Michael Kao, former hedge fund manager and private investor, joins Jack Farley to share his thoughts on the turmoil in the banking sector, the consequences of the policy response from Washington, and the fate of the U.S. Dollar as the global reserve currency. Kao argues that the Fed’s recent assistance to U.S. banks allows the Fed to hike more in order to fight inflation.
Kao also shares his view on today’s consumer price index (CPI) reading, China, and the global oil market. Filmed at 1pm ET on March 14, 2023.
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Timestamps:
00:00 Intro
00:36 The Banking Panic Could Be Over, Says Michael Kao
09:14 It’s The Shadow Banking Sector That’s In Trouble
14:11 Has The Bank Panic Prevented The Fed From Tightening Monetary Policy?
17:46 Has The Bank Panic Prevented The Fed From Tightening Monetary Policy?
20:59 Blockworks research
21:57 Do We Have Structural Inflation?
25:03 Black Swan: Oil To $300
37:33 China’s Oil Demand Is Lower Than Expected
41:13 The U.S. Dollar Wrecking Ball
46:24 Permissionless Ad
47:26 China’s Hidden Debt
55:36 How Stable Is The U.S. Dollar As The Global Reserve Currency?
01:08:36 Closing Thoughts On Bank Panic & Federal Reserve…(read more)
LEARN MORE ABOUT: Bank Failures
REVEALED: Best Investment During Inflation
HOW TO INVEST IN GOLD: Gold IRA Investing
HOW TO INVEST IN SILVER: Silver IRA Investing
The 2008 financial crisis prompted the United States government to launch a massive bailout program for banks that were deemed too big to fail. This was done with the hopes of stabilizing the financial system and preventing further economic turmoil. One of the key players in this bailout program was the Federal Reserve, which injected trillions of dollars into the banking system. The aim of the Fed’s actions was to not only stabilize banks but also to encourage lending and boost the economy.
Fast forward to today, and we see that the Fed’s actions have not only helped banks recover from the 2008 crisis but have also given the central bank more power to tighten its monetary policies, according to Michael Kao, CEO of Akanthos Capital Management.
The Fed’s massive purchases of Treasury and mortgage-backed securities have, in effect, created a massive pile of reserves at banks. With this massive influx of cash, banks have a lot of money to lend. However, the Fed realized that with all this new money available, it could create a bubble in the economy, leading to inflation and other economic problems. As a result, the Fed has begun to gradually tighten its monetary policies, pulling money out of the economy and raising interest rates.
This is where the bank bailout program comes in. Kao believes that the Fed’s actions during the 2008 financial crisis were critical in enabling the central bank to have the capacity to tighten monetary policies today. The bank bailout program provided the Fed with the tools it needed to encourage lending and stabilize the economy. By doing so, it has allowed the Fed to be in a position to pull back on its policies and slow down lending.
The Fed’s ability to tighten monetary policies has major implications for investors, businesses, and individuals. Higher interest rates mean that borrowing money becomes more expensive and this can impact investments and other financial decisions. However, it also can slow down inflation, making it easier for individuals to plan their budgets.
In conclusion, Kao argues that the bank bailout program allowed the Fed to stabilize the economy and enable banks to increase lending. This has, in turn, given the central bank the power to tighten monetary policies, which can have a major impact on the economy, businesses, and individuals. While the long-term effects of these policies are still unclear, it is essential for investors and business leaders to pay attention to the Fed’s actions and how they can impact their financial decisions.
my favorite cowboy. this was my musing of the day, michael.
Long-term, Stable, Financial, Investments, Realty and Mortgage Portfolios, Credit Loan Services and Other Live Assets Trades.
The USD was forced on us at Bretton Woods. Keynes and the others tried to fight it, to no avail. The Bancor, Keyne's option, did not proceed.
What an excellent, insightful interview. It's amazing to me that I can access this level of expert analysis on my phone. You leave traditional media for dead.
I nominate Michael Kao to be the first Hedge Fund Manager to run for the Office of the President of the United States and Jack Farley to be his Vice Presidential running mate. Thank God, we have smart people in this country! Keep up the good work.
All these bears shouting at the tape. It's lovely to see.
