Heaven Report today's episode 47. A lot to cover today. Uh, we obviously have to talk about the banking contagion and the disaster that just happened with Silicon Valley Bank And uh, obviously we already covered what happened with Silvergate. But now we're starting to get the potential result of what a banking crisis looks like.

and it's not one that we really want to talk about. This is sort of the black Swani thing that people like to talk about. so we got some serious uh talks to have. Uh, it is worth noting the market is already very unhappy about this.

Uh, that should be pretty obvious, but you'll notice not only did stocks basically plummet yesterday, but yields also fell. Uh, you'll see that the 10-year bond is sitting at 3.833 right now. It's down about almost 30 basis points from uh where we were trading uh, just about a week ago, which was remarkable. and the expectations about the Federal Reserves terminal rate have also just Fallen because of, uh, this banking disaster.

So we're going to talk about the banking disaster. We'll start, start with that, and then we're going to get into the Jobs report which comes out in about 24 minutes. So let's go ahead and start with the Silicon Valley Bank Hell, and it's uh, it's really not good. All right.

Ready here we go. A banking crisis, uh, might be in front of us. Silicon Valley Bank has a complete disaster and it should scare you. This is the 15th largest bank and it basically used to Probably still at this point does, but not for long.

Back about half of all Silicon Valley startups Silicon Valley And startups are notorious for losing money and in tough times going bankrupt. basically potentially being vampire companies that if they don't have a product that can cash flow, end up sucking more cash out of the systems only to potentially go bankrupt. And unfortunately one of the first Banks uh exposed to the Silicon Valley startup world is going under. Well at least they say they're not going under.

but and some people actually think it's a buying opportunity. but I think they've lost their mind because this is really bad. Let's go ahead and cover what's going on. So let me give you a little bit of background first.

Basically there's a banking world where what banks like to do is they take customer deposits and then what they do with those deposits is they invest them in things to collect yields basically to yield Farm if you will. and what a lot of banks did is they would take deposits and then they put that money into bonds and they would. Those bonds would vary. They could be, uh, treasury bonds, shorter duration ones, not very risky, right? If you put your money into six months, 12 months, 18 month bonds.

little risk because you could just hold those bonds and take money from them right over time. And when you need the cash, the money shows up in 6 12 18 months. But what happens if you've committed to, let's say mortgage bonds and you've committed a lot. And I mean billions of dollars to mortgages which are much longer in duration like commercial bonds which might be a 10, 20 years residential bonds which could be as long as 30 years.

Well, all of a sudden, when interest rates go up, the value of your bonds plummet. and that means your balance sheet has what are known as unrealized losses. And when you need to raise money, you might have to start realizing some of those losses. That's exactly what just happened at a Silicon Valley Bank And it's leading to potential fears that we could see a bank run where people basically go to the bank and say we're taking all of our money out of the bank because we don't trust you anymore.

The problem though is if everybody starts withdrawing their money from the 15th largest bank, what does that mean for the rest of the banking system? Well let me give you a little hint. it's bad news. Yesterday 90 billion dollars of banking market cap evaporated on the market. And that is because institutions are very fearful about what just happened with Silicon Valley Bank.

Now this is different. I Want to be very clear, it's very different from Silvergee. Silvergate was a Community Bank in California much smaller that helped provide liquidity in the crypto space. Basically let Banks uh or Dave people an on and off ramp to go from dollars to crypto 24 7 was their pitch.

They're liquidating, They're closing down their Bank Well, just a day after Silvergate suggests, you know what? We can't survive anymore. We've got to close down our bank. Who who? Falls next? Well now potentially the 15th largest bank. Now before we go into some of the financials: I Want you to know some of the background of what's going on? Peter Thiel He has has a venture capital fund and he started telling all of his companies to withdraw their money from.

Silicon Valley Bank The more people withdraw their money from the bank, the less cash the bank has since. Banks Generally invest their money into something that might be upside down when people demand cash. What happens? The bank has to take more losses on loans or bonds or whatever they have. When the bank takes more losses, then eventually they might default on their own borrowings on their own obligations.

And when a company with what used to be 210, 211 billion dollars of assets starts defaulting on some of their own debt, guess who starts taking the L then? well, potentially companies like JP Morgan Goldman Sachs other big companies and big Banks. That's when you really start having potentially systemic issues. There's a reason why Bill Ackman is suggesting that the Federal Reserve should actually bail out silver. Uh, Silicon Valley Bank How crazy is that? Right back to 2008 bailout world because we are concerned about the consequences of a bank run at one company potentially spreading.

But it's not just Peter Thiel Who suggests you know what? There's relatively low risk of you taking your money out of a bank, but you don't want to be the last person standing. Why would you take the non-zero risk of potentially losing your Capital at a bank if you could just withdraw your money and go put it in a safer Place Remember anytime you have more than 250 000 at a bank, you're generally over the FDIC limits now. I Say generally because sometimes you can have your money divided up by something like Robin Hood where they divide your money into multiple banks for you. But what's remarkable here? It's not just the 90 billion dollar banking Wipeout but the fear that is spreading Peter Thiel suggests people take their money out of Silicon Valley Bank Not only that, but you've got Venture Firm Tribe: Capital Advising companies move some or all of their balances out of the bank as soon as possible because the risk of a default and essentially being the last person standing without any money and then you would get caught up in litigation for year years to try to get Pennies on your dollar back is non-zero In other words, get out.

There's another Capital company sending emails and text messages urgently imploring their CEOs to move money out of. Silicon Valley Bank This is a classic Bank Run That's what this is. This is a bank run. so you have the 15th largest bank in America now going through a bank run during a Fed induced recession.

So why is the market pissed? Well, the Market's really pissed because this is exactly the kind of Black Swan event that everyone is worried about that could potentially take down a greater portion of the financial system. That's very scary. That's why you have Bill Ackman saying hey, we need to bail this company out because if we don't, things could actually end up being worse. That's scary.

But think about this if you really want to see why the markets are fearful. All you have to do is now. look at stock prices. Look at what the Bond market is telling you.

The Bond market was telling you. Ah, the Fed's probably going to raise rates 50 basis points soon. Ah, the terminal rate's going to go up to 5.6 Oh Break Even Inflation rates are rising. What actually happened? All of those were versed.

