Transcript:
Good morning to all of those who have
joined this is Tom Hewlett the CEO of
Strategy Asset Managers we will begin
shortly Gary thanks for controlling the
waiting room I appreciate that
okay it’s 1101 we are going to
begin our update the obvious
reason why we’re getting on to the call
today is to update our clients and our
partners about the Silicon Valley Bank
collapse and its impact on the markets
and the economy and what it means for
your portfolio Joe Traba a senior
portfolio manager Alex Hagstrom RCFA and
portfolio manager and I will try to go
through and answer as many questions as
as have been
given to us to reassure you of the the
current situation with strategy asset
managers Schwab Silicon Valley Bank and
what it means for you first off I’d like to just say
thank you for everybody to participate
today there’s been a lot of information
that has come through since Friday and
the the the collapse of Silicon
Valley Bank and the intervention with
the
with the government and also
the Federal Banking committees what you
need to know is that Sam and your
portfolios didn’t have any direct did
not have any direct exposure to
the regional Banks we own one one
position that’s JP Morgan and Joe and
Alex will talk
specifically about that the the the
deposits at Silicon Valley Bank and
Signature Bank and even the stress that
happened at First Republic Bank were
were were reassured over the weekend
the depositors were reassured over
the weekend by the government that
they would be made whole at what point
we didn’t know until about Sunday when
Janet Yellen came out and said that we
should have everything clear by Monday
and that has taken place so that was
very reassuring from Janet Yellen the
treasury secretary the other point is is
we don’t think this is systemic nor is
it 2008 with the great financial crisis
so we we will talk a little bit about
that we’re going to go through the
the FDIC and the difference between sipc
that should make you more informed by
what you’re probably hearing from
multiple sources and then we’re going to
talk about herd mentality the Panic
or or is this an opportunity but by the
end of the call you should feel a little
bit more informed about the current
situation and where we stand and the
strength of the banking system in the
United States as well as the the
backstop of the federal government which
after the original great financial
crisis we’ve gone in and
improved quite a bit Joe I’m going to
turn it over to you to start out
and I think before we go on it’s
important to know what happened before
and this is with Silicon Valley bank now
this isn’t a traditional bank they are
very tied to a lot of the Venture
Capital that is tied to startups
why that’s important because that’s
where their concentration was they had a
high correlation to startups and the
hedge funds and as we are well aware of
that business a few years ago did
extremely well
excuse me and their assets ballooned
from 50 billion to over 200 billion in a
couple of years fast forward to what we
saw recently and it was really the end
of last year that you started to see
their assets weren’t growing and a lot
of these non-profitable technology firms
had to get more money from their Venture
Capital also think of Bitcoin Bitcoin
had a huge drop that had a direct
correlation to the bank now the bank
what they owned was long-dated U.S
treasuries and when you get a run on a
bank they had 45 billion dollars
withdrawn in a couple of days
this forced the bank to either raise
capital
or to find a Suitor because they had to
then sell their treasuries which were at
a loss
how the bank works as long as they hold
them to maturity they never have to mark
to Market
so when they realized these losses on
U.S treasuries this created more
like Tom said Panic within the large
institutions that pulled their money
that’s why they were shut down on Friday
and again over the weekend and this
typically what happened
they came and said they’re going to
affirm both the insured and also the
uninsured portions of people’s deposits
we know on Monday later in the afternoon
people did have access
to their Capital their deposits
and they were able to go ahead and
access that so again you look at the
order flow what happened
why it happened and where do we stand
now
it’s important to know
that again our banking system is
extremely strong
this wasn’t caused by assets that
were not had a value to it kind of think
of 2008 with mortgages they owned U.S
treasuries
it’s the regulation and it was more on
the management it was mismanagement
where they did not properly hedge
and they did not again they were
gathering assets when interest rates
really started to go lower excuse me
interest rates are to go higher the
price of the bonds went lower
so for me that was just a mismanagement
on what management did and when that
happens obviously people are going to
have some panic and they didn’t properly
communicate with some of their larger
hedge funds that had tied up in the bank
as well
it’s kind of a trust with the partners
and and that definitely when people are
nervous about their income they’re going
to pull their assets
what did that do well over the weekend
again we saw this a little bit yesterday
you want to see what the effect was did
that actually happen that they were able
to get access to the posits yes and now
you’re seeing people really unsure of
