Uncertainty for Venture Banking Following SVB Collapse

of feel like the day after. We've had twenty four more hours to kind of think about what happened over the weekend, and it does feel like some calmness has come in, has come in, has come back to the market. Yeah, but I think, you know, the whole episode is definitely revealing puddles in the US economy right now. We're seeing some things deep down. You know. I'm really excited to get Johnson of JP Morgan in later in the show. He's going to tell us what's going on in US housing.

I mean, for me, that is the key element here. If you talk about SVB, you talk about you know, what went wrong there. It wasn't necessarily that they were lending to venture It was that they had stuff on their balance sheet they shouldn't have. Well, speaking of venture, we've got a great knowing perspective with us from the

venture capital world. Longtime venture capitalist Alan Patricof, chairperson co founder at Primetime Partners, author of No Red Lights Reflections on life fifty years in venture capital and Never Driving Alone. Great book, He joins us via zoom from New York City. I can say great because Alan joined us to talk about it before. Alan, good to have you here with

Damian myself. It is twenty four hours you got. You were gracious enough to join some of our colleagues on TV yesterday as you're thinking about Silicon Valley and the impact the venture world and capital raising fundraising world four startups changed at all. Well, clearly it's got to change somebody after what happened yesterday. And you know, as you just said a second ago, that the full wasn't really in with the venture capitalis. It was the full with

the bank itself. And as far as I can tell emails, I've been getting the bank is back in business again. Uh and and based on their own words or lending money and I've gotten an email from another bank besides SVB,

and they are lending money. And the big question over the weekend, which you know, unnerved everybody, including me, even though I frankly had very little exposure, thank god, so I had a little bit less less violent weekend and some but it was the concern over the deposits, and and I you know, said this broadly over the weekend. There was no way the banking system, the stock market

could open on Monday without solving the problem. And I think the government did a great job in solving the deposit problem and taking over a couple of banks, and so no worry about contagion. Do you think we're done? Uh well, no, yes, I think contagion a sense you're

thinking of. I think the contagion is how it's going to affect loans and draw downs from banks and what kind of lending they're going to do, and how that will affect the industry going forward, because venture lending has been a you know, on the edge of the traditional banking system and now you know, all of these loans and people's nervousness about being able to draw down loans in an appropriate fashion timely and whether they really existed

the bigger The first question was deposits. The second moment was if you had a line, are you gonna be able to draw down? And obviously they are drawing down on all their deposits axsume me and all their lines and have made a point of setting we're open for business. So I would say that we're back. We can't be back to normal. People have to have some second thoughts now. Is so how they go forward and basically in terms of lending lines and how much they could depend on it.

I'm surely wanted to. I mean, Alan, look, you've had an unbelievable career, right, I mean in your autobiography entitled No Red Lights, which released last year, you discussed not only the successes of your career but also the failures. And one that stood out for me was your that you didn't make an investment in Starbucks. I want you to take that forward to Chair Powell when he writes

his autobiography and he has to discuss his failures. Is he going to have to state that he was late to the game on inflation and that the FED is behind the curve or do you think that you know they can manage through this and we can achieve that soft landing. Well, you really are stretching the point of of my making mistake of not investing in a coffee

chap like that one with the strengths that affect the world. Yeah. Probably, You know, the acceleration of rate increasing rates didn't help the situation, but you have to understand that did not have an impact on the venture business per se, or that were outstanding. I think that that didn't topple anything. I would personally say that this would not be the best time to increase rates again next week. I would let the market settle down a little bit here and

get used to what's happened. But I think the whole the real challenge the industry is thinking about venture banking, the venture at the sdpiece of the world, which there's more at least a dozen or two dozen like that. How what role are they going to play going forward? How much are you going to depend on those kind

of lines. The government has clearly done a great job, and the fact not just that all the deposits are safe, but the fact that they're telling everybody go forward and keep lending on the same basis is really a very strong sign that the government is standing behind these banks and does not want to see well you know, well Alan, not just the government, cosal Ventures is going to be

