Overlords Investment Conclave [OIC] Recruitment Thread

[LawBeefaroni]

Everybody knew. Inverse Cramer never fails.

[malchior]

There will be a decent amount of splash damage from this. It's not looking like Bear Stearns but it impacts a nationally significant growth segment pretty hard.

Also, LOL at Cramer.

[LawBeefaroni]

There will be a decent amount of splash damage from this. It's not looking like Bear Stearns but it impacts a nationally significant growth segment pretty hard.

Also, LOL at Cramer.

The kneecapping of VC/PE valuation is also probably coming, on top of making capital harder to get.

[LordMortis]

Everybody knew. Inverse Cramer never fails.

Yeah, I've seen enough of him to know, nope. That people pay to be part of a club based on his recommendation on his nightly program is ???? to me.

With regards to banking, the last one I remember him pimping last year was SoFi which was a steal at $17 or so in his view.

[LawBeefaroni]

Everybody knew. Inverse Cramer never fails.

Yeah, I've seen enough of him to know, nope. That people pay to be part of a club based on his recommendation on his nightly program is ???? to me.

With regards to banking, the last one I remember him pimping last year was SoFi which was a steal at $17 or so in his view.

I'd pay just to know what to short - if I didn't think half the members were of the same mind.

Here's my Cramer chart:

Cramer Buy = hold (for bump)
Cramer Sell = buy
Cramer Hold = sell

[malchior]

The kneecapping of VC/PE valuation is also probably coming, on top of making capital harder to get.

Yeah I'm in a company with significant VC/PE ownership but we're well past early-mid funding rounds. Any new monies are meant to bolster inorganic growth opportunities. Yet many folks here are super nervous.

[malchior]

I just read a de-composition about what happened at SVB. It is less about the free money spigot -- even though that was a piece of what tipped them into trouble for sure -- but it was more about dumbass portfolio construction. A ton of VC/PE money flowed in during the pandemic and was deposited at SVB. SVB then went out and bought something like $80-90B of MBS-backed bonds at 1.5%. One giant non-diversified asset class. Good thinking!

Then the Fed rate increases plus a tail off of new VC/PE offerings led them into a weaker liquidity position. They then rushed to sell off some assets, and announced a stock offering via a clumsy press release that stoked a run. So stupid.

[Isgrimnur]

https://threadreaderapp.com/thread/1634 ... 89357.html

[malchior]

FWIW Tweet 7-8 are not accurate from what I read elsewhere.

In reality, they were close to the rails on capitalization standards because the MBS portfolio's value was falling quickly. I'm hazarding a reasonable guess they were worried about failing a stress test when they decided to act this week. That lead to them trying to shed about 25% of the MBS portfolio to shift assets to something less troublesome.

Then mark-to-market rules kicked in on the losses and they needed to cover the gap. Which is definitionally a liquidity problem! In short, they fucked up long before they made this mistake. It wasn't like the Fed raising rates was a surprise. The rate of increase was perhaps faster than they expected but they shouldn't have build that house of cards in the first place. They also should have realized much earlier that the wind was blowing on their house of cards.

[LawBeefaroni]

These things usually happen for one of two reasons:

Bad investing /over leveraging
Fraud/fudge

It seems like SVB is mostly the first but I'm smelling some fudge.

[Zaxxon]

FEAR NOT

[malchior]

These things usually happen for one of two reasons:

Bad investing /over leveraging
Fraud/fudge

It seems like SVB is mostly the first but I'm smelling some fudge.

Chance of fudge/fraud increasing dramatically

The firm silently didn't have an in-seat CRO throughout the critical period of their implosion. How convenient for the remaining management that was selling off their own positions. Investigators start your engines.

Examining recent disclosures in the 2023 Preliminary Proxy, a governance-based argument could be made insiders were quite aware the situation was serious throughout 2022.

