Mike

Business Advisory, Working on several new projects. Fascinated by technology, innovation, entre(intra)preneurship, capital markets and how the world works.

[Mike @Mike_A_F8]

https://t.co/ykjMFPTpXR

[Mike @Mike_A_F8]

@howardlindzon Super interesting. I feel like Coinbase is a different animal from the rest. The bet is a structural change in how financial markets can operate on p2p blockchains, disintermediation tools etc. We shall see.

[Mike @Mike_A_F8]

https://t.co/SqC9zm5kOl

Interesting and bold concept.

[Mike @Mike_A_F8]

@avc https://t.co/b5R95Ikr8Y

Macro and private capital markets:

[Mike @Mike_A_F8]

Where traditional ICEs use a single mechanical water pump for cooling, EVs use two or more electric pumps for their cooling systems, each requiring a motor drive circuit composed of silicon MOSFETs.

https://t.co/QCqv7Z2jED

[Mike @Mike_A_F8]

Facebook, Google, Amazon in their respective Internet categories.

Fairchild Semi for the ss transistor if you go back a little further. Nothing else on list exists without it.

[@jason @Jason]

Greatest product launches of last 50 years (help me out)

Apple iPhone
Tesla Model S
ChatGPT4
Sony Walkman
Apple iPod
IBM PC / Apple Mac
Oculus
Atari 2600
Microsoft Windows
Uber
Airbnb
Starlink
Twitter
Internet (which product?)
GPS (which product?)

What am I missing?

[Mike @Mike_A_F8]

I had no idea what “held to maturity” or “available for sale” meant 48 hours ago, but surely someone did.

[Matt Levine @matt_levine]

The measured effect of this newsletter's vacations on financial market volatility is negative and of a considerable magnitude. https://t.co/7s5sxhHePY

[Mike @Mike_A_F8]

@BobEUnlimited Hopefully bank management is getting the message and can get ahead of cycle?

[Bob Elliott @BobEUnlimited]

The best path is pretty clear. Keep tightening to slow the real economy while providing the necessary liquidity and capital to make sure the financial system can withstand the shifts in policy.

[Mike @Mike_A_F8]

Crisis averted, but more work to do yet.

[samir kaji @Samirkaji]

Huge - and anyone thinkimg there was no contagion can read this and signature and know that was wrong https://t.co/6zFv0Yzue5

[Mike @Mike_A_F8]

Also need to factor in positive cash flows from sales, which add to net cash flows of biz.

[Mike @Mike_A_F8]

If a company has 10 months of runway cash in the bank then it only needs access to 10% of those funds to continue operations for the next month, payroll etc.?

Expectation would be that 100% of funds restored, but you don't need 100% immediately to continue ops.

[Mike @Mike_A_F8]

If 100% of deposits are expected to be eventually realized, then you only need a "bullet proof" account with 2-3 months of operating cash for these types of emergencies. Maybe less.

[Jim Bianco @biancoresearch]

Lots of really bad takes about SVB. Let’s try and correct

This is not a solvency crisis like 2008. Bad loans or poor investments were not made. Money was not lost. So, everyone is going to get their money back. (And please no takes about no interest rate hedging. Asset/liability mismatches are how banking works.)

Instead this is an old fashion 1930s liquidity crisis. Too many depositors demanded cash at once (as in right now) and SVB (and SI) could not convert loans and securities (and crypto) to cash that quickly. So, everyone is getting their money back from SVB (and SI), just not at 8AM Monday. And, yes this is a big problem as this is working capital for a lot of companies. They have payrolls to meet and vendors to pay next week. And if they don’t pay bills and employees, they in turn don’t pay their bills and this can quickly cascade into a major economic problem.

The important question is why so many demanded their money back at once. And I’m not referring to the last two days. I’m asking about the days/weeks leading up to this last two days forcing SVB to sell securities and realize a $1.8B loss, necessitating a capital raise. Why were depositors withdrawing in big enough amounts before Thursday/Friday?

First, welcome to the world of mobile banking. Gone are the frictions of standing in line with tellers instructed to count money slowly. (Media images of lines Friday were largely gawkers)

How did $42 billion get withdrawn Friday alone without thousands in line? Answer, your phone! This is not the Bailey Savings and Loan anymore.

This should scare the hell of bankers and regulators worldwide. The entire $17 trillion deposit base is now on a hair trigger expecting instant liquidity.

Add in social media and millions get a message, like Peter Thiel telling Founders companies to pull out, or Senator Warren gloating that SI went under, and pick up their phone open a Chase account and Venmo-ed their life savings into it in 10 minutes. Instant liquidity (not solvency) crisis with everyone still in bed.

Banking will never be the same.

The second, and I did a long thread on this on Friday … banks are over-reserved, after 14 years of QE, and are still paying 0.50% on accounts when T-bills are yielding 5.00%. They don’t need to compete for deposits.

Initially as rates passed 2%, 3% and 4%, the public did not notice. So bankers thought deposits were well anchored at their bank and not moving regardless of the interest rate paid.

But at 5% the public finally noticed, and millions reached for the phone at once and transferred to a money market account or Treasury direct to buy T-bills. Banks were squeezed to convert loans and securities to cash instantly so depositors could leave for better rates.

Add in the bleed out from tech firms struggling, and Senator Warrens tweeting with glee about SI going out of business, and depositors at SVB got the message and picked up their phones and acted.