backstopping pay for some of its impacted companies. Is that going to be a role that you know, VC funds are going to have to take on in the future, you know, being that sort of backstop is something should go wrong with the bank and should they Yeah, you know, it's misleading to say banks their backstop. They're not doing that. If they're an investor in a company as we are, and you you depended on a line and all of a sudden the lines not there, you got to figure

out how we got to replace it. And the easiest way, of course is to get the existing investors to put up additional capital, whether it's at an interim or a long term basis. But they're not doing to, you know, act as a backstop for lending their act act is a backstop to you know, the alternative to these loans was going out and raising more actuate capital. So I think if anything but this is going to do is to put some pressure on companies to build up their

equity positions and they in the process. It would not surprise me if there were some britdowns and some reef or financings to build up these balance sheets at lower prices than we saw. I mean, the market was very very strong in twenty one and twenty two for a lot of venture financing, whether it startup or even later stage.

And I think that to the extent that companies want to improve their overall balance sheet position, even if they have these lines, they would probably want to build their equity and that may be at a lower price in the last round. Possibly so Alan in terms of longer lasting impact, you know, how does it? I think you know the doomsday is like, oh, it's going to affect innovation, and you know the startup community is that overblown. There's money to be made. Investors will find a way. I

know it started to wind away. I will not use the vernacular, but I don't believe that it is going to have very very little impact. I will tell you a specific I am involved with one company that had a large deposit of one of these banks not named, and had a line not used that they had not drawn down upon, and they were encouraged on Monday to draw down that line, and they did, and the money transferred into the bank account of the company. So clearly

the banks are back providing capital again. But if you don't have a line at this time, I don't know what the attitude is going to be to put on new lines at the moment. And I would think it will be prudent for a company to build up its equity base that may come at a discount from the last round, because a lot of these last rounds were very very high prices in retrospect and then they cause some uh, you know, some type of markdowns. But other than that, the business is so healthy and innovation is

not going to be stopped. Well, Alan, I mean you you're now with Primetime Partners, right, you founded that along with Addy Levy, who's with the former SVP of Soul Cycle. Your goal, your mandate as a word, is to invest in early stage startups that bring products and services to individuals above the age of sixty, which of course is

twenty five percent of the world's population. My question for you is those early stage startups that you're investing in, would you tell them to bank at some you know, made and small sized regional banks going forward, or you encourage them to be banking at you know, the big ones, the JP Morgan's The City Groups of the World, and

Alan just got about thirty thirty five seconds unfortunately. Yeah, I don't want to answer that question directly, but I would say that for the moment, I think they continue banking as usual. But remember, for these early early stage deals, they're not doing too much banking. They're really relying almost entirely on equity stage. All right, Gonna leave it on that note. Alan. Always good to get some time with

you and so appreciated. Alan Patrikof is your person and co founder at Prime Time Partners, showing us via new zoom excuse me in New York City, and his book is No Red Lights Reflections on life fifty years in venture capital and never driving alone. Did you know he really likes music, Carol? Did you know Alan ran at eighty eight years old in New York City Marathon last year and he finished and he finished. He's pretty remarkable,

unbelievable and so delighted to have him here. And just you know, I feel like calm right, like it's not like the good. It's not good. It's I feel better now. If you're talking to Alan, yeah, yeah, it's good. You're listening to the Bloomberg Business Week podcast. Catch us live week afternoons from three to six Eastern Listen on Bloomberg dot com, the Ihart Radio app, and the Bloomberg Business App,

or watch us live on YouTube. Really looking forward to this next guest courtesy of Damian Sashower because I do feel like when you're trying to figure out what's going on in the outlook, you have to talk to CEOs, have to talk to all kinds of companies and all kinds of market watchers, especially when there's so many things and so much volatility, I think, even in the rate environment.

So let's get to it. Because one of the things that was key in the CPI report today had to do with housing specifically right big time, underlying consumer price growth accelerating in February, Americans continued to experience the sting of rising rates and sticky prices for services over the past year. Key housing category, which includes everything from actual rents to what a homeowner would charge and rent to hotel stays, climbed Damien to a record eight point two percent.

