Welcome back to another meet! Kevin Report: We are on episode 64 and it's a March 27th. The two tens are still inverted by 48 basis points. Now that's a far cry from the nearly 100 basis point inversion we had in just the beginning of the financial crisis. So that re-steepening is happening.

And remember that re-steepening tends to be the painful part for the financial economy. and that's potentially what we saw with bank failures. But why is the stock market not trading lower? Is it possible that that Nike Swoosh recovery is holding firm? Especially now. potentially as banking crisis woes or potentially starting to fade.

We'll talk about the banking crisis in this video. We've got the three month ten year though, still the most inverted sitting at an inversion of over a one point a two percent. uh, that is your super near-term verse versus your long term and a lot of folks explain that one away by saying ah, well, of course that's super inverted because, well, we have a lot of inflation now, but we don't expect it to last very long. Fine.

The five year and 10-year did briefly uninvert last week. Right now, though, you do have a spread of about a 10 basis points between the two, so slightly re-inverted But it's interesting because soon, over the next few weeks, if we continue with this trend, we might actually starts seeing the uninverting of, uh, some more curves starting to hold and and that could be Uh, they could be nice, because uh, then we could get away from some of those leading recessionary indicators. However, once they do invert, they do. We do still tend to get a recession, but the sooner they uninvert, hopefully knock on wood.

Uh, the sooner it's a signal that recessions will come to an end. Uh, the forced recession of the Federal Reserve is still expected to come. Uh, Q3 Q4 This year, Ice still maintained that I think it would be Priceless if we do not end up having the most predicted recession ever. Mostly because as Elon Musk likes to say fate loves irony and uh, I too think that would be quite, uh, ironic and entertaining.

Uh, so now what we're going to do is we're going to take a listen on into uh, let's do a few different things we've got. Let's see here, let's go ahead and start with uh what? Neil Kashkari had to say yesterday as well as some talk on how uh, funding stress is potentially starting to impact markets and maybe as well as what else is going on in terms of uh China exporting inflation the United States inflation levels? What do we think we've got Pce coming up on? Friday That's going to be a pretty big deal on Friday Mostly because it's the Fed's uh, quote, unquote preferred inflation gauge. so we'll take a listen. uh, or we'll look at some projections as well as catalyst.

So uh, go ahead and then and start with Kashcari's piece from yesterday and let's see if he can give us any kind of hints on the Fed. and then we'll jump into some reactions on the market. So let's make a little note of that. All right.

Okay, um, all right here we go. Let's take a listen to what the Federal Reserve I just had to say on a CBS at Face the Nation and then what we're going to do is we're going to look at some a world and Global reactions to what's going on in the financial markets. especially what's going on with China Where's all that inflation that we were supposed to be getting from China Some other impacts, we've got really great piece that we're going to go through right after we listen to Neil Kashgari on CBS. So let's take a listen here.

add some commentary as a helpful here we go in: New York with these failed Banks doesn't Exist Elsewhere In the country, the banking system is resilient and it's sound. The banking system has a strong Capital position and a lot of liquidity and has the full support of the Federal Reserve and other Regulators standing behind it. Now I'm not saying that all of the stresses are behind us. I Expect this process will take some time, but fundamentally, the banking system is sound.

This process. What do you mean by that? Well, when when tensions flare up in the banking system and stresses emerge, uh, we often hope that they'll be resolved very very quickly. Sometimes it takes longer for all the stresses to work their way out of the system. So we know that there are other banks that have some uh, exposure to long-dated treasury bonds who have some uh, duration risk as they call it on their books.

We also know that commercial real estate. There are a lot of commercial real estate assets in the banking sector, and there are some losses that will probably work its way through the banking sector so that process will take time to fully become clear. But fundamentally, the banking system has a lot of capital to be able to withstand those pressures. One of the things I think is so great is that as treasury eels have actually plummeted over the last a few uh, days here, Uh, through the banking crisis, the value of bonds that banks are holding has actually gone up.

So you're actually by having a banking crisis, you're creating less risk of the furtherance of the banking crisis. And you mentioned commercial real estate? Because so many of these mid-sized banks are lenders in that space. so that could impact. Construction In other words, this could have a real impact on the economy.

Does it tip us towards recession? Well, it definitely brings us closer Right now. What's unclear for us is how much of these banking stresses are leading to a widespread credit. Crunch and then that credit crunch. You're right, just as you said, would then slow down the economy.

This is something we are monitoring very, very closely Now on one hand, such Uh strains could then bring down inflation, so we have to do less work with the Federal funds rate to bring the economy into balance. But right now, it's unclear how much of an imprint these banking stresses are going to have on the economy. You know what I think is so remarkable is that back in January of 21, uh, we looked at history and history gave us this remarkable outline. It said look, if inflation is high, force a recession and inflation will go away.

When people actually internalize that we're in a recession, what do they do? They spend less money and so either the velocity of money goes down, the total spending goes down total GDP goes down. Whatever it takes, forcing a recession is a fantastic way. Well, I shouldn't say it's a fantastic way because it's somewhat painful. Uh, but it is a way to solve inflation.

That's because you're what you're really doing is you're reducing demand. Now there's the other argument that you could just accommodate Supply more, but that's much more difficult. The FED can't really do much to affect Supply Congress can. But who really thinks they could actually pull something off here? Uh, so far, all they've been doing is pulling off stemi checks for chips and EVs and Energy Products Which hey, fine with me because I've got a bunch of stock in those, but it's something to watch very carefully and that's what we're focused on.

