Holy Sh*t There's A Problem In The REPO MARKET…Again
Summary
Repo Market Concerns: The podcast highlights renewed issues in the repo market, reminiscent of the 2019 spike, signaling increased systemic risks and unusual spreads between SOFR and the Fed funds rate.
Liquidity vs. Risk: Contrary to mainstream views, the speaker argues that the repo market issues are more about increased counterparty risk rather than a lack of liquidity, as banks inherently create money and liquidity.
Oil and Economic Indicators: The decline in oil prices to $57 suggests a potential decrease in demand, reflecting broader economic concerns and challenging the narrative of a debasement trade driving gold prices up.
Interest Rates and Economic Outlook: Falling interest rates, particularly the 10-year Treasury below 4%, indicate declining expectations for nominal GDP, not aligning with fears of runaway inflation or debasement.
Banking System Risks: Recent issues with banks like Zion and Western Alliance, involving misrepresented collateral, underscore rising risks in the financial system, affecting repo market lending rates.
Regulatory Evasion: The podcast criticizes post-2008 regulations, arguing that banks circumvent these rules through shadow banking, maintaining risky lending practices despite regulatory efforts.
Market Forces and Solutions: The speaker advocates for allowing banks to fail to eliminate moral hazard, promoting free market capitalism as a solution to systemic financial issues.
Investment Strategies: In light of financial bubbles and market volatility, the speaker suggests contrarian investment strategies, emphasizing the importance of adapting to current market conditions.
Transcript
Hello fellow Robo Capitals. Hope you're well. So, we got big news in the repo market. That's right. Everybody remembers September 2019, repo madness where the repo rate went up to almost 10%, maybe even a little higher than 10%. Well, we're starting to see red flags again. And it's not just in the repo market, it's in other markets as well. So when you put everything together, all the pieces of the puzzle, you see that the risks in the system are starting to increase substantially. All right, let's first and foremost go over to what is happening in repo and I'm using sofur. So we're going to look at the delta between sofur and we'll do sofur and fed funds rate. Now, what's really kind of bizarre is I don't know if you guys have experienced this today, but I guess Amazon, a lot of their servers or cloud servers or something like that are down. So, it's definitely impacting the Fred website because I couldn't pull up any charts on Fred at all. I just kept getting like an error message. So, hopefully they'll have that fixed soon. But, let's go over to macro micro. And uh we can see this yellow line is what we really want to pay attention to. So let me zoom in and let's check out. Whoa, whoa, whoa, whoa, whoa. Time out here. Okay, that's looks like it's as far as it's going to let me go. So let's look at that yellow line. Now what we want to do is we want to once we see the yellow line we want to focus on the difference or the spread between the yellow line and the red line or maybe it's orange. The orange is the effective Fed funds rate. So the overnight rate of interbank lending now that is going to be different than the interest rate the Fed is paying on reserves because there's parties and uh counterparties involved there that don't get paid on their reserves. So they're just trying to pocket a spread over reverse repo. So reverse repo right now is 4%. So that's why you see the effective funds rate slightly below actually the interest paid on reserves. But we're getting into the nitty-gritty of the plumbing there. It's really not necessary for this video. But what is necessary is that you focus on the delta where you notice the delta between the yellow line and the orange line. So now it does spike periodically, but usually it's going to spike at the end of the month and this is for um a variety of reasons and I'm not going to get into it right here, but it usually so that's not atypical. That's the point. But now we did have a big spike right here and that was not at the end of the month. Now I don't know if that was maybe a tax issue September 15th. Maybe that's when corporate taxes are due. I'm just thinking out loud. But what's really wild is we have no So this spike that you're seeing right here between the or the spread increase, the spike in the yellow line is not at the end of the month. There's nothing that explains it. That's really the bottom line. So, a lot of people what they'll do is they'll point to the amount of QT that the Fed is doing, and I'll try to pull up a Fred chart and see, but you guys know that the Fed was doing QE, QE, QE, so the size of their balance sheet, the amount of bank reserves, and the system goes up up up. But for the past two, two and a half, maybe three years, they've been doing quantitative tightening. So the size of their balance sheet is decreasing and they're allowing a lot of those assets that they held, mostly mortgage back securities, excuse me, to roll off their balance sheet when they mature. So what you're seeing right here, a lot of people, most people would argue that, oh, there's just not enough liquidity in the system because what's happening here is the the the yellow line represents the sofur rate. So that's overnight lending in repo that is collateralized. Those are secured loans where this orange line that represents unsecured this kind of interbank lending. But the the GSC's are included in that as well. So when you see this yellow line really start to spike up, it's it's one of two things. Either it's a a lack of liquidity, meaning that the banks just don't have any cash, like there's no more cash. And so since there's no more cash to lend to people even at you know secured rates then the rate goes up. That's what 99% of the people focus on. Now I have always looked at things much different and I did this way back in the repo spike during 2019 is I always said yeah I don't know if it's a lack of cash. I mean at the end of the day the banks create cash. they create liquidity and they don't necessarily need bank reserves to go ahead and settle in her bank or really do anything. So, you know what's really going on here? And it you think about it a few steps further and you're like, well, wait a minute. Maybe it's not that they don't have any cash. it's that the counterparty risk is increasing and they need to be paid more to go ahead and lend to whatever entity they're lending to even though that um entity is giving them collateral because I don't know maybe in the past week we've seen a lot of issues with collateral first brands and Zion Bank a lot of these regional banks and I'm going to be going over that in just a moment So, let's think about this. If you're a lender in repo and you're seeing all of these collateral issues in the banking system and you're seeing all of these red flags and you're like, Jamie Diamond's talking about cockroaches. Yeah, that makes a lot of sense. And you know that when there's when you see smoke, it usually means there's fire. Well, then even though you have the cash to lend, you're going to be like, I don't know. I need a little bit more interest. I need a few bips more to compensate for what I think is is risk in the system. And so this for me is a better explanation than what you hear in the mainstream media that oh boy, I guess we're all out of money. There's no more cash. There's no more liquidity. The Fed needs to do QE again. So there's bank reserves because this is just showing you that there's not enough bank reserves in the system. or what that means is there's not enough liquidity. And what that completely ignores is the banks create liquidity themselves. It's all based on risk. So if the risk is very low, I don't care how many bank reserves are in the system, the banks are going to create liquidity and they're going to create credit and they're going to lend into the repo market because they don't need anything to lend. They just need for it to make sense as far as riskreward. So that's where I have a I think a much different view than the mainstream and most of the people on social media where they just have this this idea this framework that the banks don't create money. The banks just they they they can only lend what they receive. To me, it's like I don't know. It's it's just it's weird to think of banks that way because you're you're thinking of them in in terms of like a a goldsmith in the 1600s like it somehow but even the goldsmiths could could create money in the form of receipts and I don't know I don't know it's not even fractional reserve lending it's the banks don't need any reserves they just they create a loan that creates quote unquote money that creates dollars that creates commercial bank deposit liabilities and they have an offsetting asset which is the loan and if they have to transfer that they need