Volatile Banking Sentiment Needs to Steady

big banks holding up. So lots of news coming out. You've got UBS's plans to take over Credit Suite with an assist we know about that. We've got New York Community Bank Corps surging by record, leading that broader rally and regional bank stocks after the letter was upgraded by at least two Alice following its agreement to take over Signature Banks, deposits in some of its loans, metime First Republic Bank still having a tough time extending its route

to an all time intraday load. So let's get to it. Carol Master here with Jess Metton, and let's get to our roundtable. Back with us is Alison Williams, Senior Global Banks analyst on the phone, Herman Chan, senior analyst for US regional Banks up both part of our Bloomberg Intelligence team. Herman here in our Bloomberg Interactive Broker studio. I want to start with you, Herman, only because we did have some headlines a short time ago, first Citizens saying it's

continuing its pursuit of Silicon Valley Bank. Remember about s Phoebe that's still out there. Tell us about this as significance of this and the importance of this, and maybe starting to calm things down. Yeah, I think what we're seeing is that we live in a capitalist society and banks will fail. That's natural, Yes, exactly. Let's banks take risks and inherently sometimes those risks will up end the

bank and they fail. So what we're seeing is natural where other stronger, you know, supposedly stronger banks will come in and take over the institution, which I think is a vote of confidence that the system still works. And if there's a bank out there that feels comfortable enough to do it, exactly, and the regulators feel comfortable with that bank to take over. So what we're seeing with SVB and for Citizens is it seems like for citizens

really wants to expand. They've been in expansion mode for a bit now. They bought CIA not too long ago, a specially lender here based in New York and New Jersey, so they have wider ambitions and I think SBB fulfills those potential ambitions. But we'll see if the regulators let them close that transaction. Alison, I want to bring you in the conversation because when we're talking about New York Bank ORPS and then Signature Bank, is this a guide

for how more banking deals can be reached? I mean, I think to Hermann's point, it could be a great opportunity for both banks, for those that have gotten themselves in trouble with mismanagement being taken over by a stronger, healthier bank that perhaps has a little bit more pro west in terms of managing those risks. Um, it's good for good for both of those banks and good for

the system. Alison, how do you see like Jiffian Morgan holding up certainly eight tens of a percent higher in today's trade and bringing up being of America's down a little bit? Goldman sacks what's going on? Up one point six percent? And let me just pull up City City

just down about six tens of a percent. How are you looking at it from the big bank perspective as we are focusing so much on the regionals, So I think, um, certainly this time around, if you will, the the crux of the issue, which really relates to mismanagement of bond portfolios, mismanagement of uh you know, sort of we have this big blow up of deposits and the bond portfolios. This has really been to um centered on the regional banks.

For the largest banks, they're actually benefiting from some of the deposits. A couple of them are very unlikely to be acquirers because once you're over ten percent of deposits, you are not allowed to you know, the understanding is that during a crisis they will be allowed. We did see a few deals happened last crisis where that tempercent was breached, although others some of the launches around those, But for the bigger banks, credit sweets was really I

think the one that people were watching. That's really when you started to see the bigger banks selling off last week was when you know, there started to be rumors about credit sweezes outflows. People weren't concerned about counterparty risk, But since that was such a longer developing story, unlike Silicon Valley, which happened in the day or so, most

of the banks had managed down that risk successfully. Herman, I wanted to ask you specifically, because this was a striking number, looking at the seventeen billion dollars of credit sweezes, risky bonds that are now basically worthless, what are the wider implication for bond markets moving forward it because it seems like a controversial deal if you're a shareholder versus if you're a bondholder. Right, Yeah, the AT one issue

