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but we're beginning to see uh Brewing here a banking crisis and the question we have to answer is this going to become systemic like Lehman Brothers in 0809 or and we're betting on this latter one here is this more like 1994 when Orange County went broke and that created a crisis to which the FED responded Kathy Wood the founder and CEO of the investment management firm Arc invest discusses the General Market Outlook the relationship between fiscal and monetary policy Market signals and the FEDS attempt to mess up everything she also discusses the latest bank robberies and reaffirms that cryptocurrency is unrelated to the economic Outlook and gloomy posture she also discusses the Silicon Valley scandal in the most recent bank robberies at silvergate we think it's much more like 90 1994 because the setup was similar in 93-94 commodity prices had taken off as we were coming out of that recession it was an SNL induced recession so housing and uh the Fed was railing against those price increases with higher interest rates it was a terrible year for growth stocks and that's how we would characterize uh 2022 but when Orange County went bust that was a sign that the FED had gone too far and the FED did change its spots we believe that the failure of a silvergate bank and Silicon Valley Bank that which just uh went the FDIC put it into receivership today both of those are telling us a couple of things one that yeah the FED has gone uh pretty far and is causing a lot of banks not just these difficulties and I'll describe how in a moment so we do agree with those who say well silvergate had a concentration of crypto clients customers and Silicon Valley Bank had a high concentration of venture and Venture related customers uh and so that's all true but if you look at what has happened here it is the deposit outflows that have triggered the the problem the crisis we know that Venture Capital has is facing a bit of a liquidity Suite squeeze fewer deals are being done there is more risk aversion in the marketplace and so these companies are having to draw down their deposits the most bank with Silicon Valley Bank they're drawing down their deposits because they have to I think what we're seeing today is in some of these Banks under collateralization but in both cases what what do we have going on these are centralized entities uh and they're not transparent certainly when it came to FTX not at all transparent uh centralized opaque completely opaque the banks have to do more disclosures so they're not as opaque um and uh you know you could see that they were upside down in terms of interest rates having to pay up for deposits but earning a very low yield to which they committed at a bad time when interest rates were very low thinking they were being smart um and so this is nothing to do with crypto in fact Silicon Valley Bank I mean I don't think you're good to see a mention of uh crypto at all there so it has nothing to do with crypto but it does have something to do with what happened during banking crisis usually these banks are upside down they start losing deposits in the case of silvergate and Silicon Valley Bank there's a run on the bank when you get Peter Thiel and other famous investors and well-respected investors saying get your money out of there they're going to take the money and run and so this is nothing to do with crypto this has everything to do with fed policy we believe uh taking interest rates up so dramatically uh the most rapid rate in history and taking money growth down from 27 two years ago to minus three so that's a 30 percentage Point swing that has never happened we've gone back to the Great Depression to see if that was the case back then as well it wasn't I think we're going to see more ramifications but each one of these is a reminder to the fed and I think the FED is the fed's rhetoric is going to change uh pretty dramatically during during the next three to six months uh so hopefully the market began to see this and expect it meaning the other side of the interest rate moved to the upside the market in in the equity Market in January began to anticipate that the Fed was going to lower the rate at which it was increasing rates which which was true it did 25 basis points and this crisis I think was caused by hawkish talk from chairman Powell this week suggesting wait a minute are we going back to up 50 basis points and uh I think that's uh caused uh basically a run in some banks but very specific banks with customer concentration or loan concentration uh with a particular group of uh of entities so the media is finally picking up on this and talking a lot more about it trying to figure out what it means and um we've been saying for for some time that it means that growth and or inflation are going to disappoint on the low side of expectations uh within the next year and uh I think that the FED is not paying too much attention to this because it is to this indicator because it's looking at uh backward looking indicators so employment and the headline measures of inflation not the leading indicators so the leading indicators of inflation are pointing down uh to deflation actually uh increase in spending is 2 trillion over 10 years I know that the Republicans want a cut in spending over 10 years so right there there's a big Gulf there are three areas though that the Biden Administration is willing to cut spending the first is the small business administration well small businesses are the biggest job generators and I think I read somewhere in in mulling over this budget that one of the reasons to this is they want to stop uh employment or slow it down so that the FED will slow down that's kind of interesting the other interesting spending cut is a Department of Transportation I think I've read about five train derailments in the last few weeks uh and um planes at airports uh at risk of running into each other lots of reports of those so I'm not sure that's the best uh place to cut but nonetheless uh there are a few Cuts in the budget um it'll be interesting to see how the negotiations go uh these budget proposals are typically a no-go they're going to change radically but I did want to give you a sense of um the massive tax increases across the board that the Biden Administration is proposing to close the budget deficit and for example the um the corporate tax going back from 21 to 28 attacks on uh on share BuyBacks of Corporations going uh from well they're saying one percent to four percent so a four-fold increase there yeah 40 percent increase roughly 35 40 percent increase in the corporate tax rate but even taxes like the Medicare tax for for uh individuals making more than four hundred thousand dollars a year uh they're proposing that that go from 3.8 to 5 now that sounds like kind of a small increase but that's a 30 percent increase and we have other examples of a doubling um the tax on uh foreign earnings going from uh ten and a half percent to twenty one percent that's a doubling so uh we have the tax on carried interest uh once again showing up uh that's nearly a doubling from 20 to 39.6 so a lot of tax increases uh including ones that we think would hurt Capital formation capital gains tax going from 20 to 39.6 percent dividend tax 21 to 39.6 a net wealth tax being initiated at 25 percent for individuals making more than a million dollars uh foreign
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