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Today, thanks to the quick 
action of my Administration. 

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Over the past few days, 
Americans can have confidence 

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that the banking system is safe.
Your deposits will be there. 

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When you need them. 
Small businesses across the 

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country, the deposit Accounts at
these Banks can breathe easier 

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knowing, they'll be able to pay 
their workers and pay their 

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bills. 
This was the message that 

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President Biden gave just this 
morning, trying to reassure the 

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general public that the banking 
system is okay. 

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But not everyone seems to be 
buying this. 

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Message a number of Bank stocks 
are currently, in freefall, 

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First Republic Bank is down 77 
percent on the day. 

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The exchange halted trading on 
this company. 

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Western Alliance is down. 78% 
key, Corpus down. 26% Pac West 

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Bank has fallen 47%. 
Zions Bank is down, 27%, even 

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Ally Financial is down 13 
percent on the day and Charles 

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Schwab is down Seventeen 
percent. 

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So even after a joint statement,
from the Department of Treasury 

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Federal Reserve and FDIC, and a 
direct addressing from the Isn't

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the banking system is still 
under pressure and Bank stocks 

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are getting clobbered. 
So in this episode, we're going 

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to do an update of the entire 
situation. 

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Try to break down what's going 
on and the possible 

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ramifications of it, how it will
impact our portfolios. 

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And what this means for the 
future. 

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We have a lot to get into. 
Let's go ahead and get started. 

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So first of all, let's do a 
quick 30, second recap of 

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everything that's happened. 
So far up until three days ago. 

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There used to be a bank called 
Silicon Valley Bank that catered

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to Silicon Valley from 2017 to 
2020, as the Texting started to 

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grow rapidly because of cheap. 
Money low interest rates, 

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Silicon Valley Bank, had an 
influx in deposits as Silicon 

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Valley, Bank was receiving this 
influx of deposits and fresh 

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cash. 
They decided to invest the 

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money. 
They invested it at very low 

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interest rates, at the time of 
the interest rate on average was

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between 1% and 2%. 
So they were investing in this 

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area right here. 
Much lower than the current 5% 

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interest rates. 
The problem wasn't that they 

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only invested At low interest 
rates, but they invested in long

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duration assets, Silicon Valley 
Bank was buying mortgage-backed 

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Securities and 10-year, 
treasuries at one-and-a-half 

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percent interest rates locking 
in that rate for the next five 

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to ten years. 
So their entire Bond portfolio 

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is right here in this area and 
the interest rates of course 

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went up to 5% making their 
entire Bond portfolio 

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underwater, all of it being 
unrealized losses and this was a

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particularly poor decision 
because of how concentrated the 

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clientele this bank had, it was 
all Silicon Valley startups. 

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All companies that had the same 
risk factors. 

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This graphic shows how 
concentrated, Silicon Valley 

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Banks portfolio has into 
long-dated assets and how many 

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losses they had in that 
portfolio. 

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The impact of unrealised 
security losses on Capital 

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ratios. 
It has two bars here. 

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The blue one is the common 
Equity Tier 1, Capital. 

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The brown bar is adjusted for 
unrealized losses on securities.

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So basically, when you make the 
adjustment, for how much this 

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Bank actually has, when you 
factor in their losses, this is 

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what it looks like. 
Notice how most banks like 

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JPMorgan have slightly less when
you adjust for unrealized 

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losses. 
It's about 80%. 

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That's a pretty decent ratio. 
They're not down much when you 

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adjust for unrealized losses, we
have Citibank doing the same 

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thing. 
Pretty reasonable ratio there. 

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And then next we have Silicon 
Valley Bank third, from the left

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DC, the problem there when we 
adjust for unrealized losses, 

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Has their ratio goes from being 
around, 12% to being around 

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point two percent, it's 
virtually nothing. 

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And this is unlike any other 
bank, Silicon Valley Bank is 

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orders of magnitude worse than 
even the next worst bank. 

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So, this highlights how uniquely
bad their portfolio was and how 

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it led to this devastating 
consequence. 

