tv Maria Bartiromos Wall Street FOX Business March 18, 2023 10:30am-11:01am EDT
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maria: and happy weekend to all. welcome to the program that analyzes the week that was and helps position you for the week ahead. i'm maria with bartiromo. the white house is scramble dog reassure americans that our banking system is safe after troubles at three u.s. banks this week. financial concerns pushing some economists to cut their gdp forecasts. i'll be asking dan niles where he's putting his money now. and where were the regulators? big questions over how all of this this went down fueling huge speculation over how the federal reserve will respond with interest rates this upcoming week. former fdic vice president and former kansas city federal reserve president thomas hoenig is here. plus, critics are calling on president biden to take action after russian jets downed a u.s. drone in the black sea. kt mcfarland on that and mr. xi goes to the moscow. the chinese leader touting a new world to order ahead of his visit with putin on monday and a
potential meeting with the president of ukraine to follow. all of that coming up. but first, a volatile the week for the markets amid fears over the fallout from bank collapses here and abroad. economists at goldman sachs, jpmorgan and moody's all cutting their expectations for gdp growth this year in reaction. and we are learning that banks have borrowed a record combined $165 billion this week from the if federal reserve. joining me right now is dan niles. dan, it's great to have you this weekend. thanks for being here. >> my pressure, maria concern my pleasure, maria. maria: what is your take on the federal reserve's action so far and whether they'll raise rates in the upcoming week? >> so i think the fed's in a tough spot because heavy got two things they have to do. the first one is they're the lender of last resort, and they stepped up to the plate and that's great, so that's helping on the banking side. but the other thing is they've got to the control inflation and deal with employment. and so inflation is still strong, and you're going to see
that probably start to accelerate on the commodities side, because china exited zero covid, they've dealt with their big covid surge in january. and so as you see that turn on, commodity prices which have been going down for a while now, they're -- you're probably going to the start to see that pick up again. and so that's the issue. and then the banking stuff, that's not going to go away. we've been worried about the banking system, we were more looking at private equity late last year because you've got $620 billion in unrealized losses sitting at the u.s. banks. that's against a capital base of just $2.2 rl. in europe you've got $200 billion in unrealized losses, and this is being driven by this high inflation. so i think you're going to see this banking issue be around for a while as long as there's high inflation. and with china opening up, i don't see that going away. maria: so what do you want to do as an investor here, khan? you've been making money throughoutal of this, but how do you want to allocate capital in an economy most people are
expecting to possibly enter recession in the fourth quarter? >> yeah. you had me on your show in early january, and i said one of the best ideas i had at the time was going to 3-month treasury bills. you're getting a guaranteed return of over 4%. it's a great place to be because of a lot of the things we have going on. our target on the s&p 500 is still 3,000, and we think you're going to get there at the back half of the year. that that's down almost 20% from current levels because you've got multiples for the market that are still high, and you've got earnings which especially after the bank prices we've just had, are going to the head lower. you're probably going to get some taste of that when with companies start to report q1 earnings because, don't forget, the banking sector is a big spender especially in technology. they're 15% of the $4.4 trillion spent every year. so i think investors should take advantage of the rally we got this last week. we expected that. we put a tweet out on that on
march 10th. but, you know, this crisis is far from over, and i think you're going to see other banks come out over the course of the rest of this year talking about how heir going to have to shore up -- they're going to have to shore up that capital base because $620 billion in the unrealized losses, that's a big number. obviously, there's some other pockets you're going to have to get through of stress. maria: yeah. i want to ask you about those pockets of stress, dan, because when you look at what happened to silicon valley bank, their deposit structure was venture capital firms, tech companies. this was the negative. we know that there's a lot of layoffs going on within tech. then when you look at signature bank, the fall there was largely due to commercial real estate. and, you know, these are two areas that are vulnerable, commercial real estate, technology. what are other potential blow-ups? where are you looking for potential worry signs, and how do you want to avoid them? >> well, the problem is it's hard to avoid them when inflation is really the issue.