interbank settlement great they do that on credit as well they don't need bank reserves to do that but anyway so when I see this what I see as if it's an anomaly as far as the timing is increased risk which if you think about what happened last week that makes sense right but it's not just this market let's go over to the oil market. Look at this. 57 bucks. Oil. 57 bucks. What does this tell you? To me, this is this is demand just getting smashed or the expectations for demand going down. Well, if expectations for demand for oil going are going down, what does that tell you about the projections or the expectations for the overall economy? I mean, energy is the economy. So, if energy prices are going like this, then that tells you that likely the expectations for the economy are doing the exact same thing. Do we have a supply glut as as CNBC says? I maybe is it over supplied or is it or is there or is the demand just too low and the demand declining? I think it's probably more so on the demand side especially when you look at what's happening with the labor market as an example. You look at what's happening with repo and kind of a head scratcher here. It's like why are we getting that spread now? Of course, it's not up where it was, not even close to 2019, but it's it's starting to become it's a red flag even though it's come down substantially as you saw in that chart. Because what we're doing here is we can't just look at sofur or what's happening in repo. You have to look at this in addition to everything else. And you can't just look at it as an isolated indicator. So unless it goes to 10% then you can definitely look at it as an isolated indicator but we're not there right now. It's the combination of all of these indicators. And so a lot of people recently as you guys know are talking about the debasement trade. The debasement trade. The debasement trade. Look, I if if this if if the price of gold skyrocketing, which it obviously is, was a result of the debasement trade, oil would not be trading at 57 bucks. Like, there's no way. There's no way. And look at the chart. It's not like it's in an uptrend coming from the lows. I mean, look at this. Look at this one-year chart. It's terrible. It It smat. In fact, I didn't realize this. The low of the last 12 months was 58 bucks and we've gone right through that resistance level trading under at 57.48. So, I mean, let's zoom out to a 5-year chart. I mean, look at that. From this point when it was 120, I mean, it's just this is a terrible chart. And just based on this chart, I don't know. I mean, it could go it could go into the 40s. So why is that? Is that just because the world is producing so much oil? No. Because OPEC would simply say, "Cut the taps. Cut the taps, baby. We're just we we don't need it at 57." And by the way, you know what's that doing to American producers? I'm not saying that they produce it higher than 57, but we're we're getting things are getting a little tight here as far as the margins, that's for sure. So, you know, this trades, let's say, in down to 50 or even in the 40s. What does that tell you about demand? What does that tell you about demand? And now, let's go over to interest rates. And here's another reason why you know that the price of oil of gold, excuse me, going up has nothing to do with the debasement trade. Now, is the dollar losing value? Yes. But it's not doing anything as far as unprecedented. And the reason people are buying gold or Bitcoin or whatever it's they're not really buying Bitcoin, but just more so gold and silver is it's it's not because of a debasement trade again. Or else you would not see oil going down to 57 and maybe even into a forehand or 40. And then look at what's happening with bonds. In fact, it's down just since I refreshed about five minutes ago. So the 10-year Treasury trading under 4%. Yeah, look, if this was a debasement trade, then you would not have bonds. And people always say, "Oh, it's about issuance, about issuance." No, look at the entire curve. Like, look at the entire curve. There's no way the curve would look like this or be under Fed funds, a lot of the curve. And there's no way you'd have the two-year trading at 3, call it 47, something like that. uh with the the concern over inflation accelerating like the 1970s like this. This is not what would happen. And this is a one-year chart. Uh let's look at a three-year chart. They don't have it here. But if you look at year-to date, we're down obviously on the year and down big. I mean down 60 basis points. Remember just two months ago when the whole narrative was interest rates are going up. Well, interest rates are going up in and and even though they were going down and we talked about that on this channel all the time. Remember interest rates were going down. But yet everyone on social media was saying, well, you know, I mean, interest rates are going up. Interest rates are going up. The foreigners are dumping treasuries. We've got these deficits. The debt is exploding higher. and interest rates are just going to they're out of control. The bond market is telling you that they're rejecting these deficits. And they kept saying that over and over and over again while interest rates were literally going down. And you're like, "What are you talking about?" And they're like, "Oh, well, they they went up right here. They went up right here during retardation day." And but then they just kept going down down down from there. And people just extract or they just take what happened the two weeks after retardation day and just extrapolate that indefinitely into the future even though interest rates have been doing the complete opposite. So the point here is that interest rates are a reflection of the economy. They don't control the economy. So, what the 10-year Treasury is telling you this year is that the expectations for nominal GDP are going down. Now, that doesn't mean that you have a a crisis or a depression or a GFC or anything like that, but the expectations for nominal GDP are going down. So, you got the 10-year, and by the way, the Fed funds rate is roughly 4%. So, you got Fed funds at 4%, you got the 10-year trading under that. You've got a a good portion of the curve that's inverted. You've got the two-year Treasury trading at 50 basis points plus under Fed funds. And then you have the story right here, the tide went out, how a string of bad loans has bank investors hunting for hidden risks. So now let's go over this and we're going to tie this back to what's happening in repo. But before we did that, I just wanted to show you the price action in some of these other markets that would back up kind of that thesis or that framework for looking at sofur and repo through the lens of risk as opposed to the lens of just oh the system needs more bank reserves. The banks just don't have any money to lend and that's why rates are going up. It it if you say that out loud, it it it's like that doesn't even make sense. Like the banks don't have enough money to lend what the the banks make money. The banks create the money. The the banks lend money or currency, whatever you want to call it. They lend it into existence. So, how can they not have enough? Like, what? All right, let's get back to this article here. The tide went out. how a string of bad loans as bank investors hunting for hidden risks. It's not just bank investors, it's other banks and it's obviously people that are lending or entities that are lending into repo. The risks are going up. The risks are going up. So if the risks are going up and you are lending into repo even though it's collateralized, okay, fine. You're going to charge a higher interest rate, aren't you? This is common sense. Even if you have the money, you're still going to charge a higher interest rate. Why? Risks have gone up. And it's not just risks in the economy. It's risks in the banking system, in the financial economy, with the financial institutions. Now, what I want to get down to here, I've highlighted some of this. So, we talked about this with Zion and that name should ring a bell because they're one of the banks that had issues in 2023 March Silicon Valley Bank. So, Wednesday they disclose that nearly a wipe out of 60 million in loans after finding apparent misrepresentations from borrowers. Okay, so that's missing the point. That is really missing the point because what was the misrepres excuse me, the misrepresentation from the borrower? It's that the collateral they pledged was only pledged to Zion. That was the misrepresentation. You see, the collateral was pledged to a lot of different banks, not just Zion. So, if Zion wants to, for lack of a better term, foreclose and get that property back that they lent on, and by the way, a lot of this was for commercial real estate. So, if they want to foreclose because they're not getting paid back and they want to take that asset to liquidate it so they can get their money back, there's no asset because that asset was pledged to five other