Foreign. Welcome back to another episode of the Meet: Kevin Report: Let's go ahead and start with what's going on with this Binance lawsuit because we've got the lead chairperson of the commodity Futures Trading Commission on CNBC Right now, let's listen in derivatives to U.S customers and intentionally uh, evading requirements to register with the Cfdc as both a broker as an exchange for both swaps Futures and options. So this has been a long going practice. It's a clear intentional method to evade law and because they're offering to U.S customers.

we felt like this was an important case to bring in, sending a clear message across to crypto exchanges and crypto participants across the world. Finance and others have said that they would welcome regulation that allows for a clear path. But I Think some of the things that you laid out in in these charges that you're putting forth are more than just kind of accidentally wandering into a violation of the law. This looks like it was pretty orchestrated, at least from what you've put out.

Yeah, in the complaint, it's pretty clear that this was to use your word, orchestrated and there was an intent to evade U.S law and or Communications that are uh documented in the complaint as well about how to evade you know, a virtual private Network or create a VPN to get around the barriers uh with the internet to have U.S customers access these markets across the globe and different entities set up overseas. Um with really not much in terms of Uh funds coming from non-us entities. uh U.S control persons involved and it it seems to be a pretty classic example of a very clear evasion, a very intentional invasion of U.S law and given the volume given the size of as you pointed out binance in terms of crypto markets and crypto volume, this seemed to be a pretty clear uh, a case of of evasion and something that we needed to step in aggressively with and do it as quickly as possible because this was is an ongoing fraud going back to 2019 and ongoing violation of the Commodity Exchange Act, right? So we felt that we needed to move as quickly as possible. We're going to go through the lawsuit in just a moment that a company would say hey, these were some Rogue actors who were doing this.

In this case, you lay out in the complaint that this went straight to the top to CZ himself. You have commentary or an exchange from one VIP team member who was trying to court some of these. U.S market players saying hi CZ I Went through a list of affected API clients. It includes a number of large strategic accounts including redacted here, a Chicago headquartered trading firm who is currently a top five client and 12 percent of our volume.

Zhao's response to that is: give them a heads up to ensure they don't connect from a Usip. Don't leave anything in writing they have a non, they have non-us entities. Let's also make sure we don't hit the biggest market makers with that email first. Do you have signal which is a way of privately transacting messages back and forth that you can't track? If that's the case days, If this went straight to the top, what would an appropriate punishment be? Well, you know, as you were a civil enforcement agency and I think to your point, uh, and something that has been pretty well known uh in the crypto circles now is that.

and I've said this in my statement yesterday. not having a headquarters, not having a location is not going to prevent the Cfdc from coming after you. Uh, and in this particular case, as I said before, there was a clear evasion and and when we looked at the entities that is a common Enterprise Dozens and dozens of entities scattered across the globe with control persons up to Mr Zhao And when you have that situation where you have a control person of a common Enterprise I Think there's clear potential liability that we we saw and as you pointed out documentation, clear documentation of an intent to evade law With a very clear direct method of saying, this is what we need to do to evade U.S law so that we can have access to the market. So um, we we feel pretty confident in this case.

Obviously something that um, we care about deeply and that we've been on top of for several years in this crypto space. I've been on the show with you uh, talking about a lack of Authority for the Cfdc and the commodity crypto space and I think this just demonstrates the need for Clear rules but also Authority so that we can avoid situations like this and make sure that we're creating transparent markets so that U.S customers are not subject to fraud or manipulation. If you are successful in bringing this complaint, would you ever allow Binance to come back and be a regulated derivative of provider in the United States Or does this prevent them this bad behavior prevent them from He just called them a fraud? um that Authority from you? Well, it's a it's a good question and in the complaint, uh, we we request discouragement of funds, a ban on trading and registration, a civil monetary penalty, and then also a permanent injunction. So depending on how the case uh plays out, that could be a situation where there would be a permanent ban for both trading and registration in the U.S by the USC FDC and Mr chairman I don't want to I guess I Can't ask you to draw conclusions, but in in terms of the whatever lapses or even knowing maybe that this was uh, you know, not a good thing to allow to be happening? Do you think that you can take that to other parts of the binance business? Do you think it points to a possible um I Don't know.

Could there be standards That are Corners being cut in other parts of the business that would be more worrisome? Do you know if there, if there's anything uh I'm asking you to draw a conclusion I Guess you can't Really? Yeah. I mean does this raise eyebrows about maybe other more, even worse things that might be happening at Binance Joe I Think Inevitably, it does in the sense of you know, if there's a trail we need to to look at it, we need to examine it. But I'll say as Chair of the Cftc I have to live within the corners the four corners of the Commodity Exchange Act. So I feel like this complaint exhaustively uses the authority that we have at the Cftc to make sure that we're going to prevent this activity from continuing in the future and making sure these individuals who are intentionally trying to evade the law stop doing that.

All right. So what? What is the next step in this? Trail You were talking about a company that's International not based here in the U.S But in the documents that you've put forth, you're talking about a Chicago headquartered trading firm. the name's been redacted that they say was a currently a top five client to 12 of our volume. Do you go after the players that are domiciled here in the United States that were clearly trying to evade the law as well? Well, I'm not going to discuss that at this point.

You know the focus of this complaint specifically is Binance the the two individuals both Mr Zhao and Lim who are the chief compliance officer and their intent to violate the U.S law. At this point, that's going to be the focus of the charges and the litigation going forward. Um, and obviously there's a counterparty to that. But but right now we're going to focus on Binance because that really is the source of the the violation of the commodity Exchange Act and where the case will will focus on and Binance's response to to you so far I haven't seen I think there's been some press release or some some very public quotes about Um, you know, a disappointment.

but the fact of the matter is. and Becky as you read yourself uh, the evidence speaks for itself so we're gonna vigorously continue and fight this case in court. Uh, and hopefully Justice will be brought in this case because I think the facts speak for themselves. And as I said before many, many times, you know this: this largely unregulated Market that is speculative, obviously institutional investors, but a lot of retail investors as well.

