0:19:02.000 made a mistake. 0:19:02.520 --> 0:19:04.879 But let me ask a question, Chris, me just go 0:19:04.880 --> 0:19:07.359 to your real quickly. The money comes out of the banks, 0:19:07.720 --> 0:19:09.720 don't I just put it into money market funds? Isn't 0:19:09.720 --> 0:19:11.440 the cash still in the system. 0:19:11.720 --> 0:19:13.560 Because in the T bills at five percent? 0:19:13.720 --> 0:19:15.880 Right, So it's still there. It's not like I put 0:19:15.880 --> 0:19:16.680 it under my mattress. 0:19:16.760 --> 0:19:18.440 Yeah, but is in there? 0:19:18.600 --> 0:19:18.800 Right? 0:19:18.960 --> 0:19:21.080 You know, you have to let me take this, Chris. 0:19:21.280 --> 0:19:25.080 The you when you pooh the deposits out of the 0:19:25.119 --> 0:19:28.159 banking sector, they've then got to sell assets, right, What 0:19:28.200 --> 0:19:31.600 are their assets? Well, their assets are loans to the bank. 0:19:31.600 --> 0:19:33.040 Accounting thing is very difficult. 0:19:34.119 --> 0:19:38.200 Money. Money is complicated. It is easy to spend, difficult 0:19:38.240 --> 0:19:39.000 to decipher. 0:19:39.520 --> 0:19:40.960 All right, Chris, what are what are some of the 0:19:41.000 --> 0:19:43.800 next steps you're looking for in the evolution of what 0:19:43.800 --> 0:19:46.119 we're seeing out there or what should we be on 0:19:46.160 --> 0:19:46.760 the lookout for. 0:19:47.480 --> 0:19:50.520 I think the FED needs to come forward and offer 0:19:50.600 --> 0:19:53.600 to finance all of these legacy assets that the banks 0:19:53.640 --> 0:19:57.080 have a problem with at par at whatever the coup 0:19:57.119 --> 0:19:59.560 pund rate is. So, if I have a gy may two, 0:20:00.040 --> 0:20:05.000 defense should charge me two indefinitely until rates fall. That's 0:20:05.040 --> 0:20:06.480 how you take this off the table. 0:20:06.640 --> 0:20:09.199 All right. So, but but we've had some of the 0:20:09.200 --> 0:20:12.120 bank's regional banks report and most of them are saying 0:20:12.160 --> 0:20:12.760 don't worry. 0:20:13.240 --> 0:20:14.960 I mean, well they have to say that, right, but 0:20:14.960 --> 0:20:17.480 they can't say freak out. But there's everyone panic. 0:20:17.600 --> 0:20:21.680 Look at our balance sheet, look at our stuff work okay, hughe, 0:20:21.720 --> 0:20:23.560 I mean, do we not take them at their word? 0:20:23.600 --> 0:20:23.960 I guess? 0:20:24.040 --> 0:20:26.919 Or is it or is the problem too big for 0:20:26.960 --> 0:20:28.120 an individual bank per se? 0:20:28.160 --> 0:20:30.160 But do you have any bank deposits in the US? 0:20:30.240 --> 0:20:35.080 Hugh, No, I don't. I'm in a very fortunate position. 0:20:35.119 --> 0:20:39.159 But I owe the banks a lot of money. I 0:20:39.320 --> 0:20:41.960