banks. And the and the five other banks have already tried to foreclose on that entity and try to sell that underlying asset to get their money back. And guess what, Zion? You're number six in line. So take a number. I mean that's what's going on here. So think about that. Obviously that's fraudulent. But why why is it all of a sudden you see all of this fraud? And by the way it's happening with Western Alliance here as well that said they had sued the same borrower commercial real estate a firm called Cantor for alleged fraud. And the fraud again was misrepresenting the collateral. They they pledge the collateral to multiple entities and obviously they ain't supposed to do that. But think about why are they doing that? Is it just that all of a sudden fraud became more popular? Yes. But I so I should say that another way. Is it just because people all of a sudden became more greedy? No. No. Is it because what happened is all of a sudden the tide is in the tide is very high. So you can swim naked for as long as you want. In other words, you can pledge collateral to multiple entities and it doesn't really matter because the tide has been in for so long. The economy is going to grow. You're going to get paid back. And sure, you're pledging the same piece of collateral to 10 different banks, but who cares? because they're never going to have to foreclose because you're easily going to be able to pay all this money back because the economy is doing so great. The Fed's got your back. Everyone's flushed with stmmies. Demand is higher. Blah blah blah blah blah. The whole narrative that we've heard, you know, strong and resilient. Well, if the if the economy is strong and resilient, well, maybe you can just take out that collateral and kind of rehypothecate it a little bit because you're not going to need the collateral because the economy is strong and resilient. Uh, and see, you get this mindset and then it's like prior to the GFC, it's like why were these banks doing it? Because everyone else was doing it and if you didn't do it then you wouldn't keep up with all the other banks. and you'd lose business. So, you're like, "Yeah, I really don't want to rehypothecate this this collateral. I don't want to do something illegal, at the very least gray area, but all my competitors are doing it. So, I don't have a choice. I don't have a choice. I'm going to do it as well." And this is and you kind of rationalize as to why this is a good idea. And but it's not just these guys doing it. It's a lot of different entities. And therefore, you're starting to see smoke. The financial institutions that are lending into repo understand that where there's smoke, there's usually fire. So, what are they going to do? They're going to increase the amount that they charge to a borrower in repo, even though it's a secured loan. Let's keep going here. Concerns over credit quality had been simmering for weeks. It's not just credit quality. Again, it goes back to that collateral. It goes back to the collateral. And by the way, if the perceived counterparty risk is increasing, then you're going to require more collateral. And so what's that going to do? Well, that means the collateral that you need is treasuries. So what you would expect in that type of environment is for treasury yields to do what? That's right. Go down. Go down. See, it all starts to make sense. It all starts to make sense once you understand kind of how the financial plumbing works and once you understand how banks really work and and that that it all goes back to understanding the commercial banking system, understanding the monetary system. It's like it's like taking an economic red pill kind of. Okay, so JP Morgan, they said the biggest banks reported and uh looks like they had 170 million loss tied to subprime lender. For JP Morgan, that's a rounding error. I mean, they don't even notice that. But it's not about what they lose, it's about what those losses tell you about what's happening in the financial system. So, so this guy is talking about uh Jimmy Diamond's comments really resonated with people who were like, "Oh man, the tide went out a little bit." Right? But my point is, and I just talked about this in a whiteboard video, is if the tide is going out, what's you think it's just going to stop? Like, why would the tide just stop now? That likely the tide is going to keep going out. Why is that? Because you're starting to see money get tight. And it's not because of QE or QT. It's because of perceived counterparty risk. And so if you have an environment where the economy is starting to deteriorate, where you're starting to see bad loans, you're starting to see the tide go out, which creates a lack of liquidity, and that liquidity is needed for the economic machine to continue or the financial economic machine to continue, then it's going to freeze up more. It's going to cause more problems. It's going to cause more blowups in balance sheets. It's going to cause more of this fraud to be exposed, which is going to make the tide go out even more. What are NDFIS? They're non-port they're non-depository financial institutions. So, this is private credit. This is shadow banking. And I was going over this on a whiteboard video, but now CNBC is saying the exact same thing here. The episode cast a spotlight on fast growing category of loans. Okay, so it was regional global investment banks like. Okay, we got it. Uh, rules put into place in 2008, financial crisis discouraged regulatory regulated banks from making many types of loans. So, of man, this goes back to so many points we make on this channel and it's what I always say is that you can create any regulation you want. The banks are going to figure out a way around it. That's why when anyone always t you know they bring up Basil 3 or something like that. Well, George, it's technically it's true that the banks can create their own money and expand their balance sheet, but they're they're not going to because of Basel 3. I mean, the Fed won't let them do that. And I'm like, come are we really that naive? Honestly, are we really that naive to think that the Fed is going to have some regulation and the banks are going to be like, "Oh my gosh, I could make massive amounts of money here, but oh darn it, the Fed's just that regulation. I just can't get around it." No. What the bank's going to do? They're going to say, "Okay, there's regulations here. How do we get around it?" Oh, easy. Bam, bam, bam, bam, bam, done. It's the exact same thing they did with reserve requirements. They never paid any attention to reserve requirements. The the Fed even acknowledged that those reserve requirements that we had prior to 2020, they were a nothing burger. They were they're like just kabuki theater. It was just they they acknowledged this. And why they didn't get rid of the rule, I have no idea, but they just wanted to pretend as though they were somehow constraining the banks when the banks just set up sweep accounts like ah yeah reserve requirement. Good one. It's the exact same thing. So, I don't know this definitively because I'm not a banker, but why would it be any different with Basil 3? Why are the bankers just found religion? Of course not. And it's the And this is another perfect example right here. The Fed put rules into place after the 2008 financial crisis, discouraged regulatory banks from making many of these loans. So again, you think the banksters are going to be like, "Oh, you got me. You got me. We could make billions of dollars on this stuff, but darn it, we can't anymore because the Fed set up this rule. Boohoohoo." No, they're going to say, "Fine, we'll just lend to a shadow bank." And then the shadow bank can lend to the subprime auto. Or the shadow bank can lend to First Brands. The shadow bank can lend toricolor. The shadow bank can lend to the commercial real estate company. And on my whiteboard video, I called it garbage corporation with a triple F rating. So yeah, technically the banks can't lend to garbage corporation, but they're just going to set up an entity to lend and then they're just going to act as an intermediary. So you look at their balance. Yep. Yep. Look, rules right here. Check. Basel 3. Oh, we can't lend to garbage corporation. No problem. Check. We got that one covered. Yes, we're following the rules. And then you just peek slightly beneath the hood. You're like, "Wait a minute here." You're indirectly lending to garbage corporation. Of course they are. Of course they are. And anyone that thinks otherwise or has thought otherwise in since the GFC I think you're just it's like you're kind of like a little kid like looking at the world through these rosecolored glasses. It's like whoa you got to wake up here. This is it's just naive. It's just naive in my view. Maybe I'm wrong. Maybe I'm wrong. moving riskier activities outside the regulated banking perimeter where failures are backs stopped by the federal by the FDI uh seemed like a good move. Yeah, it's a great move for the banks