Moody's Talks - Inside Economics - Banks, Bonds, and Beige Book

Episode Date: April 21, 2023

John Toohig, head of Whole Loan Trading at Raymond James, joins Mark, Cris and Marisa to discuss the fallout of the banking crisis on lending standards, credit growth and the economy. The fallout so far seems manageable, but...For more on John Toohig, click here or follow him on LinkedIn or Twitter.  If you would like to learn more about upcoming Moody’s Analytics & Raymond James in Conversation events click hereFor the full transcript, click hereFollow Mark Zandi @MarkZandi, Cris deRitis @MiddleWayEcon, and Marisa DiNatale on LinkedIn for additional insight. Questions or Comments, please email us at [e-mail]. We would love to hear from you.  To stay informed and follow the insights of Moody's Analytics economists, visit Economic View. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome to Inside Economics. I'm Mark Zandi, the chief economist of Moody's Analytics, and I'm joined by my two trusty co-host, Chris Doretties. Chris is the Deputy Chief Economist and Marissa. Dean Natalee, Marissa keeps the trains on the tracks. So good to have you both. How are you doing? Hey, Mark.

Good. How are you all? Everything's okay. You guys are back up and running. I know you were under the weather there for a little bit, but you're feeling better. You kick COVID? I'm back 100%. I wouldn't say I'm 100%

I'm still not feeling great I'm a little congested as you can probably hear but no you say you know oh good okay yeah you look marvelous I have my my Kleenex at the ready okay perfect good it's early morning for you though that's true that's true

very early yeah thanks for doing this so early yeah where you're traveling mark no I was in New York for a couple days I made it back home last night and I was at a Moody's Credit Risk conference. Boy, what a lugubrious bunch of folks. So I do this informal survey and I say, you know, who out there thinks that we're going to have a recession in the next 12 to 18 months raise your hand. A hundred people in that room, I'd say 95 think we're going into recession

in the next 12 to 18 months. But these are all risk managers. I mean, you know, so maybe a little They're paid to be more pessimistic. Yeah, I think so. But it made me very nervous that group. Yeah. I tried to cheer them up, but impossible. That's tough. That's tough.

Yeah, it wasn't going to work. And we've got a guest. John, John Tuig. Good to have you, John. Welcome. No, I think the number of Google searches for Lagubrius just went up. That was a for a 730 word vomit on me there, Mark. That's a strong one.

I wasn't ready for that. You know, I've got these zandiisms, and that's on the list, you know, lugubrious. Okay. Yeah. Mark loves his words. I love my words. Man, that was a strong one right out of the game. So good morning, everybody.

Hopefully I used it right. Have your Webster dictionary and your coffee for this particular presentation. Or chat GPT. Absolutely. There you go. Maybe this all just is chat GPT. Maybe it's not really us. Maybe it's just box.

Oh, good. And the listener can quickly discern that we have a good relationship with John. Absolutely. Yeah. John is at Raymond James. John, I don't even know what's your title? Managing Director, Head of Whole Loan Trading here at Raymond James. That's a great title.

Thank you. Thank you. And we've been doing these, would you call them webinars? Well, webinars, podcasts. I mean, if you remember when COVID happened and everything in person kind of went away, we all pivoted to online media, right? So when we didn't know what Zoom was, when we were still trying to figure out

how did we use our webcam and everything had gone from audio to video. So I don't know what is it, is it a podcast? Is it a vid? Is it a Vod? Yes, the answer is online content. And we are, to your point, you just did your conference here the other day. I just got back from Atlanta.

Raymond James had their annual conference again. It was nice to be back in person. but still doing a lot of, you know, the digital content as well, which, and Moody's has been wonderful. We've really enjoyed the in-conversation webinars that we've been doing with a number of your speakers and yourself, mortgages, autos, commercial loans, yourself on kind of economic and stredis on, you know, overall economic items, unsecured lending, credit cards. I mean, pretty much anything across the lending and banking sector is kind of what you and I have been doing over these last.

Yeah. It's three, four years now, Mark. It's not like it's been just yesterday. We've been at this for a while now. It's nice. I know. They're really easy, a lot of fun. Of course, you make them really interesting.

And you have a really interesting set of clients. There tend to be smaller banks and credit unions, smaller financial institutions. Yeah, the more regional and community guys are who we do with kind of that $75 billion in asset and down kind of institution. We love the Wells Fargoes and the J.P. Morgans and the, you know, the Goldman's of the world, but we're more the middle markets. So these regional banking crisis has been very real for us. This lack of liquidity that's out there has been very real, something we've been feeling for several months. So when you reached out and said, hey, this might be a timely topic. Absolutely.

After Silicon Valley and signature and everything, we were in L.A. on March the 8th. Right when that news came out and it went through like wildfire. We had a conference in Beverly Hills. And I remember it was a Wednesday. And that Monday was they were going concerned that Wednesday they were talking about doing the capital raise. They had sold the bonds. And then by Friday it was over. And it was a, whoa, what just what just happened?

Middle of the day over. Yeah. FDIC never does that, right? And didn't have a buyer for it, right? I mean, that was remarkable that we went through the weekend and, you know, who's going to buy the loans? Who's going to buy the bonds? We don't know. Which means they must have been really terrified by the deposit outflows that were occurring through the system for them to do that.

When you yell fire in the theater, Mark, and people start running for the door and $42 billion starts running for the door, you don't have a whole lot of options. Yeah, really amazing. And you're, you're hailing from Memphis, Tennessee. And celebrating the Grizzlies win last night, I was in the forum. It was rocking as we took it to LeBron and we're really just thrilled to get game two back. We lost John Morant. I saw that. If you're a basketball fan, a really gnarly fall on that wrist.

He's got some soft tissue injuries there. But Zaver Tillman and Tyos took us to the victory. So now it's back to L.A. And we're hopeful we can win one on the road and get the home court advantage back. Well, of course, we're Sixers fans, you know, John. So enough of the... We'll see in the finals, my friend. We'll see you in the finals.

Oh, I look forward to... Fingers crossed, I'd go for that. Look forward to seeing you there and go gris. It's all I can say that. Yeah, I saw the game on Monday night, the Sixers play. Gee, who did they beat? Who'd they play? I can't even remember.

It's the East. I'm more worried about the West, but... Oh, oh, the Brooklyn Nets. Yeah, that's right. Yeah, you should handle... I'm already looking past them. You're two and oh already. You've got game three tonight against the Nets.

You're going to handle that easy. Yeah, I hope so. I hope you're right. And you're, as we were saying, you, you're a lot of your clients or smaller financial institutions, obviously kind of ground zero for the problems in the banking system. And you do a whole loan trading. Do you want to explain that just a little bit? Yeah. Critical to the conversation.