Uh, there's a lot of risk. There's a lot of volatility and in this market environment I Think it's just incumbent on Regulators to to work vigorously and hard to make sure that we're stopping this activity so that we don't continue to see this illegal activity, this volatility and ultimately loss of customer money meaning that the Congress still hasn't acted to really give a clear regulatory framework. So both you and the SEC are going to continue to do what you can with the Per within the purview. at this point, can we can we assume that this is the first of many other actions to come from the Cftc? Well well look, we've been bringing Cftc, has been bringing crypto cases going back to 2014 Um and across the board in terms of individuals and institutions.

This is just another case that I think is is a A Continuum of what we've been doing and as you said, we will use the authority we have to fullest extent to the law to make sure we're bringing Bad actors. uh to Justice Chairman Benham Thank you very much for joining us this morning. All right, that was the chairperson of the Uh commodity Futures Trading Commission So let's uh, go through some of, uh, the lawsuit and response from Binance. So let's uh, go ahead and do that.

This is actually a really interesting case, so give me a second here. Uh, all right. Well Finance is getting sued and in in this segment. We're going to go through the lawsuit and response from CZ himself.

I've also covered this Finance Saga for quite a while with just two days ago breaking down a video from CNBC where CNBC alleges that Finance basically helps people skirt Chinese laws to make sure that Chinese individuals can actually invest in crypto by skirting the rules or purposefully closing their eyes to regulations to let people sign up for binance in China even though they're not allowed to do that. even going as far as basically allowing people to upload Chinese passports and identifying documents, but saying they're from Taiwan even though their documents clearly safe they're from China but then purposely ignoring those documents that was a CNBC cover just a couple days ago. Going back a year ago, we have a Bloomberg story talking about how CZ purposely lives in Dubai and refuses to come to the United States potentially because he's afraid of getting arrested, stays in Dubai because they don't have extradition treaties most of his companies are based out of uh, either. uh, well.

foreign countries. There are over 150 different entities, but many of them based in the Cayman Islands Very difficult to actually figure out which company or entity to sue if you're an individual trying to Sue binance. And so there's been a lot of coverage obviously around Binance. and every time we cover Binance, there are an army of either crypto enthusiasts or Bots who refuse to provide any kind of data or facts and just provide their opinion of why they think it's wrong.

The government or or entities might potentially be sued, uh, regarding crypto. Now something to keep in mind as well. On top of this, sort of just summarize some of the things we've recently talked about. We also know that now up to about 80 percent of Bitcoin trading volume takes place on Binance.

A lot of that may be due to the fact that Binance removed all trading fees around Bitcoin which was a smart thing to do right around the collapse of other brokerages. Brilliant move, but it also makes you question that this is a company that's removed a proof of reserves audits which could have been the same bucket of a billion bucks to multiply and Reserve out multiple different stable coins which we don't actually think are fully backed at uh, Binance because we've never seen a complete audit uh over at Binance. So I personally find it very difficult to trust any part of Binance. But let's take a look at now, Cz's response to the Commodity Future Trading Commissions lawsuit against them.

We're going to start with Cz's response, then we're going to dive into the actual lawsuit. So today, the Commodity Future Trading Commission filed an unexpected and disappointing civil complaint despite our working cooperatively with the Cftc for over two years. Upon initial review, the complaint seems to be an incomplete uh basically list of facts Binance has developed Best in Class technology to ensure compliance. Finance is the first non-us exchange to implement mandatory know your Customer programs and remains to have and has high standards in anti-money laundering and Know Your customers.

We block U.S Users uh, IP addresses VPN endpoints, mobile carrier device, fingerprints, bank deposit, and withdrawals. Basically they talk about all these fantastic things that they do to make sure that they cooperate with the love we are aware of. No other company using systems more comprehensive and effective than Binance and basically a full response will come in the future. This is Cz's response to a massive lawsuit by the Cftc seeking to permanently ban Binance from being able to operate in the United States And there's some massive Quant funds that operate using Binance in the United States.

That's what's important to remember is there are massive trading firms Trading billions of dollars in the United States with Binance as the platform and they're using algorithms that they tweak every single day just a little bit to make sure that they can dump and pump on normies as they wish. So if you're trading less than a thousand BTC you're almost irrelevant. Unfortunately, in the world of the Quad funds using Binance to manipulate a trade markets. Now, what is the Cftc's complaint? Well, first, the Cftc alleges fraud against Uh Finance and suggests that Binance much like FTX did, could potentially be using customer deposits in ways that are not appropriate, such as potentially investing them.

But let's go through the actual lawsuit here. and let's look at some of the highlights because there's some pretty juicy pieces in the actual lawsuit. Let's start with some of them right over here. so we're going to go to page 32 of the lawsuit here and take a look at this.

There's the chief compliance officer limb that you're going to see referenced and then you're going to see a Zao which is a CZ the CEO of Binance, whom, according to the Cftc basically controls all of Binance and listen to this Finance Intentionally trying to hide the scope of its compliance program ineffectiveness from its business partners. For example, around October of 2020, Finance underwent a compliance audit to satisfy a request from Paxos. But according to the Chief Compliance Officer Lim Binance purposefully engaged a compliance auditor that would quote just do a half-assed individual sub-audit on geofencing to buy us more time. Oh, here's my I'm getting I'm getting hit by the the Chinese who really like Finance There we go, All right fixed.

As part of the audit, the Binance employee who held the title money Laundering Reporting officer Lament that she quote needed to write a fake Mlro report to the Binance Board of Directors Finance didn't even have a board of directors Lim The Chief compliance officer was aware of that and replied it says yes, it's fine I Can get management to sign off on that fake report The Chief compliance officer themselves literally sent the following message: I has no confidence in our geofencing and then they're literally caught joking about illegal terrorist organizations like Hamas trading sums of money that might not even be enough to buy AKs with. But they're joking about how we basically see crime happening on the Binance platform, but they just keep their eyes closed to that activity. In fact, when they would talk about quote, we're very closely associated with illegal activity or rather recent transactions by a certain uh, by a certain customer or quote very closely associated with illicit activity. And over five million dollars USD worth of his transactions were indirectly sourced from questionable sources.

