123. How to Profit from any Financial Crisis - Transcripts

health alpha podcast we're in the studio what's good boys we're in a studio where

a studio in a student the party a studio they're waiting for the waiting

staging like mMON financing yeah bridge loan yeah bridge loan but this is big this has been a long time coming we're one step closer to the studio for one room for one room away one room closer to student yeah yeah you won't know the difference when you see you later but we're basically sitting in the living room area of our studio. But we're really excited because this has been a long time coming and yeah if you're new to the podcast can you just allow me to

reintroduce ourselves? Is that okay? We're one room closer to studio. Yeah.

Only if you do it in Jay-Z lyrics. No just kind of float out. I mean so we are four radically moderate entrepreneurs and investors and every week we're uncovering the latest Alfalfa in money and life and we do this episode we do this podcast twice a week we're a hundred and what 30 25 episodes in a little over a year of doing this and yeah it's been an amazing journey alfalfapod.com if this is your first episode listening take a look at the backlog hop in with us in the discord a lot of good calls in the back log actually. Yeah a lot of good calls- subscribe to the YouTube we're gonna be doing these hopefully live soon so what you're watching right now on YouTube we're on Spotify we'll hopefully be live streaming this every Wednesday is our is kind of our selected day. We'll see how it plays out but um yeah we'd love an appreciate you guys being here so today we're gonna be doing we're skipping our macro talk to kick this off we're gonna be doing our Alfalfa round and then we're gonna focus the majority of our discussion on what's going on in the world of finance Obviously, there's been an absolute shit show this last week with USDC, with SVB, with markets in general, and the bank runs that were about to unfold that, thank God, the Fed stepped in to backstop SVB and not allowed to happen. So we're going to dive into all of that. Any other announcements? Oh, I have one. I'm drinking Dry Farm's wine. Shout out to Dry Farm wines. They sent us another box, really, really cool company. So you can subscribe, use our link.

basically hangover proof wine. What are we drinking today? Yeah, let's see here. We've got an Austrian

red. Got an Austrian red. It's a 100% Zweigelt from Nero de Steich region. I think they're

flattered that I haven't tried. You're welcome, Germany. First of all, that I haven't tried.

That's Austrian. You're welcome, Germany. It's Austrian. You got some great comments about your

Arnold impersonation. They speak German in Austria. Sure, but I did get a lot of comments.

The best comment is like, the bro just casually nailed the Arnold impersonation.

But I mostly just got told off for making a general statement, which is great for the YouTube algorithm. Yeah, it could be a growth hack. Just be wrong all the time. Just be wrong.

They don't execute you in Austria for throwing eggs, apparently. Yeah, apparently not weird.

Yeah, apparently not weird. All right, let's dive in. Any other announcements? I think that's it.

Cool. Let's do it. You want to kick off, Nick? Yes. Yeah. So I got a quick smattering of things for off off around the quick first quick one is I went long Bitcoin short ADA is like two weeks since I actually talked about it. I find I get these like I have an idea. And then I just get like stage fright. Like I, I don't know, I could just dilly dally around it and don't get to it procrastinate. Anyway, I finally got around to it. Yesterday, today's Wednesday. So I got it on Tuesday.

Yeah, so yeah, so also on that when you enter a trade like that, do you go like,

is that your full allocation to that trade? Or are you sort of tiptoeing into that one?

I tiptoed a little more today, I add another 25k on the ADA short. But Steven, when you do these, are you usually using like you're levering up your actual equity principle to make them interesting? Right? Oh, yeah. Okay. So that's what I think I need to find some points to

decentralized exchange. I think the way to do it is like, if you have like, an account that has all your cash in it, then you would transfer it to a different wallet that you

want to lever up and then use that wallet. Right. I mean, this is like a trade. It's not a, Right. right. like a maybe, right.

right. I think it's like a one to two month thing.

Yeah. So yeah, so whenever you're making a trade, and you're not just buying and holding something, you always want to be aware of like, what am I risking? That's always the first question. Like, how much am I willing to risk if this trade goes awry? Especially if you use leverage? Right? So step one is like, how much do I want to risk? And then step two is to kind of look at the price. Look at the chart. I assume you've done some analysis and go like, okay, where am I definitely wrong on this trade? And then you sort of work the math backwards, right? Where if the price goes to there, how much do I lose?

Yeah, these trades are where I get the gun shy. What about the idea of leverage? Because you could use more principle versus using more leverage to get the same risk in dollar terms.

Well, I think it's kind of like real estate. You want to use a little leverage

to get a higher return off your principle. But you could go 100x on these things.

How much leverage do you typically go? Well, I think it depends on your liquidation price on your short.

So on the short side to me. A leverage for me is I trade 20x leverage all the time when I trade. But it's not because I'm betting my entire account and if I lose 5%, I blow up. It's because I'm keeping as little money as possible on the exchange.

That's what I'm asking, because I think you can come in more principle and less leverage. But you're comfortable with a 20x level.

It's a comfortable with a 20x level. It's a capital efficiency play and it's like a safety play.

This is supposed to be a small trade. put any more capital into it so I guess you know I'll probably express it more by adding some leverage if the opportunity presents itself and I got I got some ideas from from Ben Cohen's like pay channel he had some good public YouTube things but he said a potential good target might be 800 sat so we'll go from 1400 ate at a BTC ratio to 800 so we'll see if it turns into a nice juicy return or not but um the other thing I want to mention was today in fact is the one-year anniversary since we were last at zero percent interest rates yeah so is herb day on March on March 16 2022 we've got a first increase of 25 base points I think until July even July we were still under 1% so now that we're

and we'll talk about this in the main section so is herb day on March

it took a year to start collapsing got a year from 25 basis point hike so we haven't even got like a year from the big boy hike so anyway now that we're potentially approaching the question of a pause I thought it'd be cool to bring some data in and look at what happens when there is a pause so this date is a from 42 macro highly recommend their their paid subscriptions but typically when we have there are different types of pivots there's typically a pause where they just stop increasing interest rates and there's a pivot where they start reversing interest rates and start bringing them back down when you look at deposits on average the the bottom of the bear market trough happens one to two months before there's only two instances in the in the time scale of of this. So this was one in a 2019, early 2019 end of 2018, and then the last time they just paused and didn't pivot was in 1942. So there's not a lot of data points.

