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#FinanceDaily: PacWest Collapse Outlook | PPI | Jobs | Debt Ceiling
Recorded: May 11, 2023 Duration: 1:45:52Space Recording
Short Summary
The transcript covers various aspects of the financial landscape, including the impact of the Fed's monetary policy on yield and inflation, the decline in confidence in the banking sector, and the potential innovations such as central bank digital currencies. It also highlights trends in market sentiment and the political dynamics surrounding the debt ceiling, reflecting broader economic uncertainties.
Full Transcription
All right. Can everybody hear me well? Awesome. No echo. No echo. Yeah. I think it sounds all good. Jesus Christ, man. It's like, all right, I guess they're working on it on the back end. We'll see. Once I start shouting, then maybe the echo comes. We'll see.
Slow and steady improvements. That's right. Exactly. All right.
There's too much going on this morning.
By the way, Caleb or Trevor or anybody else,
if you guys can keep an eye on what's going on with Back West,
I feel like it's going to be a very fast-moving situation.
So we'll trust our experts to weigh in on all that.
And if it's a nothing burger, please just let me know.
But it doesn't seem like one.
Definitely not a nothing burger.
Yeah, Jesus Christ.
And also not surprising.
Really?
Yeah.
Oh, man. Caleb, you know, if you can set the stage for everybody, I've been looking at it, but again, I'm not an expert in that space. And so I'll set the stage, but hold on. Let's wait a couple of minutes. As you guys take all, take a look on the back end, what's happening with Pac-West. As I was mentioning, it's a fast situation. Maybe one more minute before everybody sort of joins us.
Anybody to miss out.
And we'll repeat a lot of the different things.
And by the way, if anybody's listening on the back end that knows a lot about this,
please reach out to Mario and his team.
And we'll see if we can bring you up as well.
Also, as a reminder for people that are listening...
If you have specific questions that are coming up as we're talking about this fast-moving situation,
please go to the bottom right.
There is the little bubble on the bottom right.
It's the comment section.
And you can go in there.
and put your questions in there.
When I run these spaces, I usually try to bring some of those questions up and then ask.
Because sometimes the crowd has better questions than what we can even think of.
And so, you know, and if you have a comment, please go down there as well and put it in the,
in there and we'll push it up to the nest and maybe bring you up to talk through that a little bit.
So, you know, we want people there are listening.
This is the beauty of Twitter spaces, which.
which is you're not just listening to some podcast, no offense to anybody that has a podcast,
but it's actually a conversation and it's a two-way conversation, which is incredibly exciting.
I think that's what makes us really exciting.
You know, I was actually at some point I was thinking about doing a morning finance basis on what happens to corporate media and why Twitter is becoming, my opinion, one of the strongest players in news media.
I think, I think, you know, he talked a lot about it.
And I thought he being Elon, Elon talked a lot about it.
And I wasn't very convinced.
I just thought, you know, he's trying to talk his own book.
But, man, this could actually be very interesting.
so especially your subscription-based news media
but we'll talk about that some other time so uh i think all right yeah we're getting there
all right we can get started
okay
Welcome everybody to the Finance Daily Rooms.
Just wanted to jump into Pack West right away.
It's a very fast developing situation.
So I want to let everybody know if it's not financial advice.
We have to be very careful about that.
We will speak very broadly about it.
But we don't want bank runs.
We don't want to encourage bank runs.
If you have money in Pack West,
I would talk to your financial advisor or to your banker
before you make any financial decisions.
Okay.
Disclaimer, disclaimer, just know that what we're trying to do here is educate people on what is going on, not help.
No one here is going to tell you that there is some safe haven because none of us actually for sure know there's a safe haven.
And so just wanted to say that up front.
So this fast developing situation with Pac-West is that,
And I'm going to give a little bit of context for people that are not aware.
First time, people that are joining us for the first time.
You know, obviously there has been a banking crisis after Silicon Valley Bank and other banks since then having this issue.
The biggest issue that happened with Silicon Valley Bank was that we had a bank run, which means that people took their deposits out of the bank or moved their deposits into other parts of the bank where the bank can't actually use that to generate income.
And...
We saw this with Silicon Valley Bank.
That was a pretty big event.
Then we saw it with signature bank.
And then we saw it with First Republic Bank.
And now we're seeing some signs of similar activity with Pac-West.
The thing that was crazy about Pac-West, the news that came out this morning about
Pac-West is that on May 4th, as people may remember, Pac-West said the...
the everything is fine commentary.
They said that they had not experienced any out of the ordinary deposit flows.
This is May 4th, starting May 5th, the week of May 5th, like literally the next day, the week that week.
They saw a decline of 9.5% in deposits.
And by the way, they kind of tried to sneak it through this morning in the securities filing.
But that happened.
So they said nothing's wrong.
Everything is fine.
And then that next week they had nearly a 10% drop in deposits.
very unusual behavior the market is reacting very poorly to this i believe last i check it was
like 22 23 percent down pre-market i think it's going to take a pretty big hit today i'm
assuming they're going to be multiple halts today actually so um and again not financial advice
but you know uh keelb i wanted to go to you first uh
since you watch the space quite closely.
And, you know, we were talking earlier and you said that you don't think it's a nothing burger.
That's always my biggest worry, Caleb, is that, you know, I don't want to, everything seems scary because I'm so risk-averse.
So I wanted to make sure that you can give us some context on why this is a big deal and what do you think is actually going on?
Yeah, I mean, it's certainly a big deal.
Coming from the banking industry, I know firsthand how closely banks cherish deposits, right?
And certainly they're lending out basically against those deposits, but I mean, with reserve
requirements at zero since, you know, the beginning of 2020 in response to COVID, you know,
anyways, that's a whole other topic for a different day.
But essentially, this certainly isn't a nothing burger because once again, we're seeing
another very, very sizable bank.
you know, continue to experience outsized pressures, right?
And so maybe one thing I could do is pin something in the nest is I've been sharing deposit data
for the overall commercial banking industry in the United States.
And what we see is going back to 1974, we're currently witnessing the fastest deposit outflow
on a year-over-year basis in history.
And like I said, it's only basically going back about 50 years.
So, you know, I'm saying history here with a slight grain of salt.
But basically for the history of the data series, this is the fastest pace of deposit outflows we've ever seen.
And so at the time that I shared this data, it was as of May 3rd, and it was contracting at 5% year over year.
And so it's very interesting to see that this is happening with PAC West because
Denise, as you just properly mentioned, I think it was on May 4th or something like this.
They even came out and said that they're not experiencing a substantial amount of deposit outflows.
And immediately thereafter, what have we seen, massive deposit outflows, right?
So maybe, you know, they kind of shot themselves in their own foot.
But in a lot of ways, this isn't a surprise because we were already seeing a massive acceleration in the overall
commercial bank deposit outflow situation.
Right.
And so if a particular bank is under pressure from a perceived lack of confidence in the bank and the deposits that are held there,
you know, I did a post maybe a week and a half ago saying in fractional reserve banking,
perception is reality. And if there's a lack of confidence for right or for wrong in any bank,
no bank in the history of U.S. banking and fractional reserve banking can withstand a bank run.
It's literally not possible given the business model. Banks are not designed to survive a bank run.
I don't care. It doesn't matter which bank we're talking about, right? That's kind of the point.
And so if any bank is kind of in the crosshairs of this public perception of worry,
they will experience more outflows than the broader commercial banking industry, and they're not designed to survive that outflow.
So again, this is why I was saying, you know, it's really not a surprise.
I've been predicting since November of 2022 that we were going to see naked swimmers get exposed in the traditional banking industry, in the traditional financial industry.
And that's exactly what we've seen.
We've seen the second, third, and fourth largest...
bank failures and shutdowns in U.S. history four months after I made that prediction.
And so what have I continued to say as these banks have gotten shut down and put under receivership?
Expect to see more naked swimmers.
That's exactly what we're seeing now.
I mean, could not agree more.
This is, yeah, the question I have, Caleb, before we move on to Malcolm, is,
Do you think that this is a broader issue right now in terms of, you were mentioning about
naked swimmers, but, you know, all swimmers can end up naked with enough pressure?
You know, the question really is, do we actually think that there is something that this represents
in terms of just identifying the vulnerable, or do you think that this is going to lead to more
systemic issues?
That's a fantastic question.
I think that, you know,
Quite simply, all of the banks are vulnerable because, as I mentioned, right, the fractional reserve banking system is not designed to survive a bank run, right?
Insurance companies aren't facing this type of situation.
Hedge funds aren't facing this type of pressure, right?
This is a banking specific problem.
And it's not intrinsically what banks have done wrong over the course of the last 12 months, 24 months, four years.
It's just simply the way the system is designed.
And, you know, the fact that we've just undergone the fastest monetary tightening cycle in modern U.S. history, right? And so, you know...
these banks are basically getting massacred by the fed's tightening cycle in response to historic inflation, right?
It's just such a lose-lose situation here.
The one thing that I would like to kind of hammer home here is you tried to ask about the more kind of systemic risks.
And one of the things that I've been talking about in my analogy of the earthquake effect,
which has broadly been used to describe this exposition of naked swimmers, if you will,
is that eventually is that tide of liquidity continues to get pulled out, right?
When you think about a coastal geography earthquake,
Typically, what happens is we get a tsunami after, right?
Because the water recedes super far back and then big waves come in.
So the thing that I've been warning about is when will we see so many naked swimmers?
And when will that tide of liquidity get withdrawn so far
that eventually we get a tsunami that comes towards the shore
and actually threatens the underlying structure of our economy and financial system?
These bank concerns initially I thought this would be it.
But genuinely, I believe that the Fed's intervention...
The language coming out of the FDIC has been enough, but nonetheless, it's not going to stop more of these naked swimmers.
What it will stop, hopefully, fingers crossed, is structural damage to the actual economy and the financial system.
So far, I think we have the green light there.
I'm giving kind of a thumbs up from that perspective.
However, that could change.
Yeah, you know, I know that one of these spaces, we may have disagreed on that, where I don't think FDIC has gone far enough.
