YouSaid · the spoken record

Jeff Snider

lines on the record: 72
first: 2023-04-24
most recent: 2023-04-24
sittings or episodes: 1
sources: podcast

Every line below is reproduced as it was said and linked to the record it came from. Nothing here is summarised or generated. Directory · Search · Corrections

“Something would happen. And as I said before, we continue to see all the reasons why that would be continue to pile up. So where the markets are now are saying that we are almost certain that rate cuts are going to start in the near future and that the second half of this year will contain a rapid series of rate cuts. And so we just have to backfill in our minds what that would be. What is it that would cause the Federal Reserve to start rapidly cutting rates when they're saying we have no intention of cutting rates at all in the near future for anything? And that really gets us into exactly what we've been talking about here. You've got an economy that's shaky, maybe moving into a mild recession, as the Federal Reserve admits. And you pile onto that a credit crunch and a bunch of liquidity problems, that would get you into exactly what the markets are preparing for.”
2023-04-24 · Forward Guidance · Jeff Snider: The Credit Crunch Is Here As Ultra Rare Bond Market Signal Flashes Red For First Time Since 2008 · IDENTIFIED FROM THE TRANSCRIPT
“In just very simple terms, what the yield curve inversion has always implied, because it's, you know, look at Eurodollar futures, for example, because it's tied to three month LIBOR, it's basically a reflection of where money rates are going to be in the future, which has a heavy component of what the Federal Reserve policy is going to be. So in very simple terms, the market was betting more and more strenuously that something was going to happen or several somethings were going to happen that would force rates to go lower. Whether the Federal Reserve wants them to go lower or not. And that really, the more the more hawkish the Fed became, the more it talked about its reaction function solely in the context of inflation and consumer prices, that meant it would have to be an even bigger something to turn the Fed around. And as time progressed, the markets became even more and more certain. Didn't matter what consumer prices were doing at any given moment in time, that something or a combinations of”
2023-04-24 · Forward Guidance · Jeff Snider: The Credit Crunch Is Here As Ultra Rare Bond Market Signal Flashes Red For First Time Since 2008 · IDENTIFIED FROM THE TRANSCRIPT
“The fact that the yields and the demand for bills is just through the roof. So the debt ceiling stuff, the lack of supply, I mean, even that is probably not that much of a factor because the late December into January, there was only $45 billion in bills. So they were selling fewer bills last year. And we didn't see those extreme amounts of price swings. Didn't they see these extreme levels of demand? So I don't know. I don't see the debt ceiling as part of even really even a small part of what we're seeing in the bill market. It's one of those things where you would think that if money market funds had the ability to go in the reverse repo, they would just avoid bills and therefore it would be less demand for them. So the rates would rise as they have in other debt ceiling periods. I mean, think back to October of 2013. To a lesser extent in September of 2017, that's what you see. When you get to these debt ceiling periods.”
2023-04-24 · Forward Guidance · Jeff Snider: The Credit Crunch Is Here As Ultra Rare Bond Market Signal Flashes Red For First Time Since 2008 · IDENTIFIED FROM THE TRANSCRIPT
“For bills ahead of the debt ceiling had nothing to do with the debt ceiling. And then when the debt ceiling becomes most uncertain, you'll see bill yields rise, not fall. And then as soon as the debt ceiling agreement was reached on July 29th, by August, I think it was 1st, bill yields went right back down to where they were beforehand. So to me, there is nothing except for one little thing. There's nothing in the debt ceiling what we're seeing in the Treasury bills. The one thing that we might be seeing is that the Treasury Department, in order to get ready for the debt ceiling, because they can't just say that it's going to be raised. They have to take measures ahead of time. They are cutting back on the supply of treasury bills. The four-week and eight-week auction, the four-week auction that was conducted just yesterday, they only sold 50 billion instead of the 60 billion the week before. So they're constraining supply, which obviously doesn't help with prices. But it doesn't explain.”
2023-04-24 · Forward Guidance · Jeff Snider: The Credit Crunch Is Here As Ultra Rare Bond Market Signal Flashes Red For First Time Since 2008 · IDENTIFIED FROM THE TRANSCRIPT
“We had all sorts of collateral problems. They called it the European debt crisis, but it was really a collateral shortage. And in the early months of 2011, really around April into May, we saw Treasury bill prices fall. They didn't have far to go at that time because everything was close to zero. But in some cases, the four-week Treasury bill rate was right at zero. And some of them were probably negative along the way. So massive demand for collateral before we ever got to the debt ceiling. And then we got to July when the debt ceiling got to be a big problem. What did you see? You saw treasury bill yields suddenly spike because then it was like, oh my God, maybe this debt ceiling won't be resolved in the way we think it was. So in the week leading up to July 29th is when the agreement was announced, when the agreement was reaching announced, even four-week Treasury bill yields jumped up to about, I think, 16 or 17 basis points. So you see the demand.”
