Here’s what’s covered on this week’s episode:

• The fallout from SVB’s closure.
• Different strategies founders can keep in mind when deciding on where to keep and invest their cash reserves, including bond laddering.
• Due to the recent events in banking there has been a lot of crypto activity. Brett breaks it down.
• Startup Tip of the Week: how to navigate advisor relationships

Links:

• Links: Rho | Business finances made frictionless, Chelsea Capital, Janet Yellen’s testimony
• Follow us on Twitter: @mpd, @interplay, @brettpalatiello, @Mikeyjrog
• Podcast Links: Website, YouTube, Twitter, LinkedIn

Transcript (this is an automated transcript):

MPD: Welcome everybody. I'm Mark Peter Davis, managing partner of Interplay. I'm on a mission to help entrepreneurs advance society, and this podcast is definitively part of that effort. Today we've got our general partner meeting. We run through a whole myriad of topics, different perspectives from tech, from blockchain to the macro market.

The common thread here is the bank run, right? We are in the wake of three banks toppling over. And unfortunately there's a lot of fear that this is the beginning of a bigger earthquake that might be hitting through the financial markets. And so you're gonna get a lot of perspective on that today.

We've also got Fong back. She's gonna run through some big insights around how to leverage advisor networks as an entrepreneur. And I think it's just a great bit of content. So I, hopefully you find it useful and enjoy.

All right, Mike, good to have you back. I know last week you were heads down triaging working on the SVB and broader bank run crisis in supporting portfolio companies and friends at other companies. And so you had to miss the pod, your backup for air, what happened in the last week, what was that? And everyone knows the SVB story at this point.

What was it like from the v c. 

Mike Rogers: Yeah, I think, I think a lot of people dismiss that sometimes VC's best role in supporting a company can just be therapy. So I like to say on Friday I switched from investor to therapist. Basically just trying to chat through with our founders, help relax them, secure, make them feel secure, that, we're here to support the business if need be.

And the short of it is, there really wasn't much to do Friday, Saturday, or Sunday for founders. We saw. Probably some of our best founders or those that have been through crisis before double down on Plan B, E, C, and D and spend the weekend, going through scenario planning. How do they survive?

How do they make payroll? What this, what look what it looks like if they get 75% of the money back, 50% of the money back, 25% of the money back, 0% of the money back. We were prepared on Sunday to loan money to a few of our portfolio companies which I think was happening across the.

And you, I think while that was a good exercise for a lot of founders, probably not one they wanted to do, maybe showed them a little bit of, Hey, how do we live in an alternate reality? The whole thing was taken care of by Sunday around 5:00 PM Eastern, I believe.

And as of today, all of our companies have full access to capital. Venture Deadlines are still in place. It's business as usual. I think the next step now is this cascading effect across community. There were some comments from Janet Yellen that I saw today. I don't, I think they were either done from yesterday or the day before.

But it doesn't seem like they really have apl a broader plan yet for community banks, local banks, whatever you wanna call them. And to me that's a bit terrifying as it does seem like this will continue to push assets from local banks, which I think play a pretty pivotal role in our economy to the big Four or big.

MPD: What should founders be doing right now in the wake of this bank run dynamic, which may end up being the beginning of a bigger dynamic that we don't understand yet. We don't know what the future holds, but what is the recommendation? What's the risk management? What's the triage game that tactically what should people 

Mike Rogers: do? Yeah, there, there are a bunch of products out there, so there's a bunch of ways to hold your money, right? You can hold it just in a checking account, which as of today is each account is still up to $250,000 of F D I C insured money. And we've now seen that, like that will work, right?

So there's a real backstop there. What. There are plenty of products that banks offer, including one of our own roe that allows you to sweep that money into, up to 75 different accounts to increase that balance, all operating from the exact same place. And then you also have like short term treasuries and money market accounts, which are invested assets, which sit in a whole different risk bucket.

They don't sit on banks balance sheets for the most. And you can put money into that. Founders can do that. So we've seen founders doing, especially now with rising interest rates, is look for like bond laddering solutions, money market accounts, places where they can actually earn yield and improve cash runway.

This is a change from the last five years where these assets didn't really yield enough that it was worth it. But now they do. So we've seen some really interesting strategies come in place. We work with a bunch of partners. Are helping our portfolio companies do this. And to me that's an exciting, new frontier for founders to go and A, reduce their risk on the banks and B earn more interest.