to load up on cash. And by the way, another thing that causes this or incentivizes this, let's just say getting around the regulations going into a gray area and taking all this risk. That's another thing you could say. Well, George, why on earth would the banks want to do that? I get that they can make a little bit more money, but there's a lot of risk lending to garbage corporation. Sure, but they know they're going to get bailed out. They know that because what has happened since the late 1990s, every single time they get into a and they get into trouble, what happens? The Fed bails them out. Bails them out. Bails them out. So, if you know that you're going to get bailed out, then why would you not take exorbitant risk? And then if the Fed tries to say, "Okay, we're going to bail you out, but we understand that's creating moral hazard, so we're just going to create a regulation, so you can't take more risk, and therefore, we won't have any moral hazard." Again, that is totally naive. It's ridiculous because you created the moral hazard. Therefore, no matter what speed bump you put in front of the banksters, they're going to be one step, they're going to be 10 steps ahead of you, and they're going to find a way around it. We've seen this happen over and over and over and over again, going all the way back to the 1980s. In fact, you could take this all the way back to the 1950s. A prime example of this is Breton Woods. So the the banksters and the PhDs and the economists, they like to sit there and think they're clever. Oh well, we're going to set up Brett and Woods. And then the banksters are like, "Okay, well this sucks because we need dollars outside of the United States and we're not getting enough." So what do they do? They create their own dollars. So then you've got the Euro dollar system that blows up and becomes the main component of the monetary system. It was just a a solution to government regulations. I mean, they get around it every single time. Geez. I know I say that till I'm blue in the face, but it it's just it drives me crazy that people just they it's like we all pret if we all pretend that the regulations have teeth, then it's like it makes us feel good or something like that. So, we just like to pretend that the Fed does control everything because if the Fed does control everything, then that fits my narrative and that makes all the pieces of the puzzle fit. But if the Fed doesn't control everything, then none of these pieces of my monetary framework fit together and I've got to re-evaluate everything and that's just too much work. So instead of actually working through how the system works, I'm just going to be like, eh, the Fed controls it and there's no way the banks have the liquidity and there's no way they're going to do anything to go around the regulation. And if they do, I'm just shocked by it. As opposed to, for me, that's my base case. So they say the surge in NDFI lending was really because all those different regulations added up to say there are a bunch of loans banks can't make anymore. But if they lend to someone else who does them, that's okay. Hello. Right there. Right there. Exactly what I'm saying. This uh maybe this is a different person. They say NDFI and again that's non-depository financial institution. That would be a shadow bank. That would be a private bank. That's basically the the the the workaround for the regulation because of the collateral involved. goes back to collateral typically has a higher loss rate. You don't say and the losses can come very quickly and out of nowhere, right? So, it's not just the fact that some of these entities can't pay them back. It's it's the fact that they can't pay them back and and and and the collateral that they used isn't there. It's a fugazi. It's gone. It never existed. And what caused the GFC or one of the main catalysts? It's the exact same thing is everyone thought that they had all these mortgage back securities and the mortgage back securities were used as pristine collateral. And all of a sudden we wake up one morning and although the collateral was still there, it's not technically a Fugazi, but the collateral instead of trading at 100 cents on the dollar, it's trading at 10 cents on the dollar. And effectively that does the exact same thing. So the the main takeaway here is I think what you're seeing in Repo is totally explained by what we're seeing with First Brands, with Zion, with Alliance, and what Jaime Diamond is saying about the cockroaches. Where there's smoke, there's fire. And it's totally consistent with my worldview that a the banks create money. they don't need bank reserves. It's not a liquidity issue. It's a risk issue. And also with my worldview that these regulations are laughable. They're they're laughable if you think that they're somehow going to constrain the banks. The the banks are always going to find a way around it. And if the Fed and the central planners continue to bail out the banks, we're going to continue to go through this cycle where they take on too much risk, they blow up, and then the taxpayer has to fit the bill or the Fed has to come in and bail them out. The the the the solution to this problem or the best path forward is to do what? Let the banks fail. Let the banks fail. let the depositors take a haircut because then and only then are the banks going to be incentivized to not take this crazy amount of risk because they know that's going to come back and potentially haunt them. They're not going to get bailed out and if they don't go ba get bailed out then they're going to go bust and they don't want to take that risk. So you're applying market forces. I mean, shocker, right? The way forward is through free market capitalism, not capitalism, notice, free market capitalism. And the reason I always emphasize free markets is because a free market is absent any type of central planning bailout. And if you really think about all the problems that we have, it's not really a result of QE or, you know, artificially low interest rates, blah blah blah blah blah. It's really a result of the central planners bailing out the system since the late '9s and creating this moral hazard and then having to create rules in order for the banks to not take advantage of that moral hazard. I mean, this it's just a crazy treadmill that we're on right now, but it's just so obvious what we need to do. It's so obvious. And then of course looking at these other indicators and I'm just talking about interest rates themselves. I'm talking about oil. I'm talking about the fact that gold is at extremely high levels at all-time highs. And it's not because of the debasement trade. It's because the fear trade. It's because of fear. It's because of the disinflation. It's because of the fear. It's because the system is starting to show a lot of cracks. And that's why you see oil tanking, yields tanking, and gold going straight to the moon. All right, guys. If you want more info on this or if you want to know how I am setting up my portfolio for financial bubbles because regardless of your take on you risks or recessions or inflation, deflation, disinflation, I think we can all agree that with the AI bubble, the stock market bubble, the housing bubble, we have all of these financial bubbles. And the question becomes, how do you set up your portfolio? What do you do about it? How do you protect yourself and hopefully even grow wealth in this crazy crazy environment that we live in that could be extremely volatile, which is what we're starting to see potentially in the repo market. Well, the good news is I'm doing a webinar October 29th where I'm going to be going over three strategies, contrarian strategies that all the pros that I know that I hang out with in St. Barts I've had the opportunity to meet and learn from. They all use these strategies during times where we're in financial bubbles and they're completely contrarian. I can assure you if you're doing the old, well, I'm just going to buy and hold. I'm going to buy the dip. I'm just going to take 10% of my paycheck and allocate it to an S&P 500 uh index fund. If you're doing that, there are no probabil or there are no um certainties. They're only probabilities. But there is a extremely high probability that you get crushed that you you get absolutely smoked. And what has worked over the past 40 years most likely will not work moving forward. And I'm going to be going over all of that on this webinar. And the huge bonus there is that if you attend the webinar, you get a coupon code, a $500 coupon code to get a ticket to Rebel Capitals Live 2026 for 99 bucks. You cannot beat that. You cannot beat it. So Josh will put a link in the chat in the description. You can go register for free. And on that bombshell, guys, enjoy the rest of your afternoon. As always, make sure you're standing up for freedom, liberty, free market capitalism, where we actually allow entities to go bust that make bad decisions. Novel idea, right? See you in the next video.