When an employee asked about this, the Chief compliance officer responded with the following: can let him know to be careful with his flow of funds, especially from darknet like Hydra he can come back with a new account, but the current one has to go. It's tainted. You literally have fraud documented inside Binance. Now we know right now these are all just allegations, but the Cftc is alleging via these chats that they got from employees.

even though they use signal and most of the chats get deleted, you literally have fraud from within Binance about how they know people are illegally operating within within Binance. They're just like I just have them use a different account so they know about it. We don't need to be strict because CD doesn't like off-boarding Off-boarding is a reference to people leaving and going to a different platform or whatever. Here the Chief compliance officer says, hey, I know it's a pain in the butt, but my duty is to constantly remind you.

And they basically talk about sanctions and the potential International risk of getting caught if they're doing uh Shady things basically. and uh, an investigation could blow up big on the world stage. and uh, basically they acknowledge these problems and what they do is they just take out any references to the United States uh on their uh uh, on their platform. So that way they could potentially skirt uh, regulations even more so.

Uh, here's just how they use Vpns much like the CNBC story broke to try to encourage people to get around uh, the know your customer rules. but take a look at this: Binance's revenues reportedly rely on Datatron from Finance's internal databases monthly reports from revenue from 2020 and they have more from 2021 as well Basically show that a certain number of customers were from locations labeled U-n-k-w-n which is supposed to imply unknown, but actually listen to this. The same month, rival Digital Asset Exchanges were sued by the Cftc Zao Direct. So the CEO directed Binance Personnel to replace U.S values in data fields with the value unknown.

As a result, Binance says October monthly revenue reports identified 2.83 million customers in locations known as unknown while omitting any reference to the United States. In other words, listen to this. It's widely understood by Binance Personnel that unknown is a code word for the United States Dang it. Uh, let me fix that really quick.

There we go. Uh, and it's basically purposefully used to skirt the fact that they have exposure stupid cable. here. they basically use a A Unknown to purposefully skirt the fact that they have customers in the United States they say quote.

Everyone in the future will see uh, will not see our U.S data except for very few people. Instead, we'll just use the word unknown every time the US is referenced. That's on page 46 of the complaint here from the Cftc. So it's very obvious that they know what they're doing is wrong and they're not providing uh, the reporting that they should to U.S authorities.

In fact, the Cftc alleges that Binance has never once submitted a suspicious activities report, which is something if you actually had good compliance procedures or cared, you would do. But we already know that Binance says they have compliance and they don't care about actually following through with their compliance. They themselves don't care about their compliance. Now some people say, hey, who really cares like let crypto be crypto and decentralized but the whole point of having regulation is to make sure that people's deposits aren't affected and that stable coins that are, uh, actually backed by a dollar are actually backed like a dollar.

Uh, or backed by a dollar. But we don't know that that's true. So it's a really dangerous platform to be on. You know.

I Understand, some people internationally have to use it because they don't have another choice and they want to get their money into crypto. But golly, not your keys, not your crypto here. I'd have my money off of Binance for sure I'd have my money off of any exchange if I was in crypto which I'm not I think it's too manipulated by stuff like this? Look at this. Uh, here there's a whole section about how Binance employees basically talk about how they have to keep an eye on gamifying crypto trading and they say the following: Good: Lord I'd never have this many problems.

It's just as soon as I Talk about a crypto video. Uh, right now, most of the gamification trading are based on some complex derivative financial instruments such as binary options, exotic options, or Perpetual swaps. The reason why we did the Futures battle is we wanted to lower the battle or lower the barrier of complex Financial products. So here's basically where Binance is talking about.

Uh, this. this gaming feature they have called Futures a battle where you can like fight people on a one minute battle period. in terms of which direction crypto is going to go on. potentially as much as 125 x Leverage and Finance employees themselves say usually this kind of products look like gambling.

That's actually, by the way, a very common misspelling. Uh, for somebody who's who's where English isn't their first language. usually this kind these kinds of products, right? Anyway, usually this kinds of products look like gambling, which may bring us some comply science and reputation risk so we need to make sure the product does not look like a gambling game. User might be easier to get addicted to these products so we need to enhance responsible trading or you could say playing as well.

So so they know these products are gambling, they know they're dangers with these, but listen to this. At various times during the relevant period, some of the entities have entered into over-the-counter transactions with Binance customers, such as settling trades and setting basically moving deposits directly into counterparty accounts. In other words, deposit mismanagement. This is pretty pretty scary.

Uh, some of these allegations here by the Cftc, and so it's going to be a little oopsie-doopsy for Binance to deal with, especially since the Cftc is basically going for their throats trying to potentially completely banance. They say here that since the launch of Binance in 2017, Finance is taking calculated phased approach to increase its U.S customer presence. Despite publicly stating that it intends to block or restrict customers, this is the same thing that they always do. They tell you they have the best and world-class know your customer rules and VPN blocking rules at your to your face but then behind closed doors.

They basically allow people to just they show people where the back doors are and skirt compliance programs. They know the programs are ineffective and the reason they know the programs are ineffective is because their position is. Well, it's a business decision. The more customers we have, the more money we make.

Look in August 2020, they made 63 million dollars in fees. in May of 21, they made 1.1 billion dollars in fees. And the Cftc is basically saying they're purposely trying to avoid regulation a deliberately skirting rules because it's profitable to do so and to some extent. Yeah, that's true, it's extremely profitable to do so, but it also sets up a potential House of Cards that basically CZ runs and there are a ton of bots who suggest this guy's like some kind of hero for crypto or whatever.

But what he really is is potentially, as the Cftc said, a fraud. He's probably very little different from Sam Bankman Freed who was a complete fraud. Uh, and people like this deserve to be in jail. And there's a reason this guy uh, is uh, is not uh, willing to come to the United States because he knows he'd end up in prison.

he's hiding in Dubai for a reason and you know what people like this do. I mean just look at what uh what the last dude did uh Mr Kwan who was just arrested. Basically what they do is they wait uh, the United States Waits until these people are arrested and then they actually file the criminal charges against them. This guy Quan was on his way to Dubai almost made it to Dubai on his fake passports, gets caught in month and Agro Eastern European country the day after he's arrested.