I will add one thing. I don't think there is any more risk in holding your assets in banks. Especially if you're holding it at one of the big banks, or even at this point, some of the kind of more middle market banks. So not your tiny community bank, but maybe the first Republics of the world. I don't know if those banks will continue to look and feel the same way they do today, that they will in, in, two mo two weeks or two months.

But I don't think there's any risk to capital being held in those banks. But again, do I think founders should have 20 million in a bank checking account? 

MPD: Probably not. Yeah. Especially not an interest-bearing environment. What is bond laddering? Because this has been the product that has come up most there's two things that have come up most in the last week.

Everyone's realizing, oh, we should do some sort of sweep account. . So we're getting more F D I C coverage under our balance and oh, interest rates are up. We can actually get yield and still maintain some liquidity. And that's, that cross section of requests has generally led a lot of people to bond laddering.

So could you go through what bond laddering. 

Mike Rogers: Yeah, you might be the better person to talk about this. So I'll start and you can chime in. Bond laddering is basically the process where you own treasuries across different maturities, which allows you to be able to hold those treasuries to maturity without dealing with fluctuations in bond prices and get access to your capital in an a timely manner that coincides with generally your cashflow needs.

So if you were a big LP investing capital, you might bond ladder based upon your anticipated capital calls from GPS that you invest in. If you're a startup, you might bond ladder based upon your anticipated payroll expenses or large business expenses going on to the future. So what that would look like is maybe you buy, you have 10 million in the bank.

Maybe you buy 3 million of one month treasuries and roll them every month, and 3 million of three month treasuries and 2 million of six month treasuries, and so on and so forth, down the line to match with your burn and anticipated capital needs. Now these treasuries are fully marketable security.

So if there was an event where you needed them, you could always sell them. You might take a small loss in that position and they are available in fully liquid 

MPD: Securities. It's even easier than that. So I'll add one more layer. This is such a common. Common product, that's the underpinning of it, that this has been productized.

So now you can invest in a account or through a broker that basically does this. Yeah, and when I do bond laddering, what I will end up doing is put money into a bond laddering cycle, and every two months, a percentage of the money becomes comes due. So it makes it really easy to manage your cash flow and your capital commit.

You put the money away, you're getting interest. Every two mo one or two months, you're getting money out so you can budget against expenses, payroll, things you need, and if you at that point don't need the cash, you can throw it back into the pit and start generating yield. The second thing about this is it's pretty special, is one, it gives you some, it's almost liquid, so it's not quite as liquid as a checking cabinet.

It's almost liquid, and you can manage against it really easy. It's very predictable. It's very stable as far as stable can be. The cash flows are very predictable, but also a lot of these products are tax free on interest because they're government entities. And that means you can get like 5% it's equivalent of on a pre-tax basis of getting 6% in today's market. So they end up having some tax advantages. It's if you need a degree of liquidity, It's something that you're like, Hey, we're gonna need this in the short term. It's a really good solution. As long as you know your liquidity needs, like the timing of those cash flows, you can pretty easily schedule out a bond laddering strategy that works with it.

This is a pretty commoditized product and service. It's not something that you have to find some bespoke vendor to do. If you need help with it the team over at Chelsea Capital helps a lot of companies navigate. I'm sure if you have a financial advisor or accountant, they can probably get you into the right place as well.

Or a banker. Yeah. This 

Mike Rogers: thing, let me have the normal caveat that we're not tax professionals and you shouldn't listen to our 

MPD: advice. Yeah. And you shouldn't listen to anything we're saying. And don't sue us. But if you're sitting on a large cash pile and you know when you're gonna need to move that.

B laddering in today's environment, not a year ago is suddenly relevant. And so its something for startups to be thinking about. Yep. And individuals, 

Mike Rogers: Switch gears for a little bit though. I think the SVP situation now, the dust is settled. There are some interesting kinda observations I've made here that I don't think people are really talking about.

Now. You're hearing a lot of all SV V mismanaged, their bond duration. Oh. Svb wasn't a financially sound bank or They were, but they had some issues. I think the big thing that, that no one's talking about is that svb, while an amazing partner to a lot of startups, et cetera, had an overly, like strong concentration of startups as their customers.