I think is unique to Europe. Historically, when you do finance one oh one, if something happens with the company that you own, the equity holders usually get wiped out. In the bondholders get a certain percentage based on your seniority a priority in your capital stack. So it seems very unique. I know my colleague Arnold Cacuda had mentioned that the Swiss regulators and the Swiss version of these AT one bonds are a bit unique versus the rest

of Europe. So that's something I would point to. Hey, Herman, first republic down forty five, So what's the likely scenario and this is after what you know, credit rating lowered again by S and P thirty billion dollars infusion. Last week we got some more clarity about how many times it's been tapping right into funds. I mean, do we know what the likely outcome is here? I was expecting some sort of news from from First Republic or the

regulators over the weekend that didn't happen. From what I've read, it seems like, um, you know, management is a very proud sort right. The CEO is the founder of the company, has been through multiple cycles nurtured this company to become one of the biggest US banks in the unit banks, right. So is so is that the problem that you've got leaders that are proud? I think so, because the issue is the hope was that this thirty billion dollars deposit

injection would calm the markets. Obviously that hasn't happened, and your management, I feel like, is now put into a corner and they really have to make a decision on what's really best for their customer and the bank, both of you. I want to ask you. You know, there's a great quote this morning about bank failures. I think it was on surveillance and it was liking somebody, I guess said linking them to cockroaches and basically say, when you see one, even if you don't see another, you

know that there's hundreds behind the walls. And I guess our mission all of us right now is to figure out if that's the case when it comes to more bank failures. So, Alison, how are you thinking about your sector or you know, the counterparty, you know, exposures if you will, to figure out exposure, what could go wrong next? In other words, finding that next cockroach. Well, I think what's worrisome at this point is just that the market sentiment can drive reality, and so I think that that's

the concern. So if we look at Credit Suite, you know, the regulators were in there. The capital is fine, the liquidity was fine, but if the rest of the market worries, it creates an issue. And the Swiss regulators pointed to the fact that they were that it was really the outflows they were seeing that caused them to step in.

There were reports of them receiving about ten million of outflows that jets, So obviously that's signific again, and so I think that you know, to your point, investors are looking for sort of the next bank at risk each time something happens. And I think that it's tricky for regulators because they do you to come out and do something that's enough to make people's steady sentiment, but not too much that makes people nervous that there's more to

be worried about. So sentiment, sentiment is a tricky thing. Same question to you, Herman, like, how do you think about what could go wrong next? And I feel like, you know, it isn't quite whackamole right when it comes to the regional banks. Maybe it's a slow moving game of whackamle. I think initially it was whackamle with SBB in signature. Now it's more of a okay, we know first Republic is the main issue now that the market is focused on is there is there anything else? Is there?

Investor Alliance are not worried about or anything. Western Alliance is a name that continues to come up up quest pack West is a name that continues to come up, but to banks that operate in California and the West Coast. I know Western lines a bit better. They offered a pretty decent update in terms of their balance sheet and their cast position on Friday. So I think that placated some folks. So really, what's the next you to drop? I think what Alison Suggs and market sentimen creates reality.

And you'll look at a bank's typical balance sheet. You don't mark to market there healthy matual securities. You don't mark to market their loans. That's a feature of bank accounting it. But that's the market is saying that's a bug. And so we're in this weird position where we have to question, you know, what was inherent acceptance of how banks managed our balance sheet and that that's really upended

with what's what's happened with SBB and First Republican. We've definitely had regulators coming out and just throwing it feels like a lot of money thoughtfully into the system, Allison, just about twenty five seconds, the big banks just get even bigger and bolder and more powerful they do. I mean,

that does seem to be what's happening. And I think again what everyone's waiting to see is if there will be some kind of announcement on deposit insurance, which will really make things interesting, especially because the big banks pay the most for that. But regulators are going to want to, you know, protect the smaller banks and then globally, what does that mean for global deposits? If the US effectively ensures higher amounts, does that attract even more to those

