1 00:00:05,800 --> 00:00:08,720 Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm Pim Fox. 2 00:00:08,760 --> 00:00:11,520 Speaker 1: Along with my co host Lisa Bramowitz. Each day we 3 00:00:11,600 --> 00:00:15,120 Speaker 1: bring you the most important, noteworthy, and useful interviews for 4 00:00:15,200 --> 00:00:17,840 Speaker 1: you and your money, whether you're at the grocery store 5 00:00:17,960 --> 00:00:20,720 Speaker 1: or the trading floor. Find the Bloomberg p m L 6 00:00:20,840 --> 00:00:27,280 Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Let's 7 00:00:27,320 --> 00:00:32,280 Speaker 1: turn our focus now to Jamal Kashogi, the Saudi Arabian 8 00:00:32,280 --> 00:00:37,880 Speaker 1: writer journalist who was killed sensibly at the Saudi consulate 9 00:00:38,360 --> 00:00:41,680 Speaker 1: high level Turkish officials so that they have evidence about this. 10 00:00:41,680 --> 00:00:45,159 Speaker 1: This has thrown a lot of diplomatic relations into questions, 11 00:00:45,200 --> 00:00:48,880 Speaker 1: particularly between the US and Saudi Arabia. Saudi Arabia had 12 00:00:48,920 --> 00:00:52,880 Speaker 1: to care is is having to see corporate leaders move 13 00:00:52,920 --> 00:00:56,000 Speaker 1: away from the nation joining us now to try to 14 00:00:56,040 --> 00:00:59,280 Speaker 1: give us some insight into the potential impact of this 15 00:00:59,360 --> 00:01:02,400 Speaker 1: move is Jack Divine, former acting director of the CIA 16 00:01:02,480 --> 00:01:06,800 Speaker 1: and founding partner and president of security firm The Arkan Group. Jack, 17 00:01:06,959 --> 00:01:10,560 Speaker 1: what do you make of this? What's going on here? Well, 18 00:01:10,640 --> 00:01:13,120 Speaker 1: the news is unfolding by the minute. I mean, it 19 00:01:13,240 --> 00:01:16,080 Speaker 1: is one of the more bizarre cases that I can 20 00:01:16,120 --> 00:01:19,560 Speaker 1: remember in terms of diplomacy or in the intelligence world. 21 00:01:20,319 --> 00:01:23,399 Speaker 1: So what's going on is our one of our most 22 00:01:23,440 --> 00:01:28,479 Speaker 1: important allies now has a political crisis on his hands, 23 00:01:28,520 --> 00:01:33,480 Speaker 1: which by extension, draws us into it and everybody and 24 00:01:33,480 --> 00:01:35,680 Speaker 1: and uh, I was just going to say in the 25 00:01:35,720 --> 00:01:38,039 Speaker 1: Middle East, but also in Europe. So it's it's a 26 00:01:38,080 --> 00:01:41,280 Speaker 1: big story that has to be resolved. How could it 27 00:01:41,319 --> 00:01:45,680 Speaker 1: be resolved? Well, the blue book would tell you that 28 00:01:45,800 --> 00:01:51,080 Speaker 1: when you get a crisis like this, um, the the 29 00:01:51,120 --> 00:01:54,840 Speaker 1: focus of it steps aside and a new person is appointed. Okay, 30 00:01:55,880 --> 00:02:01,760 Speaker 1: Unfortunately blue blue books are collecting dust on OCE shelves nowaday, 31 00:02:01,880 --> 00:02:06,080 Speaker 1: But I think the I don't think. Yeah, the way 32 00:02:06,280 --> 00:02:08,239 Speaker 1: the way the game is played, so to speak, whether 33 00:02:08,280 --> 00:02:11,280 Speaker 1: it's diplomacy, military, there are all there are a set 34 00:02:11,280 --> 00:02:14,359 Speaker 1: of principles on pond which each of the people in 35 00:02:14,440 --> 00:02:17,040 Speaker 1: those fields of endeavor operate. Right, So you would say, 36 00:02:17,040 --> 00:02:20,120 Speaker 1: when you get this crisis. For example, when Jack Kennedy 37 00:02:20,720 --> 00:02:23,840 Speaker 1: ran into debate at Pigs and it turned into fiasco, 38 00:02:23,919 --> 00:02:27,320 Speaker 1: he told Alan Donalds, the director of CIA, fiasco, one 39 00:02:27,320 --> 00:02:30,840 Speaker 1: of us has to go, I'm president, You're you're resigning, 40 00:02:31,320 --> 00:02:35,760 Speaker 1: You're fired. So uh, no matter where who's called here, 41 00:02:35,880 --> 00:02:38,160 Speaker 1: somebody has to take a fall on a new person 42 00:02:38,240 --> 00:02:40,280 Speaker 1: comes into it. That's the only way you can move forward. 43 00:02:41,360 --> 00:02:44,480 Speaker 1: Dying every day A slice salami slice at the time 44 00:02:44,600 --> 00:02:48,320 Speaker 1: is a really difficult policy. This. The sooner this thing 45 00:02:48,400 --> 00:02:52,040 Speaker 1: can be said right, the better it is for everybody. Wait, 46 00:02:52,080 --> 00:02:53,800 Speaker 1: hold on a second, said right, because this has been 47 00:02:53,840 --> 00:02:55,359 Speaker 1: sort of the focus of a lot of articles that 48 00:02:55,400 --> 00:02:57,920 Speaker 1: have been written, which is, how can Saudi Arabia and 49 00:02:57,960 --> 00:03:00,800 Speaker 1: the US joined forces this of spin this in the 50 00:03:00,919 --> 00:03:03,000 Speaker 1: right way to be able to continue things as things 51 00:03:03,000 --> 00:03:06,040 Speaker 1: were before, and my characterizing that correctly because that seems 52 00:03:06,080 --> 00:03:08,040 Speaker 1: to be the way that I think I would agree with, 53 00:03:08,080 --> 00:03:10,000 Speaker 1: at least other than the words spin. I don't think 54 00:03:10,040 --> 00:03:13,040 Speaker 1: Spain is viable. In other words, I think the war 55 00:03:13,080 --> 00:03:16,160 Speaker 1: you try and spend it, this is one where you 56 00:03:16,240 --> 00:03:18,760 Speaker 1: have to get as close to the truth as possible. 