Holy Sh*t There's A Problem In The REPO MARKET…Again
Summary
Transcript
Hello fellow Robo Capitals. Hope you're well. So, we got big news in the repo market. That's right. Everybody remembers September 2019, repo madness where the repo rate went up to almost 10%, maybe even a little higher than 10%. Well, we're starting to see red flags again. And it's not just in the repo market, it's in other markets as well. So when you put everything together, all the pieces of the puzzle, you see that the risks in the system are starting to increase substantially. All right, let's first and foremost go over to what is happening in repo and I'm using sofur. So we're going to look at the delta between sofur and we'll do sofur and fed funds rate. Now, what's really kind of bizarre is I don't know if you guys have experienced this today, but I guess Amazon, a lot of their servers or cloud servers or something like that are down. So, it's definitely impacting the Fred website because I couldn't pull up any charts on Fred at all. I just kept getting like an error message. So, hopefully they'll have that fixed soon. But, let's go over to macro micro. And uh we can see this yellow line is what we really want to pay attention to. So let me zoom in and let's check out. Whoa, whoa, whoa, whoa, whoa. Time out here. Okay, that's looks like it's as far as it's going to let me go. So let's look at that yellow line. Now what we want to do is we want to once we see the yellow line we want to focus on the difference or the spread between the yellow line and the red line or maybe it's orange. The orange is the effective Fed funds rate. So the overnight rate of interbank lending now that is going to be different than the interest rate the Fed is paying on reserves because there's parties and uh counterparties involved there that don't get paid on their reserves. So they're just trying to pocket a spread over reverse repo. So reverse repo right now is 4%. So that's why you see the effective funds rate slightly below actually the interest paid on reserves. But we're getting into the nitty-gritty of the plumbing there. It's really not necessary for this video. But what is necessary is that you focus on the delta where you notice the delta between the yellow line and the orange line. So now it does spike periodically, but usually it's going to spike at the end of the month and this is for um a variety of reasons and I'm not going to get into it right here, but it usually so that's not atypical. That's the point. But now we did have a big spike right here and that was not at the end of the month. Now I don't know if that was maybe a tax issue September 15th. Maybe that's when corporate taxes are due. I'm just thinking out loud. But what's really wild is we have no So this spike that you're seeing right here between the or the spread increase, the spike in the yellow line is not at the end of the month. There's nothing that explains it. That's really the bottom line. So, a lot of people what they'll do is they'll point to the amount of QT that the Fed is doing, and I'll try to pull up a Fred chart and see, but you guys know that the Fed was doing QE, QE, QE, so the size of their balance sheet, the amount of bank reserves, and the system goes up up up. But for the past two, two and a half, maybe three years, they've been doing quantitative tightening. So the size of their balance sheet is decreasing and they're allowing a lot of those assets that they held, mostly mortgage back securities, excuse me, to roll off their balance sheet when they mature. So what you're seeing right here, a lot of people, most people would argue that, oh, there's just not enough liquidity in the system because what's happening here is the the the yellow line represents the sofur rate. So that's overnight lending in repo that is collateralized. Those are secured loans where this orange line that represents unsecured this kind of interbank lending. But the the GSC's are included in that as well. So when you see this yellow line really start to spike up, it's it's one of two things. Either it's a a lack of liquidity, meaning that the banks just don't have any cash, like there's no more cash. And so since there's no more cash to lend to people even at you know secured rates then the rate goes up. That's what 99% of the people focus on. Now I have always looked at things much different and I did this way back in the repo spike during 2019 is I always said yeah I don't know if it's a lack of cash. I mean at the end of the day the banks create cash. they create liquidity and they don't necessarily need bank reserves to go ahead and settle in her bank or really do anything. So, you know what's really going on here? And it you think about it a few steps further and you're like, well, wait a minute. Maybe it's not that they don't have any cash. it's that the counterparty risk is increasing and they need to be paid more to go ahead and lend to whatever entity they're lending to even though that um entity is giving them collateral because I don't know maybe in the past week we've seen a lot of issues with collateral first brands and Zion Bank a lot of these regional banks and I'm going to be going over that in just a moment So, let's think about this. If you're a lender in repo and you're seeing all of these collateral issues in the banking system and you're seeing all of these red flags and you're like, Jamie Diamond's talking about cockroaches. Yeah, that makes a lot of sense. And you know that when there's when you see smoke, it usually means there's fire. Well, then even though you have the cash to lend, you're going to be like, I don't know. I need a little bit more interest. I need a few bips more to compensate for what I think is is risk in the system. And so this for me is a better explanation than what you hear in the mainstream media that oh boy, I guess we're all out of money. There's no more cash. There's no more liquidity. The Fed needs to do QE again. So there's bank reserves because this is just showing you that there's not enough bank reserves in the system. or what that means is there's not enough liquidity. And what that completely ignores is the banks create liquidity themselves. It's all based on risk. So if the risk is very low, I don't care how many bank reserves are in the system, the banks are going to create liquidity and they're going to create credit and they're going to lend into the repo market because they don't need anything to lend. They just need for it to make sense as far as riskreward. So that's where I have a I think a much different view than the mainstream and most of the people on social media where they just have this this idea this framework that the banks don't create money. The banks just they they they can only lend what they receive. To me, it's like I don't know. It's it's just it's weird to think of banks that way because you're you're thinking of them in in terms of like a a goldsmith in the 1600s like it somehow but even the goldsmiths could could create money in the form of receipts and I don't know I don't know it's not even fractional reserve lending it's the banks don't need any reserves they just they create a loan that creates quote unquote money that creates dollars that creates commercial bank deposit liabilities and they have an offsetting asset which is the loan and if they have to transfer that they need interbank settlement great they do that on credit as well they don't need bank reserves to do that but anyway so when I see this what I see as if it's an anomaly as far as the timing is increased risk which if you think about what happened last week that makes sense right but it's not just this market let's go over to the oil market. Look at this. 57 bucks. Oil. 57 bucks. What does this tell you? To me, this is this is demand just getting smashed or the expectations for demand going down. Well, if expectations for demand for oil going are going down, what does that tell you about the projections or the expectations for the overall economy? I mean, energy is the economy. So, if energy prices are going like this, then that tells you that likely the expectations for the economy are doing the exact same thing. Do we have a supply glut as as CNBC says? I maybe is it over supplied or is it or is there or is the demand just too low and the demand declining? I think it's probably more so on the demand side especially when you look at what's happening with the labor market as an example. You look at what's happening with repo and kind of a head scratcher here. It's like why are we getting that spread now? Of course, it's