Break Even Inflation rates on the five-year plummeted about 45 basis points yesterday. That's a big deal. That means we were starting to show signs of potentially inflation expectations running away, which is really bad for inflation. Potentially shows that uh oh Paul Volcker's got to come to town soon because inflation's being sticky.

Uh oh nope. Those inflation expectations plummeted. But they didn't plummet because inflation is now. All of a sudden not a problem anymore.

they're plummeting because of fears about real financial distress in the banking sector. The last place you want to hear about a crisis because that's what led to the 2008 crisis. A real estate bubble that led to a failure of financial institutions. That's scary.

Listen to Bill Ackman For example: Bill Ackman tweeted to be clear, a bailout should be designed to protect Silicon Valley Bank depositors not Equity holder So he's already having to defend this argument that the government should guarantee Silicon Valley Bank He says the failure of Silicon Valley Bank could destroy an important long-term driver of the economy as venture-backed companies rely on Silicon Valley Bank for loans and holding their operating cash. In other words, Bill Ackman is starting to say look, Silicon Valley Bank goes away and they stop providing loans to venture capital. Well then Silicon Valley goes bust and all the people who think they're rich in Silicon Valley they go bust. They stop spending money.

They stop spending money. Good luck at earnings for companies in the S P 500 or the NASDAQ This is exactly the kind of Black Swan you want to avoid. And so this is why Bill Ackman says: if private Capital can't provide a solution, a highly dilutive government preferred bailout should be considered, You literally have Bill Ackman the guy who went on CNBC screaming that we should lock down the entire economy for 30 days to stop the spread of Covet just shut everything down. While he's actively shorting the market he's on CNBC Yelling shut everything down.

He basically perfectly made the bottom of the market March 23rd of Uh of 2020. the same person is now saying the government should bail out Silicon Valley Bank The same person Now This is insane because not only is he calling for this kind of bailout, but what's actually really interesting is Jim Cramer made a CNBC video just a few days ago. He had a piece on Uh Silicon Valley Bank and unfortunately, much like Bear Stearns suggested Silicon Valley Bank is potentially a buying opportunity before. it lost 60 percent yesterday and another 50 percent in pre-market right now.

This is eerily similar and ways that you don't want it to be similar to 2008 and to the collapse of Bear Stearns Bear Stearns was about a forty to fifty dollar stock when Jim Cramer told us your money is safe with Bear Stearns What ended up happening? The company ended up being bailed out by JP Morgan for ten dollars per share. Massive collapse. From that point, the same thing is now happening with Silicon Valley Bank. It was almost the kiss of death for Silicon Valley Bank.

But it's not just that, it's the financials. I Want you to see the financials of how dirty these financials actually are and what the company is doing and why the stock is falling as much as it is. So take a look here. This document right here shows you first of all, I Wrote some notes at the top in terms of, uh, some some losses here that have been happening with the stock.

But first I Want you to look at this. Today we took strategic actions to strengthen our financial position. Basically, we's running out of money. But not only are we running out of money, the company sold substantially all of their available for sale Securities portfolio with the intention of reinvesting the proceeds and commenced an underwritten public offering.

In other words, the company is scrambling to raise 2.25 billion dollars, 1.25 billion from shares, 500 million from another private company general Atlantic who's investing 500 million and then a bond race. In other words, the company, as of yesterday's market cap, is scrambling to raise one third of the company's value in cash just to try to stay afloat. That's very bad, very bad. and look, they provide a lot of liquidity for Silicon Valley and startups, but that liquidity is now gone because the company doesn't have any money anymore.

Now could this have been seen? How could you see things like this potentially coming? Well, the beautiful thing is, you could go into their earnings and you could see where these losses actually Mount up. And it's kind of scary to look at, but we'll take a look at exactly it because these are the things that if you're exposed to banking stocks you potentially want to start paying attention to. So first thing we have to do is we're going to go to the Q4 report from Silicon Valley Bank Silicon Valley Bank Q4 and we can jump on over to page 14 of the Silicon Valley Q4 report now. I Want you to see what you have over here.

So this is page 14 of Q4 And what I want you to know is this company just took an over 1.8 billion dollar loss on their available Securities And what I want you to see here is the net income for this company. The net income for this company on an annual basis was 1.5 billion dollars last year 1.77 The year before that they just in one Fell Swoop lost over one year of income. It's not just that though, because even though they may have taken around a two billion dollar loss, that's just the beginning because their losses are actually substantially greater than that. and you could see unfortunately similar things in the banking sector and other areas as well.

which I'll show you. So now we're going to go to the annual report and we're going to look at page 64. So what do we have at Page 64? Well, page 64 shows you where this company this is. Silvergate has unrealized losses.

So what banks are allowed to do is they're allowed to show you. hey! look, we have a lot of bonds and security. Holdings See here are some of our residential bonds. Here are some of our commercial bonds.

Here's some uh of the the other agency bonds that we have. These could be like to: Jenny May Fannie Mae Where these bonds are, doesn't so much matter. But what's scary are the potential unrealized losses that this company has. And what you're going to find is they have losses in excess of 15 billion dollars.

And when we go to their balance sheet, this is a company that doesn't have the ability to sustain those forms of losses. I'm going to grab that uh, one second here. let's see, where is my document. Give me one second to make sure I can pull up the exact Pages because I want you to see these.

but for some reason I'm having a little bit of a technical issue actually getting to that page. which is very unfortunate because I would like to get you that document. We've got jobs data obviously coming up shortly here. Uh, here we go.

Okay, got it. Stand by. it's on the Q4 page 15. Okay, watch this.

Uh, okay. hold on. I had sorry I Had so many technical issues this morning with with this synchronization. This is why I don't like traveling.

it just ruins ruins my my flow. Everything doesn't sync right I'm sorry. All right here we go my Lord sorry this is very embarrassing myself. Okay here we go take a look at this.

This is the actual Q4 right here. And what you could see right here is the Hell to Maturity Securities Show An actual value of a 76 billion dollars. But they're actually showing them on their balance sheet at 91 billion dollars. So this is how the banking system can literally lie to you.

In your face. they will tell you on their balance sheet. Look, we have 91 billion dollars in available capital from these hell to Maturity Securities Like those bonds that I showed you. Oh, but in this footnote over here, we're actually going to let you know that that's actually only worth 76 billion dollars.