big institutions? And if your boss has told you guys, but you guys get this big Caribbean vacation after all of this is over because you're working in so I areed sources. According to Alson Williams, thank you so much of Bloomberg Intelligence and Herman Chan of our Bloomberg Intelligence team. Following the big banks and the regionals. You're listening and watching Bloomberg Radio. 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 iHeart Radio app, and the Bloomberg Business app, or watch us live on YouTube. Hell yeah, we're gonna talk a little bit about Teddy Bears. Um,

let's sten back for a moment. I'm all our focus on banking, and rightfully so, but let's get a feel of how this change and sentiment over the past couple of weeks, or at least this new narrative, if you will, might be impacting consumers and retail with us right now is Sharon Price John. She's president CEO of the publicly held small cap Build a Bear Workshop back with us via zoom in New York City. Sharon, nice to have

you here with justin myself. Um, last and we talked, it was more than a year ago, December twenty twenty one. What's changed for you in your business and what's on your per view if you will, in the last twelve to fifteen months. What's changed? Yeah, well, we've continued to

post record results. I mean, we just announced our year in on March ninth, and we're happy to be able to share double digit improvement in both the top line and the pretax profit line, with our top line up about fourteen percent and our bottom line up about twenty two percent, and that we had seen at that point continued momentum in the business at first quarter a year to date. And but that's so that's not what's changed.

That's what's remained the same, and that last year, twenty twenty one was a record profitability year for us, and we eclipse that in twenty twenty two with another record profitability year. What's changed is that we've evolved so much as a company and that we have a much broader addressable market. We appeal to consumers for different reasons for opping, not just which would be a typical type of event for us, which would be a birthday for a child.

But now from the adult consumer what's called adulting. A big trend with gifting and adult to adult gifts. A lot going on with build a Bear, a lot of collectibles. We have a lot of fun licenses, like most recently announced ted Lasso Bear, but things like a Deadpool Bear or Matrix Bears, Friends Bears. How well did those kind of bears do really fun? Like? How well? I mean

is it? Are they profit drivers? Or give me an idea. Well, I'm as a publicly traded company, clearly, you know one of our objectives is that we choose to do things that hopefully are profit drivers. But the kid that the business now has, as I noted, when I speak about it having a broader addressable market, I don't mean that

that's not meaningful for us. About forty percent of our sales are now to teens and adults, and yes, those licenses often had Clearly they're going to have a royalty associated with them, if that's the emphatus for the question, But they also generate generally a little higher price point as well, because that consumer has more latitude and the

way they think about it. At the same time, we balanced the portfolio with a very accessible prices, with very accessible prices for kids, particularly with our Birthday treat Bear, where you can come in at the month of your birthday and pay your age to get the Birthday Treat Bear. So if you're turning two years old, you can get an entire Build the Bear special one thermoney stopping experience

for two bucks. That's pretty cool. Your products have definitely evolved with the tastes of children today, So when you think of Super Mario Brothers or Paul Patrol, Harry Potter and I know, a lot of the accessories can definitely add up quick. So with the straws earning out look ahead, what do you think this really tells us about the direction of the economy if consumers are still willing to

spend on discretionary items at specialty retailers like yours. Well, first of all, we don't think of ourselves is just a specialty retailer. We think of ourselves as an experiential brand, an opportunity for families to come together to share memories. We're multigenerational, like twenty five years old, and yes we do evolve our licenses with the times, as you mentioned, but things that are evergreen, like a Harry Potter that

appeals to a broad broad range of consumers. To your question, though, our accessories business is, you know, to be able to address your bear and make it very much your own. That's just a part of our creative process. That's how kids and adults feel empowered by making it incredibly unique.

