Closing Bell - Closing Bell Overtime: VC Investor Vinod Khosla on Silicon Valley Bank Fallout and BILL CEO Rene LeCerte on Financing Silicon Valley Startups After SVB’s Collapse; Best Week For Nasdaq in Months 3/17/23

Episode Date: March 17, 2023

Dow ends week slightly lower but S&P 500 and Nasdaq power higher despite volatility. Crossmark’s Bob Doll and 3Fourteen Research’s Warren Pies talk the market action ahead of next week’s Fed decision. Meanwhile, Rockefeller International’s Ruchir Sharma on the disconnect between financial markets and geopolitical risks. Broadmoor’s Todd Baker breaks down who might buy Signature Bank, while Julia Boorstin talks the new coalition in Washington aiming to take down Tiktok. Contessa Brewer talks some hidden winners of March Madness. Plus, Jon Fortt sits down with VC investor Vinod Khosla on what advice he is giving his companies around future financing and BILL CEO Rene LeCerte on how the company is helping former clients of Silicon Valley Bank. 

Well, that is the scorecard on Wall Street and for the week, but the action is just getting started. Winners stay late, even on a Friday. Welcome to Closing Bell Overtime. I am John Ford with Morgan Brennan. It was an ugly day on Wall Street as banking fears continued to rattle the market, but for the week, not too shabby. The Nasdaq actually rallying more than 4% for the week. Coming up, Rockefeller International Chairman Rashear Sharma on what could be another under-the-radar risk that investors need to be watching right now.

But right now, let's get right to our market panel. Joining us now, Bob Dahl from Crossmark Global Investments and Warren Pies from 314 Research. Happy Friday, guys. Bob, big rally in bonds this week with the bank trouble and the expectation that the Fed's maybe closer to done with hikes than we would have thought a couple weeks ago. But if you were holding mega cap tech, for example, ahead of this week, you did very well. But what do investors do now? Do they sell that and put it somewhere else?

I think the bond move was just unbelievable. Highest volatility in bonds in years. The 10-year moving, you know, roundly from a four to three and a half below that, 100 basis points lower in the two-year. It's just incredible. My view is that some of what we just talked about is a little overdone. In other words, at the margin, I want to trim tech and buy a bank or two. I think the moves in both directions, more than a 20% delta between those two in one week, probably overdoing it a bit. Okay. So Warren, you expect a second half recession. And for the investors who agree with you on that, what should they sell here?

Yeah. I mean, we're overall, I think that I agree with Bob. I think you need to trim up on tech. It's had a big run here. And we're just cautious on the market in general. I think that this week has been the market pricing in a Fed pivot. And what you see in one full calendar year basically priced in one week. So you see the two-year yield drop by more than 100 basis points, 10-year, 50 basis points. That equates to a bull steepener 10 year 50 basis points that equates to a bull steepener of like 50 basis points we see that in one year following the fed pivot usually and we've already priced it in so i'm with bob i think a lot of this stuff gets unwound and uh if the fed is going to pivot as soon as the futures market is predicting then you know

obviously equities are too rich here and so they're the odd duck out. I want to reduce my beta and reduce my exposure here, especially close to 4000. Warren, just expanding this out and looking at the week that was, we just talked about it yields down, stocks down largely, mega cap tech aside. You saw the dollar falling. You saw crude fall pretty dramatically, gold trending higher and Bitcoin popping. What does that tell you about the macro take, at least from investors in the markets right now, on where economic growth is headed? That is absolutely a picture perfect pivot trade across all those assets. So you see gold typically going back. One year following a Fed pivot, you get gold up 15%. We've basically gotten gold up 9% or 10% since the SVB

lows. Bitcoin's trading like digital gold. You've seen the same thing from the bond market, the futures for Fed funds, futures market. Yield curve inversion has started to unwind. I mean, to me, this is a really clear message that the market's expecting a pivot. And I just don't think that the Fed's going to deliver next week. I think that the underlying's expecting a pivot. And I just don't think that the Fed's going to deliver next week. I think that the underlying economy is still a little bit too hot. And if the Fed really finds themselves stuck between a rock and a hard place here between inflation and financial stability, and I think that as long as the market stays up at these levels, the stock market, that is, it gives the Fed that room to be aggressive and continue with QT despite the

new facility and continue with a rate hike next week. And I don't think that's going to be received very well by the equity market. Yeah, Bob, I mean, we're getting we're getting a real time crash course in behavioral economics with everything that's going on with the banks right now and even more than a liquidity crisis, which you could argue is afoot. And the fact that Fed tightening is aggressive aggressive Fed tightening is perhaps starting to catch up with some of these regional banks, as we've seen with these failures in the past week. It's been a confidence crisis. How do you, and I guess how do regulators, actually stave that off and contain the contagion, which we know has continued to play the bank stocks, particularly First Republic, this week? With great difficulty, that's not an easy thing to do. That is to bend sentiment

that's out there. Look, I would argue the feds, whether you agree with their moves for the long term, in the short term, did what they had to do, shoring up the deposits, creating a window where you can borrow money at par rather than at your lost position. These are the kind of things that should strengthen people's confidence level that we're going to get through this. This is not 2008. It doesn't mean we don't have more bumps to go. Look, what the Fed did in the last 12 months, zero to four and a half, has consequences. We've just seen one.