57 00:03:18,800 --> 00:03:20,800 Speaker 1: And I would hope that you know, we just saw 58 00:03:20,840 --> 00:03:23,080 Speaker 1: that our secretary state was out there in the desert, 59 00:03:23,160 --> 00:03:26,079 Speaker 1: and you know, I think the point is to make 60 00:03:26,120 --> 00:03:31,080 Speaker 1: clear what we think is is known, and that the 61 00:03:31,120 --> 00:03:34,080 Speaker 1: story needs not to wander too far from that. So 62 00:03:34,200 --> 00:03:37,560 Speaker 1: how should the US react if indeed the Saudi Arabian 63 00:03:37,720 --> 00:03:42,000 Speaker 1: leadership led by Mohammed bin Salman, who has been close 64 00:03:42,160 --> 00:03:45,160 Speaker 1: with our leadership here in the US. How should the 65 00:03:45,200 --> 00:03:48,800 Speaker 1: US respond if they did just outright kill a critic 66 00:03:48,880 --> 00:03:53,080 Speaker 1: of their of their administration. I think the burden really 67 00:03:53,120 --> 00:03:56,320 Speaker 1: begins with the Saudis. The Saudis need to decide how 68 00:03:56,360 --> 00:03:59,120 Speaker 1: they are going to respond because we are their most 69 00:03:59,160 --> 00:04:02,960 Speaker 1: important now I and so are all. There are other 70 00:04:03,080 --> 00:04:08,160 Speaker 1: important allies. Um UH need to be in the zone 71 00:04:08,200 --> 00:04:11,280 Speaker 1: where it's comfortable dealing with them. So at this point, 72 00:04:11,320 --> 00:04:19,479 Speaker 1: if the record shows that MBS the Crown Prince is involved, 73 00:04:19,520 --> 00:04:22,320 Speaker 1: than the only way this goes forward if somehow he 74 00:04:22,360 --> 00:04:25,400 Speaker 1: steps aside, which is a really high ask. But I 75 00:04:25,440 --> 00:04:28,599 Speaker 1: think the Saudis have to decide where they're going, and 76 00:04:28,640 --> 00:04:30,599 Speaker 1: I think we have to stay as close to the 77 00:04:30,680 --> 00:04:33,599 Speaker 1: reality as possible. I don't think there's this is not 78 00:04:33,680 --> 00:04:39,360 Speaker 1: a spin opportunity. Floating floating floating ideas is probably one 79 00:04:39,360 --> 00:04:42,320 Speaker 1: thing to see what's viable. But I think it's a 80 00:04:42,400 --> 00:04:46,719 Speaker 1: huge mistake for anybody to try and work between the lines. 81 00:04:46,760 --> 00:04:50,160 Speaker 1: You do not know what everyone else knows, so you 82 00:04:50,200 --> 00:04:52,000 Speaker 1: put out a story. The next day of the story 83 00:04:52,080 --> 00:04:56,240 Speaker 1: is overtaken because there's more information credible information put into it. 84 00:04:57,640 --> 00:04:59,960 Speaker 1: The charts are sitting a lot of information. I suspect 85 00:05:00,080 --> 00:05:04,560 Speaker 1: that we are others people within the Saudi government. You 86 00:05:04,880 --> 00:05:08,360 Speaker 1: this is one that's not going to go away easily, Jack. 87 00:05:08,400 --> 00:05:12,760 Speaker 1: Do you believe that U. S Intelligence assets know what happened? 88 00:05:15,400 --> 00:05:17,760 Speaker 1: I think you know what happened. It covers a lot 89 00:05:17,800 --> 00:05:21,520 Speaker 1: of territory. I would say that because of our relationship 90 00:05:21,600 --> 00:05:24,360 Speaker 1: with a lot of foreign governments, our own collection capabilities, 91 00:05:24,400 --> 00:05:26,760 Speaker 1: I think we'd have a pretty good sense of what happened. 92 00:05:27,360 --> 00:05:32,040 Speaker 1: What literally happened inside the consulate may not be uh 93 00:05:32,760 --> 00:05:36,320 Speaker 1: noable for some time. Do you believe the Turkish government knows? 94 00:05:38,720 --> 00:05:42,800 Speaker 1: They say, Well, they say in the press says that 95 00:05:42,839 --> 00:05:47,520 Speaker 1: they do. Um. My own instinct as opposed to fact, 96 00:05:47,720 --> 00:05:50,000 Speaker 1: is that they probably know a heck of a lot 97 00:05:50,000 --> 00:05:54,679 Speaker 1: more than anybody wish they know. So I'm wondering about 98 00:05:54,680 --> 00:05:56,720 Speaker 1: the arms deal. I believe it's a hundred and ten 99 00:05:56,760 --> 00:05:59,840 Speaker 1: billion dollar arms deal at the US has with Saudi Arabia. 100 00:05:59,920 --> 00:06:02,880 Speaker 1: There have been numerous reports that one reason why President 101 00:06:02,920 --> 00:06:06,600 Speaker 1: Trump was initially reluctant to sort of castigate Mohammed bin 102 00:06:06,640 --> 00:06:09,960 Speaker 1: Salman and the Saudi Arabian government was because he didn't 103 00:06:09,960 --> 00:06:13,280 Speaker 1: want to jeopardize this deal. Do you buy that now? 104 00:06:13,360 --> 00:06:15,360 Speaker 1: I think it's too small of the piece. I mean, 105 00:06:15,400 --> 00:06:18,000 Speaker 1: I think there's the bigger relationship. I mean, we're in 106 00:06:18,040 --> 00:06:20,599 Speaker 1: a you know, and when you look at the Middle East, 107 00:06:21,160 --> 00:06:23,320 Speaker 1: you know, in terms of countering around which is a 108 00:06:23,400 --> 00:06:26,960 Speaker 1: large part of the last several administrations, you have to 109 00:06:26,960 --> 00:06:29,440 Speaker 1: look at Saudi Arabia as a key the key player, 110 00:06:29,440 --> 00:06:31,880 Speaker 1: and this when you look at oil and the oil industry. 111 00:06:32,320 --> 00:06:35,080 Speaker 1: I mean, I think the deal is is an important deal. 112 00:06:35,120 --> 00:06:36,679 Speaker 1: You don't want to see it go up and smoke, 113 00:06:37,360 --> 00:06:40,920 Speaker 1: But there's an awful lot riding on the overall relationship. 114 00:06:40,960 --> 00:06:44,279 Speaker 1: It's in everyone interested to get this thing reset. And 115 00:06:44,320 --> 00:06:46,720 Speaker 1: as I said, I and you know that this place 116 00:06:46,800 --> 00:06:49,160 Speaker 1: out the way it appears to play out, it's going 117 00:06:49,200 --> 00:06:51,680 Speaker 1: to be very hard to reset it without a change 118 00:06:51,680 --> 00:06:56,800 Speaker 1: in in in leadership, which means Mohammed bin Salman stepping 119 00:06:56,800 --> 00:06:59,440 Speaker 1: down or being pushed out of office, out of the leadership. 120 00:07:00,480 --> 00:07:02,760 Speaker 1: That that I mean again, I would come back to 121 00:07:03,160 --> 00:07:05,760 Speaker 1: you know, if I were looking at old formulas on 122 00:07:05,800 --> 00:07:09,479 Speaker 1: how problems are resolved quickly, it's to change personnel and 123 00:07:09,640 --> 00:07:14,120 Speaker 1: the basic relationship stays in fact intact This one is 124 00:07:14,160 --> 00:07:16,840 Speaker 1: a seems to me a great deal more difficult than 125 00:07:16,920 --> 00:07:20,120 Speaker 1: others I've seen in the past, because it's not clear 126 00:07:20,200 --> 00:07:26,720 Speaker 1: to me, uh, how much wait the king has or 127 00:07:26,800 --> 00:07:29,440 Speaker 1: is willing to exert, and how much the person it 128 00:07:29,520 --> 00:07:32,280 Speaker 1: has to step aside is going to be prepared to 129 00:07:32,320 --> 00:07:35,720 Speaker 1: do that. And you know, people's first instinct, as we 130 00:07:35,760 --> 00:07:39,080 Speaker 1: saw in this case, is to try and weather this storm. 