And what that means is their business banking infrastructure was cash burning companies. That is not normal for a. So if you think about it this way, their deposits were always shrinking na on the natural cash flow cycle of startups versus most banks where businesses are either profitable or breakeven or some are losing money, but the vast majority are making money, right?

That's the goal of the businesses and therefore their deposits are growing naturally. SVBs were naturally shrinking. And they were reliant upon venture capitalists like us to invest more capital in these startups and fund new businesses in order to grow their asset base, to continue to hold a good bank balance against the loans that they make to these and other companies and individuals.

So it's an upside down situation that I don't think many people appreciated or really saw before. This kind of broke loose this week, and because of that too, there's a second dynamic. While SVB might look like it has tens of thousands of customers, which it does, in theory, those customers were really backed by the venture capitalists that backed them.

So instead of having thousands of customers, they really had hundreds of customers or tens of systematically important customers to them. And once those customers turned on them, the bank was going to go down. And that's why I think we saw a bank run here that was the fastest ever seen before. And I don't think you could replicate it any other.

Just because of the sheer concentration of their customer base in startups, which really represent the VCs that invest in them. 

MPD: That is a, I think, a big insight into banking strategy. The one thing I wanna say though, the balance on it is that may have been a bad strategy or a bad risk profile.

It's not like at the same time, it's not like they did anything as far as we can know right now. Straight up unethical or wildly mismanaged, right? If there hadn't have been a bank run, this SVB would still be functioning today. They would've raised some capital re shored up the balance sheet, right?

There was a psychological fear that, and a game theory that triggered the demise of the bank probably in an accelerated fashion cuz it was concentrated ultimately to however many customers that all pinned up. Yeah, which I think creates risk. Lack of diversification. But I was saying this on the pr one of the, one of the other conversations today, it's not as though it was inherently mismanaged.

From what we can tell, as a bank should be, they just, a bank run thing is like a real unique phenomenon in in modern capitalist society where all customers leave at once because of a game. That doesn't happen to an accounting firm or whatever else. It just it's unique to banking, commercial banking.

So it's a bizarre thing that I'm hoping there'll be some policy to stop just because it, it seems like we've seen this now for centuries. Yeah. Like why not correct that? If there's a way, and maybe there's not a way, but it just seems like there's probably. 

Mike Rogers: The Yellen comments, which I think I'll have, will link to in the show notes after this today were very interesting because she said to I think it was a senator from Oklahoma that they believed Silicon Valley Bank and Signature Bank.

Were systemically important, and if they had let them fail, would've caused a larger issue in the in the national banking system, in potentially global economy. And that's why they stepped in. And she gave no indication that there was going to be policy change around community and local banks.

Generally for F D I C insurance, it still seems completely asinine to me that Mark, you can go open a hundred checking accounts at one. And your deposits are fully insured for two 50 per account, but if you had 25 million in one account and they go under, you lose 24 million 750,000. So it just doesn't make any sense in today's day and age, like we need to update policy here.

But the yellin comments gave no indication that was gonna happen. In fact she made it clear that if a smaller bank were to fail in the coming days, they would likely let it fail. So I don't think that helps the situation here. I don't think that's gonna help the bank run from community banks, because I don't understand why you'd ever hold your money there.

At least in today's day and age, I do think that we will see the natural cycle occur in a few years where, you know, today if you go to chase for a venture deadline, they're not gonna give it to you. That's not their business. They don't take, they, they don't understand the market and it's not what they do.

But Silicon Valley Bank did First Republic did, and they did that because they understood the risks and they had a diversified pool of risk, and that worked. So I think you'll see these people go to the big banks right now at a. And then over the next six months or a year, they'll go, you know what?

Things have calmed down. I really could use a line of credit for my business. Chase is not gonna give it to me, but oh, first Republic or XYZ Bank will. So I'll go there and first of all, it says, you know what, we'll give you this loan, but you have to bank with us. That's the way the relationship works.

And then you'll see money flow back out of those banks. So I'm optimistic that the equilibrium will fix. It just will take time. 

MPD: Thank you. Mike Fong. What. Hey, mark. How are you? Good. You ready to drop some wisdom today? Yeah, 

Phuong Ireland: I'm ready. I'm ready. 

MPD: So you're leaving 

Phuong Ireland: tomorrow, right? I am. I'm spending two weeks in the British Virgin Islands.

That sounds lovely. Yeah, I think it will be, I think it's, juggling the work and the vacation two weeks is a long time to be away. 