In particular, the most interesting disclosure is the company didn’t have a Chief Risk Officer for much of 2022, and (from what I can gather) doesn’t explicitly communicate this to shareholders until the 2023 Preliminary Proxy is filed on March 8, 2023.

This non-disclosure immediately makes me wonder what caused former Chief Risk Officer Laura Izurieta to leave the role and create such a glaring hole in risk oversight during such a critical time.

...

So when I read the 2023 Proxy and see that the Risk Committee 1) met 18 times in 2022 vs. their typical 5-7 times per year, 2) appointed a new committee Chair, and 3) didn’t have a Chief Risk Officer in place for much of the year, that’s a pretty strong set of signals the company might have been aware they had a serious problem relative to what they were communicating.

...

The lack of Chief Risk Officer for much of 2022 is very alarming (to me) considering that this role directly reports to the Risk Committee and plays a critical role in bank operations.

If there’s no Chief Risk Officer providing the Risk Committee with the appropriate information and recommendations needed to make informed decisions, who is taking on that role?

After all, newly appointed Chief Risk Officer Kim Olson joined in January 2023, and the company would subsequently propose a capital raise shortly thereafter on March 8, 2023.

Would the company have raised capital sooner - or pursue other de-risking transactions - if there was a Chief Risk Officer in place in 2022?

Was it an intentional decision to have no Chief Risk Officer in place to avoid the recommendation of raising capital and essentially try to “buy more time” for the venture market to recover?

...

It also doesn’t help that CEO Greg Becker sold a significant amount of shares in December 2021 as well, and followed that up with another meaningful sale in February 2023 before the company would propose a capital raise

...

One thing to keep in mind is both Ms. Izurieta’s and Mr. Becker’s 10B5-1 plans were adopted just a month prior to the sales occurring, and these transactions appear to be one-time in nature. They’re arguably open market sales masquerading as 10B5-1 transactions.

Also, one month is not much of a “cooling off” period for adopting a 10B5-1 plan, and this scenario is literally what the SEC is trying to crack down on with by requiring a “cooling off” period of 90 days for 10B5-1 plans.

Further, it doesn’t help that Mr. Becker was selling shares in February 2023 by exercising options with a $105.18 strike price. Exercising options arguably create an extra incentive to front-run any proposed capital raise announcement to maximize value.

Combine this transaction with the lack of timely disclosures regarding the vacant Chief Risk Officer role in 2022, and it’s hard for me to believe Greg Becker adopted this 10B5-1 plan in good faith.

This is not fine. Things are not fine.

[LordMortis]

SVB and Signature "have been resolved." Investors and bondholders holding an empty bag. Depositors "to be made whole." CNBC says Biden says this won't be paid by the taxpayer. Doubt has been cast on this and speculation is what does it mean if the tax payer backs all deposits of all banks?

First Republic and Charles Schwab taking huge hits pre market.

CNBC has been showing exposure either by investment in or by being part of SVB. Lots of public companies gonna take a hit.

/wonders if fed is going to claw back the masses of bonuses paid just two weeks ago.
/wonders what we didn't learn for 2007-2009 when attacks were made on Warren for her "extreme" take on fixing banking. Attacks that have been going on for 15 years now.

[Zaxxon]

CNBC says Biden says this won't be paid by the taxpayer. Doubt has been cast on this and speculation is what does it mean if the tax payer backs all deposits of all banks?

Technically correct. FDIC insurance is funded by premiums paid by FDIC-insured banks. It's not funded by the government/taxes.

That said, the bank is paying those premiums using money that they got from the taxpayer, so indirectly, as with all things, the taxpayer is paying.

[malchior]

SVB and Signature "have been resolved." Investors and bondholders holding an empty bag. Depositors "to be made whole." CNBC says Biden says this won't be paid by the taxpayer.

He is half-lying. It's technically true this morning because it hasn't impacted the taxpayers DIRECTLY yet but we're (presently) on the hook if they blow past the new facility limit.

Doubt has been cast on this and speculation is what does it mean if the tax payer backs all deposits of all banks?

