Global Trade This Week – March 15th, 2023
What’s going on in Global Trade this Week? Today Doug Draper of Inland Star Distribution and Trade Geek Pete Mento of Mento LLC cover:
3:20 -SVB and Other Bank Failures & Interventions
14:50 -Halftime
22:30 -Nobody gets away from OFAC ....Nobody
24:00 -Air Freight Markets are Down w/ Lufthansa as an Exception
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Keenan Brugh 0:00
You're watching Global Trade This Week with Pete Mento and Doug Draper.
Doug Draper 0:08
Here we go global trade this week and what a week. And what a weekend it's been. This is a amazing show that we're gonna bring, I think, Pete a couple of weeks ago, you talked about epic, and this may be the epic or epic or one. So before we get into that, I'm Doug Draper, one of your hosts out in Denver, Colorado. I remoted from Fresno last week and had some internet issues. But I'm back. Troy is joining us. He's been on hiatus for a while sabbatical, if you will. So we're good to go. But on the other side of the country in the great state of New Hampshire is my good friend and co host, Mr. Pete mento. Pete, what's going on?
Pete Mento 0:52
Well, first of all, I'm getting a foot of wet nasty snow. So I got that going for me. But more importantly, Troy's back, buddy. And I'm convinced that this is one of those deals like spy craft, you know, like you have to, you got to put Troy in the shot to tell your CIA handler that there's a dead drop in some park where you left the microfilm. Is that like, is that what it
Doug Draper 1:19
is? Yeah, that's pretty that I didn't think of that. But yeah, the color printer was on high high res today, cranking that thing out. So as as you know, I'm in the soundproof booth in my co working space, which is awesome. So I can't roll in the man himself. So he's coming in virtually,
Pete Mento 1:38
but it's nice to have Troy back. Thank you. Honestly. It's nice to have Troy back. I'm an Ice Station Zebra because it is. It's a blind man. It's like the middle of March. I've so had it. I've had it and I know you and you and Keenan, love the snow. You go frolic in it, like a couple of idiots in your snowboards in your in your skis. And I love skiing when I was younger, but I don't need to be cold man. Like, you know, cold is something that needs to happen outside. I want to be a lovely warm outside, in a cafe in Paris, with a with a nice bottle of Bordeaux. And Amy across from me with some unpasteurized cheeses. You know, I? I don't I don't get this man. Like, I've been watching this new show with Eugene Levy on an app. Have you seen it? Oh, yeah. He just complains like he's, he's this very neurotic traveler was like, I don't know why I'm on this island, because apparently I'm gonna get wet and have to get in the water. Why can't I just sit at this bar and have a nice glass of wine and have a conversation like this? This is my kind of traveling dog. I really identify with this cat very much. So I've enjoyed it a great deal. Alright.
Doug Draper 3:02
Well, speaking of enjoying a great deal, we have a very relevant topic that we're, we're we're not going to bury the lead. We're jumping in. Yeah, we're jumping into the two. Gosh, the whirlwind of of banking in the last 72 to 96 hours. So I don't know what to say. Pete, I know you're fired up. We had a free call to this show was ugly. Yes. Ugly, a proverbial F bomb coming through. So
Pete Mento 3:35
not a fan of bankers, Doug. Yeah, I'm not a fan. Not a fan of bankers, I they are they are a class in and of themselves. And even if you look at the reaction of this, this particular crisis, the government couldn't, couldn't step to it fast enough to get them a solution. Like the rest of the rest of the country, if there was a problem with poor people, or with middle class people like like, if every farmer in the country had a problem, it would take months to find a solution for the bankers over the weekend band, here's your money, right? Let's get the money as fast as they can. But if every if every farmer in Iowa and Kansas and Minnesota and Wisconsin had a problem, like I will get to you guys soon. We okay. But bankers, it was like 24 hours, let's find them billions of dollars to get this thing up and going, which will give you an idea of how tied into Congress they actually are neither here nor there. So Silicon Valley Bank was a darling of the the industry, lots of cash that was being used to fund the startups, lots of cash that was being used to fund tech companies, many of which were in our industry. Hence while we're talking about them, and a few weeks ago, actually about a month ago, if you look at the timeline, there was a great deal that was being said by people like Peter Thiel of on how this was a house of cards gonna fall on itself. And they were actually going to be downgraded by many of the insurance firms at Washington, this grading firms went in there tried to talk about it with them, like, hey, you know, don't leave me baby, we can work this out and didn't quite go their way word starts to get out. And the reason that they were having a problem was was really threefold. The first was when they had made all this money, they had made some very untimely investments, and what would normally have been a smart investment, which was bonds, which generally, you