Money Rehab with Nicole Lapin - From the Floor of the Stock Exchange: Trade Like Einstein

Episode Date: March 15, 2023

Investing/trading nerds: Nicole is about to introduce you to your new favorite podcast. Last week, MNN launched another A+ podcast, if we say so ourselves. It’s called Trade Like Einstein, hosted by Peter Tuchman— aka “the Einstein of Wall Street.” Peter is a broker on the New York Stock Exchange, and on his podcast, he’s bringing you updates on market trends and what they mean for your investing or trading strategy. Today, Peter shares what it was like watching SVB crumble from the floor of the stock exchange. Subscribe to Peter's show here: https://link.chtbl.com/63Zpqkvs

Money rehabbers, you get it. When you're trying to have it all, you end up doing a lot of juggling. You have to balance your work, your friends, and everything in between. So when it comes to your finances, the last thing you need is more juggling. That's where Bank of America steps in. With Bank of America, you can manage your banking, borrowing, and even investing all in one place. Their digital tools bring everything together under one roof, giving you a clear view of your finances whenever you need it. Plus, with Bank of America's wealth of expert guidance available at any time, you can feel confident that your

money is working as hard as you do. So why overcomplicate your money? Keep it simple with Bank of America, your one-stop shop for everything you need today and the goals you're working toward tomorrow. To get started, visit bofa.com slash newprosmedia. That's b-o-f-a dot com slash n-e-w pros p-r-o-s media. bfa.com slash newprosmedia. I'm Nicole Lappin, the only financial expert you don't need a It's time for some money rehab. Last week, we at Money News Network launched another A+, if I don't say so myself, podcast. It is called Trade Like Einstein, hosted by Peter Tuchman, aka the Einstein of Wall Street. Peter is one of the most famous brokers on the New York Stock Exchange. And on his podcast, he is bringing you updates on market trends and what they mean for you and your investing or trading strategy

from the floor of the New York Stock Exchange. He is literally there in the belly of the beast, the center of the financial universe, the heart of the money system. He is right there in it, in the thick of it, giving you insider access. On Monday, he released his episode, giving you that insider access to the crumble of SVB. Peter's energy is truly unlike any other. So if you love it, and I know you will, click on the link in the show notes to subscribe to his show. Here is Trade Like Einstein. Three, two, one. Hey, everybody. It's me, the Einstein of Wall Street. We are here with Trade

Like Einstein. I am Peter Tuchman, and we're here on the floor of the New York Stock Exchange in the balcony. History is made in this building every single day. Somebody with my long-term experience, I've been here for 137 years. It is my responsibility to help teach you how to navigate this market successfully. We're here on Monday. It is the beginning of March and there is absolute wild, crazy things happening. Look, over the years, I've often talked about the different components that make up a different crisis. I wasn't around during the 1929 crash of 1929, though people actually believe I was. Note to self, fact, never happened. But since 1985, every crisis, every crash, every pullback, every consolidation,

every sell-off that we've had, I've been here for and I've experienced them all. And each one of them have different components that make them up. The crash of 87, markets were trading at a high. There was an insurance thing going on. There was some all kinds of different technical components going on. I don't even remember what happened then, but it was significant. The market was way smaller than it is today. So the percentage move, in fact, was the largest one still today.

We were down 606 points on the day. But at that point, that was almost 30% of the move. Then we had the bubble of 2000. I don't really remember 2000 too well. I'm not sure what I was doing, but it's a bit of a blur. However, obviously with the beginning of tech and what was going on out West, similar to what happened today,

maybe there were more similarities to that. We had the big tech bubble and lots of people lost huge money. Then fast forward to 2007, 2008, that crisis, what was called a mortgage, the great recession, I think so, the great financial crisis was basically a mortgage-backed security problem, right? Where there were companies, all different banks, I'm not going to mention them by name, who were basically trying to sell houses and instruments, financial instruments and credit cards to people who did not necessarily

have the money to pay for it. I'm going to give you the whole story because there's a lot to do with what's going on today. So they basically sold mortgage-backed securities to people and gave people mortgages for people who didn't have the money to live in these houses, right? It was sort of a bit of a predator situation we found out down the road because these people could not afford what they were being sold. And they were, in fact, a lot of the houses who were selling it were betting against it working. And they were doing credit default swaps, which ended up creating an absolute wild whirlwind of loss down the road. But anyway, people were buying houses. They didn't have the money. They were told, buy the house now, take the mortgage, take the credit card, spend,