What happens, Boom gets all the criminal indictments against him from the United States So I think one of the reasons the U.S is so anti crypto right now is because the entities that are running it are are basically in your face frauds and the US is just gearing up to try to do whatever they can to take down the to stop the fraud and they don't want people to lose money. They're going as far here as actually calling BTC Eth LTC likely and a two Fiat-backed stable coins tether and Binance commodities uh, basically allowing them to have jurisdiction over the regulation for all of this. So Rip Binance uh, it's uh, I I I don't know. there's a reason I've been uh, very interested in uh, good cash flowing companies lately.

Uh, and uh, you know I know people like oh, but you know there's all this Broad and regular stocks and manipulation as well. Yeah, well one you know, yeah, two wrongs doesn't make a right as they say. so. Uh, but but this I mean more and more everything that snacks up about these these crypto companies that are off.

Uh, U.S Shores Finance FTX More and more about them. It's just pure fraud. I Have much more empathy for a company like Coinbase where, uh, coinbase at least is here. U.S Regulated U.S listed and they're trying? Uh, now, just because they're trying, doesn't mean that they're actually going to win over here at Coinbase.

Uh, especially since now they're getting sued by the SEC Which is quite unfortunate for them because they have a pretty long response letter about how frustrating and painstaking it's been for them to work with the SEC and how many proposals they've given to the SEC uh, to try to, uh, basically publicly be able to list ETFs Uh, here's their. uh, their piece on this. Now, this is obviously the Coinbase side of it. Uh, where they they really try to get proper regulation complete? You know Coinbase is trying to go in the legal.

Direction Finance is going in the illegal direction and you can't really blame Coinbase because they've had so many frustrations and so much money. Uh, on on dealing with the SEC Uh, now they're getting this. Wells notice about a potential investigation coming? Uh, the the problem is I Really think you need Congress to dictate Are these: Commodities Are they Securities Who should regulate these and what should the rules be for regulation around crypto? And then people should be able to follow the rules, right? I Think it's very difficult to to say like there are no rules and if people do something that after the fact we don't like, then they get sued, right? I Think that's problematic and that's probably not the best form of democracy, but then again, you know democracy is really based on these kind of people like Kevin McCarthy over here talking on CNBC And the problem with them is they can't get anything done. So the politicians Are hamstrung Congress therefore is hamstrung.

and therefore the agencies are hamstrung. Nobody can really do anything. So basically what they're trying to do is they're trying to litigate the regulation for Coinbase and uh, uh, and and Finance through courts. That's what they're trying to do.

They're trying to create law through the courts you ever heard of case law, right? So you take the SEC make all of their complaints against Coinbase for things that they want law. The Cftc make all of their complaints for things that they want law against Binance and then get a court potentially eventually the Supreme Court to rule on it. And now you can actually get rule of law without out the act of Congress. So that's really what's happening here.

but some of the allegations against Coinbase will probably just clean up Coinbase. Some of the allegations against finance will probably lead a CZ to have an arrest warrant out for him for the fraud that's being perpetrated at Finance So it'll be really interesting to see how it all, uh, evolves. I Think it's quite interesting. but anyway, that gives you an update on all the insanity that's happening with Binance.

And if any of that makes you nervous, make sure to get life insurance in as little as five minutes by the link down below. So one of the sponsors here check, take a look at this. You can also go to meet Kevin.com learn about my courses. You can now use Buy now, pay later for the actively managed ETF real estate startup Affiliates and all that good stuff.

so that gives you a little bit of insight into the finance. So to Madness Oh well, all right, let's now take a quick listen in to see if Kevin McCarthy saying anything interesting I Think there's a real concern here with the growing rise of China their desire of what they want to do. and I think as policy makers, if you have information and you don't protect the American public, you're not doing your job. If you're more concerned about getting votes than it is about securing the the nation itself.

That's a concern to me. But I believe there are votes on both sides of the aisle to change Tick Tock as it currently stands today and to protect the American public on their data Moving forward, all right? Mr Speaker Thanks and please uh, be in touch with us if if you uh as things start moving, if people start talking you and the President about people about how to handle this I Think the markets are watching and you know how time flies goes very quickly and this is this is this is coming. coming straight at us. So speaking of a car, they thank you.

Uh, thank you for coming on. Swagbucks Today this morning Senators Dive into the collapse of Silicon Valley Bank and we will get into the question of whether Financial firm rescues are ultimately a good thing or a bad thing with Rockefeller International Chairman. Stay tuned, you're watching Squawk Box And this is CNBC Oh I Love their music. It just brings back the good old days.

Anyway, now we gotta talk about uh, the uh, fallout from, uh, the banking crisis. So banking crisis all out. That's what we're gonna call it and uh, let me get that up here. Don't you love waiting for Kevin to get it up here? We go and it is.

Hold on. this will just take a little shortcut. let's make sure. Yeah, that's A-l-i We'll talk about that later.

Got it all right? Here we go. Goldman Sachs Has opinions on how bad this global banking crisis is going to be and they give us some breakdowns of where exactly we think some of the pain is going to be and where the pain won't be. and they actually give us a breakdown of five explanations on how this banking crisis could affect us. And these five things are actually pretty neat to understand because they could give us a little bit of guidance on how to invest going forward now.

I Think you all know this already, even though I'm a licensed financial advisor, the information and videos is not personalized Financial advice. But my thesis lately has been that I think a Nike Swoosh recovery is underway. that is Peak Fear occurred somewhere between June and October where we really thought we were going to get Paul Volckert. Ever since the inflection point in inflation, those fears largely went away and my belief is that the best stocks to invest in between now and when Real Estate bottoms when it makes time to transition or potentially make sense to transition to real estate between now and then.

I Think the best strategy is investing in pricing power stocks companies that have high free cash flow and ideally are profitable. The reason you want High free cash flow and profitable is so that they don't have to raise money. uh, potentially because of a negative earnings. Although they do have high free cash flow, they might still have to raise money to invest and continue to expand in growth.