2023-04-24 · Forward Guidance · Jeff Snider: The Credit Crunch Is Here As Ultra Rare Bond Market Signal Flashes Red For First Time Since 2008 · IDENTIFIED FROM THE TRANSCRIPT
“Yes, they'll preference bills that are either shorter term in nature that will mature before the debt ceiling is or before the treasury is projected around a cash. They'll also buy longer dated bills when it's projected to be very likely that the debt ceiling will be raised because we all know it will be. This is all just a political farce. It's really stupid anyway. So there's really just an issue about that narrow window where there's some uncertainty there. But that doesn't lead to this massive drop in billiards. We saw this happen in 2011. 2011 was a perfect example because we had the same types of conditions. Not only did we have the debt ceiling, which was an even bigger problem in 2011. Remember 2011 was one of the biggest consequential games of debt-sealing chicken we've ever seen. In fact, it led to the downgrade in the U.S. debt. At the same time, though, before all that happened,”
2023-04-24 · Forward Guidance · Jeff Snider: The Credit Crunch Is Here As Ultra Rare Bond Market Signal Flashes Red For First Time Since 2008 · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, it doesn't make any sense to me because we've been through these debt ceilings before and that's not the way the market reacts to it. What really happens is really the only participants who are worried about the debt ceiling or money market funds because a money market fund has a fiduciary responsibility not to break the buck. And we saw the consequences of what that happened, what happens when that happens many years ago. So money market funds will look at their portfolio. If they have any treasury bills that look like they might mature around where the debt ceiling gets breached, they'll sell them. They'll get out of those treasury bills because they'll say, I can't own those treasury bills on the infinitesimally small chance that something does happen, not even in default, as you said, Jack, maybe the Treasury has to delay a payment. That could be catastrophic for a money market fund. So money market funds are understandably careful about the debt ceiling. So what they'll do is...”
2023-04-24 · Forward Guidance · Jeff Snider: The Credit Crunch Is Here As Ultra Rare Bond Market Signal Flashes Red For First Time Since 2008 · IDENTIFIED FROM THE TRANSCRIPT
“They're going to continue to trade, but they'll be trading on terms sofar. They've already made up the adjustment factor. And so on June 30th, when they stopped pricing LIBOR, when the Intercontinental Exchange does, they'll just be based on term sofer. So they'll kind of roll over at that point. And then the Eurodollar futures will just become sofer futures, essentially. But that's a good distinction. The euro-dollar system doesn't care. The euro dollar system is still there. The euro dollar futures were just a way to price systemic conditions in the euro dollar system. So what the government has said is we don't want to use LIBOR to price systemic conditions in the euro dollar system. We're going to use this other benchmark. So we're changing the benchmark, which I think is a real big mistake. But either way, we're changing the benchmark with how we monitor conditions and stresses and strains and prices, fundamental prices in this euro dollar system that is going to continue operating for the foreseeable future, unfortunately.”
2023-04-24 · Forward Guidance · Jeff Snider: The Credit Crunch Is Here As Ultra Rare Bond Market Signal Flashes Red For First Time Since 2008 · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, right. And I think I saw that March 10th was Silicon Valley Bank failed, and the week after that, very strange things going on in the bond market that indicated market stress and people having to unwind position. I think the sort of betting that rates would just go super high. That was a crowded trade that had to be unwound very quickly. And then it sort of cascaded. When you say Euro dollar futures, Jeff, so there's a euro dollar system on which you are an expert and people should check out your work and your YouTube channel, euro dollar university. The offshore dollar system, and that is different than euro dollar futures, which are bets on the future of LIBOR, London Bank, the rates there. Isn't it true that LIBOR is in the process of being phased out and that those futures won't be trading soon?”
2023-04-24 · Forward Guidance · Jeff Snider: The Credit Crunch Is Here As Ultra Rare Bond Market Signal Flashes Red For First Time Since 2008 · IDENTIFIED FROM THE TRANSCRIPT
“For example, in eurodollar futures, which is a curve that I always look at, you look at some of the moves last month, I think it was March 15th, I want to say the 15th, you saw just massive swing in hedges so that the euro dollar curve inversions, which were already extreme, became even more extreme. Some of those spreads got to be so enormous that we didn't even see those types of extremes in 2007 leading up to what became the global monetary crisis. In March last month, we had the curve moves and the curve moves, contract moves, price moves, distortions, upsets, and versions that just historic levels stuff.”
2023-04-24 · Forward Guidance · Jeff Snider: The Credit Crunch Is Here As Ultra Rare Bond Market Signal Flashes Red For First Time Since 2008 · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, again, all the symptoms of Bear Sterns that you would see in a yield curve or a money curve, where you don't want to see them inverted at all. But even today, just epic levels of inversion, stuff that, I mean, we didn't even see in 2007 and 2008. There is a lot, there is a lot of un I wouldn't call it uncertainty. There's a lot of almost near certainty about the fact that At some point, we still don't know when timing is always the issue, but at some point, the monetary deflation spills over until the real economy and it just leads to all the bad consequences. So the markets are as sure today as they were before mid-March that these things are going to continue to happen.”
2023-04-24 · Forward Guidance · Jeff Snider: The Credit Crunch Is Here As Ultra Rare Bond Market Signal Flashes Red For First Time Since 2008 · IDENTIFIED FROM THE TRANSCRIPT
“Was modestly deflationary last year, and I think this year it's becoming even more deflationary where we're seeing major interruptions in the circulation of money and flow of credit. Of course, that's what we've been talking about for the last hour, right, Jack, is all of those types of situations. Modestly deflationary money, which caused the markets to say, oh boy, there's trouble up ahead here. And that's why we saw the inversions, because modestly deflationary money was interpreted as next year could be really bad or even this year. Sometimes it could really lead to some really high probable nasty scenarios. So, yeah, I think we had deflationary money. We can avoid the worst of it, the rest of this year into next year. But you look at what the way the markets are trading. We're still looking at the same types of situations.”