spend, spend. At the end of the day, by the time you need the money or you're going to be down the road, the house will be worth more money and everything will be fine and good. And it wasn't. Absolute disaster. So they would package. Once they realized it was all this bad debt out there, they decided, I got to unload this from my balance sheet because it doesn't look good. The economy started to break down. So they bought these beautiful little boxes and they put all this bad debt in the box with a ribbon and sold it to someone else. And those people looked at it and go, I don't want this. I thought they were selling me something good. So they put it in an even nicer box, put some extra tissue paper in there with a new ribbon and sold that down the road. All through the world, these boxes got repackaged and re-fluffed and resold to the

end of the day when finally the guy at the end, the guy or the girl at the end opened the box, realized he had tons of bad debt. And that was what ended up crumbling. Humpty Dumpty had a good fall. The shit hit the fan. What do you do when that happens? You turn off the fan and clean up the, it took nine years for this market to get back to even. Those are the components that make that up. But wow, fast forward. Then we had COVID. That's a whole nother story. We've talked about that. I want to get into it now. But today we're here on a Monday in March. Last week, suddenly, okay, look, we've gone through FTX, right? FTX, we can have a whole session about that, right? That was basically a crypto exchange

with some guy, an idiot, Savant, Sam Berkman, Fried, Fried, Goldmanstein, I don't know what his real name is, who everybody thought was a genius. He raised all this money, gave away a whole bunch of money. How do you mask a Ponzi scheme and a scam? By giving away more money than you're taking in so everybody thinks you're a good guy? That's wrong for damn sure. So anyway, his contagion to what happened when he fell, we are now still unwinding. Look, when Bernie Madoff had his Ponzi scheme and he sold 60, stole $65 billion in a classic Ponzi scheme. And I used to do business. He used to own the Midwest Stock Exchange.

He wasn't always a bad guy. Greed got to his head. Shit got over his head. He ended up falling. Anyway, when they found out that he had stolen $65 billion, it turned out that in the nooks and crannies of the whole investment and financial industry, he had his tentacles in there. And when they ended up having to unwind that story to find where all the money and bodies were buried, it took a long while. Same thing. Fast forward to FTX.

FTX was running an exchange trading crypto. And then they were issuing coins. And then they were lending money against coins that actually had no value. And they were pumping up the value of the coins to lend more money to to mask how much they were actually losing and stealing and whatnot. Forget about it. It was a scam that was way bigger than Bernie Madoff, way bigger than the 30 billion dollars that they claimed they sold because it got involved with politics. They gave money to different people. They got involved in startups. They got involved in absolute, they had their dirty hands in everything. And still, we're not even close to unwinding that story. So on the back end of that story, suddenly where crypto has been going through whatever you want to call it, growing pains or real, like the real transparency

of what's going on. And I'm not recommending it. I'm not dissing it. I'm just telling you the facts the way they are. Obviously, there's a lot of skepticism and anxiety around NFTs, about cryptocurrency, about Bitcoin and ETH and all that stuff, just because of how fragile we saw the world come tumbling down when FTX fell, right? BlockFi, Binance, all those people, a lot of them, even exposure, the contagion exposure within crypto and the whole confidence within the financial industry completely crumbled around that one freaking kid who lives in the Bahama. Like, I don't even know what that guy's story is. OK, we bring ourselves here to today, a Monday in March last week. So there's a company called Silvergate, another company deeply involved

in crypto that obviously was still suffering from the contagion from FTX. That thing started to crumble. We realized how fragile it was, how intermingled we are globally and within industries, within sectors, within markets, equities, crypto and all that stuff. Everyone's got their hands in everything. And when one guy goes down and you start uncovering, look, when the tide goes out, right, the fish smells from the head. I don't know what you call it, but that's what ends up happening. When people are doing good things, good things happen. When people are doing bad things, eventually it gets uncovered. And then when you see where the tentacles that they got into and they do that, that's what they do. Bad people, bad actors in different spaces, especially in finance can take down a frigging

whole industry. It's Sam Berkman, Fried, Fried, Goldmanstein, whatever his frigging name is, did. It's happening here again. So what happened? Silvergate started to fall. That completely, whatever confidence we'd slightly built back within the crypto space from unwinding that terrible story in the FTX thing, which we haven't even begun to unwind, suddenly Silvergate comes along and that completely blows everybody out of the water, just wondering like, what do i really know what's real are these coins actually shit coins are people telling me things they're like selling me stuff are we a bunch of bad salesmen out there and what's going on and it turns out yes that's the fact they went belly up and then on the heels of that let's talk about banks why are banks here Banks are here to hold our money. Banks are here to make money. Banks are people, banks are institutions where we put our money to

hold our money. Hopefully that when we want to get it back, we go to the bank and we take it out from an ATM or a teller. Not always the case, and we're finding that out now. However, why does a bank stay in business? A bank stays in business to take the demand deposits, to take the deposits that they get, keep on hand demand deposits, how much they're going to need on a day-to-day basis based on historic data. How much money are people going to be taking out of the bank on a given day? The rest of the money they're putting to work, right? They're not sitting there with hundreds of billions of dollars that people have deposited in their banks, just holding it on hand, making no money. No, they'll keep 50 million on hand because that's what normally people use and take out. They keep more money on demand on the 15th and the first of the month to do payroll.

