Is The Bottom Almost Here?

[Dinar]

14 minutes ago, Gregmal said:

I don’t think there’s many times where I ever agree with Elizabeth Warren but she totally nails the issue here. Who does this jerk off think he is playing with the lives of millions of people on little more than a whim and an academic theory peddled by people with conflicting interests, predicated on short term, largely meaningless weekly datapoints, largely influenced by theoretic stories about all the doom and despair it’s “guaranteed to bring” in the future, if not handled now?

Greg, with all due respect, I could not disagree more.  5% inflation is a huge problem, it confiscates the wealth of people, including tens of millions of retirees, and those who are prudent, including many who while working low wage jobs do save.

Clearly this was caused by Trump's stimulus checks, exacerbated by Biden, worsened by shut down of the economy by the likes of Cuomo and Powell being irresponsible by keeping rates so low for so long.  

However, to say that 5% inflation is not a problem, it actually is.  If you make 6% real return in the stock market (historical average over the last 90 years) then post tax you make 4-5% in a world of zero inflation, and 0% in the world of 5% inflation in real terms post tax & inflation.  Inflation is confiscation of wealth!  How many countries have succeeded with 5% annual inflation?

[Gregmal]

17 minutes ago, changegonnacome said:

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.

5% caused by events of 2021 and early 2022 that are far, far in the rear view mirror to me are a nothing burger. Just like rents going parabolic for 12-18 months around 2021, but still showing up in various datapoints even into 2023…so will the 2021 inflation boom. This chump is sitting here acting like it’s still happening based on weekly datapoints and acting like Heinz charging $6 for ketchup highlights the problem. It’s absurd. If one year from now we are at 5% I’ll totally eat my words. But people are fixated on 5% right now which is preposterous because to come down from the levels we were at last summer you need to roll off the numbers and that’s all there is to it.
 

You go case by case and majority is far from inflationary. People screaming about energy costs are either liars or uninformed. Housing? Peaked a year ago. Hasn’t inflated at all last 12. Grocery? Again depends what you look at. Commodities, not much there either, to the tune of like 30% DOWN year over year for the Dow index…yet people like Powell get to keep talking unchecked. If we think it’s a tax, well we already get hit with those too. They’re part of life as well. Unless in addition to raging about the inflation tax, we re planning to riot at the Capitol over the bigger ones too?

Edited March 9, 2023 by Gregmal

[Gregmal]

Warren:

"In other words, you don't have a plan to stop a runaway train if that occurs," Warren said. "Chair Powell, you are gambling with people's lives. And there's a pile of data showing the price gouging and supply chain kinks and the war in Ukraine are driving up prices.
 

…………

 

Are people really arguing that those 3, well definitely the latter two, aren’t major contributors….to the backwards looking datapoints everyone is currently looking at and extrapolating out in perpetuity?

 

And if you really wanna argue no price gauging(I hate that word, it’s capitalism) look at homebuilder margins….what % of the “inflation” is influenced by shelter??

[Valuebo]

Markets been a bit jittery and participants are fighting the last crisis. Bank run on SVB maybe but should be easily contained. This isn't the last crisis. 

Edited March 10, 2023 by Valuebo

[Gregmal]

Keep listening to your academic buddies and hedge funds Jay. They’re using you like they used Summers and Co who walked us into GFC. Derivative deregulation is good for the economy! 
 

Good to see another solid jobs print though. Can’t help but root for the normal guy against these monsters. 

[Parsad]

9 hours ago, Valuebo said:

Markets been a bit jittery and participants are fighting the last crisis. Bank run on SVB maybe but should be easily contained. This isn't the last crisis. 

 

Mmmm...there's more here than we know.  How did this all start?  Who is holding what bag?  Contagion among leveraged institutions is not easy to contain, especially when the Feds have no idea what bag will drop next.  

 

Fed had no idea about AIG while they were helping Lehman...and they had no idea about Lehman when they were watching Bear Stearns go down...and at the beginning, no one knew that derivatives could be so destructive where Bear Stearns would fail.  So the Fed is slow to react (as we've seen with interest rates) in most cases.

 

In this case, we had multiple mini bubbles, rather than one gigantic one.  A couple of them have popped...we may have a couple to go!  Cheers!

[dealraker]

I'm just waiting for the guv debt default scare to wash through.  Yea, all these are mini's.  

 

100% in gold (in my dreams).