2023-04-24 · Forward Guidance · Jeff Snider: The Credit Crunch Is Here As Ultra Rare Bond Market Signal Flashes Red For First Time Since 2008 · IDENTIFIED FROM THE TRANSCRIPT
“Extreme cases. Now, what is deflationary money? Again, if it's an interruption in the circulation, it doesn't necessarily have to be a contraction. It doesn't necessarily have to be a complete lockdown or a complete shutdown of the system. It could just be something that is causing it to not circulate enough money in credit given a level of demand. So if demand for money and credit is up here, but the circulation and supply is down here, you could have deflationary money, even though it's expanding because you're leading to all sorts of problems where we have to compete for credit and money. The price goes up. There's distortions in that respect. Heightened demand for collateral above and beyond what there should be, which causes all sorts of problems. So in 2022, even though lending went up, I don't think it went up as much as the nominally inflationary economy. I don't think it was inflation, but the nominally growing economy actually needed for it to continue to grow.”
2023-04-24 · Forward Guidance · Jeff Snider: The Credit Crunch Is Here As Ultra Rare Bond Market Signal Flashes Red For First Time Since 2008 · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, we think about to me, deflationary money is interruption in the circulation of money and credit. It's not about the stock. It's about the circulation. Because you can have all the money in the world, like in the early 1930s. There was tons of gold. It just didn't move. And because it didn't move, it's not being used. The economy just fell apart. And that led to deflationary economy, which is falling consumer and wholesale and producer and every other sort of real economy prices. So to me, deflationary money is something that impedes or interrupts the circulation of money and credit that eventually might lead to if it's allowed to go too far all of those nasty consequences in the real economy. As we said before, what the Fed is trying to do, stop deflationary money from spilling over into the real economy that then becomes what I think most people associate with deflation, which is falling consumer prices. So deflationary money is a monetary problem that, if left unchecked, will lead to deflation in the real economy in the most”
2023-04-24 · Forward Guidance · Jeff Snider: The Credit Crunch Is Here As Ultra Rare Bond Market Signal Flashes Red For First Time Since 2008 · IDENTIFIED FROM THE TRANSCRIPT
“Right, yeah. So on the credit crunch, I've seen you use the term deflationary money. What do you mean by that? Do we have deflationary money now? Did we have deflationary money last year in 2022? With the caveat that consumer price prices rose dramatically, which people call inflation. And there's monetary inflation, which my, I guess, informal definition, I may be wrong, correct me, is bank credit. So bank making lots of loans. I think bank credit did expand in 2022. It may not going forward. We'll see. Yeah, so how do you define deflationary money? Did we have it in 2022? Do we have it now? Will we have it more in the future?”
2023-04-24 · Forward Guidance · Jeff Snider: The Credit Crunch Is Here As Ultra Rare Bond Market Signal Flashes Red For First Time Since 2008 · IDENTIFIED FROM THE TRANSCRIPT
“Silicon Valley Bank should have done and probably wished it would have done ahead of time. And that's really we get into the pro-cyclical stuff and the credit crunch.”
2023-04-24 · Forward Guidance · Jeff Snider: The Credit Crunch Is Here As Ultra Rare Bond Market Signal Flashes Red For First Time Since 2008 · IDENTIFIED FROM THE TRANSCRIPT
“You're not managing your liabilities and liquidity that you're leaving yourself exposed. And to me, that's the more interesting part of Silicon Valley Bank, not what they sold, but why they felt they had to sell it. And of course, we know, I mean, yes, the obvious answer is to deposit flight, but why didn't they take advantage of all the wholesale opportunities that they could have had or should have had to at least stem the tide of their avoid the worst case scenario of selling their assets? I mean, one of the answers could be they were just that bad at being bank managers. They sold these assets, not realizing it was their own death warrant. That could have been the issue here. But I think there's more at play here than that. And I think there are more banks out there that are worried that are saying, I don't want to have to sell these securities because if I do, it's going to just trigger a worse deposit flight. So they're building up their cash cushions. They're de-risking. They're doing all the other things that.”
2023-04-24 · Forward Guidance · Jeff Snider: The Credit Crunch Is Here As Ultra Rare Bond Market Signal Flashes Red For First Time Since 2008 · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I mean, there's an argument made for that because, I mean, but then again, what else were they going to do? At the time, that's what the market offered. And really, I don't think there's a whole lot of risk to those either because you just put them in your bank book and hold them to maturity. Yes, you don't get as much of return. Your net interest margin suffers, those kinds of things. It's not great for you to be a bank, but it doesn't put you out of business. You know, there's nothing wrong with holding a U.S. treasury to maturity. It's when you're forced to sell it. That's when the issue becomes real is when you take a security that's underwater for any reason. It doesn't really matter what it is. And the market doesn't care. The market's ruthless. If you're selling a security that's underwater for any reason, creating a loss on your balance sheet or in your income statement that goes to the balance sheet is erosion and capital, that creates a problem for you. And so the issue is not the security you're selling. It's why are you being forced to sell the security?”
