Rick Rieder bullish, sees "epic" cash on the sidelines

I’ve never seen so much money sitting in cash.

~ Rick Rieder, BlackRock's chief investment officer of global fixed income, "BlackRock’s Rick Rieder sees ‘epic’ cash on sidelines as he takes lead role on new ETF," MarketWatch.com, May 23, 2023

Hans-Hermann Hoppe on the state

The state is an institution run by gangs of murderers, plunderers and thieves, surrounded by willing executioners, propagandists, sychophants, crooks, liars, clowns, charlatans, dupes and useful idiots - an institution that dirties and taints everything it touches.

~ Hans-Hermann Hoppe

Ryan McMaken on recent contraction in the money supply

The fact that the money supply is shrinking at all is so remarkable because the money supply almost never gets smaller.  The money supply has now fallen by $2.2 trillion (or 10.2 percent) since the peak in April 2022.  Proportionally, the drop in money supply since 2022 is the largest fall we've seen since the Depression.  (Rothbard estimates that in the lead up to the Great Depression, the money supply fell by 12 percent from its peak of $73 billion in mid-1929 to $64 billion at the end of 1932.)

~ Ryan McMaken, "The Money Supply Has Plummeted in the Biggest Drop Since the Great Depression," Mises Wire, May 11, 2023

Michael Milken on what landed banks in trouble

You shouldn't have borrowed short and lent long.  Finance 101.  How many times, how many decades are we going to learn this lesson of borrowing overnight and lending long?  Whether it was 1970s, the 1980s, the '90s and again here.  The banks have enough credit.  They had enough equity.  The had enough ability to absorb credit losses that are coming.  

However, what they did was doubled, tripled, quadrupled their size by borrowing overnight at artificially low rates and buying intermediate securities.  There's $30 trillion of them out there and let's say they're worth 85 cents on the dollar.  Who has an unrealized loss of  three trillion dollars?  What we know, number one, is the Fed has the largest share of that loss, $800 billion or $900 billion, but they can print money so that isn't an issue...  What we saw here is organizations - great companies - like Silicon Valley Bank, like First Republic, what they turned themselves into was adding to income by borrowing short and lending long.  In the case of Silicon Valley, really government agencies, municipals, in the case of First Republic, fixed-rate mortgages with floating rate liabilities.

So this is Finance 101.  People are so focused on credit risk, etc., but one of the great risks is interest rate risk. 

~ Michael Milken, CNBC interview, 1:15 mark, May 2, 2023

Michael Kantrowitz on the coming recession

The conditions of every recession since 1960 - there's been eight - there's three preconditions: the Fed hikes, we have an inflation problem and we have tighter lending standards for banks.  We have all three of those conditions today.

~ Michael Kantrowitz, Piper Sandler chief investment strategist, CNBC interview, 3:00 mark, May 11, 2023

Jamie on the regional banks: "they're quite strong"

The regional banks, who I've been speaking to every day for the last week, they're quite strong.  They're quite worried about the run on deposits, but their financial results are good, their financial results are going to be ok next quarter, they're earning money, they've got a very good clientele, very diversified.  And they're quite strong.

~ Jamie Dimon, Bloomberg Television interview, 1:00 mark, May 11, 2023

Charlie Munger and Warren Buffett on the keys to success

Munger: It's so simple: You spend less than you earn and invest shrewdly and avoid toxic people and toxic activities and try and keep learning all your life, etc., etc.  And do a lot of deferred gratification because you prefer life that way.  And if you do all those things, you are almost certain to succeed.  And if you don't, you're going to need a lot of luck, a lot of luck.  And you don't want to need a lot of luck; you want to go into a game where you're very likely to win without having any unusual luck.

Buffett: I'd add one more thought, though: You need to know how people can manipulate other people and you need to resist the temptation to do it yourself.

Munger: Oh yes!  The toxic people who are trying to fool you or lie to you, who aren't reliable in meeting their commitments, the great lesson of life is get them the hell out of your life.

Buffett: Yep.

Munger: And do it fast!

~ Charlie Munger and Warren Buffett, 2023 Berkshire Hathaway annual meeting, May 6, 2023

(video posted by Vitaliy Katsenelson, see here)

Howard Marks on lending

The worst loans are made in the best of times.

~ Howard S. Marks

Chris Davis on recent bank failures: "it's not systemic"

The model of making a spread on money is about as old as human history.  So the model is durable.  We own banks that are in their second century, even their third century.  So there's enormous resiliency to the model.  And so when you get a panic, I think you have to look for where are the companies that are vulnerable - you have to avoid those because then you're trying to scoop them off the bottom which is risky.  But if you own the companies that in a sense are beneficiaries?  After all, where are those depositors going?  When they leave these smaller regional banks they are fleeing to the big banks.  That's where I think there is enormous safety and you can look at, for example, the balance sheet of Wells Fargo and you can see just how conservative they were in terms of not taking big interest rate risk and at the same time that they've had enormously resilient deposits.  That's a wonderful combination with higher interest rates widening their profitability.  So I think it's very different [from past banking crises] because it's not systemic.  It's really a flight to quality and the fact the big banks are going down so much I think is creating that opportunity.

~ Chris Davis, Davis Fund Advisors, CNBC interview, 2:05 mark, May 2, 2023

Barry Bannister raises his target on the S&P 500 to 4,400

We are raising our target price for the S&P 500 by 5% from our 4,200 prior midpoint view to 4,400 by 2Q/3Q 2023.  There are encouraging signs of economic resilience in mid-2023, which is good for Cyclicals rather than Defensives.

