Hello, and welcome to What Goes Up a weekly markets podcast. My name is Mike Reagan. I'm a senior editor at Bloomberg, and I'm Aldana hire Across as a reporter with Bloomberg. And this week on the show. Well, as you've probably heard by now, for the last two weeks, trouble in the US and European banking sectors, not to mention the responses to it from authorities, has captivated the intention of investors, and it's sparking fears of a credit crunch that could ultimately drag the economy into a recession. It doesn't yet appear to be as big of a train wreck as the global financial crisis in two thousand and eight knock on wood, fingers crossed and all that. Still, it's hard not to get flashbacks to that troubling era. So we're gonna do a little comparing and contrasting to that ugly time with a veteran market strategist who was helping to manage a three point four billion dollars market making book back then. But first, Phil donna Um, I did hear from a loyal listener because you left us with a little bit of a Cliffhanger last week, and he was worried about you. You had told us you were just about to close on a mortgage with dot First Republican. Yeah, so how did it go? Tell what was the resolution? You have no idea? How's trusted? I was like a nutcase last week. I was so worried about First just last just last week, more so than usual, like way more so than usual. And I I like, when something's really weighing on me, I can't help but bring it up all the time. So I would run Iran into the radio. I've never noticed. Yes, but even like the radio producer Paul Brennan. We took the escalator up at the Bloomberg office. He was like, how are you? And I was like, I'm not. Well. First republic is my bank. He was like, okay, well, it's it's stressful enough to close on a new home in normal time, so I can't even imagine. Yeah, but oh so we closed. We rushed it, and we closed in front. Rushing is not a good thing, obviously, but in this case, I think it's okay to make an exception. So it's closed, it's done. It's good as a Friday night. Yeah, but you know even our guests on the podcast this week, I told because I couldn't help myself but to to to tell him about all my troubles. When I was talking to him last week and I told him, I was like, oh, I have this mortgage pending with the First Republic, And all he said back was oh, And then we never spoke again, which was not a good sign of confidence. I thought you were going to be looking for a couch to crash rone. Oh my gosh, stop it, Oh my gosh. No. But maybe maybe our guests can explain why he just left me hanging like that when I was looking for reassurances. I want to bring in Steve Sausnick, chief strategists at Interactive Brokers. Thanks so much for joining us. It's great to be here, Valdona. Great to be here, Mike. If just in my own defense, I figured, if I had nothing constructive to say, and I could sort of sense the nervousness even via the via the interview, you know, the IB messages, I figured it was best not to say anything. But fortunately it worked out because I really had no idea what would happen. I think nobody knows. But and you did the opposite of what Mike did. Mike would find really bad stories and then copy paste the worst parts of people panicking, and he would send them to me highlighted with the worst parts. And I'm sure you already saw this, but just FYI, you better start double apping at, which is a new word. I learned people with pending mortgages at First Republic were applying for other mortgages double apping, they call it. Yeah. I was like, Phildoni better, why aren't you double lapping? But hey came through. Hey, yeah, you know, shout out to my banker, Kyle. One thing I was going to say was already too late because once you'd already closed was once they got the lifeline, you figured you got a three to four month window because well I figured they're not going anywhere for a while, They're not going immediately out, and uh but you know, not knowing how long, not knowing how far along you are in the process. I just you know, if I don't have anything helpful to say, it's best not to say. And I would also assume, you know, if if you're if you're getting a mortgage at you know, I know you got a pretty good rate, but at any rate sort that's sort of a perfect prevailing market rate or close to it. They're gonna want to close on that, regardless of the buildings on fire, I would think, you know at this point, So there's that, okay. So, Steve, the reason I was talking to you last week and some of my teammates is because we've been asking people where were you in two thousand and eight and what were some of the lessons learned that you can apply to today? And obviously we're getting a ton of comparisons to that period of time. I think Jonathan Pharaoh from Bloomberg TV said something just to put it a bit more in perspective, because maybe it's sort of like panicky to make comparisons to two thousand and eight at this point. So he said something like, you know, it's like saying, oh I broke my foot. It really hurts, but it's all right. It's not as bad as like that time I got shot, you know, So like, can you can like, is it warranted at this point to be making those comparisons, and maybe you can tell us about some of those lessons learned from two thousand and eight to that you're applying to today. It's not unwarranted. You know the problem is we're always looking for a historical precedent, and you know, it behooves us to think about what paradigm because we all need to think in terms of some sort of paradigm. What paradigm is most is most like what we're seeing. Well, the last bank crisis, you know that we that we know, you know that really took hold was in two thousand and eight. We're not there yet. We're not at that full flat and I hope we don't get there. Let me be very clear. We're not at the point where things you know, have really begun to metastasize. And I do think because we've set up some firewalls systemically, you know, Dodd Frank and and and you know, some of the um exotic products that cause the last crisis are not really as prevalent. We're not. You know, subprime mortgages UM are not are not a thing this time. I assume you went through all kinds of nice credit checks to get your mortgage bill, Donna. You know they weren't just handing them out. Banks this time around have not been using credit to fault swaps to substitute for permanent capital that sort of thing. So so it is different. There's a lot so far the banks that have come out under crisis it's a little more straightforward. I mean, we'd silver Gate and the Culprit there as crypto as part of so of the ongoing crypto troubles, which you know you can speak to better than I can. But then you had SBB, which you know, we all know the story there. It's a classic mismatch. It's really they had too much. They had too many deposits that they couldn't actually loan out in sort of an efficient way, but they kept taking them in any way, and so that was sort of a plain vanilla type of a problem. Really duration risk, which always is a risk for banks. You know, along the way you had Signature Bank, which you know was not only a little bit of crypto and a little bit of they seem to have their finger in every sort of odd pot, you know, oddball place in the banking system, taxi loans, etc. Etc. And then of course Credit Squeeze, which has been choose my words carefully, they've been under some stress for first quite some time, love me put it that way, and so that's a nice way to put it. So in that sense, we're not at the level where you started to work, where we started to worry about banks like City Group and Deutsche Bank and things like that, although I guess Credit suieces analogous to Deutsche Bank and UBS, which ironically had its own issues back then and is now the acquirer. So there's definitely you know, history. They say history doesn't repeat, but it often rhymes, and I think there's there's a certain rhyme to it. But we're not there yet, and I certainly hope we don't get there. But so, I mean, I was at that point my responsibility was making markets and being a specialist in bank options, and so that was a very it was a very challenging time. I do think we actually, I will say we did. We did rather well then I you know, I know that's really counterintuitive, and especially when systemic risk is a foot. Um. But the thing that really got us on the right foot was almost a random conversation I had Yeah tell us about this because we talked about this, and UM, I want to give credit to Katie Garfield who originally asked you this question and you told this story, so if you wouldn't mind, not at all, we you know, we're in a we're in a small office building in Greenwich, and you know, you park in the garage underneath because you know that's everybody commutes by car because it's Connecticut. UM. And so you know, get in the elevator and there's Thomas Patterfie who founded the firm and UM, you know, whom I'm sure the listeners are familiar with. UM. Get in the elevator. UM. You know what's new? UM, And you know Thomas's Thomas is not a man who's big on small talk. So it's it's you know, that was I think more. You