2023-04-24 · Forward Guidance · Jeff Snider: The Credit Crunch Is Here As Ultra Rare Bond Market Signal Flashes Red For First Time Since 2008 · IDENTIFIED FROM THE TRANSCRIPT
“Cash would come in from stock IPOs and other things, they would replace old cash, these companies were running through. So essentially they fooled themselves into believing this one-time distortion represented a permanent shift in their business fortunes. And so Silicon Valley Bank is not unique in that perspective. Lots of other banks as well as businesses saw this massive distortion and said this is permanent. This is a new permanent plateau of prosperity for me and all the people that I can see. And they started acting as if that was the case when it wasn't the case. And over the last year and a half or so, we're starting to see reality intrude, which is then interrupting all of these dreams and hopes and really bad ideas and forcing a very, it's forcing a reckoning for a system that needs to come to terms with that massive distortion from a couple.”
2023-04-24 · Forward Guidance · Jeff Snider: The Credit Crunch Is Here As Ultra Rare Bond Market Signal Flashes Red For First Time Since 2008 · IDENTIFIED FROM THE TRANSCRIPT
“Some of them, yes. To me, that's an unimportant distinction because whether the Fed bought them or not, I think they would have been issued either way. So where they ended up who actually owned them once they were created, to me, that's just academic because they were going to be created anyway. So then once that happened, the government does what it always does, which is redistribute for all the worst reasons. And in this case, I just threw as much cash as they could at the system, hoping that it wouldn't hope it would help from for the economy that was completely shut down. But there's arguments to make to be made about that, whether there's a moral case or whatever else. But what we do know happened is it was a huge distortion and a huge distortion that didn't just go away. As you said with Silicon Valley Bank, Silicon Valley Bank got hit with this huge windfall of deposits. And yes, they realized that their customers were going to run through this cash. There's a significant cash burn. But what they were expecting is that new cash.”
2023-04-24 · Forward Guidance · Jeff Snider: The Credit Crunch Is Here As Ultra Rare Bond Market Signal Flashes Red For First Time Since 2008 · IDENTIFIED FROM THE TRANSCRIPT
“Wouldn't consider money printing, I consider it redistribution. So the federal government borrowed funds from the Treasury market. Maybe banks created money on their own to pay for those treasuries, but essentially it was a redistribution because that's what the federal government really does.”
2023-04-24 · Forward Guidance · Jeff Snider: The Credit Crunch Is Here As Ultra Rare Bond Market Signal Flashes Red For First Time Since 2008 · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, the one time they were, right? Because they're not really correlated all that much. The quantitative easing to me, though, that it really didn't play much of a role, that's more of an accounting issue than anything. And it's really the issue with M2 and the Federal Reserve Bank Reserves, as we talked about earlier, is that there are narrow form of money, and it's really what happens in response to it. So the question is, did quantitative easing trigger of the deposit creation or was it the federal government's essentially helicopter payments? And I think that was the more effective, more The more blameworthy distortion here is that the federal government got involved in the monetary system, the economy, for reasons that had nothing to do with pure economics. I mean small economics.”
2023-04-24 · Forward Guidance · Jeff Snider: The Credit Crunch Is Here As Ultra Rare Bond Market Signal Flashes Red For First Time Since 2008 · IDENTIFIED FROM THE TRANSCRIPT
“But we're going to end up selling assets that are underwater, which is the last thing anyone wants to do. Again, lessons of Bear Stearns. The more interesting question to me isn't that. It's why didn't they start pooling together loans and swapping them for collateral and borrowing funds in wholesale? Why didn't they go to the Fed's discount window? Why didn't they do a whole bunch of things that they could have done to remain in business? That's really the question here. And I think that's maybe the question that a lot of the markets are starting to ask, not just of its peers, but other banks too. What's wrong with your asset base that you can't do some of these things that banks normally would do when the environment's really good? So Silicon Valley Bank to me is a microcosm of how we're going to end up paying for all those distortions from a couple years ago. Because really all the government did was sort of kick the can down the road and make a huge mess on the way that we now have to sort of try to navigate and clean up.”
2023-04-24 · Forward Guidance · Jeff Snider: The Credit Crunch Is Here As Ultra Rare Bond Market Signal Flashes Red For First Time Since 2008 · IDENTIFIED FROM THE TRANSCRIPT
“Recirculated in the way it would organically. So Silicon Valley Bank made huge errors in thinking that one time flush of deposit, that windfall of deposits a couple years ago was going to be a permanent underlying back background that they could base their entire portfolios on. So as cash began to migrate not just from Silicon Valley Bank, but regional banks in general, as customers, these startup firms at Silicon Valley Bank was lending to used more cash than they were anticipating because they were not paying off. The economy was not performing the way they thought. So the original sin here, for lack of a better term, was the 2020 distortion and then the cash migration that then triggered all of these liquidity measures, which people began to notice, which then triggered the deposit flight, which finally triggered Silicon Valley Bank saying we're losing so many deposits, we have to sell assets.”