And you can even put the sound in the bear, so it's a one of a kind in many cases, and that's you know, And when you think about that as the experience and the takeaway and the importance that Teddy Bears play in the lives of children, particularly as comfort animals, a lot of psychological background on the need for that type of special, kind of special relationship with a stuffed animal. Um. I don't know if you can consider us completely discretionary. I gotta say for my daughter

it was a discretionary which was a little kid. Hey I say that. I say that from a vantage point of a mom of three. So you know, some of it could be tongue in cheek, you know, as a CEO, but there's some reality to that. I remember going on a trip and we forgot we forgot our stuffy and man we had to get a new one in front of replacement one really quickly. Hey, m One thing I want to ask you, Sharon is um and I want to step back just to some of the bigger, broader

macro that's going on. As a CEO of a company, you have to think about recession, consumer retail in general. But the recent market volatility and concerns about our banking system. How has that impacted you at all? Yeah, of course that's very concerning. I mean, we want to see a strong economy, We want to see people in you know, good financial situations. I can also say, though, on looking back on the last few years, there's certainly been a

lot of volatility. I think some of the most MULTIPLEUS economic times in our modern history, clearly inclusive of the COVID outbreak and even prior to that in retail, the retail apocalypse. So constant feels like a lot of constant changes and uncertainty. And I think that you know, families and businesses have to be prepared for that. You know, we're in a strong financial situation. We have very prudent

financial control. We finished this year with forty million dollars in cash and return seventy million over the last two years to our shareholders, announced a special dividend, and have no borrowings on our credit facility. So with all of that in mind, and that we did mention that we expect are in the guidance that we provided from a range perspective, another five to seven percent on the top line, another ten to fifteen percent profit expansion through twenty twenty three.

But the reason that we feel and shared that and feel like that there's some confidence. Clearly that's excluding anything entirely appeaving, but we've been able to manage as a team and as a company that that brand relationship that we have with guests and be able to pull the proper levers when needed to manage through some of these uncertain economic times. Clearly you've probably heard as well, I've we already been in a recession or we undersid a recession.

Now are we going into a recession? Right? It's um, you know, I don't know that we you know, there's a lot of different I would say earmarks that are pointing in different directions, and I think that the key is to be diversified and flexible, and that's what we've been attempting to do by pivoting the company to have revenue streams in traditional retail as well as e com entertainment, looking for different ways to meet the needs of guests

for different reasons. Hang on very second, just quickly, did you shift around your banking at all because of the nervousness within the banking system. We have a very strong relationship with our banking partners. Okay, that's what I wanted to know. You talk about expanding your revenue stream and these strategies. You've got the metaverse that you guys are certainly embracing. You're also thinking about content and linking up with Rheese Witherspoon and her media company. Just got about

forty five fifty seconds. Just talk to us a little bit about these strategies if you could. Yeah, in a brand that has sold two hundred and twenty five million Furrey Friends over the last twenty five years, and when you understand that each one of those very friends represents a story, we're really a storytelling company. So when you think about the extension and expansion of our brand and our business into the entertainment arm and the content driven arm,

it's not really that much of a stretch from that perspective. Yes, Hello, Sunshines, Freese Witherspoon's company. We did announce a feature film deal. We also have Mary Mission our Christmas holiday and holiday. This is a particular property that we launched years ago starring Glisten. We'll be out this holiday as well in an animated feature, and we're we'll be in launching the Build Abair feature documentary with award winning documentary and Taylor

more than later this year. So we have a lot of different ways to connect again with a broad base of consumers yep, and to monetize the value and enormous quity of the build Away Ram. Sharon's so good to check in with you. Sharon Price, John CEO of Build a Bear Workshop, joining us right here on Bloomberg Business Week. 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 Alexa from our flagship New York station, jo say Alexa playing Bloomberg eleven thirty. All right, folks, we've seen this movie before. Big tech company cutting jobs again. Last week it was Meta. This week it's Amazon laying off an additional nine thousand employees, adding to cuts that were already the largest round of firings in the company's history.

Stuck down on the news, down about one and a quarter percent in today's sessions, still up roughly sixteen percent year to date. So let's get to it with the latest down the company. Bloomberg's Intelligence senior technology analyst, annoag Granta joins us via zoom from Chicago. Annorag, good to have you here with Jess Metten and myself. So I'm trying to think, first of all, let's get through the news. Why did they have to cut another round of jobs.