My biggest concern is just that people are going to keep choosing high.
I mean, obviously the Fed providing such good yield on treasuries is not helping either.
But, you know, the idea here being that, you know, people are going to chase yield and people are going to chase safety amidst,
you know, turmoil. And I think that that's kind of my automatic belief is that, you know,
people are lazy and people are scared. And that's usually my two things that will never fail me,
I think. But Malcolm, want to get your thoughts on this Back West issue.
Would love for you to weigh in.
Definitely. So, again, I'm not a financial guru by any stretch, but, you know, I do typically
read the tea leaves and sort of look at things.
And I'm guessing what I'm seeing, you know, what we saw with Silicon Valley First Republic, you know, and some of the other banking scares that we've had is just this loss of confidence. And, you know, my question is similar to yours, Denise, which is, you know, is this really, you know, are people actually like look at their charts or indicators seeing the trends and seeing what the Fed is doing, you know?
basically with their quantitative tightening in and just sort of are they getting to the point where now any sort of, you know, messaging that seems sort of suspicious spooks them.
And we have sort of a Schrodinger's collapse scenario where it's like, I think this bank is collapsing, therefore it is.
And then they pull their money out, which causes it.
or and you know that's just that's what i'm trying to sort through at the moment and you know i
still can't tell because we're in the information age you know everybody is pretty much a financial
savant the financial wizard on twitter you know we have we have jim kramer which basically gives us
everything that we need to know not to do.
And so, you know, it's like in the information age and, you know, just like what you had said with fractional reserve banking, like how exactly do we stop this?
And, you know, is it really, you know, are we really able to stop this mass consolidation into, you know, things like treasuries as well as, you know, just the larger banks?
Because it just seems like everybody just like confidence only stems unless you have like massive systemic backing from the government.
and, you know, kind of this too big to fail sort of, you know,
aura about you.
And I'm just wondering, like, is this just the way things are going to go?
Is there any kind of way to stop it?
Malcolm, the fundamentals, I think Caleb was right, is that, you know,
perception is reality.
The best way to stop causing a crisis is to stop talking about it,
but that's not what human beings like doing.
And so most things in life go away if you stop worrying about them, right?
I think there's a fantastic quote from,
might have even been Mark Twain,
which is I've had a lot of worries.
I've had a lot of things happen.
I've worried a lot in my life
about things that have mainly not happened
or something along those lines.
And so this crisis is a crisis of confidence
as much as it is, you know,
financial spreadsheeting.
And unfortunately, it won't get contained until...
something in the narrative changes.
Unfortunately, the narrative in terms of like,
you know, Pac West coming out and saying everything's fine
is now becoming a bit.
People are losing confidence in banking institutions,
but also generally in terms of the economy and the Federal Reserve.
Rob, because they keep lying.
Yeah, I was going to say, they literally keep on coming out and saying everything's fine and then the next day it's not.
And so we all know when they say something's fine that it's really not.
And so people are probably now overreacting in the negative and it's causing the reverse issue.
And so we'll be back and forth doing this whole dance until somebody eventually realizes it's stupid and we all move.
Or something else happens.
There's always narrative change.
Unfortunately, it's just how it works.
The economy is fundamentally 50%, if not more.
Perception is reality to what Caleb said.
There is a lot of stats you can throw out of it, a lot of statistics, a lot of ideas,
a lot of creativity, maneuvers, structuring.
That's great.
But then the other half of the equation is human beings, of which are completely unpredictable.
And that's where we can't get out.
There are two or three things that can be done.
The number one thing, Malcolm, is changing the yields, right?
So cutting rates potentially could help this situation.
But the challenge is...
I don't think it specifically helps pack West though.
No, but again, I'm not so worried about Pac-West, to be honest.
Like, the deposits are going to be fine.
You know, I'm more worried about the systemic issues.
And so, you know, as you were saying, people chasing yield, right?
So as the yields go down, people will leave their money in banks and it will be a better place.
And so there are two things.
One, shoring up consumer confidence that their deposits will be okay.
And that is, you know, Bill Ackman and a few others have said,
hey, we should just do a blanket.
Everybody's deposit on.
Kind of culture and the best.
And he, Caleb's at the, you know,
and people are saying that you actually don't have the authority to do that.
And so, so, sort of being able to have him, you know,
and Caleb's shop to be a lot of the back at it.
It's a little bit of the back at it.
Hey, I hate to jump in here, but is anybody else hearing the...
Yeah, I was about to say.
All right.
I don't know what you do about that.
You just sounded like you were doing a great impression of Mr. Robato over an old
fax line.
Yeah, you were.
I'm trying to step in while you fix that.
So, um...
What we're seeing here is a, I'm glad we started at the grand macro overview
because we can go right into the micro, single in on the unique situations of a specific bank,
or we can look at the structural systemic challenges.
And I think it's great to start there, and then we can go down to the micro of why this particular bank.
And it does seem that we are in a world where social media narratives,
Rumors can be used in order to create speculative attacks on banks that are systemically in a weak position.
Because of all the reasons we've been discussing, so I spent the last two decades of my life trying to warn people against fractional reserve banking.
And we're experiencing that right now.
What the choice is right now is a choice between free market shareholders and the government.
And that really is the choice.
So at the moment, you're wiping out shareholder value based upon people's perception of the fear of a run on a bank.
And what does that do?
It does a couple of things.
It makes depositors want to flee for something that's not exposed to the fiat currency banking system.
And they end up mainly in treasuries, so the government gets a new fresh injection of debt.
and they have to pay higher and higher rates on that debt in this type of environment to try and control inflation.
And the second thing you get is, you know, people like not actually, so you get that movement away from the banking system.
And really that is driving us to a systemic thing.
And so to me, you ask what is the solution?
The solution is recognising...
that the United States is currently in a position that it's not really been in before,
which is that they need to come to terms with the reality.
The way the United States is organized as a free market capitalist society
is driving more and more towards government intervention,
because there's only two solutions.
One is you either lend that money to the government,
The second solution is you opt out with something outside of the system like Bitcoin,
which is a niche for people that are willing to do that.
Sure.
And then the third is that the government agrees or FDIC agrees to backstop the whole thing with taxpayers or some new tool,
or some new tool from the central bank.
And so the reason that this isn't an issue, say, in a country like China is because China has come to terms.
with that's what fractional reserve banking produces.
Also, China restricts people's ability to take money out of China.
Exactly. So China has to be honest by the authoritarian nature of China.
China has come to terms with that.
America hasn't. And so we're in this, we're in this pretends.
Simon, I know Bitcoin fixes everything, but I don't think this is a Bitcoin issue.
No, not Bitcoin. Not Bitcoin.
I'm saying if you want to, if you want to, if you want to call the currency,
you need to accept. It's not Bitcoin. You could fix it with a central bank digital currency.
You could fix it with a digital currency that the government creates,
that backstops the entire system. But you have to recognize that.
The end result of fractional reserve banking is that everything ends with the credit rating of the government.
Everything ends with all the assets on the central bank's balance sheet.
and a Ponzi scheme that has to roll over.
And at some point you have to come to terms with that,
or you have to get used to deflation
and the concept of a de-leveraging of the economy,
which no politician can survive
because no one will vote for someone that takes it in that direction.
And that's the reality.
Hold on a minute. You said that,
but that is essentially the Japanese model.
I'm not saying that Japanese model is a good one,
but they've not lost confidence in their country,
the investment into that country's...
still pretty bad.
Their economy's flatlined,
but that's a symptom of the fact
that they've got to the size they have
for the population control.
And that's possibly where we end up going.
Certainly Britain is there now.
We're basically haven't grown since 2008.
I think we're Japan about 18 years ago,
so we're on that trajectory.
Is it not just a symptom of every empire
as a generation goes on?
The United States is just reaching its massive
breaking news.
Sorry, FDIC to make an announcement on deposit insurance fund today.
There we go.
It's backed stop by the government one by one.
Every bank, I guess, consulate.
But how does the FDIC do it right now?
Because the FDIC is not the government agency.
It's an independent organization.
And it doesn't have the balance sheet to support this.
So, unless the get worked true.
You know, Caleb's absolutely right that they did.
I mean, the other day, Caleb and I were on, on space as talking about this.
Caleb, you know, for our audience.
And again, remember, our audience are not experts.
Some of them are.
And, you know, they are the best looking audience.
in the country. But I was going to say that, you know, they just don't know everything about
the world. Here's what you need to know. FDIC can ensure approximately 1% of all deposits
in a systemic risk event.
Simon, I want to make sure that we're talking about the new programs that they just put out.
Is that what you're talking about? Because you're talking about the general FDICC?
No, I'm talking about the general insurance. And on top of that, you have to find a new tool.
Well, they did.
They introduced two new tools.
One of them was the discount window, and the other one was the fund.
So, Caleb, since you know so much about this, do you mind just kind of laying out for people what they've done?
And now that the FDIC is coming out, and again, as a breaking news, FDIC to make announcement on deposit insurance fund today.
Yeah.
Caleb,
you know,
I'd love for you to lay out what they're doing today outside of the general FDIC,
the two new,
tools that they built.
And if there's any other ones that we don't know about and then what do you
think that this means?
Yeah.
These tools that you're referring to are actually by the Federal Reserve, right?
So one of them is the BTFP, the bank term funding program.
And it was essentially a way for the Fed to say, hey, look, we're committing.
I think it was 25 billion, but they also said we'll do more than that.
So they kind of verbally committed to doing 25, wink, wink, hey, we'll do more if necessary.
to, you know, basically buy back treasuries from these banks at par to basically provide them with liquidity.
So it's a loan.
A lot of people were talking about how it was QE.
It was not QE.
It was just a loan.
Nonetheless, it did provide liquidity.
And so I think it's super important to remember that quantitative easing is a form of liquidity,
but not all liquidity injections are QE, right?
So that's super important to know.
The second thing is something that's been in place for a very long time.
One of the Fed's roles in any central bank's role is to essentially act as the lender of last resort.