And Chairman Powell said as much this past week at the Federal Reserve that that tightening and credit might be doing your work for you in terms of slowing down the economy. Does that mean it would make Neil Kashkari hit the break on rate hikes at your next pause? Well, we have to see. you know, right now the stresses are only a couple weeks old. There are some concerning signs.

The positive sign is uh, deposit outflows seem to have slowed down. Uh, some confidence is being restored among smaller and Regional Banks Uh, at the same time we've seen the capital markets have largely been closed for the past two weeks. If those Capital markets remain closed because borrowers and lenders remain nervous, then that would tell me. Okay, this is probably going to have a bigger imprint on the economy, so it's too soon to make a new forecasts about the next interest rate meeting that we have the next Fomc.

Yeah, and I'll tell you. We're going to go through some reports here in a moment on what some of the reactions have been to this banking crisis in terms of tightening lending standards and, uh, spoiler alert. It's not seemingly to be that big of a deal, but we'll talk about it with some reports in a moment meeting. but these are the factors that I'm going to be most focused on.

You know, when it comes to confidence among Americans in the system right now? CBS News Just recently did a poll and only 15 percent of people polled by us said they had a lot of confidence in the Federal Reserve's ability to manage these banking issues. why should the public trust the FED Now when this risk to Banks was missed out in San Francisco in New York and when the Fed was late to the game on catching up with inflation, you know the covet Pan Pandemic has thrown some curveballs at us that none of us have experienced in any of our lifetimes and it has taken us time to catch up and figure out exactly where the economy is headed. The interest rate risk that brought down Silicon Valley Bank is something that we've all been very focused on. We've been communicating it to Banks all across the country for the last couple years that interest rates are going up and most banks have done a much better job of managing their risks in advance of those interest rates going up.

And so there's still uncertainty in the economy. There are still stresses. You have a group of people at the Federal Reserve who are totally committed to our mandates to committed to achieving the public service responsibilities that we have. and we're going to continue to let the data and the evidence guide us.

And that is the best reassurance that I can give. Is That a lot? A group of people are non-partisan focused on doing their very best on behalf of the American economy and American households. You know. What's interesting is that you actually have an incentive as a bank not to hedge your Cur your your uh interest rate risk because when you hedge your interest rate risk, you have to take an expense.

When you take an expense, it makes your earnings per share look lower which makes it look like you're not performing as well as a CEO of the company. Well, The reality is you're actually protecting the company. but if instead of taking an expense on hedging risk, you could just take your losses and your your basically your bags and hide them under hell to maturity. Securities then you don't have to book a dime of losses.

Oopsie-doopsies That's exactly why you get some of this uh, drama unfolding uh at uh based like Silicon Valley Bank Because people are scratching their ads going. Why? Why did you not book any kind of Hedge beds? Oh well, because that would make your income and expenses look less profitable and you were incentivized via stock options or bonuses or whatever to have the most profitable P L So maybe there's some accounting reform that some folks are now calling for because the the incentives are very skewed for banks. But we're about to see the first hearing on Capitol Hill this week about what just happened. But there were flashing warning site warning signs out there at Svb Bank.

The Silicon Valley Bank in the months leading up to its failure on this program just earlier today Senator Warner of Virginia who's on the Banking Committee said The Regulators missed Basic Banking 101 the interest rate mismatch. How could that risk have been so missed by The Regulators at the Federal Reserve in Washington and in San Francisco Well, I don't know any specifics about the Svb case because they're not regulated by the Minneapolis Fed and I know Vice Chair Bar is conducting a rigorous review to understand exactly what happened. It has been publicly reported that the Federal Reserve did take action specific to Svb to get them to address these exposures. I don't know more than that and I'm looking forward to Michael Barr's review and his findings which we're all going to take very seriously.

I Can tell you at the Minneapolis Fed, we have conversations with our bank supervisors and then with the banks about these risks all the time. It doesn't mean that we're not going to make mistakes, doesn't mean that we are perfect, but I know across the Federal Reserve that bank supervisors have been focused on these very exposures since before the interest rate increases even began last year. Just on this program last week, Senator Warren says she doesn't have confidence in Mary Daly the San Francisco Fed president. do you I do I know Mary Daley exceptionally well.

I've worked closely with her for the last several years. She's an outstanding public servant committed to helping all of us fulfill our mission for the public. Nonetheless, we have to look at the findings that Vice Chair Bar comes out with. Take those findings very seriously.

All right, we're going to back off that and get into uh, some of the Uh impacts that banks are expecting. Uh and uh analysts and financial markets are expecting Neil Kashgari doesn't go on to say much more after that. So one of the first things that I'd like to understand is how much do we actually think this banking crisis is really going to hit the economy? Uh and uh. And that's a big deal, especially looking at sort of GDP Hey, what what do we think in terms of GDP Uh And so there are a few different analyzes.

Morgan Stanley provides one. Uh, Morgan Stanley suggests that credit shocks will take a toll on the economy, but it will take time to figure out how large those effects could be. However, in their estimates, we think that this pullback in Bank lending, which was already underway we were already seeing tightening and lending standards. This pullback could end up shaving off about 10 basis points from GDP That's a belief from Morgan Stanley.

However, these effects could end up taking a lot longer to play out. They actually think the largest impacts could be felt around Q4 of 2023 and Q1 of 24.. this kind of leads to this idea that maybe we have to be more patient with when we actually think the impacts of all this hiking and the credit squeeze will actually come. Patience is probably the biggest thing that I've learned in this cycle, especially I Think we we all had this memory out of Covid or even how quickly uh, bailouts were instituted in 2009.