Futt of the update that they gave that they were going through an operational planning and trying to figure out how much excess capacity do they have? And they did, you know, the first round a couple of months ago, and then the other review wasn't completed. One it was completed, they found out they could you know, eliminate another nine thousand jobs. That's really the rationale that was given by

the company. So is this smart management in your view, saying Okay, we still have too many workers, we had to cut back, rather than doing a massive layoff and maybe figuring out they cut too much. One could argue that they just took their time in making sure that they don't overreact at the first goal. You know, our read on this is we don't think the fundamentals of the cloud business are recovering at this point, which is partially the reason why they had to go undergo another

random layoff. You know, they may have avoided it if we saw a rebound and talk growth, I mean the cloud growth, I would say, I mean, that could be a reason, but we won't know that. You know, the end of April, when they announced their results on a rock we're specifically were jobs cut in this latest round versus compared to what we saw earlier this year. Yeah. So they highlighted four divisions, AWS being one of them, at advertising being one of them, Twitch, and PXT, which

is their human employee experience segment. Now, from our revenue side of it, AW is just far bigger than anything else we think the majority of the cuts could be in that area. They didn't break up by a segment, but you know, our thesis is that that's where we saw a bulk of the cuts. Is that troubling to you because we talk about AWS how important that is

to Amazon certainly tap in bottom line and growth. Yeah, but if you were to say that over the last few years, the revenue is more than doubled and their employee cases, you know, base would have doubled as well in order to keep up with that. You know, again, you know if they let's say, for the sake of argument, they have hundred thousand employees and they you know, let's go let's say ten percent of that. I mean, it is logical if you see the rate of sales growths

go down. Our argument is if the you know, cloud still has a long runway in the long run, when that growth comes back, they're going to go out a lot of people back again. And if you look at it Stark today it was down a little more than one percent, but still a year to date up about sixteen percent. Do you think it's start price will potentially remain challenge in the near term due to slowing AWS sales inflation or do you think it might be a

little bit counter to that. I mean, we've seen even Meta had quite the rally since obviously it announced more job cuts last week, but even since November, Metas stock had been up more than eighty percent. I'm wondering kind of what this means for the trajectory for Amazon stock price. One of the things you have to look really locate to its relative evaluation. I mean, the Meta is a far more profitable company. It's trading at a much different

marketple than what Amazon's trading at. You know, amazto Amazon to you know, turn around from a stock point of view, one of the things they have to really do is to really look at the profitability of some of their segments. And no, we have no idea when that's going to turn around. Frankly, you know, it's interesting. I was looking at what Jassy, the CEO of Amazon, said in a memo that was published to Amazon's corporate blog. Here's the quote.

Given the uncertain an economy in which we reside, in the uncertainty that exists in the near future, we've chosen to be more streamlined in our costs and headcount. You know, when a CEO I always find it so important in terms of what the CEOs have to say, certainly in an environment where we're you know, worried about banks and bank stress and just trying to figure out what happens to the economy and recession no recession, landing, no landing.

We're waiting on that FED meeting this week. When a CEO like any Jazzy says that and uses uncertain and certainty twice in a sentence, how do you read it and then cross that against the fundamentals at the economy

and the balance sheet. Yeah, I would argue that over the last five years, or it would take more than three and a half to fourdeos, tech companies have hired very aggressively thinking that this particular growth cycle will never stop, and that's I think most of them are kind of paying for, you know, certain abrupt spending in technology right now. If you go back to the history of Amazon, really the ethos of the company, it has been a very frugal company in terms of spending since the founding of

the company. I think and Andy has been around with Jeff Basil since the beginning or near around the beginning, so I think, you know, he's reminding people that we've got to be very cost conscious when we are not looking at revenue growth that is in the same that it was in the last few years. We just set