And the way the Federal Reserve does that is through something called the discount window where banks can come and borrow directly from the Fed.
Right. And so traditionally, borrowing from the discount window, you know, I learned about this in my, you know, first monetary policy class at UC Santa Barbara, you know, the discount window had a very stigmatized reputation because if any bank could not borrow from another bank overnight.
They were essentially forced to borrow from the Fed's discount window.
So it was essentially representative of the fact that other banks-
Caleb, I'm so sorry to cut you off, my man.
The PPI numbers just came out.
Okay, both jobless claims and PPI numbers.
USPPI, year-over-year actual 2.3%, forecast was 2.5%.
previous was 2.7%.
US PPI month over month,
actual 0.2%,
forecast 0.3%,
previous, negative 0.5%.
US core PPI month of one,
year over year actual.
3.2%,
forecast 3.3%.
Previous, 3.4%.
And then US core PPI month
month,
actual.
0.2%, forecast 0.2%, previous, negative 0.1%.
So across the board, I would say, PPI came in less than expected,
which means that at least in terms of how the market will likely react.
Now, just want to remind everybody, there's a lot more data that's going to be coming with this.
Oh, continued job claims, jobless claims.
So, U.S. continued jobless claims actual $1.813 million, forecasted $1.82 million, and previous was $1.805 million.
So jobless claims, actual $1.813 million, and the forecast was $1.82 million. Initial reactions, Mish, others.
How do you think the market's going to react to this?
Well, good morning.
I'm happy to talk.
And I also want to say that it was very interesting to listen to everybody's thoughts on the banks.
Yes.
You know, I don't really get too much into the weeds of all of the details about the specific banks other than get a feel for the overall macro in terms of the impacts on the market.
And to me, it may be the final straw in what I've already been seeing, which is that the economic contraction may be at its last leg.
And, of course, the market being more forward thinking is probably already pricing that in.
I mean, I'm not saying it's definite because there are certain areas we have to watch to make sure that's the case.
And I think part of it is on the heels of the fact that,
The overall anticipation of the type of inflation we had post-COVID is not necessarily something that's going to be repeated.
However, there will be continued pockets of inflation, particularly, as you know, I believe in food inflation as the highest.
Coco made a six-year high.
Sugar is still trading really high close to its all-time high.
Well, I should say all-time high, but multi-year high.
And I think the dollar is also reflecting some level of forward-thinking enthusiasm that it's held exactly where it needed to.
So at this point, the PPI, the CPI, the jobless claims, all of it supports a historical fact, which I think we talked about on Monday, that generally yields peak in May.
that two of the biggest bonds to watch that I like to watch for some side of sense of sentiment are the junk bonds and the high-grade corporate bonds, both of which are still very range-bound, but yet holding key support.
And at this point right now, I'm more in the camp of if we can see small caps.
retail and transportation, which is already doing better,
hold current lows.
And in IWM, it would be around the 167, 170.
And start to move up a little bit, I actually think not necessarily foolish, I'm certainly not saying that, but that potentially in terms of how the marketing in the next six months or so, they're saying that the worst is over.
And so far, everything that came out today is supporting that.
So until further notice.
I'm not bearish at these levels, not necessarily bullish at these levels, but I am very keen on watching the pockets of the market that have done well.
And of course, anything could break that back, right?
You know, anything could happen.
But at this point, the banking is the biggest thorn in the market side, and it's absorbing it relatively well, all things considered.
Right.
Does anybody else agree with Mish here or disagree?
Wanted to get an opposing voice, Mish's voice can be quite convincing.
So I want to find somebody who can, I need an opposite voice on this.
Is the pain over or is the pain just beginning?
Which type of pain?
The pain in the banking system or the other side?
The other side.
Everything else.
Yeah, I can talk to the banking, but...
Yeah, you know, I think...
In terms of general economy, are we talking?
Because I know, Rob, you've been talking about...
Yeah, there's no way that general economy is out of pain,
and I'm sorry to say that.
Like, we...
We...
My holding company, 20-odd companies, we've got suppliers.
I don't even know how many supplies we have.
I could probably get that number, but...
none of them are happy. I actually just put like a general sentiment out to the other day to say like,
do you feel like you're in a recessionary environment or not, regardless of what the numbers say and all of them are like,
well, regardless of what the numbers say, I feel poorer and I don't think it, and I also don't see like a
beautiful sunrise on the horizon for small medium and growth businesses in general. So generally the economy is
The economy is doing exactly what you expect it to do in a slow growth, high inflationary
environment on supplied side shock with...
small businesses bearing the brunt of that and bigger companies bearing the brunt and this that squeezed middle which always happens and so we're in that scenario there are lots of founders who and and business owners uh few of them who have got larger companies who are optimistic as we always are i'm a very optimistic person i think the economy is going to be doing great in the long term and
But in the next 18 months, are they making the right decisions when I've gone to board meetings, even in my own companies?
I'm having to re-steer the directors because...
you know, these guys are nervous
and nervous people don't make the right decisions
and we're going to have to play through
that consequence of poor decision making,
emotional decision making for the next 18 to 24 months.
After that, sure, I think that's great,
but in terms of long-term optimism,
I think the economy will be fine.
I think it would do great.
I think businesses will do great.
In the shorter term,
reality on the ground is that these businesses aren't making...
great decisions. There'll be some winners and there'll be a lot of losers and there'll be some people who flatline and that's the general sentiment. I don't know if that helps.
Yeah, no, absolutely. Maybe. Sorry, Simon.
Guys, Mish, did you have a response to that?
Yes, I do. And Caleb, it's not that I'm disagreeing with you at all.
Obviously, I think that you're very bright in all of your observation.
Right.
But I'm a market trader.
I'm not necessarily...
Just to put...
I wasn't the one disagreeing with you.
I don't...
Caleb, I don't know how...
Oh, that's Rob.
But...
Sorry, Mish.
I had to make funny either.
I was going to say, Mish, it was...
It was Rob.
Oh, I'm so sorry.
You know, because I'm looking at my screen and it says, it has Caleb's name on it.
So that's why I just assumed that he was the one who was speaking.
My apologies.
Okay.
Anyway, the point is that the sentiment of the fact that the economy has bottomed out, you know,
and that we've dodged every bullet is obviously dubious.
but what the market is reflecting, and now I'm a marketeer.
I'm not an economist, and I say this over and over.
However, people have come to see me and ask me about the economy
because the anticipation looking forward based on cycles using certain moving animals,
is zooming out right now.
It's not out of the woods, but it is suggesting that every single, and this is what we talked
about too the other day, every single bullet that has been shot at the market, including
the banking system and including the freshest news today with PAC West.
and Western right back to the town is telling me that it is possible that the market has such a Teflon coat on it right now, that looking forward it thinks that this is the last gasps of any economic contraction.
And we could start.
base out. That's a very different
scenario than bullish.
But, Mitch, the market also thinks
that we're going to have rate cuts this year.
Isn't this data saying the opposite?
Which is hilarious. No, I don't think
necessarily rate cuts, but I could
certainly support a pause.
And I think that that will
happen. That yields have peaked
at this point.
At the
necessarily mean that they're going to go down it's kind of like the same thing of how i thought for a
long time about inflation that maybe it had peak but that didn't mean that we were going to go
into a disinflation or a deflation and i still kind of feel that way except in certain pockets
just based on food so just look you know to me i just look at the numbers i go back to these two
major areas of a six to eight year business cycle
And then a two-year cycle within that cycle.
And right now, we've proven at this point,
until, you know, and listen, innocent until proven guilty, right?
That the small caps, the retail sector, except for the banking sector,
that's obviously on its own accord, have held...
the low of a six to eight year business cycle, but cannot get out of its own way even close to
showing any type of expansion beyond a two-year business cycle, not buy, not the NASDAQ,
although they're closer. The only area that has taken out those levels, marginally, of course,
would be chips and growth stocks, you know, semiconductors, that kind of thing. And a couple of other, like
Like home builders, you know, there's exceptions.
And of course, certain commodities, like the metals, like the food commodities,
and yet not all the grain commodities.
It's a very mixed picture.
So when I look at it all, all I'm saying is the patient is getting some oxygen,
It's not ready to get out of its complete coma yet.
Start walking around.
But it doesn't necessarily look like it's going to die.
And that's the best is how I'm trading here.
Light, not fully 100% invested, trying to find the pockets of strength,
trying to find things that look like they can't possibly go that much lower with a stop.
And that's going to be the basis here.
Even gold, which I've been such a huge ball, is holding right here up at reach the size,
and it needs something fresh to scare the market, and it hasn't happened yet.
So that's all.
You know, I'm not trying to convince anybody of anything.
No, it's interesting.
It's definitely contrary, for sure.
And by the way, I really appreciate the patient analogy.
I felt like that was special made for me, so thank you so much.
Yeah.
No, I appreciate that.
You know, I wanted David to weigh in really quick on the new data, again, for everybody that's listening, and we have nearly 4,000 people in here now.
The PPI data just came out, and across the board, PPI came in lower than expected.
But basically,
Barely, but did come in lower than expected.
David, and then jobless claims also came in lower than expected.
David, it's wanted to get you to weigh in.
And Alan, I'm going to meet you for a second.
There's a lot of background noise.
And so, David, go ahead.
So this is slightly to do with what Mitchell and Rob was saying in the sense of slowing economies,
and then afterwards I'll go into the PPI, but sparked particular, we're in an incubated period,
specifically like when Mitchell was bringing up the patient in that sense, and I like that reference in that sense as well.
because it creates this idea that a lot of one, the labor market and two, the passive investing,
that's actually being the impetus of, let's say, market movement, specifically when we're
looking at the vessels that are necessarily underlaying and keeping the strength of the market
up, specifically SMP 500 indexes and NASDAQ indexes, it creates this need for liquidity.
specifically on the longer term, especially if we're going to see a higher redemptions from beneficiaries out of passive funds and or even pension structures.
And so by virtue, we're seeing a very stagnant and apathetic type movement within inflows and outflows of your actual pension structures and or even passive structures in that sense.