not up where it was, not even close to 2019, but it's it's starting to become it's a red flag even though it's come down substantially as you saw in that chart. Because what we're doing here is we can't just look at sofur or what's happening in repo. You have to look at this in addition to everything else. And you can't just look at it as an isolated indicator. So unless it goes to 10% then you can definitely look at it as an isolated indicator but we're not there right now. It's the combination of all of these indicators. And so a lot of people recently as you guys know are talking about the debasement trade. The debasement trade. The debasement trade. Look, I if if this if if the price of gold skyrocketing, which it obviously is, was a result of the debasement trade, oil would not be trading at 57 bucks. Like, there's no way. There's no way. And look at the chart. It's not like it's in an uptrend coming from the lows. I mean, look at this. Look at this one-year chart. It's terrible. It It smat. In fact, I didn't realize this. The low of the last 12 months was 58 bucks and we've gone right through that resistance level trading under at 57.48. So, I mean, let's zoom out to a 5-year chart. I mean, look at that. From this point when it was 120, I mean, it's just this is a terrible chart. And just based on this chart, I don't know. I mean, it could go it could go into the 40s. So why is that? Is that just because the world is producing so much oil? No. Because OPEC would simply say, "Cut the taps. Cut the taps, baby. We're just we we don't need it at 57." And by the way, you know what's that doing to American producers? I'm not saying that they produce it higher than 57, but we're we're getting things are getting a little tight here as far as the margins, that's for sure. So, you know, this trades, let's say, in down to 50 or even in the 40s. What does that tell you about demand? What does that tell you about demand? And now, let's go over to interest rates. And here's another reason why you know that the price of oil of gold, excuse me, going up has nothing to do with the debasement trade. Now, is the dollar losing value? Yes. But it's not doing anything as far as unprecedented. And the reason people are buying gold or Bitcoin or whatever it's they're not really buying Bitcoin, but just more so gold and silver is it's it's not because of a debasement trade again. Or else you would not see oil going down to 57 and maybe even into a forehand or 40. And then look at what's happening with bonds. In fact, it's down just since I refreshed about five minutes ago. So the 10-year Treasury trading under 4%. Yeah, look, if this was a debasement trade, then you would not have bonds. And people always say, "Oh, it's about issuance, about issuance." No, look at the entire curve. Like, look at the entire curve. There's no way the curve would look like this or be under Fed funds, a lot of the curve. And there's no way you'd have the two-year trading at 3, call it 47, something like that. uh with the the concern over inflation accelerating like the 1970s like this. This is not what would happen. And this is a one-year chart. Uh let's look at a three-year chart. They don't have it here. But if you look at year-to date, we're down obviously on the year and down big. I mean down 60 basis points. Remember just two months ago when the whole narrative was interest rates are going up. Well, interest rates are going up in and and even though they were going down and we talked about that on this channel all the time. Remember interest rates were going down. But yet everyone on social media was saying, well, you know, I mean, interest rates are going up. Interest rates are going up. The foreigners are dumping treasuries. We've got these deficits. The debt is exploding higher. and interest rates are just going to they're out of control. The bond market is telling you that they're rejecting these deficits. And they kept saying that over and over and over again while interest rates were literally going down. And you're like, "What are you talking about?" And they're like, "Oh, well, they they went up right here. They went up right here during retardation day." And but then they just kept going down down down from there. And people just extract or they just take what happened the two weeks after retardation day and just extrapolate that indefinitely into the future even though interest rates have been doing the complete opposite. So the point here is that interest rates are a reflection of the economy. They don't control the economy. So, what the 10-year Treasury is telling you this year is that the expectations for nominal GDP are going down. Now, that doesn't mean that you have a a crisis or a depression or a GFC or anything like that, but the expectations for nominal GDP are going down. So, you got the 10-year, and by the way, the Fed funds rate is roughly 4%. So, you got Fed funds at 4%, you got the 10-year trading under that. You've got a a good portion of the curve that's inverted. You've got the two-year Treasury trading at 50 basis points plus under Fed funds. And then you have the story right here, the tide went out, how a string of bad loans has bank investors hunting for hidden risks. So now let's go over this and we're going to tie this back to what's happening in repo. But before we did that, I just wanted to show you the price action in some of these other markets that would back up kind of that thesis or that framework for looking at sofur and repo through the lens of risk as opposed to the lens of just oh the system needs more bank reserves. The banks just don't have any money to lend and that's why rates are going up. It it if you say that out loud, it it it's like that doesn't even make sense. Like the banks don't have enough money to lend what the the banks make money. The banks create the money. The the banks lend money or currency, whatever you want to call it. They lend it into existence. So, how can they not have enough? Like, what? All right, let's get back to this article here. The tide went out. how a string of bad loans as bank investors hunting for hidden risks. It's not just bank investors, it's other banks and it's obviously people that are lending or entities that are lending into repo. The risks are going up. The risks are going up. So if the risks are going up and you are lending into repo even though it's collateralized, okay, fine. You're going to charge a higher interest rate, aren't you? This is common sense. Even if you have the money, you're still going to charge a higher interest rate. Why? Risks have gone up. And it's not just risks in the economy. It's risks in the banking system, in the financial economy, with the financial institutions. Now, what I want to get down to here, I've highlighted some of this. So, we talked about this with Zion and that name should ring a bell because they're one of the banks that had issues in 2023 March Silicon Valley Bank. So, Wednesday they disclose that nearly a wipe out of 60 million in loans after finding apparent misrepresentations from borrowers. Okay, so that's missing the point. That is really missing the point because what was the misrepres excuse me, the misrepresentation from the borrower? It's that the collateral they pledged was only pledged to Zion. That was the misrepresentation. You see, the collateral was pledged to a lot of different banks, not just Zion. So, if Zion wants to, for lack of a better term, foreclose and get that property back that they lent on, and by the way, a lot of this was for commercial real estate. So, if they want to foreclose because they're not getting paid back and they want to take that asset to liquidate it so they can get their money back, there's no asset because that asset was pledged to five other banks. And the and the five other banks have already tried to foreclose on that entity and try to sell that underlying asset to get their money back. And guess what, Zion? You're number six in line. So take a number. I mean that's what's going on here. So think about that. Obviously that's fraudulent. But why why is it all of a sudden you see all of this fraud? And by the way it's happening with Western Alliance here as well that said they had sued the same borrower commercial real estate a firm called Cantor for alleged fraud. And the fraud again was misrepresenting the collateral. They they pledge the collateral to multiple entities and obviously they ain't supposed to do that. But think about why are they doing that? Is it just that all of a sudden fraud became more popular? Yes. But I so I should say that