know, they pay long term pretty well over time. Second of all, mortgage backed securities, where when you buy your mortgage backed security at a certain interest rate, that interest rate, you know, unfortunate sort of going like this, because of the recessionary pressures that we're seeing in the Fed, they kept jacking up the rates, we buy it at 3%. And then a quarter later, it's a 4% 5% 6% 7%. Why would you buy a mortgage backed security 3%, when you know, it's just going to keep going like this? You know, I mean, I'm selling my mortgage backed securities, a 4%. If that's cool, I can buy one for 7%, across the street where you idiot, you know. And then lastly, much of that tech investment, they knew that there wasn't a whole lot more money that will be coming in with these depositors. So you put those three things together, they've got a real problem. And it kind of came home to roost over the weekend, a bit of a run on the bank that goes along with it. And we see what happens that that goes along with all of that. So here's some more fun things that happened literally the day before the crash happens. They got paid their bonuses literally dug the day before the crash happens, happened to be the day that everybody gets paid their bonuses. Now, this was scheduled to happen. So it's not like they just arbitrarily said, Hey, Bob, we pay our bonuses today. So they've got that going for him. What they pay their bonuses. And a few days before all that happened. Executives with the bank, sold a whole bunch of shares of stock. Now, over that weekend, they the news hits out with everybody, folks are wanting to get their money out. And the Fed gets involved now, you're supposed to have all of your deposits, legally insured up to $250,000 used to be 100 grand, but it's up to 250 grand. So Doug, if you and I had a, a an account with them, we could have up to $250,000 in that account. And the federal government would make sure that it was insured up to that amount. Now over that we're on the hook. Now there's relief valves in here, okay. But we're insured up to 250 grand. Now, the government would step in after this bank failed. And they would sell off all the assets of the bank. And we would get a certificate from the bank that said, Once everything was sold off, we would get back a portion of the profits of that sale. And we would have gotten back, we've been out of pocket about anywhere from 10 to 15%, depending on who you talk to, guys. That's all we would have lost, probably about 10%. So we would have had 90% of our deposits, would have lost 10%
Doug Draper 8:31
at 250k. Know, all of it.
Pete Mento 8:36
So if we had a billion dollars in the bank would have gotten back 900 million. But that wasn't good enough. So the banker said, I don't think so. I want it all back. So the federal government has come out and said, Don't worry about it. All of your deposits are insured. And they did this because they were worried about a contagion, which would be that all these other banks that were in similar situations like Signet, which also was in a similar situation. First Republic, and there was another one that I said was going to fall last week, they were all in the same situation. So they didn't want to see a run on banks, and the peers who have worked. So now, what the federal government has basically said is that any bank is too big to fail. And this is scary to me, Doug, because if any bank is too big to fail, just imagine what bankers are going to do now. There are a couple of banks about a couple of companies in our industry, apparently, who had all of their deposits with this bank, which is terrifying to me. I mean, anybody who had all of their money in one account with one bank, the CFO and the CEO should be dragged out into the parking lot and have their bare bottoms paddled, before they're allowed to come back to work. I'm just going to come out I'm going to say that. Actually that should be that should be the quote. For this particular episode, yeah, that is that is absolutely irresponsible financial leadership to do something like that. So anyway, Doug, that's where that is right now. We are, we are two year yields on bonds hit the floor yesterday, people are back in today trying to make money on those. It is recovering a bit, we'll see where this goes for the rest of the week. People are very nervous internationally about the strength of the banking system. This is this is not over. Not by a longshot. Yeah,
Doug Draper 10:34
yeah. Well, I think the whole the whole piece the takeaway is on my end is people are spooked. Right? Have nothing to do with the banks that had failed. But if I'm out there, Joe Blow from Denver, Colorado, I'm starting to second guess the bank that I have my my deposits in. And I think the smaller banks and credit unions are, they're gonna feel the brunt. Because it's like, it's, you know, Doug and Pete Bank and Trust Company. And, and, and those are the guys that are gonna feel feel the brunt kind of like, well, I'm I'm gonna go down this analogy on the educational system and how COVID is more impacting smaller universities and colleges, and then big state institutions and private, I guess I just did, but you know, they're going to be moving their money to the big boys, and the big boys get bigger, and they get too