MPD: I love remote working. Know, I think it's very mentally healthy and all that. So anyway, enjoy. All right. What do you got for us? Thank. 

Phuong Ireland: All right, so today we're gonna talk about advisor relationships and how to get the most out of them.

So really there's no debate on the importance of having trusted advisors. There's really no playbook on how to be a successful founder. And advisors can act as a sounding board and a guide, and they can help you with issues. You're struggling. But advisors are a big investment. You're often giving them equity in your company, and you're definitely giving them a lot of your time.

So how do you maximize your advisor relationships? So they're doing the most for you? Here's some things to think about. First, make sure you're picking the right advisor, not just for their expertise, but also based on their style. You need someone who knows their stuff but is also good at explaining their stuff.

It's not gonna be helpful if they're not good at communicating and applying their knowledge in a way that's relevant to your business. Basically you have to find someone who's good at advising. And how do you do that? Interview them like you would do anyone else? Talk to their references.

Hopefully you can find some found founders they've worked with before and gauge how helpful they were to those guys. Also, make sure your working styles compliment each other. Do you work well with someone who has a softer style who's encouraging, or someone who's gonna kick. Use some of the same parameters that you'd use in CH choosing a co-founder.

Find someone who compliments your skills and your styles and someone you enjoy working with. Next, keep in mind a good advisor isn't just gonna tell you what to do. You probably already know what you wanna do. A good advisor will listen to you, ask probing questions, and then bring their own experience to the dis the discussion and help you think about the issue in a different way.

This kind of con conversation will drive better outcomes. Number three, avoid making your advisor meetings transactional. You have to be proactive about what you need and asking for help. Especially when you're doing well, it's easy to run an advisor meeting, meeting by giving them an update, seeing that they have no major objections, and then going on your way until the next time.

But what you should really do is create structure in your conversations and lay out ground rules. Maybe you specifically wanna say, Hey, I'm gonna tell you what I'm thinking of doing and try to poke holes in my strategy. Or if it works better for you, maybe you start, they start by giving them their point of view and you go back and forth from.

Figure out what's most helpful and structure your conversations that way. Also, before the meeting starts level set on what you're trying to get out of the meeting. Is it a decision making meeting? Are you, do you have to make a call on hiring a PR agency and what their input, or is it a planning meeting?

You wanna walk through your plan and how to lower acquisition costs and get their feedback. Tell them so they know what to expect and so you can keep the conversation on. Number four, avoid updating your advisor on a running list of everything going on in your company. Pick one or two topics and really go deep on those.

You're not gonna get impactful feedback if you're only spending a few minutes on surface level stuff. And then lastly, Be humble and open to feedback. So here at Interplay, one way we assess founders for our incubator is based on their ability to be coached. And I'm pretty sure other investors do as well.

I actually just talked to an investor who during every pitch, gives founders critical feedback to assess how coachable they are. He actually even goes so far as making up critical feedback if he doesn't have anything real, which I thought was. 

MPD: That is bizarre. If a , 

Phuong Ireland: if a founder doesn't take constructive feedback well or isn't open to hearing different perspectives, we can't add any value and there's no reason for us to work together.

As a founder, you're bringing advisors to help derive your business and make a real impact. That can't happen unless you open yourself up to advice, even if it's stuff you don't wanna hear. And that's 

MPD: it. That's all I got. This is a. Big topic, and I want to add one thing to it. The whole advisor question is about function over form.

There are a lot of entrepreneurs out there who are like, okay, cool. I'm gonna start this company. I need to get earn trust and cred with a bunch of investors, they get nine advisors that have cool brand names or cool jobs. They don't actually engage any of them. They give 'em all little slug of equity and they use their face on a page.

That to me as a VC has zero impact. , I see the advisory slide and I just flip to the next slide. I don't care. I don't care. But if you are getting real help, real coaching, the advisors are invaluable. And so I think it's about finding those real relationships, engaging them properly, and doing the things you just said.

But it's if the reason you're bringing someone on is just cuz they're a name. I don't know. I think that's bs I think the reality is some firm names and brand names of institutions will move the needle in a raise. Big name individuals will probably move the needle with some people.

At the end of the day, the real investors out there are gonna be evaluating the merits of your business and your team and the advisors aren't your team. And they see through. 

Phuong Ireland: Yeah, for sure. Like with most things, your advisor relationship is basically what you make out of it, right?

