Until depositors feel confident the bank crisis will continue, says Requisite Capital's Talkington

You got recession fears, you got regional bank mess, you got debt ceiling continuing, and all of that is kind of weighing on the market yet again. So we have recession fears, yet unemployment is now 3.4 percent. Powell said the regional banking crisis is over, yet we have PacWest is telling us it's not over. And I think within the regional banks, this death by 1,000 cuts just does not work. Everyone said that the deposit flows were stable. Well, guess what? They aren't stable.

And so I think until you get Congress, the FDIC and the Fed to come together and make depositors feel safe because this is a confidence issue, we are going to continue to see this, and that is not healthy for the market. Are these issues, do you think, Jason, too much to overcome in terms of you got jobless claims to highest in 18 months? So the economic data has been a little squirrely. The regional bank overhang continues, as we said. PacWest is declining sharply yet again. Deposits are fleeing. Week to date, PacWest down 24, Bank United down 12, Valley National down 12, First Horizon, Horizon, Western Alliance, right? You get my drift. And then the overhang on all of that is this debt debate debacle, which is just sort of inching towards crashing into the wall.

You got it, Scott. And I think that is the major overhang. Although I mentioned last week, I think there's some theater that plays a role here, and there's some responsibility on their end. And I think they'll wait to the last absolute minute to get something done. But that is an overhang. I mean, we're in this kind of interesting period in the next couple of weeks where that's part of the discussion to Bryn's point on regional banks and outflows. That's a scary development.

10 percent of PacWest flows going somewhere else. Earnings have been solid. PPI and CPI yesterday, obviously inflation is moderating. But we're still in a space where there's still some follow through that needs to happen. I think that's what the market is weighing on. So, Josh, let me throw it out to you. How are you looking at the market today, given a consecutive, pretty good read on inflation, but offset by these lingering and looming concerns about what's happening not only now with the economy, what might happen, the debt ceiling, regional banks, the unsettled feeling that we're witnessing yet again? So, I think there's this tendency on the part of investors, myself included, to envision bottomings as being like some sort of an event or some sort of a V-shape.

And we're well within our rights to do that because so many important bottoms have been exactly that over the last five to 10 years. It's almost become one of the only formations you can really rely on. The problem is I don't think that the banking slash debt slash commercial real estate bottoming process is going to be a V. I don't think it's going to play out that way. Instead, I think it's going to be more like what we're seeing right now, but it's going to go on almost forever. Like, we could be talking about commercial real estate and building valuations blowing up two years from now, three years from now. So, I don't think you're going to get that cathartic moment where we say, all right, that's it, it's over.

So, look at the KRE because this is the open wound in the market right now. Let's call it what it is. The median stock in the KRE is down 38% over the past year and about 33% year to date. And there are some very strong banks in that index, but there are obviously some very weak ones. Only four stocks out of the 143 names that make up the index that the KRE represents are positive on the year. 97% of the components are negative year to date. And the median PE is down to seven.

The median price book is down to 0.8 times. And the median price to free cash flow is 6.5 times. What that is telling you, what that's screaming at you, is that the market by and large does not think that this is anywhere near being over. The deposit stuff, the.

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