Exactly. They are going to play all sorts of games to trick Americans that this isn't a massive backstop implicitly funded by the American people.

First Republic and Charles Schwab taking huge hits pre market.

CNBC has been showing exposure either by investment in or by being part of SVB. Lots of public companies gonna take a hit.

/wonders if fed is going to claw back the masses of bonuses paid just two weeks ago.
/wonders what we didn't learn for 2007-2009 when attacks were made on Warren for her "extreme" take on fixing banking. Attacks that have been going on for 15 years now.

We've been seeing a shameless period of regulatory capture. And we should be FED up (har har). Enough's enough.

CNBC says Biden says this won't be paid by the taxpayer. Doubt has been cast on this and speculation is what does it mean if the tax payer backs all deposits of all banks?

Technically correct. FDIC insurance is funded by premiums paid by FDIC-insured banks. It's not funded by the government/taxes.

That said, the bank is paying those premiums using money that they got from the taxpayer, so indirectly, as with all things, the taxpayer is paying.

Hard disagree. They set up a new facility backed by the Treasury via the Exchange Stability Fund. Just because there is something first in line in the middle doesn't change how it ultimately works.

[Zaxxon]

CNBC says Biden says this won't be paid by the taxpayer. Doubt has been cast on this and speculation is what does it mean if the tax payer backs all deposits of all banks?

Technically correct. FDIC insurance is funded by premiums paid by FDIC-insured banks. It's not funded by the government/taxes.

That said, the bank is paying those premiums using money that they got from the taxpayer, so indirectly, as with all things, the taxpayer is paying.

Hard disagree. They set up a new facility backed by the Treasury via the Exchange Stability Fund. Just because there is something first in line in the middle doesn't change how it ultimately works.

This is why I said 'technically' correct. (the best kind of correct!) Absolutely the gov't got involved, and there are costs associated with that. But the actual direct costs will (should) be borne by FDIC and therefore by banks.

The bigger question is what the long-term consequences should and will be of the government effectively saying that the $250k FDIC limit is moot--all deposits, everywhere, are now fully insured. That doesn't seem likely to end well. I like Ben Thompson's write-up at Stratechery.

Banks are, at their core, facilitators: depositors lend their money to a bank, for which they are paid interest, and banks lend that money out, again for interest. A bank is profitable if the interest rate they charge for loans is greater than the interest rate they pay to depositors. Banks achieve this by leveraging time: depositors earn a lower interest rate in exchange for being able to withdraw their money at any time; loans earn higher interest rates, but take years to pay back. The reason this works is because a bank ideally has a diverse set of depositors, whose funds come and go on an individual account basis, but on an aggregate basis are steady; this provides the stability for those long-term loans.

A common failure mode for banks is a bank run: a bank does not have sufficient assets to pay back all of its depositors at once, because those assets have been distributed elsewhere as loans. Unfortunately a bank run can become a self-fulfilling prophecy: if depositors fear that a bank is running out of liquid assets, then the rational response is to quickly pull their funds, which makes the problem worse. Moreover, bank runs can be contagious: if depositors hear about a bank run at another bank, they may start to question the safety of their deposits in their own bank, starting another run.

This is what happened in the Great Depression: 650 banks failed in 1929, and more than 1,300 in 1930; over 9,000 banks would fail in total. What ultimately stopped the contagion was the establishment of the Federal Deposit Insurance Corporation in 1933: the FDIC, which was funded by member banks, insured $2,500 per account; even if a bank went out of business depositors would get their money back.

The impact of this insurance was less about what was paid out and more about its existence: the idea — and effect — was to stop bank runs before they even started, because depositors didn’t need to worry that they would lose their money. In this the FDIC actually protected bank accounts that exceeded the insurance limit as well, because the best way to not lose money was to put it in a bank that didn’t fail.

...