Like you've gotta really drive those and really make them work for you. Yeah. There, there have been so many times where I look through a pitch deck where you're like, oh, this his advisor is a c e O of Goldman Sachs and this and it's a consumer, products company. It doesn't make any.

MPD: It's impressive they had that connection. Yeah. It just doesn't affect the investment decision at all. Correct. For us. And I think that probably applies to a lot of investors, so it's not worth it unless that person's actually helping you. Very cool. Thank you. Fun. All right. Thank you. What's up, Brett? 

Brett Palatiello: Yeah, this is quite a bit going on by the way.

The rest of the segment's just gonna be a lot of sighing, so I just want to prepare you in. 

MPD: Yeah. This is gonna be a depressing, they're talking about post-apocalyptic bank run world. Yeah. It's just gonna be bad vibes. I think we have to do it, but, 

Mike Rogers: Yeah. 

Brett Palatiello: I'll leave sort of the macro implications to Chris, but one of the interesting things I want to point out is the response to crypto prices specifically, if we hone in on Bitcoin, it's of about 25% since early Monday.

And it's interesting to think through. Whether that's because it's a risk on asset and when they essentially bailed out the banks that, that, quelled fears of a recession or, it could have indicated the Fed or an expectation the Fed will begin to cut rates. So it went up.

But then the other theory is that it's a hedge against the banking system. It, it's an interesting thought process to, to try and figure out and dismantle whether in fact it is a hedge against all these political risk factors that Bitcoin people in particular talk about. So it, 

MPD: but if it was risk on, wouldn't that mean that we would be seeing an uptick in.

Risky assets. People are investing again to make money and take advantage of the opportunities. Wouldn't we see like stock market popping and a whole bunch of other positives? So if it's just crypto, it implies it's, there's some perception of it's a hedge against the banking system. Yeah, I, the dollar, I would, 

Brett Palatiello: I would say, so the s and p's up about 2% over that same period.

Attribute some of crypto's rise to probably risk on expectations. But I would also attribute it to very much being a banking hedge. So I think that's, I think that's a pretty big deal because there's been a lot of disappointment in terms of people's expectations for Bitcoin in particular as a hedge for, say, inflation.

When Bitcoin in, in actuality, it's not necessarily a real time inflation hedge. Long-term stores of value are supposed to be very long-term inflation hedges, and that could be over 20, 30 years, for example, and you could look to gold for that. So yeah it's actually quite satisfying for.

A lot of people seeing crypto having a real hedging aspect to it. And then also seeing how the different stablecoin reacted to all this since U S D C de de pegged after the S B situation because they had some money there. So it's just interesting seeing these flight to safety qualities within crypto and then, coming from outside into 

MPD: crypto.

Okay, so what are the big headlines now? We've had three banks fail. We've got others that are in the mix. We've got the government intervening. This isn't gonna be contained a banking sector, right? What is, what does all of this mean for broader blockchain? What's going on? Yeah, 

Brett Palatiello: I, so I've spoken to a lot of people and, there, there are a few that had some capital S V B, ultimately they're going to be fine.

I haven't heard too much ripple effects within the space after this. I do know there's gonna be, A lot more attention paid to where people bank. And they're also gonna do, for example, cash sweeps so that they can distribute their capital across a number of different banks, for example. So really just better risk management overall for the companies that aren't holding money on chain.

So that, that would probably be the biggest thing that sticks out to me in terms of, companies directly reacting to this. 

MPD: Okay. And that's not a blockchain thing, that's a, all businesses, all companies are now thinking of banking as a risk, for the first time in a decade or two.

Yeah. 

Brett Palatiello: Yeah, it's, again, it's, this is why a lot of crypto was started to begin with. It was the desire for a new, transparent, trustless financial system because of frustrations with things that are currently happening now. 

MPD: Let's talk about the sweep accounts for a.

We're investors in a company called ro. Yeah, R h o.co. Yeah. It's a neobank. And they've got a product where a company can hold 70 up to 75 million in one account. Yeah. But it's all F D I C insured. And the way they do that is behind the scenes that money is instantly spread across 400 or something accounts across a whole bunch of different banks.

Yep. And so this concept. Essentially companies can de-risk through these accounts that systematically distribute the assets. When you hear that what's the policy strategy of a $250,000 cap? I get it. Are they just trying to say, Hey, this is meant to protect consumers and not companies, because a lot of companies.