131 00:07:39,200 --> 00:07:42,920 Speaker 1: It is not weatherable and particularly if the pace of 132 00:07:43,160 --> 00:07:48,280 Speaker 1: attention stays where it is now. Is there any chance 133 00:07:49,000 --> 00:07:55,680 Speaker 1: that this reflects a power struggle inside of Saudi Arabia, Well, 134 00:07:55,680 --> 00:07:58,600 Speaker 1: clearly this has been a in my I shouldn't say clearly. 135 00:07:58,640 --> 00:08:01,240 Speaker 1: In my view, it's been a path coo. The the 136 00:08:01,400 --> 00:08:04,119 Speaker 1: MBS coming into power is really I think took people 137 00:08:04,120 --> 00:08:07,960 Speaker 1: by surprise. But it's not a singleton. It's uh, it's 138 00:08:07,960 --> 00:08:11,240 Speaker 1: a the predominant faction. But there are a lot of 139 00:08:11,280 --> 00:08:16,440 Speaker 1: losers and um, you know, there are the prospects of 140 00:08:16,520 --> 00:08:19,160 Speaker 1: external forces, in other words, those that have been thrown 141 00:08:19,200 --> 00:08:24,560 Speaker 1: back orchestrating something that would remove MBS is unlikely. Any 142 00:08:24,640 --> 00:08:28,080 Speaker 1: change would have to come from the internal forces. Thank 143 00:08:28,120 --> 00:08:30,920 Speaker 1: you very much for being with us. Jack Divine, former 144 00:08:30,960 --> 00:08:35,200 Speaker 1: acting director of the Central Intelligence Agency, founding partner and 145 00:08:35,440 --> 00:08:42,440 Speaker 1: president of the security firm the Arkin Group. Return on 146 00:08:42,600 --> 00:08:47,160 Speaker 1: equity is up for the revenue trend is good. So 147 00:08:47,240 --> 00:08:50,920 Speaker 1: why is the stock down thirteen and a half percent 148 00:08:51,120 --> 00:08:54,960 Speaker 1: so far this year? I'm talking about Morgan Stanley. And 149 00:08:55,000 --> 00:08:58,319 Speaker 1: here to help us understand the situation is Chris Whalen. 150 00:08:58,400 --> 00:09:03,520 Speaker 1: He is the chairman of Whalen Global Advisors. Chris, why 151 00:09:03,720 --> 00:09:08,480 Speaker 1: is the stock of Morgan Stanley down when the results 152 00:09:08,480 --> 00:09:13,480 Speaker 1: seem so good? Well, the results are not bad. Um, 153 00:09:13,559 --> 00:09:16,439 Speaker 1: there's done a lot of animal spirits in these stocks 154 00:09:16,480 --> 00:09:20,480 Speaker 1: like Morgan Stanley. Now their asset managers, Uh, predominantly they 155 00:09:20,520 --> 00:09:23,240 Speaker 1: have a banking business, of course, um, but they are 156 00:09:23,280 --> 00:09:26,000 Speaker 1: really feed driven. They don't make money on interest rates. 157 00:09:26,520 --> 00:09:31,160 Speaker 1: So Goldman, Morgan Stanley, all the near banks, if you will, um, 158 00:09:31,480 --> 00:09:33,640 Speaker 1: are a function in the market. So if they have 159 00:09:33,760 --> 00:09:36,320 Speaker 1: some big deals that make you know, good money on 160 00:09:36,360 --> 00:09:39,719 Speaker 1: the trading investment banking side, and then the rest is 161 00:09:39,720 --> 00:09:42,800 Speaker 1: pretty much fixed. Um. You have treasury and then you 162 00:09:42,800 --> 00:09:45,520 Speaker 1: have the asset managers who work for a set feet right, 163 00:09:45,920 --> 00:09:48,720 Speaker 1: That's why they like it. It's stable, but it's not exciting. 164 00:09:48,960 --> 00:09:51,679 Speaker 1: So no biggish about City was the best of a 165 00:09:51,679 --> 00:09:55,880 Speaker 1: bunch so far, but really why Yeah, just in terms 166 00:09:55,880 --> 00:10:00,360 Speaker 1: of you know, year over year comparisons of falling credit 167 00:10:00,440 --> 00:10:03,920 Speaker 1: costs in all of the two key factors for the 168 00:10:03,960 --> 00:10:06,920 Speaker 1: last eight nine years have been cost cutting and cheap funding. 169 00:10:07,760 --> 00:10:10,240 Speaker 1: So the question is how do we transition from that 170 00:10:10,600 --> 00:10:12,840 Speaker 1: when the banks, you know, a year from now, their 171 00:10:12,840 --> 00:10:15,719 Speaker 1: funding costs are almost going to be normalized back to 172 00:10:15,760 --> 00:10:18,920 Speaker 1: where they were in two thousand eight, more balanced by 173 00:10:18,920 --> 00:10:22,079 Speaker 1: the way between investors and equity because during the crisis. 174 00:10:22,240 --> 00:10:26,560 Speaker 1: After the crisis, the bank equity holders got the interest 175 00:10:26,679 --> 00:10:30,240 Speaker 1: dollar well through banks and their depositor has got nothing. 176 00:10:31,040 --> 00:10:33,120 Speaker 1: Well well, I mean, that's actually exactly where I wanted 177 00:10:33,160 --> 00:10:34,800 Speaker 1: to go with this, right. I mean, we talk about 178 00:10:34,840 --> 00:10:38,160 Speaker 1: the KNT interest margins, which have been increasing, but the 179 00:10:38,240 --> 00:10:42,480 Speaker 1: gap between what big banks are paying people to put 180 00:10:42,520 --> 00:10:47,120 Speaker 1: their money in their deposit accounts and what the banks 181 00:10:47,120 --> 00:10:51,480 Speaker 1: are earning from the Fed funds overnight rate has widened dramatically. 182 00:10:51,480 --> 00:10:53,319 Speaker 1: I mean, I think it's more than a percentage point 183 00:10:53,320 --> 00:10:56,240 Speaker 1: now on average for the four biggest banks that they're 184 00:10:56,280 --> 00:11:00,280 Speaker 1: basically capturing an extra and extra revenue without doing any thing. 185 00:11:00,760 --> 00:11:03,160 Speaker 1: And at what point will they be forced to pay up. 186 00:11:03,160 --> 00:11:06,760 Speaker 1: Will big banks be forced to offer depositors some additional 187 00:11:06,880 --> 00:11:09,880 Speaker 1: yield to entice deposits? And how much could that hurt 188 00:11:09,880 --> 00:11:14,200 Speaker 1: their earnings? Well, it's already happening. Um, as the FED 189 00:11:14,240 --> 00:11:17,840 Speaker 1: balance she runs off, you eliminated dollar of deposits for 190 00:11:17,880 --> 00:11:22,440 Speaker 1: every dollar in access to reserves. So that's just mechanistic. Um. 191 00:11:22,559 --> 00:11:25,120 Speaker 1: The other thing, remember is that the FED crush funding 192 00:11:25,160 --> 00:11:29,080 Speaker 1: costs in two thousand eleven, I think it was or fourteen. 