In fact, Silicon Valley Bank has been technically insolvent for months: the company had more assets than liabilities, but a huge chunk of those assets could not be liquidated without taking a major loss; everything would be ok, though, because those securities would mature in time, paying back their value in full. The big loser would be Silicon Valley Bank stock holders, who would forego all of the unrealized interest on the more attractive securities the bank could not buy in the meantime; small wonder the stock lost 66% of its value last year.

Still, Silicon Valley Bank was still a bank, albeit a less profitable one — unless there was a bank run.

...

The problem for Silicon Valley Bank’s customer base is that the vast majority of them had deposits well in excess of the FDIC’s now-$250,000 limit, and in most cases, for good reason: the working capital needs of even a relatively small company, including bills, payroll, etc., are much greater than $250,000. Moreover, while any company with significant assets in the bank ought to have most of it in U.S. Treasuries or money-market accounts, you can understand why small startups in particular may have just left the money in their primary account: presumably the team is busy actually trying to find product-market fit. After all, the goal of a startup is to realize a valuation that is many multiples higher than the money in the bank, not to eke out a better return on deposits.

...

The FDIC, Treasury Department, and Federal Reserve released a joint statement on Sunday afternoon:

Today we are taking decisive actions to protect the U.S. economy by strengthening public confidence in our banking system. This step will ensure that the U.S. banking system continues to perform its vital roles of protecting deposits and providing access to credit to households and businesses in a manner that promotes strong and sustainable economic growth.

After receiving a recommendation from the boards of the FDIC and the Federal Reserve, and consulting with the President, Secretary Yellen approved actions enabling the FDIC to complete its resolution of Silicon Valley Bank, Santa Clara, California, in a manner that fully protects all depositors. Depositors will have access to all of their money starting Monday, March 13. No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer…

Shareholders and certain unsecured debtholders will not be protected. Senior management has also been removed. Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law. Finally, the Federal Reserve Board on Sunday announced it will make available additional funding to eligible depository institutions to help assure banks have the ability to meet the needs of all their depositors.

This action effectively means the $250,000 FDIC limit is meaningless: all deposits in any bank are presumably insured by the full faith and credit of the United States. The reasoning for this move is the same as what motivated the creation of the FDIC in the first place: given that most businesses need more than $250,000 in working capital, the rational response of any business in any sector to Silicon Valley Bank depositors losing their money would be to shift their accounts to the banks which have already been deemed too big to fail (JPMorgan Chase, Bank of America, Wells Fargo, and Citibank); this would mean bank runs on everyone else.

The federal government’s action is, in my estimation, the right thing to do for this moment in time. There will, though, be long-term consequences for fundamentally changing the nature of a bank: remember, depositors are a bank’s creditors, who are compensated for lending money to the bank; if there is no risk in lending that money, why should depositors make anything? Banks, meanwhile, are now motivated to pursue even riskier strategies, knowing that depositors will be safe; the answer will almost certainly be far more stringent regulation on small banks, of the sort imposed on the big four after 2008. That, in turn, will mean tighter credit and more fees for consumers, in addition to what will be a big increase in FDIC insurance premiums. And, while taxpayers may not be directly infusing money into failing banks, taking on all of those low-interest rate securities is real opportunity cost.

To put it another way, before the events of last week the U.S. benefited from a banking trust dividend: businesses technically should have been worried about money that exceeded the $250,000 insurance limit, but in practice few gave it much concern. This made their operations more efficient, and made money more widely available for banks to lend. Regional banks, meanwhile, got away with lower capital requirements and less regulation, making it easier to extend credit and offer bespoke services. The FDIC, meanwhile, charged relatively low fees of member banks because it was only insuring $250,000 per account, even though its presence made the overall system much safer and more reliable for accounts of all sizes. That trust dividend is now gone, and the costs of replacing trust with explicit rules and regulations will accumulate forevermore.

[LawBeefaroni]

Interesting note, Barney Frank was/is on the board of Signature Bank.



Having unlimited FDIC insurance coverage is going to be a huge change. Already the best minds are GS are figuring out ways to profit from it.