We had this more recent memory of quick actions from the FED quick actions. You know you had the September crisis in 2008. By February of 2009, the Fed was running the money printer right in in 2018. As soon as there was a slight sign of Market stress, the FED turns around runs the money printer covet pandemic.

It wasn't even a matter of a few months. it was a matter of a few weeks before they started writing the Monday printer. So this this idea of of the the FED u-turning is taking a lot longer and because of the inflation that we're seeing now which hopefully ends up proving to be dare I say the word transitory, but take a look at Goldman here. Goldman also gives a projection a little bit further out.

Goldman suggests that we could see a tighter credit reduced GDP by around four tenths of a percent. That's about four times as much of the impact that Morgan Stanley thinks. Uh, but you could kind of make sort of a range here and suggest that it looks like analysts are thinking somewhere between 0.1 to about 0.4 To the negative on GDP is what we might expect from tightness here as a result results of these banking failures. But anyway, they suggest that we're probably looking at seeing this this hit somewhere around the fourth quarter.

So again, another analysis where maybe, uh, that hit just doesn't come as quickly as we think uh and uh and it's unclear obviously how much that hit will be Bank of America talks about uh, funding risks, uh, as well a little bit of that credit Suite squeeze Uh, They do talk about some of the stabilization that we're seeing in in banking since then, but also Bank of America thinking somewhere around a 25 basis point hit to GDP when it comes to credit tightening. So when you combine all three of these, Morgan Stanley Goldman Sachs Bank of America Clearly, the hit to GDP is probably going to be somewhere between 0.1 to about 0.4 Now what's crazy about that is, if we actually look at the summary of economic projections that the FED just gave us, they just lowered their forecasts for GDP, uh, from 0.5 to 0.4 Now, the fascinating part about that kind of hit is taking us to 0.4 if we end up getting hit with a 0.4 reduction like Goldman Sachs estimates. but well, then, oopsie, Doopsie, you might be right there at zero or even slightly negative. And that's where that recession is.

So recession time are still looking like Q3 to q1 in that range. This certainly does as Neil Keshkari said, it push us closer to that and you can see when you look at the data fed thinks we're at a 0.4 GDP is how we end the year Morgan Stanley Bank of America Goldman Altogether think we're gonna have a hit somewhere between 0.1 to point four percent Because of the banking crisis we're knocking on the door. Recession? Could we be flat? Hey, taking flat is actually okay. In a weird way, if you're flat and non-negative you're not in a recessionary environment, so that'll be quite fascinating to see play out.

Uh, but uh, look I think they're they're This is leading a lot of people to call for the Fed to pause by May That's the next time we actually see from or hear from the Uh Fed. Uh, and so we can look at right monitors to see what expectations are now. but no going into. May These are where estimates estimates are likely to be quite uh, fluid for a while.

For example, you've got a one Economist suggesting hey, uh, this is this is let me see where did I write his name I just have his citation over here I wanted to reference him by name I lost this citation anyway. while I look for it, he's talking about how important it is for the FED to actually pause. Uh, here it is. it's Uni Credit.

An analyst over at Uni Credit says the FED should definitely Pause by May to make sure we have plenty of time to play out uh, the implications of this credit tightening from the banking sector. Now, if we look at the Fed rate monitor, it looks like we have a 38 likelihood of getting another 25 BP like and a 62 percent likelihood of a pause right now, which a pausing right now would somewhat align with what Jerome Powell hinted in the last press conference where they had even started to talk about the idea of a pause. That's the first time Jerome Powell has ever mentioned a pause in this tightening cycle and that was talked about at the last meeting. It was talked about at the last press conference, and it's actually now more priced into markets than not.

Obviously, markets are pricing in cuts. By the end of the year of around 100 basis points, the FED says we're not pricing in any of those sorts of cuts, and that's likely because if the FED starts talking about Cuts then people might start spending. stocks might start taking off Financial conditions might loosen and they could basically hurt the status quo where we are now. In other words, if the status quo stays stable right now, everything stays status quo.

Right now, everything stays stable, then potentially inflation goes away. But if the FED says we're going to the Moon boys, girls, that could have the opposite effect and actually re-ager re-aggravate uh inflation. So I think those are some of the concerns that Will Reserve is playing with right now to someone manipulate potentially what's happening in markets Now, we do have catalysts that we want to pay attention to this week as well. There are quite a few, specifically the Fed's preferred inflation Gauge Pce before I Talk about the Fed's preferred inflation gauge.

It's worth noting we do have earnings coming up this week as well Carnival Cruise Lines This morning Walgreens tomorrow morning with LoveSac Dave and Buster shift Lulu after the Bell tomorrow. uh, that's Tuesday Restoration Hardware Wednesday after the bell and on Thursday we'll get Blackberry and Canoe. We do have quite a few data points coming out as well. Let's take a look at Barclays They give us a nice little sum up here of the various different catalysts that we're going to be looking for.

So today we'll have Uh Fed Governor Jefferson the new Fomc, a voter discussing monetary policy at an event at 5 PM Eastern That's after the market closes, we'll have wholesale inventories coming out on. Tuesday You can see the projections right here. The forecast is for a growth of inventories of one tenth of one percent Advanced Trade These are tomorrow's catalysts here: Fhfa Federal Housing Administration Over here numbers. We'll get those tomorrow.

