changegonnacome

Lots of chatter out there around why Signature Bank was so aggressively shut down when it seems it was still able to meet deposit demands. The story goes that regulators now want crypto exposure expunged & lanced from the US banking system. Why? Because they are beginning to come to the conclusion that a collapse in the crypto ecosystem (FTX) jumped like a virus into the traditional banking system compounding over time via Silvergate into the SVIB collapse. So the story goes that US regulators........are beginning to trace the SVIB bank run......back first to FTX......which caused a run on Silvergate as crypto bros all demanded their money back ASAP & where Silvergate had asset-liabilty mismatches and collapsed. This effectively began a search for 'Silvergate like' bank balance sheets and SVIB fit the bill.......and well the rest is recent history.............just shows that risks have a strange way of compounding and the 'tiny' crypto market long considered NOT systemic & too small to matter can end up mattering alot. In this instance one can argue that the crypto tail started wagging the US financial system dog.

This is the same Jason Calacanis from "All In" fame - that was doing Mad Max tweets over the weekend begging that SVIB be rescued.........that it was the backbone of the US economy! Silicon Valley Bank its clear was a cookie jar with a banking license attached for the VC community.........it seems it stopped operating as a true bank years ago.....it had become a lapdog for its VC/founder clients......its business model was predicated on ever higher and higher tech valuations & 'exits'. The reason nobody is stepping into buy the bones of SVIB USA - is that the business model was an uber-leveraged play on the tech bubble.....in short SVIB's loan book, I'm guessing, for those that looked it over is an inter-tangled mess of correlated personal and business loans in VC land......in short a prudent bank would think about SVIB for five seconds and know its likely a toxic steaming pile of crap thats unravelling day by day.

Good thread below and kind of what we talked about before……sweetheart deals for your company loans…..and sweetheart personal banking deals for the execs at the company to buy homes, planes and boats When people say this isn’t a bailout……they need to understand that SVIB was a Silicon Valley circle jerk/cookie jar where everybody made out like bandits using a banking license……..that turned out to be too big to fail…..people are saying bond holders and equity holders are getting wiped out….partially true…..what they don’t say is that Roku was an effective bond holder in SVIB and is getting made 100% whole! They and lots of other ‘founders’ risked company cash for preferential personal and corporate lending benefits….and lost……these were not mom and pop depositors. I understand the greater good argument and on balance something had to be done here…..but man it sure feels like the well heeled gambled, benefited, lost and are getting bailed out again.

The Fed has created a two tier banking system…..GSIB’s and everybody else……FDIC deposit insurance should explicitly be doubled or tripled for these regionals and quickly…..the man on the street doesn’t understand MBS lending facilities……but he understands the credit and faith of the US gov.

Feels like this whole debacle is gonna aid the Fed’s aim of hitting/reducing aggregate demand via reduced spending……a deposit interest rate war is about to ensue in the banking sector……growing the asset side of a bank balance sheet would be imprudent moving forward…..I expect lots of credit creation restraint….credit is about to whacked….and given credit turns into spending in the real economy this will be meaningful. In short SVIB has done in two days to ‘financial conditions’ what the Fed had failed to do in months. IMO SVIB isn’t the end….but it is the end of the beginning. To steal a phrase! Q - ”Is the Bottom Almost Here?” A - “Almost, but not yet”

Yeah the way I think about it they turned a bank run into a bank walk……but they haven’t saved banks with shitty biz models & screwed b/s forever forever…they will shrink/die over time….this funding window is for a year….think of it like a controlled detonation as opposed to a dirty bomb.

Buffet suggested this many moons ago.......that a bank account would come with FULL mandatory deposit insurance coverage.....that insurance being provided by a private entity incentivized to assess the risk of each bank model when providing coverage fee quotes......the rational of which would say that deposit account insurance premiums would rise on banks displaying riskier or more flawed business models......and reduced for those whom were very likely never to have to call on said insurance. The FDIC system, to my understanding has some small differentiation of risks in its premium calcs, but in reality it has a bit of free rider problem.........imagine pretty much everyone getting charged the same for car insurance.......your DUI saddled uncle & your aunty who never goes over 40mph paying pretty much the same.

The precautionary principal would suggest that anybody with a brain would not keep a penny in these banks over the $250k limit......end of story......so I expect the banks with question marks over them to see significant deposit flight.....they wont fail now like SVIB/SBNY with the additional lending facilties backstopping asset/liability mismatches on MBS portfolios .......but whatever profit expectations existed for them last week is out the window now......their funding costs are going to go through the roof and RoA/RoE will plummet

Or at least the taxpayers should get 'dealt in' on all various initial coin offerings moving forward.....seems fair......we clean up the shit in exchange for shit coins

Most likely & most virtuous explanation.......is that Roku had some corporate lines of credit/revolvers with SVIB that REQUIRED them to maintain corporate cash balances in SVIB accounts & not sweep as part of the covenants on the loans etc.. If not.......its just incompetence or else skullduggery......the least flattering reason would be a scenario where the CFO/Treasury functions in these institutions effectively got kickbacks on their personal banking relationships with SVIB (mortgages, POC's etc.).....money is fungible......and so to can be 'rewards' for clients/customers

“Enjoy the Academy awards” Bill deserves an academy award for his performance as a concerned citizen over the last 48hrs!