Another is the economy. We've just had our 11th month in a row of declining leading economic indicators hard for me to see us getting through this without some sort of recession so then Bob what do you assume and maybe assume is too strong a word because you know what happens when you do that but about what the banks will do here. Do they actually hold back and lend less? Does that slow the economy down? For a consumer that's already overstretched, arguably on credit, saving less, when you add all that together, what does that do to the economy, regardless of what the Fed does with rates?

I would have argued a week ago the economy was slowing when you add on top of this more uncertainty more fear more tentative nests that doesn't encourage spending money so i think that's going to get ratcheted uh... back in not sure to the banks were already under an environment where lending standards were getting tougher that's the only got on a increase and the fed eventually will send the banks a bill environment where lending standards were getting tougher. That's going on an increase. And the Fed eventually will send the banks a bill. Look, this is what we did for you. You now have higher

capital requirements. You have more stringent regulation. This is going to be a dampener on growth. So in the near term, Warren, what do you do? How do you position yourself as an investor? We tend to see these sell-offs coming into Friday closes. People don't, especially in recent weeks, necessarily want to be caught with the wrong trade with all the market news we've been getting over the weekends. What do you do ahead of the Fed meeting next week? How do you try and keep your portfolio as defensive or in as strong a position as possible, given the fact that there are so many different things, so many different cross currents we're talking about. Yeah. So if you break this down into timeframes and you think about in the very near term, to be totally honest with you, I'd be

fading basically every move that we saw aggressively off the SVB bottom. So that means I think that the two-year yields going back up, 10-year yield's going back up. You're going to see Bitcoin and gold sell off. The market's kind of an odd man out there. I'm still bearish on the market. I think we're in a range. That's in the very near term. I think the big defining event of this year still lurks in the second half. That's going to be the recession. I know that a lot of these things are ostensibly negative. This is really tough for the financial economy, but the real economy is still quite strong. We pumped a lot of stimulus into the market. You don't get a recession until you basically see construction payrolls decline

from the peak by 8% to 10%. And we're still at highs on construction payrolls. And every time we get a backup in mortgage rates, you get a spike in new mortgage applications. There's still a lot of underlying demand. I think ultimately the cycle is going to continue to be longer and slower moving. It's a slow moving train wreck. And that's kind of how I see it. So in the short term, I see a lot of reversal from what happened. In the long term, keep your eye on the recession.

Interesting indicators. Keep an eye on housing and real estate, it sounds like. Warren Pies and Bob Dole, thanks for kicking off the hour with us. Thank you. CNBC Senior Markets Commentator Mike Santoli joins us now. Mike, what is on your radar this Friday afternoon? You know, Morgan, the way the market has acted this week, small gains, but very choppy back and forth. And the way it looks relative to where it's been since the end of 2021 really does reflect those opposing currents there that Warren was mentioning, right? Strong current activity levels in the economy.

Cracks in the sort of financial and banking economy at the moment. And we are stuck here. It's been in this range for a while. 3,900-ish is the middle of the 10-month range. What I do find at least worth noting is there was that big downtrend. It's been in this range for a while. 3,900-ish is the middle of the 10-month range. What I do find at least worth noting is there was that big downtrend. Everyone was saying, when are we going to break above it? Is that going to mean that we're in a new bull market?

Well, we've kind of been testing that for a while this week. 3,850 is the down 20% level from the all-time high of 4,800. So that's kind of where we bottomed out this week. And so we're waiting to see if, in fact, we have to immediately price in more of a recessionary risk or if we can buy ourselves some more time. That, to me, is the lesson. But we've been able to hold up here because of the powerful move, as you guys have been mentioning, in the mega cap growth stocks. The NASDAQ 100 type names massively outperformed. But it's also rebuilt the valuation of those types of stocks. Here you see the NDX peaked right around 30, 31 times forward earnings back in November of 2021. Pretty sharp move. You got down below 20. And then on the bottom, I think this is more relevant. This is