That difference is an unrealized 15 billion dollars of losses at the 15th largest bank in the country. That's because they're yielding maybe about 1.9 on the average of of their bond portfolio. Well, free risk-free rates right now are sitting around four percent. In order to sell off these bonds.

to raise cash, you basically have to give the bonds away. And why would you have to sell bonds? Well, you have to sell bonds when people stop depositing money with your bank. And guess what, startups don't have money to deposit with your bank anymore. So now not only are you running out of the potential deposits that basically fund your Ponzi, but people are actively being told to as quickly as possible with a draw money from Silicon Valley Bank Now JP Morgan wouldn't have been any use to you.

Unfortunately, because take a look at this that I saw on Twitter Somebody posted this from November 15th of 2022 and they wrote they provided this JP Morgan piece which gave an overrate weighting of this stock of 375 dollars. and they bragged about how even though this company has unrealized losses, this company is probably going to see a massive inflow of client funds. and the exact opposite is happening. So in other words, you had JP Morgan covering for Silicon Valley Bank which is now I mean the Stock's trading for for a fraction of what it has been trading for.

So right now Silicon Valley Bank is trading for a hundred and six dollars in pre-market It is actually down to 36 dollars. The day before yesterday it was trading for 267 dollars and it had a price Target from JP Morgan of over a hundred dollars more than that of 375.. So in other words, JP Morgan was telling the world. Oh, don't worry, this bank's going to get massive inflows.

It's worth 375 dollars. Not only is it worth 375 dollars, but we know it's only trading for 275 right now. And don't worry about all the unrealized losses the company has. Don't worry, it's fine.

they'll get massive inflows from their clients. Well, now, not only are they not getting deposits, they're basically suffering a bank run. People are running to the door the exits as you should I would not be speculating on this Bank I'd be getting my money out of a Silicon Valley Bank if I had any money exposed to them or any of the other companies that they're involved with. I I personally would recommend getting my money out.

But anyway, so you have a stock trading for in the 260s that JP Morgan says is worth 375 because don't worry, money's gonna come in. Then money stops coming in the Ponzi stops, the stock goes down to 100 bucks. Now it's down to thirty six dollars at the same time as the company is trying to raise a third of their yesterday market cap. Okay, but wait a minute.

If the stock is now down to another two-thirds that means they're basically trying to raise as much money as their market cap. They're going to crush this stock. This is like Rivian all over again, except it's in the banking sector. and rather than just a car company going bankrupt where you have a car company that's worth 15 billion dollars supposedly that needs to raise another 15 billion dollars to survive rather than just having a car company going bankrupt.

This could really have systemic issues for the entire Financial system and this is why Bond yields are actually falling. This is why expectations are. Uh oh. the Fed's not going to go 50 because they could actually break what's turning out to be a fragile banking system.

This is scary. Not only is it scary because you think, okay, well, it's just Silicon Valley Bank Like, who cares, right? It's worse than that. I Want you to see three pages from the JP Morgan annual report and in my opinion, this is scary. Okay, you ready for this: I Don't like this I Don't like reporting bad news, but look at this first.

I Want you to look at this: JPMorgan on their balance sheet shows 185 billion dollars that they have lent out to other institutions. They also hold hell to maturity Securities Much like Silicon Valley Bank data somewhere around 600 billion dollars right here. But be careful because Securities borrowed means Securities or or like bonds or whatever things they've lent out to other companies, it's an asset. That's how you know.

see assets. That's how you know it's lent to someone else. Well, what happens if a Silicon Valley Bank has to start defaulting on stuff they've borrowed? Well, then JPMorgan potentially starts getting hit. And what if they have to start raising money? Well then you have a big oopsy-doopsy Why do you have an oopsy-doopsy Because JP Morgan as well has massive unrealized losses.

Look at this folks right here: Unrealized gains slash losses on investment Securities 11.7 billion dollars. but it gets worse. Ready for this? We go to, we go to I Mean this. This is like insane.

It's it's like borderline fraudulent. You ready for this? Look at this over here. So that's just the available for sale Securities Losses right? Watch this chart. This is from: JP Morgan December 31st JP Morgan This isn't Silicon Valley Bank anymore.

This is JP Morgan Look at this. This column here is unrealized gains. This column here is unrealized losses. Which means they're actually not showing up on net loss yet.

They're just sitting on those losses. Oh, it ain't a loss until you sold. Well, what if you suffer a bank run or other? Banks Stop start losing their capital or defaulting on their obligations to you. JPMorgan Well watch this.

You ready for this. Follow that column. Okay, the left side is unrealized gains. The right side is unrealized losses.

You ready for this Unrealized Gains: 995 million unrealized losses 47.9 billion dollars of unrealized losses at JP Morgan 47.9 billion dollars of unrealized losses. Do you think the the 15 billion over there at Silicon Valley Bank is bad? JP Morgan's got three over three times as much in unrealized losses now. hopefully. JP Morgan and the other Banks Don't hit any kind of banking crisis or bank run because then you'll really got oopsie doopsy problems now.

I Don't think so. But let me put it this way, you got to pay attention to: Silicon Valley Bank This is not a matter of some stock that you wish you shorted two days ago. Everyone and their mom wishes they shorted it two days ago. Okay, that's not the issue.

The issue if nobody really cares about Silicon Valley Bank Other than people who have deposits there and then some of the Venture Capital folks were like, damn it, there goes our easy money. I mean quite frankly, money is still so easy. which is insane. The fact that you could have an AI startup called character AI which is just two employees who left Google who worked in the AI Department start a company in Andreessen Horowitz gives them a 250 million dollar cash bundle at over a billion dollar valuation.

That shows you how frothy the market still is. It's absolutely insane. This is really bad. This is the start of what a Black Swan looks like.

It's the beginning of the dominoes falling. It's really bad. We don't yet know all of the implications of this, but you need to pay attention to this whether you're exposed or not. Bad jobs.

Data ready for this. All right. Here we go. Now we got to do jobs.

data. All right Jobs. Jobs. Buy for jobs.

All right. 10 seconds for the report. All right. We're expecting 225 for total non-farm payrolls.

Here we go, we're expecting 225 and an unemployment rate of 3.4 Average hourly earnings month over month to be 0.3 Come on man. come in soft. Okay, we have 311. It's really hot.

That's bad. That's not what we wanted to hear. Unemployment rate actually ticked up though. That's weird.