Okay, Schiller Uh, 20 City index for housing prices Uh, expected to actually come in at negative a point six percent year over year. So your first slight negative on the S P K Shiller here starting to get that year over year lapping. Uh, keep in mind even the treasury yields have followed mortgage yields. Mortgage rates have been pretty stable, mostly because spreads risk spreads have widened on mortgages.

probably because banks are dumping Mbs's to try to increase their liquidity positions anyway, pending home sales. Wednesday Thursday We'll get a real GDP Uh, the expectation is about 2.6 percent for Uh GDP We'll get initial jobless claims looking at looking for 195. Barkin will speak at an event on Thursday at 12 45 at the same time as Collins a non-voter will give a speech. so we'll get a voter a non-voter on Thursday It's a little bit of fed speak here and then here's the important set and this is: Friday We'll be covering this live when the data comes out.

but we're getting. are we getting the personal consumption expenditures read on Inflation That read is expected to come in at point Three percent? Uh, that is the Barclays forecast. The consensus though, is point four percent and the Uh. the latest report was actually 0.6 So we'll hopefully see some softening over here on PC.

Uh, the closer it comes into Barclays at point Three, the better. Point Three Good. Point Four starts getting a little bit bad. 0.5.6 Not great.

Remember, if you multiply these numbers by 12, you'll actually get your annualized figure. So if we get uh 0.3 we'll be sitting at somewhere around 3.6 Pce inflation which is much closer to two than obviously if you annualize 0.6 which comes in at 7.2 uh, you'll also be getting a core Pce also looking to match at about 0.3 uh. Consensus though on Wall Street is 0.4 University of Michigan estimates uh for inflation I Actually think I have the forecasts and the consensus for that. Let me see here that would be Friday Friday Friday Friday Friday Friday Friday Friday University of Michigan Inflation Expectations: we want to make sure they stay anchored.

Very important, they stay anchored. We do not want any kind of runaway of inflation expectations and the forecast for the 31st is one year inflation expectations. 3.8 percent that's stable with the prior read as the forecast is 2.8 percent stable with the prior read for the one year out. or sorry, that's the five to ten year inflation expectation.

so we could fill these in right here. Uh, actually. uh, the forecast matches the latest here which is three eight and uh, two eight. uh for their forecast and consensus here.

So uh, then we'll have uh, some more Feds speak as well. Look at all this Fed speak we get this week I mean a lot of different fed speak Again, let's just highlight the FED speak here. So you've got Fedspeak at 5 Pm today? Uh Fed Governor Jefferson Fomc voter New guy. We've got uh, bar an Fomc voter here testifying before the house.

Financial Services Committee on: Friday This should actually be really interesting because Barr is doing the investigation into the banking drama so we'll be able to get some banking updates over here. Williams uh at Uh 3 P.M on Friday the market will still be open, then right at close we'll get a Waller uh speaking at a conference and then cook uh speaking, uh after the close on Friday as well for more of a Uh dinner event. So this gives you a little bit of an update on sort of where the Fed's head is. Obviously, the Fed's head is likely to be in wait and see mode.

We don't actually get another fed Catalyst until the May event, which is May 3rd. Now, interestingly, that'll be right between uh two CPI releases. So you're going to get the March data on April 12th. So mark your calendar for April 12th and then the next CPI release won't be until May 10th, which will actually be about a week after the next Fed press conference.

Uh, then you're going to get the Uh Jobs data at the beginning of May as well. Uh, and the beginning of April here coming up. So mark your calendar for April 7th for the next jobs data and then the next jobs. That after that doesn't come out until May 5th which is again after the next Fomc uh, press conference on May 3rd.

Now that's interesting. That means the next CPI on April 12th and the next jobs report on April 7th will actually be the only New pieces of data we get. Uh, the larger two pieces of data. There'll be a lot of miscellaneous reports, but in terms of CPI and jobs, those will be the only two reports we get before the May Fomc meeting.

Which means the next jobs and the next CPI report will actually be on the 7th and 12th will be pretty important for trying to predict what the FED is going to do come May 2nd. So pay attention to that as a catalyst. So with that update on the Federal Reserve, it is worth reminding you to check out life insurance that you can get in as little as five minutes via the link down below. Uh, that is sponsored.

Uh, argument here is Zhang Hey, if you don't have life insurance yet, you should consider getting it. Tell your family Hey! I Signed up for life insurance you Apple paid Android Pay for it I Bet you you could do it before you're done going to the bathroom like you. Even even if you drink a lot of coffee, you could probably sign up for it before you're even done going number one pretty fast that Kevin.com Life or check out the link down below. Oh all right, the next thing that we've got to talk about is a banking update.

So we're gonna hit the Uh Silicon Valley Bank update. Let's talk China All right, this will be really fun. Oh yeah, there's a lot to talk about on banking, so let's go ahead and hit the banking update. Here we go for banking.

Now we've got a banking update that we gotta talk about First Citizens Bank A bank out of North Carolina is now going to be buying Silicon Valley Bay Now this is really interesting and we've got to talk about how China is related to Silicon Valley Bank and some of the stresses that we're seeing from this banking crisis as estimated around the world. We're going to take a peek at some of these, but let's understand this: Silicon Valley Bank has taken a lot longer to find a buyer New York Community Bank for example, bought Signature Bank almost immediately after it was taken over by the FDIC. The FDIC how dare you say worked all weekend, but they've worked multiple weeks in a row now to try to sell Silicon Valley Bank. And basically, when the Bank closed on Friday to Sunday night, they finally got a sale coordinated Silicon Valley Bank will be sold to First Citizens.