[malchior]

CNBC says Biden says this won't be paid by the taxpayer. Doubt has been cast on this and speculation is what does it mean if the tax payer backs all deposits of all banks?

Technically correct. FDIC insurance is funded by premiums paid by FDIC-insured banks. It's not funded by the government/taxes.

That said, the bank is paying those premiums using money that they got from the taxpayer, so indirectly, as with all things, the taxpayer is paying.

Hard disagree. They set up a new facility backed by the Treasury via the Exchange Stability Fund. Just because there is something first in line in the middle doesn't change how it ultimately works.

This is why I said 'technically' correct. (the best kind of correct!) Absolutely the gov't got involved, and there are costs associated with that. But the actual direct costs will (should) be borne by FDIC and therefore by banks.

The bigger question is what the long-term consequences should and will be of the government effectively saying that the $250k FDIC limit is moot--all deposits, everywhere, are now fully insured.

This last bit is why I feel like it is technically incorrect. Edit: And I'm just referring to Biden's remarks making it sound like the taxpayer is totally out of this. The new facility is ultimately backed by the treasury at the end of the day. The FDIC is great up to $250K. Funded by fees and all that. The new facility is for everything beyond that line. Which has been "at risk" from the beginning of the fractional reserve system until...last night.

That doesn't seem likely to end well. I like Ben Thompson's write-up at Stratechery

Agree with everything there. That is what I was trying to get at but in a much shorter form.

In the end, the question is people should be able to park their money in a safe place. That place needs to fund itself. We however allowed them to convince us they knew best and could independently protect the consumer. That is demonstrably false now. How many lessons do we need here? So we need to work through that. Unfortunately, we've also shown no ability to get to a good end place because the banks keep using all their money (and power) to undermine those efforts. At least we wiped out some of the folks to show some accountability.

[LawBeefaroni]

The fundamental problem is that banks can lend out multiples, often a magnitude, of actual deposits. If everyone behaves and the economy hums along, great. But as soon as there's a big hucccup they need saving.

We've seen it time and again but we never really fix the problem.

[Zaxxon]

We've seen it time and again but we never really fix the problem.

Or we kina fix it, and then un-fix it after a few years.

[LawBeefaroni]

This last bit is why I feel like it is technically incorrect.

Yeah, there's not enough in the FDIC kitty to pay over $250K for everyone. If it's ever needed on a massive scale FDIC will need to come begging.

And going forward the bank fees will surely have to increase. Ultimately this is passed on to taxpayers in the form of addional costs, reduced interest, and higher loan fees/rates.

[malchior]

We've seen it time and again but we never really fix the problem.

Or we kina fix it, and then un-fix it after a few years.

Yup. The CBO predicted at that time that the bill would lead to a higher likelihood of a failure in a bank with assets of between $100B to 250B. 5 years later it happens.

[malchior]

Now it looks like the market is convinced that FRC is wobbling and about to fall over. JPM injected cash but that didn't seem to convince folks. I wonder if we're not far from someone monocle adjacent saying this is a consequence of wiping out the shareholders at SVB.

[LordMortis]

And going forward the bank fees will surely have to increase. Ultimately this is passed on to taxpayers in the form of addional costs, reduced interest, and higher loan fees/rates.

Less than .1% interest? Though in the last two years, there have been lots of gimmick interest increases. I don't doubt that is part of the hanky panky going on with numbers that I'll never understand.

[Zaxxon]

And going forward the bank fees will surely have to increase. Ultimately this is passed on to taxpayers in the form of addional costs, reduced interest, and higher loan fees/rates.

Less than .1% interest? Though in the last two years, there have been lots of gimmick interest increases. I don't doubt that is part of the hanky panky going on with numbers that I'll never understand.

<Big4 Bank> pays me 0.01% interest, which is why I have bupkis there outside of a token minimum.

[Zaxxon]

Meme games are strong today...