the NASDAQ 100 valuation forward PE relative to the S&P. And what you see here is it's right back to that peak. So the premium investors are willing to place on this category of stocks is right back to those highs where the market peaked. It was kind of vulnerable. So it's a question of whether this can continue to provide shelter, whether it's just a rotation for now, letting other parts of the market settle back and reset in price and valuation. But this, I think, is going to be somewhat relevant in the immediate term if we're still worried about banks not being able to get out of their own way and the cyclical stocks somewhat held in check. You kind of touched on it. And I know we've been talking about the mega cap tech names all week and the fact that they have been rallying

in spite of what we've seen in terms of a barter downdraft for the market. But how much of this do we know yet? How much of this trade is based on those fundamentals? Because they are big names that are very, very profitable and sitting on a lot of cash versus just a correlated trade to yields coming off as much as they have. Well, I think it's the characteristics of these companies are exactly the ones that you would want if you really think that credit is going to seize up and the economy is going to have a rougher patch and you want companies that are generating cash, as you said. But also, there's probably a secondary bull case that's implied here, which is they've already seen their earnings estimates really get crushed last year. So maybe they've taken the pain on that

front. And even though you can pay up more for the current estimates because they're not as vulnerable as the rest of the markets are, the drop in yields is an extra little kicker, I think, but it's certainly not the whole story. Because, by the way, the 10-year yield is where it was two-plus months ago, and the NASDAQ 100 is up 12%. So it's not really just the level of yields. It's what are investors afraid of today, most of all, and where do they think they can be safe from it? Mike, I got a little bit of a weird question for you. It won't be the first time, but imagine with me, we're at the next set of earnings reports, right?

Small business customers were already performing worse for a lot of these companies, especially enterprise tech companies I talked to. They talked about bigger enterprise companies were more solid customers versus the smaller ones. With all of this turmoil in regional banks and potentially, you know, pulling back on access to credit, what kind of uncertainty might we hear, right, in guidance from companies that have small and medium business customers, given that this is the end of the quarter, you know, mid to late March for a lot of them. Yeah. Well, yeah, exactly. I mean, the possibility is that we are reminded that they do have some cyclical exposures. It's obviously not all just magic steady growth forever. I don't know if it's the kind of thing where investors would be like, yeah, but we already knew that we're going to be able to look past that. It sounds so crazy, but investors

are willing to tell themselves stories if they think 2024 numbers are going to hold up and the long term trends are in place. Maybe they pay up for them. And as you know, John, it's company by company. Right. Even as you know, some of these stocks were suffering. We saw Netflix and Meta, you know, kind of double off of these nasty bottoms that they had. So it's not necessarily all one story. But I get your point that if you're a software vendor and you're starting to see some of the smaller customers fall by the wayside, it might not yet be recognized. Yeah. All right.

Mike Santoli, we'll see you more later this hour. Thank you. Up next, Rockefeller International Chairman Rashir Sharma on geopolitical risk for this arguably fragile market. As the leaders of Russia and China prepare to meet next week, we are back in two. Welcome back to Overtime. Stress in the banking sector and the read-through to monetary policy have been front and center this week, but geopolitical uncertainty could be another risk investors need to consider. Just today, Beijing announcing Chinese President Xi Jinping will visit Vladimir Putin in Russia next week. Our next guest says there's a major disconnect between what's happening in financial markets and geopolitics. Joining us now is Roshir Sharma, Rockefeller International Chairman and breakout capital founder and chief investment officer. Roshir, it's great to have

you on the show. Thanks. Geopolitics is one of those things, I've said it before, I'm going to say it again right now, it's one of those things that markets, at least markets here in the U.S., don't seem to care about until they have to care about it. Why could now be one of those moments? Well, that's correct, because in fact this goes back to over 100 years, that when the first world war break out, the markets were caught completely unawares by that. So the markets don't really have a good read on geopolitics. They were—but I think that neither do geopolitical experts for that matter, because after when the war broke out in Ukraine,

all the geopolitical experts told us just before that that Putin would never invade Ukraine. So some sort of slack here for the markets. Next week's events, I think what we can see is that it shows you about the big disconnect between America's economic power and financial power, and yet its geopolitical power now, that here is China that's been able to broker peace in the Middle East. It's trying to play a much bigger region, sorry, much bigger role on the global stage. And yet, as far as America is concerned, it finds itself getting sidelined. But when it comes to monetary policy, the Fed, financial markets, everyone still looks up to America. So there's a big disconnect, really, between America's financial

might and America's geopolitical might now. How does the banking crisis that we're seeing unfold in real time play into that? And I ask that because we've seen the dollar weaken this week. And yes, we could talk about bank failures in the U.S. being regional in size. But then, of course,