know, I took that as a business related question rather than you know, tell them about you know, tell them about the kids and stuff. And I said, you know what's really interesting to me is UM, this story that the story that that that I'm reading this morning about how bear Stearns may have as much as twenty billion in losses at some of their hedge funds. And he said twenty billion. I said, I said, no, that's that's the number that's being thrown around. I don't, you know, I obviously I don't know if it's one hundred percent true, but I trust I trust the reporting um and he said, how big is you know? What's their market cap? And I said, I think about twenty billion. Now at this point, it's only like a it's only like a four story building. So we're out of the elevator at this point, walking down the hall um, you know, and I said it, I think it's about twenty billion ish and he looks at me. He said, he are you telling me bear Stearns is broke? And I said, I wasn't going to put it that way. But now that you you know this, this is why Thomas is. You know this why Thomas is the success he is. He's, you know, because he sees right through these situations. I said, I I guess I am, aren't I? And he looked at me and he said, don't sell any puts on banks until you hear until you hear from me otherwise, And that was that was probably you know, I don't think I heard from a motherwise for about a year and a half. But which is not to say I never sold a put. It's impractical. You can't do that as a market maker. But what it means is don't be a net seller puts. If you sell them, replace them, adjust the models so that we are not the best offer on them. And one of the interesting features that came out in two thousand and eight was because credit to fault swaps were pretty new, and really, you know, I believe that every new financial innovation gets a real world test, and some of them pass, and some of them fail, and some of them get rejiggered as a result of it. And that was credit to fault swaps real world test, and they were being used in inappropriate ways and the market wasn't ready for a full scale test of credit default of the how they work. But the logical hedge if you're trading credit to fault swaps is to buy long term out of the money puts on equities. And so the big trade there was people buying whatever the lowest strike leap put was on insert bank name here, because that would be you know, if I had sold credit to fault swaps on um Lehman Brothers. You know, the bond. Because of the way a capital structure works, the bonds bonds go bad before stocks. And I know that's an issue here with credits WEE and the Coco bonds, etc. We'll get it. You know, I'm not a restructuring expert. My brother actually is you know, I haven't gotten a straight answer at it. I haven't asked him actually how that all is working out. But um, but what happens is, you know what happened there is so if the bonds are going to go bad, well then the stock is going to go bad. The stock is going to go worse. So um, so people were really clamoring for those So it just basically kept ratcheting up that volatility and kept ratcheting it up and and but as a result, we went into this um and stayed into it pretty you know, pretty much on on a decent footing um, which is not to say there weren't hiccups and accidents and everything else. As a market maker, you you you sort of expect that you're going to have your bad days and your bad weeks, and you know you're even your bad months, but you keep tight risk parameters and over time, um, if you're doing it right, it pays off. You know. You you you collect a lot of change along the way, and sometimes you you know, sometimes you make pennies and give back dollars, but you have to manage the dollars that you give back and We fortunately were able to um not give back to dollars. And those days we ran pretty much a we always pretty much did, ran a long volatility UM model. Just that was the way we traded. It could be expensive UM. A lot of a lot of people don't do that UM. But in an era where volatility was constantly UM, constantly rising more or less UM, and skew was getting extraordinarily steep, it was. It was the right It worked for us, and we were we were in a good place at the right time. Something to be said for taking the elevator ride with the boss. I guess this is a good argument for everyone getting back into the office. I guess I say, yes, I'm working for a moment, but big picture wise too, I'm thinking about the difference in the reaction function from the government and the central banks to this occasion versus two thousand and eight. Yeah, I'm thinking back to that original vote. I think it was in the House on the TARP bill. There was a lot of optimism in the market that, of course they're gonna pass this bill, the TARP build to in chect capital into all the biggest banks, and it failed on the first vote, and the market just you know, went down instantly in a big way. I forget the exact numbers, but this response to me seems much quicker, much more focus and um targeted and sort of able to put out the fire a lot quicker. Is that is that your impression too? Absolutely? Yes, yeah. Once you know, they were writing the playbook in two thousand and eight, and I think to a certain extent they've been using that playbook, particularly in twenty twenty, and they're using it now, um, you know, and that was essentially monetary and fiscal shock and awe, and I think you know, in two thousand and eight, Um, you know, remember there was the you know, they ridiculed helicopter ben um, but that actually he wasn't wrong, you know, and and the Nobel Committee eventually agreed. But that was you know, real world test at one of his theories, which was essentially dropped money out of helicopters in the time of a crisis. Um. And I think now they've realized, well it works, um. And that was you know, and that was that was why it had worked during COVID, and that really wasn't much complaint about what the FED was doing. And then it was certainly you know, the fiscal bills were generally passed along bipartisan lines um, so there wasn't. So by now we sort of we're going to use that playbook, which I think is a good thing. That's that's kind of the that's that means we're actually learning from our you know, from our efforts you know, societally. Now we can argue to what extent it's appropriate. We can you know, we can certainly question whether there was moral hazard in the way they um in the way they guaranteed all deposits sort of with the stroke of a pen um at at silic at Silicon Valley Bank, and and and who benefited from that. I mean, you know, we're going to be arguing about this for a while. And of course we're still you know, with the FED meeting yesterday, we're still dealing with the idea of did the Fed and the and the you know, and the and the and Congress, the fiscal authorities overdo it in their response to COVID. I mean, these are that'll be that'll be the stuff, you know, when when Vildonna's my age, she'll be having that discussion. She'll be having that discussion with the in a couple of years, right, you got a waste to go to your catch up to me. Um, but but that's really the you know, she'll still be talking about her mortgage, I think, Steve. So she'll still be telling that story. Yeah, yeah, well that's you know mortgage. Well, you know it added twenty years to my life just from yeah, Steve. One thing. Um, there's almost this knee jerk reaction in the market, I think, to this notion of the Fed's balance sheet. You know, a bunch of banks went to the discount window at the FED and borrowed I I don't know what the exact number is at the moment, but call it hundreds of billions of dollars. The thinking in many quarters is that, well, that's almost like quantitative easing, or at least a reversal of the quantitative tightening tightening that the central bank was doing. Sure, if that's the same the appropriate way to look at it, You know, the FED increasing its balance sheet by extending discount window loans versus buying treasuries and mortgage securities. Is that the wrong way to think about that? Do you think it's interesting because I've had this exact debate with my colleague Jose Torus, who was an economist and you know his his He pointed out after the last h dot four dot one report, which is something I actually, you know, in a nerdy way, look a look at every Thursday afternoon. But but you're even Mike, You're probably not old enough to remember on Thursday afternoons everybody stopped to wait for the M two report. When I started out in the business, you know, that was the thing everybody was looking forward to. So so we've had this debate, and you know, he said, well, look, you know, the deposits went up by I think it was three hundred billion or something, which which um, you know, would eradicate essentially the QT that's done year to date. Meanwhile, though they did continue to let securities roll off the balance sheet. So I think that the differentiating factor here is the deposit stuff is meant to be a band aid, um, whereas the QT is meant to be more of a permanent shift in the way the Fed is is approaching