So you're saying there's only two times when they've paused and not pivoted?

Correct. Okay. Just paused and kept them flat. There's a lot more instances of when they pivot. So what I found interesting is what happens when they actually pivot. Because on a median basis the bottom happens, you know, one month after they make any kind of change. But when you start looking at these pivot scenarios, because everyone's excited for a pivot, I just think it's important to bring some data because it may not be as exciting as you want it to be. So the

last pivot was in 2007 and the market bottomed 18 months after the the actual

pivot. 18 months after not the one month after that you just said? Correct. So like if we zoom in here on 2007, pivot 18 months after, then in 2001 what was the one month you said? Oh sorry. One month, one to two months before is when they just pause. That's when the bear market bottoms typically one to two months before they just pause. So if

we think a pause is happening, you might feel a little. You're saying pause typically on 2007. What was the one month you said?

cause and no cuts. Exactly. A weird thing to predict. Right. Probably not happening here,

I'm guessing. Well, we'll talk about that later. But my point is that people are excited about a pivot. And I'll name off some other instances. So in 2001, they pivoted the bear market did not trough until 21 months after 1987, they pivoted it bottom two months after 1981, 14 months after. So the reality is like, we're all excited about a pivot. But that usually means something fucked up is going on. And it may need time to cycle out and take its place. But you know, if you just look

at those two times, we only paused if you think that's a high probability or that what were the

two dates of just a pause, just a pause was to January 4 2019. And July of 1942. And in those scenarios, you look three months for the S&P 500 was up 13%. In six months, it was up 20%. And in 12 months, it was up 40%. So if you think a just a pause might happen, it tends to look pretty good. Good. Pivot and this this is a sample size of two. Exactly. Exactly. So this is that that's a good

point to say three to three to four times going four times going and then like fundamental wise,

2019 looks so different. Yeah, different. Yeah. So I guess the takeaway for me was pivot,

not so great immediately. Yeah, that's a good takeaway. So anyway, that's mine. Yeah,

that's a good take. Beware. Are we allowed to share this document? No. Okay, I thought so. Sorry,

people. But I get I think we covered it. No, but I get I think we covered it pulled out the stuff. Go give Darius your hard earned money. Yeah. That's stuff. Yeah. It is great stuff.

Okay, so I'm on you want to go? Sure. On Friday, I bought some dollar sign coin. Dollar sign coin. Nice. We've been talking about that for a while. Good storm. I think we're still yet to really do our deep dive. I know, Eric, you're wanting to dedicate a time to that conversation. But I thought, since I did it, perhaps we could have a little one. I hope you

tiptoed in because I'm a wetter. I'm like, I hope you tiptoed in because I'm a wetter 50% down

before I do my deep dive. Yeah, I mean, I, I don't know if it was a tiptoe is a little more than a tiptoe. I intend to keep accumulating because I'm actually cycling out of other stonks into coin. So it's a bit of a, it's a bit of a, I don't know what to call it. And it's like, I'm, I'm still in stonks with this part of the allocation, but I'm just cycling into a different stock in general and have a little higher conviction on this one and taking probably at least 25% of my stonks in general and cycling that into ETH. So just thinking a lot about the growth bucket based on the conversation we had recently, which was one of my personal favorite episodes as well. Somebody said that in the community, in the audience, the discourse thing, it was D Koch actually was saying what a great sort of episode that was. And I agree. It was the type of conversation that I really like to have. Cause it caused me to sit back down, look at my thesis and notion, write out a new version for the rest of 2023. And it allowed me to make some decisions and take some actions. So my target was $56 and it hit and I took some

action. Okay. Congrats. I like that on longterm timeframe. I think it's maybe a spicy take, but I think coin is a way better way for most people to get exposure to crypto than buying ETH. And I, I'm fairly certain coin is going to outperform ETH by a lot. I want to debate that a

lot. I want to debate that in depth. Why do you think though, before you get to the ETH versus coin, why do you think that it's a better form of exposure, uh, to, to, to, you know,

because you sort of get a broad swath of exposure to all of crypto activity in a way. And you get some regulatory protection because I think there are a lot of scenarios where regulation happens and it doesn't kill crypto entirely, which means that certain entities in the space that have particular moats are going to end up like getting all of the monies. Um, you see this a lot with regulation where regulation ends up being like very, very lucrative for like whoever the incumbents in the market are. And then the government effectively picks winners and losers in a way. And a gigantic swath of the losers are going to be like random coins you might buy that are maybe securities, right? But like the winner, it's not hard to imagine the winner being like the one publicly traded company in the United States that is like Uber, you know, crypto, crypto, crypto, right? Like they're the one that kind of have like a monopoly on

US regulation if it's not completely stupid. Right. Right. Here's one that's already a security. It's like been approved as such. And we know that this is supported. It is US centric. Like I think that the powers that be are going to want to capture some of that tax revenue. This is a way to do it. You know, when you get into like decentralized coins and stuff, like, well, how do we capture that? Well, Coinbase, here we go. Like I agree with, with you guys that Coinbase is the play.

but that, that to me looks ripe, you know, ripe. I do. I do. I do disagree. But we have that

conversation. Good. Yeah. Oh, good. Yeah. So this, this to me looks like, uh,

like I do want to own coin, just, um, not quite yet. Yeah. I mean, I think all of crypto is probably retesting those lower prices, you know, so I'm not saying this thing isn't going lower. It probably is. Um, but I think starting a DCA at these prices, what's the valuation 13 billion? Yeah. Yeah. Yeah. Like it's not hard for me to imagine. It's small compared to some other stones. Yeah. Like Coinbase should be, Coinbase should be a $300 billion company someday.

crypto is not like a joke, yeah, like crypto is not like a joke. And if crypto is not a joke and

it's not a $300 billion company, then we lost. Yeah. Yeah. And like ETH also lost. So like, I agree with the whole point that like Coinbase is probably the best way to express like a bullish

crypto view. Yeah. Like scenario is where ETH wins and Coinbase loses. That doesn't rare. Like the U S kind of kills crypto just for itself, but it doesn't hurt ETH that badly. I

don't know. Yeah. Yeah. Like scenario. She both going down. Not, not, they're probably, yeah,

they're probably, yeah, they're probably, but there is a scenario where ETH actually loses and Coinbase wins just because it ties itself to a different horse and that horse wins and he

doesn't. That's not, that's not my thesis, but I could see that, that happening. Totally. I mean, I know it's not time, but I just worry about what happened with all the banks this last week. And the U S is sort of a perspective on, on crypto as a whole and its support of the

industry. I mean, what are the remaining crypto friendly banks right now? I have no idea.