193 00:11:29,160 --> 00:11:31,600 Speaker 1: It was literally done like ten billion dollars for the 194 00:11:31,600 --> 00:11:34,600 Speaker 1: whole industry for a quarter. So normal is closer to 195 00:11:34,640 --> 00:11:38,160 Speaker 1: a hundred. Right now it's about thirty, and it's increasing 196 00:11:39,800 --> 00:11:42,839 Speaker 1: year over year, so buying you know, a second quarter 197 00:11:42,880 --> 00:11:46,240 Speaker 1: next year, the increase in funding costs will be higher 198 00:11:46,440 --> 00:11:48,880 Speaker 1: than the increase in interest earnings. And that's when you'll 199 00:11:48,920 --> 00:11:53,040 Speaker 1: see him flatten out and go down. Now, Chris, you 200 00:11:53,080 --> 00:11:56,840 Speaker 1: talked about the City Group and they're they're sort of 201 00:11:56,880 --> 00:11:59,960 Speaker 1: a report and saying that that they're better. But I'm 202 00:12:00,040 --> 00:12:05,280 Speaker 1: just trying to understand wouldn't this wouldn't this whole group 203 00:12:05,360 --> 00:12:10,160 Speaker 1: benefit from what you described maybe a low valuation base, 204 00:12:10,520 --> 00:12:15,040 Speaker 1: also cost pressures. You said they're abating they're expanding the 205 00:12:15,080 --> 00:12:19,760 Speaker 1: net interest margin, you've got shared buy back programs and 206 00:12:19,880 --> 00:12:25,920 Speaker 1: better than anticipated EPs growth. Why wouldn't. Yeah, the business 207 00:12:25,960 --> 00:12:28,320 Speaker 1: is okay, but for banks that really run off of 208 00:12:28,360 --> 00:12:32,719 Speaker 1: interest rates, of the advantages eving um. You know, as 209 00:12:32,760 --> 00:12:36,960 Speaker 1: I said before, the last five years, cost cutting, reserve reverses, 210 00:12:37,280 --> 00:12:39,439 Speaker 1: things of that nature really drove Burnning to Then we 211 00:12:39,480 --> 00:12:42,679 Speaker 1: had the tax bill. The text bill structurally increased those 212 00:12:42,720 --> 00:12:46,000 Speaker 1: equity returns you were talking about earlier, So at one 213 00:12:46,040 --> 00:12:50,360 Speaker 1: time adjustment both asset and equity returns after tax obviously, right, 214 00:12:50,840 --> 00:12:52,720 Speaker 1: But if you really want to understand the business, you 215 00:12:52,720 --> 00:12:55,040 Speaker 1: look at the pre tax line, you look at credit 216 00:12:55,080 --> 00:12:57,200 Speaker 1: costs and other factors, and they've all been very low. 217 00:12:57,520 --> 00:12:59,840 Speaker 1: I mean right now, real estate has gone up so 218 00:13:00,080 --> 00:13:03,560 Speaker 1: much PIM that banks are making money on defaults. In 219 00:13:03,559 --> 00:13:05,800 Speaker 1: other words, they get all their money back, they sell 220 00:13:05,880 --> 00:13:08,520 Speaker 1: the defaulted property, and they make money on that. So 221 00:13:08,520 --> 00:13:12,120 Speaker 1: it's like negative um. So there's no credit issue on 222 00:13:12,120 --> 00:13:14,880 Speaker 1: the street today. But to your question, you know, it's 223 00:13:14,880 --> 00:13:17,520 Speaker 1: a function of deal flow. For Marian Stanley and for 224 00:13:17,600 --> 00:13:21,600 Speaker 1: Goldman and the transactional houses. JP has a big component 225 00:13:21,640 --> 00:13:24,800 Speaker 1: of this. But JP also makes money on interest, not 226 00:13:24,880 --> 00:13:27,559 Speaker 1: as much as their peers, by the way, because they're big, 227 00:13:27,800 --> 00:13:30,360 Speaker 1: you know, Marianne with Lake would love to be uh 228 00:13:30,400 --> 00:13:34,800 Speaker 1: you know, no, no, maybe smaller should get much better 229 00:13:34,840 --> 00:13:38,960 Speaker 1: equity returns, you know, more manageable business. So you know, 230 00:13:39,040 --> 00:13:41,640 Speaker 1: to me, the Street is losing their advantage on interest 231 00:13:42,360 --> 00:13:45,120 Speaker 1: that the Fed gave them very quickly. And I think 232 00:13:45,160 --> 00:13:47,040 Speaker 1: people have to pay attention to this because name is 233 00:13:47,080 --> 00:13:49,400 Speaker 1: not going to be expanding next year, it's gonna be 234 00:13:49,440 --> 00:13:52,720 Speaker 1: contracting because the cost of phones has gone up so quickly. 235 00:13:53,880 --> 00:13:55,920 Speaker 1: Chris Whalen, thank you so much for being with us 236 00:13:55,920 --> 00:13:58,480 Speaker 1: and for that perspective. Chris Whalen as chairman of Whalen 237 00:13:58,520 --> 00:14:02,800 Speaker 1: at Global Advisors and some an interesting trend to watch him, 238 00:14:02,800 --> 00:14:04,960 Speaker 1: and one that we've been talking about for a long time, 239 00:14:05,040 --> 00:14:07,760 Speaker 1: which is banks are going to have to start paying 240 00:14:07,760 --> 00:14:11,440 Speaker 1: their depositors more and when they do, will that lead 241 00:14:11,520 --> 00:14:14,160 Speaker 1: to much more disappointing earnings? Although he did his strength 242 00:14:14,240 --> 00:14:16,680 Speaker 1: with deals to Yeah, but also if you're going to 243 00:14:16,720 --> 00:14:19,720 Speaker 1: see higher interest rates, that means that if they are 244 00:14:19,760 --> 00:14:22,600 Speaker 1: really asset gatherers, they're gonna be making more on the 245 00:14:22,640 --> 00:14:25,600 Speaker 1: assets that they gather. It depends which interest rates go up. 246 00:14:25,640 --> 00:14:27,600 Speaker 1: Faster and how I mean if we get the flattening 247 00:14:27,680 --> 00:14:29,960 Speaker 1: yield curve, if they have to pay depositors more. I 248 00:14:30,000 --> 00:14:32,320 Speaker 1: mean Ally Bank actually came out with this front page 249 00:14:32,360 --> 00:14:34,800 Speaker 1: advertisement in the New York Times talking about how the 250 00:14:34,840 --> 00:14:37,120 Speaker 1: biggest bank heist in the world is going on right now. 251 00:14:37,160 --> 00:14:42,640 Speaker 1: But we can talk about that later. Well, I know 252 00:14:42,760 --> 00:14:47,360 Speaker 1: that Paul Sweeney, the US director of Research and senior 253 00:14:47,400 --> 00:14:51,440 Speaker 1: media and Internet analyst for Bloomberg Intelligence, he's got a 254 00:14:51,480 --> 00:14:54,080 Speaker 1: list of things he's going to watch on Netflix. He's 255 00:14:54,160 --> 00:14:59,840 Speaker 1: probably already going to tape Fight World that has already debut. 256 00:15:00,360 --> 00:15:03,360 Speaker 1: Then he's got The Haunting of Hill House as well 257 00:15:03,400 --> 00:15:08,800 Speaker 1: as Marvel's Dare Devil. These are all Netflix only on Netflix. 