Yeah. So anything that's not in a bond that would be on the balance sheet. So the mortgages, the mortgage book, commercial real estate book, the auto book, credit card book, Helox, unsecured lending, solar lending, personal lending. You know, people monitor and have been talking so much about the securities book lately and the unrealized losses and everything they're going to go with it. Bonds are 20% of the balance sheet. loans are usually 60% of the balance sheet, if not more. And yes, we've had this kind of influx of cash. And so the security book has kind of grown over the last two, three years because of COVID. All the stimulus that's been thrown at us. But the bond book, or excuse me, the loan book

has its similar challenges to it. It's more illiquid. It's more difficult to trade. We're talking about raw collateral here. We're talking about the actual note mortgage on your home. We're talking about the car you drive to work. We're talking about the office building that you're in right now. And pools of those loans, it says depositories manage that risk on their portfolio is kind of what we make a market and trade. So $50 million of prime jumbo residential mortgages, you know, a bucket of a couple of pools of commercial real estate loans, maybe their office, maybe their retail, maybe they're multifamily, you know, a pool of solar loans. particularly out in California, right? All of the solar panels that are kind of appearing on houses these days. There's a market for that future cash flow.

I'll try to liken it to somebody who's familiar with the bond market, they're familiar with RMBS, just chop the S off. It's the same cash flow. It's the same collateral. It doesn't have the full faith and credit the United States government behind it. Resonial mortgage-backed security, but not the security. Take the security off. Yeah, right.

residential mortgage-backed. And so you're looking and buy it. buying the raw credit risk. You have to underwrite it. You have to understand the value. You have to understand the borrower's position. I have to send their credit and their income stream. But it's the same kind of underlying cash flow. So this may be an unfair question, but I'm just so curious. If you take like a typical year, what would be like the annual trading volume for bond? Last year was anything, yeah, last year was anything but typical for us. We did about $15 billion in loan sales, about 475 trades. Now, a bond. A bond. A bond.

trades T plus two, right? You settle in two days. A loan trade takes about 45 days to close. It's not unlike buying your house. So, you know, you got a buyer and a seller. You got a contract. Documents have to be signed. Diligence has to be done. It's a little bit more like an investment banking function that it is more of just go to Bloomberg and enter an accusup and boom, you're done or a stock order. So, you know, volumes here in the last two years have been very elevated because there's so much cash in the system and institutions were trying to put money to work and almost racing to put money to work as all these deposits come in and are trying to spend it. Now, kind of the opposite is true. Trading volumes have really slowed down. Depositories are

struggling for cash, almost even starting to try to hoard cash and struggling with rising deposit costs, alternative funds of the bank term funding program, the discount window, bookered CDs, you know, alternative forms of liquidity. So no question trading volumes are down compared to what we saw in 22 and 21. So here we are mid-April. We're about a month past the SBB failed, the Silicon Valley Bank failure in the banking crisis. I'm calling it a crisis for lack of a better term. Probably given that the government had to step in and backstop everything, that feels like a crisis to me. You know, two of the largest bank failures in the history of the United States, Mark. I think that qualifies.

Qualifies. Okay. Yeah. So since that event or events, has trading volume really fallen off? I mean, it was a little bit of hands off the wheel and going back to March 8th, right? Kind of what we're talking about at the conference. It's more just like shock and awe, right? How could this happen?

How could this happen so quickly? It was really kind of remarkable watch. And there was a lot of phone calls coming in saying, hey, if I had to sell, kind of what could I sell and where could I sell it? The problems persisted for a while. It's been pretty well documented. Rates have risen so quickly when you have the unrealized losses that you have in the bond portfolio. And one of the things I like to point out on SBB, it wasn't a credit issue. It was a liquidity issue, right? I mean, the bonds they had were underwater. Deposits flew out the door. They couldn't raise cash fast enough. They went to the federal home loan bank. They went to the discount window. It couldn't come together quick enough.

by and large, I mean, they were mortgage backs and treasuries that were on the balance sheet, right? And it wasn't like it was the subprime crisis of 2008 all over again. We haven't felt credit at all be the issue. And that's pretty consistent with our customers and pretty consistent throughout. It's just when you double rates in a year, you know, things are at discounts. And so there was that minute of everybody kind of racing around and looking around and saying, oh, gosh, what if the spot? spotlight hits me and what do I do? And so a lot of phone calls were had with customers and a lot of conversations focusing around, hey, are these massive deposit outflows happening?

Are there lines out the door with people, you know, at the ATM trying to pull dollars out? And I remember sitting there that Monday morning after SVB crash and I looked around there in my trading process. I said, guys, did you go to your bank this weekend? Did you take out $10,000? Did you take out $5,000? Did you need some money under your mattress? Did you move money to to Bank of America or Goldman or the too big to fail shops. And no, you know, there were the handful of institutions on the West Coast that seemed to be, you know, with the uninsured deposits. And that became kind of a story and a headline for a minute.

But, you know, largely it wasn't for those more, you know, what I would call rural institutions that didn't have the word West in their name. It seemed like every bank that had the word West in it was under kind of scrutiny there for a minute. And that's absolutely true. Banks had nothing to do with anything because they had West in it in their name. They were getting getting nailed. Yeah. And it was almost like a couple years ago if you had the word, you know, Bitcoin or, you know, something or dot com way back in the day.

You know, you're going to have nothing to go up now. Yeah, exactly. And it goes nothing was down. But anyway, it seems to have subsided. It feels less volatile. It feels safer today. And we haven't had a closure in a couple of weeks now. I know there's a couple of names in the box that we're looking at, First Republic.

Western Alliance had some good earnings numbers the other day. It feels like, Mark, we're almost to the other side of this. I'm hoping. Yeah. And in terms of your trading activity, is that stable or is that coming back? It's coming back. Yeah, no, it has felt. More vibrant. There are what we have experienced for better or worse, loans, you don't have to

market. So let's put that out there, right? Whereas in bonds, you can do this whole, held in maturity versus available for sale kind of game and gimmick and accounting. Loans, you don't have that experience. So most of these institutions still own these loan books at par, even though they're probably worth, you know, 85 to 95 cents on the dollar today, not because of credit purely because of, you know, rate. And we haven't had a lot of people be forced sellers, no gun to the head saying, you need to go raise cash. You need to go raise cash right now. So we don't feel any of that urgency. But those institutions that were saying, you know, I won't sell anything unless it's par or better, they've come off that a little bit. They've been willing to say, well, show me a bit at 97,

show me a bit at 95 cents on the dollar, even though you're still a good ways away from that level. and that's because they do want to shore up some cash. They do want to be able to go to the regulator and say, you know, hey, you know, I've got a contingency plan for this. They're dusting that playbook off right now. Well, let me ask you about the banking system. And I do want to get into, you know, different loan types and get your sense of what's going on. Yeah. Get more granularity there.