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Not to make a long story short. 
This entire Bank runs started 

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with Moody's, Corporation 
threatening to downgrade the 

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rating of the bank and they 
threatened to downgrade it 

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precisely because Of the capital
ratios Moody said that you need 

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to increase your Capital ratios,
or we're going to downgrade the 

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stock Silicon Valley Bank 
quickly responded to Moody's 

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downgraded thread. 
They issued a note saying that 

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they're going to bolster their 
cash reserves and they're going 

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to raise their Capital ratios by
doing a little dilution to raise

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some cash. 
And that is precisely what? 

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Spooked the customers of this 
Bank word, got around very 

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quickly and Silicon Valley as it
often does with everybody on 

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smartphones. 
Everybody in slack groups, 

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everybody in Discord channels, 
word spread Quick that this Bank

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may not be able to get your 
money out as quick as you want. 

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And once that happened, 
everybody wanted their money 

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out. 
That's the bank run, not only 

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did the stock price drops 66 
percent in a single day and was 

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halted, but this Bank received a
staggering 42 billion dollars of

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withdraws. 
In one day, this was a bank run 

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by cell phone. 
Every single Venture capitalists

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every single startup company 
that had money in this Bank 

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logged into their Silicon Valley
Bank app on their smartphone. 

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And issued a withdraw request, 
all of them doing that at the 

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same time is the bank run and 
this create a bigger liquidity 

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00:05:07,400 --> 00:05:11,200
problems for the bank on Friday.
It was announced that the FDIC 

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had taken over the bank, it no 
longer exists as Silicon Valley 

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Bank. 
That bank is shut down. 

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It exists. 
No more. 

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It is a remnant of history, but 
the question remains, what 

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happens to the depositors? 
What is the insurance? 

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What happens with everything 
going forward? 

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And what does this mean for all 
these other Banks today? 

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Her one day of FDIC having 
control over the bank. 

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There was a joint statement 
released by the Department of 

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Treasury Federal Reserve and 
FDIC. 

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Now with this statement, they 
had two major goals with it. 

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One was they wanted to make it 
clear that the taxpayer was not 

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bailing out. 
All the people that profited 

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from Silicon Valley Bank. 
They didn't want to make it look

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like the taxpayer was paying 
out. 

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The CEO, the executive team, the
equity holders, or the bond 

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holders, they wanted to make it 
clear to the public that that's 

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not the situation, and it's not 
a Pete of the bailouts that 

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happened in 2008. 
The second goal is to retrieve 

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depositors money and renew 
confidence in the banking 

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system. 
And I think the statement 

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adequately accomplish both of 
those goals, depositors will 

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have access to all of their 
money. 

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Starting Monday March 13th, no 
losses associated with the 

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resolution of Silicon Valley, 
Bank will be borne by the 

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taxpayer. 
This is the sentence repeated 

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over and over again. 
In the statement multiple times 

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that no losses associated with, 
this bank will be Burned by the 

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taxpayer. 
Now if the losses are not being 

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paid by the taxpayer, who is 
paying for the losses, FDIC 

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Insurance FDIC is going to raise
premiums on every other bank, to

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cover any losses of the banks 
that go under or need additional

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security. 
This is basically a way of 

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saying that the premiums that 
Banks pay an insurance is going 

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to go up a little bit if they 
have to cover additional losses.

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And then of course, the next 
thing they highlight is that 

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Senior Management has been 
removed. 

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From the company, they have been
fired, their reputations have 

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been And any shareholders and 
debt holders of the company will

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not be protected. 
They've lost one hundred percent

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of their investment, so Silicon 
Valley Bank exists. 

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No more, the executive teams 
have been fired, the equity 

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holders, and bondholders have 
been wiped out. 

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And there's a new playbook, a 
roadmap for how to deal with 

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this type of situation in the 
future. 

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Now, you'd think logically 
looking at the measures that 

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government has taken that, this 
would stem all the problems in 

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the banking sector that 
investors and depositors would 

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have renewed confidence. 
The combined government came out

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and said that they're basically 
ensuring deposits up to any 

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amount. 
They'll take any steps necessary

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to make depositors whole, but 
like most of History, one panic 

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sets in logic, goes out the 
window, the route and Bank stock

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deepens, despite emergency 
measures in 2020. 