that, you know, tightening and easing of their balance sheet. But they use their balance sheet and a crisis, and so I don't think it's apples to apples, but certainly it was they did throw money into the system. You know, they need to do it to keep lubricating the gears. I just think it's a little bit in theory. This three hundred billion can roll itself off. I don't think it has yet. Well, well, we'll know this afternoon, I guess. But I think as long as their stress in the banking system, it's going to the FED. The feed is you know, is and can be the guaranteur of you know, the lender of last resort. And it's to me, this is one of the fascinating things. Right we've talked about the we we haven't yet, but the Fed's dual mandate is stable prices and full employment. Yet it's very clear that the fed's real job and why they were created, was to maintain the safety and stability of the banking system. Now, without a safety and stability the banking system, you can't have stable prices and full employment. But their real mandate is sort of unspoken, and I think that's but it's important that that mandate really comes into play when there's a crisis going on, and that's what we're seeing now. Steve. I'm curious because everything keeps changing so much, so fast. How you're thinking has evolved since the start of the year. And obviously we even had some economists at some of the big banks coming out before this week's FED meetings saying they're not going to be hiking rates, and obviously they're raised by twenty five basis points. So how are you thinking about all of the changes? Everything we've seen, everything we've heard from the FED, the bank turmoil, everything, and how it's you're thinking about what we might be seeing for the remainder of the year has evolved. Thinking really hasn't changed all that much. You know. I'm still of the belief that we're in a period where if the FED is raising rates and if the FETE is shrinking their balance sheet, things are things are going to break and you're going to have accidents. Well we did, you know? And I think that the problem here is that I'm going to take a little victory lot because literally what I wrote yesterday was that, um, let me just pull it up, was that my base case was for a twenty five basis point hike. The FED doesn't typically surprise market. No, no hike would be considered a surprise if they stood pat with people would worry about what's wrong. Um, you know that, but but you now have the dot plot. I won't go into the whole thing, but basically then said the dot plot was going to be relatively unchanged, which was very much at odds with FED funds futures, and that um he would play down concerns about, you know, the banking crisis metastasizing, which would actually potentially disappoint people. I think, you know, I think that all fits, and I think that's still what we see now. We saw sort of the way that zero dated options can cause, you know, microverse of volatility. That's a new feature. It's it's not as dire as I think a lot of other people I believe it is. I really don't think it's a stemic. I just think it's, you know, buckle up and get used to it. But I still think this is the issue, and right now what I'm wrestling with our two basic things. One thing I didn't really foresee was that the January effect would be quite so lasting. I think we're still seeing the January effect. I think the risk on move that we're seeing occurred largely because some of your biggest, most you know, most followed, most popular stocks both within individuals and institutions got the crap kicked out of them in twenty twenty two, and that led to a lot of tax last selling in December, which then made it even worse. They got deeply oversold. They were the first to bound as well they should have. And I think that that bounce then turned into a full fledged risk on rally, which I didn't actually foresee the amount of the legs that this would have. And I think that's what we're wrestling with now, and I think that you know, we're still seeing it. You know, we're also getting though tremendous concentration to you know, Apple and Apple and Microsoft or together just those two stocks are about thirteen percent of SMP right now and about twenty five percent of of the qqqs. Nuts. You know, I think back, you know, you want a bigger historical precedent. Certainly I wasn't active then, but I've read up on it was the nifty fifty or the one decision stocks back in the sixties and those. You know, Eventually, every time you've had narrowing leadership, it tends to work out somewhat poorly um and end in a bad way. And I'm not I don't know. I'm not going quite so far. But but if but if we're that top heavy in two stocks, that's not the it's not a great sign. Um. But another thesis of mind that I've really been laying out recently is that I think it's generational. Um. And I think, you know, we can debate that with different generations here on this podcast. UM. I think if you were not around in two thousand and eight, Um, well, if you were around in two thousand and eight, you're you're you're wary because you've you've been through this before. And as we said, it's not the same, it's not as bad yet, but it could. It's too early to give the all clear. It could get worse before it gets better. You know. My theory, which I've grossed out two of your colleagues, but I'm going to say it again anyway, UM, is you know, if you see one, if you see one cockroach, there's probably plenty more hiding out of hiding, just out of sight. Um. And so I think the older crowd, those who've those who've been through a crisis like this, have that in the back of their minds. And I was out to dinner with some friends of mine a week ago. Um, you know, and that was sort of the theory. You know, what else is lurking out there? If you're younger, you've only really ever lived through a period where the FED has been your friend and where there's been no inflation. You know. That's the part of that's the part of my main thesis that that I think is still has to be worked out, is that they're not the FED is at every given turn, they're they're telling you that they're fighting inflation first, and Powell told us that yesterday, and yet and yet there's a certain amount of disbelief, and there's certainly a big amount of disbelief in the FED funds futures, which which I think we could bat'll merit its own part of the conversation. But you know, generationally, you look at anything that might look as the FED coming into the market as Fed, you know, Fed easing this is good, and like you said, it's it's tough to say it's exactly the same thing. The Fed's not necessarily easing for the best reasons, and it's not clear that they're really easing, especially if they're raising rates at the same time. You know, any investor who's sort of under forty, has never been in a period where the FED has not been a tailwind, with the exception of like a few months here and there, And that's a very It's so I think you're getting two very different mindsets at work. Um, not a bad thing, but but it'll have to get resolved, you know, when we find out if it gets in favored of the younger set or the older set. And the problem also is none of us, unless you're you know, unless you're sort of in your seventies or older, have been investing in a period where inflation was problematic. And so no one knows what that playbook is like firsthand. You know, I can talk about what the playbook was like firsthand in twenty twenty, in two thousand and eight. I can't talk about what the playbook was like in nineteen seventy eight, nineteen seventy nine. And the historical data is not as complete for back then. You know, it's it's hard to even as if you're a quant to go back and you know, parse it and pick it apart the way you do with modern data. One note to listeners. We are recording this episode on Thursday, March twenty third, So keep that in mind when any references to yesterday and today. In case I don't know, Voldana, maybe some people are listening to this on Saturday night and they're having a party and this is their soundtrack. I listened to podcast on Saturday night. Yeah, yeah, I'm sure you do. But Steve, I always love to sort of cut to the chase here and get to the well. Man, Just tell me what to do with my money right now? What are you advising? What's the best way to position right now the markets? I mean, you've got money market funds that are finally sporting a yield that's three or four percent? You know, is it cash? Is it you're excited about long duration bonds? Is it defensive stocks? But what would you be doing right now? I've tended toward risk averse, which has meant that I've missed, you know, a lot of the NASDAK move higher. I don't feel like I've missed too much in terms of the SMP, you know, in the SMP and the broader stuff. Let's go back and think of what the theses have been for investing over the last few years. Number One, don't fight the FED. So what does that mean right now? Does that mean loading up on risk? No, because the FED is not your friend at this point, and whatever market friendly things they may be doing now, it's crisis response, not