But more from kind of a 30,000 foot level, do you think, the banking system broadly is in good shape, okay shape, or did what, is what happened here more just idiosyncratic related to a few banks that are kind of out on the tail of the distribution that just got caught and it's not symptomatic of something broader in the system? Or do you think the system is more troubled and this is symptomatic of a broader set of issues? No, I mean, I think the banking system is pretty sound. We have some issues. We have some liquidity problems right now, but it's not credit.

So broad strokes. SVB was a little bit more of venture capital, some very wealthy individuals, a lot of deposits running out the door, a shareholder letter that spook some people, and boom. We can even talk about maybe the mismanagement of how they did the attempt of the capital raise versus the bond sale. So there's that. Silvergate was more of a crypto story. And signature, I almost felt like that was an afterthought. SVB happened on Friday and then kind of New York set on Sunday, oh, by the way, we're going to close them to. Third largest bank failure in the country feels like an afterthought kind of woe. But most other institutions don't have that challenge. We've talked about First Republic a little bit. They're a billionaire's bank.

So, okay, maybe that could happen. But it's been remarkable to me to do. see how the banking community has kind of rallied around that brand that is First Republic and has really tried to work very hard to save them. And it's a wonderful bank. But beyond that, you know, everyday America main street lending doesn't have the run happening on them from a deposit standpoint. I don't think that others do. And yeah, there were some small deposit outflows less than 2%. That seems to have stabilized a little bit. Yes, there was some kind of immediate hits to this new bank term funding program, the discount window, federal home loan advances, that that's all happening. But that's subsided since the crisis. But by and large, credit is sound. Yes,

deposit costs are going up. Yes, funding costs are going up. But they're well capitalized and I think pretty good shape. Hey, Chris, are you a saying when is John is about, is my interpretation what John just said is, you know, this is the SVB signature Silver Gator, kind of idiosyncratic. They've got their own specific issues. There may be a couple other three, four, five out there that might be problematic, but they're small, no big deal. I'm putting words in John's mouth. I added that. Largely, I agree with it.

Yeah. Yeah. Okay. And the system broadly is on solid financial ground. What's your sense of that, Chris? Yeah, I'd agree with that. I think we've largely dealt with the liquidity issues as well. At least there are facilities out there that if more problems should crop up related to that,

I think we can model through. I've said it before I'll say it again. I do worry about credit coming. I know there are no credit issues today, right? There are relatively few, but I see, I'm seeing into the future that we are going to get more losses, more delinquencies. I think there's lots of capital in the system. day still that we could manage through. So I'm not anticipating crisis, but I wouldn't want to

discount that there will be additional trouble ahead. There may be additional bank failures as we start to go through the actual credit cycle part of this. Yeah. Mercer, anything to add there? Any pushback? Would you want to take the other side of this? No. I agree. I agree. I mean, it would be kind of scary to do that. We're going under. No, and I mean, and the Treasury and the Fed has, you know, implicitly sort of backstopped all these deposits, right? So that really adds just, I think, to the confidence in the banking system if something else were to go awry. So that certainly helped. I would echo what Chris said.

He's right in that most of our customers are not worried about credit right now. Maybe on the bottom end of subprime auto, maybe on the bottom end of credit card. maybe on the bottom end of personal loans, unsecured personal loans. You're starting to see some signs of cracks there in credit. Mortgage, I think, is rock solid. I'm worried, Mark, you and I've talked about commercial real estate. We've talked about office in particular is really kind of not a place I want to be. But the upper end of credit, FICO, is sound.

It's the lower end of income. it's younger borrowers that are getting hit a little bit more by inflation, struggling to kind of keep up with their payments. I've listened to many of your episodes here. I really enjoyed the conversation with Mike Brisson and the gentleman who Cox. He's really good. I'm a huge Mike fan. He does a great job and great command of his numbers too, right? I enjoyed the banter.

You're sucking up now, John. I enjoyed the banter between you two last week. It's always fun to watch you chukes out of past singers at one another. But, you know. And the sad thing, he's a lot more right than I am. No, no, no, no, no, no. You know, it was, it was great commentary. But, you know, the auto sector has been an interesting space to kind of watch

and kind of see how that's shaped up. I mean, I was looking for your numbers game last week. And if I had been on that panel last week for the auto conversation, it would have been, my number would have been 17%. And that is the number of, you know, of new vehicles whose payments are over $1,000 a month. Oh, interesting. New auto loans and the value of those new auto loans have gone so high, coupled with higher rates.

Imagine the average consumer floating a $1,000 a month. That's really high. I mean, carry that note for a little while, right? That stings. And, you know, Mike kind of danced. I said like that used to be the typical rental payment. Yeah. used to be.

Those are, you know, those are challenges for that project that could be coming to Chris's comment. You know, if we do see unemployment tick up, which has been stubbornly low. And if we do start to see performance kind of spin out a little bit, he's right. There's some pain coming, but it's not here yet. Yeah. Just to make it clear for the listener, because not everyone is kind of in this world as regular as we are. It's very niche, yes.

Yeah, yeah. Credit versus liquidity. Credit meaning delinquency to fall. You know, somebody's not repaying their loan. That's credit. Correct. What we're observing here is that so far, delinquency and defaults are low. They're rising, and concerns are going to rise a lot more, but right now they're low.

Liquidity is about getting the, this is very simply the cash that you need to make a loan and to operate. And, of course, banks need continual funding, continual liquidity. And if that gets cut off for whatever reason, and, of course, deposits are a key source of liquidity for banks, particularly the smaller institutions. Then that becomes quickly a problem for them. And it's existential, you know, very quickly. I mean, meaning they can literally fail, go out of business. So liquidity is the, as John, is that you've been saying, is the issue today. Correct. credit may be the issue for down the road.

Can we latch on to that one? Because as I've watched the talking heads on TV and the media as they post it and they keep saying credit is tightening, credit is tightening. We don't feel that. We feel liquidity tightening. So these higher rates, deposit outflows, higher cost of funds. We've been at such a low interest rate environment, such a low cost of funds for depositories for so long, where it was.

literally a handful of basis points. You know, maybe your cost of funds was 50, 25 basis points over the last couple of years. Once you run out of those deposits and you have to go to the federal home loan bank, it's four and a half, five percent, 450 basis points, 500 basis points as your cost of funds or brokered CDs. It's expensive, right? And so as these institutions quickly realize, oh gosh, it's not cheap sources of funding, they have to raise rates. That's why we start talking about auto loans at nine and a half percent mortgages at six and a half percent unsecured loans, credit cards and, you know, high teens, commercial real estate hasn't figured out where cap rates are yet. They're still really struggling right now for, you know, what's an appropriate

loan rate. That's what I'm talking that our customers are really feeling right now is they're, they're not pulling back because they're worried about credit. They're pulling back because they're worried they can't fund it. And that's going to be the part that'll be interesting to watch and earnings over time. So I take exception to someone who says it's credit that's causing them. I think it's cash and having to fund these loans. That's the challenge for them. Or maybe just like the way we're thinking about it, it's the cash today, but it's also the can these guys pay me back in the future affecting my underwriting today? Sure. I was going to ask about the government response before we talk about the fallout of all this on the economy, underwriting and loan growth and on the economy.