So if you get that combo of High free cash flow and positive net net, that could be a nice way to get through. especially if you're focusing on those wealthier companies or individuals and where they might be spending because they might have the most ability to spend through a recession. With that sort of recap done, it's important now to look at exactly what Goldman Sachs thinks about this banking crisis and I Really think this breakdown is interesting because a lot of people are freaking out about this idea that we are definitely going to see a big slowdown and a massive credit tightening that is just going going to worsen the recession. I Was talking about this yesterday and according to NatWest we haven't actually yet seen a short-term tightening in credit conditions and that made me really interested because I was talking with my team and I mentioned hey, we haven't seen any short-term slowdown and or tightening of credit conditions.

And since we haven't seen a tightening of credit conditions, why uh, like do we expect a worse recession? Why do we think credit conditions will tighten in the future And our thought was, well, it'll probably come right. Like credit conditions will probably tighten and crush the economy, right? Well, maybe not. Let's take a look in here to Goldman Sachs's view. so they say right here it's still too early to have a very confident view of exactly what's going to happen.

Our Baseline expectation is that reduced credit availability will prove to be a headwind. So in other words, a reduction in credit is likely to happen, but so far it actually looks like it might just be a headwind rather than a hurricane that pushes the economy and recession and forces the FED to ease aggressively. Now because of this banking crisis, Goldman Sachs is actually moving up their opinion that we're going to go into a recession from 25 to 35 percent. So they've actually increased their opinion that they're going in.

We're going into a recession. No, they're very low on the recessionary standard. Uh, there's a 60 consensus estimate that we're going into our session. These are all of the estimates right here on forecasters who think we're heading into a recession Goldman Sachs is over here at just 35, whereas the Uh median forecast is 60 chance we're heading into a recession here.

But they say here that yes, there are risks skewed to the negative that credit tightening could be worse than we actually think it will be. So it's possible things could go bad, but it seems like credit tightening might just end up being a headwind and not a hurricane. and they give five reasons for that. And of course they do think that ultimately GDP growth will be hit by about four percentage points GDP dropping from about 1.5 to 1.1 percent.

but that's not recessionary. that's still clearly above zero. Zero is where you get to recessionary. So why are the numbers not bigger? And here are the five reasons and I'll tell you they are fantastic.

Fantastic explanations on maybe why the banking crisis won't be as bad as actually thought. and I really have been looking for reasons like this because the last couple weeks I've been a little frustrated with how little literature there is on on credit tightening and I'm thinking to myself like hasn't there already been a lot of credit hiding? Is there really going to be a lot more because some risky banks failed? So that was my concern. Sort of in the back of my mind. like are we being too bearish here? So what does Goldman Sachs say and I Thought This was really interesting.

Why are these numbers not bigger? First, banks have already been tightening their credit standards since mid-21 2022, so the incremental impact of the recent turmoil on credit availability and growth should be much smaller than the situation in 2008, where the prior expansion was largely built on easy credit. Real, uh, Relatedly, the private sector runs a small Financial Surplus today. So first, first big thing. hey, we actually have already been tightening credit standards.

So just because some risky banks are going away, who cares? that might not actually change anything. On top of that, the private sector has more cash today than it did in 2008.. in fact, in 2008, businesses in the private sector had a quote sizable deficit whereas today we actually have a small Financial Surplus Uh. Next, uh, I Guess that's part of Reason number one according to them.

So okay, fine. Second, we do not expect larger Banks which have high capital and liquidity standards uh to be uh and are subject to more stringent stress tests to reduce loan Supply Further, they do not expect big Banks to reduce loan Supply Further, keep this in mind. Sort of Anecdotally, if I go to a big four bank and I've done this in in my career. and then when I finally realized what the rule was I stopped I Remember going to the Big Four Banks many times Bank of America City Wells uh JP Morgan and I've gone to them I'm like hey, I got you know, a real estate portfolio 27 properties here.

it's worth, you know, 24 25 million dollars. Well I I'd like to refinance the portfolio with you. Oh, we don't do portfolio loans. Okay, how many of them can I refinance with you? Well, we can only do four loans and I'm like but Fannie and Freddie Mac uh uh, let you go up to 10 loans per person which would be 20 loans for my wife and I they're like yeah, no, sorry Dodd-Frank says we can only do four loans and I basically have to walk out of the big Banks because they're so tight.

they're so tight they squeak uh and so like how much tighter can it actually get at the big Banks they basically suck. Uh, and this is why you do, to some extent want small Banks because it's easier to get home equity lines of credit, portfolio lines of credit. Now you want to be careful with with your cash deposits because you don't want to be subject to potentially taking a haircut on your deposit. Uh, that's why we've been having these bankrupt fears.

but this is actually a good argument that how much tighter can they actually get? I Agree. Uh, Number Three. Third, unrealized losses on health to mature maturity Bond Portfolios have diminished in the recent rates. Market Rally Another major difference from 2008 when the problem was that assets lost value during the crisis.

Okay, so this is really important to pay attention to. So understand this and I'm going to make it very, very simple. Okay, let's say this right. Here is your bag.

There we go. This is your your bag and we're gonna label it. This is your bag. Okay, in 2008, the value of your bag went down because inside of this bag or bonds and the value of those went down in 2008 during that financial crisis.

during today's financial Crisis 23, the value of your bag is actually going up. Yes, the value of your bag is going up in 2023.. Why? Because as soon as this banking crisis started, everybody fled to bonds for safety. And so, the value of bonds actually skyrocketed and yields fell.

As people were fleeing to safety of bonds, more depositors were taking money out of deposit and putting them into bonds, which actually increased the value of the hell to maturity portfolios at Banks. So it's actually a really good point that wait a minute. Wait a sec. This is different because number three, the value of our backs is going up, not down.