[LawBeefaroni]

And going forward the bank fees will surely have to increase. Ultimately this is passed on to taxpayers in the form of addional costs, reduced interest, and higher loan fees/rates.

Less than .1% interest? Though in the last two years, there have been lots of gimmick interest increases. I don't doubt that is part of the hanky panky going on with numbers that I'll never understand.

Ally offered 3.6%. I'm sticking with F.

[malchior]

I just got a call from my financial advisor which was not very comforting. He was calling me to direct me to a message from the institution assuring us our investment portfolios are safe (at one of the biggest banks in the world). That wasn't even on my radar but it sure as shit sounded like they are getting barraged by enough calls that they felt they needed to reach out to the customers.

[LawBeefaroni]

Credit Suisse is down 20% in Europe. Granted it's a turd but fear is spreading. Fear is the biggest threat. It's not the fire that will get you, it's rhe stampede for the exit.

Looking like a sell-off for today's US market open.

[malchior]

YIkes indeed. The market has trimmed out the entirety of latest $4B capital raise into Credit Suisse. It's Saudi money so who gives a shit about that. It is still not a great look if you are a deep pocket looking to get a good deal on a major stake in a major bank right now.

[LordMortis]

Berkshire Hathaway meeting is on in the background. While Buffet is fine for his age, he does not sound well in the general sense of the concept. He talks with effort for like 2 seconds and then pauses to heavy breath. It's worse when he is thinking as he talks.

[Carpet_pissr]

Need suggestions on where/how to park cash in an IRA.

CD?

I typically never sit on that much cash (it’s around 7% of our total retirement $) and just let the sweep pick up the dregs until I buy/sell something, so this is new for me.

IBonds maybe? Can I buy the inflation iBonds within a tax ‘advantaged’ account like an IRA? Those were paying around 9% last time I checked.

Thanks!

[LawBeefaroni]

There's a limit on ibonds, I think 5 or 10K per year for an individual. They're not a bad option but very limited. You can't buy then in a tax advantaged account but they're exempt from state tax.

Do you have a money market option in the IRA?

[Carpet_pissr]

There's a limit on ibonds, I think 5 or 10K per year for an individual. They're not a bad option but very limited. You can't buy then in a tax advantaged account but they're exempt from state tax.

Do you have a money market option in the IRA?

It’s not a structured IRA account, so in theory I can buy anything that’s available via my broker (TD Ameritrade for this particular account)

[Isgrimnur]

I Bonds are limited to $10k per year, another $5k if you have an income tax refund that large (and you shouldn't). And the rates change on existing bonds twice a year.

[Carpet_pissr]

Rivian up 90% over the last month - anybody still holding? I know several of you bought the IPO or soon after?

I’ve been holding all the way down. I figured it was a multi year play anyway, so the massive drop down to the $12 mark didn’t phase me too badly.

STILL down about 50% from where I bought even with recent gains.

[em2nought]

Need to figure the least risky investments in my annuity as it's dropped 13K since the before times.

[em2nought]

Need to figure the least risky investments in my annuity as it's dropped 13K since the before times.

Every experience I've ever had leads me to be pretty risk averse.

[LordMortis]

Rivian up 90% over the last month - anybody still holding? I know several of you bought the IPO or soon after?

I’ve been holding all the way down. I figured it was a multi year play anyway, so the massive drop down to the $12 mark didn’t phase me too badly.

STILL down about 50% from where I bought even with recent gains.

I didn't buy much and it's long gone. I made enough for a dinner at moderate eating out place in the before times. Unlike my play to buy TROW, which was heavily invested in Rivian. I'm still sitting on that at about a 33% down but with a 4% dividend at the current price. They were up and took a hit when everything took a hit last autumn and then got killed in sympathy with the banks in March. The banks bounced back TROW did not.

[LawBeefaroni]

ENVX and PCT is all I've been buying lately, too busy to spend much time researching and watching.

ENVX since around $12 a month or so ago. PCT more recently around $9.