Is a Banking Crisis Starting??

Michael Zuber (0:01)

All righty, folks, we finally have a date. We've been talking about the potential for a banking crisis for a little while now. According to David Freeberg, David Freeberg from the All In Podcast, he thinks that the banking crisis could begin this month. What the heck is David Freeberg talking about? And could this be, could this be real? Let's talk about it. So in the latest All In Podcast, David Freeberg is talking about banks, financial institutions, potentially taking upwards of a 20% impairment charge. Now, what does that mean? Well, it means at the end of October, banks are going to be forced to publish their reports. And given the value of collateral collapsing, he thinks that the banking sector could be on the precipice of something truly nasty. Now, if you want a pretty recent example of what David Freeberg is talking about, all you have to do is go back to Silicon Valley Bank. If you remember the series of dominoes, Jerome Powell came out at Jackson Hole and basically said, pain is coming. Silicon Valley Bank was loaded, loaded up with government treasuries, and those quickly lost value, which caused patrons to really execute a bank run in as short as 48 hours. It was truly something interesting. In fact, if you guys go back to that time, we actually had the CEO of Hemline on the channel, and she relayed a truly nailbiting experience getting her money out of Silicon Valley Bank and somewhere else. So again, truly interesting to see how quickly something like this could happen. Also, I will remind you of conversations I've had with Ana Kelly, Jonathan Twomley, and even my personal experience. Something has changed. Banks, lenders have stopped extend and pretend. Banks are actively, actively looking to disposition properties. Today, pretty quietly, as I shared, I believe it was two weeks ago, I had my first call with a bank who reached out to me. They called me cold and said, Michael, I know you're in the market. We have an asset that we'd like to dispose of. Would you like to see the financials? Would you like to place a bid? You know, they are calling down a call sheet. So again, this, I don't know that it will be 20 percent, I mean, if a bank has a 20 percent impairment charge, they're done, right? They're just done. Banks lever up, right? So again, you give a bank a dollar, they lever up 15, 10, 15, 20 to 1 sometimes. They don't have to keep all those dollars in the bank. That's how they make money, right? They pay you 1 percent, they lend out at 8, and they do that a whole bunch.

So buckle up. At the end of October, if David Freeberg is right, it could be something. So again, something definitely to pay attention to. I personally don't think it will be on the order of 20 percent across the board. Could there be another Silicon Valley Bank lurking? Absolutely. In fact, I would bet money that there's at least 1, 2, 3, 4 Silicon Valley Bank, First Republic, Signature Bank. These are all the banks that blew up last time.

Who's not to believe that another bank can blow up when rates skyrocket this fast, this quickly? So and again, as we learned, we learned, God, when was that? A month ago that the 10 year note has risen this quickly only 16 times since 1970 And every time something blew up. So I think it is a really, really good likelihood that something blows up, right? History doesn't always rhyme, but it does repeat itself, or doesn't always repeat, but it rhymes. Man, I need some more coffee. So again, I think it is going to be interesting late October. And again, we get big banks. Now, of course, nobody's expecting the big banks, Citigroup, JP Morgan, Wells Fargo, on and on to have any problems. But it will be interesting to see what their reserve for bad debt is. Do we see the big banks reserving for bad debt? I think they start reporting next Tuesday. So we will definitely check in on that.

What else do we got? Oh, Microsoft CEO. Microsoft CEO said the quiet part out loud. Microsoft CEO said, when you're renting an AI model, companies pay twice. Oh, okay. What does he mean by that? Well, first, it's in dollars. It's in money, cash.

Then it's in proprietary knowledge. Folks, these models are taking your questions, queries, yada, yada, and they are absorbing all of that. So again, according to Microsoft CEO, you are paying twice.

Larry Fink, I don't know, legendary real estate or legendary investor, said also the quiet part out loud, the last 25 years, owning assets has been better than wages. Larry, it's the last 250 years. This is not new. If you want to get on the wealth side, you want to do anything, you've got to own assets. You can't just be renting everything and hope to become wealthy. That's not how our game is played.