This is completely the opposite of 2008. Fourth, demand for credit in commercial real estate where 80 of outstanding bank loans are from uh, sub 250 Bill Banks were already Under Pressure because of post-covet changes in the real economy, so the incremental activity of reduced credit may end up being quite muted in that sector. Basically, what they're saying here is a after Covid less people were getting loans from uh, smaller banks in the commercial banking sector anyway, because well, after all, after Covid less people wanted to finance new Office Buildings or commercial buildings anyway. So what difference does it make? Okay, good, uh, then an immediate source of downside risk would be another deposit run.

Uh, and uh. Keep in mind deposit runs are somewhat related to retail inventories. Retail inventories just came out this very minute that I'm recording this retail inventory is my month over month up 0.8 percent, but it kind of suggests that people aren't actually spending money on stuff as much and inventories are piling up a little bit. Wholesale inventories came in at point two percent versus the negative point one percent expected.

Retail inventories came in at point eight versus the 0.2 percent expected. So a little bit of a beat on inventories. There is. potentially people are keeping more cash, but now the concern is, even though people are keeping more cash, they're looking for a yield on that cash.

So what are they doing? Well, Obviously, they're buying big. No, they're not. Obviously, they're moving money into money market funds, high-yield savings accounts, or CDs or treasuries to get to actually get a yield on their cash. Now, keep in mind, one of the reasons you can get a yield on your cash is because at least in my opinion, there's a huge opportunity cost to being in treasuries or cash yielding accounts right now, because you're potentially missing out on what could be very substantial stock market gains.

But then there's a flip side, where there's a potential of stock market gains. There's more risk, and that's why that four or five percent real yield, right or not real. That four or five percent yield right now is considered uh, risk-free whereas uh, your stock opportunity cost comes with a lot of risk, right? Anyway, an immediate source of downside risk is another deposit run. An effective way to reduce this risk would be to basically guarantee all deposits.

fine. Then Goldman Sachs goes on to say a more subtle risk comes from upward pressure on deposit rates. And this is basically saying that banks are going to have to pay out more money and it's going to lower their net interest income their Nii. So if their Nii goes down to prevent that uh deposit flight, then Bank profitability could go down.

There's also, uh, the fact that you know they believe the FED should have paused last time. but because of the FED continuing to go, you could create some more turmoil in markets. Uh, However, they're actually optimistic on China and they're raising their GDP forecast on China to six percent. Uh, versus uh versus the United States and Europe where they're a little bit more nervous.

So what is sort of a conclusion off of this piece? Uh well. Oh, take a look at this chart. This is actually really interesting too. Uh, and then I Want to get to the conclusion of this piece? Look at these small Bank withdrawals right here.

or change in deposits. Massive flight out of small Banks right here. I Mean that makes a lot of sense. but what is the point of this piece? Well, this piece is basically telling you everybody's really concerned about oh, no.

credit tightening, Credit tightening. Credit tightening like it's going to crush our economy. We're gonna go into a a big, you know, uh, economic Crush Uh, and and earnings are gonna crash even more because of all this credit tightening. That if there's this potential that all this fear about credit tightening and a massive economic depression because of credit titing could be the same kind of Click bait when everybody was screaming oil's going back to 140 dollars a barrel just doesn't happen.

The reason for that is very simply small banks have already been lending less because of commercial properties. Big Banks already have tight lending standards, so it's hard to tighten them even more so you might not actually see any material difference in credit standards. Bank Bags are getting smaller, not bigger. Big difference from 2008.

Private sector businesses have more money today than they did in the past. and the FED even though they didn't pause in the last meeting, are probably likely to pause next meeting, or certainly the meeting thereafter. and more of those stresses of economic strain could actually be limited. And so this is where they say reasonably.

So hey, look, if we don't have a Paul Volcker, well, then we don't have. You know the worst case scenario. But on top of that, we might not even get a hurricane like Jamie Diamond Forecasted, we might just get some headwinds that basically just slow the economy down a little bit. Which isn't that the point isn't the whole point of what the Fed's doing.

to slow down the demand side of the equation, to slow the economy to a level of below Trend growth. If trend is two to two and a half percent growth and we're growing at one percent, there you go. Fed's mission accomplished. So with all of that said, it doesn't seem like the economy actually is going to potentially have this horrible credit titing cycle that just destroys the earnings of every single company.

Instead, it seems like hey, it's going to be some. They're gonna be some small effects, but really, do they say get out of markets I Don't think so. and neither. There's Goldman Sachs So this is actually pretty positive news, but even though it's positive, you can amplify that positivity by getting 12 free stocks with Weeble at Metcaven.com free and the sponsored link down below for life insurance.

You can get it as little as five minutes. as well as the fact that you can now use Buy Now Pay Later on the programs on building your wealth linked down below. Alrighty, what's next? I Don't know. Let's see what's next Republicans Pointing the finger at the Bite administration's fiscal spending and regulators doing a little subtle finger pointing at each other.

Sherrod Brown The Senate Banking Committee chairman will say the official sitting before us today know that their predecessors rolled back protections like Capital liquidity standards, stress tests, broker deposit limits, and even basic supervision. They green lighted these Banks to grow too big too fast. Meanwhile, a spokesperson for Tim Scott All right, whatever. the debt ceiling stuff is going to get more and more annoying.

Uh yeah, Max Here says GDP Now Got updated from 3.2 percent to uh uh for Q1. Yep. I totally believe it. Uh Steve says GDP estimates are too aggressive from Goldman Sachs We'll see.

Uh, so forecasts are that we're going into a recession, but growing next GDP expectation is still 2.6 quarter over quarter. Well, every. In Fairness. One way you could explain that away is that most of the forecasts are that the recession won't come until Q3 Q4 So yeah, you can have positive Q1, but somehow negative Q Three Eq4.

But yeah, you're right. I Mean, if we're growing at three percent right now, it's gonna take one hell of a drop to get into. Q3 Q4 That's going to be pretty painful. Let's see here.

where is that flight money going? It's nice you understand how big is supposed to work and play by its rules. You really should call it the Central Bank in America What do you mean like the flight of money? like uh, like the money out of out of, uh, out of small Banks Well, it's probably going into money market funds uh, fintechs that are offering high yields or CDs which, which, uh, CDs kind of help Banks keep some of their deposits. That's probably it. Uh, then you've got.

uh. let's see. uh, what was, uh, uh. Been waiting for retail to capitulate Banks retail waiting for banks to capitulate? Choose your fighter.