Obviously, the government backstopped the entire system, stepped in, insured all of the depositors in these failed institutions, those below the deposit insurance limit of 250K, those above. And then, of course, the Fed stepped in with a credit facility to help with that liquidity issue that we just talked about. what is your sense of that? Was that appropriate for them to do? There's a lot of debate, obviously, around that. Because, you know, the deposit insurance limits there because you want depositors with lots of cash in these banks to be very careful about where they put their money to discipline the banks so that the banks don't take a lot of risk.

And by ensuring everybody, you're kind of creating this, this moral, potential moral hazard. So that's the concern in the debate. Do you have a perspective on that? Where did you land on that? So I live in a sales world, Mark. So, you know, in trading, we're always kind of backstop me. Please, baby. That's it.

The hustle is real over here, Mark. So I have incredible respect for the interim SVB CEO, who not two weeks after the implied or otherwise deposit guarantee was out there saying, we are the only bank in the country that has not the implied, the guarantee. of the backstop. So please bring your money into SVB as we work to recapitalize this institution. That is just, that is selling 101. I loved that. I was just, I was really fired up to see this guy have the hutspa to be able to just do this in this particular market. So is it implied? I mean, it's almost like what we talk about for the GSEs. You know, is it the implied guarantee of the,

of the United States and the taxpayer dollars compared to, you know, look, most of us, my mother, she puts her money in her bank. She doesn't know what the bank is doing from an investment banking standpoint, from a wealth management standpoint, from a lending standpoint. All she wants to know is her money safe. All she wants to know is she can still write checks. And yes, she still writes checks. That's that's still a thing for her, right? She's, she's not using Venmo. She's not using PayPal. She's got a credit card. But she just wants to know when she goes to the, to the branch. And yes, you know, John just she's going to Chris is still writing checks. He writes checks to the, you know, for his crypto accounts. You know, there you go. I hope he's still got a

There's a new. Right. Yeah. Vintage. But she just wants to know her money's safe, Mark. And she wants to know that she can get her money. And so at that very, very basic level, I do think that depositors should have that guarantee and should feel safe that their cash is there.

And let's be honest, it is cash. It should be something that they can get out. And it should be something that's liquid. How about that? Sounds fair. So let's talk a little bit about the fall. out from all this. We're four weeks in and everyone's trying to get a sense of, and the system is stabilized, obviously. The government backstop. Deposit outflows have stopped. We're seeing

less use of the various credit facilities. So it feels like it's moving in the right direction. But there is likely going to be a fallout. One of the principal links between what's happened to the banking system and the economy runs through underwriting, you know, will banks tighten up on their underwriting, make it more difficult to get a loan or if you get a loan, under higher interest rates, more onerous terms,

and what that means for loan growth and credit growth, and ultimately that drives business decisions around hiring and investment and consumer decision around spending and economic activity. And maybe I'll go to Marissa first. to you. I don't know. Did you catch the minutes from the FMC meeting yesterday? Did you have a chance to take a look at that?

I didn't know. You didn't? Chris, did you take a look at all? Yes. Maybe I'm the only one took a look. A little bit. They spent obviously a lot of it.

This is the beige book. I should have mentioned the beige book that the Fed puts together. That wasn't from the FMC minutes. I apologize. It was the beige book that came out yesterday. Sorry about that. I looked at both. My bad.

My bad. that the Fed district banks provided an assessment of what's going on in their economies that they, that they're, that they're in. And of course, this page book was done after the banking crisis, and a lot of the focus was on underwriting standards. What are the banks doing with underwriting? Did you take a look at that, Chris, that base book? I did. I do have a sense. Okay, geek. Hopefully I'm not taking your statistic. I know what you're going to say.

You are. I already stole two of his statistics. I saw what you're going to say. Precall. He's he's scrambling as it is. So I, yeah. Let me throw you out the statistic now. What's your interpretation of that?

My number is nine. The number is nine. The number is nine. What is the? Oh. Oh, really? The number is encapsulate the summary. Nine out of nine out of the regional Fed.

banks said that they were tightening or that they were seeing tighter lending standards in their districts. No, that was more ambiguous. It was several said that they were tightening, seeing some tightening. San Francisco in particular, as you can imagine. Makes sense. They've got two of them on their hands right now. Yeah, exactly.

Is nine that we put a number together to try to quantify the thrust of the base because it's, it's qualitative and we want to put a number on it. So we go in and we kind of distill the directionally, what they're saying. And is nine the number we came up with? No. Describe that.

No. That's good, good guess. Okay. You give up? What is nine? Then what is nine? So,

so Marissa was close. It's nine out of 12 districts reported little or no change in economic activity. Oh. Right? So if you're trying to gauge what happened in the immediate aftermath, they're not really seeing much of it. They're not seeing an impact. They're not much.

Modest impact except San Francisco. Yeah. Yeah. There were three. Actually, San Francisco also was included in that nine in terms of low or no change in economic activity. They're seeing more on the lending standards, some tightening. There were three districts that said that things are shaky, right, that the economic

activity declined slightly. You want to guess those three? Redeem yourself. That's a really, okay. This will be fun. I know. He can say one. Mercy,

you want to go first? New York. Nope. John? I'll go with Marissa in New York. No, he'd do it. No, you know that was wrong.

Still no. Still no. That's like San Francisco would be my nest. No, not that one. I, you know, I'm going to go with Philly. Yes.

There you go. I should have. That was a later. I should have. You'd be with Mark. Yep. And there's two more. How about Atlanta?

No. Atlanta's doing well. Trying to pick the ones that are. It can't be Dallas. Dallas is going to be on fire. Dallas is doing great right now. Richmond? Richmond.

Very good. Yeah. Okay. All right. See how you do this, John? This is how you do it. You got a way straight through it. Yeah.

Yeah. The last one will be impressive. The last one. St. Louis. Oh, Kansas City. Yeah, I was going to go there. Yeah, because it's probably got a little bit more of the farm associated with it. That makes sense.