2023-04-24 · Forward Guidance · Jeff Snider: The Credit Crunch Is Here As Ultra Rare Bond Market Signal Flashes Red For First Time Since 2008 · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I don't think that was really the issue here. That was sort of the last link in the chain of events. You got to remember what we're really talking about here is the distortions that the government really created in 2020 and 2021. That's really, I mean, Silicon Valley is probably a case study in those distortions because the government threw a bunch of cash at the economy. And one of the biggest beneficiaries of that was banks, especially regional banks, who suddenly were flooded with these deposits. And especially the Silicon Valley Bank was flooded not with just deposits, but sitting in the middle of Silicon Valley when the stock market started to go crazy, they got flooded with even more deposits. So we had this massive one-time distortion, not just in the economy, but in the banking system too. And over the last couple years, lo and behold, those deposits, that cash began to migrate to other parts of the economy because it wasn't being”
2023-04-24 · Forward Guidance · Jeff Snider: The Credit Crunch Is Here As Ultra Rare Bond Market Signal Flashes Red For First Time Since 2008 · IDENTIFIED FROM THE TRANSCRIPT
“How would you estimate the cause of the fall of Silicon Valley Bank? Key to that was the very flighty deposit base, the fact that they didn't have enough capital. But really, at the heart of it was the securities treasuries, but mainly mortgage-backed securities that were parked on the held to maturity book, that they were valuing still at $100, even though if they were to sell them on the market, they would have gotten severely less money than that. How much do you attribute the Federal Reserve's rate hikes to the fall of Silicon Valley Bank, given that if interest rates were still at zero, those mortgage-backed securities would still be quite valuable?”
2023-04-24 · Forward Guidance · Jeff Snider: The Credit Crunch Is Here As Ultra Rare Bond Market Signal Flashes Red For First Time Since 2008 · IDENTIFIED FROM THE TRANSCRIPT
“So they say, well, if we hadn't done this, it would have been so catastrophic, we'd be all back in the Stone Age. I mean, that's not really a valid argument, but that's a recognizing the fact that we still have these problems. Monetary system problems become real economy problems, and those have not changed. And I think that's what we're really talking about right here, is that we've got the monetary system problems. We've had them for quite some time, but now everybody knows that we have them because now we've had these bank failures, which have gotten people talking about banking. So we know there's monetary problems. We're sort of waiting to see if there are economic problems when the markets are saying there is going to be lots of economic problems.”
2023-04-24 · Forward Guidance · Jeff Snider: The Credit Crunch Is Here As Ultra Rare Bond Market Signal Flashes Red For First Time Since 2008 · IDENTIFIED FROM THE TRANSCRIPT
“Ways, how do we keep these monetary events from spilling over into the real economy? And as we keep seeing, the monetary events keep happening and they keep spilling over into the real economy. So I don't think the Federal Reserve has been all that effective at all. And it really depends. I mean, what they say is, well, we kept it from being worse, which is one of those, you know, unfalsifiable claims that you can, I mean, you can never prove a counterfactual anyway.”
2023-04-24 · Forward Guidance · Jeff Snider: The Credit Crunch Is Here As Ultra Rare Bond Market Signal Flashes Red For First Time Since 2008 · IDENTIFIED FROM THE TRANSCRIPT
“Then that harms the economy, which threatens the employment mandate and inflation mandate. So they're trying to step back from, we hope that they learned from the 2008 crisis. We know they really didn't, understanding that there is a direct relationship between problems in the monetary system and problems in the economy. Now, Congress has mandate them do something about the economy. They're trying desperately to figure out how to do that. How do we connect problems in the monetary system with problems in the economy? How do we interrupt problems in the monetary system from becoming problems in the economy? And that's why they have to keep experimenting with all these new things like quantitative easing. Now we've got the BTFP. There's also March 2020. They came up with something called FEMA. FEMA was actually used this past March. There was about $60 billion used there. It's down to, I think, $20 billion as of this week. So they keep constantly trying to figure out.”
2023-04-24 · Forward Guidance · Jeff Snider: The Credit Crunch Is Here As Ultra Rare Bond Market Signal Flashes Red For First Time Since 2008 · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I mean, in one sense, that's really what they will, they'll tell you that's their job is, yeah. We don't really want to manage the economy, but Congress made us. That's what Jay Powell would say because they said, you know, we've got, they actually have three mandates, not two. The third mandate is actually interest rates, but they never talk about it because they say, if we get employment and inflation right, then interest rates will take care of themselves, which obviously that's not the case. You're right. They would say that, you know, we want to be a central bank, but we don't really know how to be a central bank in this modern system where money has evolved so dramatically that we can't even, we can't even figure out, we can't even define what money is. And so you also hear them talk about how they've become a market of last resort rather than lended of last resort. But that's really about trying to, when we enter these periods where the monetary system and the banking system gets itself into trouble, it's about breaking the circuit between the vicious cycle of illiquidity leading to fire sales, which leads to more illiquidity than fire sales and round and round regard.”
2023-04-24 · Forward Guidance · Jeff Snider: The Credit Crunch Is Here As Ultra Rare Bond Market Signal Flashes Red For First Time Since 2008 · IDENTIFIED FROM THE TRANSCRIPT
“Jeff, you for a long time have been quite a stern critic of new central bank policies such as quantitative easing in order to affect economic but non-banking economic factors such as growth and inflation. And that is a pretty severe mission creep from whether Federal Reserve started was to stave off banking panics. What the Federal Reserve did in March of this year where banks used its discount window, but also the newly rolled out bank term funding program, BTFP, which allowed banks to secure funding for up to one year, pledging their collateral at par talk about collateral, that seems to be relatively close to what the Federal Reserve was started to do in 1913. How would you judge the Federal Reserve's actions, how successful were they in sort of fighting the banking panic? And yeah, what do you? See going forward.”