you've got all the question marks around credit suites in Europe as well. How does that fit into this bigger, broader picture about this disconnect that you're talking about? I think it's a very important point because events change very quickly, but I think it's quite significant what you pointed out, that the dollar has not been able to rally as much as you would have expected it to,

given what's going on, because everyone thinks of the dollar as a safe haven. And I think this is a big change from what we have seen in recent years. And that's partly because what's been slowly unfolding over the last few years, and especially after what U.S. did in terms of sanctions against Russia, that a lot of countries, whether it's China, it's India, they're all trying to diversify, get off the dollar standard. They understand that the world has become too dependent on the U.S. dollar. And they've been trying to get off that standard, trying to cut bilateral deals, trade more with each other in their own currencies. And countries like China have been diversifying and buying bonds of other countries from Indonesia to Europe, everywhere,

except in the U.S. So I think that that's what's going on, that we are moving very slowly to a post-dollar world. There is no clear alternative to the U.S. dollar. The Chinese currency certainly is not. But you're seeing attempts at diversification. For a while, even controversially, crypto held out that promise, which went bust. But again, interestingly, crypto has done relatively well over the last few weeks. So I think we are very slowly moving towards a post-dollar world. The dollar became very expensive and America has been taking it for granted. And so I think that over the next few years, you will see a much weaker dollar than what we have today.

Okay. Focus now is on the Fed meeting next week here in the U.S. Your expectations for another rate hike. And also, it's not just the Fed who's raising next week. We have a whole flurry of central banks. How do you think all of this is going to fit together and speak to the global liquidity picture? Well, this is a really big difference, right? Because in the past, when you ever had even the hint of some financial crisis or some vulnerability, the Fed would immediately pivot and ease monetary policy quite aggressively. They started doing that in 2007 at the first hint of trouble. The big difference is that for the first time in 40 years, we have some sticky inflation this time. And I think that central

banks cannot just ignore that. So therefore, it's hard for the Fed to completely back away from raising rates next week and at least do a quarter point rate increase next week. I think that's pretty much baked in and that's what we're likely to get. And they're going to try their best to separate the objective of financial stability from controlling inflation. I think it's very difficult to do. There is a price to be paid for these years of easy money that the Fed has followed. But for now, they're going to try and firewall the two. So I think that we do, you know, go ahead with a rate increase, just like the ECB went ahead with the 50 basis points that they expected. And then until we

actually see inflation come close to, you know, like somewhere close to the objective, I don't think we ever get to 2 percent again. But somewhere close to that, I think it's very difficult for central banks to just declare victory or completely pay too much attention to what's happening in financial markets. Because this is the big difference. This is why the markets are still so nervous. And despite the headline averages appearing to hang in there, beneath the surface, there's so much damage which is happening there. And the markets are really not behaving in a healthy manner just now. Roshir Sharma, appreciate you joining us on a day like today in a week like this. John, a week where just a couple of days ago, we had a U.S. drone downed by a Russian fighter jet. Was that this month? I mean, who would have thought that we would have ended higher for the week?

But the VIX also higher. It's tough to predict. Up next, a top M&A expert reveals which financial companies could be the most likely to buy Silicon Valley banks' assets as today's bidding deadline approaches. Plus, venture capitalist Vinod Khosla on why he's urging people to put money back into the new Silicon Valley bank. We'll be right back. Welcome back to Overtime. Time for a CNBC News update with Contessa Brewer. Contessa. John, good afternoon to you. Ukraine's president is praising what he calls the historic decision by the International Criminal Court to issue a

warrant for the arrest of Vladimir Putin. In his nightly video message, Vladimir Zelensky blamed the Russian president for the alleged deportment of children from Ukraine. He said, quote, it would have been impossible to enact such a criminal operation without the say-so of the man at the helm of the terrorist state. Russia says it is merely protecting children endangered by the fighting. For a second night, protesters are lighting fires in the streets of Paris. They're protesting French President Emmanuel Macron's move to bypass lawmakers and impose an increase in the country's retirement age to 64. He says if that change isn't made, France's state run pension system will just run out of money. And 20 House Democrats and the California delegation are calling on the Justice Department and regulators to investigate

whether Goldman Sachs did anything improper when it was advising Silicon Valley Bank before its collapse. Morgan. All right. We're going to continue with that thread right there. Contessa Brewer, we'll see a little bit later in the show. The deadline is approaching for bids on Silicon Valley Bank and Signature. The Financial Times reporting that U.S. regulators are open to sharing the losses if that helps to push through a sale. Joining us now, bank strategy and M&A expert Todd Baker. He was formerly the chief corporate strategy and development officer at Union Bank, TD, and Washington Mutual. Todd, welcome to the show. I do want to start with that headline that we just referenced, that U.S. regulators may be willing to entertain the prospect of backstopping