This is why I have been tweeting that this has to stop now. The Fed is meeting Monday at 11:30. Too late! They need to meet today (Sunday) at 11:30.

What needs to be done? Two things.

The FDIC needs to raise the deposit insurance ceiling to unlimited as they did this in 2008. Besides $250k is a made up number anyway. So make up a bigger number.

Banks need to get their deposit base to stop figuring out how to buy a 4.5% money market fund. They need to raise the interest rates they pay 3.00% - 3.50%, from 0.50%, immediately. Yes, this will kill bank profitability so expect Bank Execs to balk at doing this.

This way the public gets the message that you money is safe, no matter the bank, or the amount, and the rate paid on your money is at least competitive with other alternatives. So, do nothing.

Otherwise, if we are all waiting for the Fed to START a meeting at 11:30 Monday, hundreds of billions of deposits will have moved by phone and it will be far worse.

[Mike @Mike_A_F8]

Guaranteeing deposits is not a bailout. In our modern economy, when people put money into a bank account, savings or checking, they should have a reasonable expectation that those funds are secure, or the banking system is broken for everyone.

[Sar Haribhakti @sarthakgh]

If you think the calls for government to help are about helping venture capitalists, shareholders or even SVB, you should stop tweeting for political clout and go read about contagions, bailouts, deposit withdrawal trends across banks, incumbent vs regional banks competitive dynamics etc

[Bill Ackman @BillAckman]

The gov’t has about 48 hours to fix a-soon-to-be-irreversible mistake. By allowing @SVB_Financial to fail without protecting all depositors, the world has woken up to what an uninsured deposit is — an unsecured illiquid claim on a failed bank. Absent @jpmorgan @citi or @BankofAmerica acquiring SVB before the open on Monday, a prospect I believe to be unlikely, or the gov’t guaranteeing all of SVB’s deposits, the giant sucking sound you will hear will be the withdrawal of substantially all uninsured deposits from all but the ‘systemically important banks’ (SIBs). These funds will be transferred to the SIBs, US Treasury (UST) money market funds and short-term UST. There is already pressure to transfer cash to short-term UST and UST money market accounts due to the substantially higher yields available on risk-free UST vs. bank deposits. These withdrawals will drain liquidity from community, regional and other banks and begin the destruction of these important institutions. The increased demand for short-term UST will drive short rates lower complicating the @federalreserve’s efforts to raise rates to slow the economy. Already thousands of the fastest growing, most innovative venture-backed companies in the U.S. will begin to fail to make payroll next week. Had the gov’t stepped in on Friday to guarantee SVB’s deposits (in exchange for penny warrants which would have wiped out the substantial majority of its equity value) this could have been avoided and SVB’s 40-year franchise value could have been preserved and transferred to a new owner in exchange for an equity injection. We would have been open to participating. This approach would have minimized the risk of any gov’t losses, and created the potential for substantial profits from the rescue. Instead, I think it is now unlikely any buyer will emerge to acquire the failed bank. The gov’t’s approach has guaranteed that more risk will be concentrated in the SIBs at the expense of other banks, which itself creates more systemic risk. For those who make the case that depositors be damned as it would create moral hazard to save them, consider the feasibility of a world where each depositor must do their own credit assessment of the bank they choose to bank with. I am a pretty sophisticated financial analyst and I find most banks to be a black box despite the 1,000s of pages of @SECGov filings available on each bank. SVB’s senior management made a basic mistake. They invested short-term deposits in longer-term, fixed-rate assets. Thereafter short-term rates went up and a bank run ensued. Senior management screwed up and they should lose their jobs. The @FDICgov and OCC also screwed up. It is their job to monitor our banking system for risk and SVB should have been high on their watch list with more than $200B of assets and $170B of deposits from business borrowers in effectively the same industry. The FDIC’s and OCC’s failure to do their jobs should not be allowed to cause the destruction of 1,000s of our nation’s highest potential and highest growth businesses (and the resulting losses of 10s of 1,000s of jobs for some of our most talented younger generation) while also permanently impairing our community and regional banks’ access to low-cost deposits. This administration is particularly opposed to concentrations of power. Ironically, its approach to SVB’s failure guarantees duopolistic banking risk concentration in a handful of SIBs. My back-of-the envelope review of SVB’s balance sheet suggests that even in a liquidation, depositors should eventually get back about 98% of their deposits, but eventually is too long when you have payroll to meet next week. So even without assigning any franchise value to SVB, the cost of a gov’t guarantee of SVB deposits would be minimal. On the other hand, the unintended consequences of the gov’t’s failure to guarantee SVB deposits are vast and profound and need to be considered and addressed before Monday. Otherwise, watch out below.

[Mike @Mike_A_F8]

@Jason Private bank with some government backing should do the trick. Absence panic this maybe never happens.

[Mike @Mike_A_F8]

@HarryStebbings Not a natural skill for everyone, but something anyone can learn who is passionate about their product or company.

[Mike @Mike_A_F8]

https://t.co/37HuuiLD1O

[Mike @Mike_A_F8]

Pros show up every day, even on the days they are uninspired or don't feel like it.

The War of Art (Stop procrastinating!) https://t.co/AFwbKMAaht

[Mike @Mike_A_F8]

If anything, the challenges of transitioning the global economy away from carbon based energy sources is probably underestimated.

https://t.co/e6DIySya6i