And so it creates this very, how can I say, juxtaposition type market where a lot of the volatility isn't truly felt currently because it's incubated in the sense that once these actual compressionary phases are going to be felt within the economy,
specifically the credit cycling that's going to occur to small to midcap businesses and the labor that's going to impact on those levels, how is that going to actually create a need for liquidity?
by those, let's say, newly unemployed or newly retired individuals that are going to essentially
create more volatility for a market. And we're only going to actually see these manifest within
Q3, Q4 of this year. And so it's funny because it's in correlations with this potential
rate pausing or rate hike or rate cut in that sense. And it creates this very weird market
participation where in fact we can almost assume that the the Fed funds and the future projections
might be erroneous at this point. Yeah. And, you know, in terms of, by the way, can everybody
hear me? Just want to make sure. Yes, we can hear you. Yeah, sorry. So, you know, it
Again, wanted to, I was getting a few messages on the back end.
By the way, thank you for everybody that's commenting in the bottom right.
Keep doing it because this is how we get feedback.
People wanted to, wanted somebody to actually break down what this data actually means and why it's important.
Again, kind of a reminder for everybody on stage.
of the fact that, you know, people are just trying to understand.
And so, you know, analysis is great,
but we want to make sure that we actually explain the data.
So again, as a reminder, the producer price index
as compared to the consumer price index,
is what producers, people that are actually making the things
and sending them to consumers,
what kind of cost they're seeing and how is that change?
So from just a very, and I know we have a bunch of finance people on the stage,
and so I'm going to try to make it simple.
If I say something incorrect, unless it's just a technicality,
please do correct me.
So, you know, when we're looking at producer price index,
theoretically it gives us a less lagging piece of data than consumer price index and so
producer price index tends to be less lagging again still lagging data still old data uh but it's
less old because you can imagine when you're the one that's producing something uh the uh
you're seeing the cost of inflation earlier than somebody that by the time it gets to the store and somebody buys it, there's a little bit of a delay.
And so that's actually why it's so important to have producer price index.
And year over year, producer price index is,
increased by 2.3%, but it was forecasted to be 2.5%.
So, you know, there's always an increase at some level in the market, not always, but usually
we're not on, it's not unusual to expect some level of increase.
Yeah.
but it was less than what the market consensus was,
the increase would be.
And then in terms of,
there's a bunch of other data.
So core represents a core set of,
items that they're using to see, okay, yes, all of overall inflation has done this, but what
did those core inflation do? And so for core PPI, year over year was actually 3.2%, but it was
forecasted at 3.3%. So still less than what the market was expecting or consensus estimates were.
And then in terms of jobless claims,
you know, initial jobless claims actual were 264,000, but they were forecasted to 24,000.
So the reason why it's like sort of bullish is that, you know, unemployment has been so hot and so tight that seeing some loosening in unemployment is something.
seen as positive from the market.
I know it sounds counterintuitive
for people that are listening,
but it being a little bit higher than expected
is actually sort of a good thing
because that means that all of these interest rate hikes,
which have been unprecedented,
are maybe...
at least according to this data,
may be starting to have a little bit of an impact.
Again, we actually, that's a very strong statement,
and actually a statement that might be worth discussing.
But, and then continued job claims were 1.813 million.
The forecast was 1.82 million.
So, you know, again, just wanted to make sure,
and what that means is that, you know,
continued while initial claims did go up more than expected,
continued claims did not.
And so I want, and what that tells us is that maybe people are finding new jobs and then people are getting fired.
It doesn't really tell us that much overall.
What we really do care about is,
you know, is the, is what the Fed is doing having any impact?
And I think that that's, it looks like, and I'm going to say this, does, actually, that's
the next question for somebody. You know, does it look like what the Fed is doing is actually
having an impact on what they're trying to do? Because they don't care about the banks as a
reminder. That's not in their mandate. They don't give a crap about the banks. They care about
inflation, they care about jobs.
So price stability, unemployment.
Those are the two things that they care about,
according to their mandate.
And so, you know, are they having an impact on either?
Those two data points came in this morning.
So I wanted to make sure that I explained that.
Please continue to comment in the bottom right.
And, you know, we want to make sure that it's a two-way conversation.
And if there are questions, please do enter them in there.
I know, Eugene, you've been waiting a while, and Simon, you've been waiting a while.
Eugene, you want to go next and then Simon after that?
Yeah, sure. Maybe to react to what you just said. So a few things. I mean, clearly, I think others have talked about this. You know, what the Fed's doing is having certainly an impact on long duration assets, including the stock of, you know, high profile technology companies, you know, ones like,
you know, the metas of the world.
So, you know, I mean, meta and some other companies in that category, of course, cutting jobs, you know, quite significantly.
Tech is not a, I mean, certainly, you know, it's talked about a lot, particularly on spaces like these, but it's certainly not, you know, the substantial part of GDP.
But, you know, I can certainly say being from the tech sector, that's clearly, you know, having an impact.
Now one could argue that, you know, there were, they were just extremely inflated, um,
Well, they were certainly some of the most, the biggest gainers during the COVID era.
So, you know, I mean, it's, it's just, it's kind of like highly levered, right?
So in terms of beta or it's got very high beta.
So, you know, it kind of swings up and down higher even than the way the stock market runs.
So, you know, that's kind of, that's kind of the one thing there.
Are we seeing it across the rest of corporate?
corporate America.
I mean, I think in some ways, in some ways, yes, you know, Rob and others have sort of spoken
to that.
I think the extent of that is still sort of being decided.
you know to react uh you know a few other things by the way um you know we talk a lot about kind of
us uh but i think you know the rest of the world is you know also um you know it's kind of all
related you know not just as it relates to rates but you know relative rates among different
countries but also relative inflation you know being very important i think what's the
inflation data coming out of china is actually you know super interesting both you know ppi
PPI actually falling in CPI, you know, basically I kind of 0% a little bit less than that.
And PPI, actually, PPI, which is, as you mentioned, Donish, kind of a leading indicator,
falling quite, quite steeply, actually, you know, more than 3%, which is really interesting.
That was just kind of the latest data.
You know, and.
Kind of the other thing about the Fed, so definitely agree.
Like, you know, we keep talking about the Fed having the dual mandate, right?
Price stability and maximum employment.
And the ECB, as we've talked about kind of before, having only price stability effectively
as its mandate, right?
And we saw in 2008 in July, in July 2008, I brought this up.
But, you know, they raised rates going into a recession, whereas the Fed was actually
cutting at the time.
And, you know, the Fed came out looking better for that.
But, you know, I wouldn't discount.
the fact that you know financial stability not being a mandate of either the e cp or the fed
still being extremely important right so you know when things bad things happen right and a lot
people here i've talked about sort of you know the fed being between a rock and a hard place um you know
i i anticipate that you know they're going to care a lot about that right even though it's not
in their mandate and i think they face a lot of difficult choices
Um, you know, I think Simon alluded to this earlier. And I understand what he means, uh, by saying not Bitcoin. And I, I, I think from the past, I can probably reckon that Simon and I are, are fans of Bitcoin just haven't been in, at least for me, having been in it for a while. Um, so I think what he was saying, and I kind of agree with this, there aren't a lot of great solutions, but, um,
I think what the Fed is doing with Fed now, right, coming up, right, where they're introducing
sort of the beginnings of what looks like a central bank digital currency, a CVDC, you know,
the beginnings of it.
I'm not saying that they are now.
It's sort of.
can be a solution, right?
It's not one actually that I personally like, but, you know, just ideologically, but to explain
it to the audience, I think if the Fed can confirm, so we have this kind of new problem,
whereas banks are, you know, failing, right?
As we're as we're seeing, we're seeing Pac-West being sort of the latest.
I don't think it's the last.
But if.
The U.S. government can control to some degree, you know, digital dollar and sort of, you know, have a sort of digital dollarization.
Is it going to be USC? I mean, I think it should be something more like a USC. But if it's something closer to what a CBTC looks like, then that is a potential solution.
It's not one that I love, by the way, but I'm just, I think that's what I think that's what he was talking about.
And I wanted to paint that picture for the audience.
There is something there, right?
I mean, it's going to make our economy look more like China's, and I think China is a great comparison.
But that's something that shouldn't be overlooked, right, as a potential solution.
Again, one that I don't necessarily endorse, but I don't think it's being talked about enough.
Yeah, 100%.
Thank you for saying that more eloquently than I was.
So...
Sorry, is it Mitchell or Michelle?
It's Michelle.
I was going to say Michelle.
I don't want to say anything.
But David, it's a assignment.
I was going to tell David that it's Michelle.
And you guys can call her Mish since she comes up here.
So now we can call her that.
But yeah, thank you.
Well, I love the clarification that Michelle made that, you know, I'm looking at market.
And so that is the distinction.
The market, I believe, is saying,
that we believe that there will be a Fed pivot,
and we believe that we will go back to Ponzi economics,
and the Fed is the only one that can save us from this mess.
Because if you, you know, and the whole thing about does the Fed care?
Well, if the Fed only cared about inflation,
then the easiest way to get rid of inflation is crash your banking system
because it would be the most deflationary thing you could possibly do.
Would it be desirable? Absolutely not.
Yeah.
Some would argue Simon that that's exactly what they're doing.
Yeah, yeah.
But this ties into the other greater trend that I just believe that there is only one tool left.
So yes, you can create a new tool, which gives these one-year loans that tries to, you know, tries to factor in some of this maturity mismatch that the banks are experiencing at the moment.
And you can, you know, but...
My belief is that the market believes that that one year will lead to a return to QE and a refinancing of those loans and putting everything back onto the central bank's balance sheet.
So all the market data from my perspective is saying that there will and has to be a Fed pivot.
And what is the implication of that?
Why?
Why would they're doing is working? Why would they pivot?
Because as I keep trying to say, the grand scheme is that this is a Ponzi scheme that can only end up with a much more significant balance.
Simon, that's an underlying belief difference, right?
So, you know, we have to also be careful not to speak our book a little here.
I think ultimately, I would agree with you if the data came out differently, but today's data is
Again, could be a red herring.