about a lot of these Regional Banks and
going to the larger Banks so this may
not be a direct result of what they
wanted to happen but this is what’s
happened and again for the overall
banking system I again again this is not
2008 and we’ll go into that a little bit
more this was again isolated events
with a couple of banks that again you
had to run on a bank they don’t have an
exit enough Capital available and aren’t
properly leveraged this is what happens
it’s also worth noting what The
Regulators did they also increased
capital for any of the regional Banks
so they’re on top of having unveiling
amount they also said any other bank
that needs Capital they will provide
that Capital based on their
treasuries so they did two-fold one they
did come and rescue these Banks and all
depositors made whole but they also gave
another lifeline
and that’s doubly important because what
they did not do was bail out the banks
so Equity holders are going to not have
any value that bank was at 200 then down
under 100 and closed trading so it’ll
all be open up and again unless someone
comes in at the last minute to save the
bank we’d expect the equity to be at
zero same thing with Signature Bank
the debt that’s an interesting story
it’s probably priced around 45 cents on
the dollar so there are showing a value
of the bank we go into that because again this is
a direct consequence of the sell-off and
unprofitable talk Tech and the Bitcoin
Rise I like to kind of think of it as
Kathy Wood and art that ETF everyone was
saying went up hundreds of percents well
then it crashed and it’s also some of
the Bitcoin currency when you have this
environment you have the Ebbs and flows
you had a tremendous rise up and for
those companies that were smart with
their fundamentals and balance sheets
they were able to lock in really low
interest rates
for other companies that continue to be
leveraged they had a big
a big Cash Call pool and I think we’re
going to continue to see this and for us
you really have to think about just the
market cycle you’re allowed to make as
much money as a published Trader company
but you should also be allowed to lose
and that means going bankrupt for bad
decisions
you look back the last couple of years
the FED really Bank stopped everyone
meaning both people and companies had
access to Capital that’s drying up I
would expect to see more Bank regulation
which in turn means lending should be a
little bit more stricter and that in
turn will slow down inflation
we think inflation slowing that then
gives
the FED really reasons to slow down and
maybe we’ve seen the peak in interest
rates
so those are some of the concerns we did
see heading into this year and again
expecting earnings too slow which we’re
seeing
but again as you get through this you
just have to know where you’re at in the
cycle
and again for us it’s really
important to know what you own and
that’s what we emphasize with all of our
clients and partners we know what we
don’t we know what we own with you if
you want us to take a second look at
other assets that you have are more than
willing to do that Joe let’s let’s let’s
have Alex give an overview of the the
Civic and FDIC issue and yeah absolutely
so yeah as Tom mentioned there’s a
lot of protection for the separately
managed accounts that you own per the
SEC all of the stocks bonds mutual funds
any Security in your account is
segregated and your segregated assets
are not available to a brokerage’s
creditors you know those stocks and
bonds and funds belong to you even if
your broker went bankrupt tomorrow those
stocks and bonds and funds would still
belong to you in addition to that
there’s a second layer of protection
it’s called sipc Insurance it protects
your account for any amount up to five
hundred thousand dollars including up to
two hundred fifty thousand of Cash Plus
Brokers like Schwab even have a third
layer of protection in their case they
have an insurance policy from Lloyd’s of
London so you know overall the
Securities in your brokerage accounts
are extremely well protected from broker
insolvency you know if that you know if
that were to happen which you know we do
not foresee for you know a
well-capitalized brokerage like Schwab
Alex let me ask you a question on Friday
when we got the information about
Silicon Valley Bank and and you know
Moody’s was making the move to downgrade
the debt we stayed late both
Friday and Saturday and over the
weekends and we reviewed all
investors accounts for cash positions
let’s let’s talk a little bit about
that and and what we were doing from a
risk management standpoint and what
other firms also were doing for risk
management in looking at their clients
cash yeah absolutely so you know we go
through when we look we’re making sure
that our clients don’t have cash above
that 250 000
sipc limit the good thing is if you put
money into a money market fund or
treasury that does not count as cash so
those assets are segregated they belong
to you you know they’re not at risk in
any insolvency but we do we are very
conscious of that 250 000 cash limit and
so are the advisors that are on this
call as well we had calls with
advisors all the way through the weekend
and through yesterday about the risk
management steps that were in place to
ensure that there was a safety of
capital in the accounts especially at
Strategy Asset Managers but with our
partners out there thank you Alex
about that Joe did you want to go