BNY Mellon or something. Like there's, there's some big ones, but I'm wondering is what we just saw transpire over the last seven days. Is that like, is that even crypto related? Because most of the stuff that I saw with Silicon Valley bank was like, that's trad-fi, that's trad-fi stuff.

You want to get in the game plan or do you have some alfalfa that you want to share,

Steven? Yeah. I don't know how much alfalfa I had, but I had a, I've had a rough week. I, I got rugged in the oiler. Did you see the oiler hack? Sorry, man. Yeah. Yeah. I mean, so did you see the oiler hack? Sorry, man. I came home Friday night and I saw Coinbase at like, not Coinbase at USDC at 87 cents. And I was just like, fuck this.

and there's like a hack for the entire protocol. 200 million. Just 200 million. We have no idea. Like you, you started studying, uh, coding, but like we have no idea how to analyze a con,

a smart contract to determine whether or not that's safe. We just like, just like, you don't know how to analyze if your deposits are safe at a bank, maybe.

True. I mean, this thing had like six audits. The devs are very, very high quality. I mean, Coinbase is an investor. Jump is an investor. This isn't, this wasn't some like weird shady project, you know? Um, so yeah, yeah, like incredibly unlucky. Honestly, like that's just the one day I could, and I have like a, like an amount I limit exposure to. And because like this stuff happens, I've been rugged, like a few, I have a lot of balance cards at this point. I'm kind of, kind of jaded about the space at the moment, to be honest, because like I'm a pretty sophisticated investor and I, I am, I don't know how anybody can actually just use this stuff without getting

wrecked to, to be quite frank. It's, it's kind of, it's way more immature. It's way more immature

than we realize right now. We do now realize how immature it actually is. It's very nasty out there. And that's why I like, thankfully, I mean, we've been talking about this for a while. Like I've been taking money off crypto for months now and just buying bonds. Like there was a point where I just looked at bonds and said, uh, why do I even have stable coins? You know? So maybe that's what, maybe that's what Silicon Valley bank thought. I'll just buy some bonds. Yeah. But for people out there, I mean, like I, yeah, I, I limit myself to like 5% of my portfolio and like a tier one protocol basically. Um, and I doubled it for this because of the ARB.

in the, you know, a day, which is pretty good. It's more like five hours. You were up from like

midnight till four, three in the morning. I was just like the whole time. Yeah. Yeah. I mean, I haven't slept in days. I am like absolute crack head at the moment. That was the start of my

crackiness. And it's just kind of gone on. Well, for how much you got, well, for how much you got

rugged, you look great. Thank you. I woke, I woke up this morning at like, I woke up at like three in the morning yesterday for CPI. Cause like it's like Christmas for me and I can't sleep and then sleep yesterday. And today I woke up at 4 AM again and I put some trades. I actually had a crazy day today. Like I put on a bunch of like trades last night, like, um, some orders run like S and P, um, just some kind of swing trade stuff. And I woke up and I realized I had forgotten to cancel some of my other orders. So orders that I placed to close a trade actually made me go net long. And I didn't realize it. So I woke up this morning and I was like, oh, it hit my targets. And then I looked in, my position size was like four times my normal position size.

Um, what's the name of that scotcher? That's actually not scotches Japanese whiskey I think that's booze alfalfa for okay

Okay, Nika whiskey coffee grain does Japanese whiskey With a little coffee grain. Mmm. Yeah, it's tasty. You could coffee is amazing show the I think my cousin Tyler Uh, might have mentioned this one before. Oh, yeah, something similar to it. Mm-hmm. But yeah, yeah, she's pretty It's nice. We go through this one quickly over here. Yeah, it's good stuff. It's coming in handy right now

So show the I think my cousin. Oh, yeah, it's nice Yeah, it's good stuff. It's coming in handy right now So I share your sentiment except for different completely different reasons Steven and maybe I don't know if it's okay to start there but like Yeah, I mean this past week was like really really disheartening for me I think I was even venting in the discord and just kind of like so I feeling pretty cynical and sad honestly about the whole situation and I mean, it was close to being an absolute goddamn disaster and Even though it did not and what I'm referring to obviously Well, that's no

Okay, thank you for clarifying. Yeah, obviously Well, that's no Thank you for clarifying. Yeah, cuz I was feeling despondent about no

No, I mean the USDC thing to me was like, okay shit The move I personally made was like I just immediately moved everything to tether and I ate Five to six percent and I didn't swap back. You do not have a basic out. I did not know about that. No

Yeah, I do have a coin base account. Do you know what basic out but they turned it off who doesn't they turned off?

Ice ice. Yeah, I did not know that. Yeah, I did not know that a ton of money on Friday So what you're describing which I you said it in like our group chat But I I didn't know what you meant. You basically said you moved all your USDC to coinbase account You swapped for tethered there because it was a one-to-one peg there But on you to swap it was not and that's what I did I did it on you and so I ate I you know, yeah, I have some wallets that I lost like five six percent

So what you're describing which I lost like five six percent isolated

But everything that is like connected to my stuff. I just sent the coinbase and cashed out immediately. Hmm. Well, that was smart myself and some others did not I Mean I was talking to carne asada Chris about it and we were just strategizing and that's what we decided to do And it was just to be able to sleep at night, you know, I was like, all right If this thing goes to zero, I don't want to lose all my my USDC

It was just to be able to sleep at night, you know, I was like, all right. Meanwhile Eric is in Vegas on a point a boy's trip drinking and he doesn't have his laptop with him Yeah, and he's like guys. I'm wasted like is the world coming down? Like I have a lot of exposure What's going on? I want to talk about TLDR. I want to talk about this

so on a boy's trip drinking and TLDR I want to talk about this so first of all mushrooms this needs to be said cuz like I think the audience knows I'm on it like I remember looking at my phone and everything is just like iridescent on my phone Just like the screen is you could even look at your phone. Oh like I barely can and I'm Like we're all texting each other and I'm not really participating the text, but I'm like seeing the the Price of USDC going down like 92 cents 90 and I'm like, oh god

yeah, now like this Even look at your phone Now I couldn't handle that retrospect like I realized that sending you an article didn't help you cuz you probably couldn't read Well, I couldn't read it at all

But I couldn't handle that well, I couldn't read it at all but like I remember like Because when I'm on mushrooms, like first of all it's not really just the phone that I'm thinking of. I'm thinking of like the bigger picture, right? So I'm seeing like Silicon Valley crumble, like before that Silvergate out, you know, what's the other one in New York? Signature. Signature out. So then USDC crumbling, I'm like, I'm like, all these people are just gambling in Vegas and they have no idea that the financial system is just cracking beneath them. I just felt like, wow. And it was. For a moment I thought it was, but I think we'll talk about it in the next segment, but like those fears that I had, like I

was on the edge there thinking like, oh, it's all over. So I'm seeing signature. Wow.

