WEBVTT

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It was quite a back and forth week. We

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had the Powell testimony that seemed to go higher.

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We had the jobs numbers and then we had the

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S V P situation. What do you make of

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all of it? I think that the overwhelming thing

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that happened this week was the Receivership of SVB.

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It's one of the largest bank failures that we've had

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since the financial crisis. It's the 16th largest bank

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in the U S. I don't think that the

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issues that you see with SBB are systemic. I

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would agree with what Larry Summers has said earlier.

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However, I do think it was an opportunity for

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everyone in the market to take a very big pause

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today and really think about their positions and think about

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their liquidity, which is why you saw some of

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the, you know, less liquid parts of the

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market really get hit much harder today. Like small

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cap stocks and high yield bonds also were down pretty

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dramatically today. So Sarah, even if it's not

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systemic, is it possibly a canary in the coal

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mine as they talk about that? Although it may

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be just SVB and they got special situations the underlying

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circumstances could be reflected in other parts of the,

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of the economy as well as frankly financial markets.

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David one never knows but but Silicon Valley Bank didn't

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have a very concentrated corporate deposit base. And so

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there are other regional banks in the U S,

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their deposit bases in general seem to be much more

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diversified. So that's one of the primary reasons why

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this may not be systematic, but confidence is crucial

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for banks. And there doesn't appear especially given the

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likelihood that Silicon Valley Bank depositors will be made whole

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any reason for this to spread through the banking system

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, which could be a reason to be looking at

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some of the other banks as, as investments given

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they're selling off so rapidly. Well, it wasn't

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even, I don't think as a practitioner, Sarah

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, by the time it started to sort out,

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it looked like the regional banks were getting hit harder

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than the big money center banks. Does that suggest

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that some of the regional banks may be opportunities for

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investors right now, it does depend on what they

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hold in their asset faces. They have a huge

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amount of commercial real estate, particularly office that could

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end up being very problematic. What we're all really

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talking about here is a new era, interest rates

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are rising and until they stop rising and full again

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, there's a complete new view on credit. Credit

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is going to be very difficult to obtain. We're

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in a credit crunch. So whether you're in real

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estate and you have a tough time with occupancy or

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you're a technology banker. This is, this is

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, this is a whole different environment. So be

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really careful if you're looking at regional banks, make

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sure if they're trading down at their tangible book value

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, book less goodwill, but that's really solid ground

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. There's nothing else could go terribly wrong in their

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asset side of the balance sheet. Remember what other

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parts of the economy and business are interest rate sensitive

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in the center because we've had a long regime.

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Frankly, of pretty low interest rates that seems to

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be gone. Well, look who's benefited the most

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from very low in The real estate sector was probably

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the first one. That's the single biggest beneficiary of

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it. You'd have to also take a look at

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the private markets, private credit, private equity,

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private real estate all benefited from very low rates.

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So the fact that you have is drying up liquidity

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. The federal reserve has been raising interest rates aggressively

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for the past 12 months. They're trying to slow

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down the economy. And when you slow down the

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economy, certain things break just like Cryptocurrency broke last

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year, then you had the problems in the gilt

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market in the U K and now you have a

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U S bank that's just failed to slow down the

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economy. How much Barbara are we going into recession

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as a practical matter? Because inflation seems to be

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more durable than people thought. Are they going to

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have to step on the brake so hard that we

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have to go under? I don't think there's a

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recession on the horizon over the course of the next

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12 months. There is a very long lead time

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between policy implementation when you're raising interest rates and when

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you go into recession, the US economy is extremely

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strong. You had 311,000 jobs printed this past month

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while it looks like the labor market is starting to

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ease a bit and weaken a little bit. I

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would say that the the U S economy is a

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very durable supertanker. It would probably take a seismic

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shock of some sort in order to derail it at

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this point. And I don't think SBB is that

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shock Sarah, you specialize in equities and particularly investing

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in equities when it comes to equities. What is

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your base case on recession? And more importantly,

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doesn't matter, does it really affect which equity to

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invest in whether you think there's going to be a

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recession or not? It matters if the stock doesn't

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already price in some slowing. There's no doubt.

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I mean, my colleagues and I really do believe

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that the Fed is intent on slowing the U S

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economy. And the same with the European Central Bank

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, maybe they're a year behind the Fed and at

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some point time, maybe the Japanese will tighten monetary

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policy with a new Central bank head. So there's

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a lot of tightening out there. And the other

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side of that is typically economic slowing, that's what

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brings down inflation and inflation is the target. So

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we're expecting some element of slowing. It may be

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severe. It's hard to know. But what we

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do know is what's priced into stocks and not all

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stocks, but in certain areas that many of them

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have already discounted an economic slowing, not all the

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cyclicals, for example, but there are sub industries

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that have and that's the opportunity where it's already priced

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and then we can have it and then the worst

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can happen and the stock has nowhere to go.

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But up Barbara, let's play the parlor game.

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What do you think the terminal rights got to be

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for the fed to get inflation down to where it

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needs to go? I don't think it's as high

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as probably what the market's pricing in. I think

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maybe the Federal Reserve has to tighten one, maybe

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two more times if that. And then the reason

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is the way that you price in a higher terminal

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rate is either you have faster labor force growth or

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faster productivity growth. The U S doesn't have any

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showing of that being the case at this point.

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So for us, we do not believe that our

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star is 6% or something above there at this point

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. I don't think that the U S economy can

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grow so fast or it's been such a dramatic change

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that it's been over the past 20 years. So

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we don't think that rates have to go much higher

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at this point.