into the next discussion yeah just
and one more point on the treasuries we
actually did buy treasuries really
starting the end of last year so not
that we are foreseeing this it just we
stay with high quality and I think
that’s important we didn’t go to
unrealistic yields we again stick with
what the Market’s pricing and found the
best assets to increase our quality and
again that kind of didn’t have to
worry about the volatility and I think
that’s how this year is going to play
out the next point I wanted to mention
and this is what Tom had alluded to why
is this not 2008 and anyone out there if
you remember 2008 was really because
you had
you weren’t able to Value assets and
again this affected balance sheets of of
any of the banks and what we’re seeing
now it’s U.S treasuries again we know
both of these Banks they own U.S
treasuries it was just the mark to
Market what that means is as long as the
banks hold these treasuries they never
have to show that the bond prices went
lower as the Fed was Raising interest
rates
they had to do that when they had to
sell it
and that created again more uncertainty
so I the heart of the issue was again
raising interest rate and treasuries and
for us the mismanagement of the
companies very different than what we
saw in 2008 and we also have to remember
Banks going under unfortunately is part
of our history you can look back at 2020
we had a few Banks go under then and
obviously everyone remembers the 2008
and you can even those of you that a
little bit older remember the Savings
and Loans when we had almost 30 percent
of the banks wiped out so this does
happen what does it do we end up showing
up our balance sheets our regulation and
we do end up coming out stronger from
this and I think that’s where we’re at
with this you can kind of look back
and go was this our you know Enron and
Worldcom moment you know not
completely different but again if you’re
gonna Circle a couple of companies that
mismanagement you can look at what
happened now the other thing does history often
repeat itself no but it does rhyme and
and that’s again another part of what we
look at with tightening cycles and the
direct result that it has on some of the
booms and if you remember volcker this
is in 79 in 1981 you had a huge boom
prior in oil and gas and then as we
started tightening you saw these LPS and
a lot of these energy
limited Partnerships really seized as
they were highly leveraged and the
higher interest rates obviously herd
borrowing costs so again this does
happen it’s different cycles that you
see a boom and bust but again we do get
through this and we all will get through
this
Joe let’s talk a little bit about that
what what all clients um
institutional and private clients need
to know I mentioned earlier that that
our portfolios did not have any direct
exposure to the regional Banks which
was great some people out there may have
some exposure but you know the
stability of the U.S banking system
today is is far different than it was in
the past much more stable stronger we
learned a lot and there’s risk
management in place so we feel good
about this about our position as a firm
and our custodians as well as our
partners should also feel good about
that is this systemic to any of the
stocks that we hold in the portfolio and
I know the answer is probably not
yeah I mean when you you really have to
look at what is systemic mean and it’s
the counter risk so if you remember in
2008 it’s the counter risk of other
Banks or other companies that had you
weren’t able to sell certain
types of instruments that’s not
happening now at all the credit market
and also you know the fixed income
markets they’re open and everything is
healthy
so we’re not seeing any again counter
risk when we look at the insurance
companies as well things are able to get
priced trading is happening and in fact
trading is you know the last couple days
has been extremely robust and again we’ve seen
trading act on carry on so I don’t see
any any of that risk coming through now
but I do want to mention two points it’s
one companies that were highly leveraged
are going to have to address Capital
needs if they weren’t able to pay that
amount of debt it’s a higher interest
rate and and that you know does not
pretend well for these types of
companies so this can happen and again
it shouldn’t be unexpected we said this
at the end of last year we would expect
to see some companies that were weaker
players
and that we would start to see some
bankruptcies we had mentioned maybe like
a Bed Bath and Beyond and again this
is just part of the economic cycle
companies that are well managed and can
change direction they will continue to
do well and get through these periods
and companies that weren’t able to
change and again are seeing decrease in sales this is
how a free economy Works those companies
will go under so I do think you know
you’ll continue to see that and that’s
why we stay and stick to high quality
companies okay cash flow yep Alex do you
have anything that to add to that before
and I think you know this is part of how
you crush inflation right you crush
inflation by making interest rates High
you get you know those wheat companies
out of the market and that’s you know
that’s how it’s done and if you know the
the price of bringing inflation down to
a normal level is for weak companies
like mismanaged companies like Silicon