2023-04-24 · Forward Guidance · Jeff Snider: The Credit Crunch Is Here As Ultra Rare Bond Market Signal Flashes Red For First Time Since 2008 · IDENTIFIED FROM THE TRANSCRIPT
“Depending on what happens, but even if nothing else happens, I think you'll see the case more and more be made that we've done enough. Now we need to pause. We need to reassess the economic consequences of everything. We need to see what's going on in the marketplace. I do think they pay attention to the markets, not just treasury bills, but other parts of the market. And I think it is in some sense unnerving to them. They do realize that the balance of events have moved closer to the markets than to their position. So I really think that whatever happens in May after that, we're into the pause and then eventually the pivot.”
2023-04-24 · Forward Guidance · Jeff Snider: The Credit Crunch Is Here As Ultra Rare Bond Market Signal Flashes Red For First Time Since 2008 · IDENTIFIED FROM THE TRANSCRIPT
“I don't think the one in May is a done deal either. I think there is a split on the Federal Reserve. We saw that in the minutes too. And yes, the minutes are, you know, you can't put too much stock in those just like the beige book, but it was interesting how it said. And there was, of course, that Wall Street Journal article from obviously leaked sources who wanted that out there, that the Fed was very close to pausing in March. And then, yes, there are still hawks like Christopher Waller and others who are saying, no, no, no, we successfully navigated the stuff in March. Inflation is still our biggest risk. The CPI aren't down nearly as much, or the PC deflators, not down nearly as much as we'd like them. So there are those who are hawks. I mean, the hawk versus dove camps are probably as starkly different as they have been quite some time. So I think, you know, the hawks are going to have to make a really compelling case just for a rate hike in May. And then after that, I mean.”
2023-04-24 · Forward Guidance · Jeff Snider: The Credit Crunch Is Here As Ultra Rare Bond Market Signal Flashes Red For First Time Since 2008 · IDENTIFIED FROM THE TRANSCRIPT
“Is not just a minor slowdown or a nuisance that's going to help Jay Powell get consumer prices down to where he would like them. This is something that's going to cause the Federal Reserve to completely turn around and start cutting rates rapidly like they did in 2008. And again, we see that all over the marketplace, we see that all over the monetary system, where everything that would point in the same direction of the market market case continues to happen over and over again. The Fed is getting closer and closer and closer to where the markets have been all along because that's the way the real economy, the real market system is progressing too.”
2023-04-24 · Forward Guidance · Jeff Snider: The Credit Crunch Is Here As Ultra Rare Bond Market Signal Flashes Red For First Time Since 2008 · IDENTIFIED FROM THE TRANSCRIPT
“Just keep in mind here if things do continue to get worse, it won't be a mild recession. So what's actually happened here is the Fed is slowly incrementally progressing toward the same position that the markets have been in for quite some time, really going back to last fall, September and October when inversions really exploded. The near-term forward spread inverted. The markets were saying now this is not going to be a slowdown. The chances of a more than mild recession are exceptionally high. And everything that has happened over the month since then have been exactly what the markets have been predicting. If you're thinking about all the things that could happen that would lead the economy into a more than mild recession, a lot of those things did happen already. And here we are in April and the markets are saying we aren't done yet. This is not a mild recession.”
2023-04-24 · Forward Guidance · Jeff Snider: The Credit Crunch Is Here As Ultra Rare Bond Market Signal Flashes Red For First Time Since 2008 · IDENTIFIED FROM THE TRANSCRIPT
“Disagree with it because it doesn't take into account the real financial fallout. And again, to be fair, the Fed said, you know, our base case, the staff said, as you point out, Jack, our base case is a mild recession, which, I mean, it's not good. Let's be honest about it. It's not a good thing, but it's certainly more palatable than the alternative, which they also talked about in their last meeting minutes, which is if all of the things that the market has been pricing for months actually do play out, we won't get a mild recession because they even said in the minutes, they basically point blank stated that recessions and downturns that happen at the same time as financial market difficulties and credit crunches lead to the most severe cases. So what the Fed actually said, they actually planted the seed for that. They said, well, we weren't expecting a recession. We were expecting a slowdown, but now we're thinking that it'll be a mild recession and hopefully nothing more than that. But by the way,”
2023-04-24 · Forward Guidance · Jeff Snider: The Credit Crunch Is Here As Ultra Rare Bond Market Signal Flashes Red For First Time Since 2008 · IDENTIFIED FROM THE TRANSCRIPT
“It's been interesting to see the Federal Reserve framework, JPAL talking about, oh, in 2023, we're going to have slow growth to 2023, we're going to have very slow growth. And now the FOMC, not the FMC, the Federal Reserve staff is expecting a mild recession in 2023. So slow growth to very slow growth to mild recession. What do you think about that term mild to me, Jeff? To me, it does seem plausible. Yeah, okay, things will slow down a little bit. The unemployment rate will go up, spending will go down, borrowing will go down, defaults will go down, but then it will be what they call a mid-cycle slowdown. And thankfully, inflation will, you know, consumer price inflation will fall down as well. If you disagree with that, why?”
2023-04-24 · Forward Guidance · Jeff Snider: The Credit Crunch Is Here As Ultra Rare Bond Market Signal Flashes Red For First Time Since 2008 · IDENTIFIED FROM THE TRANSCRIPT
“Something it's And that's one of the factors that you have to keep in mind in the banking system is that, again, like in 2008, participants realized they're really isolated and alone out there.”