I'll have to say, though, I don't spend a lot of time on the page book generally, but I did spend more time on this one because of getting a read on the underwriting. And I was surprised, and banks are tightening their underwriting in response to what's going on. but I was surprised at how modest it felt like the tightening was. It didn't feel like these guys are batting down the hatches. Yeah, that's what we're, Mark, that's what we're feeling on the boots on the ground. Is that right?

Not worried about credit at all. We're still seeing risk on right now. There were, again, funding they're worried about and finding enough yield. They're worried about. They're worried about margin, right? I mean, they weren't about margin compression. And they know their funding costs are going up. we probably hit peak rates.

I think that's true. And now they know that deposit cost, which is a lag, is going to start coming up and they know margins going to start getting pinched. And if Chris is right, and I tend to agree with them that we're seeing loss provisions go up because chargeoffs, you know, probably going to, what I think a lot of economists have been saying normalize, right? We're getting away from the stimulus and we're getting back towards kind of 2018 vintage as a opposed to 20 and 21. So they're expecting higher losses or more normal losses, I should say, and rising cost

of funds, which is crimping margin. So this seems to suggest like the key link between what is going on in the banking system and the real economy is not playing out as significantly as one might have feared just a couple of three weeks ago. Is that right, Chris? I mean, is that your sense of it? At least not yet. And I guess the other kind of key point on in the beige book that stood out to me is that tourism is reported strong across the districts.

So again, the immediate consumer impact doesn't seem to be there. People were really worried about, you know, can I get money out of the bank? That would probably be more conservative in terms of that tourism. Which along those lines, Chris, on commercial real estate, that's one of the sectors that's kind of hot, leisure and hospitality. Yeah, that's right. That's an area in CRE that's done well. It was also one that got hammered during COVID, right? I mean, had Mark, when we had this conversation kind of early 2021 and lockdowns were pervasive and, you know, you're also starting to see hirings and pretty strong, reasonable, better job growth in that sector compared to, you know, tech banking.

There's also no new supply. We're not building anymore hotels or very few. Right? So compared to we are building apartments, right? We're not building office complexes or if we are, we're struggling. That's, that's, that's, that's real. Yeah. So we were expecting the banking crisis to shave three, four, five, tens of percent off of real GDP growth in the coming year. The key link again is through tighter underwriting, less credit availability that impacts business investment. hiring and consumer spending, but it's still way too early to think one thing or another, but so far at least it doesn't feel like it's going to come in any worse than that.

The downside risks here seem less significant than they did a few weeks ago. That's my sense of it. I think that's fair. That's fair? Okay. Barring some other shock, crack something else going on. Yeah, right. Okay.

Okay. I want to come back and kind of go through each other. of the lending types and talk about that. But before we do that, what's going on with each of those lending types, but before we do that, let's play the statistics game. And just to remind the listener, the game is that we each put up a statistic. The rest of the group tries to figure that out through questions, clues, deductive reasoning. The best statistic is one that's not so easy that we get it immediately, not so hard that we never get it. And if it's apropos to the conversation in hand or related to a recent release, all the better. And it is tradition on the podcast,

John, to go to Marissa first. She's the first player in statistics game. Marissa, you're up. So the first I picked, I really came out last week, but it's really good. And I kind of want to use it. Maybe I'll come back to it. Okay. But I'll do. I'll play by the rules. It's okay. It's okay. Fire away. You really want to use it. Are you sure we didn't use it on the podcast? You listened. Actually, no. But I kind of doubt that you did. Okay, fair enough.

Okay. All right. Hang on. Oh. Okay. The statistic is 3.24% in March. 3.24%. Is it related to the CPI, Consumer Price Index?

No. Okay. Was it a government statistic? No. It comes from a trade group. No. Oh, my God. Is it a financial?

John might not. Financial market measure? Adjacent. Yeah. Is it an interest rate? No. Okay. Is it commodity price?

No. It's adjacent. It's, we're just talking about. It's related to some just talking about. John was just talking about. Is it, is it loan related? Yes. Delinquency?

It's not an interest rate on a loan. Delinquency or charge off rate? It is a delinquency rate on mortgages. Delinquencies? What was that, John? Office delinquencies? Yes. It's the CMBS.

It's the Moody CMBS delinquency track, and that is the delinquency rate for offices, March. And out of all segments, right? So, Austria, warehousing, hotels, multifamily. It's the only delinquency rate that rose last month. And it's been on the up and up for most of the past year. And it's now just about at its peak of where it was right in the middle of the pandemic. That said, it's still very low historically. I mean, it's 3.24%.

I would take the over going further. Yes, yes. It seems to be headed that way. And CNBS is commercial mortgage-backed security. So securitized commercial real estate mortgage loans. So office-related mortgage loans securitized, that's the delinquency rate that is on that. Okay, as of March. Interesting.

But you had another one, another statistic. I did. Yeah. Okay, far away. This is an easy one. And this one came out this week. It's 2.9%. And this came out last week, you said?

This week, this week. Oh, this week. Yeah. Nothing came out this week. It's where I can tell. So this should be easy. Yeah, that's true. That's true.

It should be easy, but I've been on the road this week and haven't been paying attention to my economic data. That's what's my government statistic. Yeah. Oh, it is. From the Philly Fed. 2.9%. Ah, course, any ideas? I said Philly Fed, but related.

No, it's. Philly Fed. It's not. It's not the Philly Fed. Not the Philly Fed. What do we get? We got construction. I don't think it's... Now, you guys are mindly data releases of the week. Well, we shouldn't be doing that? Well, you're going to find it. Oh. If I were to do a, if I were to do a quick Google search, might it have been retail sales? There you go, John. Yes. It's year over year retail sale in March. Oh, year over year. Yeah, year over year. They were down 1% on the month.

This is the third time in the past four months that retail sales have fallen on a monthly basis. And the growth on a year-over-year basis is now the weakest it's been since June of 2020. Implying the consumer is weakening a little bit, Marissa? I would say they're assigning the consumer may be weakening a little bit. Now, and I should say this is headline sales. sales. This includes autos and it includes gas, right? And we know that gas prices are down from where they were a year ago. But even if you strip out sales are compared to where they last year or so. Yeah, of course, that goes back to Chris's observation about tourism, right?

I mean, that also reflects the shifting and consumer preference, right, from goods to services. So hard to know. That's the hard thing about the consumers of this big elephant. It depends on which part of the elephant you touch. You get this whole different perspective of what's going on. But that's an interesting one. But that was last week, Mercer. That wasn't this week,

right? Wasn't it Monday? No, that was a head fake. That was really, oh, God. All right.