That's a good point. Oh, this is an interesting one. Uh, this is actually a really interesting idea I Want to talk about this? So we've got a Channel member with a comment here about stimulus checks and I think it's a brilliant topic that we should discuss the potential of steamy checks coming back to. America Let's Analyze This Garrett Purrington says if we hit a hard recession with this Administration Referring to the Biden Administration between now and 2024, they will simply give more handouts one way or another.

Pushing inflation. The push-pull in 10 years prices will be skyrocketing. So let's try to break this down and analyze if and how stimulus checks could make it back to the United States And boy, stemi checks would be another fun session of video topics that we haven't got to talk about in quite a while. So let's talk about the potential of stemi checks now.

I Think the easiest way to do it is draw it out. So let's do it together first. I Think in order to expect stimulus of any kind, we would have to have massive pain and massive job loss now. Elizabeth Warren Is already expecting somewhere around 3 million job losses, and the way she accomplishes that is by saying if the unemployment rate today is 3.5 percent and the FED thinks it'll go to 4.5 percent, the FED then the reality is: once the unemployment rate goes up one percent, history suggests the unemployment rate will go up another percent.

So history suggests we're going to go here since we've got just over 150 million people working in. America History suggests we should have about 3 million job losses At the same time, economic forecasts are really calling for a recession or a negative GDP growth sometime in Q3 Q4 right around the holidays. Uh, and so call it a holiday recession see: Christmas Sweater Holiday recession. it's almost like I Wore this by Design So what could potentially the impact of a holiday recession be? Well, first of all, if we're in a recession if we actually hit a recession usually and historically that that doesn't mean that it will happen this time.

But usually and historically the stock market bottoms at the start of a recession. Uh, so if the stock market bottoms at the start of a recession and the recession hasn't technically started yet, then pain in the stock market could still be ahead of us. So the stock market usually bottoms at the start of recession. The only way to really then historically suggest that the stock market hasn't hit bottom yet or has already hit bottom.

Rather would be to say that there's no recession. Which is possible that there's not a recession. But for the purposes of arguing stimulus checks, let's assume the stock market hits a new bottom at the same time we get Mass Joblessness. That is a a sudden wave of three million jobless uh, individuals.

And that joblessness creates a jobless spiral. Jobless spiral. This is I Think where the government would want to intervene because remember the velocity of money when one person spends five dollars at a hot dog stand. The person who takes that five dollars then goes and spends that five dollars on an employee to help him at the hot dog stamp.

That employee then spends their wages on goods and services. car cleanings, a muffler for their car, radar detector for their car I don't know, whatever they want, food, uh, basic necessities, laundry, whatever, and you have this circulation through the economy and Modern economic thoughts suggests that when somebody spends money, it usually circulates through the economy about four to five times. But if three million people have less money to actually spend on goods and services, then you could actually take away four to five times as much money. Which would basically means if three million people don't have income, you could see the impact of what could be as much as 12 million people without jobs because of the velocity of Money amplification effect.

Now, obviously there are Employment Insurance programs and this is actually where I Think the government could stop a jobless spiral because if 12 million people were out of work, then earnings at companies are going to plummet. Then they're going to hire less people. And then you get the spiral. less earnings.

They fire more people. They then hire less people, right? So they hire less people. They fire more people, so more people permanently unemployed in the cycle, less people spending money leads to less hiring, and you basically just have a depressionary spiral. Well, the Keynesian economic thought, which is one that our government and Federal Reserve like to follow, is that, well, if times are tough, we should stimulate the economy.

So how might they do that to stop a jobless spiral? Well, there are a few ways they might do that The easiest way to think about this is first: how are they likely to, uh, continue, uh, supporting an anti-jobless spiral regime. Well, first, we know this with certainty already. we expect they would amplify uh, the debt ceiling. It seems like when I type today this uh, this HDMI connector is just trash I bought a new cable so I'll fix this for next time.

but uh, let's go back in. So the first thing they might do is amplify the death ceiling which is basically saying they'll raise the debt ceiling right. Once you raise the debt ceiling, what can you then continue to do? Well, you could continue to spend on chip related Investments Why would you continue to spend on chip related Investments via the Chips Act where you could basically just and you don't even need Congress to do this. Remember this, You could literally have the Biden Administration just read the law of the Chips act where they've agreed to you know, 80 plus billion dollars in spending in chip manufacturing and they could just Loosely interpret it to where all of a sudden instead of spending 80 billion dollars, they're actually spending 240 billion dollars.

Yes, a 3X is possible. That's what Goldman Sachs said in a piece we covered just three days ago where Goldman Sachs thinks that institutional Stimulus check spending could actually be three times as expensive as previously thought because of the way the Biden Administration is interpreting it. So what if they just interpret it so loosely that it's actually a four or five times investment? Well, now what you're doing is you're creating jobs by going into more debt. That's likely to happen in Chips, it's likely to happen in EV It's likely to happen in solar, hydro, and other scientific based uh based in my opinion Investments that the Biden Administration can justify under acts that have already been passed.

So I think the debt ceiling gets raised hands down if we're knocking on a door of recession, that then enables the government to spend more money on programs that they've already passed without the help of a bipartisan. Congress Another thing that could potentially happen and we don't know this is you could potentially good. Lord You could potentially have a bipartisan effort on expanding unemployment Protections In the event that you have, uh, an unemployment crisis now, these unemployment benefits would probably be conjoined with some kind of demand that individuals work. I Don't believe that Congress is going to go back to the days of here's massive Uh unemployment compensation for no work I Think there will probably be a look for work requirements if Congress were to expand in a bipartisan way unemployment protections.

but I think this would probably be the biggest stimulative, uh effect that Congress would have uh on the economy. It's not only the Biden Administration in their own way, basically increasing stimulus checks that have already been written. Remember what? Goldman Sachs said they said, hey, we've got about 390 billion dollars in stimulus checks that'll probably end up costing around 1.2 trillion dollars because the Biden Administration is just going to Loosely interpret those rules. But I Actually do think that Congress could in a bipartisan way increase unemployment compensation stimulus checks as long as people agree that they're looking for work.