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Did we have a lack of toilet 
paper? 

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Did we have less toilet paper 
than we did before? 

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No. 
But when fear sets in and people

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think that they may not be able 
to get something they rushed it.

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As much of it as they can, they 
rush to get it before anyone 

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00:08:04,100 --> 00:08:06,400
else? 
This is a herd mentality and 

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it's a part of human nature and 
we're seeing the exact same 

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thing with the banking system. 
Right now, the government has 

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said that they're backing these 
deposits that they have measures

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in place to get everybody. 
Their deposits as they want 

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them. 
But regardless, people are 

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acting scared. 
They're still taking their money

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out and selling these stocks. 
If we look at the bank's mapped 

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out on, just their recent daily 
performance. 

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This is what it looks like we 
have First Republic Bank. 

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Pac, West Bank Corp. 
Being the two that have dropped 

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the most but even Zions Bank, 
which is a much larger bank has 

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00:08:35,100 --> 00:08:39,799
also dropped over 30% in price 
then Regions Financial has also 

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dropped 15% in price so across 
the board. 

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It's mostly Regional banks that 
are getting hit. 

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So there's still a lot of 
pressure and selling and anxiety

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around these Regional Banks. 
They're still under pressure and

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the CEOs. 
Like, Fifth. 

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Third Co are coming on to CNBC 
trying to just share the message

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that they have deposits. 
They have your money. 

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They are insured and that things
are fine. 

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That's the message. 
They're trying to share the 

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00:09:04,700 --> 00:09:07,300
executives of these companies 
are trying to reduce panic and 

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contagion as they should be. 
Now, there has been some second 

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level effects to this. 
The treasury rates have dropped.

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As these banks have been selling
off the u.s. 2-year treasury is 

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down to four point one percent 
just a couple days ago, it was 

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at five percent so that is a 
substantial drop in treasury 

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00:09:24,400 --> 00:09:26,100
rates. 
The 10-year treasury is also 

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00:09:26,100 --> 00:09:28,600
dropping rapidly. 
It's down from four percent. 

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Now 23.5 percent Sent mortgage 
rates are also tumbling in the 

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wake of bank failures. 
There are down about a half a 

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00:09:34,300 --> 00:09:37,400
percent on the day. 
And then most shockingly Goldman

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00:09:37,400 --> 00:09:40,700
analyst no longer expect the FED
to give that point two. 

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00:09:40,700 --> 00:09:43,800
Five percent interest rate hike 
in their next meeting. 

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00:09:43,800 --> 00:09:46,300
They think they're going to keep
it the same because of the 

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00:09:46,300 --> 00:09:48,300
considerable uncertainty in the 
environment. 

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00:09:48,300 --> 00:09:51,400
Now I understand the logic care.
The FED will keep raising 

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00:09:51,400 --> 00:09:54,200
interest rates until something 
cracks or something breaks. 

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00:09:54,200 --> 00:09:56,800
But I think in this situation, 
the FED has made it abundantly 

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00:09:56,800 --> 00:09:59,700
clear that they're going to 
raise interest rates and 

200
00:10:00,000 --> 00:10:03,300
Inflation comes down. 
That is their mandate, it's not 

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00:10:03,300 --> 00:10:06,200
to raise interest rates until 
Things become uncertain. 

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00:10:06,500 --> 00:10:09,700
It's to raise interest rates 
until inflation comes down. 

203
00:10:09,700 --> 00:10:11,800
So, I disagree with golden hair,
I think we're going to see 

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00:10:11,800 --> 00:10:15,100
another 25 basis point increase,
but I also think a lot of this 

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00:10:15,100 --> 00:10:17,100
will come down to the next CPI 
reading. 

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00:10:17,100 --> 00:10:21,200
So, overall, this past couple of
days and even this past week has

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00:10:21,200 --> 00:10:25,400
been crazy, it's been event. 
Filled non-stop news, breaking 

208
00:10:25,400 --> 00:10:28,500
news all the time, and I think 
it's good for investors in these

209
00:10:28,500 --> 00:10:31,400
situations. 
To just take a breath, take a 

210
00:10:31,408 --> 00:10:33,700
step back and not be so 
consumed. 