2023-04-24 · Forward Guidance · Jeff Snider: The Credit Crunch Is Here As Ultra Rare Bond Market Signal Flashes Red For First Time Since 2008 · IDENTIFIED FROM THE TRANSCRIPT
“So, in one sense, it's good that the Fed is finally admitting that there's, hey, you know, there's a possibility of a recession here coming up, and it could get much worse depending upon how this credit crunch develops if it goes the wrong way. It could get really bad really quickly, and we'll do our best to try to mitigate the fallout. But as far as actually getting ourselves out or as far as, you know, what the markets are pricing, why doesn't the Fed ever take it into account yield curves and curves like that instead of always falling back on their DSGE econometric models, which never see these things coming? So in one sense, that's one reason why we're seeing these banks billing the liquidity cushions and de-risking because they realize you can't count on the Fed to bail you out because by the times the Fed realizes it needs to do so.”
2023-04-24 · Forward Guidance · Jeff Snider: The Credit Crunch Is Here As Ultra Rare Bond Market Signal Flashes Red For First Time Since 2008 · IDENTIFIED FROM THE TRANSCRIPT
“They ended up being on the good end of this thing. The big banks are saying, we think everything's fine because for them everything is fine. That's the key difference here. There's several key differences between now and 2008, but that's one of the key differences. In 2008, it was the big dealer banks who were under the spotlight. They're the ones who are under the most pressure. Now they're the ones saying we can step back and just look at everything from above and say this is not going to be a big deal for us. It might be a big deal for everyone else. But there's also the incentive here where the big banks don't want to be dragged into this thing. So they have every incentive to say, this is no big deal because we don't want to be dragged into it. We want to stay out of it. We're perfectly fine. Don't even question our balance sheet at all. We're good here. Whereas the Fed, the Fed, I mean, the Fed always gets it wrong. The Fed always has to react to events. You always have to wonder, why don't you people see these things coming? Why don't you ever have, why don't you ever do something about it before it happens? Why do you always have to create a new tool after all the old tools failed to stem the crisis?”
2023-04-24 · Forward Guidance · Jeff Snider: The Credit Crunch Is Here As Ultra Rare Bond Market Signal Flashes Red For First Time Since 2008 · IDENTIFIED FROM THE TRANSCRIPT
“problems, which just simply heightened the reminder that you need to be defensive in these periods and defensive for the economy overall, defensive by the defensive measures taken by banks, that's pro-cyclical. So if we already have a struggling economy and then you introduce a credit crunch on top of it, it can turn maybe a mild risk, it can turn a downturn into a recession. It can turn a mild recession into something much bigger. So we'll see how that plays out. But the initial initial aftermath of March, I mean, look at treasury bills, look at the yield curve, look at what banks are saying. You just get this, maybe this does turn out to be what we hope it doesn't.”
2023-04-24 · Forward Guidance · Jeff Snider: The Credit Crunch Is Here As Ultra Rare Bond Market Signal Flashes Red For First Time Since 2008 · IDENTIFIED FROM THE TRANSCRIPT
“Harshest assessment of credit conditions because that's where the Silicon Valley Bank epicenter was. And what they basically said was credit is already in the process of contracting. And so maybe we don't see it in the current statistics because it takes a while for these things to filter through, but we may see something like that happen early on in April, maybe throughout the full month of April. It won't be the same everywhere. So it'll be some banks will take it as, yeah, we need to really take these lessons to heart. Some banks, some of the bigger banks that have been the beneficiary of the deposit, the wave of migration deposits, they might say, now's the perfect time to take risk, as you mentioned, JP Morgan and some of the other bigger banks. Maybe they'll offset the credit crunch to some extent. We certainly hope they do. I'm not holding my breath on it, but it's always a complex thing. But as you mentioned, we're seeing the look.”
2023-04-24 · Forward Guidance · Jeff Snider: The Credit Crunch Is Here As Ultra Rare Bond Market Signal Flashes Red For First Time Since 2008 · IDENTIFIED FROM THE TRANSCRIPT
“To make up for it, so systemically we had a big credit shock, which, as you alluded to, now we're hearing anecdotes and stories, which is really what the beige book is. That's why you don't really read this thing except in periods like this, because the beige book is nothing more than stories that regional bank staffs and presidents choose to put into this thing. So it's basically they're curating all the stories they want you to hear from their local context. And what you hear in the April beige book, the one that was put out just a couple days ago, is exactly what you said, Jack. All of a sudden they're talking about liquidity, tightening credit stand. There's all these things looking forward, not looking backward at what happened, saying, you know, it really does sound like the lessons of Bear Sterns I just laid out. That's what you hear throughout the Beige book. And interesting and interestingly enough, it was the San Francisco branch that probably had the”
2023-04-24 · Forward Guidance · Jeff Snider: The Credit Crunch Is Here As Ultra Rare Bond Market Signal Flashes Red For First Time Since 2008 · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, a lot of the quarterly statistics, you're not going to get enough granularity about what happened recently. You can look at the weekly H8, which was eye-opening. And H8, by the way, is the Federal Reserve's report on what commercial banks, the entire commercial banking system tells the Federal Reserve it's up to. And there was a lot of stuff in there, especially the final two weeks of March where we saw a massive contraction in lending. I think it was about $105, $110 billion, which is, I mean, again, that's another thing that shows up that's comparable to something like 2008. Bank credit overall restricted by, I think contracted by a couple hundred billion, which we had a couple weeks that were just historic levels of contraction. Some of that might have been related to transfers of assets from Silicon Valley Banking Signature into federal government hands, the receivership. So, I mean, but either way, bank credit contracted and nobody else was out there extending credit.”