another way. Is it just because people all of a sudden became more greedy? No. No. Is it because what happened is all of a sudden the tide is in the tide is very high. So you can swim naked for as long as you want. In other words, you can pledge collateral to multiple entities and it doesn't really matter because the tide has been in for so long. The economy is going to grow. You're going to get paid back. And sure, you're pledging the same piece of collateral to 10 different banks, but who cares? because they're never going to have to foreclose because you're easily going to be able to pay all this money back because the economy is doing so great. The Fed's got your back. Everyone's flushed with stmmies. Demand is higher. Blah blah blah blah blah. The whole narrative that we've heard, you know, strong and resilient. Well, if the if the economy is strong and resilient, well, maybe you can just take out that collateral and kind of rehypothecate it a little bit because you're not going to need the collateral because the economy is strong and resilient. Uh, and see, you get this mindset and then it's like prior to the GFC, it's like why were these banks doing it? Because everyone else was doing it and if you didn't do it then you wouldn't keep up with all the other banks. and you'd lose business. So, you're like, "Yeah, I really don't want to rehypothecate this this collateral. I don't want to do something illegal, at the very least gray area, but all my competitors are doing it. So, I don't have a choice. I don't have a choice. I'm going to do it as well." And this is and you kind of rationalize as to why this is a good idea. And but it's not just these guys doing it. It's a lot of different entities. And therefore, you're starting to see smoke. The financial institutions that are lending into repo understand that where there's smoke, there's usually fire. So, what are they going to do? They're going to increase the amount that they charge to a borrower in repo, even though it's a secured loan. Let's keep going here. Concerns over credit quality had been simmering for weeks. It's not just credit quality. Again, it goes back to that collateral. It goes back to the collateral. And by the way, if the perceived counterparty risk is increasing, then you're going to require more collateral. And so what's that going to do? Well, that means the collateral that you need is treasuries. So what you would expect in that type of environment is for treasury yields to do what? That's right. Go down. Go down. See, it all starts to make sense. It all starts to make sense once you understand kind of how the financial plumbing works and once you understand how banks really work and and that that it all goes back to understanding the commercial banking system, understanding the monetary system. It's like it's like taking an economic red pill kind of. Okay, so JP Morgan, they said the biggest banks reported and uh looks like they had 170 million loss tied to subprime lender. For JP Morgan, that's a rounding error. I mean, they don't even notice that. But it's not about what they lose, it's about what those losses tell you about what's happening in the financial system. So, so this guy is talking about uh Jimmy Diamond's comments really resonated with people who were like, "Oh man, the tide went out a little bit." Right? But my point is, and I just talked about this in a whiteboard video, is if the tide is going out, what's you think it's just going to stop? Like, why would the tide just stop now? That likely the tide is going to keep going out. Why is that? Because you're starting to see money get tight. And it's not because of QE or QT. It's because of perceived counterparty risk. And so if you have an environment where the economy is starting to deteriorate, where you're starting to see bad loans, you're starting to see the tide go out, which creates a lack of liquidity, and that liquidity is needed for the economic machine to continue or the financial economic machine to continue, then it's going to freeze up more. It's going to cause more problems. It's going to cause more blowups in balance sheets. It's going to cause more of this fraud to be exposed, which is going to make the tide go out even more. What are NDFIS? They're non-port they're non-depository financial institutions. So, this is private credit. This is shadow banking. And I was going over this on a whiteboard video, but now CNBC is saying the exact same thing here. The episode cast a spotlight on fast growing category of loans. Okay, so it was regional global investment banks like. Okay, we got it. Uh, rules put into place in 2008, financial crisis discouraged regulatory regulated banks from making many types of loans. So, of man, this goes back to so many points we make on this channel and it's what I always say is that you can create any regulation you want. The banks are going to figure out a way around it. That's why when anyone always t you know they bring up Basil 3 or something like that. Well, George, it's technically it's true that the banks can create their own money and expand their balance sheet, but they're they're not going to because of Basel 3. I mean, the Fed won't let them do that. And I'm like, come are we really that naive? Honestly, are we really that naive to think that the Fed is going to have some regulation and the banks are going to be like, "Oh my gosh, I could make massive amounts of money here, but oh darn it, the Fed's just that regulation. I just can't get around it." No. What the bank's going to do? They're going to say, "Okay, there's regulations here. How do we get around it?" Oh, easy. Bam, bam, bam, bam, bam, done. It's the exact same thing they did with reserve requirements. They never paid any attention to reserve requirements. The the Fed even acknowledged that those reserve requirements that we had prior to 2020, they were a nothing burger. They were they're like just kabuki theater. It was just they they acknowledged this. And why they didn't get rid of the rule, I have no idea, but they just wanted to pretend as though they were somehow constraining the banks when the banks just set up sweep accounts like ah yeah reserve requirement. Good one. It's the exact same thing. So, I don't know this definitively because I'm not a banker, but why would it be any different with Basil 3? Why are the bankers just found religion? Of course not. And it's the And this is another perfect example right here. The Fed put rules into place after the 2008 financial crisis, discouraged regulatory banks from making many of these loans. So again, you think the banksters are going to be like, "Oh, you got me. You got me. We could make billions of dollars on this stuff, but darn it, we can't anymore because the Fed set up this rule. Boohoohoo." No, they're going to say, "Fine, we'll just lend to a shadow bank." And then the shadow bank can lend to the subprime auto. Or the shadow bank can lend to First Brands. The shadow bank can lend toricolor. The shadow bank can lend to the commercial real estate company. And on my whiteboard video, I called it garbage corporation with a triple F rating. So yeah, technically the banks can't lend to garbage corporation, but they're just going to set up an entity to lend and then they're just going to act as an intermediary. So you look at their balance. Yep. Yep. Look, rules right here. Check. Basel 3. Oh, we can't lend to garbage corporation. No problem. Check. We got that one covered. Yes, we're following the rules. And then you just peek slightly beneath the hood. You're like, "Wait a minute here." You're indirectly lending to garbage corporation. Of course they are. Of course they are. And anyone that thinks otherwise or has thought otherwise in since the GFC I think you're just it's like you're kind of like a little kid like looking at the world through these rosecolored glasses. It's like whoa you got to wake up here. This is it's just naive. It's just naive in my view. Maybe I'm wrong. Maybe I'm wrong. moving riskier activities outside the regulated banking perimeter where failures are backs stopped by the federal by the FDI uh seemed like a good move. Yeah, it's a great move for the banks to load up on cash. And by the way, another thing that causes this or incentivizes this, let's just say getting around the regulations going into a gray area and taking all this risk. That's another thing you could say. Well, George, why on earth would the banks want to do that? I get that they can make a little bit more money, but there's a lot of risk lending to garbage corporation. Sure, but they know