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00:10:33,700 --> 00:10:37,400
By every little bit of breaking 
news, I know it's fun to consume

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00:10:37,400 --> 00:10:40,000
all of it and to read all of it.
But I think that can have a 

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00:10:40,008 --> 00:10:43,500
negative impact on your view of 
the market and how you manage 

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00:10:43,500 --> 00:10:47,100
your investments in reality, the
companies that you're investing 

215
00:10:47,100 --> 00:10:48,600
in. 
If they're high quality 

216
00:10:48,600 --> 00:10:52,600
companies, have been through 
many crises before most of the 

217
00:10:52,600 --> 00:10:55,500
companies that I'm investing in 
have been in existence for 

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00:10:55,500 --> 00:10:58,400
50-plus years. 
These are companies with long 

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00:10:58,400 --> 00:11:01,700
franchises Of durability. 
They've been through different 

220
00:11:01,700 --> 00:11:03,800
interest rates and different 
market conditions. 

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00:11:03,800 --> 00:11:07,400
And so, a little volatility, a 
little uncertainty is nothing 

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00:11:07,400 --> 00:11:10,000
new to these companies. 
They've been here and done this 

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00:11:10,000 --> 00:11:11,500
before. 
And if the companies that you're

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00:11:11,500 --> 00:11:14,500
investing in are really high 
quality, any sell-off in them, 

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00:11:14,500 --> 00:11:17,600
as a result of temporary Market,
Panic can be viewed as an 

226
00:11:17,600 --> 00:11:20,500
opportunity. 
I've had a recent sell-off in Sp

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00:11:20,500 --> 00:11:24,000
Global this company's down about
10% that's around four thousand 

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00:11:24,000 --> 00:11:26,700
six hundred dollars. 
This is a brand-new holding that

229
00:11:26,700 --> 00:11:29,800
I built up to a very significant
holding so I'm not concerned 

230
00:11:29,900 --> 00:11:33,100
Earned at all, at seeing this 
company in the read every single

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company that I've ever invested 
in. 

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At one point has entered in the 
red, I never time the absolute 

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bottom of buying into a new 
company, so this one's down a 

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little bit and if it continues 
to trade down, I'm going to be 

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adding more to this position. 
SP Global's business has never 

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been stronger before than it is 
today. 

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Vici was another stock that got 
hit with a sell-off on Friday in

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a general related Market Panic. 
This one traded down around 4% 

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on the day. 
About 7 percent on the week when

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I look at Vici and their 
fundamentals in their business, 

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nothing that happened this week,
materially impacts this company 

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to any degree, but even just 
being in the General market, and

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being subject to the volatility 
can create opportunities with 

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Vici trading down. 
I've added a little bit more to 

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this, holding both Canadian 
Pacific and Union Pacific have 

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00:12:20,000 --> 00:12:22,900
also traded down with the 
general panic over the past 

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couple of days. 
And these are two companies that

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again as far as I can tell, 
fundamentally have not changed 

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at all. 
So any Time these companies 

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trade down significantly below 
my buying price. 

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I'll be adding to these 
positions. 

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I still view them as the 
long-term Compounders where 

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00:12:38,100 --> 00:12:40,800
their intrinsic value is going 
to continue to climb year after 

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00:12:40,800 --> 00:12:42,700
year. 
So, just to summarize, I'm not 

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concerned about the situation, I
don't think you should be 

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00:12:45,100 --> 00:12:47,900
concerned about the situation. 
And if you're listening to, lots

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of people tweeting and all caps 
putting fire and thumbnails 

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creating and spreading panic, I 
think that's a good indication 

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00:12:55,100 --> 00:12:57,700
of the type of commentator or 
investor you're paying attention

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00:12:57,700 --> 00:12:59,800
to. 
So that's all for this episode. 

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I have more updates following 
this week as the situation plays

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00:13:02,900 --> 00:13:04,400
out and I'll see you in the next
one. 

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00:12:59,900 --> 00:13:02,900
I have more updates following 
this week as the situation plays

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00:13:02,900 --> 00:13:04,400
out and I'll see you in the next
one.