Of any smaller medium, 250 K is below the cash level they need to have just to make payroll. Yeah. On a monthly basis. Yeah. Is the idea that F D I C insurance is just to coverage con cover consumers and not companies, or is it just outdated? What should be going on here with the F D I C policy?

Make the banking system better, yeah. I'm sure there's a lot of political opinions on this. There's a lot of 

Brett Palatiello: political opinions on this. I think the most straightforward path would be to just guarantee all deposits. And then you move on from there and you increase capital requirements and you regulate in different waves.

So that's one of the big themes that I'm hearing is expectations are already there, so you know, why not Via other regulations and but yeah, I think the point of that is so businesses have the capacity to do additional due diligence on banks and who they do business with, whereas consumers aren't expected to do I think it's probably outdated as with probably most most regulation. But yeah I'm not a hundred percent sure. But regardless it's, 

Mike Rogers: it should be revamped. 

MPD: Yeah. It's confusing cuz it's not simple. Yeah. If you just turn the dial and guarantee all deposits, which seems pretty good on the surface.

Yeah. , it changes how banks have to be regulated. Yeah. And there'll be a lot of people in the crowd raising their hands saying, Hey, the government's not good at doing its job. Yeah. Or it might be good now, but leadership can change. Policies can get stale. Yeah. It's not very agile. Yeah. And the private sector is extremely agile.

Yeah. And so there's a mismatch. So it's a tough, it's a tough situation. I do feel. There's a sadness to what's happened to all of the equity holders and teams at SB B Silver Gate signature, and otherwise we're getting hit right now. There was mismanagement for sure. There's mismanagement everywhere.

Yeah. But it, the headline I'm getting from this is at the core of the core, this was a psychological movement of the crowd. These were business issues that were resolvable at the banks. Yeah. With standard, policies and business relationships between banks and governments. Yeah. These banks didn't need to die.

No. Yeah. And so the psychology of the bank run, finding a way to remove that as an arbitrary, guillotine. Yeah. In our. Might be worthwhile. 

Mike Rogers: Yeah, it's 

Brett Palatiello: interesting looking at Signature Bank Barney Frank, who created Dod Frank the big banking regulation. After 2008, he was on the board at at Signature, and it's still relatively unclear why Signature was shut down.

So we're looking to hear more about that. There's some discussion about. Some of the previous administration's rollback of Dodd-Frank and that this, and again, I'm not, saying yes or no, it's just, you know what? It's rumor mill. Yeah. It's what the chatter is that they weren't subject to stress tests.

And then that turns into further debate about whether the stress test themselves would've indicated that there was a problem here. Yeah there's a lot of a lot of that type of back and forth going on here. And I would actually love to see somebody, if there's anybody out there listening that can do this replicate the stress test for, or at least as close as possible for that regulation were they, to be under those guidelines if it would have in fact indicated a problem.

Because that to me is the crux of a lot of these debates that I. 

MPD: Wild times. Yeah. Thank you, Brett. Thank you Chris. What's up buddy? Glad to catch you this week. I know you're about to head off to Singapore to meet with a bunch of family offices and then to China. Yeah. So let's make the last one for a little bit, I think, unless you're gonna call in.

Yeah. 

Chris Zhang: Unfortunately, first time in five years visiting family. It's about time. That'll be 

MPD: great. That'll be great. All right, let's get to it. I'd say what's going on? But I think we all know what's going on. Yeah. 

Chris Zhang: There's just too many things going on right now. I, it's not just the US france we, people probably saw, I'm not sure if it's even covered extensively, but there's some major protests going on in France on the extension of retirement. Which has implications and things that the US can learn from as our debt structure sort of balloons going forward. And of course, we've got inflation this week that was largely buried by the news from the postmortem, from svb.

We did have PPI and CPI this past week. And and the headline is that we're trending in the right direction. I don't think it matters as much anymore at this point because financial stability, as that's what we talked about, takes center stage and inflation is way in the backseat.

So maybe let's keep talking about the postmortem on what's happening and because there's just so many things that are still just moving all over the place and I think people should focus on, 

MPD: Yeah. And you said this to me before I, I'd love for you to cover it. Yeah. I think people aren't aware of how volatile the market has.