It could be a little bit of a fake out.
But, you know, Mickey, I wanted you to weigh in because I saw your comment and I brought you up.
So one thing I wanted to say is I do stick true to it.
If you do leave comments in the bottom right and they're good comments, we will post them in the nest and we will bring you up to kind of follow through on it.
And please do continue to do that.
Thank you.
Can I just comment on the talking about it?
Go ahead, Simon.
Simon, and before I, just to be clear,
but the thing I'm talking about with talking book is that you are clearly,
you have a giant holding in Bitcoin, correct?
I don't want to say it incorrectly.
And so, you know, what I meant by talking in your book is
that you clearly have a thesis that you agree with,
and not everything fits that thesis all the time.
The data today...
Bitcoin is clearly down how much this morning, like a percent this morning, which is nothing in the Bitcoin world.
But the movements in Bitcoin are a little bit broader.
But clearly the market is not reaction to Bitcoin.
Just on talking.
You know what I mean?
No, but if I could clarify, firstly, I do nothing short term.
Exactly.
All the trading is all short term.
But my book is that I believe that the US dollar will roll over the Ponzi scheme.
So I have a US dollar portfolio.
I do believe that there's a change of empire.
So I have a gold portfolio.
But all my returns have been made in Bitcoin because I believe it hits upon all the trends.
of needing to own your money, needing to spend your money and having a fixed
supply to combat inflation.
Agreed.
So the book is, I will be fine if the US successfully rolls over the Ponzi scheme
because I have a percentage of my wealth batting on that they will do that.
So it's not quite the book.
It's just a...
No, no, but I do want to be careful about the fact that, you know, sometimes people will come up here.
People don't know this, but actually one of our Twitter spaces came up in an FDIC report.
I never, I don't know if people heard this.
And it was actually a space that we did around Silicon Valley Bank.
And so I know that's crazy.
It literally said Twitter spaces.
If anybody can find it, this is the craziest thing.
So one, you know,
legal counsel has come out and said,
hey, make sure that you're doing more disclaimers,
which I think is fair.
And then two,
need to call people out and people need to disclose.
Hey, here's my, by the way,
you'll notice that certain people
they're on TV quite a lot like Mish and others
often do that automatically.
They say, well, here's kind of what we're doing.
Nancy does that too and a few others.
So I want to try to,
make sure that people out loud speak their book and say,
hey, look, this is what we're doing ourselves.
And it's really important.
It's okay.
It does not, it is not, Simon, you think anybody in this room doesn't know that you're
a long Bitcoin?
I mean, Jesus, Simon, like, you probably wake up in the morning and your yawn is Bitcoin.
Like, I'm sure, like, that's kind of, like, that's what you do.
That's your belief.
You underlie, your underlying belief is that you believe in Bitcoin.
That's incredible.
I wish I had that kind of belief on anything.
I think the whole world is crooked.
So, you know, my point is just that, you know, I'm just making the implicit explicit for a variety of reasons because, again, you know,
our Twitter spaces not only showed up in Wired and other magazines,
they're actually showing up in like government reports.
And so, you know, it's creaking me out a little bit.
And so I just want to, I want to make sure that we're speaking clearly to it.
No, I think it's really important to have disclosure.
And so disclosure, I invest for the rollover of the US dollar Ponzi scheme.
I invest for change in empire and I invest.
I'm banking system.
I love it.
That's awesome.
But just on the job side, and maybe I'm in a complete bubble,
and I'd love for someone who's just out of my bubble to comment on this.
But as a fintech investor, I probably see a very distorted view of the world,
you know, from a niche industry.
But everybody that I speak to and everybody that I'm investing in
is thinking about how to replace humans with technology,
how to decrease their workforce and find technology
that allows them to, you know, take their customer service team
and replace 100 people with one AI bot.
And all of them are thinking along those lines of, you know,
decreasing their workforce.
Now maybe that's just niche to my bubble.
And maybe that's not reflective of the grander job schemes.
I think we should consider doing a drinking game where every time Simon says Ponzi scheme, we take a shot.
I think we'd all be hammered by like an hour.
Yeah.
No, that's fair. Mickey, I wanted you, you know, we brought Mickey up because, again, he's joined our spaces before, but very thoughtful in his responses.
You know, you brought up a question for the panel, but I think, you know, you've heard sort of us respond to it.
I think I found you, the way you asked the question to be a little bit leading, because I think you clearly agree with the question that would the answer that you put up there.
You know, the question that you had was, isn't what's happening exactly all the things that the Fed wanted?
You know, credit tightening, deflating the balloon, job market loosening, slowing things down.
I mean, based on the Fed's mandate, aren't we on the right course?
Are we just panicking?
Mickey, I wanted you to respond to that.
You know, you heard what Simon said.
You know, he thinks that maybe rate cuts are coming and other things are coming.
I wanted to get your thoughts.
Yeah, thanks so much. First of all, good morning, everybody.
Thanks, Doc, and thanks for the panelists.
This is a great discussion.
You know, just like zooming out and looking back.
what happened with COVID, right? We have this giant pandemic. The world shut down. Banks were probably
on the phone to, you know, their representatives and say, hey, look, we're really scared about what's
going on. There's this global pandemic. We don't understand it. We're afraid to loan money out because
we don't know what's going to happen. So what's the Fed mandate? Make sure the economy runs.
You know, the Fed makes, you know, loosens credit conditions. The government prints a bunch of money.
What happens, right? Money becomes cheap and free, which justifies investments in everything.
So everything you could possibly bet on just...
goes up into the right skyrockets in value.
And we get this,
this bubble that we were talking about,
this bubble that justified every type of investment.
So everyone looks like a genius in that part of time.
But what's the Fed's mandate?
The Fed's mandate is, well,
Now that things are going up into the right, we're afraid everything's going on the right, including people's gas and their rents and their food.
We better slow this thing down.
And that's what they've been trying to do, people criticizing how well they did it, which is reasonable.
But, you know, if you listen to the feds,
You listen to J-PAL, not long ago, he said, look, we're going to try to slow this thing down.
We're going to try to deflate this balloon.
We're going to raise rates up until the point we start seeing credit tightening.
What does that mean?
It means when I start seeing banks stopping lending money to speculative businesses that maybe in other conditions they wouldn't lend to,
we're going to keep raising rates up until that point.
So I think the Fed has been really clear to say,
you know, we need to slow this thing down until we start seeing conditions change.
And I think now we're starting to see the conditions changing.
This seems to be...
Mickey, I'm so sorry to interrupt.
This is sort of geopolitical news, but really important since it affects, you know, the global stability.
Supreme Court of Pakistan found arrest of former prime minister, Miran Khan, illegal.
I will hit up Mario on the back end.
This is really big news.
For people that don't know, Pakistan is actually the eighth most populous country and a nuclear power.
And so it's kind of a really important situation.
And they're also bordering China and India.
So, you know, I'm not sure what this does, but I know that it's going to, it may have some effect on some commodities.
But, but Mickey keep going.
Sorry.
And I'll just wrap up.
I would love the panel's thoughts.
But isn't this exactly what the Fed has wanted?
Don't we all want this economy to slow down?
Don't we want inflation to come down?
Isn't that exactly what we want the Fed to be doing?
And aren't we just panicking over the Fed accomplishing what it said it was going to do?
Yeah.
Alan, you have your hand up.
So now you have to answer that question.
Okay.
My feeling is quite simply...
I don't believe that everyone wants the economy to slow down.
What I want is I want social media to slow down.
And I don't want any more SPACs.
I don't want any more speculative currencies or NFTs or things that people look to see to make a lot of money.
There was a little comment that I read about tech companies and how come they're not getting,
they're not rewarding their employees in the stocks that they thought they were going to become billionaires.
They're worth nothing now.
But I wanted to ask one question, well, two questions.
The first one, did anyone see the results of the 10-year auction yesterday?
I've been pounding on that, and something popped up.
You know, 67% of the auction was bought indirectly, but non-US entities.
Only 13% was bought by dealers.
And...
That was primary dealers.
But on here, the Federal Reserve bought 10 billion bonds for the Open Market Committee.
Now, does anyone know about that?
Did anyone see that?
Did anyone talk about that?
Why is the Fed buying 10-year notes in an auction?
It's because that they're not actually operating QT.
They're doing something called balance sheet runoff,
so they're capping the amount of reinvestment that they can make
based on maturing principle that they already had on their balance sheet.
So, you know, this is why their balance sheet is declining on net,
but occasionally we have seen...
periods like you're properly citing where the Fed is still going out and buying bonds because they're not doing QT. They're simply doing balance sheet runoff.
Caleb, what is the expected outcome of that? Are they, you know, what impact would it have on the broader economy?
Well, in certain cases like this, if their Fed is going out and buying for one specific auction on that given day or the day after, whatever the case is, we might see liquidity conditions improve. But right on net, we need to be cognizant of the overall trend here. The balance sheet is still declining.
So on net, liquidity is also declining.
So overall, liquidity as expected, as you would expect them to do with QT, liquidity is declining, but this could have been a little bump.
You don't think it's anything more than that like Alan is sort of referencing to?
No, not at all.
Alan, keep going, sorry.
Well, it may be nothing to you, but to me it makes no sense.
I think they could have done something better with $10 billion,
maybe support some of the banks that need the capital rather than buy in the open market.
The other point that I want to make up ask Michelle.
Michelle, how much do you believe in the accuracy of the high-yield indexes?
And the pricing of high yield bonds?
Okay, great question.
And by the way, thank you so much before for screwing up my name.
That made me feel better about all the names I've screwed up.
Okay, well, first of all, I'm a huge believer in watching the high yield bonds.
I don't trade them.
I use them for information.
And the reason why is because the level of accuracy in terms of being a harbinger has been extraordinarily accurate.
And so that's why I like let's let's go back in time.
In 2020, before COVID came out, I was watching the high yield junk bonds go down.
I was watching the high corporate grade bonds go down, but not at the same velocity.
Right.