it's, the other things you mentioned we're negative on, right? if you go back to some of the cushions you and -- discussions you and i had late last year, we were worried about private equity because they've got a lot of money in commercial real estate. you have more redemption than their ability to meet in some cases. but the core issue here is that you've had 13 years of easy money. that led to the highest inflation in 40 years. and so all these banks over the last 13 years are sitting on a lot of treasuries. and as rates, inflation went up, rates went up, central banks got more aggressive, they were dealing with massive losses. that issue hasn't passed, and that's an issue affecting all banks. think about credit suisse, right? it's an issue that you're having to deal with. and so unless inflation really falls off and our concern is it starts to pick back up on the commodities side which has been a tailwind now for a little bit, with china being the biggest buyer in the world of a lot of different commodities, the
second biggest to buy our oil, that's one of the things we talked about in that tweet on thursday. we ended up switching out of some of our tech stuff like facebook or meta into things like commodities, energy, aluminum, copper, that kind of -- those kind of names, as well as buying some sports betting companies where, you know, this tougher lending environment and capital markets is really going to cause a problem to all the competitors of the two biggest, fanduel and draftkings. and so but don't forget the overarching theme here is s&p 3,000 the, that's a lot lower than where we are today, and 3-month, the-bills look pretty appealing in that kind of environment. maria: so the reopening of china reignites games for commodities, reigniting inflation is what you're saying by year end, dan. >> absolutely. and in the second part of that, the u.s. consumer's sitting on $15 trillion in excess savings -- 1.5 trillion in
excess savings, but they're burning through that because of this high inflation. they're going to be out of money by the back half of this year going into the holiday season. that's the second shoe that can potentially drop. maria: thanks to dan niles. great to see you. questions are still swirling one week after the silicon valley bank implosion. how were big flags missed, and could it happen againsome the you've put your dreams on hold. remember this? but i spoke to our advisor, and our vanguard investments are on track. “we got this, babe.” so go do what you love. thanks for being our superhero. only at vanguard, you're more than just an investor—you're an owner. giving you flexibility to follow your dreams. that's the value of ownership. sometimes you're so busy taking care of everyone else you don't do enough for yourself, or your mouth. but eventually, it will remind you.
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♪ >> well, i think that most of our members, first and foremost, want to have the question answered by the regulators, what happened. i mean, how can they were asleep at the switch and didn't see this coming. i mean, these are pretty obvious indicators. maria: well, critics are sounding off on the san francisco federal reserve. the securities and exchange commission and the treasury, demanding answers over how mismanagement went unnoticed at silicon valley bank and led to
the second largest bank collapse in u.s. history. democrats, led by elizabeth warren, are now pushing a bill that would restore more regulation of mid-sized banks cut under president trump. joining me right now is former fdic vice president and former kansas city federal reserve president thomas hoenig. thomas, it's great to see you. thanks very much for joining us this weekend. >> good to be with you. maria: so what about that many terms of the management -- many terms of the management at silicon valley bank? your thoughts on what went wrong, and how was the missed from the san francisco federal reserve bank, for example? >> the bank under these circumstances was assumed to be well capitalized. the risk-weighted capital, i think, was around 16% rather than looking at how much capital they had. and the fact that their balance sheet was so into government securities, guaranteed securities, bonds that were underwater, but that's true for the industry. so that's something they should have been paying ages to.