They've been focusing on svb, but the ripple, this was an asteroid that hit the ocean and there's tsunamis everywhere. Yes. We're, 

Chris Zhang: we're by no means at the end of this. We're at the very beginning of this right there. This could take weeks without months to digest what has happened in the past week. So let's start from there.

What you know, I think SVB just filed chapter 11. I think as of last night, this morning. And this is the, for folks that don't don't know this is effectively the reorganization bankruptcy. So this gives s v b time to effectively stop payments on the debt and start effectively selling his assets and to, to different potential bidder.

It freezes the whole process and it introduces more time to the to SVB management, to salvage the situation, let's say. But it's officially a Chapter 11 bankruptcy. And f I think this is no surprise to anybody. I think this people saw this coming. What's more top of mind and really causing some volatility in the market is f.

On Thursday, March sixteenths, 11 biggest banks in the US came together and put a 30 billion uninsured deposits into frb. And this is meant as a signal link to all depositors and really all market participants that the banking system in the US is still safe and well capitalized. And they're trying to basically stop the bank run that's effectively still going on.

Unfortunately this moves so far as we can glean from how the market's reacting has not stopped the run yet. I think I just heard from my other family offices and people we talked in the market that FRB just halted. As of this morning, stocks is down at $25, which is 27% down intraday.

And this is this. I think this part deserves a conversation because 30 billion of uninsured deposits on top of what the Fed was offering in terms of the lending program last week has still not stopped the bankrupt. And the thing we should talk about is why not? And. If you put yourself in the shoes of, so the depositors and equity holders the way to think about this is it's just game theory, right?

Depositors, there's no upside to put your money with these banks that could potentially go under. So why would you not move it somewhere else safer? And knowing that the equity holders of these banks. Also see the same reason, like why there's no upside. Why would you wanna risk an any potential bankruptcy in this situation?

Just move your equity, move your money somewhere else, take a loss. And there's just better risk return somewhere else. So effectively the bank run has not stopped and a drain in the equity value of these banks has not stopped. And in fact, it introduces more contagion risk Now given. That these 11 banks move their deposits into frb.

So it, it's just it's a situation where it's very tough to change direction of. Once the run has, is start, has started. And we're seeing it trickling into other sectors too, like credit suites. Who's been. Frankly, in, in the past six months, a year, gradually winding down their operation in the US and stocks suffering, along the way is now also feeling the pain from the situation from FRB and svb.

It traded out to $2 less than $2 during the week, and it's 75% down from a year ago. How do you stop that? It's the contagion is still there. I think it's really the headline.

And so that's just within the banking sector. There's a lot more that we can talk about in terms of the volatility in race and equity market and 

MPD: everything else. Yeah. Let's let's stay here for a second though. Yeah, the chaos has en, has ensued. It's continued. Yeah.

Other banks came in, tried to calm everyone down. Sounds like it didn't really. Not yet. What moves are left? What can happen next? Can you give us some possible scenarios? What, where does all this go? Is it just, a couple more banks go under, which is obviously awful, and then this eventually dies down cause cash does have to go somewhere.

People aren't putting it under the mattress. Or is there some, are there other effects of this where kind of it, it doesn't get, contain. To the banking sector? Yeah, we are 

Chris Zhang: certainly, this is a clear to stay. Now we're in the middle of a deposit migration. Depositors are moving from regional banks to big to the big B brackets to stop this migration move.

Just given what we just talked about in terms of game theory. You need a one player. It cannot. It the consortium banks really won't do it cuz they're part of the game. They're part of they're the players. They're not controlling the game. We need the government to come in and take a potentially more drastic move.

I don't know what that move could be because last week it was the move from guaranteed deposits and the loan program, which is potentially worth $2 trillion is already unprecedented. This is outta my realm and I'm not really sure what they can do, but we do need a, let's say a, a controller, let's say not a player inside the game to come out and really set the tone.

Looking back in history, think thinking about let's the 1930s, at the Great Depression, how the Roosevelt originally came out. And calm the market with a new deal. And that's really the magnitude of the move that we, that's required here to really calm markets and make sure the run actually stops on 

MPD: all levels.

But we're not, the US government is way over levered now. Yeah. So the idea they can just reach into a bottomless. To buy their way out of a crisis, which is in part caused probably by the bottomless pocket, already being dipped into so deeply . Yeah. We're losing our backstop, we're losing our ability to quell things like this with our bank roll.

Chris Zhang: Yeah. It hurts the long-term credibility of the Fed central Bank for short. 