Valley Bank to be in trouble you know
that’s a worthy price to pay so that
well-managed companies like the ones we
own can you know continue to thrive in a
normalized inflationary environment
Strategy Asset Managers reviews
technical information as well as you
know the qualitative information for our
proprietary research and we should talk
a little bit about the technical levels
just to let the clients know that we we
have access to this and what we’ve seen
yeah it’s a really interesting again
technicals take the emotion out
and if we look historically the two
months that we see what we call noise or
March and October
and as On Cue March has been one of
those years where we have a lot of what
we call noise just a lot of things
happening that’s creating uncertainty
what happens you typically get through
this March up time period And when we
look at some two different levels of
technicals it is pointing toward you
know a better picture emerging can’t
tell you when but again once you know
some of these unknowns you can then
manage through this kind of Crisis why
is that important though Joe because you
know in taking a look at the you know
the the stress that’s out there when we
take a look at technicals that’s just
one one area that we we can use to
make decisions you know for for our
clients accounts yeah and again one of
the things that we continue to reiterate
a lot of people oh I heard this on
social media I heard this on this
television show and that’s what we’re
referring to is that hurt mentality when
everyone’s saying the same thing you
know are they doing their work are they
looking at research what research are
they looking at and I think that’s for
us extremely critical so using different
types of information again real
information the technicals do tell us
you know better days are ahead and again
this is made contrary to what you hear
on a lot of these TV shows which I think
is important because again what is a TV
show supposed to do they want to create
you know panic and fear so that they can
get more viewers you know telling people
things you know me not what they want to
hear and it’s you have some time here
that’s not going to sell advertising
right so again just just know where
we’re at in the cycle and again stick to
your game plan in this time period you
can always look at Panic selling or
making decisions when you’re stressed
typically isn’t a good time to do it
Alex do you have anything to add on that
before we conclude
yeah just that you know you know with
how much rates have increased it is
absolutely essential that you own
quickly capable of surviving and doing
well in that sort of environment you
don’t want to just own every company
because if you do you’re going to have
some bad apples like Silicon Valley who
were not at all prepared for this who
just you know speculated on rates being
zero forever and now you know now
they’re in big trouble yeah okay I I
think what we want to do is keep these
calls short just reassure reassure
clients that the that there’s no
direct exposure that we had in the
portfolios to to Silicon Valley Bank
that the liquidity is not an issue with
us nor with any other institution at
this point there’s not a loss of
confidence in the banking system out
there the government did what they
needed to do to step into reassure
investors and depositors that you
know everything was going to be okay and
they did it in a very orderly orderly
fast
to to know that you know we do have a
very strong
banking system we’ve got a very
stable government we have
transparency with accounting we have a
legal system and checks and balances in
place and that worked very well
during this unfortunate crisis if you if you have any questions you
can contact us directly or contact your
advisor directly and we’d be happy to
have a private conversation with you
offline we’re going to have another call
this afternoon at 2 pm it’s once again
we’re getting a lot of information
that’s coming through and so it’s
fluid so we’ll have updated information
later today and then we’re going to have
some follow-up calls Joe do you want to
say anything in conclusion yeah and
again if you have any questions or you
want us to review a portfolio or you
have cash at a bank you know we can help
you with that and this is what we’ve
been doing so feel free to reach out to
us yeah I’ll make one one point that was
important that I forgot to bring up we
had somebody call in a panic on Friday
from a non-profit and they were they
were in a tough spot
and we we were able to counsel them all
the way through the weekend in support
of the board that they had this goes to
all clients and all participants on the
call it doesn’t matter whether you’re an
Institutional partner of ours or you’re
a direct client we’re there to provide
you with the facts and the facts that we
know are a lot different than what you
will hear in the media and that’s
important you want to have somebody with
a steady hand and who can lead you
through a time like this anything else
Joe before we sign off that’s it
all right we will have another call at 2
pm today if you’d like to chime into
that please dial in same dial-in
information that you had and then we
have a subsequent follow-up call
tomorrow and then one summary call on
Friday and it seems that things are
stabilizing and improving and we hope to
have a much better information on Friday
for everybody
have a good afternoon