losses at these banks to actually see some sort of sale go through. How unusual would that be? Well, regulators have done that in the past several times. It was a major factor in the savings and loan crisis and in the resolution of that in the early 90s. I personally worked on many, many transactions where the acquiring bank got loss sharing on some of the assets. It helps when the due diligence period is short and you can't really assess what the risks are. It's difficult to price those assets. So loss sharing really makes the transaction much smoother. It fell out of favor in the resolution after 2008. They tried it a few times, but generally they moved away from that and felt there was enough time for the assets to be priced. So Silicon Valley valley bank we keep hearing that it is such a unique bank

uh... that it's loan portfolio is unique that it's assets everything about this bank is is very unique and it's been part of the argument by some folks have been on air this week to say that no this is not this is not a situation that that that could become a contagion because it was it was a very specific scenario that played out around svb

now whether that's true or not uh what does it mean in terms of how this sale process is going to go and who would actually be able to pick up either the bank as a whole or these different pieces of the puzzle well that's interesting because you know in contrast to signature bank which is very much a normal bank in terms of the assets that it has, Silicon Valley had a very specific set of businesses tied to the startup economy. And the challenge for whole bank buyers, this would not be a challenge if you were just buying specific loan portfolios, but if you try to buy the whole thing, you have to deal with the fact that there's a significant piece of the business, not the largest piece in terms of volumes, but the most important, which is the financing for pre-revenue and growth stage startup companies.

That financing book would be very difficult for any national bank to acquire. Generally, the OCC, the regulator of national banks, has not liked the fact that those loans aren't underwritten under traditional standards. And so it makes it difficult for a big bank to buy all those loans. So, Todd, speaking of risky assets, going a bit broader here, you have called crypto money without a purpose. And we're also now in a time where the purpose of the dollar seems pretty darn clear. People like those again. I had been thinking that crypto and Bitcoin prices were kind of a barometer for risk in the market. But in this environment where people seem to want safety, we've also seen crypto surge higher. Does that send a bad signal, a good

signal, no signal at all? Well, I don't think it really sends much of a signal because, quite frankly, the crypto markets are deeply corrupted and really not a good indicator of fundamental values since they don't actually track any cash flows. And as we've seen, the markets are very easily manipulated. And so I don't put much credence and movements in the crypto markets. I will say that, you know, in the case of Silvergate Bank and then later in Signature Bank, large deposit concentrations associated with crypto players played a role there. But it wasn't a crypto crisis in the sense that, you know, FTX was. First Republic Bank, a lot of focus there. We saw shares sell off another 33 percent today. They're down more than 72 percent just in this week.

A lot of talk about the possibility of a sale of that bank. How likely is that? Well, I don't think it's going to happen very soon because, you know, right now the bank is solvent and has enough liquidity to essentially deal with anything that comes, given that the large banks have put the $30 billion in and the Fed has put a lot of money in, and the borrowings from the FHLB system are very large. So it has plenty of liquidity. The problem is that's very expensive debt relative to its prior funding base. And so it's going to be a real challenge for management there to shrink the balance sheet over time and pay off that high-priced debt. And it's going to be necessary for them to do that in order to return to any level of profitability.

So I anticipate a smaller and more focused bank with a much smaller balance sheet. And the challenge that the equity markets are having is it's very difficult from the outside, especially given the fairly opaque disclosure that has come out so far, to understand what the real situation of the bank is. So they're

attempting to put a valuation on something that is very hard to see. Yeah. And of course, we're gearing up for a busy weekend, as we do expect. We're going to start to hear about some of these bids and possible sales around SVB and Signature over the weekend. So there will be more to discuss in the coming days. Todd Baker, thanks for joining us today. Thank you very much. Speaking of Silicon Valley Bank, its former parent company filing for bankruptcy today. I spoke to Kostla Ventures founder and Silicon Valley veteran Vinod Kostla this week about lessons learned from the SVB collapse. He says the problem wasn't that it banked too many early stage ventures. We are encouraging everybody to put money back into Silicon Valley.