Uh, oh thank. God Average hourly earnings point Two: Oh thank God Oh, it's a Saving Grace average hourly earnings month over month came in low at point Two. Thank God Headline unemployment number came in at 311 311. Though that's almost a hundred thousand jobs hot.

Uh, it's about 80 84, 000 jobs hot. That's insane. Uh, that's the total change in non-farm payrolls Comes in really hot again at 311. you have the change in private payrolls coming in at 265.

the expectation was 215. That's really hot. You have the unemployment rate actually ticked up to 3.6 from 3.4 I'm not sure what kind of funny math the BLS is doing there. We'll look at the report: average hourly earnings coming in.

thank goodness. Thank goodness At Point Two percent as opposed to point three, the last thing we need is is is more pain there. Uh, we're just now getting the revisions. Uh, year over year, average hourly earnings come in at 4.6 versus the expectation of 4.7 Okay, at least at least no wage price spiral.

That's good wage. Now we've got. uh. labor force participation rate takes up 0.1 percent.

That's probably why the unemployment rate moved. Uh, now you do have a slight revision of the prior data. You are moving the 517 000 payrolls from January down to 504.. that's a nominal revision.

So nominal revision. So this is a I would say good news and bad news Report: Let's go to the Uh BLS Labor Report or Jobs. Let's go ahead and actually pull up the Uh report here. But uh I would say let me see what other revisions we've got coming in here.

This is you've got again. okay with change in manufacturing negative Four thousand. the expectation was 10K. So you're seeing manufacturing payrolls suffer.

That is definitely an indication of a recession coming. but then again, we've been talking about indications of recession coming. I Mean everything is pointing to recession right now. and this is why people are so worried about the Federal Reserve continuing to hike, especially in the face of Bank runs and potentially a financial crisis.

That's the last thing you want on this. Market But anyway, unemployment rate. uh, again, 3.6 percent. That's up from 3.4 and that average hourly earnings report.

That's that's good. No, no great news though on the revisions. basically still guiding high on the on the prior uh uh January report which is not fantastic, but is what it is now. Uh, what we're also going to do is look at what Wall Street is saying.

So uh, let's see here. uh. payroll gains were led by Leisure and Hospitality Retail Trade Government Healthcare That's exactly what you would expect. Now you have a previous two months of payrolls were revised down by thirty four thousand.

That's the previous two months I gave you the revision for the previous one month. but again, that's very, very nominal. Uh, but that does. Uh, that does slightly At least it's a revision down, right? So let's look at the bright side.

it's a revision down, not a revision up. Right now. it does look like you're also seeing treasury yields fall on this. That's very interesting.

Uh, yep. Treasury yields 10-year treasury yield is now down 12 basis points. Okay, this is enough for I Mean there is. there is entirely the possibility that with the If if we get a nominal CPI report like this suggests, there's entirely the possibility that with the financial stress that you're seeing in the banking system now, it is entirely possible that the Federal Reserve actually pauses and says, oh, oh, we're gonna just, uh, pause for a moment and wait and see, because maybe there actually is a lag.

Uh yeah. okay. two-year treasury yield Now down 16.4 basis points again. Now you're actually starting to see the recipe of what recession feels like.

Uh, it. It's actually finally starting to happen Where you're starting to see, uh, you're still seeing job gains again in that the Leisure Hospitality stuff. But that's underemployed. You're still below Trend.

But if inflation goes away, and now you're worried about financial stability, that's bad. Uh, that's now. You're going from the fear of inflation to the fear of of an actual financial crisis. All right, Uh, at the same time.

By the way, I'm gonna just uh, sorry about that. I'm going to keep up here. What Wall Street is saying Okay, I Don't see a lot of payroll declines in these reports lately, but remember, payroll, Extremely, a lagging treasury yields dropping across the entire curve. Uh, it does look like you have, uh with a move of 36 places.

Okay, let's see here: I mean I I Don't want to come across as actually suggesting that like the Market's really going to say oh, the Fed's going to pause I'm just saying there's a possibility when you start getting no impetus of inflation combined with this banking disaster that's going on. Anyway, total non-farm payroll increased. three hundred, Eleven thousand dollars edged up. Uh, the unemployment rate edged up to 3.6 Again, it's because participation rate moved up 0.1 percent Hispanic Unemployment 5.3 Uh, that's an increase you've got.

Uh, let's see here: Unemployment rate for adult men 3.3 3.2 for women. Okay, black unemployment rate is the highest at 5.7 Asians 3.4 Whites 3.2 Why there's such a difference is: is this something that hopefully goes away at some point? Anyway, the number of persons, uh, jobless less than five weeks increased 343 000, offsetting a decrease in the prior month. This is very interesting. These are new layoffs right here, right? Uh, less than five weeks? That means those are brand new people who just got laid off and that number decreased in the prior month.

This is the pool. This is the entire pool of people who've been laid off less than five weeks that just shot up by three hundred forty thousand dollars. So you are seeing the pain in the labor market when you actually look at the details. Yes, I Understand, the headline number is going up, but the headline number is only going up because you still have severe unemployment or underemployment in sectors.

consider health care, for example. Let me let me just draw this so you can understand this because sometimes people don't understand if this is the trend of Health Care employment going up right. Let me actually just drive that. if that's the trend of Health Care employment going up because of the pandemic we saw Health Care employment rotate down and now we're kind of back to those 2019 levels.

right? If you kind of draw like this, you're back to those 2019 levels. But where we should be still represents a 900 000 job. Gap Just for health care. That's just health care.

And again, the the leading job gains here so far are Leisure and Health Care Uh, Hospitality Retail, right? That makes sense. Okay, let's look at the actual details here. These individuals. Okay, these are okay.

What do we have here? This is number of persons employed part-time for economic reasons at Uh. 4.1 was essentially unchanged. No news here. Number of people not in the labor force Who Currently want a job unchanged 5.1 This is how you get, By the way, Jerome Powell's a jolts ratio, right? we've got about.

We just got the Joltz report that came in hot at 10.8 so we got 10.8 million job openings. And the people who want a job at at 5.1 that that puts you at a ratio of over two, right? Jerome Powell Wants that to be in balance that one to one, but it's just weird because you're getting the layoffs on on one side. especially Tech right? Uh, and white collar? It's kind of being somewhat called. The White Collar Recession.

