Simple Explanations Don’t Work. Banking Franchise value is being destroyed. Fed must pause. Powell needs to fall on the Sword.
March 16, 2023 - Avoid Crisis hosts Reynaldo Arellano and Allen Plyler point to Jerome Powell as missing the mark on the timing of interest rates and claim the acceleration of rates ultimately destroyed certain Banking Franchise values. Rey gets pointed and calls for Jerome Powell to resign, as he calls it, a “fall on the Sword”. Both agree the Fed should pause and wait for more information before embarking on more rate hikes.
Key Points from Rey:
Key Points from Rey:
- Major moves to stabilize the financial system. Other big banks coming in to provide funds to support First Republic bank.
- First Republic Bank can show a rebound in a month.
- Use Limit Orders if you are going to be in the market.
- If you don’t have the right information, you might be the bait and not the shark.
- The FDIC should come out in a minute and a half and raise the FDIC limit to $500,000
- ECB rate hike may influence Fed interest rate move.
- Chairman Jerome Powell should tender his resignation
- The raising of rates was wrong and Powell should fall on the sword.
- The market is trading in a good range, but financials are losing investor confidence.
- As a guest on The Cloud Accounting podcast I made the point the SVB exposures were more than just uninsured depositors, it also impacted employees, investors, debt holders, equity holders, and vendors. We don’t know all the impacts yet.
- Assessing risk is really important to avoid a crisis.
Key Points from Allen:
- If you just look at the moves today in First Republic Bank, this could turn into a lot of volatility. Reminder of the moves seen on GameStop.
- FRC Options time value two days from expiration is really high
- Ripple effect and tentacles of contagion is real. The ECB raised rates to fight inflation, but that is hard given financial stability issues.
- Crisis is risk related, the unknown becomes known, and there is a high cost to a crisis.
- To gain in life you must risk, but it needs to be acceptable risk.
- The FTX chapter is still being written, SVB ripple effect continues, and there is unseen risk.
- What is really in this deal, is there an underlying option to purchase First Republic Bank?
- Credit Suisse has over 9% investment coming from Saudi Arabia. There is risk there.
- Limit orders to sell on FRC are out there at 150. The last time the stock price was in that range was in the beginning of February in 2023.
- If you positioning in FRC, you have to be really smart and know what the banks are doing in order to get it right.
- FDIC limit has not been raised since 2008. In 1934 the limit was 2,500. It was designed to protect the little guy.
- The valuation of intangibles is not on the balance sheet. How are the equity holders being compensated for taking the investment risk?
- There are times where you should just wait. Agree that Jerome Powell should pause now.
- Crowd psychology is important here. Does the assistance to First Republic create calm?
- When Covid hit stock prices collapsed. But we recovered. Even so psychology impacts decisions. What happens on Wall Street impacts what happens on Main Street. And what happens on Main Street impacts what happens on Wall Street.
- Not long ago, interest rates going up hurt tech, now people are turning to tech even though interest rates are still potentially rising.
- There are other crisis situations to consider, think about the risks.
- The Fed needs to pause and wait.
- Credit Suisse credit default swap price rise is alarming. Similar to 2008 crisis with banks.
Connect with Rey
linkedin.com/in/reynaldoarellano
Connect with Allen
linkedin.com/in/allen-plyler-cpa-mpm-3803992a/
Leave a review on Apple Podcasts or Podchaser
Subscribe to the Avoid Crisis podcast in your favorite podcast app!
linkedin.com/in/reynaldoarellano
Connect with Allen
linkedin.com/in/allen-plyler-cpa-mpm-3803992a/
Leave a review on Apple Podcasts or Podchaser
Subscribe to the Avoid Crisis podcast in your favorite podcast app!
Creators and Guests
Host
Allen Plyler, CPA, MPM
Allen Plyler, CPA, MPM is an experienced CFO in Technology, Start-ups and Financial Services with focus on large scale accounting implementations, evaluating emerging accounting Standards and SEC external reporting for publicly held companies. He is experienced in structuring capital markets and equity deals while also providing consulting to CEO and CFOs for business strategy.
Host
Reynaldo E. Arellano, CPA PFS CGMA
Reynaldo E. Arellano, CPA PFS CGMA is a Certified Public Accountant (CPA) with professional designations as a Personal Financial Specialist (PFS) and Certified Global Management Accounant (CGMA). In addition to providing traditional CPA services such as bookkeeping, accounting, and taxes (planning, compliance, and representation) his Firm also offers tactical CFO services and strategic business advisory services. Mr. Arellano started in the financial profession as a Big 8 auditor, then an accounting software consultant, then a Controller eventually becoming a CFO, and held NASD and life insurance licenses (presently inactive). Mr. Arellano has consistently proven to have the highest levels of integrity, intelligence and innovation. He has held numerous managerial (C-suite) and leadership (board of directors) positions within corporations and non-profit organizations.