I will forever be indebted to you you've changed my whole life continue to preach about your name for the world to hear you've saved me from a huge financial debt with just little investment, thanks so much Mrs. Karen Cosmann
Thanks guys
Best interview out of the bunch
NAh. The fed will pívot by next meeting . they don’t want to be to blamed if things get worse .
Correct the more control over the banks, the worse inflation gets and the worse the overall economy gets.
**What's the best way to make money from crypto investing?
That's right, I totally agree with the guest Michael Kao. FED must raise at least 50bps or even 75bps. Inflation could put people down not banks!!!!
Hi Jack — Great podcast, and thank you. Could you please tell us the last name of the Alex you indicated was an excellent source of analysis on this topic? (I couldn't decipher the last name.) Thanks!!!
No you're not sorry you're interrupting yourselves. Just be honest about it. You wouldn't do it if you were sorry.
So much baloney is in the media to cover for the ultrarich owners of the banks! If you own a restaurant or supermarket or florist or parts manufacturer or any other not-politically-connected business company, and you make a bad decision, you are out of luck and you lose all that you invested. That is what happens to the poorer 99% of Americans' little businesses.
However, in order to preserve the ultrarich's ownership of the banks, the government is being duped AGAIN (AS IN 2008, WHEN IT WAS CLAIMED THAT THE ECONOMY WOULD COLLAPSE AFTER THE COLLAPSE OF LEHMAN BROTHERS IF THE BANKSTERS WERE NOT ALLOWED TO REMAIN IN CONTROL OF THEIR INSOLVENT BANKS) to give free money to their banks to enable to same owners to remain in control — the owners who drove the banks into insolvency in 2008 and AGAIN now in 2023. They are AGAIN blinding US politicians with financial gooblygook which they specialize in as a way to confuse them and obfuscate the issues. (Owners of legitimate companies lose all ownership interest in those companies when the companies go into Chapter 11 bankruptcy and the companies' creditors become the new owners, OR the companies are dissolved, and the owners get $0, when the companies become insolvent.)
Most banks are now insolvent, because they avariciously, foolishly gamble to maximize the profits that they can suck out of banks: they only put in a TINY, or ZERO cushion of capital, which is all that banks have been required to keep, while they hold over $20 TRILLION of depositors' funds. See "Silicon Valley Bank Collapse Suggests 0% Reserve Requirement Won’t Halt Bank Runs" in Forbes. That means that even a 2% decrease in the value of their assets will wipe out the equity of most banks and render them legally insolvent. (Liquidity is a different issue; even if legally insolvent, if given money by their privately owned but deceptively named to confuse taxpayers, "FEDERAL" Reserve, they can pay their bills like a drug addict just loaned money by his parents may be broke and have huge credit card debts, except for that parents' cash which he can use to pay for food by not paying his credit card bills.)
See "Fed considers stricter capital requirements for midsize banks" in banking dive. See the politically incorrect Washington times “Lawmakers grilled Fed chair about plan to raise bank capital rules just before SVB collapse.” As an example of their gooblygook try to read: "A Brief History of Bank Capital Requirements in the United States" in clevelandfed org. To save you the trouble, let me just tell you that the authorities and the banksters’ “Fed” have not required that banks keep enough capital or even readily saleable assets for YEARS. The Republicrooks (who are the pawns, hos, and agents of the ultrarich and have opposed any bank reform, except for the fake “Dodd-Frank” reform, which protected the banksters by providing for depositor bail-ins as political poison pills to force the government to bail the banksters out when their banks failed in the future) have all strongly opposed any capital increases: like the W H O’s hos they will do anything for the Benjamins.
Thus, right now, those who understand math know that a treasury, bond, or loan that pays $5,000, when interest rates are 5% per year is valued at $100,000 (ignoring risk, which would increase the required interest demanded by prospective purchasers.) However, if that treasury, bond, or loan pays only $2,500 or 2.5% of its face value, even if it might pay $100,000 in twenty years, has its value reduced by annual 10% inflation to only $50,000 plus the present value of the face amount to be paid in 20 years of $12,158 assuming zero risk. Remember: the $100,000 face value will be sharply reduced as inflation eats away its value, so $100,000 reduced by 10% (for example) to be paid in 20 years would have a real value in present terms of that amount with a 10% reduction each year of the remaining amount. After the first year, the face amount would be reduced in real value to $90,000 by that inflation. After the second, to $81,000; after the third, to $72,900, and so on. You could easily calculate that for 20 years by repeatedly multiplying $100,000 by .9 twenty times: $12,158.