And it was. I'm off the edge now, but like those thoughts have not left me. Like I actually believe that that wasn't the moment, but that was a domino and that

that moment is coming and that's how I feel. So you feel the moment is coming where we would see a mass run on banks and yeah, we see some form of collapse

of the entire financial system. Yeah. Something akin to what happened in 2007, eight is like what I'm imagining where like, like here the US government came in and backstopped that loss, but on Silicon Valley bank, they were holding government backed securities. They were holding treasury bonds. They're holding agency mortgage backed securities. Like those are like the safe ones, you know, but there's a lot of banks out there that hold risky assets, right? And Silicon Valley bank is dead. Yeah. It's dead off of holding the safest shit ever. They mistimed it, right? They played the yield curve wrong. They mistimed it and there was a run on their bank and that that sucks.

talk about what I'm like, what I'm sort of alluding to. But yeah, I mean, my perspective going forward for this and just like general game plan is trying to draw some conclusions from it. And I know a lot of people have been drawing the conclusion, well, this is good for liquidity because the Fed backstop these specific banks and provided liquidity to them. And so is liquidity positive. I tend to think it's quite very liquidity negative just because who takes this liquidity positive? I mean, if you're on Twitter, I mean, there's really like two camps like. Bankless just said it was this is a version of QE. Right. I don't I don't think it is. Yeah, I don't think it is either. And in a very short term, it can't be. Right.

that doesn't even count. I mean, I mean there's really like two camps. But you got to see what it was.

It can't be. The deposit outflows from these banks. So first of all their deposits are outflow in these bigger banks.

That's bigger banks. Well, even even we're not there. Never so much outflowing to bigger banks. They're outflowing from banks. Like we have a fractional reserve system. Like the money supply is basically like levered bank deposits, right? So when people pull their money from banks on top of the tightening and lending standards, and everything you mentioned Nick,

like that is going to be like, it's right, deflationary. So Goldman Sachs today, they lowered their GDP forecast by a large chunk, they were forecasting 1.5% GDP growth, it's not 1.2, just because of this moment. If nothing else happens from here, they're already expecting a decrease in GDP.

That's a good point, that's a good point.

Deflationary. Decrease in GDP. That's a good point, that's a good point. It does remove a ton of liquidity

just based on the fractionalization. And it's because banks with less than 250 billion assets comprise 50% of commercial industrial lending, 60% of residential real estate lending, 80% of commercial real estate lending, and 45% of consumer lending. Eighty percent, yes. Wow, these are the guys doing all the lending. Yeah, now JP Morgan, Wells Fargo, Bank of America, they have assets, they may continue to lend, but they may also just be more restrictive in general too. So even though the Fed is providing this backstop, which by the way, if you had to put a size to it, I don't think is that big. I think that the current facility is like 65 billion or something like that. And I know the way it works, like the entity where the money goes, they can actually lever that like 30 to one if they need to. So it can actually turn into a large amount of money. But regardless, the market itself is going to be a lot more restrictive. So that's the main thing that's coming up for me in terms of like starting to formulate a game plan is that this is gonna contract the economy, not necessarily expand it.

Credit will not increase because of this. I agree with it. I also don't think that we're gonna have like any sort of collapse. Like I'm not really worried about what you're worried about. Like when I see what happened this weekend, I saw a bunch of government officials who were like, oh, we're not gonna do the dumb crap we did in the past. You know, there were a lot of obvious mistakes made in the past, which are basically just like, they could have thrown money at the problem and fix it, but they didn't and stuff blew up. And like COVID, they threw money at, they threw too much money at the problem, right? But to their credit, like stuff didn't blow up. And then here you saw the exact same thing, boom, backstop everything. So it's clear to me that the long-term risk isn't some like deflationary like credit blow up. But I think it's just like, they're just gonna, it's just more indication they're gonna turn on the money printers at some point again.

And that's gonna be the release for the 12. I'm not worried about other banks blowing up, but you guys are familiar with like the concept of like shadow banking sector. Shadow banking obviously gives it a negative term, but these aren't necessarily bad businesses. I mean, there's all types of like shadow. Could you explain? Yeah, yeah, I mean like a private equity firm is a shadow bank, right? They provide lending to companies. Hedge funds are even down to like your paycheck. Your brokerage. Yeah, exactly. I mean, your Schwab, TD Ameritrade, all the way down to like paycheck financing, hard money lenders like. Aave.

Can you guys indulge me?

Could you explain? Yeah, yeah. Can you guys indulge me this like doomer scenario though? Yeah. You want to indulge, let's go. Let's indulge it. Pitch me. So I think there's like, there's probably like multiple things going on here. One, I want to just dismiss entirely, which is like the bank run scenario. That can happen to any bank, right? And SVP was brought down by a bank run, not by really like bad investing. You know, they did buy bonds at a time when bonds were really expensive.

I mean, it was. Yeah.

You want to indulge, let's go. I mean, it was.

It was bad risk management though. Terrible. Like terrible. To buy those bonds was maybe the worst investment

I've seen in my life. And also their entire deposit base was correlated to like one specific industry, tech, which is like this, basically the real, like it's like an interesting take. I heard somebody say was that like tech is the real estate bubble of this bubble. We just, we don't know it yet,

but that's what's happening. So they all pulled their money at the same time. And like, I think any bank, any modern bank would have a tough time handling that level of deposits at the same time. So I just want to isolate that and be like, okay, well that, that is not what I'm actually scared of. What I'm scared of is like how Silicon Valley bank held safe assets that, that did go down in price. And they, that's what fucked them. It was like the run at the same time

that their assets were not performing well. What fucked them is they didn't do any interest rate hedges.

