TEK2day Podcast

We cover the Fed, persistent inflation, the looming recession, our 2024 Tech outlook and more.

The overnight reverse repo market (ON RRP) sat at $887 billion last night, down from $2.6 Trillion at the peak on December 30th 2022. As the Fed slowly removes liquidity from the system through QT, Banks and Non-Bank institutions are parking less capital overnight at the Fed. Think of the reverse repo balance as excess liquidity in the system. The RRP balance could be at zero by March 2024 (or shortly thereafter) at the current RRP drawdown trajectory. Perhaps when the ON RRP balance gets close to zero this dovish, interventionist Fed will stop its QT program. Something to watch for.

Full article here: https://tek2day.substack.com/p/the-reverse-repo-market-may-be-telling

A Full Bank Deposit Backstop Is Impossible

The Fed, Treasury and the FDIC are writing a check they can’t cash. Based on their rhetoric, the three Government organizations have implied that they will backstop all bank deposits. It would be impossible for this unholy triumvirate to do so given the tab could be north of $15 Trillion at the extreme.

MORE BANK FAILURES ARE COMING

There were 563 U.S. bank failures from 2001 through 2023 (chart below). 465 of those banks failed between 2008-2012. Those 465 banks had combined assets of $689 Billion.

2 U.S. banks have failed with combined assets of $319 Billion year-to-date (through March 14th). The asset destruction this time around will be far worse than the Great Financial Crisis of 2008, even if the Fed was to take rates to zero percent tomorrow.

A POTENTIAL MULTI- $ TRILLION LIQUIDITY CRUNCH

All FDIC banks had $19.2 Trillion of deposits (table below) with $12.0 Trillion of loans outstanding. This represents a loan-to-deposit ratio of 63% (as of 12/31/22). That is to say that at a minimum, 63% of deposits are not on hand. This obviously presents a problem should a majority of depositors wish to withdraw their money at the same time.

However, the problem is even more serious. While 63% of all deposits were loaned out as of 12/31/22, that is not to say that the remaining 37% of deposits were on hand. No, that’s hardly the case. You can be certain that a significant portion of those deposits were deployed across various financial instruments, some of them long-term in nature.

For example, Silicon Valley Bank (SVB), had a loan-to-deposit ratio of 43% at the time of its collapse as deposits not deployed as loans were deployed across other financial instruments (many of long duration). This duration mismatch created a liquidity crunch.

If there was a full run on all FDIC banks, some number between $12.0 Trillion and $19.2 Trillion is deployed in the economy which would force the banks to generate liquidity by selling other assets. These actions would not cover the tab. Thus, the Fed, Treasury and the FDIC would be on the hook for more than half of U.S. GDP were it to provide a full deposit backstop. That’s not going to happen.

Which banks are safe? The triumvirate could backstop J.P. Morgan, Bank of America, Wells Fargo and Citi, but not a full backstop if a bank run were to occur at all four banks simultaneously. To backstop 100% of deposits at all four banks simultaneously would be impossible as we are talking about $7.0 Trillion in deposits across the four banks (as of 12/31/2022), of which $3.8 Trillion have been extended as loans to say nothing of how the remaining $3.2 Trillion in deposits may be deployed.

https://tek2day.com/2023/03/25/a-full-bank-deposit-backstop-is-impossible/

The Fed's actions on Sunday night amounted to a Bail Out / QE as we stated in episode 444. The question is will the Fed slow or halt the pace of its QT program? If so, monetary policy will essentially be squarely back in a QE stance. No chance at getting CPI back down to 2% in the next several years if that were to happen.

Read our related TEK2day articles:

1.) Bail Out: https://tek2day.com/2023/03/13/bail-out/

2.) Powell’s Puzzle. Dimon A Winner. https://tek2day.com/2023/03/13/powells-puzzle-dimon-a-winner/

3.) Venture Debt & SVB: https://tek2day.com/2023/03/11/venture-debt-svb/

4.) Tough Month For Banks: https://tek2day.com/2023/03/10/tough-month-for-banks/

5.) The Fed’s Balance Sheet Reduction (QT) Update: https://tek2day.com/2023/03/09/the-feds-balance-sheet-reduction-qt-update-22/

A general catch-up on the looming recession, Tech earnings, Stagflation and more. Buy a copy of our Amazon Kindle book here: https://www.amazon.com/Stagflation-Imminent-Jonathan-Maietta-ebook/dp/B091NB9V7M

A quick review of our recent TEK2day published written content. Learn more at TEK2day.com

Scott Kurland and Dan Pallone of SS&C Technologies (ticker: SSNC), joined the TEK2day Podcast to cover the insurance industry as it relates to insurance carriers investing in alternative asset classes in the pursuit of yield.