You want to do the honors and bring in our guests. I'm going to do that. John sim head of Securitized Products Research at JP Morgan. Welcome to the program. John. Housing demand is weak. Existing home sales declined thirty four point four percent year over year in January two, an all time low. What will it take for housing demand to rebound here in the US? So, hey, guys, thank you so much for having me on. It's a real pleasure. Yeah, you already hit the nail on the head with the CPI.

I mean, I think the good news is that if the Fed officials at least are getting that it's sticky. Um, you know, the owner equivalent rent number which which was just over eight percent, as you mentioned, it's about a

third of the CPI number index that comes out. So, I mean, the good news is that we're already seeing rent growth the climb, and that's that's measured say by other factors, say like look at ZILLO is a good index one of the ones we use rather than the oear measure, which is really lagged, which has kind of been the burden I think for for a lot of us is watching how slow Um it's like watching paint dry almost and then you know, so we do think

that ZILLO moderation that we're seeing well will hit into the low single digits by by the end of the year. But the un bad news to that is that that oear measure really isn't going to probably reflect that into well into twenty twenty four. Um, so it's a it's

a very slow process. But I guess if you're going to look at the good side, is how much could it take off of the headline CPI number by the time you get to that low single digits, you know, into twenty twenty four, it's probably about one and a half, maybe even two points. So it will help, but it's going to be slow to get there. John, You know, I wonder if you could talk to us, I mean, a lot of our audience here. You know, we're based here in New York City. You know we're only getting

a small piece of the pie. But I wonder if you could talk about, you know, the United States of America, the dispersion and housing performance across the major regions. It seems to me that some of the biggest you know, housing prices appreciation clients have occurred out West. I'm talking Seattle, San Francisco, while other regions and I'm thinking Florida, I'm thinking, you know, Miami, Tampa, I'm thinking Charlotte, Dallas, Atlanta have only seen a fraction of those losses. Talk to us,

can those regions hold onto those pandemic induced gains? Oh? Some of them? I mean that's the that's the definitely the story with the clients to spend region without questions. So our national headline number is is we think home prices well declined by ten percent. A lot of that has to do with affordability. I think one thing when we're talking regions is to look at a very interesting statistic around um the percentage of mussas where it's cheaper

to rent than it is to buy. And it's right now, it's saying ninety nine percent of all ms says it's actually cheaper to rent. So that speaks well to the rent growth narrative we were saying earlier about why that's positive. But well, yeah, well we think home prices will decline because I think we get that confusion at times where people look at rent say, how could rents go up? At home prices go down? Well, because it's actually better

to rent. But the regions say, like Seattle, you mentioned, you know what, They're down fifteen percent already from the peak. San Francisco down eleven, San Diego down nine, Denver down eight. But then you see places like New York Florida only down one percent. So there I think you have the little bit of tech, a little bit of work from home, probably from the Denver side, and then unwinding there also

had just big run ups. But then you look at areas like Florida, where I think actually benefited a lot from the migrations and work from home. It's just a lot easier to work from the beach, right. But in New York everyone loves to live here, so I think that that holds up a little bit, and then we are more back in the office. I think hasn't hit

as hard in New York as it has versus other areas. John, can we start to do you start to model that I understand it rent a place, you're stuck into that cost right for a while, and that plays into the inflationary metric. But can you start to model I don't know whether it's a year from now or two years where you get a better understanding of kind of where

inflation ultimately will be. Because shelter is such a big part of this component, can you start to think about when people are renegotiating some of this or a softer housing market, that it's a different, a very different picture. Yeah, so we got to the one part which is just the lag. So we already think that you know, you already have one and a half to two percent coming off, you know, in twenty twenty four, with all is being equal.