258 00:15:08,920 --> 00:15:12,120 Speaker 1: I have a whole new feeling towards Paul Sweeney. Now, yeah, 259 00:15:12,240 --> 00:15:15,280 Speaker 1: he's got it all. The reason I bring up these 260 00:15:15,400 --> 00:15:19,480 Speaker 1: only on Netflix productions, Paul is this is where the 261 00:15:19,520 --> 00:15:22,360 Speaker 1: money's going, isn't it. It really is. And uh, you know, 262 00:15:22,400 --> 00:15:24,400 Speaker 1: for the record, I am a big fan of Ozark. 263 00:15:24,440 --> 00:15:25,960 Speaker 1: I'm kind of hooked on that, so I'm binging the 264 00:15:26,000 --> 00:15:28,560 Speaker 1: second season of that. But yeah, they're going to spend 265 00:15:28,840 --> 00:15:32,880 Speaker 1: you know, over eight billion dollars this year in programming. Um, 266 00:15:32,920 --> 00:15:34,360 Speaker 1: you know, most of that, A lot of that is 267 00:15:34,360 --> 00:15:37,080 Speaker 1: original programming, So they're not just licensing movies and TV 268 00:15:37,160 --> 00:15:40,240 Speaker 1: shows from the networks in the studios, they're they're producing 269 00:15:40,280 --> 00:15:42,120 Speaker 1: more and more of their own content and there, and 270 00:15:42,200 --> 00:15:44,840 Speaker 1: they they recognize that from their perspective, that is what 271 00:15:45,040 --> 00:15:47,480 Speaker 1: drives their subscriber growth, that is what their users want, 272 00:15:47,520 --> 00:15:49,840 Speaker 1: and so they're stepping up to spending there. And maybe 273 00:15:49,880 --> 00:15:52,680 Speaker 1: even tonight we'll get an an outlook from the company 274 00:15:52,680 --> 00:15:56,360 Speaker 1: on what they expect to spend next year, and most investors, um, 275 00:15:56,400 --> 00:15:58,720 Speaker 1: you know, expect that number will be even higher than 276 00:15:58,760 --> 00:16:00,960 Speaker 1: what it is this year. So they're by far the 277 00:16:00,960 --> 00:16:04,800 Speaker 1: biggest UH creator of content in Hollywood, the biggest spender 278 00:16:05,120 --> 00:16:07,200 Speaker 1: on content in Hollywood, and that looks to to get 279 00:16:07,200 --> 00:16:09,400 Speaker 1: even bigger going forward. Will this be the year that 280 00:16:09,720 --> 00:16:12,920 Speaker 1: investors start to care about profitability here? You know, I 281 00:16:13,040 --> 00:16:16,080 Speaker 1: don't think so. Um you know, the the it's interesting 282 00:16:16,120 --> 00:16:19,200 Speaker 1: as you segment the company, the more mature US business 283 00:16:19,280 --> 00:16:21,600 Speaker 1: for them already is profitable and and they and they 284 00:16:21,640 --> 00:16:24,840 Speaker 1: showed a pretty good path to profitability there, so we 285 00:16:24,920 --> 00:16:27,520 Speaker 1: know the business or investors know the business can be 286 00:16:27,560 --> 00:16:31,320 Speaker 1: profitable at these expense levels. Uh, internationally, they have not 287 00:16:31,400 --> 00:16:33,960 Speaker 1: turned a profit corner. That's a less mature business. But 288 00:16:34,000 --> 00:16:37,640 Speaker 1: we've seen some markets internationally that have turned profitable. So 289 00:16:37,880 --> 00:16:39,800 Speaker 1: but the big question I think for investors is free 290 00:16:39,840 --> 00:16:42,520 Speaker 1: cash flow. This is a company that has no free 291 00:16:42,520 --> 00:16:44,560 Speaker 1: cash flow and they'll probably lose a couple of three 292 00:16:44,600 --> 00:16:48,400 Speaker 1: billion dollars in free cash flow this year. Um. And 293 00:16:48,480 --> 00:16:50,720 Speaker 1: so the question is how do you fund eight billion 294 00:16:50,720 --> 00:16:53,240 Speaker 1: dollars or even more of programming? And the answer as 295 00:16:53,280 --> 00:16:55,040 Speaker 1: you go to the debt markets and your borrow money 296 00:16:55,080 --> 00:16:57,000 Speaker 1: and um, and that's kind of how they're funding it. 297 00:16:57,040 --> 00:16:58,880 Speaker 1: And so the question is how long can they continue 298 00:16:58,920 --> 00:17:02,280 Speaker 1: to do that? And at increasingly investors are charting starting 299 00:17:02,280 --> 00:17:04,080 Speaker 1: to get uh, you know, a little sensitive to the 300 00:17:04,119 --> 00:17:06,120 Speaker 1: kind of the free cash flow generation of the business. 301 00:17:06,400 --> 00:17:09,600 Speaker 1: They have more than eight billion dollars in debt right right, 302 00:17:09,680 --> 00:17:11,719 Speaker 1: and uh, you know that the debt markets have been 303 00:17:11,960 --> 00:17:15,320 Speaker 1: very open and very receptive to this credit, even though 304 00:17:15,359 --> 00:17:17,720 Speaker 1: there's no profits or cash flow to pay back the debt. 305 00:17:17,800 --> 00:17:19,880 Speaker 1: But you know, I think they look and they see 306 00:17:19,880 --> 00:17:24,120 Speaker 1: that big equity valuation cushion underneath their debt supporting their 307 00:17:24,160 --> 00:17:25,880 Speaker 1: their debt. And you know when you take a look 308 00:17:25,880 --> 00:17:28,399 Speaker 1: at street consensus numbers, UM, this company will not be 309 00:17:28,440 --> 00:17:32,920 Speaker 1: free cash flow till one maybe. Uh so there's still 310 00:17:33,280 --> 00:17:35,840 Speaker 1: ways off from free cash flow, UM, but there is 311 00:17:35,840 --> 00:17:38,239 Speaker 1: a path. So one question that I have is that 312 00:17:38,320 --> 00:17:40,720 Speaker 1: Disney is going to take a lot of its content 313 00:17:40,960 --> 00:17:43,760 Speaker 1: off of Netflix starting at the beginning of next year, 314 00:17:44,040 --> 00:17:46,919 Speaker 1: and they're starting their own streaming service. And I have 315 00:17:47,040 --> 00:17:50,600 Speaker 1: to wonder how big of a competitive concern this is 316 00:17:50,680 --> 00:17:53,960 Speaker 1: for Netflix and how can we really even determine that. Yeah, 317 00:17:54,400 --> 00:17:57,359 Speaker 1: competition is ramping up, no question about it. That you 318 00:17:57,400 --> 00:18:00,399 Speaker 1: mentioned Disney, the big reason that they epped up and 319 00:18:00,400 --> 00:18:03,080 Speaker 1: spend eighty billion dollars to buy Century Fox was to 320 00:18:03,119 --> 00:18:07,080 Speaker 1: get more content UM for their streaming service which they're 321 00:18:07,119 --> 00:18:09,320 Speaker 1: going to launch next year, a T and T, which 322 00:18:09,359 --> 00:18:12,160 Speaker 1: just spent eighty billion dollars buying Time Warner. They announced 323 00:18:12,240 --> 00:18:13,960 Speaker 1: this week that they in fact are getting into the 324 00:18:14,400 --> 00:18:17,240 Speaker 1: director consumer streaming business with some of the Warner Brothers content. 