Which means anybody who's actually still a customer at Silicon Valley Bank will automatically become a customer of First Citizens Bank out of North Carolina Starting Monday Now the FDIC is going to retain about 90 billion dollars of Silicon Valley Bank assets about 160 billion dollars of which just to make sure the transfer goes smoothly. First Citizens will be taking 72 billion dollars of assets at a discount of 16.5 billion dollars. That is because they do expect to absorb some losses. That was a way to sort of negotiate this purchase.

Some losses will also be shared by the FDIC. We're expecting about 20 billion dollars of losses to be shared by the FDIC And guess what happens when the FDIC shares and law says they end up raising the fees at all banks. Which means all banks end up raising their fees. It's basically like corporate socialism when one person loses lots of money.

Everybody helps bail them out. And that's essentially what's going to happen with the FDIC. Now, keep in mind that Silicon Valley Bank has been in a little bit of drama recently because Silicon Valley Bank has also had Chinese subsidiaries and this is now really pissing off some people in Congress because they're thinking wait wait wait wait. We not only had normal people backstop the bailout facilities with taxpayer money for Silicon Valley depositors who are mostly tech companies and startups, but we're also bailing out Chinese depositors Now, Yes, Yes, to to some extent, yes.

Silicon Valley Bank Established their first Chinese subsidiary in 2005, their second in 2010. So they've had branches in China for a while. They also entered in 2012 into a joint venture Bank in China called SPD Silicon Valley Bank that was in partnership with the Shanghai Podong Development Bank and a Nationwide Commercial Bank that was listed on the Shanghai Stock Exchange in 1999.. So this is this created new banking opportunities for Silicon Valley Bank.

It got them into some banking licenses via this partnership. Uh, and so now House Republicans are demanding that Joe Biden answer to Chinese ties with a Silicon Valley Bank Janet Yellen Said that under the current agreement, the Chinese Communist Party linked to Silicon Valley Bay Uh. Essentially, their depositors are also being made whole as a result of the United States bailouts. This makes sense.

Uh. and this is what's leading. essential actually a Congress to send letters to Biden saying hey man, how is bailing out Chinese depositors actually benefiting us Obviously the response to them would be systemic banking crisis risks. Spend, contagion risks.

but a lot of people are scratching their head going. Wait a second. Silicon Valley Bank At a branch in Shanghai that was a 50 50 partner with China And now, where's China Why isn't the Chinese government stepping in and bailing out 50 of those depositors? What's up with that? It's a fair question. It's probably unlikely to go anywhere, but it's a question that's absolutely quite interesting.

Keep in mind that what you're finding is these: Bankers want to do whatever they can to increase profit and not necessarily hedge against risk. We saw the same thing happen at First Republic. although First Republic has a balance sheet that is substantially stronger than the likes of Credit Suisse or Silicon Valley Bank. However, even their co-founder gets lots of money.

For example, in 2021, the co-founder of First Republic Bank made 17.8 million dollars before jumping into the executive chairman role. That's when he was as CEO and that's the most out of all CEOs of similar science. Banks The CEOs now chairpersons brother-in-law runs a consulting company and that consulting company also happened to earn 2.3 million dollars for advisory work for for First Republic Bank. So uh, it doesn't even end there.

Okay, the lunacy of what's coming out with the these these Banks is pretty wild. First Republic Also paid the CEO now chairperson's son 3.5 million dollars to oversee the lending unit at First Republic First Republic was the 14th largest bank in the United States at the end of 2022.. obviously it's now uh, shrunk a little bit. Uh, and now executives are agreeing to take no bonuses and potentially forego some of their prior stock rewards as a way of, uh, signaling their commitment to the banking industry and to the bank itself.

But let's be real: banks are a fantastic way for executives to make lots of money. And there's no surprise that you're seeing. you know, lack of risk mitigation procedures. Now, obviously the big deal now is what kind of global impacts are we seeing from this banking crisis? And I'll tell you NatWest has a Phenom nominal piece that goes into some of the recent imbalances and credit stresses, as well as looking into specifically exported inflation from China.

Since we've been talking about Silicon Valley Bank in China, we may as well talk about exported inflation from China as well. But first, let's look at that banking stress and funding stress everybody keeps talking about from the point of view of NatWest. Now keep in mind Morgan Stanley Goldman Sachs Bank of America They all think we're going to see a hit to GDP in the long term. that is like Q3 Q4 Q5 That really plays into what the FED is saying.

But what about the near term? What's happening right now? Well, here you go. NatWest is telling us. Following the collapse of a few banks in the United States we were curious to see whether any material funding stress would materialize in the aftermath. Somewhat surprisingly, so far, we have not seen any signs of any issues or challenges.

No funding stress at all following the collapse of these Banks. Admittedly, Banks don't rely that much on short-term wholesale funding anymore, and the issuance volumes over the past week dried up to a large extent. So in other words, hey, short term, we're not really seeing any stress. Could the other analysts be correct that become Q3 Q4 q1 of next year? Maybe we're going to see some sort of recessionary impacts that is a forced recession from the Federal Reserve squeezing us into recession? Maybe.

But listen to this. NatWest thinks the banking problems now appear to be localized so far despite all the usage of the discount window and the term funding facility. Now that uh, you can actually see uh charted by I believe it was Bank of America Yet here it is. this is the change in the beds lending and you can see that.