big to fail. And so I think it's just a panic mode, that's going to happen, and the smaller banks, in my opinion, are going to suffer. The other piece that you made mention is huge, is beyond the 250k. So it could be hundreds of millions of dollars, everybody gets their money back. You know, you get a free car, you get a free car, you get a free car. Yeah. That's that's precedent being set. That could be just, you know, who, who knows where that's gonna go? Right. And then, you know, there's a, you know, the FDIC is not supported by public funds, and there's this, you know, fund that everybody pays premiums into. But the bottom line is that ultimately, you and I are going to pay in fees to cover that, right? If my insurance premiums go up, and I'm a bank, then I gotta, you know, things roll downhill. And so, yeah, it's not the FDIC specifically is not supported by public funds. But you can better bet that things are going to change whenever there's 100%, coverage on deposits. So it sounds good. It's a good soundbite. But the reality of it is, it's going to be problematic for you and I in the long term, it's the precedent that's been set, and who the heck knows what's going to be the fallout? That's the big thing to me.
Pete Mento 12:40
I work for a company that is privately held, you know, it's privately held, our owner makes decisions with the money. And there's risk based on every one of those decisions. It's his money, he gets to make those risks, we reap rewards from it, he gets to reap those rewards, you know, and he's run the business that way forever, he gets to enjoy the spoils of those rewards. And if it fails, unfortunately, he's on the hook for those. And that's, that's the way it works, man. Yeah, bless him for it, you know, but what we're basically saying to these banks is you made a bunch of really stupid decisions with assets. And according to CNN, US banks are sitting on $620 billion of unrealized losses, right? And the government said, Well, don't worry about it. We're gonna pretend like those unrealized losses didn't happen. Okay, and you can borrow against those so that we can keep that sweet liquidity working, so that people can borrow against them. It's okay. It's alright. You know, it's all right. Everything's all right. And but along with that, President Biden in the White House is not saying, but you're gonna get fired and you're gonna get fired and you're gonna get fired, and nobody gets bonuses, and nobody gets raises, and you're gonna have to replace that money with money from your like, there's no there's no justice that comes along with this. So all of all these sins are being forgiven, but no one's being expected to make up for it. And that my friend is bullshit. So before I go completely off the rails and get really upset about all this because it just isn't fair. We should probably go halftime
Doug Draper 14:22
Yes. Yes. Brought to you by CAP logistics. They're the ones that give us the soapbox and and enjoy our time here every week on global trade this week. So cap logistics.com for transportation and logistics solutions. Pete You want to go first you sent me your your tagline? I have no idea what what it means or what it's about. So this is fresh to me, man. Let it rip.
Pete Mento 14:47
Yeah, yeah. So I haven't been animated this animated on the show in a long time. But we have another great topic for halftime so dogs rule. Dogs rule. So I was watching the news. So this week with Mrs. Trade geek within watching the news, and they had a story about a dog that would not leave the bedside of a toddler during a fire until the firemen came to get the dog out, right. The SAT there would not leave, the rest of the family had been evacuated. But the firemen apparently had forgotten to get to this one room where this this baby was. And it's just one of many instances of these incredible stories of heroics of dogs. And there's tons of them, right? There's the dogs that sniff out cancer, there's the dogs that people have that can warn a family before a child has an epileptic episode. There's the dogs that that people have in their lives every day that helped them with being guide dogs that helped them the number of my friends right now that have dogs in their lives that helped them emotionally that have served in the military, that these dogs really have saved their lives. And I have a couple of friends that have been through so much trauma with PTSD, that are living on ranches, living in large bases where these dogs have emotionally gotten them out of very sad places that help them to suicide, and suicidal ideas. It just dogs kick ass and the fact that we have been able to have these animals in our lives as human beings and paired with people. I just, I've always had dogs in my life. I have a very old aged geriatric German shepherd named Lucy that lives with me who no matter how bad a day I've had that how bad a day she's had. I walk in the door. She's always incredibly happy to see me. Dogs kick ass and I just wanted to take a minute to reiterate the fact that dogs kick ass I know Keenan has a very large dog named Lucy as well. I think Doug seems loosey goosey, but he also has done that he loves him. I've seen many pictures of his big beautiful dog. Dogs kick ass. I just want to take a second. Say dogs kick ass.