Thank you
Always fascinates me when financial types assume depositors have the time or knowledge base needed to evaluate a bank's financial practices or reporting slight-of-hand.
"Trust in a currency system goes far beyond pure debt to GDP metrics." 100% agree. HOWEVER, this also means, when the trust starts to wither, the system will just collapse really really fast.
Why shut down signature bank though? Was it a government plan to squash crypto?
PPI release today just contradicted everything this man said. The reckoning of the inflation fearmongers has come. Game over buddy.
Guess he's going to change his mind now that credit suisse is failing
I'm a simple man.
I see Michael Kao's name on a video, I watch it.
Always a good listen.
Id say the title says everything. Fed must choose between Inflation or banks. Putting out one fire makes the other stronger. Inflation is here to stay because it is spread even across the world through the dollar. The people that suffer the most have the least power. Welcome to our harsh reality.
US shale drillers have used up all the good places to drill. There will still be drilling but they will have to be choosy about where.
Conocophilllips get a go from the administration to explore/exploit field in Alaska ! So no one is planning to close oil and gaz companies ! This guy is a source of misinformation!
@30:00 what an informed conclusion !? Why stateoil is doing well for Norway !? Is it socialism too ?
You mentioned authorities? Do we have? If we do, what were they doing all these time? Who’s side are they on?
Lol
Michael is a fantastic teacher. He has the rare ability to explain the basic principles that underlie his reasoning.
EXCELLENT video!
Nice interview !
8:45 it is a french lunch ! If you get 100 $ for a bond that the market values to 75 $ !
You can have all the theories you want but, when push comes to shove, the central banks have always chosen liquidity and interest rate cuts since the 1980s.
Let's expand deficits and spend it wisely….. like then government ever spent something wisely. They let jet engines on air craft carrier jets run for 3 days straight to make sure the fuel budget doesn't go down next year. While promoting their dominance as the solution for climate change
I can't take his opinion serious because his perspective is highly biased and in a way very political.
1:00:00 A more effective sanction on Russia might have been to do the exact opposite of what the senile ole joe admin did,.. and that's NOT shut down our fossil fuel industry and in fact encourage our fossil fuel industry to expand production and flood the market with oil reducing the price of it so russia wouldn't profit from it,.. of course nat gas too.
Unfortuantely Germany didn't have the facilities to receive overseas LNG from the US, but fortunately with the milder winter, many "climate change" cult members would say is bad,… demand and nat gas prices began to fall.
NOT shutting down the fossil fuel industry in the US. the lifeblood of the economy. may have avoided much of the inflation the insane inflationary policies of the senile ole joe admin caused.
Buy The Falling Pound? 😉
Please do a better job removing bot/spam scam comments that try to bait people into using a financial guru to make them money. I’ve consistently seen this across all the videos. Not sure if it just takes too much effort but I’m hoping you could do something about it. Love your videos!
Unfortunately, Kao has a personal axe to grind with China, blighting his professional assessment & outlook. Plus he is also assuming that the Chinese economic policy makers are idiots who will repeat the mistakes americans have made.
He is our messiás
How many macro commentators rail against ESG and predict an energy crisis, only to be continually surprised that it hasn't happened yet? Try to be aware when your politics motivates your reasoning.
People are fooled by employment numbers lots of part time jobs
Which Alex were they talking about?
Hold on… doesn't the commitment to replenish the SPR at prices < $92 put a floor on pricing?
Further, "Keystone" (XL) was an enlargement of the Keystone project that (correct me if I'm wrong) refiners don't have the capacity to process. US refining capacity has dropped to 2016 levels. To say the lack of additional supply (via Keystone XL) contributes to the problem doesn't jive. Is there some hidden refinery slack we're not aware of?
It is not hysteria given the unrealized losses in AFS and HTM accounts. People SHOULD reposition their deposits. Its fundamentally unfair to those who have done the right thing and have lost some money in yield and capital losses in bond mutual funds.