I'm all messed up. I was probably at the beginning of the week, too. I've been under the, I'm all messed up. Big news. Fake news. Yeah. That's why I didn't get it,

by the way. That's why. That's the big news. There's Chris. Over the top. Thank you, sir. All right, John, you want to go next?

I would love to go next. Far away. 71.8 billion. I know what that is. Should I tell you? Should I put you out of your misery immediately? I mean, you're the one with the command of the math. Let's go.

The bank term funding program, BTP, is it bank term? BTFP. Yeah, you want to explain, John? That's the new kind of liquidity facility post-SvB that that was released to give, similar to it like the federal home loan bank would be or some of the other advances, but has no haircut. So if you're pledging assets and those assets are worth 80 cents on the dollar, you get the full 100% takeout as opposed to the haircut. And follow-up question mark, that number will be released today. So this is last week's number. Was that number up or down?

From the week before. Correct. Down, baby. It was a, I'm speaking from memory. Yeah. 79 billion. That's on the screws. Well done.

Really? For two, you are, yes. Okay, there you go. Yeah, obviously I'm following that very carefully. I would imagine we all are in banking land, right? But I think that also implies, you know, some easing in the, in the crisis that we've seen is that we're not, you know, rushing to some of those panic places. And there was some discussion around a lot of our bankers that when Q2 hit, as opposed to Q1 hitting, there would be a surge in that because they didn't want to report it in their Q1 numbers. They wanted to have it in their Q2 numbers as they kind of went over that April date.

I don't see that. I don't feel that right now as I stare at the information. Yeah, a lot of good Fed data. I think does it come out tomorrow, John? I think it's at the end of today. I think it's closed this today. Thursdays is what it's been doing. I think that's right. Yeah. And then, of course, we get the Fed's H-8 release, which is the balance sheet of the banking system, assets, liabilities. I think that

comes out Friday, I believe. And that's for this past Wednesday. So that's another really good one. So that was a good statistic. But of course, I'm looking at that like a laser beam. Oh, well, let me give you a harder one. Can I give you a tough? Yeah, yeah, yeah, feel free. Which is near and dear to my heart. 81.4%. Ooh. Is this a price? Up from 70.2%.

Is it a price increase? It is not. Is it some kind of haircut on some kind of loan? No. Okay. Sticking with the funding theme. The funding theme. Oh, really?

Oh, is it federal home loan? Bank advances? No, sir. No. By the way, John, just as a this is a sidebar. I wrote a piece called In Defense of the Federal Home Loan Banks. I highly recommend it. Chris takes great umbrage with it, but, uh, well, I will side with Chris then likely in the conference, but I will do it read and I look forward to our next discussion where we can we can take it apart. It's well reasoned, though. Of course, naturally, always. Naturally. Okay. Back to funding. 81.4 percent. What were you going to say? Mercy? You had something you were saying. No, no, no. It's a, it's a percentage. It's not a true. Right. Okay. It's a, it's a percent increase.

Well, it went from 70.2 to 81.4. And I'll give you one other, that's year over year. Yeah. Okay. So it went from 70 to 81. The year over your growth rate, accelerated. Is that what you're saying? Correct. Yeah. Well, accelerated is one way to look at it. Yes. Oh, geez. This is, oh, wow. Yeah. And you said the harder, the better. I gave you too easy of one in the first time. Yeah, no, no.

That's a bit more of an obscure number for this one. This came out this week? No. So it's Q4's number. Oh, okay. Q1's number has not been released yet. Okay, so it's, okay, it's, money market mutual fund growth.

No. No, okay, that goes to. Is it a government statistic? Yes, I would think it's a government statistic. How about this? It's even more focused. It's a banking statistic. Is it the federal senior loan officer survey?

Nope. No. It's related to funding. So is it a bank liability? Okay. You're getting closer. So is a deposit account? We're getting closer.

Okay. So some deposit account has increased quite dramatically. year over year through the fourth quarter of 22 of 21 to all deposits are declining so what could have been increasing that's interesting you just you just you almost said it right you know what Chris what would that be it's got to be some some some some money mark no I said money market so it can't be a money no it's a banking liability oh it's some kind of CD some kind of CD All time. Oh, go, go ahead.

Mercia. Is it like loss provisions or something? No, no, no. He's saying it's a liability, a bank liability. It's some funding source. It's a deposit account. Savings accounts. Savings accounts?

Not savings accounts. Time deposits. It is the loan to share ratio for credit unions. Last year, they were what they call loan to deposit ratio, what credit unions call. So credit unions have gone from a seven. A good one. Lone to share ratio to an 81.4% loan to rate, implying that those deposits have been flying up that those loans have been lent and they are running out of cash. That is, that's a, that was a really good one, actually, a really good one.

I couldn't think of any deposit account that actually went up. That was through barking up the wrong tree. It increased, but it increased in a bad way, right? Yeah, yeah, yeah. Okay, Chris, you're up. Oh, I give you the nine, but if you want another one, I can, I can, I'll give you an easy one. Because I already, you, we've gone through a bunch of, okay. He's given us like five.

Oh, yeah. He really has. He's been watched out. And don't forget the pre-call too. We knocked him out of a couple of them. Okay. I got one. And this is, I'll have to admit, this has been a tough week, a really tough week.

It's a little thin. A little thin. 940,000. That's got to be the. multi-family construction. Wow. Wow. Yeah.

Well, that John, it's not as impressive as it sounds, but yeah. We have to go to. Smile on Chris's face is pretty impressive right now. That's pretty good, Chris. So that 940,000 I'm rounding, I think it was a little higher than that. That's the number of multifamily units in the pipeline going to completion, record number. Keeps on rising, you know, keeps on going up month after month. That's a lot of you.

at all? Is that where are you at all? Is that a good thing? Okay, it depends on your perspective. If your perspective is inflation, I'd say bring it on, baby, because we need more rental units, we need declining rents because the rents are driving the cost of housing services. So that's my immediate take. So I'm going to take it from the lending side. Yeah. And we're talking about construction now, right? So we started building that particular multifamily unit. And the person who did that construction loan 18 months ago was in a very different interest rate environment and a very different cap rate environment and where he is today. And now that he's looking for permanent financing in a much more frightening world, how do you feel about the lending side of that particular

piece of the conversation? And I would say the bid and the ask on that is Grand Canyon wide. Yeah, I'm totally with you. If I'm a multifamily, you know, if I'm a multifamily, a developer, I'm pretty nervous about this. That's right. If I'm a bank lender that's extended a mortgage loan into the multifamily space, I probably should be a little nervous about this because it means higher vacancy, weak rents, and, you know, that might be some difficult, create some difficulty. I also worry because of the tightening and underwriting for multifamily mortgage lending,

which is clear from the senior loan office survey and other anecdotes, that we may see some real pullback in multifamily construction. That'll take some time because you've got all this stuff in the pipeline. But if you look out towards the end of this year and certainly by this time next year, I suspect we're going to see much less multifamily construction, which is not we need as many housing units as we can possibly get given the affordable shortage. So, you know, in the immediate near term trying to get inflation in, I'm saying, let's, I want lower rents because that translates into, you know, lower inflation, measured inflation. Shelter and housing, right?