to mind out expenses. And frankly speaking, he's right. Nobody knows what's going to happen to enterprise tax spending in the second half of this year, whether we're going to see any recovery or you know, no recovery at all, and whether this is going to be either a twenty twenty fourth story or a twenty five story. And we've seen so many cost cutting efforts, whether we're talking about Amazon or met A, Microsoft, Salesforce, Intel, you can name your big tech company this year, we've seen it or

in the past six months. I'm wondering how much further do those efforts have to go to shore up investor confidence about these cost cutting measures. And we are talking about big tech companies and growth stocks to one of the arguments would be, if growth doesn't come back, you're going to see another round of day off from a lot of them. And there is you know, there is

no one size bit all over here. If you look at a company like Microsoft, in the last five years, they've doubled their headcount from one hundred thousand to two hundred and twenty one thousand before they announced a five percent layoff. That's a ten thousand person layoff. So if you are, you know, going out and looking at a timeframe of slightly longer than just one one and a half years that these companies have hired very aggressively, you

know this is bound to happen. Yeah, I do feel like you know, Anarag, and the conversations that we certainly have had over the last year or so, it does feel like many of the company, especially within the tech universe, it's it's a bit of a reset post pandemic. Is that fair to saying just got about twenty seconds left? Yeah? Absolutely, reset. This is really a reset because we thought this is

now not going to stop. For the first time in five to six years, we are seeing some slowdown and you know, job cuts are just a part of reality at this point. All right, Well, good perspective and just putting this in check. Anaag, thank you so much. Anag Grana. He's senior technology analyst at Bloomberg Intelligence. I guess be

a zoom. You're listening to the Bloomberg Business Week podcast catch us live weekday afternoons from three to six Eastern Listen on Bloomberg dot com, the iHeart Radio app and the Bloomberg Business app, or watch us live on YouTube. I'm bloom a journal Now, bet you let me drive? Oh no, no, no no no, who's gonna drive home? Honey? Please, I'll do the riding drivel. I'm want to drive. It's good question. This is the Drive to the Clothes coming well,

driver up shop down on Bloomberg Radio. All right, everybody, we are counting down to the close. Just about seventeen minutes left in today's trading session. Carol Mass along with Jess Manton. So let's get to it. Let's get to our Drive to the Clothes. Guest. Paul Biyaki is with us. He's chief ETF strategist at SSNC Apps Advisors, a registered investment advisor. They've got some nineteen billion in assets, over nineteen billion in assets under management. They are based in Denver.

Paul joining us though in our Bloomberg Interactive Brokers studio. It's so nice to have you here in studio. First of all, you come to New York. How does the conversations differ from one you are back at headquarters in Denver. I always love when people are coming from different parts of the country. Well, I would say broadly, the conversations are similar. You know, Denver has people nervous, people are nervous.

I think the reality is Denver's grown. It's one of these cities like Boise or Nashville that you hear a lot about people moving from the coasts to some of these cities. And so I think there's been a diversity of the population that maybe didn't exist five, ten, fifteen years ago, not just in terms of demographics, but in terms of background and in terms of the places where people grew up. And so I think that feeds into it.

But you come to New York and there's just this energy here in this city that doesn't exist in other places. And because you're having conversations with people who grew up here in many cases or who have spent years in the business here, there's a seasoned nature to some of the people you talk to about some of these things.

Been there, done that sort of thing. So, as you come to New York and you're having meetings, are people pretty calm about this environment or they suspect, well, we'll see I mean, I flow in last night, so I've got some meetings the rest of the week. We'll see, but I think that's the tone when even internally we've had some calls. We had one of our fixed income

managers going through their outlook. We had a commodities manager going through an internal call this morning, and I think the idea is, look, these are in some cases idiosyncratic dynamics, but in other cases they're a symptom of what has been a pretty dramatic change in capital markets dynamics that we haven't seen for quite some time. And so I think some people are just sort of in wait and

ce mode. And especially because you are a strategist for ETFs, I was curious as for is what are the flows telling us. Do you have exposure were banks? And if so, what is it showing us so far as far as like following the money at that point, Yeah, so we have the we're a distributor for the select sector spiders, which are the largest most liquid sector ETFs in the marketplace, and last week we saw a lot of flows into XLF.

