Episode summary
“We’ve Seen the End of Times”: Tom Michaud on Market Extremes, IPO Red Flags, and 9/11
The Master Investor Podcast With Wilfred Frost
· · Hosts: Wilfred Frost · Guests: Tom Michaud
Summary
Tom Michaud argues that the clearest warning signs in banking are exceptionally fast growth, heavy leverage and credit deterioration. He points to 2008 and 2023 as examples of how banks can expand too quickly, take on duration risk, and then run into a confidence crisis when deposits are uninsured and rates move against them. In his view, the core lesson is that banking problems become dangerous when they turn into a deposit and liquidity problem, not just a bad earnings problem.
He is constructive on the sector today. Michaud says U.S. banks have more capital, better liquidity and are benefiting from a regulatory reset that may let them compete more fairly with non-banks and private credit. He does not see private credit as a systemic threat, but he does expect weaker funds, lower growth and consolidation among managers. He also thinks the biggest macro risk is not higher rates themselves, but the credit damage they could cause if they start hurting borrowers.
The episode also covers IPOs, M&A, crypto custody and scale. Michaud says the current IPO market is strong, but warns investors not to treat every new listing as a winner just because passive funds will buy it. He also argues that the biggest banks can use their technology spending and branch strategy to keep taking share, while smaller institutions may struggle to keep up.
Key takeaways
- Tom Michaud says the key banking warning signs are unusually fast growth, leverage and a turn in credit quality.
- He thinks the U.S. banking industry is in "fantastic shape" because capital and liquidity are now much stronger than in the GFC.
- Michaud does not see private credit as systemic, but expects fund-level winners and losers and more consolidation among managers.
- He believes the main macro risk is credit damage from higher rates, not the rates themselves.
- He says the current IPO boom is real, but investors still need stock selection because passive buying does not guarantee good long-term returns.
Notable quotes
“I think leverage is the other piece to it which is that many of the world's largest institutions were operating with tremendous leverage and growing very quickly”
“the biggest torpedo in the ocean is credit”
“the banking industry in the United States is in fantastic shape”
“There's no chapter in a textbook that tells you what to do when that happens”
“The best investment strategy I've seen in 40 years is buying the trophies when they're on sale”
How the episode opens
Once these companies go public, the index funds have to buy the shares. So that's built-in aftermarket demand, and it's just a dynamic that wasn't there 25 years ago. — But isn't that a a red flag?
I I Well, so here's what I would say. I think individual stock selection is very important and I would be cautious. I mean, I I'm a believer in diversification.
I I think that investors should be cautious and not every one of them will work. I'm not speaking about SpaceX in particular, but you know, over the long run, there is risk in these offerings. The best investment strategy I've seen in 40 years is buying the trophies when they're on sale.
I love buying best-in-class company stocks cuz what you're doing when you do that is you're buying their management teams to figure it out for you. And so I was moving back to the building and I froze in my steps when the second plane hit the second building.
And I think I'm right in saying KBW lost 67. — We did over a third of my colleagues who were in the office that day. — I'm so sorry. Um, and that included the co-CEO of the business.
We did. And the other co-CEO lost his son who worked for us. There's no chapter in a textbook that tells you what to do when that happens.
And it's really all about what you have inside, what your values are, and and humanity at that moment. Welcome to the Master Investor podcast with me, Wilfred Frost, where we celebrate and learn from the success of the greatest investors, business leaders, and politicians in the world, giving you, our listeners, the edge. The Master Investor podcast is sponsored by Lseg, Interactive Brokers, the World Gold Council, and BMY Investments.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- banking crisis warning signs
- credit normalisation
- bank leverage and uninsured deposits
- bank m&a
- ipo red flags
Companies and tickers mentioned
- SF
- JPM
- Keefe, Bruyette & Woods (KBW)
- Stifel Financial
- Silicon Valley Bank
- First Republic Bank
- JPMorgan Chase & Co.
Watch the episode
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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The Master Investor Podcast With Wilfred Frost, this episode and its artwork belong to Paradine Productions. Octagon is not affiliated with the show; this page is an independent summary.