It's a great resource for the high tech community and the venture community. So we are encouraging people to do that. And the idea being it's extra safe now because of the FDIC backing and do you have visibility beyond the immediate time period into how the bank will be managed? Will it be the same or different? How much of a sense of that do you have? Well, it's too early to tell. I hope it retains its critical personnel and its way of operating,

which has been very, very helpful to Silicon Valley. So I do hope it stays with its current culture and processes. The problem at Silicon Valley Bank was U.S. Treasuries and betting on interest rates, which is unrelated to whether it's a Silicon Valley bank or not. Might seem unthinkable, Morgan, but Vinod Khosla is saying this new Silicon Valley bank, everybody back in our ecosystem needs this. Now, this is a time when a lot of people pointing the finger

saying no bank should have that much startup business. But he's saying and others in Silicon Valley are saying absolutely no, this is necessary for the ecosystem. You know, Dave McJanet from HashiCorp, the CEO, a couple of weeks ago was saying the same thing. Yeah. And it kind of goes back to the conversation we were just having with Todd Baker. And that is the sense that, excuse me, SBB. Oh, my gosh. SBB Bank, SBB is, you know, anybody who's going to take this over needs to sort of have an understanding of this area of the market, of this industry for it to be a successful go of it. And it takes a strong stomach to do that. Not any bank is going to want to have that in their portfolio. All right. We're going to see what the weekend brings us. That's for sure. Well, the CEO of TikTok, meantime, is set to testify about national security concerns on Capitol Hill next week as lawmakers and Silicon Valley executives appear to form an anti-China alliance.

It is amazing how much things have changed in just a year. Details are straight ahead. Welcome back to Overtime. The clock is ticking on a potential for sale of TikTok as a social media company CEO gets set to testify in Capitol Hill next week. Julia Borson has the details. Hi, Julia. Well, Morgan, the Biden administration is pushing for TikTok's Chinese owners to sell their stakes in the popular app, and they are reportedly working with Washington lawmakers to mobilize against China's involvement in the U.S., and they are reportedly planning to hold a dinner on Wednesday. That's the night before TikTok's CEO is set to testify on Thursday. TikTok responding to legislators' concerns, saying, quote, we have

never shared U.S. user data with the Chinese government. The Chinese government has never asked us to share U.S. user data, nor would we if asked. Now, there is another sign of growing scrutiny of TikTok. NBC News confirming that the FBI and the Justice Department are investigating the surveillance of American journalists who cover the tech industry by TikTok's parent ByteDance. ByteDance telling us, quote, we have strongly condemned the actions of the individuals found to have been involved and they are no longer employed at ByteDance, saying our internal investigation is still ongoing and we will cooperate with any official investigations. But all of this does build on concerns ahead of that testimony on Thursday. Morgan. All right, Julia, I mean, I what are we expecting in terms

of that testimony and what are we expecting in terms of how the different ways that this could play out in terms of TikTok and all of these concerns around data security. I guess I keep coming back to this idea of is China even going to let one of its tech crown jewels, ByteDance, sell off or siphon or shut down a very successful business unit, not for economic or business reasons, but for political reasons and what that sort of signals, given the fact that you have these tensions between these two world powers? Well, Morgan, there are so many questions in there. It's a very complex situation that I think will require a very complex solution. So what I'll say is, first, I have to point out that this is a very different situation than it was two and a half years ago when the Trump administration was pushing for a change at TikTok.

Back then, they simply wanted U.S. companies to own over half of TikTok. This time around, it's not about owning over half. They're asking for a divestiture of that Chinese ownership. But then there are all these other questions of what does that even mean? Are they divesting just the U.S. part of TikTok? Is the algorithm part of it? Some people are saying that the algorithm is so essential to that Chinese ownership that they might not want to sell access to the ownership as part of that divestiture. And maybe forcing a sale would be the same thing as effectively shutting TikTok down in the U.S. So there are a lot of questions here that will determine what happens with TikTok's future. But one thing is for sure, Morgan, when TikTok's CEO testifies on Thursday, he's sure to emphasize all the changes that have been made at TikTok in the past two and a half years, all the things they've done to protect user data,

the billion and a half dollars they have spent in what they're calling Project Texas to bring all of the data to servers that are here in the U.S. So he's going to be stressing the security of the U.S. data and also all the changes that they've made since this all began a couple of years ago. Julia Boorstin, thank you've made since this all began a couple years ago. Julia Borsten, thank you. John, I mean, it just goes back. I can think back to a couple of years ago being at defense and national security conferences and folks like Jeff Bezos, or we've heard it from Alex Karp in years past, basically saying, you know what, Silicon Valley is not doing enough on the China front.