Uh, but you're still getting hiring like crazy. Look at this: Uh, notable job gains occurred: Leisure Hospitality Retail Trade Government Health Care Employment declined and transportation warehousing. This is very male dominant and these sectors are very female dominant. So Transportation Warehousing, Construction Uh, you're you're probably 70 male.

Uh, the stat from The Wall Street Journal Leisure Hospitality That's over 60 percent women. So you can actually see more women going back to work after the pandemic who previously decided to stay home uh, to take care of children because they had to because they didn't have child care or whatever. you know, pandemic forces or they retired from the health care industry. Whatever.

A lot more people potentially going back to work now going back to work at higher wages. especially in this area. Here, look at that: 105 000 jobs in Leisure and Hospitality similar to the average monthly gain of 91 000 over the past six months. Food and service and drinking places at its 70 000 jobs, employment continued to Trend up in accommodation Fourteen thousand employment Leisure Hospitality Look at that, you're still below your pre-pandemic level by 410 000.

So remember I told you Health Care 900 000 below Trend Well over here. this is not even below Trent This is below pre-pandemic levels. So in other words, you're still 410 000 jobs short in Leisure and Hospitality that doesn't even consider that you usually have Trend Growth This is a disaster. Uh, this is a complete disaster.

Then you have employment in retail trade Rising By 50 000 in February Merchandise retailers 39 000 Again, these are still under Trend Employment and professional and business services continue to Trend Up We see what else Wall Street is starting to say here. You can start to see some of the labor market softness and the data. number of people who lost their jobs or complete attempt work increased 223 000 Number of people employed less than five weeks 343 That's what we pointed out. Dollar strength is touching session lows that makes sense the dollar Falls when yields fall.

Another encouraging Point here is the increase in the labor force participation rate that take up absolutely right. Only two out of 61 economists. You can't listen to these predictions at all. Man, these predictions are just either either rigged or just nobody.

Nobody can predict stuff in this market right now because it's such a crap shoot. But anyway, it says only two out of 61 economists predicted a 0.2 reading for that gain in average hourly earnings. That is the only piece of good news today. Everything else is hell today.

I I Guarantee you that banking contagion is an Sh-9t show. that is very, very bad, especially with those unrealized losses even at companies like JP Morgan Now don't get me wrong, Big Banks go through much more of a stress testing than small Banks But still only 2 out of 61 economists actually hit point two. That's insane. Uh yeah, no, but nobody knows what the hell's going on anyway.

Employment: Okay Healthcare added 44k We still know again, we're 900k below Trend there Construction Group Uh, 24, 000 19 Social Assistance Information Technology there's your Tech Look at that. So so you hear about all these popular Tech layoffs right? like Facebook or whatever. Okay, so the deployment report tells you 25 000 jobs were lost in in Tech right? I Just want you to understand: look at this number here: Leisure and Hospitality added 105 000 in the same month. You added four times more jobs in Leisure and Hospitality alone than you lost in Tech So you hear about all these Tech layoffs.

It's a drop in the bucket. Complete drop in the bucket Transportation Warehousing down 22k 9000 in trucking and transportation you've got. Uh, let's see here. Employment: Little change over here.

Average hourly earnings. This is fantastic. Point: two percent year over year. Four point six percent Fantastic.

Average work week for all employees Edged down. That's good. That's uh, that's a sign of not overheating. It's a sign that pricing power is going away.

Uh, for for wage earners. But this is consistent with what we're seeing in the leading data with a leading data. Earnings Calls folks. Everybody gets mad.

We're gonna go back to the reporter moment. Everybody gets mad at me when I say it and they're like, okay, the government reports the government reports are so lagging you got to look at what companies are doing Tyson Food On one hand, bragging about how they're able to raise prices last year Tyson Foods They they sell frozen chicken. Okay, they're bragging about how they can raise how much people they have was what they were arguing about. Now they're like, yeah, wages went up, but we can't raise prices anymore.

In fact, we had to do some massive abnormal discounting of chicken because we didn't think people would just stop buying chicken. But I guess people stopped buying chicken. Yeah, not only that, but Chipotle Is finding it easier to hire Starbucks Finding easier to hire Target Costco All of these companies are hiring less people and focusing more on Walmart Saying it. They're all focusing on autonomy and efficiency and productivity, not on hiring more.

The hiring boom is is not in Staples anymore. Yes, it is still in health care and Leisure and Hospitality However, it is easier to hire there now. And other things that you don't actually capture in these sort of reports is the removal of perks and signing bonuses. Healthcare Used to give people five to ten thousand dollars as a signing bonus just to get people to sign on to take a job that's over.

You don't do those signing bonuses anymore because you don't have to remember. Tech How everybody on Tick Tock used to brag about all these perks that they had working for their perky tech companies. Folks, What is this? Listen this. the Wall Street Journal literally has a title.

The perk session is underway Now when I first read that I don't you can't blame me. But when I first read that I thought they were going to talk about like people's like breast sizes going down or something like that over time or something. No, they're not talking about boobs, they're talking about the ping pong tables have turned. That's their lame line here.

But anyway, companies are cutting back on prized employee perks from fancy coffee and free cab rides. Yeah, you're still getting the traditional health care and retirement. but these other forms of a compensation like free laundry, dry cleaning, special coffee Baristas Extra days off like Salesforce was giving employees a wellness day off like a paid day off to just go home and do whatever you want sitting in your bedroom. Uh, and all these perks basically going away now because employees don't have pricing power anymore baby.

it's over. This is called recession. Employees don't got no baby, no more. Uh, you know at uh getting rid of uh as much of their their dining compensation uh paid birthdays used to exist.

those are starting to go away. This is very normal on a daily basis. We are now seeing more and more evidence that employees do not have pricing power and that is exactly what this labor report is showing. So if you're looking for good news today and I understand.

Listen: I want employees to make more money but I want to be very very clear Brandon says what kind of research were you trying to do I was reading the Wall Street Journal okay anyway uh, they're pretty good. okay I like the Wall Street uh but but anyway this is a sign that pricing power for employees is gone and the the Bureau of Labor Statistics is finally starting to catch on. Thank God because imagine if we combine a wage price spiral with a financial crisis, we'd be screwed. Best case scenario: Silicon Valley Bank and all these these over levered Banks they go bankrupt.