325 00:18:17,320 --> 00:18:20,880 Speaker 1: So competition is absolutely ramping up, UM. And I think 326 00:18:20,880 --> 00:18:24,520 Speaker 1: Netflix clearly recognized this several years ago. UM, and that's 327 00:18:24,520 --> 00:18:26,639 Speaker 1: when they really started to ramp up their original program 328 00:18:26,760 --> 00:18:29,719 Speaker 1: because they knew at some point Hollywood would wisen up 329 00:18:29,760 --> 00:18:32,040 Speaker 1: and they would, you know, start taking back some of 330 00:18:32,080 --> 00:18:34,399 Speaker 1: their content and that Netflix would need to rely on 331 00:18:34,440 --> 00:18:37,200 Speaker 1: more on original programming. And the good news is, um, 332 00:18:37,240 --> 00:18:39,480 Speaker 1: you know, as long as you have a big check book, 333 00:18:39,480 --> 00:18:42,359 Speaker 1: and Netflix has a big checkbook, you can get any writer, 334 00:18:42,520 --> 00:18:46,560 Speaker 1: any talent, any director, uh, any producer to come and 335 00:18:46,640 --> 00:18:48,439 Speaker 1: make content for you, just like they would make it 336 00:18:48,480 --> 00:18:51,600 Speaker 1: for one of the big studios. Paul Sweeney just quickly. 337 00:18:51,720 --> 00:18:57,520 Speaker 1: I understand that Netflix with its understanding of the consumer, 338 00:18:57,600 --> 00:19:00,200 Speaker 1: meaning they know what you watch, they know what are 339 00:19:00,240 --> 00:19:02,800 Speaker 1: interested in. They have able they have been able to 340 00:19:02,960 --> 00:19:06,880 Speaker 1: broaden they're offering. And that's just talking about series. They've 341 00:19:06,880 --> 00:19:10,560 Speaker 1: got the stand up comedy specials, They've got films. They 342 00:19:10,640 --> 00:19:13,200 Speaker 1: know what you want to watch, don't they They do. 343 00:19:13,480 --> 00:19:15,480 Speaker 1: They have a lot of information because they have a 344 00:19:15,560 --> 00:19:18,720 Speaker 1: direct relationship with the consumer. They know what the consumer wants. 345 00:19:18,760 --> 00:19:22,520 Speaker 1: As opposed to a cable network which has a you know, intermediary, 346 00:19:22,520 --> 00:19:25,879 Speaker 1: which is the cable system, the comcast or the satellite provider. Uh, 347 00:19:26,000 --> 00:19:27,760 Speaker 1: they don't own the content, they don't know what their 348 00:19:27,760 --> 00:19:31,400 Speaker 1: consumers really run. Netflix does so originally on the original 349 00:19:31,440 --> 00:19:34,680 Speaker 1: programming the Netflix created in house. They knew that their 350 00:19:34,840 --> 00:19:39,359 Speaker 1: users liked Kevin Spacey. They knew that their users liked 351 00:19:39,440 --> 00:19:42,399 Speaker 1: political dramas, so let's create a political drama with Kevin Spacey, 352 00:19:42,400 --> 00:19:44,320 Speaker 1: as simple as that. And they're they're using that in 353 00:19:44,359 --> 00:19:46,199 Speaker 1: international markets because they're starting to bring up a lot 354 00:19:46,240 --> 00:19:49,080 Speaker 1: of original programming in international markets. Paul Sweeney, thank you 355 00:19:49,080 --> 00:19:51,520 Speaker 1: so much for being with us. Paul Sweeney, us director 356 00:19:51,520 --> 00:19:54,640 Speaker 1: of Research and senior Senior Media and Internet Analyst for 357 00:19:54,800 --> 00:20:02,199 Speaker 1: Bloomberg Intelligence. Fidelity Investment is jumping into the world of 358 00:20:02,359 --> 00:20:06,960 Speaker 1: crypto currency. It is offering to manage digital assets for 359 00:20:07,040 --> 00:20:11,520 Speaker 1: a hedge funds, family offices and trading firms. And here 360 00:20:11,560 --> 00:20:14,480 Speaker 1: to tell us more about this particular aspect of the 361 00:20:14,480 --> 00:20:18,480 Speaker 1: financial industry and fidelities Responses Aaron Brown. He is a 362 00:20:18,480 --> 00:20:22,160 Speaker 1: former managing director and head of Financial market Research at 363 00:20:22,240 --> 00:20:25,800 Speaker 1: a q R Capital Management, and he is the author 364 00:20:26,200 --> 00:20:30,400 Speaker 1: of the book The Poker Face of Wall Street. Aaron Brown, 365 00:20:30,440 --> 00:20:32,600 Speaker 1: It's always a pleasure to hear your views. Tell us 366 00:20:32,640 --> 00:20:37,240 Speaker 1: what do you make of Fidelity offering this digital asset 367 00:20:37,400 --> 00:20:41,600 Speaker 1: management business? Well, thanks for having me, Um. I think 368 00:20:41,640 --> 00:20:45,680 Speaker 1: this is mostly important symbolically, UH, Fidelity has always been 369 00:20:46,920 --> 00:20:52,720 Speaker 1: among similar financial institutions they've been a relative cheerleader for crypto. 370 00:20:52,960 --> 00:20:55,720 Speaker 1: And the fact that they're promising in two thousand nineteen 371 00:20:55,800 --> 00:20:57,960 Speaker 1: that they'll offer custody and trading for some of the 372 00:20:58,040 --> 00:21:03,800 Speaker 1: larger cryptos for some larger investors is uh, sort of 373 00:21:03,840 --> 00:21:07,480 Speaker 1: a you know, it's an affirmation of the legitimacy and 374 00:21:07,720 --> 00:21:11,720 Speaker 1: the faith they have in crypto. It doesn't really add 375 00:21:11,720 --> 00:21:14,560 Speaker 1: a lot. If institutional investors have been dying to pour 376 00:21:14,720 --> 00:21:17,960 Speaker 1: billions and billions of dollars into crypto, They've had many 377 00:21:18,000 --> 00:21:21,240 Speaker 1: opportunities since two thousands seventeen. We had led your ac 378 00:21:21,840 --> 00:21:25,960 Speaker 1: c m E, cbo E offering futures claim based, Gemini 379 00:21:26,119 --> 00:21:30,159 Speaker 1: have offered services. We know Northern Trust is looking at 380 00:21:30,160 --> 00:21:32,600 Speaker 1: probably all the other big custodians are looking at this. 381 00:21:33,200 --> 00:21:35,560 Speaker 1: So I don't think there's a lot of pure news 382 00:21:35,640 --> 