true stimulus. There is no alternative, Yes, there is, now there is. I think we're in. The situation we're in is because for so long there was no alternative. And so money, you know, liquidity, like financial liquidity, is like real liquids. It finds the lowest level. And we're still working through a lot of liquidity that found the lowest level during you know, during twenty twenty one, etc. Is the economy. The economy is generally robust. Um, you know. I think we can argue whether whether we're going to come in for a soft landing or hard landing. My gut tells me this probably doesn't end all that well. But the question, of course is when, and the question is how much. Now. I think it's great that on the job front um things things are going along swimmingly. It's also not so terrible, by the way, if you have a job to see the fact that wages are are strong, Um, you know, so it is that that, let me preface it that way. But I think the problem you have now is you've got a lot of you really have this this dissonant factor going on. You've got stock markets happy because they see the idea that rates might come down, But you have to ask yourself, why are they going to come down? The Fed, as we've mentioned in the dot plot, the FED governors who have been saying all along, we don't see any rate hikes through the end of the year, pretty much said the same thing yesterday. The dot plot's telling us, you know, rate cuts, rather, we're not cutting rates by the end of the year. Yet at one point at the end of the day, late in the day, it's bounced back a little bit. The FED funds futures for you know, for the for the January twenty four meeting, we're showing three ninety nine. Yeah, that's a lot of cuts. So ask yourself, what do we have to do to get those cuts? More cockroaches? Well, that's kind of my worry. Is nothing good unless we magically beat inflation, in which case I still don't think the FED is going to be racing to cut rates. You know, if if you've just won the if you've just won the war, you're not gonna start a new one, you know, which which is what rate cutting would do if you just sort of arbitrarily said, you know, let me just say this. My pause does not mean pivot, you know, under normal circumstances. So so otherwise, what we would need to be is some sort you either have to have some sort of financial accident or some sort of recession, neither of which is particularly market friendly. So that to me is a huge cognitive dissonance out there in terms of in terms of what what's being priced in certain places, what's being priced in in order to justify, you know, the rallies we're having. If stocks are supposed to be looking six to twelve months down the road, what are you looking at? And that's that's the tricky part right now. Steve Sasnik, chief strategist at Interactive Brokers. All right, Steve, Oh, we can't let you go just yet. As a veteran of the show, you know, we've got to hear about the craziest thing you saw in markets. Well, Dotta, I have a funny feeling we're all going to pick the same crazy thing. So I'm gonna scoop us all and go first. How about that? Yes, we often talk about these futures contracts in the market, oil, soybeans, corn, whatever it is. You don't often think about what it means to take the livery of those contracts. And at the London Metal Exchange they had a little bit of an issue on that front. They announced they had canceled nine nickel contracts worth about one point three million dollars after discovering quote unquote irregularities. Now you know what the irregularities were. When they went and looked at these bags of nickel, it was just a bunch of bags of rocks. You we're going to go with this story, which is why I one of my favorite stories, uh ever, of JP Morgan turned out to be the owner of I think at least some of these nickel contracts. You know, whenever there's a Nickel's crazy nickel story in the market, you can on JP Morgan and the LM being at the center of it. So I don't think they've figured out why there were bags of rocks instead of bags of nickels. But I'm dying to know. I wonder if I had something to do with that short squeeze. I would love to know who've found it, Like we found the bags of rocks. Yeah, I don't know. There's there's so much more we need to know about this period. Absolutely, I mean the idea well, first of all, I mean, just think of all the craziness. You know, when when nickel prices were going insane. It would behoove some scammy person to say, you know what if I just delivered about what if I just you know what if I sell short and you know, sell them and I got nothing to live for, so you know, maybe maybe no one will catch me and I wouldn't do it. Someone had to sneak into this warehouse removed I don't know, or maybe it came from the spire. Who knows. We'll have to stay tuned and see how this all resolves itself. Hopefully they figure out what happened. But I don't know. One of my favorites. That's a good one. What do you know you were gonna go with it? Okay? Mine is not markets related. Okay, this is seriously, I'll happily be a loser of this game this week because it has absolutely nothing to do with anything. It's just it's my favorite story of the week. It's a ninety year old tortoise named Mister pickles. He's the new dad of three, so he has three brand new tortoise babies and they're named Dill Gerkin and Hella penyol Gert. He's ninety years old and his wife is fifty three. I think why wife is a generous term. I just really like this story. And they're so small and extremely cute, and they can fit like in the palm of your hand. They're so tiny. All right, that's pretty good. You can't, I mean, nobody can see. I'm looking at pictures. There's I'm sure there's a market for I don't know, turtle meat, so maybe maybe that's but oh my god. They're an endangered species. And one of the reasons that Galapagos turtles are endangered is because there was a market for it. Because if you were sailing along and stuck in the Middle Pacific, they would let Galapagos in Spanish means tortoise, and they would land on the Galapagos islands, put a couple of tortoises on the boat. They didn't need much care and feeding, and you could feed your crew for months. That actually is it's it's just you know, see, we see where you brought the conversation, Mike. I know we were talking about nice little turtles and I should were on there. Sorry, these were This is how you become a chief strategist. By the way, if you you know, you need a meal on a boat, you know the Galapagos, Steve, Steve's got you covered, not anymore if they're endangered. I wouldn't. I wouldn't do that. How about you, Steve, what's the craziest thing you saw? I came with two because I figured one of you might beat me to the bag of rock story. So mine is that perhaps the best investment in markets right now is swag in defunct banks. You know, as someone I know who still has a Solomon Brothers rugby shirt and I think I have from my summer intern days in La Rothschild umbrella still m I know, from my default defunct securities firm swag And apparently if you had, you know, apparently there was some sort of credit squeeze hat that was very popular. Um that's going for good money and they're not even defunct. They're not even defunct, but SVB stuff, and so I think, you know, the ebayers are having some fun with the swag, and so that's I think that's financially market financial markets related enough. Now, that's pretty good. Yeah, no, yeah, In fact, I think that's been a consenter in the past, so it's it's always good to revisit that market. I once found an MF Global golf ball out on the course, and I've meant to throw that up on eBay, but I think I lost it. I have a country I have a country wide that I that I found, and I keep it in my golf bag just as a reminder of, you know, what can go wrong on the golf course too. It's a good metaphor. The takeaway at the end of all of the of this segment always is that it's good and it pays off to be a hoarder. That's right, that's right, that's right. I'm hoping one day my wife will listen and realize why I heard so much stuff around here. But hey, you know, take that free hat when you're at the conference, Vildanna, you never know, you never know. I should go through my crypto swag. Yeah, yeah, don't don't throw it out. Don't throw it, throw everything out. Steve Sasnick of Interactive Brokers always a pleasure to catch up with you, Steve. Thanks so much, my pleasure, My pleasure. Bill Donna, thank you so much for inviting me today. I can't remember. I can't believe how fast at the timeline I hope it went. It's fast for the listeners as it did for me sitting here. We'll catch you next time What Goes Up. We'll be back next next week and so then you can find us on the Bloomberg Terminal website and app, or wherever you get your podcasts. We'd love it if you took the time to rate and review the show on Apple Podcasts so more listeners can find us. And you can find us on Twitter. Follow me at Reaganonymous. Bill Donna Hirich is at Bildonna Hirich. You can also follow Bloomberg Podcasts at Podcasts. What Goes Up is produced by Stacy Wong. Thanks for listening, See you next time.