I Think that's how you can get a pretty divided Congress right now Democrats and Republicans on the same page and actually printing money again supporting massive unemployment checks for people who've been laid off, especially in dare I say the tax sector I Think there's a chance you're going to see a high level of tech unemployment and that's going to lead to higher unemployment checks to make sure people who basically funded so frustrating who basically funded a very expensive lifestyle I Feel like I'm taking a Nintendo switch here I've got expensive HDMI Cables expensive Apple Dongles. but no, oh, don't you just love seeing Kevin blow Anyway, So I There's this chance that you have, uh, the tech sector that has an expensive, much more expensive lifestyle, right? More expensive cars, more expensive apartments or whatever that actually ends up fueling calls for higher unemployment checks because they are now unemployed and regular unemployment won't help them pay the bills they signed up for under salaries that they used to be used to because of unemployment caps. Basically, so there is the potential that you see stimulus checks come back in the form of higher unemployment compensation as long as to appease. Republicans There's a look for work requirement that's potent.

that's a potential. Now, What about straight up just stimmy checks? Is it possible stimi checks? Is it possible that the Federal Reserve and Congress issue stemi checks? Well, first, you have to ask: would the FED print more money in the event, uh, of a painful recessionary Dynamic that lasts long? So in Long recession, right? So let's say Q3 Q4 we go into recession and by Q1 2024, we're still in recession. Basically, the Fed uh went too far. Is it possible that maybe instead of getting stemi checks to the tune of you know, twelve hundred dollars and then fourteen hundred dollars.

And then actually it was the other way around. there's twelve hundred dollars. Then we had the 600. then we had the fourteen hundred dollars from the Biden step up.

Then you had the uh child. uh, tax credit, right? Is it possible that we end up getting a revisit of some form of stemi checks? Maybe do I think it would ever be to the degree that we saw here? Very unlikely. It's very unlikely we would go back to this kind of stimulus. However, is it possible that there would be a a one-off Maybe I think before you'd ever get to a runoff and there was, you would not want to pray for that because I think we would be in a pretty deep recession if you prayed for that.

But I Do think that they'd probably go back to some of the protections that they previously had, which were very inflationary. The expansion of the uh, uh, the money supply is what created the inflation that we have today. but I think they would actually and potentially make the same inflationary mistakes that we had the last time around just to a slightly lower degree. I Think though you could almost say with certainty.

Okay, so let's let's put some odds on this: I Think you could say with certainty uh, that is like 99 likelihood uh which is basically certainty that they are going to Via the Biden Administration print their way out of whatever recession we're going into by dumping money, showering money into the chip sector and the energy sector. The inflation reduction Act was a ruse. It's not going to reduce inflation, it's going to increase inflation, but because they told Republicans it was going to be deficit neutral and everybody believed them. and now the Biden Administration can Loosely interpret every rule they want.

There's going to be a massive amount of spending here, so if you're looking for a job, you're probably always going to be able to get a job in chips manufacturing EV Solar Hydro you name it over there. I Don't think there'll be a shortage of jobs which I actually think is going to be fantastic if you're exposed to those kinds of stocks. Now with maybe a 40 chance I would say Congress actually works together to raise unemployment compensation as long as there are. Look for work requirements I'd actually go as far as saying 40 to 60 percent in the event we're in a recessionary environment.

Uh, and then stemmies I'd probably say a one-off has maybe under the Biden admin. maybe a 20 chance, but it would really require a dirty recession, so you probably wouldn't want to go down that direction. Uh, so uh, that that would be a little scary. Uh, so somebody here says, why would you stimulate The truth is out there says why would you stimulate the economy while at the same time at the same time slowing the economy.

So the only way this really plays out in my opinion is that inflation is conquered. so inflation ends up proving to be transitory right that? So let me give you an example of what that could look like with data that's already happening. uh I Want to pull up a NatWest piece and then I want, uh, the costs for shipping I have all I have so much data on my iPad it's insane. but uh, it's somewhere around here there.

Got it? That wasn't bad? Look at this shipping costs out of China I even wrote next to it. This is what transitory looks like. Okay, that right, there is what transitory inflation looks like. So I Know a lot of people are going to say hey, wait a minute.

how could you possibly go back to stimulus checks If you have all this crazy inflation? Well, you can't Here's how you go back to stimulus checks. Okay, number one. Inflation goes away. Inflation goes away goes away.

That's number one. So step number one is inflation goes away. However, to get there. Oh, however, to get there, you actually had to push the economy into a nasty recession.

So let's write that. However, now in, uh, nasty. Oh my. Lord Whatever.

Man, Uh, now you're in a nasty recession. so inflation goes away. And now you're in a nasty recession. Now that you're in a nasty recession and you have no inflation, Guess what the government can now do? They can print, uh, their way back out, but less than last time.

So that becomes the rule, right? So the rule becomes: look, we'll print. but we just need to make sure we're printing less than last time because we don't want to create the inflation again that we did last time. So let's draw that out for you for a moment. So inflation goes away.

However, now we're in a nasty recession so we want to print our way out. But we're going to do so less than last time. So imagine this: I'm going to draw a really big orange line here and this is going to be inflation. Okay, so let's say we get inflation.

That does this Okay, and then it goes negative. So we're actually at deflation. Well, now the government prints money via stimulus checks or increased unemployment or chips or EVS whatever. So they print money to push inflation back up.

and they basically try to cause that right? That's the goal. Will they be able to accomplish that? Probably not. They'll probably screw something up because that's what they're really good at. But it could happen.

It could absolutely happen that we end up falling into deflation just like this chart shows you. I Mean, look at this chart. this is shipping costs out of China Plummet. That's what our inflation is probably going to look like.

Now is it possible that it'll look a little bit more like this? You know where where Basically it takes, it stays higher for longer. You know it could even to some extent kind of look like that, right? Is it possible? Yes. But if we