they're going to get bailed out. They know that because what has happened since the late 1990s, every single time they get into a and they get into trouble, what happens? The Fed bails them out. Bails them out. Bails them out. So, if you know that you're going to get bailed out, then why would you not take exorbitant risk? And then if the Fed tries to say, "Okay, we're going to bail you out, but we understand that's creating moral hazard, so we're just going to create a regulation, so you can't take more risk, and therefore, we won't have any moral hazard." Again, that is totally naive. It's ridiculous because you created the moral hazard. Therefore, no matter what speed bump you put in front of the banksters, they're going to be one step, they're going to be 10 steps ahead of you, and they're going to find a way around it. We've seen this happen over and over and over and over again, going all the way back to the 1980s. In fact, you could take this all the way back to the 1950s. A prime example of this is Breton Woods. So the the banksters and the PhDs and the economists, they like to sit there and think they're clever. Oh well, we're going to set up Brett and Woods. And then the banksters are like, "Okay, well this sucks because we need dollars outside of the United States and we're not getting enough." So what do they do? They create their own dollars. So then you've got the Euro dollar system that blows up and becomes the main component of the monetary system. It was just a a solution to government regulations. I mean, they get around it every single time. Geez. I know I say that till I'm blue in the face, but it it's just it drives me crazy that people just they it's like we all pret if we all pretend that the regulations have teeth, then it's like it makes us feel good or something like that. So, we just like to pretend that the Fed does control everything because if the Fed does control everything, then that fits my narrative and that makes all the pieces of the puzzle fit. But if the Fed doesn't control everything, then none of these pieces of my monetary framework fit together and I've got to re-evaluate everything and that's just too much work. So instead of actually working through how the system works, I'm just going to be like, eh, the Fed controls it and there's no way the banks have the liquidity and there's no way they're going to do anything to go around the regulation. And if they do, I'm just shocked by it. As opposed to, for me, that's my base case. So they say the surge in NDFI lending was really because all those different regulations added up to say there are a bunch of loans banks can't make anymore. But if they lend to someone else who does them, that's okay. Hello. Right there. Right there. Exactly what I'm saying. This uh maybe this is a different person. They say NDFI and again that's non-depository financial institution. That would be a shadow bank. That would be a private bank. That's basically the the the the workaround for the regulation because of the collateral involved. goes back to collateral typically has a higher loss rate. You don't say and the losses can come very quickly and out of nowhere, right? So, it's not just the fact that some of these entities can't pay them back. It's it's the fact that they can't pay them back and and and and the collateral that they used isn't there. It's a fugazi. It's gone. It never existed. And what caused the GFC or one of the main catalysts? It's the exact same thing is everyone thought that they had all these mortgage back securities and the mortgage back securities were used as pristine collateral. And all of a sudden we wake up one morning and although the collateral was still there, it's not technically a Fugazi, but the collateral instead of trading at 100 cents on the dollar, it's trading at 10 cents on the dollar. And effectively that does the exact same thing. So the the main takeaway here is I think what you're seeing in Repo is totally explained by what we're seeing with First Brands, with Zion, with Alliance, and what Jaime Diamond is saying about the cockroaches. Where there's smoke, there's fire. And it's totally consistent with my worldview that a the banks create money. they don't need bank reserves. It's not a liquidity issue. It's a risk issue. And also with my worldview that these regulations are laughable. They're they're laughable if you think that they're somehow going to constrain the banks. The the banks are always going to find a way around it. And if the Fed and the central planners continue to bail out the banks, we're going to continue to go through this cycle where they take on too much risk, they blow up, and then the taxpayer has to fit the bill or the Fed has to come in and bail them out. The the the the solution to this problem or the best path forward is to do what? Let the banks fail. Let the banks fail. let the depositors take a haircut because then and only then are the banks going to be incentivized to not take this crazy amount of risk because they know that's going to come back and potentially haunt them. They're not going to get bailed out and if they don't go ba get bailed out then they're going to go bust and they don't want to take that risk. So you're applying market forces. I mean, shocker, right? The way forward is through free market capitalism, not capitalism, notice, free market capitalism. And the reason I always emphasize free markets is because a free market is absent any type of central planning bailout. And if you really think about all the problems that we have, it's not really a result of QE or, you know, artificially low interest rates, blah blah blah blah blah. It's really a result of the central planners bailing out the system since the late '9s and creating this moral hazard and then having to create rules in order for the banks to not take advantage of that moral hazard. I mean, this it's just a crazy treadmill that we're on right now, but it's just so obvious what we need to do. It's so obvious. And then of course looking at these other indicators and I'm just talking about interest rates themselves. I'm talking about oil. I'm talking about the fact that gold is at extremely high levels at all-time highs. And it's not because of the debasement trade. It's because the fear trade. It's because of fear. It's because of the disinflation. It's because of the fear. It's because the system is starting to show a lot of cracks. And that's why you see oil tanking, yields tanking, and gold going straight to the moon. All right, guys. If you want more info on this or if you want to know how I am setting up my portfolio for financial bubbles because regardless of your take on you risks or recessions or inflation, deflation, disinflation, I think we can all agree that with the AI bubble, the stock market bubble, the housing bubble, we have all of these financial bubbles. And the question becomes, how do you set up your portfolio? What do you do about it? How do you protect yourself and hopefully even grow wealth in this crazy crazy environment that we live in that could be extremely volatile, which is what we're starting to see potentially in the repo market. Well, the good news is I'm doing a webinar October 29th where I'm going to be going over three strategies, contrarian strategies that all the pros that I know that I hang out with in St. Barts I've had the opportunity to meet and learn from. They all use these strategies during times where we're in financial bubbles and they're completely contrarian. I can assure you if you're doing the old, well, I'm just going to buy and hold. I'm going to buy the dip. I'm just going to take 10% of my paycheck and allocate it to an S&P 500 uh index fund. If you're doing that, there are no probabil or there are no um certainties. They're only probabilities. But there is a extremely high probability that you get crushed that you you get absolutely smoked. And what has worked over the past 40 years most likely will not work moving forward. And I'm going to be going over all of that on this webinar. And the huge bonus there is that if you attend the webinar, you get a coupon code, a $500 coupon code to get a ticket to Rebel Capitals Live 2026 for 99 bucks. You cannot beat that. You cannot beat it. So Josh will put a link in the chat in the description. You can go register for free. And on that bombshell, guys, enjoy the rest of your afternoon. As always, make sure you're standing up for freedom, liberty, free market capitalism, where we actually allow entities to go bust that make bad decisions. Novel idea, right? See you in the next video.