Yes, we had two large weeks of drawing money out of the FED discount window first and then the bank term funding program which some people are calling buy the FED pivot facility but we expect that next week this could drop substantially and then really, this hiccup here dare I say could end up being transitory which is insane because I know in the moment it's like no way. There's no way it is possible now. I Look to look at the bear case and the bull case, but this NatWest piece is really interesting showing little short-term funding pain. although I do I will say that credit spreads on mortgages are rising.

That's keeping mortgage rates up as treasury yields are falling. Uh, it's basically the way to think about that is. let's say the spread between the 10-year and uh, mortgage rates is two and a half percent. Let's just say Okay So the 10-year let's say is at four percent, then mortgage rates might be at six and a half percent, right? Well, what happens if the 10-year Falls one percent? Well, technically, then mortgage rates should go from six and a half to five and a half, right? But if credit spreads widen while the 10-year treasury goes down 10, mortgage rates might only come down 20 basis points to 6.3 That means you had an increase of credit spreads of 80 basis points.

That was sort of like it's almost like you inflated a balloon between the two and you're like stress, right? That's kind of the way to think about it, and that's actually how in a weird way, you could see treasure yields go down and mortgages not go down. although these are very volatile so it'll We'll see what happens over the next few weeks where things actually stabilize. My guess is treasure yields will come up at the same time as that credit stress spread goes down and we'll find a new equilibrium somewhere. TBD If I had to guess I'd say that equilibrium probably not over four percent.

For the 10-year it's probably somewhere around 3.7 and mortgage rates somewhere around six and a half if I had a guess. Uh, but that's a total guess. So we talked about China with Silicon Valley Bank and I thought Well, that would be a perfect opportunity to talk about Chinese inflation as well, because if Chinese are now involved in our banking crisis and there are some arguments being made that the Chinese Communist party was pressuring Joe Biden to bail out Silicon Valley Bank along with Gavin Newsom who had Accounts at Silicon Valley Bank it didn't disclose that fact. Uh, despite begging uh Janet Yellen to bail out Silicon Valley Bank Gee, no wonder.

But anyway, it's also worth thinking about this concept of hey, wait a minute. Everybody was saying when China was going to reopen, we would see this: this massive burst of inflation and oil would go over a hundred now. obviously since December which is when these predictions were being made when Covet Zero was basically dropped in, China I made the argument that we're probably not going to see a hundred dollar oil. Uh, and we made I made the argument that we're probably not going to see massive exported inflation from China Now my basis for making that argument then was, look: China was fully open before the pandemic.

Just because they reopen, doesn't mean we're going to all of a sudden have the surge of inflation or oil prices because we didn't have that before. Now Some people were making the argument that, but wait a minute, aren't they going to strain Supply chains And the argument. The counter argument is, well, that assumes that Supply chains haven't already loosened substantially and they're not ready to welcome more sales. I'll tell you most, Auto and Chip manufacturers would welcome more sales.

right now because they've built themselves up for demand levels that we saw in 21. That's when we had massive supply chain stresses and now we're not seeing those supply chain stresses anymore and we're kind of like, all right. where's the business? So let's take a look at what NatWest has to say about that China Exporting everything except inflation. China's recovery will likely be mildly inflationary to the rest of the world at most at most.

mild inflation. Why well, is China exporting inflation? No supply chain disruptions and goods supply side price shocks of 2021 and 2022 look essentially over import price inflation for the U.S import of Chinese Goods is falling. It has yet to return to the deflationary depths of the 2010s. Remember folks, in the 2010 cycle, we were facing deflation Like people think that's nutty.

But I want I want to just remind you I want to take the liberty of reminding you for a moment what happened in 2018. Okay, I really want you to think about this for a moment right after I mentioned you could use buy now, pay later to check out the programs I'm building your wealth thing to have all of these you get beautiful lifetime access to. People are loving them, People are joining them. they're seeing the archives.

The value. Uh, you can learn my entire brain on a platter in these courses. Check that out. Link down below especially zero to million at real estate.

even though more people might like fundamental analysis because we like to eat stuff at home getting out. and actually Building Wealth in real estate. It's going to be a big opportunity over the next year here, so get yourself educated. So what happened in 2018? Well, basically for a decade, we had inflation sitting around 1.5 percent.

We were running under our two percent Target And as soon as the Federal Reserve tried quantitative tightening, what ended up happening: Markets freaked in December of 2018 and the FED folded folded faster than somebody who gets a two and a seven playing five-card poker. They folded so fast. that's because we were facing deflation at the time. that is if we run too far below a two percent.

Target What happens if we end up having to go to negative interest rate policies like Europe Remember before the Pandemic folks, remember Germany was offering you. They were offering you folks. They were offering you negative 0.2 percent on your savings account. So if you put your money in your savings account, you had to pay them negative point: two percent.

So for every thousand bucks you had deposited at a bank, you ought to pay them two dollars just to have the money there with negative interest rates? Uh, so yes. Will we probably return to these sort of deflationary depths of the 2010s? Probably. And right now we're actually trending in that direction. We're seeing price growth falling from China, which is great because we don't want that inflationary impetus.

Uh, it's not clear that manufacturers are passing on costs. This is actually really good as well. You don't want to see Pmis fly up purchase manager's Index This is where there's a survey of people who buy stuff from manufacturers and they tell you if prices are going up or down. and they also have a producer price index uh, which is just a measure of a basket of goods from a producer side.