Leave the big Banks alone JPM Bank of America or whatever they'll get hit. they'll suffer losses. people keep coming to me. especially you all know I of course remember live streams I think I get asked at least once a week why don't I invest in the banks at least I Get asked once a week from course members Kevin I Want to invest in the banks? Why aren't you investing in the banks? Why are you investing in the banks And you know my answer is every single time you can look at the entire Archive of my course member Live Streams course members will attest to this: It's a coupon down below by the way for St Patty's Day uh what and you can start using it now.

What is every what do I always say My response is I Don't touch financials in a recession because I have no idea what the hell is happening to those loans and this is exactly what's happening here I Don't touch financials in a recession. No thank you I Do Not go near them. Oh good Lord. Uh yes.

employee. PP is shrinking this pricing power going away for employees. Look again. I Don't want to see employees like lose money I Don't want to see people get fired because it hurts people Okay I do have sympathy for people okay I I Like when I grew up we had single 20 bills left over.

We basically almost went through foreclosure. My dad did something known as feeding the kitty where you basically like you you we sold. We had to sell her a lot at home because our jobs lost. went through divorce is Hell had no money uh and he basically took the last amount of money.

he had to do the right thing and actually, well, I shouldn't say do the right thing and because that's an offense to people who who go through foreclosure. But but he didn't want to rip the bank off in his opinion. that was his opinion. and so he took all of the leftover savings we had and paid the loss to sell the home.

It was like our last 20K or whatever and we're down to nothing just to avoid a foreclosure. anyway. so uh, average? Uh work? Yeah, and we had nothing for like seven years. That sucked.

Cargon repossessed. It sucked. Average work week for all employees, uh, on non-farm payroll Edge down. This edging down is also a sign, especially here in manufacturing.

see manufacturing had more of an edge down 0.2 hours. Uh, this edging down is a reversal from January's report. You want to see more of this because again, you do not want to see the conditions for a wage price spiral. That's why I'm cheering the last pricing power again.

It's not to be offensive to people, it's just simply to say we do not want pricing power right now. We don't want employees feeling like they can keep getting races raises, raises raises because that's just going to lead Jerome Powell to Paul Volkeras and if he Paul volkers us I guarantee you everybody's worse off because then companies go bankrupt. Now now is not the time to ask for more money. You know let's get through 2023..

Anyway, this is insane. So so. Anyway, let's see what else do we have here. Market is now reducing the chances of a 50 BP hike Yesterday they were hot I Mean the market was pricing in like a 70 chance of a 50 basis point hike? Uh in in March here March 22nd.

This report now cooling those expectations. Again, this is fantastic. Uh, inflation Report: Obviously CPI on the 14th is going to be a big deal. Employment of Temporary Service Helpers is considered a leading indicator of the labor market actually increased for the second month after falling for two months.

It shows us at least some remaining tightness. Okay, the temporary service now. Interestingly something that you're seeing with Temp jobs is a lot of people taking second, third and fourth jobs, right? So I Know that sounds crazy, but especially with a remote. These days you are seeing that.

Uh, let's see here. Yeah again. I Do wish the January data was revised down more. That's true.

Uh, only a 34 000 revision over the last two months and 13 000 revision for January is actually not that great. However, you are starting to see that wave of layoffs. Employment in it has now decreased. Fifty Four thousand, Fifty Four thousand tech jobs gone since November As since October you've lost 42 000 transportation and warehousing jobs in aggregate here.

Slightly lower than expected. Wait: Okay, good, good, good, Good Good Okay, so so that's jobs Break Even Inflations Now is a reaction break evens. Uh, still sitting about 2.42 still a little hotter than the hole we were in, but massive plummet. Let me see what other revisions we have.

Do we have any other revisions? No. Again, that inflation was great. Terminal Fed funds rate teetering now around 5.5 fell to as low as about 5.45 this morning. sort of in volatile pre-market news here.

But uh, 5.5 is the expected terminal right now. nicely down from that 5.65 a peak that we have. We'll take a quick look at Treasures You're still down 16 basis points on the two-year and if we jump on over to the Uh 10 year, you're down 10.3 basis points now at 3.82 So again, I I would call this a win. This is a successful employment report.

This is showing the Fed's efforts are starting to work. Now in my opinion, it's time to start slowing down because you're starting to see the The Dominoes starting to fall in the banking world. And that's bad because we do not want to walk into a financial crisis. So how how does all this stuff come together and change? Potentially the investing strategy going forward? Well, actually in my opinion, this reiterates the volatile Nike Swoosh This report reiterates the volatile Nike Swoosh You're going to have pain like like a Silicon Valley Bank going bankrupt nearly.

They're technically not bankrupt yet, but they probably will be before the next few months are over. I would get my money out of there. Do not rely on FDIC if you have money in Silicon Valley Bank or really any small Bank Be careful, this is going to be a this is going to be a clusterf for even other small Banks Because people are going to go oh my God I Want to take my money out of these other small Banks and move into bigger Banks It'll actually help Shore up companies like Bank of America and JPM or whatever. but it's very dangerous for the other small Banks who don't go through the rigorous Federal Reserve Strat stress tests that the small or the larger banks have to go through.

Uh, but again, you're going to get that sort of volatility. This report. you can wipe the swipe sweat off your head. This is good.

We're going in the right direction. Yes, I know the the headline number came in still high, but again, those are jobs that we're getting in areas that are still either below Trend or below pre-pandemic levels. Leisure has Hospitality isn't even below Trend it's literally below pre-pandemic level. Still, so totally normal.

I'm happy about that. I Am much more nervous about what's starting to happen in the banking sector. Jobs report good. Let's now get to CPI on the 14th and hopefully we also get a relaxing CPI report.

This is a Good. leading indicator for that CPI report hopefully coming in smoothly I'm hopeful this is why indices are now turning green I'm optimistic. but again, we don't want to be blind to the potential black swans that are coming our way. So anyway, check out those programs on building your wealth link down below because they're awesome.

You're going to get some pretty incredible perspective, especially on fundamental analysis and and looking for red flags at companies which companies are going to survive this recession? That, in my opinion, is where the big money is. So okay. that's my take on the Jobs report. Okay, now we need to talk about what's going on with.

uh, this pending news on Silicon Valley Bank There's talk about let's see here: Silicon Valley Bank Financial Group News pending. Somebody say yeah, it's halted. Okay Silicon Valley Bank Halted News pending Standby: Uh. trading Hall Okay, we have pending news halted depending.