But then you start getting into potential negotiations of where rents could actually get a little too frothy and home prices continue to decline, where you could continue even push that headline inflation number lower. For sure, we start to

try to model that out. It's it's pretty tricky, but certainly as you start to see a lot of the renegotiation for rents, you can even see it locally in New York City where you know, the concessions are coming in the one month, three, the one half month through the free gym membership and whatnot to try to lower lower the dynamics of getting you into the property. John. You know, mortgage borrows from my perspective, appeared to be

in a pretty solid position. Right. We know about the equity build up, you know, we know about the low fixed mortgage rates that they locked into. You know, some years back. But it's not all roses now, is it. I mean, if you look further down the curve, I mean fh borrow delinquencies, you know, subprime auto delinquencies. I wonder if you could talk to us about some of the more some of these more high frequency data points

and what they're telling you. Yeah, that's really been a key for us to watch, and we've been highlighting that really even as the tone prices we're still going up. We're saying, look, look for things to crack on the low end, and that is low FLICO, high DTI, high LTV borrowing, and that typically happens in the fh A programs. The DTIs in those programs are around fifty five percent, so they're they're basically spending more than half of their

income on their mortgage payment. So when things start to crack, the crack they're going to happen there, and you are seeing delinquencies build up in that program and really in low FLCO in general. So I think that really speaks to stress on the low end of the consumer range, and you will probably start to see modification programs come in to try to help save them, just like we had through the last cycle and through COVID, we've got a really good playbook for modifying modifying barros when they

get into trouble. The other side of it is that we watch is around subprime auto. Really what you're seeing there is the delinquency sixty plus day delinquencies in the autosector for subprime, so we're talking low end again is actually as high as what we saw during the Financial crisis. Beginning to see stress there as well. Well. As you mentioned, it's not all doom and gloom. I think when you

look at those things that looks scary. You kind of mentioned it before that borrowers are in a really really good position. You know, they about eighty percent of them of locked in a four percent mortgage rate or lower, and I think that means that they're going to fight to stay in their property. The other side of it is just the accumulated equity that they've built up in

the property themselves. Like just to put it in context, the dea that was built up in the mortgage market just post the Financial crisis around ten trillion overall for like the mortgage market the equity at that time just post GFC. So as the home prices were going down was about eight trillions, so there was two trillion underwater like in the properties, and that's why you saw all these exits. People just enp mailing the keys back in.

But now the equities around thirty trillion and the debt is only fourteen so so you know, you can have a pretty big correction and these guys are going to stay. They're not going anywhere, which is you kind of have a frozen market now. Effectively the no one really I don't see no one, but it's really hard to afford

to buy given where mortgage rates are. But there's not a lot of supply coming in and not a lot of supply pressure because even from the delinquencies that we mentioned earlier, the mod programs will start to keep them from hitting the markets, so homebuilders don't start building. In your view, I think they're already started to slow down their builds, so you start you're seeing that in some of the construction data back to at one point the peak was all control units coming in, the mark was

about one point seven million. I think you've got the total now down to like one point to three so now I think you're back to underbuilding again. John one one more question while I have you twenty seconds here. You know, look securitized products. You know we're hearing about you know, some of the stressed in these delinquencies. Is that filtering through into the secondary market for structured credit?

Are you seeing any of that showing up in you know, some of these low quality credits and just got about thirty seconds. Yeah, not in UM, not at all. In the residential sector, You're not seeing that stress there yet. The stressor seeing is more coming stress for broader credit off right now. You are seeing stress in CMBs though from that's a different whole different topic. But yeah, listen,

great vantage point, John, Thank you so much. Johnson, Managing director ahead of Securitized Products Research over at JP Morgan jutting us on the phone in New York City. You're listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from three to six Eastern on Bloomberg Radio,

the Bloomberg Business app and YouTube. You can also listen live on Amazon All So from our flagship New York station, jo Say Alexa playing Bloomberg eleven thirty while the world is focused on a ship to EVS at the same time, startups around the globe there continuing to work on developing and refining the technology behind what the industry calls EVE tolls or electrical vertical takeoff and landing aircraft in that

mix is our next gas Beta. It's a builder of EVE toll aircraft and charging systems to move both people and cargo around. They count the Amazon Climate Pledge Fund, TPG and Fidelity among its investors. So with us to tell us what they're up to and the outlook is Kyle Clark, founder and CEO at Beta. He's also a pilot and he joins us via zoom from Burlington, Vermont. Kyle, nice to have you here with Damien and myself, So