Doug Draper 17:02
I love it. Well, we're gonna go from dogs to dead guys. He
Pete Mento 17:07
got a great topic, duck. Great topic. This is a great topic.
Doug Draper 17:12
Yes. Yeah. So this coming weekend is a festival that happens in Nederland, Colorado. But it's actually been moved to Estes Park, Colorado. It's called frozen dead guy days. Not plural, but singular, dead guy. So here's the gist of it, Pete. I'm just going to be super fast. So like a night late, a late 80s 8990, something like that. There was a Norwegian citizen that brought his the corpse of his dead grandfather over to California. Packed him and dry ice. cryonics I think is how you pronounce it where he wanted to freeze his body to thaw them out at a later date. I think Walt Disney did that to Disney? I believe so. Yeah. So he brought him over that to this facility in California for a while and he literally put this his grandfather on dry ice and flew him over to the United States. He hung out in San Leandro, California, I believe, and then brought him to the Netherland the town of Netherland, which if you're a Boulder, Colorado hippie, that got tired of the booziness of Boulder, you moved up to Nederland it's probably 30 minute drive further into the mountains. And that's where all the bulk boulder hippies went. When Boulder Colorado got too, too bougie Oh, and by the way, there's another town that's a little bit further than Nederland called Ward Colorado. And that's if you're a hippie and like guns
Pete Mento 18:45
So, real quick done. friend of the show. Eric Russell with ball Corporation. Yep. She She lives in Nederland Colorado. Yeah. Yeah,
Doug Draper 18:55
I know. Erica, I know Eric. I think it's anyway, she and her husband are into like Toyota. Land Cruiser, Land Cruisers, Land Cruisers. So anyway, the guy brought his grandfather back to Nederland, they literally put him in a shed. Right and pack them with dry ice for years. This is honest to God truth. And then they got into some trouble with the City Council of Nederland and they said, Listen, you can't put dead people in your house and keep them frozen. So there were some new rules that came out. But they're able to get the grandfather clause in place so they could cheat this dead guy on dry ice. Unfortunately, the people that were monitoring this got their visas expired so they get deported. So now there's this frozen dead guy that needs some help. So there's a company in town called tuff shed, and some other people basically built a shed. And this gentleman still exists This today there's caretakers that take care of them and pack ice everyday. So why not throw a festival so I kind of went through it pretty quick. But if you Google frozen dead guy days, you can learn about the history. So if you're celebrating a frozen dead guy, why not throw a party so it was in Nederland for years, it got too big. Too many people came up the Netherlands. So this year, they moved it to Estes Park, but fans, you know, parties, booze, the whole nine yards. They do not pull the dead guy out of his shed and parade him down the down the street. But anyway, its annual it's coming up this weekend. It deserves a shout out. And I know you'd love South Park. Pete, there's actually an episode on South Park, that references references this as well. So anyway, pretty cool stuff.
