The Banking Crisis & Global Recession | -80% Crash.

it's official Credit Suisse is being

acquired but uh what does this mean for

potential recession and what are charts

telling us that's probably the bigger

issue let's look at exactly that so

First Things First Financial conditions

as of this morning here on Monday nice

and tight we want these to remain tight

the tighter these Remain the less the

FED has to do because the market does it

for them this is what you want this is a

combination of not only bond yields

lending tightness what's going on in

stocks but other Financial assets as

well it is the Goldman Sachs Financial

conditions index compare that to the

five-year Break Even which is also very

important because we do not want to go

back to unanchored inflation

expectations what do we have here uh

stable drop over here uh last we checked

we were we had just fallen and now we're

holding stable down here you can see

we're almost at the same level levels

where we were right before January

January well let's see here I guess well

no this would be this was within January

this was about the second to third week

in January right here here's your

January window there's your Fab here's

your March there we go so right before

we start getting that hot January data

we actually hit a pretty low level here

now where we sit now

excuse me uh where we sit now is uh

nearly at that low level uh which is

good because we really want to see this

2.18 get to somewhere around

1.6 which is around where we actually

expect the Federal Reserve to cut so

think about that for a moment if we

could get this 2.18 down to 1.6 then the

Federal Reserve might actually cut these

are the two charts they're really using

to drive everything now of course the

banking crisis is driving these two

charts driving inflation expectations to

come down because markets are starting

to expect that a recession is more

likely to occur especially because of

the banking crisis now more banking

crisis tighter lending standards which

means more likely hood of or a greater

likelihood of recession now what about

this Credit Suisse debacle that happened

well let's just say if you want to learn

how to lose 80 percent fast

the Saudis can teach you exactly exactly

what to do now even though they say

don't worry we're fine this is not a

good look for the Saudi uh private

investment fund or the uh quite frankly

the rather the Saudi National Bank not

the private investment fund it's the

Saudi National Bank a little different

the Saudi national bank took a 1.5

billion dollar stake in Credit Suisse in

November they bought those shares for

three dollars and 82 cents uh actually

that's

382 francs let me be clear with that

dollars slightly higher at about five

percent to convert to Dollars anyway uh

those are now only worth 76 francs per

share or 76 Cent francs Point 76 francs

per share here we go that's how to say

it that's an 80 loss in less than five

months as a UBS is acquiring Credit

Suisse for a bargain the entire 1

166 year history for Credit Suisse comes

to an end with this and what's actually

remarkable is even though there's an 80

loss for someone like the or an

institution like the Saudi National Bank

in this Credit Suisse acquisition it's

actually even more wild is the fact that

usually Equity gets written to zero

before you actually start seeing

bondholders which are generally deemed

to be senior debt holders get completely

written off but that's not what happened

with the uh Bail inable Bonds we talked

about these a few days ago so we'll keep

that discussion on these shorts since

they're a little complicated but there

are these fancy things called at1 bonds

they're nicknamed bonds with a grenade

attached to them I know that doesn't

really roll off the tongue but that's

kind of what people call them because

they're really high yield but they're

also potentially explosive now we just

had an about 17.3 billion dollar write

down of those in other words these Bail

inable Bonds were written down from

having a value of somewhere around when

we last talked about this on Thursday 66

cents uh for each dollar of bond uh that

that existed to zero so in other words

they were written off completely as

worthless that's 12 times larger than

any other bail inable bond Extinction

ever so oopsie dupsy nobody was really

expecting that these would get written

to zero and Equity holders would still

be held up now there was a lot of talk

that these at ones were going to get

written down that's why we covered them

last week however usually you have to

respect Capital structures and seniority

on cap table so basically if there's a

preferred Bond or an at1 usually those

are supposed to see liquidation profits

before Equity like the shares that's not

what happened here and when these the

institutions were asked about this by

Bloomberg uh apparently there was a big

pause and everybody's kind of like a you

can almost hear sort of like a gasp in

the room and then response apparently

from Regulators are is this justice of

heavy do it

yeah so I I guess uh that sets a little

bit of a new standard for uh the way

people lose money in Europe uh This Is

Why by the way like long and short out

of all of this because let's talk more

about implications on how that affects

us long and short out of all of that

it's one of the reasons why I don't like

investing in foreign countries because

they do stuff like that that isn't dare

I say normal like it you know I don't

know what Chinese Regulators are going

to do or european Regulators at least I

know and can take comfort in the fact

that our Regulators in America uh are

incompetent and basically can't get

anything done most of the time because

it's too bureaucratic uh but but in

general we tend to like have have a

respect for at least things like that uh

the seniority of of the way uh that you

are supposed to lose money uh but anyway

uh it's kind of I guess the Beast that

you grow up with and get familiar with

uh that you end up being most

comfortable around I don't know some

people call that a home bias I just call

it ah I I I I get the American way a

little bit more even though I was born

in Germany uh but that's not Swiss

either anyway all right so