And then, of course, sure enough, what it did was it just gave me a warning that if the bond traders are exiting high yield and, you know, junky companies with bad balance sheets, which is such a risk on, risk off parameter, then there must be something wrong, right? And then when they started to come back, of course, there were other signals as well. It's not the end all be all is, but it's
a very reliable indicator.
Then, you know, by April, May 2020,
obviously stimulus helped in all of that,
but money started pouring back into the bonds as well.
They have not performed nearly, though,
if you look at it on a relative basis,
if you look at that versus, say, the SPY chart,
they have not performed as well.
But what they're relaying to me now
is that if you look at the chart of, let's say, H-Y-G,
Even now that pre-market, we're starting to see things tick a little bit lower, the spy, the Russell's cues are still slightly up, the Dow, H-Y-G is down just a little teeny bit, but overall, if you look at the overall chart of it,
It's still under, on a weekly basis, under some pressure.
On a monthly basis, it's, you know, well underperforming versus the spy.
But on a daily basis right now, it's starting to hold some critical levels.
So how I use it to answer your question is that I will not necessarily press to the short side or it may be
influence if I'm already in certain positions where my stops are going to be or it may just
influence how much I want to be invested based on this sort of risk on risk off indicator.
So it's a big piece but not the only piece and it definitely has been I think incredibly
reliable through the last several years that I said.
Well, what what I have to say to you is that
when I'll give you two points. Number one, there's 2,000 issues in H.YG. Only about 60% of them trade 10 million bonds or more in a month. They're not priced accurately on a daily basis. They use quantitative analysis on some of these things. So you're not getting active prices. This is not like the S-YP.
SPY or the equity market. This is a truly institutional over-the-counter market for the underlying
securities that are in the HYG. So if the HYG is not, what to my mind, priced on a daily basis
by active trading, then it's a hypothetical point of view. Now, the Russian to buy high-yield bonds
when they got up to the 15% level or whatever level it was,
that ghastly high level.
That was people looking,
that was the people looking for yield.
Now,
we're running to a situation which is a little perverse.
When the money went into the high yield marketplace
by institutional and other investors buying them,
okay,
the investors that got money,
let's say Vanguard high yield or another high yield
entity that was not in this FYG, if they couldn't buy bonds because there's been virtually
very little issuance of high-yield bonds over the last year, what did they do?
They went out and bought YG and JNK and A, any high-yield index to support, so they didn't
have too much cash and not enough to support the dividend.
Now what's happening and the inverse is happening.
Now you're seeing some in-inch issuance of high-yield bonds.
So you'll see some of these people that have parked their money in the ETFs come out of them.
and buy these bonds.
Now we have to see how those auctions,
how those sales take place.
I saw that there was one yesterday
where there's a billion dollar auction,
a sale and only 1.5 billion in orders.
So you have to be very careful and very aware
that this indication is more of people trying to reach for yield
when they shouldn't be reaching for yield
and reaching for safety.
There is now this more bankruptcy this year and the refinancings that are taking place now or for next year's maturities.
So you have a lot of wild cards in the high yield marketplace.
I know what it is.
I've traded it.
And the last month, the triple C component of the high-yield index was trading at this bankruptcy kind of levels, the fault levels.
So, Alan, you know, I want to.
Just as a reminder, I, like, not even 10 minutes ago was talking about the financial types and the two things that they, that they're worried about.
And one is yield, which is greed.
And the other one is fear, which is safety.
So it's kind of funny that you brought that up.
But I wanted to pivot the conversation a little bit.
Before I do, I did want to pay the bills.
So I wanted to make sure that we shot it out our sponsors.
I'm sure, I'll let you go right after.
But IBC group, they incubate and accelerate AI companies.
They partner with VCs and funds to work with their portfolio companies in return for equity and zero cash.
If interested, please DM Mario and his team will get a call organized.
And then also, we're going to, Mario's team is going to start doing Shark Tank style pitches.
They've been doing them previously for crypto and AI spaces and people have been loving them.
And so any startup or portfolio companies, so for the VCs that are listening,
if you have any portfolio companies that want to reach our thousands and thousands of users,
I actually don't know how many people are listening right now.
Right.
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There you go.
You know, if they want to get in front of thousands of people
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and they'll see if you're a fit.
It's a pretty competitive process.
But, Mish, I wanted to go to you.
One question.
One thing that I'd like to say, one thing, Doc, before,
I want to thank Mario and tell him how bold he was for hosting that scene.
CNN town hall leading last night.
It was a little chaotic,
but you did a great job.
Yeah, Mario did great.
That's probably why he's sleeping right now
instead of talking.
Oh, there he is.
That's funny.
All right, Mitch, go ahead.
Well, I just want to add one other thing in terms of context to the talk about the bonds,
is that we also look at a ratio input.
So we'll look at the TLTs or the 20-plus year long bonds in terms of the ratio to the junk bonds.
And that's a huge one of our inputs in terms of how we rotate in and out based on risk on, risk off.
And right now, what you're seeing this morning, right, is the long bonds are, TLTs arising, which means the yields are falling.
and the junk bonds are down slightly.
So right now the ratios is still slipping a little bit here in favor of the long bonds,
which of course would be more of a risk-off environment.
So nothing is in a bubble.
But I like these relationships without getting into all of the hyper-explanation,
because that would just make my brain explode.
And that's why I constantly say all the time, right, I am a traitor.
But I have been doing this for so many years that I've learned to look at all these relationships.
And that's all I really wanted to add about the whole bond conversation is that to me, it's the bonds by himself in terms of the junk bonds.
It's the bonds relationships to the other bonds in this case would be the TLTs or the long bonds.
And then I place that into where everything else is.
That's all.
It just gives me a bias that's been very, very reliable and has prevented a lot of tears in terms of being over exposed to the upside or the downside.
And that's all I wanted to end with.
And I wanted to.
Thank you.
Mish, I wanted to ask, actually, how do you, you know, get exposed as somebody who trades as much as you do?
I mean, TLT does, especially the options market, doesn't have that much volume.
I mean, it does have more volume than other sort of indexes.
So I'm curious how you get the sort of volume there.
if you want to make a leverage trade on interest rate.
Yeah, that's a really good question.
Well, basically what we do is, you know, we care about volume to a degree when you're talking about certain equities, obviously, and indices.
But when it comes to certain ETFs, we've had to really overlook volume as a reason to get in or not get in.
And, you know, you mentioned TLTs.
I mean, we were buys of cane, for example.
That's an ETF for sugar.
That trades, well, now it's increased, obviously, because sugar went up.
But, you know, it could trade $5,000, $10,000 a day.
That's it.
So what we'll do is we'll step ladder in, but it won't necessarily prevent us from getting in based on volume alone.
Yeah, that's really interesting.
Yeah, and she wanted to, Eugene, I do want to pivot the conversation.
I apologize.
I know there's a lot of people that are interested in this part of the conversation, but
want to make sure that we touch on two huge topics that we have not.
OPEC plus just came out and said that they're worried about the debt ceiling.
Yesterday, and I wanted to give this enough time, I'm so sorry, Eugene.
But I was going to say that, you know, the other big, big topic right now is the debt ceiling.
It's something that we've not really been discussing yet today, but it's not.
but it's looming.
Interestingly, the market is not worried about it,
which I find fascinating when you look at the one month.
But I was going to say that, you know,
ultimately we're not seeing the market react to this at all.
But yesterday it came up.
I can't remember exactly the words
that Donald Trump said yesterday about the debt ceiling.
But my impression of what he said was,
We should let the U.S. default.
And the Republicans shouldn't budge from cuts.
And it was interesting because he was pushed back on it.
He was like, well, when you were president,
you said that this should not be a, this is a wedge issue that they're using to,
cause trouble and all this.
And his response was like, yeah, well, I'm not president now.
So I'm okay with this being an issue right now.
And it was a very interesting response.
This morning, OPEC comes out and OPEC says,
hey, we're really worried about this debt ceiling issue.
They really need to fix this.
It could have major economic consequences globally.
Are is anyone on here?
I know my death ceiling meter has been high.
I know Nancy, who joins us quite regularly, her debt ceiling, you know, concern level is high.
Is any of this making anyone's debt ceiling concern levels go high?
Trevor, I'll have you weigh in first.
Yeah, I think just going into election cycle, there's going to be a lot of fluctuation in terms of diversified assets.
I think one of the things that, obviously, once we get closer to election season, is there really going to be geopolitical risk around, you know, energy prices, I think, depending upon posturing and debt in general, you know, people...
People are kind of going to pause, I think, for the next couple of months.
I think the regional bank issues is kind of pushing people to rotate money or put money into hedges and pay a little bit of a premium to hedge the downside risk.
But I think overall, one of the things that can't be, I guess, forgotten is that I think we're in kind of a compression phase in multiple industries where you do have some.
implicit technology driver of consolidation. We talked about this a couple weeks ago,
but there's multiple facets in industries where there's been a lack of productivity and
efficiency for the last 10 years because money is cheap. And I think one of the things that
gives me, I guess, some sort of confidence and feel good is that moving forward, the adoption
of capital being efficient. And I'm not necessarily saying that
that government-backed safe havens or debt ceilings or whatever don't have an impact.
But I do think that on a general basis, the consolidation of where we are right now,
and the technology implementation is going to help productivity.
And capital being more efficient in times where it's more expensive is just...
But you're not concerned, Trevor, about the government defaulting?
I mean, that's always a concern, but I think historically we've always just kind of kicked the can.
So the real question is, in the event that we do, right, it's going to be a big problem for everybody.
We're too interconnected.
We've talked about this.
Globalization's been a real thing for several years.
And I think you can't discount the fact that people or other government representation does not want the U.S. to default.
We don't want an implosion because the consumer purchasing in the United States has such a catalyst impact to every single one of the brick countries, to China's representation as a producer.
And I don't think that.
politically wise, it would be in anybody's favor, whether you're Democrat or Republican,
to kind of deface the fact that it's like, all right, the de facto is just default.
I think it would be really helpful if someone would be really helpful if someone would
break down what actually happens to the average U.S. consumer if the debt ceiling is not raised.