News: Silicon Valley Bank Capital Two Trading Okay. Biden Administration is monitoring Oh God Biden Administration is monitoring possible Silicon Valley Bank Contagion Uh, yikes. Silicon Valley Bank Financial 2031 Bonds plunge. Uh, they're now trading at 15.5 Oh my.

Lord Okay, so what that means is basically a hundred dollars tied up with Silicon Valley Bank for the next eight years is trading at a discount of 45 dollars. so a hundred dollars is only worth 55 right now for Silicon Valley bonds. That's literally what happens when Banks Trend towards bankruptcy banks that Trend towards bankruptcy start going. uh uh, this is not good.

Uh, and the bond market starts pricing. In a potential bankruptcy, you go bankrupt Those Bond people. They ain't getting their money back. So people are starting to dump silicon a Valley Bank bonds because they're actually worried about the potential for a bankruptcy rip.

Yikes. Yikes. Yikes. And this is exactly why you have uh Bill Ackman coming in.

Uh, to call for a bank bailout already? which is absolutely insane. Uh, just totally nutty. Okay, so then we've got Silicon Valley Bank Meltdown is a wake-up call. Yeah, no kidding.

good. Lord Let's take a look at how this thing's moving in the pre-market here. We've got some other things to cover as well, but uh. Bitcoin is Bitcoin's about to break twenty thousand? That's insane.

Volatility's up like 18 on the Vix right now. you've got uh, 20, 000, 20, 300 Yeah We actually broke it last night and no, this morning, yeah, you broke to. uh, what do we have here? 19 500 on Bitcoin? Just over 20 000 Again, Uh, probably. It looks like after the Jobs report here Tesla up about two percent NASDAQ up about two-thirds of a percent.

Now the Jobs report was good Silicon Valley Bank Though not. yeah, they're they're halted in both both Sivb and and uh, the Svb halted news pending. Yeah, the news pending is going to be. we're going bankrupt.

No guarantee. But I mean I Don't know. Maybe they won't say it that quickly. Uh, but uh, it's uh.

I Guarantee you they. They are freaking out right now because so many people are trying to get their money out of Silicon Valley Bank Yesterday, the CEO actually was so generous with his time. the CEO gave a 10-minute conference call letting everybody know. Don't worry, everything is fine.

Are you kidding me? As if we've never heard that before. That's what Sam Bankman Freed said just days before going bankrupt. Scary. Uh, scary scary Scary.

All right. Uh, let's get to the next topic here. So the next topic. We got to cover week so we covered: Silicon Valley Bank We covered this.

We we need to talk about this potential real estate contagion because this is another disaster. Uh, and uh. There are two really important pieces that I want to cover on real estate and and I'm purposely going to reference pieces because I think most of you already know my position. By the way, we are ending.

Uh, the opportunity to invest as an accredited investor for house hack at the end of the month at the end of March. That's it. The fundraise for accredited is over, and uh, the non-accredited will will be very short and limited. probably in April or May.

It's tentatively leaning closer to May Uh, but accredited? Uh. And and the bonus uh warrants that come with that are are ending here at the end of March Learn more at Househack.com Okay, let's get into this because this is another big deal. All right. Uh, give me one second here.

Thank you, by the way for being here, so it's enjoyable. Market Open Forbes Is now saying that real estate has two more massive shoes to drop and it's not good, especially in the face of a potential banking crisis that's now starting with a potential near collapse here of Silicon Valley Bank I Think they'll be bankrupt very soon. Their balance sheet is a complete disaster. They're losing money hand over fist.

but this video isn't about them, it's actually about real estate. Take a look at this. a Forbes piece here. Two more shoes to drop in the real estate market.

Listen to this. The first shoe in the U.S Housing and commercial real Estate market was the entire year of 2022.. consistent interest rate hikes, a significant reduction in sales volumes, and a cold cold draft of real estate prices we've already seen in a lot of areas. Home prices are down from their Peak 20 percent Phoenix Austin Idaho These areas are down 20 percent from Peak.

The only place that's really holding up is South Florida and parts of Northern Florida right now, but that's it. Most of the entire country is average down 10 from Peak already here. sales volumes net new orders for new homes down 15 Lnr 38 DR Horton 80 on KB Homes So what's the next? Well take a look. Well first take a look at here if commercial real estate firms particularly in the office Market or for them a conditions remain dire.

According to recent studies, 71 of office space could support four times their current usage. Uh, in other words, you're seeing a lot of sort of consolidating of of office space. So what's next to happen? Audits: Listen to this. most real estate private Equity firms have a December year end and must provide audited financial statements to Banks and investors by the end of March or April because December 21 was literally the lowest interest rate environment in history.

While rents revising very quickly, the value of real estate was near gravity list. Fast forward to the end of 2022. And what do you have many? Real Estate Investors have not proactively reassessed the value of their real estate holdings, and now thanks to higher interest rates, what's potentially likely to happen: a massive write down of privately held real estate values and ultimately because you're seeing a Slowdown in rents and incomes and a Slowdown in pricing especially in commercial real estate, you can see some massive write Downs in real estate valuations for any company holding real estate. Right now we saw this I mean this writing on the wall has been here for over a year now.

You can look at open doors, balance sheets and and I mean uh was from memory six months ago I called for at least a write down of a 20 uh loss on their real estate holdings. which puts them at almost negative because they have somewhere around 6.6 billion dollars in assets, but then somewhere around six billion dollars in debt. But as soon as you write down 20, you actually have more debt than you have assets. That's how you go bankrupt.

Open Door Anyway, they ended up taking it 10 write down personally. I think they've got another 10 to 15 to go because the other thing is open doors properties are trash compared to actual properties on the market. Go through any open door listing I guarantee you you almost vomit. That's been at least my experience.

I've been traveling around for my real estate startup Househack Househack.com and every Open Door listing I go into we see the sign and we're like oh, we already know what we get we're gonna get and sure enough we go in low quality garbage. The write Downs are going to be pretty insane. but anyway, audit season is The Moment of Truth For Real Estate with significantly fewer transactions and fewer comps to compare properties to, So Real Estate Investors are going to have to defend their values for the first time since the raid spike in the next two months now. What's remarkable is that actually aligns with the fud cycle of when I Think you're actually going to see the year-over-year comparisons and real estate values where all of a sudden you're going to get Tucker Carlson and CNBC and and CNN or whatever going oh my gosh, Year over year, home prices are down over 10.