[Viking]

So what did we learn today? The 15th largest bank in the US just blew up. WOW! Largest take down of a financial institution since 2008. Is this a big deal? Yes. How big? Well we just don’t know… yet.
 

interest rates were close to zero 12 months ago. As of yesterday, rates were 5% and talk was they were going to 6%. Higher interest rates impact the economy 12-18 months later. The timing of SVB blowing up is not a fluke. 
 

When interest rates went from 5% to zero over the past 10 years, an absolute ton of money was made. Now that interest rates have gone from zero to 5%, an absolute ton of money has been lost. Except lots of these losses have not yet been realized. SVB blowing up is going shine the spotlight on other asset mis-matched / highly levered parts of the economy (with debt needing to be refinanced): commercial real estate looks like an obvious next shoe to fall. Who is exposed? Which REIT’s? Which banks? What about the unregulated shadow banks?
 

SVB blowing up is likely going to cause a ripple effect through financial markets… where are the cockroaches? Capitalism can be a vicious thing… the knives are coming out. And the Fed is getting what it wants… a tightening of financial conditions. An end of free money excesses. It just better hope things don’t get out of control.

—————-

US treasury yields are cratering… the 2 year is down something like 50 basis points in 2 days. Stocks? All hunky dory. 

Edited March 10, 2023 by Viking

[Intelligent_Investor]

To be fair, it seems like SVB made some absolutely idiotic decisions with risk management. Who in their right mind buys so much long treasuries at like 1.5% interest rates

[Viking]

12 minutes ago, Intelligent_Investor said:

To be fair, it seems like SVB made some absolutely idiotic decisions with risk management. Who in their right mind buys so much long treasuries at like 1.5% interest rates

True. But look at all the commercial real estate that was bought in recent years at cap rates that are 1/2 of what it costs to borrow today (with loans coming due in the next year or two). Today in Canada probably 25% of all mortgages are now negative amortizing (the monthly payment no longer covers the interest costs… so the difference is being added to the mortgage balance). There are so many examples like this of excesses that continue… until they can’t.

Edited March 10, 2023 by Viking

[Gregmal]

Weren’t banks the high rate beneficiaries? Too funny. The hedgies got the puppet to do exactly what they wanted. It’s dangerous chasing something that does exist. But hey, at least jay showed everyone his credibility lol 

[Spooky]

39 minutes ago, Intelligent_Investor said:

Who in their right mind buys so much long treasuries at like 1.5% interest rates

 

Especially when you are also super exposed / concentrated to another extremely interest rate sensitive sector, venture capital.

[Parsad]

1 hour ago, Intelligent_Investor said:

To be fair, it seems like SVB made some absolutely idiotic decisions with risk management. Who in their right mind buys so much long treasuries at like 1.5% interest rates

 

Like 14 other regional banks...five of which had their stock halted today.  Risk management rarely prepares for outlier events.  Cheers!

[Spekulatius]

14 hours ago, Valuebo said:

Markets been a bit jittery and participants are fighting the last crisis. Bank run on SVB maybe but should be easily contained. This isn't the last crisis. 

I do think that lending is going to get tighter because many banks will consider their liquidity buffers.

[Gregmal]

Does any bank ever really manage risk the way normal people with skin in the game do? The bigger banks all basically just look at the regulations and get as close to them as they can and then look for ways to get around limitations. Banking has become automated even though real people still do most of it. It’s just box checking without a care in the world for context, which generally works, but when there’s an outlier typically everyone has been making the same mistake or using the same workarounds. 

[gfp]

Just put in an order for a built-in sub-zero panel ready fridge for my in-laws.  12 months lead time to get one!  Doesn't sound like a recession to me.

[LC]

2 hours ago, Gregmal said:

Does any bank ever really manage risk the way normal people with skin in the game do? The bigger banks all basically just look at the regulations and get as close to them as they can and then look for ways to get around limitations. Banking has become automated even though real people still do most of it. It’s just box checking without a care in the world for context, which generally works, but when there’s an outlier typically everyone has been making the same mistake or using the same workarounds. 

 

I can't speak for other banks but the one I am most familiar with is pretty good for one reason: They are so freaking backwards and people heavy, that they can't HELP but review every decision with a huge committee and take the most pansy-ass approach.

 

And the regulators have pounded pounded pounded into their heads the need for "conservatism". So every decision is viewed through that lens. 

 

And the people making these decisions are total Karens (male and female version) with zero skin in the game except career longevity.

 

So they just say, "is this a conservative decision?" If not, they don't do it.

 

And I don't mean to be critical: it has it's benefits. Suboptimal allocation in good times but I would be surprised if major cockroaches emerge. Although I am not as close to the hard lending decisions as I used to be, I l kind of look forward to see how the big boys fare over the next 6 months. 