Pete Mento 20:55
I know about this stuff. And the reason I know about this is I went out once to see Erica and her husband a and I, I was out drinking with the two of them were out having a couple of beers. And they told me about this dead guy thing. And I said, There's no way and I Googled it. And they're like, why would we lie to you about this? Like there's, and I couldn't, I couldn't believe that there was this, you know, this guy on ice, like out in the middle of some town in Colorado. But then I thought to myself, this is the most Colorado thing like their state is full of all of these goofy stories like this man. Yeah. And then I felt I felt kind of, because like, that's also in New Hampshire kind of a thing. Like that will be the kind of thing I would expect to happen here. Like there's some corpse living in somebody's shed, somewhere in Berlin, you know? So? Yeah, that's one of the things that only Colorado man. Yeah, it's
Doug Draper 21:56
crazy. So I'd encourage our listeners to, to to listen up. And another thing, Pete is that there is a big sensation going on with AI generated voice and bots,
Unknown Speaker 22:11
that can make it sound like anything that you want. So we're going to ask KB, Keenan, the producer, to change the sentence I just said, into another person's voice. And we'll see what he comes up with. So our audience can enjoy halftime with a little bit of a guest voiceover. So we'll see how that pans out. That's gonna be crazy.
Pete Mento 22:33
So second story for this week. For me, it's more of a warning mixed up into a story. And that's that the Secretary of the Treasury with our good friends at the office of foreign asset control, have identified a number of companies that have been moving money and goods around for Iran. And you know what folks, they always do. This is just another great example of how the office of foreign asset control OFAC has one again, they want again, they always when the point I'm trying to make here is if your company has not gotten the memo yet, it's that you need to have some kind of controls in place, hopefully automated ones that are making sure that your company and your customers are not engaged in some foolishness that are not somehow trying to find a way to circumvent the regulations. This is just not a group of people you want to mess with, they're going to catch you they're always going to catch you. So do what you can to find a way to put some sort of guardrails in place and to keep yourselves and your employees and your customers from doing something stupid that runs you afoul of the people at OFAC? That's really a
Doug Draper 23:45
gotcha. Well, I'll tell you what mine my piece is is pretty quick, right? And I just looked at my computer and I got like 15 minutes before it dies. My technology has been pretty wacky Pete But here's the deal, man. You and I call this maybe a month ago, where we said the this is related to air freight and the air cargo industry and shocker the market is weakening, and there's too much capacity in there. So freighter flight hours are down 5% Doesn't seem like a lot but planes aren't aren't flying as much. And why que plans to sell off their air freight division? Cargo jet is selling off two of their triple seven cargo Jane's cargo planes that they retroed and they canceled while they put on hold another order for six. They are rebalancing the cost for slow growth. So the one thing I wanted to point out Pete So the one group that has bucked this trend is Lufthansa, which is a great airline and they've done freighter service for many, many decades. And their success because they're the outlier and there's Still having a successful go at it in this in this segment is I got a lot of experience. They're not entering the market new they've been around for a long time. They're laser focused on special T industries, which command a higher price. So while everybody was trying to jump on board to say everybody's buying everything, whenever the goods of the goods and services industry during COVID. You know, people wanted their tennis shoes within one day. And so air freight jumped up their funds that held and held court and stayed focused on their core competency of specialized industries. And they're the ones reaping the benefits. The other folks is nobody's going out to buy a pair of shoes overnight, because they're going to the store to buy them when they want them. So it's just a pendulum swing that moved rapidly. You and I spoke about this a month ago or so. And it's coming to fruition is the point of my second topic.
Pete Mento 25:56
Yeah, Mike, my comment to that man is, you know, we can't discount the fact that trade between the United States and Europe is still doing quite well. And that Lufthansa is a machine. They're a well oiled, data driven, extremely well managed machine. And they understand they think very well in advance. They understand the movements of the markets, and they think very well in advance. So I think that has a lot to do with it as well. And they should be commended for thinking smart elite times and thinking smart and strong times, and just being very well engaged and extremely well connected into their data and managing their business as such, not to say that others aren't. But they've just always done an excellent job of winning business that way. So, yeah. Cool. All right. All right. Well, that's gonna do it for a rather spirited, yes, spirited episode of global trade this week. Thank you, Doug, for yet another wonderful episode. Thanks, Troy. For making it I hope that your handler saw that done, and that the microfiche is where it's supposed to be under the bench. And thanks to Keenan and all the great people at CAP logistics for further unending and incredible support of the show. And thanks to all of you for watching and for listening, and we'll see you again next week with another edition of
Doug Draper 27:19
excellent, nice big thanks, you guys.