people were hoping that this was going

to contain some of the recessionary

drama and panic and fear that's been

circulating uh well apparently it's not

really helping especially since you're

still seeing a run on Regional Bank

stocks for example look at First

Republic Bank oh no it's down another

nearly 17 percent in pre-market here's

Credit Suisse down about 57 percent in

pre-market that makes sense because

that's about where it's being acquired

the acquisition price you would have to

convert this is again 0.76 francs 0.76

francs to USD works out to about 82

cents per share it's actually trading at

about 86 right now so a little bit of a

dislocation there in the pre-market then

we've got UBS UBS is actually up one

percent in the pre-market uh this has

been pretty volatile though at UBS about

an hour ago was down about six percent

in pre-market so the Market's still

trying to digest exactly what's going on

well you do have to keep in mind though

is UBS it sounds at least like is

getting a pretty Banger deal so listen

to this they wrote the deal expecting to

take nine billion dollars in losses now

that sounds crazy like why would you buy

a deal expecting to take nine billion

dollars in losses potentially up to

those sort of losses well my opinion

it's the same reason you would buy a

fixer-up or house except there's a

beautiful government guarantee that

makes this even more beautiful for them

listen to this imagine you buy a fixed

up or house like I teach in the zero to

millionaire real estate investing course

right you buy a fixer-upper house for

400 Grand in a 600 Grand neighborhood

and you're like I'm comfortable putting

in 50k of work okay well what if there's

another two hundred thousand dollars of

foundation work that you just weren't

aware of right that would suck but

because the deal is having to progress

so quickly to prevent Financial

contagion in the entire banking sector

from freaking out even more this this

government is saying don't worry if you

lose any more than that 50k in their

numbers nine billion dollars

we will cover you on your next 15

billion dollars in losses so in other

words yes UBS is technically picking up

a toxic asset but they're doing so

knowing that they're taking a write down

of up to nine bill but that's that's

already built into their purchase price

they know that and then for the next 15

billion dollars in losses

they Gucci the government is picking up

that tab which means yes the taxpayers

over in Europe are picking up that tap

potentially so now they can argue oh

right now taxpayers aren't paying for

anything yeah right that's what they

always want to do they always want to

dress it up as no don't worry we didn't

spend any tax money today

but for tomorrow we may have just signed

up for a lot of potential losses anyway

so that's how this is working with UBS

which is actually really interesting

because if you think about it it's

probably a very

opportune time to make these sort of

banking Acquisitions and think about it

a bank is about to go bankrupt and

Regulators are freaking out much like

with uh uh with the First Republic Bank

the FDIC couldn't find a buyer at their

first auction now they're running a

second auction bids are due Friday by

the way in case you want to put some

bids in on a you know a billion dollar

Bank uh bids are due Friday but anyway

the FDIC is frantically looking for a

buyer for this uh it's actually right

about four billion dollars right now and

they're hoping that they can close that

sale quickly same thing that happened

with Credit Suisse because they want to

minimize contagion uh the longer it

takes the more a signal is sent to

markets that these banks are extremely

toxic and the more The Regulators have

to sweeten the pie I mean look at how

much I had to sweeten the pile up high

with UBS well same thing here with

probably First Republic unless it's a

really sweet deal why would any private

institution go for it the people who

have to make up the deal to actually

make the numbers make sense

are probably going to be taxpayers via

The Regulators anyway

this is really important because it

could affect how deep of a recession we

go into and of course Mike Wilson over

at Morgan Stanley being the bear that he

is and that's okay it's okay to be a

bear we could still like you uh anyway

being the bear that he is he's very

unhappy about this banking crisis and

he's screaming that this banking crisis

is really going to be exactly what we

need to accelerate

the r word the recession now he

starts off by trying in his latest piece

here he starts out by trying to make

this argument that this is not

quantitative quantitative whatever

easing uh and we've talked about this

many times before but in short the idea

is that quantitative easing is is a

process by which we permanently expand

the mo the money supply whereas what's

happening now is many central banks are

providing liquidity via loans in other

words it's technically supposed to be

paid back but the reason it feels like

QE right now is because then I wrote

this little note on the side over here

is because technically what you're doing

is when you digitally print let's do it

like this there we go when you digitally

print money remember the FED digitally

prints the treasury physically prints

anyway when the FED digitally prints

money and then they transfer a loan to a

bank or an institution they're really

providing the ability for that Banker

institution to provide cash to

depositors that that temporarily has the

effect of increasing the money supply

until that money is paid back and then

the money supply in theory would come

back down so really what you have is

it's technically not QE it's technically

a transitory expansion of the money

supply

yeah so in other words uh yes in the

short term there is some a money

printing that does end up flowing

through uh however however there is this

potential that the velocity of money

actually goes down when the velocity of

money goes down and people are fearful

and they invest less they buy homes less

they spend they buy less cars they take

out less debt well then you could walk

into a recessionary environment and this

is where Morgan Stanley's Mike Wilson