Good man Bill Ackman- planting the idea of bank runs in peoples heads is how you start a bank run! Beautiful - when folks compare Ackman somehow to Buffet, I laugh.....imagine Buffett out there on Twitter spaces, shooting from the hip and predicting catastrophe & calamity. He'd never dream of it, even it were true....lest he contribute to making it come to pass. Bill on the other hand....whom people listen to and follow......saying Monday is basically bank run starting gun. Its a wildly selfish way to get attention & feed his ego (at best), wildly cynical if has some position on that stands to benefit.

You can see here just how far offside SVIB was relative to peers - whatever way you frame this.......its gross management incompetence bordering on criminal negligence. https://am.jpmorgan.com/content/dam/jpm-am-aem/global/en/insights/eye-on-the-market/silicon-valley-bank-failure-amv.pdf

Agree - loading up with that stuff back in 2020/21 because "what else are you gonna do" was crazy.......unless you had to hold long dated paper specifically the answer was to take your bumps in shorter duration stuff and leave some NIM's on the table and let lesser men pick up that paper...........like what were 10yr MBS gonna do.....go to 0.5%!. They were asymmetric trades.....just not the good kind.

Yep I wonder all the time. I think an incestuousness exists in the Valley in big tech that is under appreciated............at the bottom of conveyor belt of VC funding, pass the parcel and mark to next round paper gains............is GOOG & META selling access to the clicks, installs and users required to make the 'blue sky' growth math work.........it is predicated, always on the greater fool theory, but once the greater fool doesnt show up.........well coughing up for clicks/installs starts to look more like a fools errand. The quantum of this type of "CAC your way to VC heaven" spend is hard to figure out.....but it aint zero......

Inflation is stealing a little bit of everybody's job daily but especially those on the poorer end of the spectrum. Economists talk about a 'misery index' which is simply the unemployment rate added to an economies inflation rate. I think that little number is actually quite important and speak to the more nuanced point you seem to miss....presently we are at about a score of 10 (~6% inflation & 3.5% unemployment).....pre-pandemic we had misery index score of 6.....THAT was a great economy.......having a job but being unable presently or in the future to cover your household expenses is indeed miserable.......folks talk about a great economy simply on one measure alone 'unemployment'....its myopic & stupid.....how do I know.....look at consumer sentiment survey's, political polling.....a 3.4% unemployment with that jaundiced view should be screaming positivity and happiness......but it isn't....people are miserable.........why........cause inflation is picking peoples pockets & they feel insecure about the future. I think Greg you simply consider inflation to be a nothing burger....that a 5% inflation rate is a 'whatever'.........with that framework of course you look at the Fed raising rates, engineering a slow down & creating unemployment......as some kind of monstrous act pointless destruction. If you don't believe its a problem....ultimately......we have been talking past each other these past few months. However in my world when you balance the pros and cons..........the pros of 2% predictable inflation on investment, aggregate household budgets, societal stability etc........getting 'back to 2' is a hugely important, hugely desirable and the noble thing to do.......JP & I are in crushing agreement. Lets see if he follows through once the going gets tough!

Exactly - inflation manifests itself in different inputs, at different times in unpredictable waves for a producer.....inflation is a mental overhead tax for a business......just ask someone running a enterprise in Argentina for the last 40yrs............its why, all things being equal, inflation is barrier to long run planning & investment......the future trajectory of prices/inputs/margins becomes unpredictable.....at the edges corporates back away from making productivity enhancing capital investments as the IRR on projects, always foggy, gets foggier still. You dont miss your water till your well runs dry.......and you dont miss 2% inflation until............

I dunno Greg - I think your seeing conspiracies where none exist.....rather what we have is a bunch of participants in the political economy acting at points in time as you would expect them too..........voters/the population were scared by COVID, politicians acted to 'protect' them, in doing so people (voters) needed to be bailed out, the politicians responded with bailouts, the bailouts were widely popular with voters........and so the politicians tripped over themselves to do even more....so they could get re-elected in 2021/22.........they did too much for too long & we got inflation....the monetary authorities too lest they be accused of not doing 'enough' to fight COVID in that period, kept financial conditions too loose for too long....they messed up now and are trying to fix it. You put the too together and you begin the chain reaction of monetary inflation we have now which is self-reinforcing. Indeed the next cognitive policy error is where the monetary authorities...........getting beat up by Elizabeth Warren on TV a few more times & becoming widely unpopular as unemployment climbs up to 4-5%.........fools themselves into thinking that the inflation fight is complete and they begin to cut rates too early & inflation returns. The other expected policy error with the fiscal authorities to come next is to continue to espouse their hate for inflation.....while simultaneously fueling it.......CPI like increases to social security.........more borrowing/more spending bills etc. I don't see a conspiracy here.......I see what I usually see.......people doing what is expedient and repenting later.

