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let's dig in right away with euro-pacific capital's Peter Schiff and nataline securities Global fixed income head Andy Brenner Andy I will go to you first your gut reaction of the most important issue here the most important issue I think is the fact that he's focusing on credit he's already seen the senior loan survey that's going to officially come out Monday and I think it's going to be ugly similar to what the ECB survey was yesterday so he knows that things are really looking bad in the regional the Regional Bank space and I think that's something he's very much concerned about and yes I do think the FED is is paused for now okay maybe we can put up some Regional Banks because I think what you're seeing is a problematic Behavior here what was it that he said because one of the things he said and I was I kind of was a little shocked by this I mean I get it from Mary Daly of the San Francisco fed who said oh there's there's really you know we've stabilized the situation but he specifically said the banking system is sound and resilient and strong Liz I've heard so many times since the first of Silicon Valley Bank the banking system is fine the banking system is stable and then when we heard on Monday oh First Republic has been bought by JP Morgan then look what happened yesterday I mean you had some of the banks pack West down 25 percent Western Alliance down 20 percent the the the KBW index down seven eight nine percent was it's it's not over by a long shot when you have treasury bills yielding 520 and Banks paying one percent and the ease that this is the thing that Paul said he didn't understand and what he doesn't understand because he didn't mention it is how easy it is to move money out of banks into markets right now it's never been the case and they have to factor that in and it's going to continue to be a problem Peter interpret why you believe the FED Titan rates 25 basis points this time well because that's exactly what the market expected them to do and that's what the FED does what the markets expect but it's not going to do anything regarding bringing inflation down you know the elephant in the room with respect to inflation is the the fiscal policy it's the debt not the ceiling but the fact that we're running these massive deficits and until the federal government reduces spending these quarter point incry increases are going to be completely ineffective and the problem is Powell refuses to call Congress out and mention that the driving force behind all the inflation that they've been creating is reckless government spending and as long as the government keeps spending inflation is going to get worse and so is the current financial crisis and nobody wants to admit we're in a financial crisis it is worse than the one we had in 2008 it's just getting started ultimately the FED is going to cut but it's going to cut as inflation is accelerated okay uh and you just brought up the elephant in the room let me bring up the canary in the coal mine because when he was asked specifically and I and I don't mean to really Hammer the regional bank issue here but this is significant folks he brought this up because he was asked and he he talked about how in the past his Focus had been the labor markets and pricing pressures Etc maybe even wage inflation kind of push that to the side and here's what he said about the near future and what he's looking at listen I think a particular Focus for us going now over the past six seven weeks now uh and going forward is going to be what's happening with uh with credit tightening or small and medium-sized Banks tightening credit standards uh and and is that having an effect on on uh on loans on lending and you know so we can begin to assess um how that fits in with monetary policy that'll that'll be an important thing Peter if be clear and and I know you have said specifically that everything that was built meaning every investment that was built on a foundation of zero percent interest rates which we had for very long will crash can you be specific about exactly what well the one thing in particular are the banks you know I warned for years that the banks would 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 these financial institutions to load up an 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 they gave favorable account treatment that 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 erected by the FED in the U.S government and now it's collapsing and they're acting like they have nothing to do with it and they're trying 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 okay Andy as as it pertains to that discussion specifically the reason the FED has raised interest rates over and over and over now for the tenth time is it because they were trying to quell inflation we get that however if you look at the trajectory over the past several months of how inflation has come down you know back in June it was at 9.1 percent and then you can see it coming markedly down I believe we have a bar chart of all of this and uh I'm just wondering from your standpoint has is the inflation horse back in the barn yet he didn't say yes uh is the inflation horse back in the barn a little bit but I really do believe it it is going in the right direction but it's going to be sticky I think one of the things he said today is wage inflation does not lead to to real inflation I'm not sure about that but nonetheless getting getting to Peter's point you know on banks there's basically 1.94 trillion of real of unrealized losses on their on their books based on a lot of these a lot of these treasuries and mortgages that they own that's a problem how many banks are still in trouble because USC's Marshall School of Business in Stanford they did a study they said 186 banks are in distress right now that number I don't know but I know the FED looks at six or eight I don't know if that number's expanded obviously Pac West and Western Alliance are part of those two and my estimation but you know you've taken out a couple no question the bank making crisis is not over by a long shot too many too many easy alternatives Peter in a word who's going to feel the move today the most is it is it the banks but if so which part of the banking system of course everybody that has debt is going to feel the pain of rising interest rates that makes that debt harder to service and of course there's a lot of debt that is still low because it hasn't matured yet a lot of Corporations a lot of people in the real estate market particularly Commercial State borrowed money two three four five years ago commercials and the higher rates are when those loans mature it's going to be that much harder for them to get the financing to roll them over and then you have the prospect of very disorderly bankruptcies throughout the economy uh Andy we'll just want to quickly look at the tenure and the two-year the two-year is most sensitive to Fed policy that one had dropped five basis points let's see where it is right now and in doing so treasury investors are appearing to shift their positions moving to the longer dated bonds versus the shorter dated ones Liz they think that their recession is coming there's no question that this fed is not believed just taking the two-year first second the two years running a hundred 115 basis points through fed funds right now so that's telling you there's a lot of disbelief out there the five years somewhere around three and three eighths 340 give or take that is telling you that people are investing that they don't think these yields are going to be here and that the FED is going to turn around and start easing regardless of the fact that they say they won't Andy Peter thank you so much
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