Hello, and welcome to What Goes Up a weekly markets podcast. My name is Mike Reagan. I'm a senior editor at Bloomberg, and I'm Aldana hire Across as a reporter with Bloomberg. And this week on the show. Well, as you've probably heard by now, for the last two weeks, trouble in the US and European banking sectors, not to mention the responses to it from authorities, has captivated the intention of investors, and it's sparking fears of a credit crunch that could ultimately drag the economy into a recession. It doesn't yet appear to be as big of a train wreck as the global financial crisis in two thousand and eight knock on wood, fingers crossed and all that. Still, it's hard not to get flashbacks to that troubling era. So we're gonna do a little comparing and contrasting to that ugly time with a veteran market strategist who was helping to manage a three point four billion dollars market making book back then. But first, Phil donna Um, I did hear from a loyal listener because you left us with a little bit of a Cliffhanger last week, and he was worried about you. You had told us you were just about to close on a mortgage with dot First Republican. Yeah, so how did it go? Tell what was the resolution? You have no idea? How's trusted? I was like a nutcase last week. I was so worried about First just last just last week, more so than usual, like way more so than usual. And I I like, when something's really weighing on me, I can't help but bring it up all the time. So I would run Iran into the radio. I've never noticed. Yes, but even like the radio producer Paul Brennan. We took the escalator up at the Bloomberg office. He was like, how are you? And I was like, I'm not. Well. First republic is my bank. He was like, okay, well, it's it's stressful enough to close on a new home in normal time, so I can't even imagine. Yeah, but oh so we closed. We rushed it, and we closed in front. Rushing is not a good thing, obviously, but in this case, I think it's okay to make an exception. So it's closed, it's done. It's good as a Friday night. Yeah, but you know even our guests on the podcast this week, I told because I couldn't help myself but to to to tell him about all my troubles. When I was talking to him last week and I told him, I was like, oh, I have this mortgage pending with the First Republic, And all he said back was oh, And then we never spoke again, which was not a good sign of confidence. I thought you were going to be looking for a couch to crash rone. Oh my gosh, stop it, Oh my gosh. No. But maybe maybe our guests can explain why he just left me hanging like that when I was looking for reassurances. I want to bring in Steve Sausnick, chief strategists at Interactive Brokers. Thanks so much for joining us. It's great to be here, Valdona. Great to be here, Mike. If just in my own defense, I figured, if I had nothing constructive to say, and I could sort of sense the nervousness even via the via the interview, you know, the IB messages, I figured it was best not to say anything. But fortunately it worked out because I really had no idea what would happen. I think nobody knows. But and you did the opposite of what Mike did. Mike would find really bad stories and then copy paste the worst parts of people panicking, and he would send them to me highlighted with the worst parts. And I'm sure you already saw this, but just FYI, you better start double apping at, which is a new word. I learned people with pending mortgages at First Republic were applying for other mortgages double apping, they call it. Yeah. I was like, Phildoni better, why aren't you double lapping? But hey came through. Hey, yeah, you know, shout out to my banker, Kyle. One thing I was going to say was already too late because once you'd already closed was once they got the lifeline, you figured you got a three to four month window because well I figured they're not going anywhere for a while, They're not going immediately out, and uh but you know, not knowing how long, not knowing how far along you are in the process. I just you know, if I don't have anything helpful to say, it's best not to say. And I would also assume, you know, if if you're if you're getting a mortgage at you know, I know you got a pretty good rate, but at any rate sort that's sort of a perfect prevailing market rate or close to it. They're gonna want to close on that, regardless of the buildings on fire, I would think, you know at this point, So there's that, okay. So, Steve, the reason I was talking to you last week and some of my teammates is because we've been asking people where were you in two thousand and eight and what were some of the lessons learned that you can apply to today? And obviously we're getting a ton of comparisons to that period of time. I think Jonathan Pharaoh from Bloomberg TV said something just to put it a bit more in perspective, because maybe it's sort of like panicky to make comparisons to two thousand and eight at this point. So he said something like, you know, it's like saying, oh I broke my foot. It really hurts, but it's all right. It's not as bad as like that time I got shot, you know, So like, can you can like, is it warranted at this point to be making those comparisons, and maybe you can tell us about some of those lessons learned from two thousand and eight to that you're applying to today. It's not unwarranted. You know the problem is we're always looking for a historical precedent, and you know, it behooves us to think about what paradigm because we all need to think in terms of some sort of paradigm. What paradigm is most is most like what we're seeing. Well, the last bank crisis, you know that we that we know, you know that really took hold was in two thousand and eight. We're not there yet. We're not at that full flat and I hope we don't get there. Let me be very clear. We're not at the point where things you know, have really begun to metastasize. And I do think because we've set up some firewalls systemically, you know, Dodd Frank and and and you know, some of the um exotic products that cause the last crisis are not really as prevalent. We're not. You know, subprime mortgages UM are not are not a thing this time. I assume you went through all kinds of nice credit checks to get your mortgage bill, Donna. You know they weren't just handing them out. Banks this time around have not been using credit to fault swaps to substitute for permanent capital that sort of thing. So so it is different. There's a lot so far the banks that have come out under crisis it's a little more straightforward. I mean, we'd silver Gate and the Culprit there as crypto as part of so of the ongoing crypto troubles, which you know you can speak to better than I can. But then you had SBB, which you know, we all know the story there. It's a classic mismatch. It's really they had too much. They had too many deposits that they couldn't actually loan out in sort of an efficient way, but they kept taking them in any way, and so that was sort of a plain vanilla type of a problem. Really duration risk, which always is a risk for banks. You know, along the way you had Signature Bank, which you know was not only a little bit of crypto and a little bit of they seem to have their finger in every sort of odd pot, you know, oddball place in the banking system, taxi loans, etc. Etc. And then of course Credit Squeeze, which has been choose my words carefully, they've been under some stress for first quite some time, love me put it that way, and so that's a nice way to put it. So in that sense, we're not at the level where you started to work, where we started to worry about banks like City Group and Deutsche Bank and things like that, although I guess Credit suieces analogous to Deutsche Bank and UBS, which ironically had its own issues back then and is now the acquirer. So there's definitely you know, history. They say history doesn't repeat, but it often rhymes, and I think there's there's a certain rhyme to it. But we're not there yet, and I certainly hope we don't get there. But so, I mean, I was at that point my responsibility was making markets and being a specialist in bank options, and so that was a very it was a very challenging time. I do think we actually, I will say we did. We did rather well then I you know, I know that's really counterintuitive, and especially when systemic risk is a foot. Um. But the thing that really got us on the right foot was almost a random conversation I had Yeah tell us about this because we talked about this, and UM, I want to give credit to Katie Garfield who originally asked you this question and you told this story, so if you wouldn't mind, not at all, we you know, we're in a we're in a small office building in Greenwich, and you know, you park in the garage underneath because you know that's everybody commutes by car because it's Connecticut. UM. And so you know, get in the elevator and there's Thomas Patterfie who founded the firm and UM, you know, whom I'm sure the listeners are familiar with. UM. Get in the elevator. UM. You know what's new? UM, And you know Thomas's Thomas is not a man who's big on small talk. So it's it's you know, that was I think more. You