00:21:40,159 Speaker 1: here fundamentally, but it's certainly going to uh, you know, 383 00:21:40,520 --> 00:21:43,920 Speaker 1: charge the market and and give a lot of name 384 00:21:43,960 --> 00:21:46,199 Speaker 1: recognition to people who perhaps don't really know what a 385 00:21:46,240 --> 00:21:50,000 Speaker 1: custodian is. But but no the fidelity name well, Aaron, 386 00:21:50,080 --> 00:21:53,080 Speaker 1: I'm struck by sort of the risk that is implied 387 00:21:53,320 --> 00:21:58,280 Speaker 1: by holding something uh that could potentially evaporate and value 388 00:21:58,280 --> 00:22:01,359 Speaker 1: and what is the potential risk that Fidelity would be 389 00:22:01,400 --> 00:22:04,480 Speaker 1: taking on if it really does become a major player 390 00:22:04,520 --> 00:22:07,680 Speaker 1: and if this market continues to expand, well, of course 391 00:22:07,680 --> 00:22:10,080 Speaker 1: they're they're brokeer, so they're holding these for other people, 392 00:22:10,160 --> 00:22:12,800 Speaker 1: and crypto could go to zero. Um UM. I hope 393 00:22:12,880 --> 00:22:16,320 Speaker 1: everyone who knows that before they invest, and then Fidelity 394 00:22:16,359 --> 00:22:18,440 Speaker 1: would be uh, you know, I probably have a lot 395 00:22:18,440 --> 00:22:22,240 Speaker 1: of customer relation issues. Um. But they're offering this to 396 00:22:22,320 --> 00:22:26,240 Speaker 1: institutional investors who presumably know the rules. UM. I would 397 00:22:26,240 --> 00:22:28,960 Speaker 1: say the bigger risks to Fidelity as a company are 398 00:22:29,119 --> 00:22:31,639 Speaker 1: that they get hacked. Now they're planning to put all 399 00:22:31,640 --> 00:22:33,879 Speaker 1: of these assets in cold storage, which is supposed to 400 00:22:33,880 --> 00:22:36,119 Speaker 1: be hacked proof, but you know, you're never quite sure, 401 00:22:36,320 --> 00:22:39,120 Speaker 1: and cold storage can be very vulnerable to an internal 402 00:22:39,720 --> 00:22:43,600 Speaker 1: rogue employee and the internal embezzlement or fraud. UM. If 403 00:22:43,640 --> 00:22:46,719 Speaker 1: there are problems with the pricing, if they sell institutions 404 00:22:46,760 --> 00:22:49,119 Speaker 1: a lot of assets that you know, six thousand dollars 405 00:22:49,119 --> 00:22:51,800 Speaker 1: of bitcoin and it turns out that wasn't really the price, 406 00:22:51,840 --> 00:22:55,640 Speaker 1: that it was being manipulated, and some of the shadowy exchanges, 407 00:22:55,680 --> 00:22:58,919 Speaker 1: the crypto trades on UM. I think this kind of 408 00:22:58,920 --> 00:23:02,000 Speaker 1: thing could be a big black eye, or if there's 409 00:23:02,040 --> 00:23:05,000 Speaker 1: a regulatory problem, if if people give the regulators come 410 00:23:05,000 --> 00:23:07,560 Speaker 1: in and say the stuff is all illegal. Um, I 411 00:23:07,600 --> 00:23:10,160 Speaker 1: don't take that. I don't think those are huge risks today. 412 00:23:10,240 --> 00:23:12,000 Speaker 1: I think, you know, two years ago, people would have 413 00:23:12,040 --> 00:23:14,320 Speaker 1: worried a lot more about those things. But I think 414 00:23:14,320 --> 00:23:18,280 Speaker 1: crypto's mainstream enough that Fidelities maybe pushing the envelope a 415 00:23:18,320 --> 00:23:20,119 Speaker 1: little bit. But I would expect to see all the 416 00:23:20,119 --> 00:23:25,200 Speaker 1: big financial institutions follow suit. Here. The arm of Fidelity 417 00:23:25,680 --> 00:23:27,720 Speaker 1: that's going to handle this is going to be called 418 00:23:27,760 --> 00:23:33,480 Speaker 1: Fidelity Digital Assets. And according to Tom Jessup, who runs 419 00:23:33,840 --> 00:23:40,160 Speaker 1: that business, they've been mining bitcoin since twenty fifteen. Can 420 00:23:40,200 --> 00:23:43,840 Speaker 1: you give us your views on mining bitcoin and bitcoin 421 00:23:44,040 --> 00:23:49,080 Speaker 1: as a proxy for this world of cryptocurrencies? Yeah, I mean, 422 00:23:49,119 --> 00:23:52,800 Speaker 1: I mean mining was I started mining in two thousand thirteen, 423 00:23:52,920 --> 00:23:55,520 Speaker 1: and and you know, I quickly got, you know, pushed 424 00:23:55,520 --> 00:23:57,520 Speaker 1: out of that business. You need to be really big now. 425 00:23:57,600 --> 00:24:00,800 Speaker 1: Fidelities obviously big enough to do it if they want. 426 00:24:01,240 --> 00:24:05,720 Speaker 1: It's not a hugely profitable business anymore, but but you know, 427 00:24:06,200 --> 00:24:08,160 Speaker 1: it pays the bill, but it's a very good way. 428 00:24:08,200 --> 00:24:10,720 Speaker 1: I always tell people who want to invest in crypto. Listen, 429 00:24:10,760 --> 00:24:12,159 Speaker 1: mine a little bit. You know you're not going to 430 00:24:12,240 --> 00:24:14,280 Speaker 1: get rich doing it. If you're doing on your PC. 431 00:24:14,440 --> 00:24:17,879 Speaker 1: You know you may make making ten cents for for 432 00:24:17,920 --> 00:24:20,399 Speaker 1: a month of letting your PC churn away at this, 433 00:24:20,840 --> 00:24:22,840 Speaker 1: But you'll excuse me, eron, Can I just interrupt and 434 00:24:22,920 --> 00:24:27,000 Speaker 1: ask you what kind of set up of technical setup 435 00:24:27,440 --> 00:24:33,119 Speaker 1: were you able to put together in order to mine bitcoin? Well, okay, 436 00:24:33,119 --> 00:24:34,840 Speaker 1: back in two thousand and thirteen, you just did it 437 00:24:34,880 --> 00:24:36,879 Speaker 1: on your PC. You know, with spare you let it 438 00:24:36,960 --> 00:24:40,280 Speaker 1: run at night while you weren't using it today to 439 00:24:40,320 --> 00:24:43,600 Speaker 1: be competitive in mind and you need highly specialized equipment 440 00:24:43,600 --> 00:24:46,639 Speaker 1: and need to be next door to a hydroelectric plant. Um. 441 00:24:46,680 --> 00:24:48,840 Speaker 1: So I'm not urging people to go and do this 442 00:24:48,920 --> 00:24:51,439 Speaker 1: to make money. I'm just saying you do it. You 443 00:24:51,520 --> 00:24:53,800 Speaker 1: really learn what cryptocurrency is when you mind it and 444 00:24:53,840 --> 00:24:56,880 Speaker 1: you spend it. And before you invest in something, it's 445 00:24:56,880 --> 00:24:58,639 Speaker 1: always nice to you know, make it and sell it. 446 00:24:58,680 --> 00:25:00,800 Speaker 1: And then you say, okay, now, I maybe it was 447 00:25:00,840 --> 00:25:02,720 Speaker 1: only ten cents worth and maybe he used it to 448 00:25:02,880 --> 00:25:07,240 Speaker 1: you know, by something you didn't really want. But but 449 00:25:07,240 --> 00:25:10,080 Speaker 1: but but you know what you're doing in a way 450 00:25:10,119 --> 00:25:13,639 Speaker 1: that somebody who's just read about bitcoin doesn't and you 451 00:25:13,840 --> 00:25:16,000 Speaker 1: learned an awful lot about exactly what it is, what 452 00:25:16,119 --> 00:25:19,640 Speaker 1: a key is, how these work, and how convenient it is. 453 00:25:20,520 --> 00:25:23,199 Speaker 1: Um so so for Fidelity, I think, I think, you know, 454 00:25:23,400 --> 00:25:25,080 Speaker 1: it makes perfect sense. I don't think they're going to 455 00:25:25,160 --> 00:25:27,679 Speaker 1: go in the business of mining to compete with some 456 00:25:27,760 --> 00:25:31,399 Speaker 1: of these Chinese giant consortiums, but it does give them 457 00:25:31,440 --> 00:25:33,360 Speaker 1: a lot of legitimacy in the space, and it's given 458 00:25:33,359 --> 00:25:36,440 Speaker 1: them a lot of legitimacy among crypto enthusiasts the fact 459 00:25:36,480 --> 00:25:38,879 Speaker 1: they're actually willing to get their hands dirty with this stuff. 460 00:25:39,200 --> 00:25:41,840 Speaker 1: A lot of financial people who talk about crypto have never, 461 00:25:41,920 --> 00:25:43,679 Speaker 1: you know, spent a bitcoin and wouldn't know what it 462 00:25:43,760 --> 00:25:46,520 Speaker 1: is if you know, somebody gave a hundred Well. One 463 00:25:46,520 --> 00:25:49,160 Speaker 1: thing that I'm struck by is it seems, on its 464 00:25:49,240 --> 00:25:51,600 Speaker 1: face as if this is a risk that Fidelity is 465 00:25:51,640 --> 00:25:54,920 Speaker 1: taking getting into sort of a more niscent market, one 466 00:25:54,960 --> 00:25:58,200 Speaker 1: that is that is spurned by a lot of people. 467 00:25:58,640 --> 00:26:00,800 Speaker 1: On the other hand, I'm wondering how much is a 468 00:26:00,840 --> 00:26:03,000 Speaker 1: move like this is a risk like this required for 469 00:26:03,240 --> 00:26:07,640 Speaker 1: big asset managers that focus on index funds that increasingly 470 00:26:07,720 --> 00:26:10,960 Speaker 1: pay zero fees or next to nothing in terms of fees. 471 00:26:11,000 --> 00:26:13,200 Speaker 1: I mean, in other words, how much do these types 472 00:26:13,200 --> 00:26:15,639 Speaker 1: of services have to be the drivers of profitability to 473 00:26:15,680 --> 00:26:19,240 Speaker 1: place like Fidelity going forward? Okay, I'm not an expert 474 00:26:19,240 --> 00:26:21,680 Speaker 1: in fidelities business. I know more on the hedge fund side, 475 00:26:21,680 --> 00:26:24,359 Speaker 1: but I do know, yes, everybody and asset management is 476 00:26:24,840 --> 00:26:28,480 Speaker 1: desperate for new kinds of revenue because the fee impression. 477 00:26:28,520 --> 00:26:32,000 Speaker 1: We've gotten so efficient with ets with indext funds free 478 00:26:32,040 --> 00:26:35,720 Speaker 1: now many places, Uh you just can't make money, you know, 479 00:26:35,840 --> 00:26:38,720 Speaker 1: just for existing the way you used to, and so yeah, 480 00:26:38,760 --> 00:26:42,320 Speaker 1: you need some sort of value added. Uh. Crypto is one, 481 00:26:42,720 --> 00:26:45,360 Speaker 1: you know way where they're still margins. You can still 482 00:26:45,440 --> 00:26:47,920 Speaker 1: differentiate yourself. You know, there are other things you could do. 483 00:26:48,280 --> 00:26:50,680 Speaker 1: But yes, I think we're going to be seeing more experimentation, 484 00:26:50,720 --> 00:26:54,080 Speaker 1: more risk taking among asset managers and the ones that refuse, 485 00:26:54,200 --> 00:26:56,879 Speaker 1: the ones that try to keep just the traditional business alive, 486 00:26:57,800 --> 00:26:59,960 Speaker 1: I can't see them. I got to see the profits 487 00:27:00,040 --> 00:27:03,280 Speaker 1: slowly eroding until nobody wants to work there anymore. Aaron, 488 00:27:03,400 --> 00:27:05,800 Speaker 1: just real quick here, how profitable do you think a 489 00:27:05,840 --> 00:27:09,600 Speaker 1: cryptocurrency department the way that Fidelity is sort of outlineyone 490 00:27:10,040 --> 00:27:13,480 Speaker 1: could be well if they're the only one, or if 491 00:27:13,280 --> 00:27:15,480 Speaker 1: they're you know, they're the giant one, then I think 492 00:27:15,480 --> 00:27:18,200 Speaker 1: it could be tremendously profitable. I think there's a lot 493 00:27:18,200 --> 00:27:20,359 Speaker 1: of money that wants to go into crypto and UH, 494 00:27:20,560 --> 00:27:21,960 Speaker 1: and it's kind of for you know, you buy the 495 00:27:21,960 --> 00:27:24,560 Speaker 1: crypto and currency exchange yourself to your customers, you keep 496 00:27:24,560 --> 00:27:27,399 Speaker 1: it in cold storage, costs you nothing, and you can 497 00:27:27,400 --> 00:27:30,760 Speaker 1: probably charge pretty good fees on it. If everybody in 498 00:27:30,760 --> 00:27:32,560 Speaker 1: the world gets into this business, and you know, the 499 00:27:32,600 --> 00:27:34,119 Speaker 1: fees are going to go down to zero, just like 500 00:27:34,160 --> 00:27:37,080 Speaker 1: everything else. Aaron Brown, thank you so much for being 501 00:27:37,080 --> 00:27:39,680 Speaker 1: with us. We love having your views highlighted here. Aaron 502 00:27:39,680 --> 00:27:42,479 Speaker 1: Brown is a columnist for Bloomberg Opinion, also former managing 503 00:27:42,520 --> 00:27:45,320 Speaker 1: director and head of financial market risk Research at a 504 00:27:45,440 --> 00:27:49,879 Speaker 1: q R Capital Management. Thanks for listening to the Bloomberg 505 00:27:49,920 --> 00:27:52,560 Speaker 1: P and L podcast. You can subscribe and listen to 506 00:27:52,600 --> 00:27:57,119 Speaker 1: interviews at Apple Podcasts, SoundCloud, or whatever podcast platform you prefer. 507 00:27:57,520 --> 00:28:01,120 Speaker 1: I'm pim Fox, I'm on Twitter at a Fox, I'm 508 00:28:01,119 --> 00:28:04,440 Speaker 1: on Twitter at Lisa Abramo. It's one before the podcast. 509 00:28:04,480 --> 00:28:07,080 Speaker 1: You can always catch us worldwide on Bloomberg Radio.