suggests the pushback we've been

receiving for our basically bearish

complaining has consistently been that

the hard data has been holding up and

companies are not seeing the Slowdown

that's being forecast however now we

have the elusive Catalyst that should

lead to the convergence of hard and soft

data in other words

basically what they're saying is hey we

think this banking crisis is finally

going to lead to that earnings recession

that we've been talking about the reason

we believe that is because lending

standards are going to tighten and that

increases the risk of an actual credit

Crunch and that does not bode well for

growth see usually when credit standards

tighten like right here we could see the

Blue Line This is an inverted curve so

the tighter things go instead of being

up the chart is down and they do that so

they can align it with GDP to show when

GDP goes down so they invert Bank

tightening but basically the lower the

blue line goes the tighter lending is

and you can pretty much see in this

chart that goes back to the early 90s

that every time the blue line goes down

the yellow line comes down with it

that's real GDP now one of the downsides

in my opinion of using real GDP in this

analysis is we are in a high

inflationary environment so we could

actually be at a let's say one percent

GDP next year

uh you know we could have a growth rate

of 0.5 or 1 or whatever and usually GDP

is inflation adjusted okay worth noting

but the point is you could actually have

nominal growth but because we're in such

a higher inflation and inflationary

environment right now compared to what

we've seen at any point in time in this

chart notice how the 70s and 80s aren't

included here uh maybe maybe that quote

unquote this time could be different

which is a dangerous thing to say we

know that but of course it's just

something to consider uh but anyway

their argument is here generally the

yield curve steepening is the painful

period of time and and it's true usually

stuff breaks and the yield curve

steepens and that's basically what we're

seeing right now when you look at the

twos tens you can see that the spread

has actually narrowed that's called a

steepening and it's not the inversion of

the yield curve that's generally painful

it's the subsequent rest deepening and

that's because everybody's starts

panicking stuff gets broken all the Fine

China falls off the shelves everybody

loses their poopsie dupsies and stops

spending money and then you actually end

up in a recession this is the two tens

curve by the way right now and you can

see how inverted we got just walking

into the banking crisis ridiculously

inverted uh and and now you're seeing

this sort of steepening and it's that

subsequent up that tends to be very

painful so that does actually reiterate

historically what Mike Wilson argues

here so uh but of course you know stocks

barely moved last week in some cases

they actually rallied last week's last

week and uh Mike Wilson argues that this

is because we've now quote re-liquified

the banking system and that money is

going to flow into the economy for a

brief period of time but that's not

going to matter because soon enough that

is going to lead to the realization that

wait now the banks have more debt not

more free money and that's going to make

their leverage ratios lead to even

tighter lending standards and then

earnings basically come down Mike

Wilson's biggest argument is that

earnings aren't going to hold up at the

S P 500 and he says that over and over

and over again but it's just really

entertaining to see him lash out because

he's always lashing out and maybe he'll

end up being right but he's always

lashing out because it seems like the

more he lashes out the more the market

doesn't actually fall so and since

obviously I tend to take the bullish

position at least at this phase in the

cycle I'm taking the bullish position I

flip-flop a lot though remember you can

always follow every one of my flip flops

by subscribing the channel or using that

coupon code that expires in two days for

the Saint Patty's week sale but anyway

look I mean this is your QQQ right we

broke the massive downtrend we regularly

bounce off the 200-day moving average

from a fib support Short Line if we

break 311 right here after this next

fomc meeting that is let's say we get

our 25 BP that we're expecting and then

j-pal comes out and he's a little bird

pecking on the floor like a dove uh and

and you know he's he's super sad or like

concerned

risk assets will probably rally uh I

mean we're already seeing that in

Bitcoin but we'll talk about that in a

little bit but uh you don't actually see

despite all this banking Madness any

real pain at least not in the NASDAQ

over here that could be because so many

people are just sitting this out on the

sidelines

which is fantastic for the people who

are actually in the market uh and then

here's your spy even the spy is holding

up pretty decently so uh somewhat

somewhat remarkable that that you're

seeing this sort of behavior in markets

while at the same time you're having

such a crisis in the banking sector now

uh at as all of this is happening I

thought this was a little bit

mind-blowing but as all of this is

happening Credit Suisse apparently uh

addressed the concerns their staff have

and are now saying quote there are no

changes to payroll we will pay salary

and bonuses we're outstanding as

previously communicated employees

salaries and any bonuses that are due

will still be paid on March 24th per the

memo well that's two days after the

expiration of the coupon codes well if

you work for Credit Suisse and you need

an extra couple days to get your final

pay and then join the courses just email

me at Kevin meet kevin.com but otherwise

price go up 22nd end of the day 1159

California time

so there's the latest on the banking

crisis it's worth noting what we'd heard

about yesterday with the fad you watch

that video obviously that was a big deal

seeing the FED come out on a Sunday to

provide more liquidity don't kid

yourself it is a temporary it I'm

calling it transitory QE that's what it

is it's transitory money Printing and

I'm sure because it's transitory it'll

almost certainly be permanent