tell us a little bit more about your company. I'm kind of obsessed with your website and for those who are watching on YouTube and our streaming service Bloomberg originals will get to see a little bit. But tell us

about Beta. Hey guys, great to be here. Yeah. Beta, we're a small aerospace company up here in Snowy, Vermont today and we've been focused on developing electric propulsion systems, initially for EV toll aircraft, but as you know, we've we've now introduced a fixed wing electric cargo aircraft and are launching that commercially. So talk to us. I mean, how far away are we from seeing electric airlines really

penetrating the market A cargo passenger, you name it. Yeah. So, I mean on the technical front, we've been flying up here in the northeast. We've flown halfway across the country. The technology exists to move cargo and people all over

the country with electric propulsion. Our longest range flights are three hundred and thirty six nautical miles, and we just have to work through certification, which is kind of the essence of launching a fixed wing aircraft where the certification path is more known than what a lot of folks are talking about, which is an electric vertical takeoff and landing aircraft. So tell us what's involved, what's the infrastructure need?

Give us an idea. And to Damien's question, I mean, is there in the near future point where we see a significant ramp up? Yeah? Absolutely, I mean we're going to see electric on the ranges that make sense for regional cargo, regional passenger twenty twenty twenty six, and then it'll ramp as batteries improve every year five to eight percent the ranges will improve commensurately, and then and then we'll get to get on the nipping of the heels

of the regional kind of single aisle airlines. And in the twenty thirties we'll start doing things in half the United States, and by the end of the twenty thirties twenty forties, we're going across the country in sustainable aircraft. Is it a different type of infrastructure that's needed. Yeah. Absolutely, Look, we know that there's a lot of charging networks that are required to be put in place. We'd put a charging network that reaches from here in Vermont down through

New York out to Arkansas. We are putting in systems about fifty five of them down the East Coast and across to Texas, mostly at airports right now, a few of them off airports. But you know, from a from an infrastructure perspective, air aircraft carry a lot more energy than cars, and to get their charging time down into the sub hour regionum, the charging power levels have to

be significantly higher. So we have to bring in new charging technologies, higher rate charging, kind of like a supercharger on steroids, and we place those at airports, and and then there's some amount of infrastructure within the air traffic control system, especially as we move into the vertical takeoff and landing domain, to manage increased traffic, especially in urban environments. Kyle, do you think that you know, um, the like similar to cars, they have hybrid models where they run on

you know, on gasoline as well as electric. I mean, is that an option going forward for the industry to try and get you know, those passenger miles up and get those cargoes you know, those cargo planes you know further along. Yeah. Absolutely, Um, there will be hybrid aircraft. There's kits that we can put onto our aircraft that we're using that our hybrid Um, those will be stop

gaps to get to all electric. I mean, look, aviation is a huge contributor to climate change right now, and if we don't do anything about it, all other forms of transportation of gone electric. As you noted in the interim introduction, you know, bikes, car, scooters, trucks, trains, marine

and it's aviation's turn. And we operate, you know, kind of in a cognitive dissidence, in the sense that we are operating in nineteen sixties technology that prioritize performance over efficiency, and therefore our carbon emissions in aviation is kind of disgusting. So there's this huge bow wave of technology and opportunity that electric aviation can overcome. So hybrid will get us close.

But the reality is is working through the regulatory challenges and the introduction of this new technology, it's not a technological challenge, and to introduce hybridization, you're inducing two new technologies at once. Here, it's actually easier to just go

straight to electric. Well, Kyle, you know, I just have to say this, you know, and I do you want to focus on the fact that you know, this is electric aircraft talking that here, but the fact that it takes off and lands vertically to me is just awesome and fascinating. And the impact of that on for example, airports right and runways an amount of land that you need in order to you know, kind of have one. I mean, do you see that being a structural change

over the next few years into the future. Yeah, absolutely, I mean, it's just fundamentally transformative of how we access the Z dimension in our world. Right right now, we have to go through an airport predominantly to go up. Electric propulsion is very very powered, dense. The electric motors are small and powerful relative to their gas kind of brothers. Yet the batteries are relatively low energy dense, so short