They're not doing enough to think about this from a national security standpoint. You have workers who are not doing enough to rally around the American cause. And it has been a 180. And you've seen some of those folks, including Carp, have said, you know what, actually, in one of my recent interviews with him back in December, you know what, actually, more people are coming around to this in the tech world. You're seeing it, case in point, with more defense startups and more investor dollars filling into that area of the market as well. And now, of course, you've got this meeting potentially on Wednesday night. I think there was some posturing all along, though. I don't think Silicon Valley was as comfortable with what's happening in China as some were making it seem like Silicon Valley overall was. And now some fault lines are

becoming clearer. And I think in social media in particular, it's clear who has something to gain here. Well, a top economist says that there's a key data point that could be a warning sign for jobless claims. We're going to explain what it is, what it means for the market next. We have a news alert on First Republic Next. We have a news alert on First Republic. Seema Modi has the details. Seema? John, New York Times reporting that First Republic Bank is in talks to raise money from other banks or private equity firms for issuing new shares.

The terms of the deal has not been discussed or is currently under discussion, has not been finalized. A full sale of the bank, according been discussed or is currently under discussion, has not been finalized. A full sale of the bank, according to this report, is also possible. New York Times quoting two people familiar. This, of course, follows the $30 billion infusion that First Republic got from 11 banks earlier today. We are looking at the stock down another 3 percent in after hours, after falling about 70 percent so far this week. John? All right, Seema, thank you. Mike Santoli, back with us. How do we interpret this? A bunch of banks, big banks put money into it. Now it's looking for more money, perhaps a sale still.

Are we headed for another rocky weekend? Well, there is the potential for that, for sure. But what this would be, a sale of shares by First Republic would be raising equity capital. You know, call it permanent capital, which is different from what those 11 banks did when they handed $30 billion in deposits to First Republic. So both, you know, meant for the same purpose, which is to make sure there's enough liquidity there to fund any potential outflows of depositors to come. So it probably represents an idea that First Republic is not yet confident or perhaps just the overall banking system is not yet confident that that big deposit by that consortium of banks is going to be enough. It's always a confidence game. It's about psychology. And so a sale of equity would bolster things a little bit further. Now, a sale of the bank, too, that has been reported. Potentially that effort is underway. It's a complex thing to acquire a bank, especially one where you would have to immediately take the current market value of all the assets on First Republic's books, mark them down.

It's tough to make the math work, perhaps, but there's always a price for it if there is a willing buyer. So all these options on the table. Yeah. And of course, it gets back to the conversation we were having yesterday about the Fed's balance sheet and the fact that we don't have all that data and that breakdown and that detail about, you know, about who was turning to the Fed in the past week for some of that money, some of that lending. It's not just First Republic that has sold off dramatically. You've seen the other regional banks, Keycorp, America, Zions. You've seen the banks and the financials that are in the Russell 2000, which has been a big underperformer this week, down week to date about 2.5 percent as well. I mean, is there still this sense that above and beyond First Republic,

investors are combing through all of these different banks, financials, looking at uninsured deposits, looking at the mark to market accounting and and just jumping ship right now? Right. So you have investors, their crowd psychology is all about what is the crowd psychology that's going to be driving depositors in all these different institutions to either pull their money or not pull their money. So there's a lot of there's a chain of unknowns around. This is always the case with banks. Anytime people have to think too hard about what makes a bank a bank or, you know, how the money stays in the bank and doesn't stay in the bank and turns into loans and assets. It's never that healthy.

So there is a little bit of more of a sell-first instinct, I think, among investors. Now, it doesn't mean that all the banks that are getting their stocks crushed are suspect. And so ultimately, you have to think if we go a weekend, we go a couple of weeks, without crippling deposit flight from a lot of these banks, it should correct itself. You should be able to get some assurance out there, you know, in the absence of a broader regulatory effort on that front. Yeah, Mike, just reminds me of one of those hospital shows on TV where they're trying to get fluids into the patient any which way, like however you can get capital in here. Let's get a new bag. Yeah. All right, Mike, thanks. Up next, the CEO of payments and credit management platform Bill on credit conditions in the wake of the Silicon Valley bank failure.

What it all means for the Fed decision next week and beyond. We'll be right back. Welcome back. Big question ahead of the Fed decision next week with the turmoil in the banks. Does the Fed even need to hike anymore? Now, the idea isn't that the Fed would pause to save the stock market or even necessarily to avoid more pressure on the banks. It's that rate hikes are supposed to ease inflation by stemming the flow of capital into the economy.

But with these regional bank woes, they might do that themselves by holding onto their cash instead of lending it out. Is that starting to happen? Let's get some color on that from Bill, founder and CEO, Rene Lassert. Bill's platform handles payments, accounts receivable, credit management, and other functions for more than 400,000 small and medium-sized businesses. Rene, thanks for joining us.