But the rest of the month, most of the money is being put to work. So a bank obviously has a risk profile. They have a risk department. Risk is clearly the key to all of this problem, okay, profile. They have a risk department. Risk is clearly the key to all of this problem, okay, is when you take two risky assets and you put them in risky investments and the world is changing as fast as it is today, you can get yourself in trouble. Everybody has a risk manager. Everybody, the hedge funds, individuals, people need to govern and they need to set themselves up for how much risk they're willing to take. We talk about it in day trading. I'm willing to risk $50 to make $200, but I'm not willing to risk $200 to make 50 because in a long-term strategy, that's not sustainable.

So what do you got? You've got SVB Bank, okay? I've heard a lot of people out there had been recommending that stock, calling it cheap. Call me crazy. I don't know, you want to inverse that? Have the luck of a lifetime. However, so these guys had a bunch of money, okay? And they decided they would invest it.

And so obviously it was a decision made not by one guy, but the risk manager and everybody was all in that section. And they decided to get involved. Once again, the definition of an insanity going back and doing the same thing over and over again and again, expecting a different result. They went back to mortgage-backed securities. After all these years, it had burned so many people. They went back to it in this environment. Then they went back to treasuries, okay, in an environment where interest rates are rising as fast as they are now. And I don't know that much about treasuries. And I'm not an economist. And I know I look like Einstein. I'm not that freaking smart. At the end of the day, I've heard that those are very risky assets to own as an investment in a market where you've got

right now, traditionally already, because it's been going on for more than a year, highly aggressive, raising interest rate environment. So what ended up happening? They put all that money in there without really weighing the risk. Clearly, we're seeing that in retrospect. It turns out that the guy who's running risk on SVB was the guy who ran risk on Lehman. Call me crazy. Is that the guy you want at your party? I don't think so. If he showed up your party and was giving you bad booze, you wouldn't invite him back. So listen, turns out the investments they had made were bad investments in this environment. Now let's talk for a minute because I just did a piece with Neil Cabuto on Fox. And he said, so, Peter, you know, we've seen different,

different aggressive failures in banks over the years going back to 2007 and 8. OK, is there any similarity or the criteria, the components that make up each one of these bank failures consistent along the way? And I said, no, the only thing that we're similar about this is the fact that mortgage backed securities were involved. But at the end of the day, each time a bank does something that causes it to go under, it's different. Sometimes they're doing some bad stuff. Sometimes they are trading risky assets they shouldn't. But at the end of the day, we have now been in an aggressive raising interest rate environment for more than a year, 75, 75, 75, 75, 50, 25. These are basis point rises. That's aggressive, unheard of in history.

Yet these guys did not look at the sheet to see that the investments they made, they didn't go bad after one day. They'd been going bad over time. And as far as I understand risk is, you've got to monitor and manage risk every frigging day, every moment of every day in a market that goes up and down thousands of points, right? The market last night when the news came out that they bailed them out was up 50

handles. This morning it was down 80 handles. We saw an over a thousand point move today and then the market rallied back. Risk, this is all about risk. The probability of whether risk is in your favor or against it, that's all about probability and risk. So what ends up happening? They invest in a bunch of bad stuff within this environment. They're trying to blame it on the interest rates. We've been doing this. This has been on the menu part of the playbook for a year and a half already. This is not new news, right? I've seen this menu before. I saw the menu back in September. They made a bad investment. Suddenly people started real loud. Okay. They went out to try and perhaps the marketing around it, the PR around the dissemination of the information

that they were in trouble and they needed to raise capital. What did they think? They were going to go out to the world and try and raise $2.3 billion under the blanket. No one would notice. Of course, everybody noticed. This was a bank that had bankrolled almost every startup company over the last three years in Silicon Valley or out there in LA, whatever, you know, startup company over the last three years in Silicon Valley or out there in LA, whatever, you know, Oscarville, right? So over the last couple of years, that environment hasn't been going well either, right? The economy hasn't been sort of ripe to sort of curate and make robust all these new startups. So they were in trouble to begin with. So that was not making them money. Then they decided, well, that's not making us money. Let's try and make us some money other

ways. So they got involved in mortgage-backed securities and treasuries. Well, that turned out to be not going too well. So they decided to go to the public, to go to the banks, the investment community, to raise $2.3 billion. What did they think that was going to happen under the radar? I don't think so. Even though billions of dollars can be held under the radar still, $2.3 billion on a raise means you're in trouble.