And the manufacturing costs in the consumer goods PPI has remained low at under two percent year over year, and PMI data shows that firms have reported output prices growing almost consistently below input prices since 2016.. So despite all this inflation of the last few years, we're still seeing Pmis and Ppi is very soft in China suggesting very little inflation actually being passed on to the people paying for the goods. Unit export values have risen 10 year-over-year since June of 2022, and this could represent a higher value of exports or Price inflation. Though it's difficult to break this up because you could be buying more expensive items from China right? So that's why they're saying here.

It's difficult to say is this price is going up or business is taking it in the margin, but the point is, import prices are falling. Look at this chart here. You can see electronic import prices uh and uh U.S Imports Overall, both of them plummeting from China export. Uh, prices rising.

but uh, PPI low. So yes, year over year, you do have some price increases. and that potentially is because we're exporting more valuable goods from China. So you do have a little bit of a red flag here, but at least on PPI Sort of a basket measure rather than a mixed-based measure, right? This doesn't the bottom one.

PPI does not change for mix. you have the same mix every time. the top one could change. if people are buying and exporting different things.

uh, and so that could be an explain there. So uh, when you look at this combined with shipping costs, this is what transitory looks like I Wrote this: This is what transitory inflation looks like. folks. look at that.

Charlie Shipping costs out of China plummet. I mean basically everything is back to 2019 Lows: Some items are slightly elevated. If I look at the green line over here, we're still slightly elevated. It looks like the red line is back.

The blue line is back. Uh, the purple line over here is actually lower. So the only one that's higher right now is China to the Mediterranean Uh, that's the only one that's slightly higher on a shipping point of view. uh for Chinese shipping inflation.

so that's fantastic. Uh PMI Supplier times are finally falling. This is excellent as well. Quicker to get goods and services.

This is fantastic. Uh, stimulus and local demand? will it trigger another Commodities rally? sorry Steve That is unlikely. From China at least, infrastructure and real estate most important surface sources of commodity demand will recover, but constraints on the budget from policy signals and household demand mean the recovery will not turn into a runaway recovery or rally for Commodities at least not from China. Now uh, what's worth noting here is that they expect the biggest winners in China to be uh Services service-based expenditures.

This is why I've been I've been somewhat tempted to buy Starbucks I haven't pulled the trigger but Starbucks has a massive, massive amount of Starbucks uh facilities that they basically built during the coveted lockdowns. like they basically doubled the amount of stores they have in Covid or during Covid when nobody was buying. Starbucks Now everybody's spending money on traveling and consumer spending and hotels. Uh, Chinese tourists.

That's where the money is going. Tourism, import inflation? That that'll be the biggest source of import inflation for us from China Uh, tourism? So I find that quite interesting. Uh, so we talked about the funding stress that never happened. Talked about: China We could briefly take a peek at the beginning here.

We had some interesting notes as well. Markets should worry less about Global Financial instability as systemic risks are low and they believe the FED is done hiking. Now that's interesting too, because it goes back to the uh uh, this idea of uh, this Bank funding stress not being a big deal and we're seeing sort of this Full Throttle move towards Uh EVS which is just sort of another little note that they throw in here. They do talk about how the average cost of EVS is a little higher than the average cost of an ice vehicle I Wrote It's about ten thousand dollars per vehicle higher.

So how do you sum that up? Well, really, if you sum it up, you can look at Natwest's forecast that the funding stress is not happening in the short term. It doesn't appear to be systemic, and this is potentially why banks are rally. Yesterday we analyzed Deutsche Bank versus Credit Suisse and the numbers were much better at Deutsche Bank and First Republic wasn't half bad either. Get a look at that video uh, yesterday where we compared those uh, those uh fundamentals.

We can also see that China doesn't seem to be exporting inflation to us, which should take some pressure off of the Federal Reserve along with, uh, maybe some slight impact to tightening credit standards. But beyond that, this whole China risk, uh, being involved with Silicon Valley Bank doesn't seem to be that big of a deal because we're not really getting exported inflation from them. and potentially if we have a a low impact of funding stresses, maybe we have just enough of an impact to soften inflation here in America, but it doesn't seem like things are that bad. In other words, let me sort of summarize this in: English Funding stresses don't seem to be that big of a deal at this moment.

Maybe Q3 Q4 Q1 Maybe right now, it doesn't seem to be that bad. Chinese Inflation doesn't seem to be that bad. Fed's probably gearing up for a pause. Uh, in May, you've got about a 62 chance of a pause in May right now and then cuts to the rest of the year.

So far, things are really aligning with the idea of a Nike Swoosh style recovery. Now, if you're nervous, you could always get life insurance in as little as five minutes by go to Metcaven.com life. But I Personally think this is so far pretty good news that when we look at the fundamentals, they don't tell us we need to be that worried about the banking crisis. Do we really need to worry that some depositors were also guaranteed for the benefit of the entire U.S Banking system? Probably not.

It's good political drama for Fox News to cover, but is it a big deal? No. So, short-term banking issue? Not a big deal. Long term, probably transitory inflation. Based on these reports, it's all good news.

Alrighty, next up we have. Uh, let's do a little bit of uh Q A and see what you all have because we're going to head over to the course member live stream in a moment. Here we uh let's see here that covers this. That covers this.

We talked Catalyst we talked fed, we talked banking crisis. Uh, somebody's asking if forecast. There's no way forecasts are out yet. This this far out for CPI you got? You gotta ask like a week out man because you have to keep in mind they're like 63 people who do the estimates and uh, if you ask too early, you'll end up getting like one person's estimate And that's not a consensus.

and it's just a shot in the dark, right? So uh, let's take a listen here for a moment. Let's what's what is Jimbo talking about here. The Co: They're not done cutting head countries. No, they're not.