range vertical takeoff and landing aircraft. They kind of get us away from the three most annoying things in aviation, which is the noise, the fuel, and the airports. Nobody likes any of those things. So the market just gets really big, really quick. And even in a cargo application where you can avoid trucking things in vans and unloading and loading them and increasing the time transit in the

human touch time by just going point to point. It is not just a replacement for one tool, it's a replacement for multiple tools, right, And that's why everybody is so excited about a huge TAM that we open up with vertical takeoff and landing electric aircraft. All right, So give us an idea. Then that means everybody's not going to get your doors to line up orders. So give us an idea of who you're partnering with. Major airlines. Yeah, I mean so folks like the largest helicopter operating in

the world, Bristow. They're one of our launch customers for both C toll and then V toll aircraft, the Air Force, the Army, United Therapeutics, which is a medical company that moves organs and tissues and medical products. Ups. We've got Air New Zealand that's starting cargo, moving to passenger. They're starting with a C toll and we'll go to V toll with them. There are airlines that I think can't be announced publicly yet that are working with us. But

you're talking to some of the majors. Oh, absolutely, yeah. I mean, look, there is an insatiable desire for sustainable aviation and we're trying to get there with SAP sustainable Aviation fuels. But everybody who really cares about the world in the environment knows that electric is the right step for aviation. And all the majors they care about it, and they just know that the technology is not quite

ready for what their main lines run. But they're all looking for these secondary kind of introductory points, so when it comes to replace their main lines, they have an acute knowledge, the training, the infrastructure that you talked about. Got it for the airlines. All right, we gotta run, Kyle, look forward to future updates. Come join us again. Kyle Clark, Founder and chief executive Officer, of Beta Technologies, joining us via zoom from Burlington, Vermont, Carol Master Damian sas are

you ready? Right? So cool? He obviously hasn't been to the Nilguardi Airport. I love it. There. You're listening to the Bloomberg Business Week podcast. Catch us live week do afternoons from three to six Eastern Listen on Bloomberg dot com, the Ion Radio app, and the Bloomberg Business App, or watch us live on YouTube. I'm a journal now, but you let me drive? Oh no, no, no, no, Who's gonna drive home? Honey? Please? I'll do the riding gravels. I want to drive. The question this is the drive

to the Globe com commute thing? Well, rip jother down on Bloomberg Radio. All right, everybody, just about seventeen minutes left in today's trading sessions, and he's just giving you the lowdown when it comes to the equity and the treasury trade. Bouncing around a little bit, definitely off our highs of the session when it comes to stocks, and we've seen some volatility once again when it comes to

the treasury trade. Let's get to it, because lucky for us, Damian and I have with us Bloomberg Intelligence Chief equity Strategist Gina Martin Adams. Gina is on the phone in New Jersey. Gina, good, good, Good to have you here. I've been thinking about what your rethink has been, if any, when it comes to the trade that we saw over the past week, on Friday on yesterday, and when it comes to the health and overall direction of the equity markets.

What are you thinking about? What are you studying? Well, I think the most important thing, Carol, first, thank you for having me, But the most important thing that I'm watching really is the market technicals. If you think about it, you know, as of two weeks ago, the only thing really going for the market in an environment where fundamentals were deteriorating and valuations are still quite high considering the level of interest rates, is that the technicals were in

support of some version of recovery. And over the last couple of days, we've definitely seen the technicals breakdown. Small cap index in particular has weakened materially below some pretty key moving averages. The large cap index is hanging on

barely with its fingernails. It's still hanging onto that two hotter day moving average and testing that level with a little bit of a bounce back today, so the technical pictures not as bad in large caps as it isn't small But certainly we're teetering on the brink of testing some key technical support levels, and I think those are important to watch considering certainly this doesn't improve the fundamental outlook. It might change the landscape at the FED, but we

won't know that until next week. It really is all about how does the price trend right now? Geane, I'm just reading this new piece of research you co authored Taether with Maman Christopher Kane, where you talking about factor investing, and you know, we were looking at, you know, which strategies performed best and worst in other sort of environments where you had elevated interest rate and certainty. What's stands