 

I think a lot of these fintech/SketchBanks will take some hits, but the over-regulated, people-heavy major banks will actually come out a bit stronger and be able to pick up some of the wreckage.

Edited March 10, 2023 by LC

[Dalal.Holdings]

6 hours ago, Intelligent_Investor said:

To be fair, it seems like SVB made some absolutely idiotic decisions with risk management. Who in their right mind buys so much long treasuries at like 1.5% interest rates

 

SVB was betting on low rates for longer not just on its asset side, but also its liabilities side. It took deposits from the sector of the economy with the most to lose from rising rates. Double hit.

[Spekulatius]

10 minutes ago, Dalal.Holdings said:

 

SVB was betting on low rates for longer not just on its asset side, but also its liabilities side. It took deposits from the sector of the economy with the most to lose from rising rates. Double hit.

BAC and a lot of other banks did:

 

[Dalal.Holdings]

Just now, Spekulatius said:

BAC and a lot of other banks did:

 

 

Well at least BAC's deposits are not concentrated in startups/nascent tech (their liabilities are much better shape than SVB). I do worry about BAC's unrealized losses and yet WEB has sold every other bank except BAC. Maybe he's not concerned about it ?

 

Obviously with hindsight we can criticize, but I can't believe people moved into 20-30 year commitments just to get a bit more yield. I think inflation should have been anticipated in the wake of fiscal + monetary wave from covid.

[Dalal.Holdings]

 

I don't think Moynihan got Warren's memo

[Castanza]

Anyone else wondering how this will shake out for GOOGL and META in the ad department? Startups have been spending about half their cash on advertising between the two for some time. Many as high as 50% of cash. You had what 445B VC funding in 2022? Say 30% of that goes to ad spend so 133b and 50/50 split GOOGL and META....just napkin math without the nuance, but not immaterial when you consider GOOGL had 283b in ad rev 2022. 

[Dinar]

Just now, Castanza said:

Anyone else wondering how this will shake out for GOOGL and META in the ad department? Startups have been spending about half their cash on advertising between the two for some time. Many as high as 50% of cash. You had what 445B VC funding in 2022? Say 30% of that goes to ad spend so 133b and 50/50 split GOOGL and META....just napkin math without the nuance, but not immaterial when you consider GOOGL had 283b in ad rev 2022. 

Perhaps, is 445bn in VC funding only for tech, or for biotech as well?  

 

also look on the other side of the coin:

a) All of these companies carry a lot of deadwood, Meta fired 13% of employees last year, and will fire another 13% this year.  That's 20K employees, say at $400K per employee, that's $8bn in annual expenses just for Meta, holding comp per employee flat.  

b) Compensation is absurd, with 500K-1MM per year comp packages being a frequent occurrence, and many making even more - looking at you Salesforce.  Say GOOG/META/MSFT/CRM et all cut 200-300K jobs, companies like Docusing/Wayfair, et all fire another 50-300K workers and comp per employee can decline 30% as well.  So say comp per employee also get cut by 30% or $120K.  So that's another $7bn for Meta.  So Meta can cut $15bn of costs without much difficulty?

 

Google's employee count swelled since 2017, why?  What are those 50K+ people doing?  At say $500K per head, that's $25bn, add to that savings on the rest of the staff, and between the two you have $50bn of savings?

 

 

[Gregmal]

I’m kind of ok with the idea of guaranteeing deposits. These aren’t speculations and aren’t people taking risk; they’re putting their money somewhere that is federally regulated and should be safe.
 

$250k is a joke for an individual and for a business it’s nothing. People don’t store money under the mattress anymore, that’s how it’s evolved…if they are mismanaged, it’s either fraud, or a government fuck up. Here it’s kinda both. Who in the world didn’t have enough time to see this coming? It’s been orchestrated for 2 damn years. At the same time, if Powell is going to get power drunk and recklessly jack rates with no awareness of anything just cuz he s mad people still have jobs….is that really the fault of Sally running a tech startup or her employees hoping to get their paycheck next week? 
 

Even all the cash hoarders…how is your money safe if these things start becoming precedent? I had an investor years ago, one of the wealthiest dudes in Bermuda….was a conservative, old school guy. Had $42M in a Lehman money market fund in 2008…..there need to be lines where people can assume safety and not be held to some super duper high due diligence standard or “shoulda known better” scolding. Putting your money in a bank where you get 0% in return should qualify for that.

[Dalal.Holdings]

Well now it's on Zerohedge, Spek