Agree. Right. But like there are things out there that exist in a large way that like, I don't think we're giving any credit to.

I'm, I'm even talking about us for, us for. Worst decisions where if the same effects took place, we'd just have an expanded version of what you just saw. Precisely.

What I'm talking to is what I'm talking about. I'll name it is basically commercial real estate in office. Office commercial real estate is fucking dog shit. Since COVID, we all know all of our friends who stopped going into work, right? And like, I think that we all agree that that might be stickier than, than we imagined like a lot of people aren't going back. So there's a lot of leases from companies in these like office buildings that they don't even need anymore. So those leases expire. You get the owners of these buildings, they have to refinance. They're, they're on short term mortgages because they're those guys aren't actually trying to own these buildings forever. They're trying to flip them. So they're on short term mortgages. They can't refinance because the interest rates now are astronomical banks don't even want to refinance.

Like what about the ones that are holding risky or what it yeah. If people watching or the audience wants to check out banks that have a lot of commercial real estate paper I believe it's Andreas Steno Larson on Twitter. He posted just a few days ago a chart that showed as a percentage of total assets what percentage they held in commercial real estate debt for each bank. So if you ever want to look at okay which of the banks who hold the most commercial real estate debt I know there's a chart there and I'll find it and I'll post it in the show notes below.

And maybe there won't be a bank run on those banks at the exact moment that these assets are depressed in price and that might give them enough runway to get out clean. But we know that this world moves very freaking fast now.

Like yes all it took was one sliver of information and of course because it was so concentrated in tech every VC and every founder was very concerned. And then as soon as it slipped to one group of investors and founders and one WhatsApp

or telegram group it was wildfire and I don't and then Twitter takes it over and I don't think that the government is going to backstop those losses. They're risky. They're not like government backed securities. Like I don't see I see that being sort of like the Lehman type.

So actually dies and then we fucking crumble in the other sort of like type. So actually dies we've already seen this so I think I mentioned it when we weren't on the pod but I was in this meeting for this real estate group they're looking for limited partners to invest and he said you know we have a really good interesting deal coming up. It's at an amazing price. He told me the price and the cap was like what that seems really cheap I was like why what's up with it. He's like well it's it's a building in Irvine that Blackstone owns and they need they are very motivated buyer right now because they need liquidity and so they were selling it like a seven or an eight cap right buyer motivated their motivates are motivated seller. Okay. Yeah I must have misspoke. So anyway they're trying to get liquidity and Blackstone actually defaulted on a on a like a Finnish office portfolio already. So what you're saying is already happened in different parts of the world. They could not first domino boys they couldn't know their debt payments. So yeah I think it's already happening it may not feel like if we look back it's not going to feel like Silicon Valley Bank just because this might happen you know spread out slowly over over time and it may not make the headlines and concentrate it over like

one weekend but I think you're spot on right already.

So we're first domino boys because I'd be really curious where the just general audience sits on this because I feel like there are two camps of people out there right now where they're like this was a blip and it's a passing thing we're pivoting or pause whatever whatever and we're turning a corner here and there's a little bit of excitement and I think there's other camp that's sitting on Team CFA saying yeah dude like shits about to get really dark.

That's exactly how I framed that's exactly how I framed it I said this is either the

event or this is the first domino. Yeah I'd be really curious we should like people should comment on the YouTube video

and let us know like which game they sit in or in the discord or in the discord. Blip it. Yeah. And the YouTube comments is blip or is this dark ages? And I also want to know, do you think this is like that blip or dark? Of QE or is this actually restricted? So I'll tell

you how I want to do more polls. This is a form of, so I'll tell you how I want to do more polls. I'm playing it this way because you obviously know how I feel about it. Like I am just shoving cash. I'm going cash and I'm going cash into bucket number two from last episode, which is short term treasury bills, get my 5%, sit pretty, no downside risk. This is just beautiful

to me. Okay. So, you know, we're not the only players in this game here. The biggest player is the fed and they have a meeting next week. So how do you view that? Like, because this could feel very doomsday right now, but depending on what Powell says, probably more importantly, what he says and what he does, the whole, the whole game board could literally shift underneath you.

So exactly. Are you thinking about that? Exactly. Are you thinking about that? Yes. So the way I'm thinking about that is we're going to get a, I believe we're going to get a little bit of reprieve here where we, we feel like, Oh God, we're out of the noose. That's nice. But I, I think that what I'm describing this like doom scenario,

wait, what do you mean? Wait, what do you mean by reprieve that you said, well, what do you think he's going to do? Uh, uh, 25 bibs raise. Okay. And, and with that, that would, that would, that would be bullish. I would argue the market is pricing 50% chance of pause right now.

So if he does hike, okay. So even, even pot, even bearish, I would argue, okay. So even, even pause, even pause, I maybe pauses reprieve. I think, okay. Maybe he pauses. Like I think that there's going to be a short term reprieve where we believe like, Oh, nice, nice. And then market responds positively to that. But like, I do not want to buy into that narrative. Like I want to be in treasuries during my 5% and be like, okay, you guys just continue walking

off the cliff. And I'm just sitting pretty, maybe pauses reprieve. I think, okay. Maybe you

pause it to that narrative. Like I tend to agree. No, I want to hear these guys. I mean, I'm, I'm,

I'm rolling with that as well. That's my game plan. I want to hear, I want to hear your guys put on it too. But, uh, in my mind, whether they hike 50 basis points or they pause and say, we're just going to take a chill out time and just see what happens. I think either way it's bearish and I'm thinking in like a 6 to 18 month time period, not like a one month trader time period. And the reason is that obviously if they raise rates 25 base points or, you know, you know, odds are low that they raise 50 base points, but they do. That's obviously bearish against what the market is expecting. And, you know, pal, I think it's more important what he says. And if he says, yeah, we solve that problem back on the train. Uh, employment is too high. Wages are too high. inflation is too high, we're back on fighting inflation train, that's bearish.

So you have to drill into the numbers he's looking at too,

because he doesn't care about blankets in the air.

So what is it about the month-over-month door? You posted about this on Twitter, Stephen. Do you want to take this one?