What I really wonder is, over the past couple weeks and months, especially over the past week, as we've seen this turbulence in the financial system, what have you seen in access to credit for small and medium business? Are the lenders starting to tighten up? Hey, John, great to see you. Thanks for having me on. It has been a crazy week. When we think about what our mission is for SMBs, it's to make it simple to connect and do business. We automate their financial operations. And when you automate

financial operations, it's the whole spectrum from payments to documents, actually, all the way into the credit and the things they need to be able to do the working capital in their business. And so from our perspective, having the platform that we've had has actually been really helpful for SMBs in the last week. We've been able to make good on all the transactions that were in flight with SVB, and we were able to step it up and actually offer new products and services to enable businesses to be able to move money into our wallet so they can pay businesses anywhere, but to also use Divi and the Divi card as a way to potentially do payroll.

We have customers do that. So from a credit perspective, I see that this overall arching theme that we've talked about for the last several quarters, that businesses are contracting their spend. We've seen that. We've seen that. And we know that we're in a cycle that before they actually start expanding, we're going to have to actually let that go through. And so I think credit is going to be a part of that. It's why we have the platform we do to be able to enable. Right. And so you've got data on how businesses have money flowing in, kind of how they're doing with their customers that I imagine makes lenders feel better about making credit available to certain businesses. On the lender side, are they more eager to see data

before they offer that credit? You're right, John, that the platform we have gives us a certain amount of data that is unique to the customers that are on bill. And the ability to see those transactions does enable us to be able to make different decisions, potentially on the working capital credit that they're using with their charge cards that we have at bill.

So I think that that is something that will continue to transpire over the coming quarters and years, that this ability and this need to be able to have more clarity in the financial operations of a business, that what we do for our customers is going to also help potentially our partners with any particular credit decisions that they're going to be making. So this year in particular, and especially over the next few months, are there features, is there data that you're putting

forward that perhaps lenders are demanding or needing to make that process work better? I mean, is the level of anxiety perhaps higher than it was in January and February? I think the level of anxiety has definitely changed in the last week more than it probably had prior to, I would say, January and February. And the reason being is what you talked about in the last segment with kind of this, the regional bank woes and just understanding what does that mean for business across America. And ultimately, you know, more data is going to make any decision better, whether that's the Fed decisions next week or a lender's decision next month. All that's going to be helpful. Our platform brings all that data together.

And we do think it's going to be part of one of the tailwinds that enables the platform to continue to grow, you know, for decades to come. So I think this is going to be super important. It's going to be a moment in time when we look back and see that the need for data is going to be something that's going to drive better decisions for businesses across the country. All right. We'll keep a watch and see how Divi does within the bill portfolio. Rene Lacerque, thank you. Thank you, John. March Madness is expected to blow Super Bowl betting out of the water. Up next, a look at whether the battle for market share could produce a Cinderella story in the sports betting industry. Stay with us. Welcome back to Overtime.

It's day two of the NCAA basketball tournament, but the real madness may be the competition for your sports betting bucks. Contessa Brewer is here on set, and she has the details. This is so exciting, isn't it? An estimated $2.6 billion projected to be bet in the NCAA tourney, two and a half times the Super Bowl handle, according to Eilers and Kryjic, the research firm in gaming. FanDuel, DraftKings, BetMGM have the lion's share of the sports betting market just tied up. So if this were a bracket, they'd be in the final four most likely. And 60 other underdogs hoping for a Cinderella story for that last slot. Now, experts say the key here might just be a unique strategy.

Better is trying to do it by ditching the wonky language of money lines and over under and just being straight. Who's going to make a three pointer? How much do you stand to win? They make it really easy. Sport trades using Wall Street lingo on its sports betting exchange. So buyers and sellers making bids and offers. They even have a stop loss order. It looks a little bit like Robin Hood.

And then latecomer Fanatics is making waves with its powerhouse retail site that already sells merch and collectibles and plans to add sports betting into what eventually is envisioned as a one-stop digital shop for the sports fan. But look, they're all underdogs at this point. But what is the fun of a bracket if you don't have a come from behind Cinderella story? How do they acquire customers? Is it social media? Is it just viral spread through texting? Some of them are spending a lot of money on promotions and marketing. For instance, Caesars made a well-known bid of a billion dollars on its marketing when it was launching the Caesars sportsbook. For better, they're saying, no, we're going to use Jake Paul, our co-founder, YouTuber, boxer,

and they just do it through organic social media. And they say, like, even with a little slice of the market share, because their costs are so low, they can still turn a profit. It's fascinating. And I know you mentioned 60. I can't imagine there's that much room for that many. So we'll see how it continues to evolve. Look at the NCAA tournament. There's more than 60 teams in that, right? And you come out with a winner. Well, Contessa Brewer, thanks for bringing us your story.

It's a winning story. All right. Well, that's going to do it for us here at Overtime. Fast Money begins right now.