~ Barry Bannister, chief equity strategist at Stifel, "S&P 500 could rise as high as 4,400 in coming months, says Wall Street strategist who called 2023’s rebound," MarketWatch.com, May 8, 2023

Rob Nichols: "the overall banking sector is safe, sound, resilient and healthy" (2023)

These midsized banks, these small regional banks are incredibly important for the U.S. economy.  They serve incredibly important communities and businesses and individuals.  So despite the failures of three institutions that we saw - and that's of course unfortunate when any bank fails, and we that that incredibly seriously - the overall sector is safe, sound, resilient and healthy, from community banks all the way up to our money center banks...  A lot of what we've seen with regard to those couple of those [failed] institutions was really idiosyncratic and local to those institutions, not representative of the entire U.S. banking sector which is on solid footing.

~ Rob Nichols, American Bankers Association CEO, Yahoo Finance interview, 0:55 mark, May 8, 2023

Tobias Adrian: "financial stability risks have been contained so far"

Financial stability risks have been contained so far and hopefully that will remain the case.  As a result, monetary policy can focus on fighting inflation and that's a desirable outcome.

[...]

I think that systemic risk has been contained to date and I'm confident in the crisis management toolkit that we have.  But I would not be surprised if there were other episodes of turmoil both in banks and nonbank financial intermediaries.

~ Tobias Adrian, IMF's director of the monetary and capital markets department, "IMF calls risks from bank crisis 'contained,' urges central banks focus on inflation," Yahoo Finance, April 13, 2023

Pierre-Oliviere Gourinchas on the health of the banking system (2023)

The good news is that the banking sector in particular is in much better overall health now than at the time, say, of the Global Financial Crisis.  There's a lot more capital, the banks are better regulated, there are all kinds of liquidity requirements, etc., especially for large banks.  And so overall the health of the banking sector is much stronger, but it doesn't mean that there couldn't be pockets of illiquidity, pockets of vulnerabilities and financial authorities need to be quite careful and monitor this because things could spread pretty quickly.

~ Pierre-Oliviere Gourinchas, International Monetary Fund chief economist, "IMF calls risks from bank crisis 'contained,' urges central banks focus on inflation," Yahoo Finance, 2:45 mark, 

Peter Schiff on bank failures: "the entire house of cards was directed by the Fed and U.S. government"

I warned for years that the banks will start collapsing for the precise reason that they're collapsing now: the Fed kept interest rates at zero for so long.  That's what allowed the institutions to load up on overpriced, low-yielding Treasuries, mortgage-backed securities and other loans.  Plus U.S. government auditors from the Fed, FDIC, they encouraged the banks to buy these long-term Treasuries and mortgage-backed securities because they gave favorable accounting treatment.  The banks didn't have to mark them to market as long as they could pretend they would hold them to maturity.  So the entire house of cards was directed by the Fed and the U.S. government, and now it's collapsing and they're acting like they have nothing to do with it and they're tying to figure out how to put out a fire that they lit.  And of course the problem is they're not putting out the fire, they're throwing gasoline on it.

~ Peter Schiff, interview with Fox Business, 4:05 mark, May 4, 2023

Mohamed El-Erian on JPMorgan's takeover of failed First Republic Bank

Look at what JPMorgan acquired.  First Republic was one of the most envied banks.  Why?  It had very rich depositors, it was able to make jumbo mortgages to very creditworthy clients and it had what was viewed as the best client experience, the best customer service.  All that is now acquired by JPMorgan at a cost that's only moderately more than what they would have lost [$5 billion] in their deposits that they put in First Republic.  So for JPMorgan, that is a great deal.  And you see that in the stock price.  Now will it make a huge difference to the bank?  No.  But at the margin it is undoubtedly and unambiguously beneficial to JPMorgan.

~ Mohamed El-Erian, interview on CNBC, May 1, 2023

Jessica Kriegel on how tech layoffs affect innovation

You cannot have innovation in the same environment that has fear.  There's a massive lack of psychological safety for employees with all of these layoffs happening and that's making them less innovative, which you're noticing with these companies.  Amazon and Meta - they're historically known as being innovative companies, but what have they done lately that's very innovative?  I think the culture of fear is taking over and they're suffering as a result.

~ Jessica Kriegel, Culture Partners, interview with Joe Kernen, CNBC, 2:45 mark, May 1, 2023

Suzy Welch on how Generation Z yearns for stability

Many of my [business] students say they feel as if they’re at their limits.  “You’re always hearing the world is filled with opportunity,” one student told me last semester.  “And then you turn around and there are layoffs everywhere, and everyone is saying AI is going to make us all obsolete.”  She confessed there were days she wished she could crawl under her covers to escape the static and ambiguity of it all, not to mention—as she also did—the threats of global warming and nuclear war.  Such is the Gen Z zeitgeist, I suspect, that suddenly makes stability so sexy.

~ Suzy Welch, "Generation Z Yearns for Stability," The Wall Street Journal, March 22, 2023

Andrew Stotz on breaking mobile phone addiction

It's getting easier and easier to build a competitive advantage in this world.  Get rid of the mobile phone, reduce the use of it, stop the focus on the immediate satisfaction of gratification because that immediate gratification is being delivered to you on that mobile phone is so addictive that even people like myself and other older people who didn't have that in their youth can get quickly and easily -- and can't get off it.  They can't kick the habit.  So if you're a type of person who can put aside your mobile phone or also think long-term then you are in a competitive advantage.  In fact, you could possibly rule the world in 20 or 30 years from now the way attention is getting reduced, reduced, reduced.

~ Andrew Stotz, "Shreekkanth Viswanathan – Qualitative Strengths of a Company Matter Too," My Worst Investment Ever Podcast, 7:25 mark, April 3, 2023