You posted about this on Twitter, Stephen. Do you want to take this one? Like why you thought it was bearish when you immediately saw it?

Yeah, Core came up above expectations and then the three months right? The three-month is, I think, really important, the three-month trend annualized. Because the data is still really messed up year-over-year for the last couple of years. It was just like a shit show! She want to look at like the three-month trend sort of annual. I like we've made no progress since last fall Basically, like I think we had like some of the hottest prints since September October whenever it was 20 that's that's not good It's not what he wants to see and keep in mind like a week ago We were 0% of a pause and like we got up to like 50% of a 50 basis point hike, right? It might have even been higher. I didn't see like I think they were moving around a lot. It's kind of crazy. Just the volatility around interest rate and interest rate expectations I mean we were down 12% today on the two-year

We went down in a one-week period over a hundred basis points that is like Unheard of last Wednesday. I think when we recorded the two-year was at 5%

It's like a 3.8% now or something like a lot of our audience Is crypto people and they're used to their their shit coins going up 10% in a day Like this has got to be like a six-sigma move for bonds or something. Like it's it's unheard of like I don't know if there has been a move like this since like Covid and cold

Can you tell people why like why the two-year going the yields going down? Why that's why that's bad. Does that mean people think a recession is coming and they're being fearful?

I mean go down for a lot of different reasons, right? Like the market is pricing in cuts. They were not pricing in any cuts this year Remember we were pricing in cuts this year and then we got into this paradigm where everybody's like you morons like inflation's here And then cuts went away for this year. Like is there even gonna be a cut it next year I don't know I think the market was still pricing in some cuts like mid or early next year but now we're like cuts by like think they were up to like three two or three cuts by the end of the year now and in the span of, right, so that's gonna weigh on the two-year, right, that has to get priced

into the two-year. And if we go back to the data, we just went over in the alfalfa round, like a pivot, meaning cuts, doesn't necessarily mean that it's up only from that point forward,

because something really bad could be happening that caused them to cut. Yeah, I mean, look, sounded like it could be anywhere from one to 18 months of until you hit the real...

Okay. Troff. Right. Troff. Yeah, I don't know, I think it's a confusing time right now. Like, it depends on what Paul does a lot, right, like he can send the market to hell or to like an absolute moon landing, you know, depending on what he does and what he says in the short term. I kind of agree with you guys that ultimately, in the medium to mid-long term, like, it does seem like we need to make like another, you know, pit stop at the ground floor before we go back up again, and just sort of a path dependency on how we get there, right, which is like kind of important if you're like a shorter, you know, the shorter term your investment horizon is, the more the path you take matters. I'm sort of the opinion that nothing that happened last week is all that relevant. Maybe I don't want to say it's zero relevant, and clearly the bond market thinks it's relevant. And I'm not going to sit here and tell you that I'm smarter than the bond market, but like, inflation is still bad. Like, that hasn't changed. I don't, I think they did a good job of shoring up like the issues with the bank.

okay, let's buy all the dog coins again, right? With a ton of cash on the sidelines. Yes. Yes. But what about, so how do you square maybe credit drying up and expansion of the economy drying up because of this? Is it, hey, the economy is so strong that if we did slow down credit, if there was a pause, asset price still go up because, well, the fact is people have a ton of money in their, in their, in their checking accounts. They also have a ton of money, money market funds. They could easily pull down. I think the reverse repo is still over

2 trillion. So yeah, that's just like my, yeah, that's just like my generalized thought is that there's just like a gigantic bucket of cash. It's just like wanting to take on some sort of like duration risk. And it's just currently just parked and just, you know, safety. So can I, so can I draw upon my six episodes of technical analysis, please mentorship. I love the series.

There are, there are, there are some liquidity levels on like the S and P 500 eth that look to be sort of like, you know, ripe, ripe to be run on the upside. So eth looks like it could run 1800, 2000 in a bullish scenario, but then paste on my six episodes, it looks like, um, like I would probably want to exit eth there. I would want to exit S and P 500 at like 42 50. But like those, those look pretty low hanging. Is that, is that what you're seeing

as well? Yeah, I think crypto liquidity is kind of obvious. Um, if you want to think about that in like, when we say liquidity, we sort of broadly speaking, uh, speaking look, you know, mean like where you kind of look at a chart and you look at where like gigantic players would be able to fill orders. Like the basic principle behind this is that, you know, if you were, if you are a CZ of Binance, you're not clicking market by a billion dollars of Bitcoin. You have to use passive limit orders to flow. So you need people, if you're buying, you need people to sell into you. If you're selling, you need people to, to buy into you. Right. Which is why you tend to see the market reverse after we do things like run a bunch of critical lows or run a bunch of critical highs, because often like large players have absorbed orders of those levels. And then we go to the other direction and then they sort of distribute. And that's kind of like how the, that's like kind of what Eric's talking about. Right.

kill everybody. Okay. Can you maybe go one step further and steel man the opposite case? Like for the people in the camp were like, okay, we're going to melt up to 2K and then we're going to keep going. This is the start of a new bull run. Like I'm trying to figure out like, why could they be right? And I'm, I'm having trouble seeing it beyond that 2K point, but, uh, you know, sometimes we get a little, you know, group think here. So what's, what's the case for like why that

could run higher? You could get a pause. You could get inflation taking a slightly long time to kind of come back and then you don't have like a credit event. And then I like, some of this stuff is blurry, right? Like if we got like a three month thing and then like dumped like Eric sitting on the sideline with his cash, he's feeling cozy. He's like, huh, yeah, whatever. I missed this three month nonsense, right? But if you get like a two year, like slow melt, then were you actually being a prudent investor or did you like kind of miss like, no, you missed it. You kind of missed it, right? So this stuff is not that simple. Like if we get a mini melt of ETH to like 3K from 14 and you didn't participate and it takes two years of your life and then you round your trip and you just sat there and cash all the time, like you, maybe you feel okay, but you probably don't. You probably feel, you probably feel really bad at the top, right?