So what did that mean? What is the biggest fear that people have is that when I put money in the bank, that when I want it for whatever reason it is, I wouldn't be able to go get it and take it out. We saw that run on the banks in Greece years ago where they shut down ATMs, kept it to a max of $50 a day. Well, when you look, it's a wonderful life. Go back to frigging George Bailey and the building and loan. If you don't let people take money out of the bank when they want to, they're going to go call their Uncle Herbie and Sarah, go on a run on the bank and everybody's going to, whether it's rational or not,

they're going to want their money out of there because they smell a rat. And that's what they did. People started drawing money out of the bank and then they were suddenly did not have enough money to support that. Then they were not able to raise the 2.3 billion they wanted to. Then they started going to the public to get help. And now when you see somebody never let them see you sweat, they were freaking sweating. Everybody saw it and the shit hit the fan. Absolutely. They are now. So look, we have an amazing thing called the FDIC, Federal Depository Insurance Corporation. That means that when you put money in the bank, whatever deposit you have in there is insured in case of bank failure for a quarter

of a million dollars. So if I got a quarter million in there, the bank fails, I am good for my 250. However, what some people may not know, and I surely bet you they know it now, if I've got 300,000 in there and the bank fails, all I get is $250 million. If I have a billion in the bank and the bank fails, all I get is $250 million. That means my exposure due to the contagion is huge. So what ends up happening, they start to fail. Now, one little caveat is that five top principals in the company, curiously enough, were selling shitloads of stock. I'm sorry for all the cursing in this thing. Shitloads of stock over the last three weeks. Imagine that.

At $100, $200, $286 a share, shit's trading at bazooch, nothing. Oh, God, forget about it. Nothing, nothing, nothing, right? Both those stocks are dead. Signature Bank, Contagion, done. Boom, botched. Forget about it. SVB Bank, done.

Forget about it. What happened over the weekend was that they were examining this story. This story is really kind of an ugly story. It just shows that regulations were let down in 2018. And you can blame that on Professor Orange. You can blame it on whoever the heck you want. But there were definitely lightening up

the regulation about small banks, right? It used to have regulators that stocked the banks with over 50 billion in them had a certain different level of regulations than stocks under 50 billion. And then they changed that law. And these guys had about 200 to 400 billion under management. And so they were sort of skirting some of the regulators because how else would you get away with all that insane shit that they've been doing over the last couple of months, right? Obviously, bad debt, siphoning off money that shouldn't have been sold before your depositors

get there. So the bank fails. Over the weekend, we find out it's failing, right? And all the contagion, the companies that were involved, those startups, gone. Nobody to pay payroll. Roku, a number of other, 10 other companies that had huge cash deposits in this bank, gone, right? Companies that they were supporting the startups, gone. So you're looking at this situation, not only so you got Silvergate, that was one thing. You got CryptoFDX, that's another thing. These are notches off the confidence wheel, right? And that doesn't do good. This market is bound by confidence. Our economy is based on confidence. In 1779, we signed the Buttonwood Agreement out there. It was all about confidence. You and me, 24 of us, decide going forward we are going to honor.

Our word is our bond. That's what this whole shit's all about. And if you don't have that, you've got nothing. So anyway, over the weekend, right, we realized that they are failing. And then Signature Bank, which was a contagion to it, started to fail too. And so you've got two of the largest regional banks going under. Belly up. Forget about it. People are not going to be able. So first, the FDIC walks in. They said, guys, take it easy. We will support 250,000 insurance policy for every depositor in there. But then when they look into the nooks and crannies, they find out that 97% of depositors in SVB have way more than a quarter million in there. The companies that are in there have 8 million, 50 million, 1 billion. The

exposure was massive. The footprint was absolutely huge. And they realized that if these people were not going to be able to make payroll and were going to go belly up and this bank was going under, that that $250,000 insurance policy was not going to cover the lack of confidence and absolutely eroding confidence in the whole banking system in the United States. And so obviously you can imagine there were some crazy ass meetings this week, right? Guys sitting around smoking Lucky Strikes, drinking coffee in Hennessy, trying to figure out what do we do to build back the confidence to fend off an absolute banking crisis and sell off on Monday morning. Okay. So what did they do? They decided to backstop the bank. Okay. Thank God for that. In my opinion, it was a really good