Because I don't think even I fully understand the implications and the I don't think they fully understand
the implications.
So to be clear, Janet Yellen has been asked that question like 10 times.
And her response always is like, we really don't know.
Like there's no way to remember.
Oh, come on.
She knows it happened already.
That's not, I mean, that's not.
It happened in 2011, right, guys?
Well, in 2011, you know what happened.
We didn't actually go through the entire process.
Correct, Alan?
I mean, I don't think we're going to go through the process now.
We're going to do the same stupid thing.
Okay.
Yeah.
Again, she knows what's going to happen.
Let me walk through why I think, because I know that I'm in the minority here.
And so let me walk through why I think this is actually worse than before.
And it's really helpful, by the way, to be a contrarian.
Because you only have to be right like one out of a hundred times.
And when you are, people are like, oh, you were so right.
And so it makes it really easy.
But what I was going to say is that, you know, when it comes to this issue, my issue, my number one issue is the fact that clearly the Republicans are showing incompetence here trying to play with fire.
And that is the big issue.
The big issue here is that.
When it comes, even, I mean, Lord and Savior himself spoke specifically,
but that's Trump, by the way, spoke specifically to two or three people in the house.
And he was like, don't let them do it.
He essentially said those words yesterday.
He was not, he had an audience of three or four people, probably MTG, Matt Gates,
Bobert, and the like.
And he was like, okay.
Do not budge, right?
And so, and ultimately, those people take their orders.
Hold on, hold on, Justin.
Let me just finish real quick.
Sorry.
And so with, as a reminder, it has been decades since we had a speaker vote that took 15 chances.
Just in a reminder, this is not your grandfather's Republican Party or your grandfather's Congress or your grandfather's government.
This is a really, or maybe it is closer to that than it is to like reality anymore.
But what I was going to say is that the reason why my temperature, and I'm not talking about a risk of default being, you know, 50% or 100%.
I think it's gone up from like less than 1% to maybe 5%, which is still scary as shit, just as a heads up.
And, you know, us trying to act like this is a normal...
you know, oh, you know, they've done this 48, 49 times, whatever the number is, and they'll do it again.
Sure, that is the base case.
But can we all admit that the U.S. government has, it's June 1st is when we're supposed to have this issue.
I know the Republicans don't believe it, but, I mean, I feel like, you know, they kind of fucked up with the taxes in California because of rain, which was weird.
And so, you know, Amy, would love to get your thoughts on this before I move on to everybody else.
Sure. You know, okay, I'm willing to concede you 5%. But I think, you know, going back to what Trevor said, I think what makes this scary right now is that what Trevor said is true. There is still a global interest in us not defaulting on our debt. And the scary thing is that that is becoming shakier.
As time goes on and there is starting to be this idea in our heads, you know, like there may be a day down the road where it's not going to be there where other countries aren't going to care if we default on our debt or not.
And that is a scary thought to think about. And that's something that, you know, people are maybe starting to get that idea.
just a little bit now and then looking at just the
the competence level of our current officials
you know that's another thing that sort of you think about and you think about the future
that that could be a real scary thing but in the near term and in this particular
instance again I think it's
95% chance at least.
This is just political theater like it always is.
And, you know, Janet Yellen doesn't know exactly what's going to happen to the average person
because she doesn't really care because I think she really truly believes that it's not going to happen.
Like, they're going to do what they always do.
And I think most people deep down know that.
But I think the people like you...
are starting to feel that little bit of a sense of unease, like this may not work forever.
And at some point, it's not going to work.
And we have way too much debt to be in that situation.
So it is scary.
I just want to point.
The market's actually pricing in.
I mean, it's interesting.
We've had a few discussions on the U.S. credit default swaps, but, you know, credit default swaps on U.S.
five-year debt is up in this last year.
So I'd say the market agrees with you all.
I think right now it's pricing in a little over a 1% probability.
And I still think that's, you know, kind of bonkers, actually, right?
And I see, I think Jay...
around here. But, you know, that actually compares somewhat favorably to CDS is on like,
you know, some, you know, some like JPMorgan or Apple debt, corporate debt, which also quite
doesn't make sense to me, by the way, just logically. But I'd say the market kind of agrees,
though I'm not sure I necessarily agree for a variety of reasons. But yeah, I just want to affirm that.
And I agree with a lot of what you said, I mean, that,
this sort of cycle can't just keep continuing without something either breaking or some novel
innovation coming in and i just want to point the that in when we when we the last time we had this
conundrum we had just been off the back of 0809 obviously and you know unemployment was a lot
higher so i think we just have a different set of challenges um i think regional the regional
bank issue is is one that we haven't really seen the entire impact of um
But again, I think we'll go back and forth between different headwinds and how they're going to impact political decision making and also international perception to the U.S., right?
I think, again, great points that, you know, obviously we have a vested interest in globalization, but in the event that that starts to destabilize, I think you start to have more of an impression that that that could change some of the headwinds to be more compounded.
But, yeah, I think it's, it's, it's, you know, kind of prudent to point out that the, the, the,
The pressure sets that we have are much different than coming off of, you know, the largest housing crisis that, you know, the world's seen.
No, that's fair, Trevor.
David, what do you think?
How wrong am I?
Oh, actually, before you go, I cut off Justin earlier.
Justin, go ahead and then, David.
Well, I was just going to briefly say that, like, I think didn't Biden say something like, we will not be negotiating.
So I do think the White House is also sending the wrong signals as well.
I mean, I'm never going to be elected president, guys.
But if I was on a stage and someone asked me about debt ceiling negotiations, I think the right answer is always, I'm always willing to negotiate, always.
You know, so I feel like that kind of drives a wedge deeper.
Yeah, but trying to act like a default is even on the table, I think is, it's just the wrong thing to do.
It's one thing to posture across the board and say, hey, look, just like you just did, which is the Democrats aren't playing ball either.
We've got to do something about this debt issue.
There's something we need to do.
His point was like, no, we'll default.
And it's like, all right, dude, this is not like one of your casinos.
It's not okay to just default.
Like there's not, you know, we're the U.S. government.
Oh, I'm not.
I'm not referring to.
At some level of decor.
I'm not referring to Trump at all.
I could care less what that guy says.
Just to be clear.
I was talking more about the press conference with Biden when they were asking about
the debt ceiling.
I didn't even watch the CNN thing last night because, you know.
It was actually pretty good.
It was very entertaining.
I will say.
All right.
Yeah.
And so David,
he should watch the Nick game.
You should watch the New York Knit game.
That's true.
David, go ahead.
So yeah, since 2009 to 2015, roughly, we've seen
262 defaults.
And they were in municipal and non-general obligation bonds.
And specifically, they're considered non-monetary defaults in the sense that
there are swap rates that are,
going to be initiated in order to ensure the actual yield and or solvency to that product.
A third party will be entered and essentially they'll create a non-monetary loss for the book
and they'll recuperate the actual solvency. It's very rare to actually see a monetary loss with
in bond yields, especially if we're considering, let's say,
treasury bills and or even FRN notes.
This becomes extremely more skewed.
And if we're looking at historics, right,
only 95 situations since 1972 to now, essentially,
by Moody's that we have a revision in,
in rates, specifically in associations to T-bills and other forms of, let's say, other
debt-issued fixed incomes that have more substantiation to saying, I'm going to have
government support a non-defaulting debt obligation. And this is essentially where I'm coming
into play because it's in the
non-obligation and non-general obligation bonds that we're going to see potentially higher increases in defaults, municipal bonds, and specifically corporate bonds.
But when we're talking about, like, let's this conversation with the debts healing, it's a fairly mute point specifically.
And I mean this on a historical level to say that we're going to see much compression within, let's say, T bills and other financials.
forms of FRN notes and tips including by the way long story short it actually creates if we're
looking at history a larger bid for these bonds specifically on a foreign on a foreign level because
they understand that the likelihoods of these probabilistic events occurring where let's say the
US actually goes on a full default rate is extremely low and so we most of the times have a inverse
anticipation to the actions that we assume are going to occur when debt ceilings are coming in
where people are actually going to come in and bid larger for the bonds, especially higher
noted bond.
Yeah.
Simon?
Yeah, I'm going to give people two shots, my favorite word.
It's pretty simple.
If you don't increase the debt ceiling, then you're deciding to, for probably political reasons,
to end the Ponzi scheme.
If you do increase the debt ceiling, you're rolling over the Ponzi scheme.
And they will always roll over the Ponzi scheme.
So it can only be a political game of chicken in order to...
And, you know, what will happen if they don't do it?
Well, in its simple terms, obviously we went through the very complex discussion, but...
it will lead to a credit rating downgrade, which will increase the cost of the government borrowing,
which will accentuate the issues within the banking system,
which then brings us back to maybe we should pivot the conversation back to what the hell is going on with Pack West,
because that's going to destroy shareholder value in the banks that will have an impact on everybody's retirement and pension and various other things.
And so maybe we should pivot the conversation because I don't think we've even covered it.
Does anyone know what is unique about the Pac-West situation right now?
Or is it just simply the next one on a list of...
So Pac-West is a unique situation, right?
So it doesn't have...
It has a lot of issues, right?
When you look at...
The venture capital exposure, when you look at the uninsured deposits, when you look at its securities book, they need to sell $5 billion in loans.
Who's going to buy those loans?
At what discount are they going to buy those loans?
And how is that going to affect the book value?
So the market could be sussing out, okay, if these guys need to raise capital or sell loans, they're either going to take a huge discount on that sale or they're going to have to dilute their equity very materially.
Unlike FRC, FRC,
And unlike SIVB, as of this point,
if you were to look at their balance sheet
and do that same duration analysis,
it's not like they have negative equity,
but there's a lot of fear in the market that
They have to either, one, destroy book value by selling assets at a discount or two, raise
capital.
And how are they going to do that?
Because they're trading at like 30% of book value, which is what people used to value
these black boxes.
And their prefs are also trading at very, very high yields.