Well, it's not as bad, though, as the other CRE, right? You have Fannie and Freddie. True. Oh, no, no. Multifamily is the good one in commercial real estate, right? That's the poster child. And Mark, you and I've talked about this a long time. Chris, you and I've talked about this a long time.

We had a housing crisis prior to COVID. have a housing crisis. Post-COVID. Builders were really the ones that got savaged back in the great financial crisis. We didn't build enough homes in the 2010s. You know, we are struggling to kind of catch up. We need more housing, no question. It's just right now, the financing that is an interesting piece of the puzzle in the near term.

So, so John, you have a window into what's going on with all these different types of lending activities because of the trading and whole loans that you do. If you kind of rank order all the different types of lending, is office the thing you're most worried about would be at the, would that be at the top, that's office. Office and subprime auto and subprime card. You know,

we've wondered about this for a while. What happens to young people today and in this inflationary environment that we're in come July or August when we turn. student loan payments back on. $300 a month is the average student loan payment. We haven't been making that for two plus years. Inflation has risen. We've seen the percentage of consumer debt coming out of the wallet of the consumer

kind of continue to rise. Have those young people already spent that $300 elsewhere on foods and goods and car payments? And so when we turn that number back on and we have to kind of prioritize the payments at the consumer level. You know, does that pinch cards even more? Does that pinch autos even more? Does that pinch mortgage? You know, again, looking at that kind of consumer number.

So on the lower end of income, on the younger end of age, and on the lower end of credit, am I probably worried in the consumer book, in the commercial book, I'm more worried about office. I'm a little worried about construction, kind of like what we just talked about multifamily, but with other products as well. It's a similar conversation. We were in very different interest rate environment 18 months ago. So those are the parts of the sector that we're in. And going to the other end, which loan types are you most comfortable with and least concerned about? Yeah, I mean, mortgage is, I think, at a great spot. I see. Yeah. We've got, you know,

how many of us have a 3% 30-year fixed rate loan, you know, I mean, or less. So what we call forever loans. It's been a real boom for the economy and that that three percent payment is exceedingly efficient, almost too efficient. It's not causing Americans to want to move, right? People are staying put because they don't want to lose their loan. And so what we've seen because of that is helox really take off this year, record volumes in home equity loans. Home equity lines lines of credit, correct? Because you don't want to sell your house. and you want to improve it. So there's kind of two schools of thought.

I love my mortgage, but I hate my house. So I'm going to take out a helock to spruce up and make my house better. The other side of the argument is I love that house, but I want to date the rate. I want to go out and get a six and a half percent cash out or a six half a percent purchase loan, excuse me, and buy the home I want, but I'm really praying to God I have to refi in two years to get that payment down. So there's this kind of war going on in mortgage. But delinquencies are very low and have been very low. Maybe on the subprime part of credit, maybe the lower end of that. But mortgage has been so tight for so long, I think mortgage is in a

really good spot. Even with the house price declines that are kind of in train. Well, you and I've chatted about this before. I mean, what, since COVID home values are up 40%. So if I'm worried, I'm worried about those loans that were probably made, oh, March of 22 and on right before the Fed kind of put their foot on our throat and raised rates. So those are the ones, particularly those in the Zoom towns or those areas where people kind of bid up homes. Those are probably the ones. That's a pretty tiny window compared to the overall mortgage book that's out there. because, I mean, we really refied the half of the $13 trillion mortgage market over the last three years. I mean, Quicken and United Wholesale almost put themselves out of business by refying every loan there is out there.

So prepayment speeds on mortgages have been historically low, three and four percent CPRs just because of people wanting to stay in the houses that they're already in. Yeah, yeah. Mercia, I saw you put down your headset there. Were you going to say something? Do you have a different perspective than John on any of that? Or is that pretty consistent with your views of credit quality across lending types? Yeah. I mean, if we look at the data from Equifax that we get,

we see the problem areas are subprime among younger borrowers and their consumer installment loans. But that's a very small share of total debt outstanding, right? So it's not enough to worry about in terms of a major economic impact if those continue to go out. The delinquency rates on those are now higher than they were 2019 prior to the pandemic. Yeah. Yeah. And mortgage is the best of the bunch, for sure.

First, anything, any pushback there? And it seems like we're all kind of in the same place. Yeah. No, no push. We're all. No, Mercer has a. Yeah. What's that?

which means we're wrong, probably. That's right. We all got to go opo now. We all got to say the world's about to crash down us head and the consumer is about to completely hit me. We're all saying, they're all thinking the same thing. It's perfect.

Yeah. But no pushback, Chris, or any granularity there? No. No, Marissa has this great chart for credit cards based on that data by vintage. And it's just shocking how bad the credit cards originated in 2021 and 2022 are behaving. Billinquency rates are well above any other previous vintage at this. I mean, that's a leading indicator, right, Chris? I mean, that's a part of the consumer that I think we've been kind of talking around that is worrisome.

Exactly. So I think there's plenty to worry about. But I would agree with the ordering. Resi mortgage, we have lots of equity. We'd have to destroy before defaults really picked up. Okay. Okay, well, I think we're coming to the time, but before we end, John, I'd like to kind of get you on the record. Go back to where the conversation began.

Probability of recession. And I'm going to go around the horn here, because we haven't done this in a bit. Let me ask it this way. What, and we've innovated on this question a little bit more recently. So, and you can answer this any way you want, obviously. But what a probability of recession would you put on a recession beginning at some point this year in 2023 in the remaining eight, nine months? In what probability would you put on recession conditional on no recession in 23 beginning in 2024? I know that's a mouthful, but you get what I'm saying?

I do, yeah. I think the probability of 23 is low, I'll say 40%. I think the probability of a soft. recession is in 24. And it really kind of, you and I've talked about this a lot. I think we got one more rate height coming. I think it's May. I do think we're higher for longer. I think Powell's serious about keeping it here and killing inflation. I think he knows that if the banking sector cracks, he can always drop rates if he has to. If he has to choose between the banking sector and inflation, right now he's picking inflation. And I think he's been just razor clear on that,

even though the market is desperate for a pivot. He's not giving it to us. So I think we get another quarter point hike. I think we're higher for longer. I think inflation is a little stickier than we want it to be. So it goes down, but it doesn't go down as much as we hope. And I don't have a firm number on that. I'm a trader.