decision. How does this differ what they did in 2008 with the bailouts? Well, that was different. Lehman Brothers was the fall guy. They did not support, even though everybody was vying for position back in 2000, 2007. It's a great movie about it with Paulson and the head of the Federal Reserve and all the banks, Smith Barney, Merrill Lynch, all those guys got a lot of backdoor shit going on. They were merging with each other to try and prevent themselves from going belly up. Who got stuffed? Who got kicked in the butt was Lehman. Everyone else was able to live to see another day. In this situation, and I don't know what it looks like. This is still an evolving story. It's fresh here.

Money News Network, Nicole Lappin and me trade like Einstein. This is some fresh shit here on a Monday night. So ends up happening. The FDIC steps in, the regulators, they check out the situation. Then obviously the feds, the government, the press, everybody starts sitting down and going, what do we got to do to fend off an absolute banking crisis, sell off and crash on Monday morning? We are going to make everybody whole. Signature Bank and SVB Bank, all the depositors from $1 to $100 billion, there's no limit, will be made whole by the federal government with no impact on the taxpayer. That was another little caveat because the taxpayer never likes to pay for the rich guy's shit. Well, it's not going to happen again this time,

and that's a good thing. So they made everybody whole. These banks, these companies, will be no longer in existence as of today. They're gone. The people who were stockholders in those companies, that was a complete loss and a write-off. However, anybody who had money invested, right, not invested, anybody who had money deposited in those banks, no matter how much it was, I mean, we have a bunch of guys here,

people on the floor whose businesses ran through signature. A lot of people like signature bank, a lot of people like SVB bank for whatever you may think of them. They were banks doing some okay stuff. Unfortunately, they got caught doing some fugazi stuff. That's a financial term. Anyway, so what ends up happening? They backstop the FDIC. Then the government backstops the depositors. They're going to surrender the companies. They will no longer be traded. They will no longer be in existence. So at the end of the day, they backstopped a potential bank crash, but they did not step in to make them whole in a way that they were going to pay off all of their investors. Because at the end of the day, this may not be the last time this happens. And if the Federal Reserve and other banks think that they're irresponsible behavior,

at the end of the day, when they fail, you're going to be able to call grandpa and go, I need some help. I'm in trouble. I screwed this shit up. Can you help me? If that becomes a standard where companies that fail are automatically bailed by the federal government, then we are in deep, deep trouble. So we're here at the end of the day. The day wasn't so bad. We were up 50 on a bailout news yesterday. We were down 100. That's 100 handles, 1,000 points this morning. Market rallied back. We stopped trading. FRC, First Republic, another company with deep contagion to the situation, went from $190 to frigging $30. That's 88% sell-off. WAL, another bank with deep exposure to this situation, was down 88%. That's insane. These stocks are

getting absolutely wiped out. So we got through the day. There were no run on the banks. These two companies are going to have to surrender to the process. They are out of frigging business. People who had deposits in them are being made whole. All those big pundits, all the smart guys all weekend long were tweeting their little booty off, right? All kinds of shit that does absolutely nothing to put money in your pocket. The young retail investor, I don't care about anything if it's not going to put money in your pocket. I'm here to help educate you on Money News Network, trade like Einstein, to give you a toolbox, fill it with tools, so you can learn to protect yourself against the rug pulls and the scams.

What all these billionaires is talking about, the hedge fund guys and nothing against them, the Peter Thiel's and the this and that and all those guys who are talking shit about what's going on here as if their motivation is pure to help you guys out. Their risk profile is a little different than yours and mine, that's for darn sure. So at the end of the day, we made it through the day.

I don't know what the rest of the week is going to bring. The news is not all out there, but at the end of the day, I'm here to try and give you some calm that if you had money in those banks, you'll be made whole. If you own shares in those companies, you have now lost it. And at the end of the day, you need to look. We've learned anything from this that just because it's an institution and it owns a building on the corner of walk and don't walk doesn't mean they're not doing some fugazi shit. And you should do your homework before you get involved in any frigging investment. And that's all I got to say about that. Trade Like Einstein is a production of Money News Network. Trade Like Einstein is hosted by the ever energetic Peter Tuchman. Trade Like Einstein is executive produced by Morgan Lavoie.

Thanks so much for listening. Check out moneynewsnetwork.com for more podcasts.