So I think that is the situation around Pac West.
this you know the strategic sales around the quarter is what and the need to raise capital and to get from tier tier one 9.1% to 10% right people are wondering is are they just saying that um because there's something else going on or they really just want to raise their capital levels 90 bips ahead of you know an economic slowdown so and also jay as you you know i don't know if you already kind of alluded to this but just to be very clear it's because of may 5th
week, right? I mean, that's
that's security. I mean, I'm assuming
everyone was around for that for that. Yeah,
yeah. Hey, Jake, can I ask a question?
So do you think the market
is that smart and has figured
out that Pac-West is in that unique
situation? I think the
Pac-West has told
that they're raising capital.
That's why this happened.
So just a few reminders
I don't know if you were in the room at that time when we first
got started, but the
Pac-West
shares were actually under pressure because they had a securities filing that represented that on
that their deposits declined 9.5% during the week of May 5th.
And so as a reminder on May 4th, they said, everything is fine.
We've seen no changes in outflows.
And then the week of May 5th, they had 10% drop nearly in deposits.
By the way, the way our system works, as you have said many times,
and I'm not going to use the words, I'm not going to do it.
You're not going to make me do it.
I'm not going to call it that.
But the way our system works is, you know, very few banks have the ability to withstand crazy outflows.
And we just have to be honest about the fact that this is pretty big.
And to Jay's point, I mean, it's being driven by some of the decisions that Pac-West has made.
But I still, I mean, Jay, is there anything Pac-West could have done to prevent this?
Really?
Just communication, right?
Agreed.
So, Jay, do you think the catalyst for banks now is announcing that you're raising capital and then this is the consequence?
Yes.
Yes, see, that's an issue. Banks historically, even in 2008, right, they were doing like distressed capital raises, but they weren't apart from, you know, banks did, 100 banks did go under, banks like Lama went under.
But all the mid-sized banks and, you know, banks of this size, you know, banks of the size of FRC, they were able to raise money because, you know, it would take.
several weeks, right, to see these types of deposit outflows.
And by that time, you would have someone willing to come up to plate, you know, to raise capital.
And the issue now is that who is going to raise capital for these banks?
Who is going to provide them with money when they can, their deposits can run out overnight, right?
They're just going to wait for, you know, the government to backstop any type of transaction.
Right.
And that creates like this doom loop where if you are one of those banks that has, you know,
a high percentage of uninsured deposits, and by the way, it's a minority of banks, not the
majority.
It's a small percentage of banks that have the lopsided deposits.
In that scenario, right, if you have any securities losses, you are basically fighting
not only short sellers, but you're fighting your own depositors.
because of the speed of information.
And that's kind of what's creating this malaise.
And do you think there's like a fundamental issue now around disclosure, transparency in banking where it can actually destroy the bank just by disclosure?
So what might happen, and this is something that JPMorgan has said,
And it won't happen right away, but there could be something like a short selling ban.
Because that's not going to be good for the market.
But what ended up happening in 2008 was they enacted a short selling ban and a restriction of what you could pull out in your ATM.
I don't think they'll do the latter.
But a short selling ban would essentially force a lot of these shorts to cover pretty dramatically.
And what the go, you know, what...
analysts think is happening is that you're getting rewarded as a short seller to target a bank
because you can actually create a bank run. You can short a bank. And if there's any truth,
even if a little bit of truth to your story, you can, you know, your depositors will see the stock
down 30, 40 percent and they'll pull out their deposits and they'll be self-fulfilling.
So that's what the government, you know, that's what the government, I think, is worried about.
And the risk is that they do some sort of short selling ban.
And that would be a last resort.
That would be if we see a couple, you know, a couple more of these institutions go under.
Yeah.
And as a reminder, the FDIC said that they are going to come out today and release some very cryptic and vague.
comment here, but they said that they're going to come out and release some additional
information about the insurance system that they're using right now.
And I'm paraphrasing, obviously.
Right.
They might actually be increasing.
I think they're increasing fees on big banks to add money to the system.
Exactly.
That's what I was going to ask you, Jay.
What do you think?
Do you think that that will make?
So if they're increasing the fees, are they also going to increase the limits?
That is a good question.
I think that's probably on their minds as something that they should do.
And just to provide an anecdote for you, if they just raise it from 250 to 500,
You would see like half the banks that are seeing these types of runs.
Like it would be a moot point because more like the majority of their deposits would be covered.
So they don't even need to raise it that much to be honest with you.
Yeah.
And as a reminder, and I know Trevor had posted this earlier, the FDIC limits were $2,500 in 1934.
and as of 2008, they increased them along the way,
but as of 2008, it's 250,000.
So this is, it's not unprecedented to increase that.
And if they're going to increase the costs,
they might even increase the limits.
And to Jay's point, it may allow us to have some relief here.
I do want to say that I am wondering if this deposit outflows are because of safety
or because of greed.
And that that's the big question that I have right now
as we kind of close up this space
and wanted to summarize it.
You know, we were going to talk about the fact that Jamie Diamond,
actually, Trevor, why don't you go really quick?
But before you go, just as a heads up,
Jamie Diamond came out and said that
The commercial real estate collapse is commercial real estate issues will likely lead to the death of multiple banks.
And it was very interesting that he said those exact, you know, those words, to me, that was very telling.
Now, as Eugene messaged to me on the back end, go ahead, Eugene, you can say.
Donish, to add to that, he actually also said that people going short and then making a tweet about a bank should be punished to the full extent of the law.
you know, related to the shortseller ban
and related to this Twitter spaces, as you were talking about earlier.
I mean, it's kind of wild.
You know, I mean, we did have some of that in 08,
a ban, you know, short selling.
We've had in the 1800s.
We had Napoleon banned short selling, right?
So, I mean, this is certainly precedent.
Yeah, but every time you ban short selling,
the market freaking collapses.
Yeah.
Well, first it rips and then it collapses.
Yeah.
Exactly.
You got a cover and then, yeah.
It's kind of wild though.
I mean, do you have thought, does you or others have thoughts about him directly talking about tweets and Twitter and talking about how, and we were talking about earlier about talking your book and then literally like minutes later, Jamie Diamond's on, you know, on Bloomberg here talking about literally the same thing.
I think that's just fascinating.
Hypocratical.
Yeah.
I can't stress this enough.
You know, I think, you know, when you, when you have influenced the way that Jamie Diamond does
across multiple markets internationally, I think, you know, you can't discount him versus
somebody who might have 10 to 15,000 followers on Twitter.
Now, I do think that the...
there are implications to,
you know,
where people were,
you know,
kind of following the trade
and then liquidation happened
and the people who got out first
were making out with it.
You know,
I don't think that we're there quite yet,
but I do think the more that you look
at regulatory policy around trading
around disclosures, right?
I think we all turn a blind eye
to the fact that there are,
you know,
people who get access to information
much more quickly than others,
whether it's,
you know, malicious or nefarious and it's kind is kind of arguable.
But I think generally one thing that I think is interesting, and I'd be curious maybe to roll this into the next conversation perhaps.
But, you know, when we look at the structure of a bank like Pack West or SVB or whatever, obviously, you know, they had a very unique clientele for the most part.
But FRC was a little bit different.
It had a little bit more diversification, I believe, from deposit and customer standpoint.
My whole thinking is, you know, number one, was it, was it really that poorly of a run bank?
I don't think so.
Did it add value?
I think so.
And so if you're an investor, like you're looking at obviously risk to reward on a return
basis.
But if you're a customer, I think one of the things that, you know, I was just thinking
about that I know Brex has come out with, which is a startup bank, is, and I think
they're entwined with J.P. Morgan as a custodian.
But, you know, I think in.
increasing and being proactive around these FDIC limits is something that has become a little
bit more popular, right? So whether it's buying, you know, hedges or insurance on the,
on, I don't know if there's a product out there that exists for banks, but, you know,
being able to hedge, you know, any sort of these runs and communicating with customers to the
effect of, that you, that you, that you have these.
products or
instruments, I think
might do good, but I haven't
seen anything relative to that.
So it would be interesting to see if anybody knows
of hedging instruments
that banks can use
to increase insurance
limits in the event that
something does happen because I think the concern is if you have a million bucks, right,
and you get $250,000 FDIC insured, that's great.
But we're starting to see those limits increased by the bank and the bank kind of securitizing that instead of just the FDIC.
yeah by the way i'm sorry to interrupt i'm sorry to interrupt uh just uh wanted to let people know pack west now
trading halted uh shares sunk nearly 29 percent and it was moving way too quickly so they halted trading
it's probably going to happen multiple times today i have a feeling uh sorry eugene go ahead
and if the fdic is listening the fed is listening it's not dr danish's fault that
That's right.
This is not financial advice or medical advice.
I don't know why, but I use too many medical analogies.
Go ahead, Eugene.
Yeah, Trevor, just on that point, I mean, you know, interest rate derivatives, so for
example, just like trading Fed Fund futures and then, you know, maybe shorting across the
yield curve are, I mean, these are some of the most liquid markets in the world, at least
in the US.
So certainly things that can be done.
it's certainly possible, right?
Like banks can do this.
They could have done it.
Certainly, you know, last year, they can still do it now, given how liquid these markets
are.
So just wanted to add that that's definitely a part of it.
Also, like, you know, I think.
just kind of on this thing about what we're talking about Jamie Diamond, et cetera,
like and about talking one's book.
I mean, I think it would be great.
And Donna, she pointed this out.
I think it would be great if perhaps, you know, all the folks speaking,
at least in spaces, perhaps as big as these,
just, you know, are just very open about their book, right?
But I think the whole point of these spaces and the reason why it's, you know,
more interesting than media is regardless of one's book.
I mean, I'm hoping that folks come here.
I mean, one can't help talking one's book if that's truly how one feels.
Now, is it like?
Is the book the way it is because that's what one believes is true?
Or is it, you know, like the reflexivity of that is interesting.
But I think just basically, I think the whole point is here.
We're coming here and expressing what we think, right?
And I mean, that's the beauty of Twitter spaces, right?
Just being true.
And like earlier today, I talked about.