Believe it or not. I think you think about what XLF is and it pulls from the largest financial companies in the United States in the SMP five hundred, and what we've heard anecdotally is people who had deposits at smaller regional banks starting to move their money to some of these larger banks. We heard Congress talking about it,

concerned about it and what the impact might be. Bigger banks becoming bigger, and we saw some people perhaps moving out of their regional banking exposure into these larger financial companies. Within XLF, what we do have some other products that are more diversified that have some finance exposure but by design don't have that regional banking exposure. So one that we were talking about on the TV side earlier was OUSM, which is a small cap strategy focused on quality, income oriented,

low volatility stocks in the small and MidCap segment. And if you look at the Russell two thousand, which is the benchmark most people using a small cap category, about nine percent of that portfolios in regional banks, and OUSM, relative to that index is underweight financials but doesn't have any regional banking exposure. It's got capital markets and insurance companies. If you look at the Russell two thousand value, it's

got eighteen percent in regional banks. So it really comes down to investors waking up to the reality that in some cases they don't know they have exposure to some of these companies. They don't know that they have exposure to some of these segments of the financial sector in portfolio categories that they didn't anticipate, and that's part of the know what you own and why you own it well. And it's interesting going back to flows. As you said,

there was money coming into the XLF. Is it continuing to come in The longer this goes on and the more that we are the continuation that we are talking about what's going on in banking, does it still come in? Well, it's a challenge because XLF is one of those products that used by such a wide range of investors. You've got hedge funds, to use, a pensions, endowments, retail investors, advisors, and so it's hard to get a gauge day to day,

week to week on what's actually happening. But what we saw last year was a lot of money coming into XLF at the beginning of the year, and then middle of the year we started to see a lot of outflows. And if you think about what happened last year. There was this anticipation that interest rates were going to rise that should benefit an interest margins, and so therefore financials would be an interesting trade. What we saw was that yes, interest rates rose, but we didn't get a steepening of

the yield curve. In fact, we got inversions in different parts of the yield curve, which is not positive for an interest margins. And then people started to move out of financials last year. So it remains to be seen if we see flows from banking stocks into broad based financial stocks. And I think more importantly, the net interest margins story is interesting because that's ultimately what was the undoing of Silicon Valley Bank is net interest margins went

against them. They weren't beneficial when interest rates are rising. So but it was interesting because we were often talking about here that the assumption that as rates go up, this is good for the big banks, but they weren't necessarily rallying, and it was a little bit, not a little bit, that was a lot of a disconnect. It didn't quite make sense. Sure. So the core business model of a bank is you borrow short, you land long.

But if you've already lent a lot of money long by buying bonds with really low interest rates, and then you're borrowing at higher rates than what you've lent. That's not good. And the benefit of being a large diversified financial institution is you have capital markets businesses, you have other businesses to augment that traditional lending business, and in theory you have sophisticated risk management in the form of

swaps and other various mechanisms. Right, And you brought up the ou M for small caps, and that I thought was interesting because we keep talking about how how small caps perform, what that could mean for large caps? What is it telling us when you're looking at the flows specifically for small cap and just how about twenty five thirty seconds? Okay? So I think the idea is is that small caps in theory are less exposed to international markets. So with the dollar having been strong, there was a

small cap trade on. Historically, small caps can be very risky. Thirty percent of the russell too just doesn't make money. So if interest rates are higher, then investors need to maybe take that passive exposure to small caps and start to reevaluate and filter that universe down from the quality years well focus get some time right here and hope you'll come back. Called Bayaki, He's Chief ETF Strategist at SSNC ALPS Advisors, Joining us here in our interactive broker studio.

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