Yep the only margin expansion occurring right now is at the IRS.......I wish it was publicly listed

Falling corporate profits in both nominal & real terms in this environment....as we've talked about here ad nauseam.....does not suggest some corporate conspiracy or greed both driving inflation and benefitting from it. Corporate greed I'm afraid is not the boogie man here.....corporate profits will be some of the collateral damage, already are in this inflationary period. I wish it was as easy as owning PepsiCo & collecting my Cheetos cheques….it isn’t. The other beneficiary of inflation is someone with marketable skills in short supply who's labor ratchets up in lock-step with inflation such that their YoY purchasing power is being preserved.......and where that person acquired a portfolio of HARD assets pre-pandemic such as homes and investment properties.......and smartly re-financed those hards assets with mortgages in 2020/2021 with the numbers 2 or 3's in front of them. These folks are winners too here but the combo of both is likely relatively rare and would require (based on anecdotal chats) someone to be jumping jobs yearly. Inflation is a silent tax on us all.......the only true true beneficiary is the fiscal authority who's historical debt issued in the distant past (on the basis of 2% inflation expectations) grows smaller in REAL terms as its taxing authority falls on ever higher nominal wages/ salaries , capital gains and corporate profit numbers being generated in its fiefdom.......such that the historical debt piles service costs in real terms is falling or put another way the debt burden is becoming less and less of a burden! That assumes of course the fiscal authority doesn’t simply ratchet up its committed spend as the nominal tax windfall rolls into the coffers…..but even modest restraint or deadlocked congress should see the debt pile shrink in real terms… The US gov might have sent cheques to everybody during COVID……but I really do consider what’s happening currently with inflation as a version of people unwittingly and without their understanding sending inflation cheques back to D.C.….there are no free lunches in life…..and bailing out everyone and everything that moved in 2020/2021 was not ‘free’. Relative to the potential alternative societal COVID scenario - anarchy, chaos, mayhem - what we got and the price we are paying now with inflation can be seen as rather benign.

I can say the above with a high high degree of confidence - in aggregate across SPY....with the underlying earnings dynamics deteriorating underneath (volume/costs/margins etc.)......then layering on top the fact that bonds are competing with equities such that multiples are very unlikely to expand any time soon (contraction is the more probable path)........you've got two really strong headwinds for SPY levels.....I've traded around this idea now for many months....effectively selling vol. On Europe - I would say it looks very interesting from a valuation perspective......and I've significant amount of my NAV there........Europe unlike the US looks way more like what @Gregmal talks about in regards to the US....which is to say one time event driven inflation (supply chain/energy ec.) that is subsiding as those events roll off & base effects kick in.....Europe doesn't suffer from the same level of monetary inflation issues, I contend, that the US induced via the scale of its COVID largesse.....it has excess labour capacity/immigration on the sidelines that can be induced to increase output........interest rate sensitivity is much more pronounced with much larger proportion of the credit there floating rate.....which means to the extent nominal spending growth is exceeding productivity growth the ECB can meaningfully impact households budgets and put a brake on aggregate spending growth. It isnt all roses of course....being energy independent as the US is just a huge structural advantage.....likewise geography as we've talked about before.....Atlantic & Pacific Ocean/Canada/Mexico.......living in a 'safe' neighborhood with friendly neighbors is an immense advantage over time!

Its a bitches brew - as I've said for many pages of this thread............conservatism on both earnings forecasts and the multiples you pay for those earnings is important right now........the last decade plus has been characterized by broad multiple expansion.......it flattered a lot of mis-forecasting of underlying earnings power as multiples time and time again bailed out misjudgments on a mark to market basis. Multiples coming in coupled with mis-forecasting of earnings is just devastating to underlying equity returns and so if your gonna play, youve got to play carefully.

Your right - its just beautiful.......think of the no FCF tech entities that were handed debt and equity life vests in 2021 & early 2022 and said "no thanks".......by choosing not to issue new shares or debt...... pure capital allocation criminal negligence!

What did we say before about profits?........something about them getting whacked I think? To standstill at this ~4000 level the only option is to keep paying higher and higher multiples for lower and lower earnings.........expanding multiples you say, we've done that before? Yeah I agree....but this aint the 2010's with ZIRP stretching out as far as the eye could see....we are now in IIRP (inflation interest rate policy!)....the old time math says that with interest rates rising on risk free or less risky fixed income alternatives....one should, all things being equal, be paying less of a multiple for earnings on equities. Maybe Buffet got confused with all that gravity talk before

Maybe he can take private the Federal government......once FSD beta is released next year From now & until then Norma will be sending invoice reports by fax to Jean..who works for Brad......who's assistant Thomas's job is to scan them faxes into an email report.......so that they can get sent to both Bill & Brad to review and sign off on