2023-04-24 · Forward Guidance · Jeff Snider: The Credit Crunch Is Here As Ultra Rare Bond Market Signal Flashes Red For First Time Since 2008 · IDENTIFIED FROM THE TRANSCRIPT
“And banks are pulling lending. Banks are worried about commercial mortgage backed securities. And not only worries, but it's already happened for the month of March. So yeah, just elaborate on sort of the credit crunch that you see.”
2023-04-24 · Forward Guidance · Jeff Snider: The Credit Crunch Is Here As Ultra Rare Bond Market Signal Flashes Red For First Time Since 2008 · IDENTIFIED FROM THE TRANSCRIPT
“Those types of things. So I think that part is we can see enough of that too. Also, we got the H8 data from the Federal Reserve, and we'll get that updated today, I believe, for last week or this week, where you can see banks all across the US system really built a huge cash cushion, some of that borrowing from the Fed, the FHLB, some of the other things that they did. And you also have to believe that outside the United States and U.S. dollars, the same thing was going on. But the real big thing as far as the economy is concerned is whether that leads to a severe enough de-risking in terms of loans and just buying securities that it creates the credit crunch that happened in 2008. Or, you know, even a small credit crunch can turn into a really big problem, especially in an economy that is highly dependent upon the constant circulation and introduction of credit.”
2023-04-24 · Forward Guidance · Jeff Snider: The Credit Crunch Is Here As Ultra Rare Bond Market Signal Flashes Red For First Time Since 2008 · IDENTIFIED FROM THE TRANSCRIPT
“I was thinking about yesterday. So I'm going to start cutting back on the things I do in the real economy, loans that I make, securities that I buy. So you've got de-risking, which leads to, of course, the credit crunch. And the third thing you do is you hedge the hell out of what positions you're left holding, especially if you're left with, you know, if you have a lot of risky assets that are underwater, you can't sell them without creating paper losses and therefore that leads to all sorts of bad consequences, as we saw with Silicon Valley Bank. So you hedge, you hedge, you hedge, you hedge. And that's something that we saw last month in extreme two, massive swings in hedging instruments. So the lessons of Bear Sterns apply not just to March of 2008, but I think we're seeing already March of 2023 because we saw, as I said, the hedging, that was obvious and immediate everywhere. We've gotten some, I mean, obviously we're talking about Treasury bills, building collateral cushions.”
2023-04-24 · Forward Guidance · Jeff Snider: The Credit Crunch Is Here As Ultra Rare Bond Market Signal Flashes Red For First Time Since 2008 · IDENTIFIED FROM THE TRANSCRIPT
“Have collateral available just in case JP Morgan in the old days, now it's Bank of New York Mellon, but in case the tripartite repo custodian knocks on my door and says, I need you to post more collateral. So you build a cash cushion, you build a collateral cushion, which only makes sense, right? If you're concerned about these kinds of things, you want to have that kind of liquidity and insurance if something else continues to go wrong. That's the first thing you do. The second thing you do is you start looking at your assets in your portfolio and think, Do I really want to own all these? Do I really want to be as risky as I was yesterday? Because look what happened to this other firm that wasn't really all that risky. So I start de-risking my portfolio, which includes not just selling some of the more risky stuff, favoring some of the more safe instruments, but it also means for depository institutions. I don't want to lend as much. I'm not sure I want to lend as much or to as wide a variety of borrowers as.”
2023-04-24 · Forward Guidance · Jeff Snider: The Credit Crunch Is Here As Ultra Rare Bond Market Signal Flashes Red For First Time Since 2008 · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, the term that we want to use here is credit crunch because what happens is when financial firms and even non-financial firms that are caught up in these wholesale market difficulties, what they decide to do is what I call the lessons of Bear Stearns, which was after Bear Stearns, that didn't represent a success. That represented a systemic rupture which caused the entire system to stop and say, whoa, wait a minute here. We just had a major failure when we didn't think a failure was really possible. What that means is I can't really depend on the wholesale market system. I can't depend on the Fed. There really isn't a backstop. I'm kind of alone out here and I'm alone out here and there's all sorts of risks that I didn't appreciate yesterday. Suddenly Bear Stearns has focused everyone on the risks and the liquidity risk and the credit risk and everything else to systemic weaknesses. So what I need to do is I need to build up my liquidity cushion. And one of the ways I build up my liquidity cushion is make sure I have.”
2023-04-24 · Forward Guidance · Jeff Snider: The Credit Crunch Is Here As Ultra Rare Bond Market Signal Flashes Red For First Time Since 2008 · IDENTIFIED FROM THE TRANSCRIPT
“During these specific periods, we understand that more and more of these financial participants are being forced to do the same things at the same time because of the systemic conditions. They're being forced to choose pay high levels of premiums for treasury bills, for instance, when there's problems in the collateral marketplace. So they can't replace those problems in the collateral marketplace with something like, for example, central bank cash because central bank cash, the reserves, or as they call them in Canada settlement balances, they have a very narrow use. They can't be used in the wider marketplace except for, you know, if you're settling a transaction in FedWire or something like that. So it really depends on what's going on in the individual institutions. And of course, the systemic properties of the system at any given time that is forcing many of these individual institutions”
2023-04-24 · Forward Guidance · Jeff Snider: The Credit Crunch Is Here As Ultra Rare Bond Market Signal Flashes Red For First Time Since 2008 · IDENTIFIED FROM THE TRANSCRIPT