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90s Random Consultant's avatar

Thanks for reminding us all that PE and VC is dogshit

I needed that in this crazy market moment

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Russell Clark's avatar

PE is an interest rate play, and VC was a nasdaq play - and so you could generate the same returns without the illiquidity or fees. If rates keep going up I dont see either industry doing that well

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Clement's avatar

You forgot that PE is also a tax concession/regulatory arbitrage

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Billy Bunter's avatar

Surely that is deflationary rather than inflationary. If banks have less capital to lend the economy will most likely shrink.

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Russell Clark's avatar

Wage increase and government spending are the main drivers now... like the 50s.and 60s

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Clement's avatar

True but bank credit is critical to the economy. In the US perhaps not so much but in Europe and Japan banks are still at the core of the financial system...

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Russell Clark's avatar

Credit is important to drive pro-capital policies - wages drive pro-labour economies. Credit tends to help the already rich, wages helps the poor.

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The Blind Squirrel's avatar

Thanks for both of the pieces today Russell. Fascinating takes and completely contrary to the mainstream narrative. So glad to hear another strong and credible voice calling out the BS in private asset markets!

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Marc Ross's avatar

Russell, you had previously liked japanese banks. Still?

And that is a totally different set up in Japan as opposed to current US, right?

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Russell Clark's avatar

Japanese banks are deposit heavy - so theoretically this is good for them, as competition for deposits would help them. In theory - but I do worry about exposure to US banks by Japanese banks. MUFG owns a large californian bank for example

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Billy Bunter's avatar

The fed will have to work out pronto how to stop large deposits leaving banks to buy treasuries that in many instances yield similar to bank deposits but with no risk. Either more QE or a large rate cut. Either way once deposits leave they will be slow to return l

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Russell Clark's avatar

I think banks got used to people leaving money lying around earning nothing... those days are gone I think.. but the yield curve inversion is a big problem, and I am not sure thats going away

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Marc Ross's avatar

Agree, but a continued flight to T bills over the local bank is certainly a problem such banks need to solve. What can Fed do? banks? When t bills were 20% in the 1970s, what did banks do?

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Russell Clark's avatar

I think banks were forced to lend by governments - and government owned bank did the majority of lending (at least that was the case in Australia). That meant in practice lending was rationed to the politically favoured.

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Kevin McBride's avatar

I would suggest looking a layer deeper than deposits (2023) or lending (2008). I suggest the deeper level triggers are interest rate risk (2023) and collateral risk (2008). When one of these risk triggers become a problem, combined w leverage risk, the result is liquidity risk--the common event of every crisis.

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