and then finally, the real question is how come they missed the red flags. this bank had grown over 60% in three years in a row. there was this enormous ballooning, you had to deploy these assets. hay put them in these securities that were, they thought, perfectly safe because they were credit risk free, with but they weren't duration race risk concern risk-free. in fact, the board of governors, not the san francisco bank, but the board of governors approved in 2021 -- and i think this is right -- their acquisition of a bank, financial system in boston to expand the reach. so hay missed it as well -- they missed it as well. i think part of it is a sign of the times. we had, maria, you know i've said this a hundred times, a decade of very easy monetary policy that encouraged speculative activities, increased lending under more
favorable terms, and that built up a lot of imbalances. and thenyou have any kind of weak management, and in this case service the obviously weak -- it was the obviously weak, you're more prone to be the party that fails. but i'm afraid there are other banks that are going to have to be looked at. maria: well, i mean, the consequences of zero rates for 15 years and then raising them in a hurry, you know, the one-year anniversary of when the fed started raising rates just hit this week. and then, of course, kim strassel mt. "wall street journal" writes concern in the "wall street journal" writes about the san francisco federal reserve, she, mary e daley and her amendment the, have focused more time of late focused on hypothetical climate risk. what woke overseer wants to clamp down on the karling of clean techbacking as that's the directive coming out of the white house? but now the speculation moves to the upcoming meeting next week. >> right. maria: so what is the federal
reserve going to do when they meet tuesday and wednesday? do they keep on this path of fighting inflation with higher interest rates? we're expecting a 5 basis point -- 25 basis point highing on wednesday, or do they instead try to stabilize financial markets and say no rate hikes right now, we've got to be in the business of financial stability? >> powell has gone kind of back and forth on that, so you can't be sure. but i would say, you know, if i were advising them, i'd say they've indicated that inflation is their primary goal, to bring that back down. if they go forward, i'd say they should raise their rates 25 basis points and reassure the markets of the liquidity because if they don't do that and they back away, the markets will immediately decide that they're going to lower rates, and we will do kind of repeat of the '70s where hay raise rates, they slow course, they lower rates, inflation starts taking
off, they raise rates, and they get in this until they have inflation of 14%. so let's get the inflation problem dealt with, let's try and make sure we get the liquidity backstops many place and, by the way, maria with, i think their quantitative tightening is the one hinge that they will put on hold as they provide this liquidity. that's the thing that i will watch to see if they back off of that. that's the most likely thing they're going to back off in the immediate future. maria: yeah, it's interesting, because already aren't they adding to their balance sheet right now just in the last couple of days with this new window and this new bank unfunding program? -- bank funding program. >> hay certainly are. that's just a new form of qe. i mean, they're willing to make these loans on these underwater bonds at par, and that's to keep the hi quiddity flowing, and that's a form of quantitative easing. and that's what -- if they do a
quarter point, i think that's the method they will try and adjust for; that is, providing the liquidity as they raise the rates. maria: yeah. you said other banks are going to have to be looked at. so you think they're still stressed within the financial services industry. you think we'll have more bank failuresesome. >> i'm not going to say we're going to have more bank failures, but we do -- maria, it's just a fact. we still have $600 billion of unrealized loss in the maturity portfolios of the banking industry including the largestbacks. so that's still, that still has to be dealt with. and remember, we have a whole asset class, we have all kinds of assets out there, loans, collateralized loan obligations, mortgages that are falling in value because you've raised interest rates this much. that's what we did in the '80s. it's, as i tell people, as sure
as night follows day, you're going to have liquidity and loss purchase -- pressures mt. months ahead. maria: wow. what consequences to this easy money. no wonder you were the bundies can sent or -- one dissenter back in 2010 who was trying to push against that. >> i was, maria. thanks, good that talk to you. maria: china's leader touting a new world order ahead of his visit with vladimir putin in moscow on monday, and republicans are asking why president biden is not responding to russia's attack on a u.s. drone. kt mcfarland responds to all of that next. >> we pulled our ships out, we pulled our manned aircraft out, now we have unmanned aircraft in international waters, and the russians want to force them out too. and the response can't be do