That's going to put the fear of God into home buyers at the same time as inventory generally surges in March April May Right now, yes, we are at very low inventory levels. duh, everything expires December 31st. Of course you have low inventory levels the first three months of the year when that ramps is probably going to align with not only these audit write downs, but also with those year over year Panic numbers for Real Estate Peak fee or for Real Estate is still ahead of us. My opinion: All of this revaluing is happening right now will last for the next 60 to 90 days.

Why is this important? If an Investor's loan to value maximum with their lender is 80 as in, the bank will only lend you eighty percent, even even if even if the value of property drops. What happens if the investor owes the bank more than what they're willing to lend you, you either have to pay the loan back or give the bank more cash. This is basically a margin call on Commercial Real Estate Not all loans have this. This is why I Love the 30-year fixed rate mortgage that we have in America Because even if you go upside down on your real estate, you don't have to pay any more money to the bank.

This is something known as a re-margining provision. A re-margining position or provision allows a bank to call you up and say hey, look, this is a commercial loan. This is a business loan. The value of your asset has fallen.

You're screwed. Pay up. Well, you pay up. What happens now? cash that might be available to go buy deals at certain real estate firms are actually paying down their debt instead of going to buy deals.

Now you have even less people capable of even buying in real estate. See how these dominoes are starting to align? It's not good. Be patient with buying real estate. Real estate.

We the where we are in the real estate cycle. It would make sense to wait until we are past the bottom and then buy. That's in very, very important. Remargining is very dangerous and that's coming again.

You don't have that on 30-year fixed rate loans. I'll give you a quick example. And by the way, if you want to learn everything I Know about real estate Patty St Patty's week or day. whatever, there's a coupon that's already active.

Linked down below for the programs on building your wealth do-it-yourself Property Management We've got uh, zero to millionaire real estate investing that's the most popular. Generally, people bundle that with stocks and psychology money. Anyway, you know that link down below. Uh I Actually on Uh the plane that I have made sure that I had a 20-year term fixed, no variable rate and no re-margining provision I purposely made sure I did not have a remargining provision because if the value of my playing goes down I don't want to put more money into that sucker.

That's bad because I want my money to go buy deals anyway. This most of the time you don't have the privilege or the luxury to say I don't want a remargining provision. So what do we have over here? The Current Financial market conditions are dramatically tighter. Owners who may have been safe in recent years could now be forced to find other financing options or become for sellers.

Well, that's the other issue. If you're walking into a freaking banking crisis and banks are calling you up, going yo pay up and you're like dude, I don't have any money and the bank's like, well, then go borrow it from someone and then you go Okay, well, who's going to lend it to me? Certainly not. Silicon Valley Bank How about you lend it to me lender? Well I'm just like, yeah, no no, no, we are re-margining We're not lending you more. It's very scary.

Uh, let's see here. I Feel like if I'm waiting to know when to buy? All I need to do is wait for Kevin to start buying without sex. Get the secrets away. No, don't copy me, don't don't Uh, not.

Financial advice Anyway, those who have been kicking the valuation can down the road may be forced to acknowledge the fact that interest rates are up even if they're performing well. Banks May Force them to answer the question. do your loans meet the value test next? taxation. Now this is actually really interesting.

I'm going to sum it up though, when property values go down, tax revenues go down, smaller towns that are not well capitalized could literally go bankrupt. It has happened before. it will happen again. Then property taxes go up.

Austerity measures go in. Property values go down even more because they have to start shutting down fire departments or whatever I Kid you not, cities will shut down your fire departments. Not all of them obviously. but people think I'm crazy when I say that it literally happened in the city that I live in which I know I'm in Florida right now literally happened Ventura California couldn't raise their local taxes anymore and they're so terrible at managing money.

What happened I said. All right, we're closing Fire Station four and guess what? Response times for the fire department and paramedics up like 20 because the fire department closed down? Yeah, it can happen. And guess what that does lowers property values even more. It's insane.

So anyway, I'm speeding through this part because uh, I I think that's that's obvious. but I think it feels a little bit more okay. The next thing obviously would be that being that for seller, right? and that's that's scary. And look at this.

the short answer is, we'll probably know by summer. Yeah, so that's Forbes right here telling you. uh oh, you've got a pretty big oopsie-doopsy potentially Coming For Real Estate But it's not just Forbes who's complaining about this. It's also Bloomberg Bloomberg Had a phenomenal piece on this and it really gives you the worry about a commercial real estate.

Some people think commercial real estate is a good investing opportunity right now. Biggest value trap you could touch right now is commercial real estate. Look at this. even wealthy landlords are skipping payments on Office Buildings Commercial Real Estate Investors Uh, let's see here.

Interest Rising Interest rates and remote work will bring more deep defaults to downtowns near you. Uh okay. Oh, here's the news. Hold on on.

Silicon Valley Bank Silicon Valley Bank Financial is in talks to sell itself. Dude, nobody's gonna buy them. They got a bunch of toxic assets I mean then again, JP Morgan Bought bear Stearns for fraction Pennies on the dollar. But anyway, what do we have over here Take Pacific Investment Management Co Funds managed by the 1.7 trillion dollar asset manager acquired by Columbia Property Trust which owned 15 office buildings in New York SF Boston Washington DC Uh, let's see here.

what do we have here Acquired Okay, high quality Office Buildings in major U.S City offer long-term value. so you've got somebody here. Uh, this is in 2021. in 2021, even after office is empty during the pandemic.

Funds managed by the 1.7 trillion dollar asset manager which owned 15 buildings. Uh, it it worth 3.9 billion dollars. Got it? Okay, so so they were bullish then. So what are they saying or not? Last month, this company defaulted on 1.7 billion dollars of mortgages.

Okay, so in other words, they're bragging about how great commercial real estate is and then what are they doing over here Now they're defaulting on 1.7 billion dollars worth of mortgages. Look at that. What do you think? defaults on mortgages? Do defaults on mortgages ruin the banking crisis even more? This just makes everything even worse. Those mortgage-backed Securities that are sitting on the balance sheets of JPMorgan Chase Bank of America Citibank Wells Fargo They're becoming literally toxic.

You can look them up again there. you could go to the uh, the balance sheets of these companies uh and then type in uh, Usually you could do Cmbs those are uh, commercial mortgage-backed Securities That's a search you could do for them. Uh, you could