That's a very important point. Well, they've got to reach those operating margin targets. Yes, to continue to be. uh, very mindful on the cost side.

and then Goldman today, uh, takes a look at overall a generative gender of AI They take the Tam 150 billion right versus overall software Tam of 685. Uh, you know I didn't like their piece because it talked about long-term productivity and I think it very much is in disagreement with the kind of industrial part of the GPT that Jensen talked about. uh I I just didn't buy that. I do think that we're getting all right.

thanks Max We just got Carnival out. Let's cover Carnival really quick. Uh, let's see if I push the right button here. Okay, there We go.

Carnival Season Justin of 600 700 million dollars in Q2 Carnival Revenue up 173 from last year. Well yeah, I mean we expect some big numbers Carnival Seas Fiscal year 2023 occupancy of 100 or higher. That's fantastic since they always have some cancellations so they overbook like Airlines do a little bit. expect extension of booking lead times.

Sounds great. People are still spending. Uh, let's see here. let's see.

this is the the well booked for the remainder of the year at higher prices. Q1 occupancy was only 91 No intention to sell equity for the CEO continued growth and cash from operations. fine. Total customer deposits reached a record of 5.7 billion.

Highest booking volume for any quarter in company history. Good Lord This is people spending through the recession. The Uh Q1 Revenue matched ex I'm sorry. Beat expectations 4.43 billion versus 4.32 ebitda.

Justin came into 382 versus 304. That's a great beat. Uh, net loss came in at 690. They were expecting a loss of 559.

Better than expected. Actually, that sounds fantastic I Mean it really does seem like people are just spending through this recession. that's why I think this recession is just going to be there's the Stock's barely moving. By the way, 2.8 for Carnival earnings is pretty low on movement.

Uh, so a little balance there. you've got Tesla up a couple percent in the pre-market Barclay is pretty excited about Tesla beating its targets for uh Q1? uh, thanks to this tax credit. but uh yeah. I mean really, as long as people still have money to spend, we stay out of recession.

I Think that's why people are looking at Q3q4q1 for recession because maybe that's when people finally actually run out of money. but maybe not. imagine traveling that often during a recession. How wasteful.

I Don't actually think of a recession, you know? Uh, I I Think it's like they think about a recession where they lose their job and they have no money left please. Jim Cramer don't say anything about my stocks. oh am I getting sick? you know I had these when I went to Texas in North Carolina I don't know what it is, but I had this like crazy allergy attack that's just been lingering and 99 sure it's allergies because it's mostly, uh, itchiness and and specifically my eyeballs. oh my gosh, my eyes have been so itchy and it's gotten better since I've gotten back to California So that's good I don't know if it's just like a spring thing and I'm just not used to it out there.

but I haven't taken Claritin I mean I try not to take any I I don't like supplements I don't like pills I don't even take Advil when I have pain uh I mean obviously sometimes I do. but I try not to. Uh, but I took two claritins because it was so bad. so annoying.

Lots of pollen in North Carolina yeah maybe. uh if you park your car outside in the morning it will be yellow. Wow, that's crazy. Uh I hope you don't mean from urine? I think you mean like pollens and that? Uh, but anyway.

so we just scheduled a cruise for later this year. I Guess we'll re we'll celebrate the recession. Hey yeah, there you go look. I Personally think cruises are awesome I took three cruises last year.

Uh I Will tell you cruises are my favorite way to travel. Uh, it's impossible to get uh, you know, uh, like pulled over for for drinking and driving. That's that's fantastic. Uh, not that that would ever happen, but uh, it's also a fantastic uh uh, you know way to to go to like different events and socialize I Love the uh, comedy events and the music events and all that so it's really enjoyable.

Uh, and you don't have to drive anywhere I Think the worst part about traveling personally is driving. By far the worst part about going anywhere is driving. road trips put me to sleep. Flying does not flying does not Tire me out and like I feel rejuvenated? Uh, unless you're dealing with like sitting in the airport too long, then that's a pain in the ass.

Uh, but if you if sometimes you go to LAX and it's just like you're right on your plane, it's really nice. you don't have any checked in bags. you're not dealing with any of that crap. Traveling with families like paying the ads, but um, driving sucks.

So cruises fantastic. And they're really affordable too. Uh, surprisingly affordable. So anyway, uh, okay, so uh I mean I really? I think those are those are the big updates for today so far.

I mean Fed? Uh Fed? Catalyst We talked about Fed and Catalysts. The banking crisis is basically fading away. Uh, we'll see what happens this week. but uh, you know what's Morgan Stanley saying here Morgan Stanley believes this Mega Cap stock has a 50 upside I Want to know what it is? They're making me log into the paywall I pay for all the paywalls so it's okay Amazon Amazon's latest job Cuts could help the company's profitability Morgan Stanley said his price Target is a hundred fifty dollars implies an upside of 52.9 thanks to all the job Cuts blah blah blah Interesting.

All right. We gotta go over the course. member livestream. We're gonna do an analysis on some pet stores now.

So uh yeah. Anyway, I'm gonna go now. Uh oh yeah. I Gotta push this button.

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The courses are my own sponsor. Check them out! Love you! Thank you so much for being here. We live again tomorrow, hopefully a little earlier. and yeah, take it from there and I guess now I'm just kind of waiting for the music to end because it's the fun part of the music.

You gotta gotta get to the climax Man, you can't stop until you hit climax.