know, I took that as a business related question rather than you know, tell them about you know, tell them about the kids and stuff. And I said, you know what's really interesting to me is UM, this story that the story that that that I'm reading this morning about how bear Stearns may have as much as twenty billion in losses at some of their hedge funds. And he said twenty billion. I said, I said, no, that's that's the number that's being thrown around. I don't, you know, I obviously I don't know if it's one hundred percent true, but I trust I trust the reporting um and he said, how big is you know? What's their market cap? And I said, I think about twenty billion. Now at this point, it's only like a it's only like a four story building. So we're out of the elevator at this point, walking down the hall um, you know, and I said it, I think it's about twenty billion ish and he looks at me. He said, he are you telling me bear Stearns is broke? And I said, I wasn't going to put it that way. But now that you you know this, this is why Thomas is. You know this why Thomas is the success he is. He's, you know, because he sees right through these situations. I said, I I guess I am, aren't I? And he looked at me and he said, don't sell any puts on banks until you hear until you hear from me otherwise, And that was that was probably you know, I don't think I heard from a motherwise for about a year and a half. But which is not to say I never sold a put. It's impractical. You can't do that as a market maker. But what it means is don't be a net seller puts. If you sell them, replace them, adjust the models so that we are not the best offer on them. And one of the interesting features that came out in two thousand and eight was because credit to fault swaps were pretty new, and really, you know, I believe that every new financial innovation gets a real world test, and some of them pass, and some of them fail, and some of them get rejiggered as a result of it. And that was credit to fault swaps real world test, and they were being used in inappropriate ways and the market wasn't ready for a full scale test of credit default of the how they work. But the logical hedge if you're trading credit to fault swaps is to buy long term out of the money puts on equities. And so the big trade there was people buying whatever the lowest strike leap put was on insert bank name here, because that would be you know, if I had sold credit to fault swaps on um Lehman Brothers. You know, the bond. Because of the way a capital structure works, the bonds bonds go bad before stocks. And I know that's an issue here with credits WEE and the Coco bonds, etc. We'll get it. You know, I'm not a restructuring expert. My brother actually is you know, I haven't gotten a straight answer at it. I haven't asked him actually how that all is working out. But um, but what happens is, you know what happened there is so if the bonds are going to go bad, well then the stock is going to go bad. The stock is going to go worse. So um, so people were really clamoring for those So it just basically kept ratcheting up that volatility and kept ratcheting it up and and but as a result, we went into this um and stayed into it pretty you know, pretty much on on a decent footing um, which is not to say there weren't hiccups and accidents and everything else. As a market maker, you you you sort of expect that you're going to have your bad days and your bad weeks, and you know you're even your bad months, but you keep tight risk parameters and over time, um, if you're doing it right, it pays off. You know. You you you collect a lot of change along the way, and sometimes you you know, sometimes you make pennies and give back dollars, but you have to manage the dollars that you give back and We fortunately were able to um not give back to dollars. And those days we ran pretty much a we always pretty much did, ran a long volatility UM model. Just that was the way we traded. It could be expensive UM. A lot of a lot of people don't do that UM. But in an era where volatility was constantly UM, constantly rising more or less UM, and skew was getting extraordinarily steep, it was. It was the right It worked for us, and we were we were in a good place at the right time. Something to be said for taking the elevator ride with the boss. I guess this is a good argument for everyone getting back into the office. I guess I say, yes, I'm working for a moment, but big picture wise too, I'm thinking about the difference in the reaction function from the government and the central banks to this occasion versus two thousand and eight. Yeah, I'm thinking back to that original vote. I think it was in the House on the TARP bill. There was a lot of optimism in the market that, of course they're gonna pass this bill, the TARP build to in chect capital into all the biggest banks, and it failed on the first vote, and the market just you know, went down instantly in a big way. I forget the exact numbers, but this response to me seems much quicker, much more focus and um targeted and sort of able to put out the fire a lot quicker. Is that is that your impression too? Absolutely? Yes, yeah. Once you know, they were writing the playbook in two thousand and eight, and I think to a certain extent they've been using that playbook, particularly in twenty twenty, and they're using it now, um, you know, and that was essentially monetary and fiscal shock and awe, and I think you know, in two thousand and eight, Um, you know, remember there was the you know, they ridiculed helicopter ben um, but that actually he wasn't wrong, you know, and and the Nobel Committee eventually agreed. But that was you know, real world test at one of his theories, which was essentially dropped money out of helicopters in the time of a crisis. Um. And I think now they've realized, well it works, um. And that was you know, and that was that was why it had worked during COVID, and that really wasn't much complaint about what the FED was doing. And then it was certainly you know, the fiscal bills were generally passed along bipartisan lines um, so there wasn't. So by now we sort of we're going to use that playbook, which I think is a good thing. That's that's kind of the that's that means we're actually learning from our you know, from our efforts you know, societally. Now we can argue to what extent it's appropriate. We can you know, we can certainly question whether there was moral hazard in the way they um in the way they guaranteed all deposits sort of with the stroke of a pen um at at silic at Silicon Valley Bank, and and and who benefited from that. I mean, you know, we're going to be arguing about this for a while. And of course we're still you know, with the FED meeting yesterday, we're still dealing with the idea of did the Fed and the and the you know, and the and the and Congress, the fiscal authorities overdo it in their response to COVID. I mean, these are that'll be that'll be the stuff, you know, when when Vildonna's my age, she'll be having that discussion. She'll be having that discussion with the in a couple of years, right, you got a waste to go to your catch up to me. Um, but but that's really the you know, she'll still be talking about her mortgage, I think, Steve. So she'll still be telling that story. Yeah, yeah, well that's you know mortgage. Well, you know it added twenty years to my life just from yeah, Steve. One thing. Um, there's almost this knee jerk reaction in the market, I think, to this notion of the Fed's balance sheet. You know, a bunch of banks went to the discount window at the FED and borrowed I I don't know what the exact number is at the moment, but call it hundreds of billions of dollars. The thinking in many quarters is that, well, that's almost like quantitative easing, or at least a reversal of the quantitative tightening tightening that the central bank was doing. Sure, if that's the same the appropriate way to look at it, You know, the FED increasing its balance sheet by extending discount window loans versus buying treasuries and mortgage securities. Is that the wrong way to think about that? Do you think it's interesting because I've had this exact debate with my colleague Jose Torus, who was an economist and you know his his He pointed out after the last h dot four dot one report, which is something I actually, you know, in a nerdy way, look a look at every Thursday afternoon. But but you're even Mike, You're probably not old enough to remember on Thursday afternoons everybody stopped to wait for the M two report. When I started out in the business, you know, that was the thing everybody was looking forward to. So so we've had this debate, and you know, he said, well, look, you know, the deposits went up by I think it was three hundred billion or something, which which um, you know, would eradicate essentially the QT that's done year to date. Meanwhile, though they did continue to let securities roll off the balance sheet. So I think that the differentiating factor here is the deposit stuff is meant to be a band aid, um, whereas the QT is meant to be more of a permanent shift in the way the Fed is is approaching