I'm not a economist. But that's kind of the feel for me. So I think a low probability of a recession this year, but likely one in the early part of 24. So over 50% in 2024. That's fair. Yeah. Yeah.

Because inflation is stickier and the Fed may need to raise rates even more later in the year or something like that. God, I hope not. Yeah. Every time Powell gets up on stage, I just want to grab the Shepherds hook and just pull him off and just say, please, please stop. Well, that's his intent, though, John, right? Oh, he's, no, he's been, he's been consistent. He wants you to be upset. He's got you and his sights, you know?

I'm mad. Guys like you. Yeah, he's getting what he wants. He's winning, yes. Yeah, for sure. Okay. Very good. You know, my views are very similar to yours, but I'll come back to that in a second.

So, Marissa, what are your probabilities now? I'm at 45% for 2023 and about 55% for next year. Okay. Okay. Very good. And same kind of logic is John articulated? Yeah, I mean, barring some, it's always unforeseen, right? It seems like it is.

barring some unforeseen shock this year. I don't, the economy seems very, very solid. We seem to have gone through this banking crisis fine. So I don't see a recession this year. I think the bigger risk is beginning of next year when rates have been high for a significant period of time. It was flowing for a while. Although I find it so fascinating that you characterize 40, 45 percent as low. It feels like pretty damn high to me. Well, I mean, if we do have a recession, though, this will be the most pontificated and forecasted recession in the history of ever, right? Absolutely. We have been talking about the inversion and the yield curve for how long and that, you know,

I mean, if we miss on this, we have good company. And how many people predicted or said we were in recession or would be in 2022, right? I mean, if you go back then, there were so many people that thought a recession would happen last year. Well, Mark, we were in a technical recession for a minute there. you and I had that conversation. Mark, gristles that. I'm not going there. Technical.

That's why I said it with all reverence when I made that state, but I knew I'd get the grin that I'm looking at. How in the world do you create 500,000 jobs a month and call it anything close to recession? I don't know. You don't. Yeah. Right. Anyway, Chris, where are you on these probabilities?

Unchanged, 45% this year. Yeah, because this was a 65% chance. Conditional on no recession this year, 65% chance. That's a change, Chris. That's a change. You're 67%. Oh. Yeah.

Well, yeah, yeah, yeah, yeah. You're down. Class-half-half-full kind of guy, right? So 67% was the full 18 months, right? Oh, okay. Okay, fair enough. So John's or, right, recession either this year or next year is 70%, right? Okay, got it, got it, got it.

Yeah. Which I think is yours too, Mark. It is, it is, yeah. So that's above the two-thirds threshold. I've used your slow session terminology a few times in my conversations, Mark, where. Actually, that's Chris's. I don't want to take credit. He actually is paying for the URL.

We're team here. We have the TM on that. I mean, what do we got? We've tried or I think we got denied or I don't know. Did we get to nine? This is not worth it. Not worth it. Okay.

Yeah. Okay. That's very helpful. I lied. I have one more question, and you may not know the answer to it. You may not have an answer to it, but I ask everyone this question, because I'm confused by it. So if you look at the, you mentioned the treasure yield curve being inverted at screaming recession, right? And, but if you look at the corporate bond market,

and look at spreads, the difference between corporate bond yields and treasury yields, treasury yields is very, I wouldn't say narrow. It isn't small, but it isn't wide. It's kind of near historical norms. No sign of recession there. And then if you look at the equity market, the stock market, you know, clearly it fell a lot in early 2022. In my view, that's just a reflection of a normal rate of rates rising.

You know, the Fed's starting to raise rates and normalized rates. price earnings multiples came in. But over the past year, pretty much now I think it's been a year since stock prices have basically gone sideways. They've not gone up. They've not gone down. The SMP 500 is still sitting at, I think, 4,100, 4,150, kind of at the top end of the range of the past year. That's not saying recession. So, and of course, I should have said the corporate bond market's not saying recession. So do you have a theory as to how to square those things? Is there any, do you have any sense of that? Well, so the two year right now, 416 as I stare at the screens, the 10 year at 353.

So we're 62 apart on twos and tens. And that's come down quite a bit. We were at around 100 there for a hot minute. You know, you and I will disagree on this particular hubb. But I think the market just kind of factors in there's going to be a bailout. Right. We've just every time there's it, we don't let things fail anymore. I mean, I will throw money at it.

We just threw $5 trillion at COVID. You know, if there is a challenge and a pride, we just guaranteed deposits. You know, I think we're banking on the bailout. Oh, that is interesting. I have a third that one. So you're saying maybe we go into recession, but ultimately policymakers step in and saying, we're not doing, we're not allowed. Or the Fed will cut.

I mean, that goes, I mean, I think if he has to choose right now, he's choosing to fight inflation. But if we have something that truly is systematic, he always has. his back pocket that he can he can eliminate unrealized losses by cutting rates right uh and and that would you know and we we got a pivot indirectly whenever SVB happened and the the two in the 10 year plummeted i mean the two year was over five percent it's you know only back up to four 17 the 10 year was what four and a half percent four and a quarter four a quarter i think is where it kind of peaked out at and you know now here we are back at 353 so i mean and and and those drops have have eliminated or at least reduced some of those unrealized losses in the banking sector.

So I just, I mean, I worry about that long term is just throwing money at it. It's always, it's been our solution for the last several crises. Of course, it was with this banking crisis as well, right? We didn't tolerate the pain. Yeah. Yeah. Interesting. That's a great interesting take.

Yeah. Very interesting take. Okay. Well, that was very, I really appreciated, John. Thanks for coming on. We learned a lot. I learned a lot. and I really appreciate you taking the time.

Anything I missed? Anything I should have asked you that I didn't ask you? No, I mean, other than will the Grizzlies win the NBA championship? I didn't ask you that, but I, we can go in,

I mean, I'm hopeful and prayerful jaws. Okay, I think if he's back, we've got a chance. I got a shot. We lost Brandon Clark and, uh,

and Stephen Adams. We got the injury bug kind of niping us, but, uh, hey, look, if it's, if it's the sixers and the gris,

uh, you and I are at, attending that game. We're going to make that happen. You're on. You're on. Let's go. Yeah, you're on. One, just thank you. Mark, we've had a great relationship over these last couple of years and I've really appreciated everything Moody's has done. The partnership with Raymond James and Moody has been fantastic. Chris, you've been fantastic in our calls. Marissa, great to meet you. Nice to meet you finally. I've had, I've enjoyed the conversations. It's been great to do this and everything else

that we've had going on for these last several years. Right back at you, John. Really appreciate the friendship and the relationship with Raymond James. So thank you very much. And with that, dear listener, we're going to call us a podcast. Take care now.