We recently covered this topic in our TEK2day Spotlight report “THE EVOLVING INSURANCE INDUSTRY” which SS&C was kind enough to sponsor. SS&C recently published an e-book “10 CONSIDERATIONS THAT ‘LEND’ CREDIBILITY TO PRIVATE MARKET INVESTING”, that covers similar subject matter. Both the e-book and our spotlight report may be accessed below.

Access the SS&C e-book here: https://www.ssctech.com/resources-insights/pdfs/10-considerations-private-market-investing

Access the TEK2day Spotlight report here: https://tek2day.com/2021/07/29/tek2day-spotlight-the-evolving-insurance-industry/

For more TEK2day content visit https://tek2day.com/

For more on SS&C Technologies visit https://www.ssctech.com/

The TEK2day Podcast is available across all popular podcast playing platforms including Apple and Spotify:

Apple Podcasts: https://podcasts.apple.com/us/podcast/tek2day-podcast/id1270002408

Spotify: https://open.spotify.com/show/3IybCrJs9ZPZTFPYlDg78b

Check out our parent company – CEORater – where you may anonymously rate your company and CEO at CEORater.com

Visit CEORater on LinkedIn: www.linkedin.com/company/ceorater

A Win for Intuit. A Loss for Facebook:

Intuit (ticker: INTU), recently announced that it had agreed to acquire Mailchimp, the marketing platform used by small and medium-sized businesses (we are a Mailchimp customer). Intuit is in the business of serving the SMB market. Facebook (ticker: FB), also serves SMBs and made a smart acquisition last year (Kustomer acquisition) to bolster its SMB offerings. Mailchimp is the type of company that would have been a financial rounding error for Facebook in the near-term, yet would have tightened Facebook’s grip on the low-end of the market while simultaneously providing FB with the means to extend up market. Thus, missing this deal was a strategic blunder for Facebook.

For more TEK2day content visit TEK2day.com

The TEK2day Podcast is available across all popular podcast playing platforms including Apple and Spotify:

Apple Podcasts: https://podcasts.apple.com/us/podcast/tek2day-podcast/id1270002408

Spotify: https://open.spotify.com/show/3IybCrJs9ZPZTFPYlDg78b

Check out our parent company – CEORater – where you may anonymously rate your company and CEO at CEORater.com

Visit CEORater on LinkedIn: www.linkedin.com/company/ceorater

Elevated prices of goods and services are largely here to stay as a result of the Federal Reserve having dramatically inflated the money supply beginning in Q2 of 2020. These persistent price increases combined with stalling real GDP growth translate to stagflation. In April we wrote in our Amazon Kindle book that Stagflation Is Imminent. Stagflation is now here. Purchase a copy of our book “Stagflation Is Imminent”, here for only $9.99: https://www.amazon.com/Stagflation-Imminent-Jonathan-Maietta-ebook/dp/B091NB9V7M

Read about the origin and evolution of the word “inflation” here: https://drive.google.com/file/d/1aUAXj0ooKmbIONVZXMu9vbKUCkmsEqS1/view?usp=sharing

Read about the Atlanta Federal Reserve’s Real GDP measure here: https://www.atlantafed.org/-/media/documents/cqer/researchcq/gdpnow/RealGDPTrackingSlides.pdf

For more TEK2day content visit TEK2day.com

The TEK2day Podcast is available across all popular podcast playing platforms including Apple and Spotify:

Apple Podcasts: https://podcasts.apple.com/us/podcast/tek2day-podcast/id1270002408

Spotify: https://open.spotify.com/show/3IybCrJs9ZPZTFPYlDg78b

Check out our parent company – CEORater – where you may anonymously rate your company and CEO at CEORater.com

Visit CEORater on LinkedIn: www.linkedin.com/company/ceorater