that, you know, tightening and easing of their balance sheet. But they use their balance sheet and a crisis, and so I don't think it's apples to apples, but certainly it was they did throw money into the system. You know, they need to do it to keep lubricating the gears. I just think it's a little bit in theory. This three hundred billion can roll itself off. I don't think it has yet. Well, well, we'll know this afternoon, I guess. But I think as long as their stress in the banking system, it's going to the FED. The feed is you know, is and can be the guaranteur of you know, the lender of last resort. And it's to me, this is one of the fascinating things. Right we've talked about the we we haven't yet, but the Fed's dual mandate is stable prices and full employment. Yet it's very clear that the fed's real job and why they were created, was to maintain the safety and stability of the banking system. Now, without a safety and stability the banking system, you can't have stable prices and full employment. But their real mandate is sort of unspoken, and I think that's but it's important that that mandate really comes into play when there's a crisis going on, and that's what we're seeing now. Steve. I'm curious because everything keeps changing so much, so fast. How you're thinking has evolved since the start of the year. And obviously we even had some economists at some of the big banks coming out before this week's FED meetings saying they're not going to be hiking rates, and obviously they're raised by twenty five basis points. So how are you thinking about all of the changes? Everything we've seen, everything we've heard from the FED, the bank turmoil, everything, and how it's you're thinking about what we might be seeing for the remainder of the year has evolved. Thinking really hasn't changed all that much. You know. I'm still of the belief that we're in a period where if the FED is raising rates and if the FETE is shrinking their balance sheet, things are things are going to break and you're going to have accidents. Well we did, you know? And I think that the problem here is that I'm going to take a little victory lot because literally what I wrote yesterday was that, um, let me just pull it up, was that my base case was for a twenty five basis point hike. The FED doesn't typically surprise market. No, no hike would be considered a surprise if they stood pat with people would worry about what's wrong. Um, you know that, but but you now have the dot plot. I won't go into the whole thing, but basically then said the dot plot was going to be relatively unchanged, which was very much at odds with FED funds futures, and that um he would play down concerns about, you know, the banking crisis metastasizing, which would actually potentially disappoint people. I think, you know, I think that all fits, and I think that's still what we see now. We saw sort of the way that zero dated options can cause, you know, microverse of volatility. That's a new feature. It's it's not as dire as I think a lot of other people I believe it is. I really don't think it's a stemic. I just think it's, you know, buckle up and get used to it. But I still think this is the issue, and right now what I'm wrestling with our two basic things. One thing I didn't really foresee was that the January effect would be quite so lasting. I think we're still seeing the January effect. I think the risk on move that we're seeing occurred largely because some of your biggest, most you know, most followed, most popular stocks both within individuals and institutions got the crap kicked out of them in twenty twenty two, and that led to a lot of tax last selling in December, which then made it even worse. They got deeply oversold. They were the first to bound as well they should have. And I think that that bounce then turned into a full fledged risk on rally, which I didn't actually foresee the amount of the legs that this would have. And I think that's what we're wrestling with now, and I think that you know, we're still seeing it. You know, we're also getting though tremendous concentration to you know, Apple and Apple and Microsoft or together just those two stocks are about thirteen percent of SMP right now and about twenty five percent of of the qqqs. Nuts. You know, I think back, you know, you want a bigger historical precedent. Certainly I wasn't active then, but I've read up on it was the nifty fifty or the one decision stocks back in the sixties and those. You know, Eventually, every time you've had narrowing leadership, it tends to work out somewhat poorly um and end in a bad way. And I'm not I don't know. I'm not going quite so far. But but if but if we're that top heavy in two stocks, that's not the it's not a great sign. Um. But another thesis of mind that I've really been laying out recently is that I think it's generational. Um. And I think, you know, we can debate that with different generations here on this podcast. UM. I think if you were not around in two thousand and eight, Um, well, if you were around in two thousand and eight, you're you're you're wary because you've you've been through this before. And as we said, it's not the same, it's not as bad yet, but it could. It's too early to give the all clear. It could get worse before it gets better. You know. My theory, which I've grossed out two of your colleagues, but I'm going to say it again anyway, UM, is you know, if you see one, if you see one cockroach, there's probably plenty more hiding out of hiding, just out of sight. Um. And so I think the older crowd, those who've those who've been through a crisis like this, have that in the back of their minds. And I was out to dinner with some friends of mine a week ago. Um, you know, and that was sort of the theory. You know, what else is lurking out there? If you're younger, you've only really ever lived through a period where the FED has been your friend and where there's been no inflation. You know. That's the part of that's the part of my main thesis that that I think is still has to be worked out, is that they're not the FED is at every given turn, they're they're telling you that they're fighting inflation first, and Powell told us that yesterday, and yet and yet there's a certain amount of disbelief, and there's certainly a big amount of disbelief in the FED funds futures, which which I think we could bat'll merit its own part of the conversation. But you know, generationally, you look at anything that might look as the FED coming into the market as Fed, you know, Fed easing this is good, and like you said, it's it's tough to say it's exactly the same thing. The Fed's not necessarily easing for the best reasons, and it's not clear that they're really easing, especially if they're raising rates at the same time. You know, any investor who's sort of under forty, has never been in a period where the FED has not been a tailwind, with the exception of like a few months here and there, And that's a very It's so I think you're getting two very different mindsets at work. Um, not a bad thing, but but it'll have to get resolved, you know, when we find out if it gets in favored of the younger set or the older set. And the problem also is none of us, unless you're you know, unless you're sort of in your seventies or older, have been investing in a period where inflation was problematic. And so no one knows what that playbook is like firsthand. You know, I can talk about what the playbook was like firsthand in twenty twenty, in two thousand and eight. I can't talk about what the playbook was like in nineteen seventy eight, nineteen seventy nine. And the historical data is not as complete for back then. You know, it's it's hard to even as if you're a quant to go back and you know, parse it and pick it apart the way you do with modern data. One note to listeners. We are recording this episode on Thursday, March twenty third, So keep that in mind when any references to yesterday and today. In case I don't know, Voldana, maybe some people are listening to this on Saturday night and they're having a party and this is their soundtrack. I listened to podcast on Saturday night. Yeah, yeah, I'm sure you do. But Steve, I always love to sort of cut to the chase here and get to the well. Man, Just tell me what to do with my money right now? What are you advising? What's the best way to position right now the markets? I mean, you've got money market funds that are finally sporting a yield that's three or four percent? You know, is it cash? Is it you're excited about long duration bonds? Is it defensive stocks? But what would you be doing right now? I've tended toward risk averse, which has meant that I've missed, you know, a lot of the NASDAK move higher. I don't feel like I've missed too much in terms of the SMP, you know, in the SMP and the broader stuff. Let's go back and think of what the theses have been for investing over the last few years. Number One, don't fight the FED. So what does that mean right now? Does that mean loading up on risk? No, because the FED is not your friend at this point, and whatever market friendly things they may be doing now, it's crisis response, not