out to you there? Yeah, So we run MVP portfolio, which combines the factor families of the high momentum, low volatility, high value and high profitability stocks. So we want to really keep an eye on how that family of stocks is going to do in an environment of crisis or sort of distress in the financial sector. So we did go back and we looked at how those factors performed in the Lehman crisis just as a representative example of

really precipitous conditions in the financial markets. And indeed, the fact the performance was pretty decent with the exception of the value factor. Value unfortunately is somewhat subject to swing given the financial sector exposure that's in the value segment. That said, our portfolio when we rebalanced it as of December did not have any bank stocks in it, thankfully. So the value component of the finish yeah, we got

really lucky, frankly because they weren't. They weren't particularly positive screens on our factors, thank goodness. So the portfolio, once against it looks like it's going to perform relatively well in this environment of distress. So in terms of the technical view, then are you at a point where you're like it can go one way or another, Like the odds are fifty fifty at this point. In terms of equities, it's not clear. I will say, Carol, you know, I'm

watching some really key levels. You know, I do think that October was a massive wash out moment for stocks, and we run our own market Pulse index that would suggest and confirm that it was a major sentiment low for the equity market. That doesn't mean we don't go back and retest that low, but it is a critical level to watch and we're still nowhere near those levels.

So that's the good news. The bad news is though, that some of the technical improvements that we made over the course of the last several months really have been washed out over the last couple of days, and especially in the small cap index. We're back to testing our December lows on small caps again. Still not near those October lows or even the major June lows that were

made in the small cap index. But when the small cap chart is deteriorating, it's really tough to get optimistic about the outlook for stocks, and small caps have just gotten creamed over the course of the last week, so we'd like to see some stability emerged there before we can get too opportunistic about the market at large. That's it.

I also think though, that if you are thinking about individual equity investments, industry investment sector investments, there are some opportunit entities that have emerged in this washout, And you know, I think from the standpoint of looking beneath the headline market industries, you probably will find some pretty deep values that are worth investigating at this time. It's just the market itself. The charts still looks so great, So I would say I would err on the side of caution

right now. You know, Gina, you're talking about you're talking about value, You're talking about you know, you know some of the small caps, you know, the one you know talking about the MVP portfolio and all these portfolios. The one thing that kind of stands out to me is is the banking sector and the exposure they're in. And obviously in small caps the KP I mean, regional banks are you know, a very healthy portion of that index.

Hence the reason you know it's down so significantly. You know, just a few months ago, Gene, we were talking as banks as being, you know, a place you wanted to be in this environment, right so exactly so, so how has everything changed so very quickly? Well in our so in our models, banks actually have not been a place you wanted to be. Financials were, but banks were not. We do run industry relative models within the sectors themselves, and certainly that financials started to pop toward the top

of our sector allocations. But it wasn't because of banks. It's because of the consumer finance company that are at the top of our financial sector scorecard. And as I mentioned, you know, it was a signal to us that no banks or even in the MVP portfolio as of December's rebalance. So for us, the banks were not the primary reason

to get a little bit more excited about financials. The reason to get a little more excited about financials are the lenders to consumers, where consumers are still borrowing and borrowing even more at higher levels of interest rate, but yet not likely to default. Those companies are the companies that are likely to experience the most upside in that

kind of climate. So, you know, I think that financials is a really big sector and you had definitely right now have to look beyond the banks to get excited about anything in financials. You know, small caps are exposed, but maybe we're overstating how much small caps are exposed. I'm actually worried about the smallest of the big cap stocks when it comes to the banks, because that's where you've seen the deposit growth, That's where you've seen the

regular boiligion. All right, can leave on that note. Always great insight, Gina, Thank you, Thank you, Gina. Mart Adams Geef Beck can describe us at Bloomberg Intelligence, joining us on the phone from New Jersey. If you're lucky enough, you can check out our research. It is on the Bloomberg terminal. This is the Bloomberg Business Week podcast, available on Apple, Spotify, and anywhere else you get your podcast.

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