MPD: So any major moves you see right now through all of this were, 

Chris Zhang: yeah it, we're seeing it in two sectors, which we predicted last week too, right? So number one interest rates, two year treasuries, now down to 3.93.

That's 115 basis point move in a matter of four days, five days, 10 year treasuries. Now 70 basis points, same time period. And. This move is, so for folks don't know this, how does this translate into everything? So pe the first thing that people will think about is, oh mortgage and mortgage rates, and this will really affect consumers mortgage rates.

Just a lot of other borrowing rates has actually two components, right? Interest rates and credit spreads. So interest rates that moved down dramatically. Hundred, 20, a hundred basis point at time. In in, in the front end. But credit spreads. Which is that sort of the credit quality of the lenders have balloon or have really widened now in the past week, which is offsetting the moving rates.

So for people who out there who are looking at their mortgage rates and refinance and in secondary implications in their portfolios, the, you need to take into account both, right? So it's, everything's very volatile. It won't translate directly into mortgage as of. We'll see how that shakes out.

I would say stay out of, stay patient, stay out for a bit if you're if you have interest rates or credit instruments in your portfolio. So that's interest rates. And we've also talked about the implication on potential big tech stocks. The impact has already shown through.

So this week alone, the big tax are probably the biggest bene the benefactors in, in, in s and p a MD Nvidia up 19%, 14% on the week. Microsoft up 12%, meta up 11%. Amazon, apple up anywhere between five to 8%. So this is where really the big tech is benefiting from move, the potential move from the fed cutting rates and reentering into the low interest rate environment that we've seen in the last 10 years.

MPD: So it's not as though interest rates have changed, it's markets less stable. Fed is not expected to raise rates as rapidly and probably to reduce them as a result. Yeah. And that's, yeah. The 

Chris Zhang: expectation tech, exactly. The expectation of interest rate in the next 12 two years has dramatically re been reset.

Right now we're, we just went overnight from a hiking cycle to a cutting cycle. That futures market is pricing in zero. We're at the peak of our interest rate path at the moment. No more heights and three costs by the end of the year. That's the expectation, 

MPD: correct. We are in choppy waters.

And I think the only, the future's gonna tell exactly how this shakes out, so we're gonna have to keep watching. Yeah, a hundred percent. Thank you, Chris. And a reminder for everybody, Chris is an s e c registered r i a and everything he said should not be considered investment advice. Thanks, mark.

Yeah, heavy times in the broader markets. This is my third rodeo of seeing really turbulent markets. I just graduated in college in oh one, was on the front lines of oh eight as a vc, and we're now seeing it all again. I would just say to folks, you're seeing all of this.

There's gonna be some desperate moments for a lot of folks in your lives or personally. Keep your chin up. These eras tend to come and go. They suck. And if you get hit squarely with one of these macro trends, just hold on. They don't last forever. They're usually a finite period of time.

And then, Euphoric delirium will be back in our lives, typically within a couple years. So hold on, keep moving. And leverage those support networks. If you're not in one and you're an entrepreneur, you should be checking out then wise. That's the perfect place to get that. But wherever you find that it's important and now's the time to hold onto it.

*DISCLAIMER*

Interplay Family Office LLC (“Interplay”) is registered as an investment adviser with U.S. Securities and Exchange Commission (“SEC”). Registration of an investment adviser does not imply any level of skill or training. Information about the qualifications and business practices of Interplay is available on the SEC’s website at www.adviserinfo.sec.gov._ Interplay only transacts business in states where it is properly registered or is excluded or exempted from registration requirements. Offering of asset management services through Interplay is pursuant to an investment advisory agreement.The views expressed in this <<insert advert type, i.e., podcast>> are subject to change based on market and other conditions. The <<insert advert type>> may contain certain statements that may be deemed forward looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Any projections, market outlooks, or estimates are based upon certain assumptions and should not be construed as indicative of actual events that will occur.Information communicated during the <<insert advert type>> does not involve the rendering of personalized investment advice but is limited to the dissemination of general market information. A professional adviser should be consulted before implementing any of the strategies or options presented. The <<insert advert type>> is not an offer to buy or sell, or a solicitation of any offer to buy or sell the securities mentioned herein. Neither Interplay nor its advisory persons render tax or legal advice. Please consult your tax and legal advisors for advice concerning your circumstances.