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maria: critics are slamming the biden administration for not responding forcefully to russia's downing of a u.s. drone over the black sea this week. we are now learning that parten -- putin has rewarded the russian pilots involved in that incident. joining me right now is former trump deputy national security adviser, american conservative union foundation board member and the author of "revolution," kt mcfarland. thanks for being here. >> always a pleasure, maria. thank you. maria: so what do you make of these russian gents pouring gasoline concern jets pouring gasoline on the u.s. krone and downing it? >> it's a clint provocation. it's like concern deliberate provocation. it's like putin sticking a finger in the eye of president biden knowing what is he going to do to respond? i mean, i guess president biden could consider giving more offensive weapons to the ukraine, but if we coto that the, then the chinese give more weapons to the russia. so, you know, we're in this odd
position. if president biden really wanted to stop the war in ukraine and to win it on ukraine's terms, he would open up american energy because american energy is the key to the price. st the not just energy independence for the united states, it's energy dominance. that means we produce enough oil and natural gas to set the price, and we can make a profit. our american companies can make a profit if oil is, say, at $50 a barrel. the russians, other countries need it about $80 a barrel because that pays for their war in ukraine and everything else. so the stop russia in its tracks, we should start the american energy industry again. especially because as time goes on now that china is going back online, they are going to go manufacture things again, they've had three years where they've had covid zero, they've been locked down, as they go back then their demand for oil and natural gas is going to increase. what because that do for russia? the price of oil and natural gas are going to go up, so russia
makes even more money than it has prior to this. maria: well, there's also the big story of china and russia. xi jinping is going to visit russia, and vladimir putin, on monday to meet with vladimir putin. the "wall street journal" is reporting he'll then speak virtually with ukrainian president zelenskyy later in the week. so again, acting like the power broke or. this is the first time since russia's invasion the chinese leader is touting a new world order that he's creating, kt. >> yeah. and if you look at what the chinese leader's just come off of, just a week ago we had iran and saudi arabia, his or thetic enemies, and the chinese leaders brokered a deal between the two of them. who knows if it's boeing to work or not, but the fact that it was the chinese leaders doing this, not the american leader, not anybody else. it was the chinese leader. and and now he's on his way to russia and then potentially, as you points out, maybe even talks to the ukrainians. is president xi jinping trying to broker a deal to end the ukraine war?
maybe. but the cumulative effect of all of this is the perception that it's no longer the united states calling the shots. no longer the most influential country in the world, no longer the country that's sort of the major outside player in the middle east. now it's going to be china. and now if we look at europe and the war in ukraine which has becefled the war for the last year, is it going to be the chinese president? it feeds into their narrative that china is the future, that america is in permanent, inevitable decline. and so if you want to get onboard with the new world order, you better cochina's bidding. maria: and now you're seeing the efforts to become the power broker between russia and ukraine even as china is supplying weaponry to russia. >> yeah. and it's the even more than that. if you look at sort of -- the area of growth in the next 20 years is what they call the global south, you know, the southern hemisphere. and china has been all over those countries. it's providing them particularly with internet connection, so the 5g network. but it's not just that they're
giving these countries high-speed internet, it's what comes after that. it's the artificial if intelligence that they can use to really power their entire infrastructure many these countries. that's one of the reasons that china was involved in iran and saudi arabia. the saudi arabia-iran agreement, because they're going to the let china build out their 5g america and use artificial intelligence poweredded by this 5g network to to deal with a lot of their infrastructure. so we're kind of missing the boat all over in every hemisphere, and it's very troubling. the idea of where this goes, you know, the next month, the next year, the next five years is a really sad comment on the united states and its position and power in the world. maria: yeah, it is troubling, for sure. kt, it's great to get your insight. thanks so much. >> the thanks, maria. maria: all right. i've got one important thing you need to know ahead of dad, we got this.
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ahead of next week, as you may have probably already noticed, you may need to manage your expectations in the office. march madness is in full swing, and over the next two weeks about half of all american workers will be focused on hair brackets or watching the basketball tournament while they are on the job. new analysis sews this year competition from start to finish will cost employers more than $17 billion in lost productivity. that's a billion more than last year due to an uptick in employment and higher wages. we'll be watching. and don't forget, don't miss" sunday morning futures" this weekend over on the fox news channel, sunday morning at 10 a.m. live. i've got interviews with senators tom cotton and rick scott, jamessing comber and congressman byron donalds, all sunday live. that'll do it for us for now here on fox business. have a great rest of the weekend, and i'll se next time. ♪ ♪