people they just like they can't deal with it. Yeah. And then they buy the top. Yeah. And then they buy the top. Because I mean, it went to 1750 in like four days. Like if he went to 2500, like at some point, all the money in the sidelines would be like, Oh,

that was the bottom. Yeah, psychology is insane, right? Like I do this all day for living and I get wrapped up in it and make terrible decisions all the time. And like what you think you're going to do ahead of time, in the moment, you totally end up fucking up like if you don't actually have like a good process and an execution plan in the moment, because in the moment, we all turn into apes. And we just go monkey see great, great green candle monkey click by button. And then that that's kind of it. And we get we get rec, which is why I like sitting here with you guys and try to game plan ahead of time, right? So like, I'm curious, like, what are you guys doing right now? Because I do feel like this, this is an inflection point right now. And I like having these discussions at inflection points. Like a lot of the times we talk, it's like noise. I don't think there's noise happening right here.

what do you what are you doing, Nick? I mean, today, I actually just moved that I had some cash in Coinbase for price triggers, really low triggers and ETH, but I moved the final bit of it to money market fund at JP Morgan today. So my second going back to last money episode, I have all the cash in this kind of like second bucket with liquidity bucket where I'm just, you know, earning earning yield. I tend to think we're in like this long term bearish phase. And I'm not necessarily like a trader. Obviously, I made that trade, I mentioned the alpha round that might last a month or two. But I'm not going to try to play this, like, if there is a melt up for like two, three months, I don't, you know, obviously, if we go past 2k, I'm going to feel like that was a bad move. And I was just flat out wrong. But if we go to 2k and hover there and maybe run back, I'll feel like I'm right. And I'm just trying to decide, you know, where I would start buying ETH. I think like four episodes ago, I said I'm roughly 20 to 25% allocated for my growth growth bucket, which is for me is ETH and some high beta ETH tokens, I'm certainly not going to fucking touch any altcoins. I mean, I'm shorting them right now.

stand by. So I don't know. That's the current thesis. Okay, guys, I want to wrap with some Silicon Valley talk. You want to go into the Yes, I want to, to make sure we talk about that. That is a really important thing. And I feel like if we don't talk about it, we're not gonna talk about

next week. So and yeah, I'm in a similar place, same moves. So for me, you want to go into that?

Yeah, like I like I said, like that entire situation left me feeling really disillusioned. And I saw an entire industry of people that are taking so much risk and working so hard from all types of backgrounds, and I'm referring to founders here, and the people that work for these founders, the employees of startups, 60% approximately of Silicon Valley banks, assets, you know, deposits were these are these are startups, excuse me, the other way around, 60% of startups bank at Silicon Valley bank. So that's tremendous. Like what would have taken place here if depositors as in these startups, did not get their deposits back would have literally flushed the entire innovation of the United States down the toilet. Like there was this meme that was going around and this starts to dig into some like culture political conversation, but it is important to talk about there's this meme going around where it's like every time one of these big banks goes down and ask the government for money, or a bailout, they referred to it as a Silicon Valley bailout, you guys might have seen my rant I posted that the government steps in and obliges overnight. And then the last little example was like, but my wife has cancer, can you please pay for it? And it's like government's like, nope, go fuck yourself. But that's not true. First of all, because Silicon Valley bank did not get a bailout, these were the depositors. And people are so misguided on Twitter about the difference between venture capitalists, investors in general, founders, and employees of these banks. They were confounding all of these into one bucket called elite tech bro and saying, all of you can burn in hell. We don't want to help you.

there were so many of these, right? And then people were just like, sorry, lady. It's like, sorry, lady. She got dunked on. She got dunked on. Like, sorry, lady. For some. Somebody was like, you donated like $40,000 to this Montessori school. Why are you pretending to

be like a, there's deep dysfunction in the way that we look at the innovate innovators of society. Anybody that seems to get a certain amount of money, whether it be that it was from an investor or that they earned it themselves, even when they came from very little is getting dunked on and being put in this class of people that is elite. Even if they earned it, we no longer celebrate risk-taking entrepreneurship innovating. We're not celebrating that anymore. And in fact, anyone that's taking a risk, if they're not going to get backstopped by the government and their deposits are not going to be secure. A, why would they bank at any bank in the first place? They might as well put it in couch cushions. B, why would they take a risk and start a company? They should just go become a dentist or like some sort of, you know, just great paying job. And C, it's It's like if you know that your people and society around you is not gonna support these great innovations that you're creating and the way you're trying to help people, why try in the first place? You start to become so nihilistic. And the most important point here is like the little meme about like, oh please help me, my family, someone has cancer, it's like, oh excuse me, did you not realize that there are companies that you are about to flush down the toilet that are doing innovation to make it so that your wife or spouse or child gets better access to cancer prevention to, like my friend Serge, my friend Serge started a company, his assets were at Silicon Valley Bank, this is a precision medicine company enabling the proper dose of chemotherapy at the point of care for children that have cancer.

Right, he's helping them, he's helping them. I think you're onto a good point because it wasn't the bank that got bailed out, it was the depositors. Yeah and that was great. And these depositors, they weren't taking any risk like what the bank was doing, they were just depositing their funds in a bank like anybody else does and then the bank folded so the government was bailing out the depositors.

Correct, and society just went no,

it's still coming out of my pocket. But it's path dependent because we did see the banks banks get bailed out, you know, a decade prior where, you know, like the equity was salvaged and stuff. So like, I, I, I understand the vitriol actually for people that are saying like, Oh, here we go. Again, we're going to bail out the

gold, no parachute for them. That's, that's, that's like fine. But if you actually care and you think, and you understand the second order and third order effects of how that plays out, well, then you'd immediately say, Oh, okay. Okay. This is different. So you're telling me that if we had not done something, many regional banks would have gone under on, on Monday, if not this week, right now, today, there would have been bank runs all week. I mean, there were already people hanging out outside of first financial first Republic all weekend. It would have been an absolute disaster of a week. So the, the, the startup ecosystem would be

dead, like literally dead overnight. So I agree with you. I think they could have made a better argument. Like they could have made the argument that on Monday, they're going to have half their assets. They're going to cover payroll. They will pay operating expenses within four to six weeks. They'll probably have 90% of it all said and done. They're pregnant 94% of it. Big whoop. They take a 6% haircut and Silicon Valley bank got 200 billion assets. It's less than 10%, 10% of the size of JP Morgan. We have this acronym called systemically important banks.

would have been the better argument on their side. That would have been the better. I like that. But it's just sad because because it's like forced consolidation to the big four basically.