true stimulus. There is no alternative, Yes, there is, now there is. I think we're in. The situation we're in is because for so long there was no alternative. And so money, you know, liquidity, like financial liquidity, is like real liquids. It finds the lowest level. And we're still working through a lot of liquidity that found the lowest level during you know, during twenty twenty one, etc. Is the economy. The economy is generally robust. Um, you know. I think we can argue whether whether we're going to come in for a soft landing or hard landing. My gut tells me this probably doesn't end all that well. But the question, of course is when, and the question is how much. Now. I think it's great that on the job front um things things are going along swimmingly. It's also not so terrible, by the way, if you have a job to see the fact that wages are are strong, Um, you know, so it is that that, let me preface it that way. But I think the problem you have now is you've got a lot of you really have this this dissonant factor going on. You've got stock markets happy because they see the idea that rates might come down, But you have to ask yourself, why are they going to come down? The Fed, as we've mentioned in the dot plot, the FED governors who have been saying all along, we don't see any rate hikes through the end of the year, pretty much said the same thing yesterday. The dot plot's telling us, you know, rate cuts, rather, we're not cutting rates by the end of the year. Yet at one point at the end of the day, late in the day, it's bounced back a little bit. The FED funds futures for you know, for the for the January twenty four meeting, we're showing three ninety nine. Yeah, that's a lot of cuts. So ask yourself, what do we have to do to get those cuts? More cockroaches? Well, that's kind of my worry. Is nothing good unless we magically beat inflation, in which case I still don't think the FED is going to be racing to cut rates. You know, if if you've just won the if you've just won the war, you're not gonna start a new one, you know, which which is what rate cutting would do if you just sort of arbitrarily said, you know, let me just say this. My pause does not mean pivot, you know, under normal circumstances. So so otherwise, what we would need to be is some sort you either have to have some sort of financial accident or some sort of recession, neither of which is particularly market friendly. So that to me is a huge cognitive dissonance out there in terms of in terms of what what's being priced in certain places, what's being priced in in order to justify, you know, the rallies we're having. If stocks are supposed to be looking six to twelve months down the road, what are you looking at? And that's that's the tricky part right now. Steve Sasnik, chief strategist at Interactive Brokers. All right, Steve, Oh, we can't let you go just yet. As a veteran of the show, you know, we've got to hear about the craziest thing you saw in markets. Well, Dotta, I have a funny feeling we're all going to pick the same crazy thing. So I'm gonna scoop us all and go first. How about that? Yes, we often talk about these futures contracts in the market, oil, soybeans, corn, whatever it is. You don't often think about what it means to take the livery of those contracts. And at the London Metal Exchange they had a little bit of an issue on that front. They announced they had canceled nine nickel contracts worth about one point three million dollars after discovering quote unquote irregularities. Now you know what the irregularities were. When they went and looked at these bags of nickel, it was just a bunch of bags of rocks. You we're going to go with this story, which is why I one of my favorite stories, uh ever, of JP Morgan turned out to be the owner of I think at least some of these nickel contracts. You know, whenever there's a Nickel's crazy nickel story in the market, you can on JP Morgan and the LM being at the center of it. So I don't think they've figured out why there were bags of rocks instead of bags of nickels. But I'm dying to know. I wonder if I had something to do with that short squeeze. I would love to know who've found it, Like we found the bags of rocks. Yeah, I don't know. There's there's so much more we need to know about this period. Absolutely, I mean the idea well, first of all, I mean, just think of all the craziness. You know, when when nickel prices were going insane. It would behoove some scammy person to say, you know what if I just delivered about what if I just you know what if I sell short and you know, sell them and I got nothing to live for, so you know, maybe maybe no one will catch me and I wouldn't do it. Someone had to sneak into this warehouse removed I don't know, or maybe it came from the spire. Who knows. We'll have to stay tuned and see how this all resolves itself. Hopefully they figure out what happened. But I don't know. One of my favorites. That's a good one. What do you know you were gonna go with it? Okay? Mine is not markets related. Okay, this is seriously, I'll happily be a loser of this game this week because it has absolutely nothing to do with anything. It's just it's my favorite story of the week. It's a ninety year old tortoise named Mister pickles. He's the new dad of three, so he has three brand new tortoise babies and they're named Dill Gerkin and Hella penyol Gert. He's ninety years old and his wife is fifty three. I think why wife is a generous term. I just really like this story. And they're so small and extremely cute, and they can fit like in the palm of your hand. They're so tiny. All right, that's pretty good. You can't, I mean, nobody can see. I'm looking at pictures. There's I'm sure there's a market for I don't know, turtle meat, so maybe maybe that's but oh my god. They're an endangered species. And one of the reasons that Galapagos turtles are endangered is because there was a market for it. Because if you were sailing along and stuck in the Middle Pacific, they would let Galapagos in Spanish means tortoise, and they would land on the Galapagos islands, put a couple of tortoises on the boat. They didn't need much care and feeding, and you could feed your crew for months. That actually is it's it's just you know, see, we see where you brought the conversation, Mike. I know we were talking about nice little turtles and I should were on there. Sorry, these were This is how you become a chief strategist. By the way, if you you know, you need a meal on a boat, you know the Galapagos, Steve, Steve's got you covered, not anymore if they're endangered. I wouldn't. I wouldn't do that. How about you, Steve, what's the craziest thing you saw? I came with two because I figured one of you might beat me to the bag of rock story. So mine is that perhaps the best investment in markets right now is swag in defunct banks. You know, as someone I know who still has a Solomon Brothers rugby shirt and I think I have from my summer intern days in La Rothschild umbrella still m I know, from my default defunct securities firm swag And apparently if you had, you know, apparently there was some sort of credit squeeze hat that was very popular. Um that's going for good money and they're not even defunct. They're not even defunct, but SVB stuff, and so I think, you know, the ebayers are having some fun with the swag, and so that's I think that's financially market financial markets related enough. Now, that's pretty good. Yeah, no, yeah, In fact, I think that's been a consenter in the past, so it's it's always good to revisit that market. I once found an MF Global golf ball out on the course, and I've meant to throw that up on eBay, but I think I lost it. I have a country I have a country wide that I that I found, and I keep it in my golf bag just as a reminder of, you know, what can go wrong on the golf course too. It's a good metaphor. The takeaway at the end of all of the of this segment always is that it's good and it pays off to be a hoarder. That's right, that's right, that's right. I'm hoping one day my wife will listen and realize why I heard so much stuff around here. But hey, you know, take that free hat when you're at the conference, Vildanna, you never know, you never know. I should go through my crypto swag. Yeah, yeah, don't don't throw it out. Don't throw it, throw everything out. Steve Sasnick of Interactive Brokers always a pleasure to catch up with you, Steve. Thanks so much, my pleasure, My pleasure. Bill Donna, thank you so much for inviting me today. I can't remember. I can't believe how fast at the timeline I hope it went. It's fast for the listeners as it did for me sitting here. We'll catch you next time What Goes Up. We'll be back next next week and so then you can find us on the Bloomberg Terminal website and app, or wherever you get your podcasts. We'd love it if you took the time to rate and review the show on Apple Podcasts so more listeners can find us. And you can find us on Twitter. Follow me at Reaganonymous. Bill Donna Hirich is at Bildonna Hirich. You can also follow Bloomberg Podcasts at Podcasts. What Goes Up is produced by Stacy Wong. Thanks for listening, See you next time.