And like. Well it's not. Well it's not, I mean it's not forced. Like these guys fucked themselves.

Like it's not forced. It's forced if the government

had an backstop Silicon Valley bank. For the depositors, but the bank themselves put them in this position. Like nobody you like, put the gun in their affordable.

I'm not, I'm not saying I'm not defending the bank. Right, the bank. In anyway, The bank fucked up. No, the bank's out. Like the bank's fucked up. But you as a citizen of this country, as an innovator, as a banker, someone who just wants to put your money in a bank needs to know that when you put your money in the bank,

it's going to be there. Right. The bank anyway. No, the bank fucked up.

Well, the idea was always that for up to two and for decay and okay, so let's unpack that. So that's where this argument just takes an absolute shit. It's like this idea of a $250,000 FDIC insurance is not even enough for a small business. People are saying like, well, if you have 2.5 million, you should have been smart and

spread that between 10 banks. So that's where this... Yeah. I mean, that was... People should have 10 different accounts. Yeah. Are you fucking kidding me? But that's the nature of it. I mean, like treasury management was a thing and then people stopped caring about it until it matters. And here now it matters.

Oh, well, if you would've just had 10 different accounts, but oh, well, if you would've just had 10 different accounts. Do you think it's not legitimate to say, hey, Mr. Smart Business, you can't just dump $100 million in cash into this bank and do no due diligence and not have any consequences? And taking a 5% haircut seems like a fair... If they got three cents back, if they lost three cents on the dollar, would you still be so vehemently opposed to the sentiment on Twitter? Where is the line where it's like, okay, this is like you're being way too careless and this haircut isn't that big? Doesn't moral hazard come into play at some point where we're bailing out even the most minute things for very egregious deposits over the limits and very egregious lack of due diligence on the company's part?

Company's part? I don't know, ROKR or whatever, like $400 million, like something like that. Yeah. No, I get it. And I don't mind that. No, I don't mind the haircut. I'm talking about like if everyone were lost everything beyond 250K, like that would just be ridiculous. I think that the number...

Yeah. No, I get it. And I don't mind that. The number... They're going to lose 5 to 10 cents on the dollar. Like, $250K is an arbitrary number to begin with. Like why are we using 250K? Like that number is obviously not the real number going forward. You know, like 250K at the time that FDIC made that a rule, how long ago was that? I don't even know. I mean, that's a good amount for like an everyday individual. So nowadays, like 250K means a whole lot different and like we have an update to that number.

Do... I mean, that's a good amount for like an everyday individual. Do we support innovation in this country or not is the deeper question? This is the deeper question. But there can also be like... How do we treat 60% concentration of like a group of people, not to mention the people that work for them.

But we're talking... But like... There could also be... This is the deeper question. This is the deeper question. But there can also be like... How do we... But we're talking about two different things. Yeah. One is like how it should be versus how you should be handling the current regime as it exists.

Yeah.

One is like... Yeah. And you're also talking about... You're also talking about a generalized cultural sentiment towards risk takers, people who you're classifying as elites who aren't really... Yeah. That's one bucket. Fine. Versus like what happened here, the mechanics of the bank. Yeah. Yeah. That's a really interesting topic. I would be curious if you want to maybe tease it and talk about it a little bit in the next episode.

I think he made that argument though. Leads who aren't really...

Yeah. Okay.

That's one bucket. Fine. Yeah. Fine. Yeah.

That is the argument. Like once you start, once you also go like, and also then you lose those people because

they don't buy into that. Yeah. Lose those people because they don't buy into that. My buddy doesn't have a startup. I mean, he's been a profitable cash flowing company for a long time. They had their money there and he's like, we're just texting on Sunday. He's like, game plan is move all the cash out again, Monday morning. Can I mention one other group that I think should be like washed of this earth and we should maybe just hit the reset button on the ratings agencies. I mean, flashback to like 2000, 2007, 2008. I mean, these guys were the people, like, I mean, I just can't stop thinking about scenes from the movie, the big short, which Eric still hasn't seen.

So fucking yell at him in the comments that the CFA has not seen the big short.

Yeah. Yeah. Sure.

Fucking yell at him in the comments that the CFA has not seen the big short. Honestly, this is one of the most egregious things I've ever encountered in my whole life.

Erica's, Erica's a few of those few of those. Is that maybe good? Oh my God. We're going to sit here and watch. Anyway, these are the same people who rated those, those shit, uh, mortgage backed securities and, and bundlings of securities as like triple A. Well, Hey, here they show up again. Yeah. All the same people around Moody's standard pours rating, you know, Silicon Valley bank,

like, I think it was like triple a minus that's a good story, but then did he have Ryan Gosling out there like glorifying it?

No, he's going to, no, he's going to, he's going to pile up this, because they're going to make another one of this and he's going to pop the Jenga pile again of all these banks

who had these long duration. They downgraded them. Oh they downgrade them.

Oh, they downgrade them a day after, after the stock prices depreciated by 70%. And I just don't, there's a lot of vitriol being passed around and I don't think it's enough on these rating agencies because if they can't get that right, why the fuck do they even exist? Like, why are they here? And let's say, you know, as a depositor, it may be too complex to analyze the balance sheet and duration mismatch of the bank. And so there are these third parties that exist that do the due diligence and give you a letter grade and let you know. Let AI do it.

That's a good take for a day after. So now you know. So now you know. So now you know.

Like, analyze the balance sheet.

Let AI do it. Let AI do it. That's a good take by Armand because I think like when you do humans doing service-based businesses,

your job is to not get fired for service-based businesses. Well, especially when the incentives are aligned, their clients are the banks and are, so I don't know. Anyway, I just, before we wrap up, I think we should just specifically direct a little hatred towards those guys. Yes.

Like, why do they even exist?

Yes. Why do they even exist? They exist to capture. They exist to capture. They're just like, it's just regulatory capture. Just like, oh, just exploit this bullshit and we'll just insert ourselves here and collect a fat paycheck and add no value to the system and actually inadvertently create systemic risk because we give people a false sense of comfort when there's someone. Yeah, it's great.

Awesome. All right. That's great. Those of you who are joining us, drop a comment. Let us know your thoughts. Let us know what to bring more. Hop in the Discord. Let's talk. And drink some dry farm wines. Peace.

Bye hitters.

Those of you who are joining us.

Bye hitters.