Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside
Speaker 1: my co host Matt Miller. Every business day, we bring
Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast
Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and
Speaker 1: at Bloomberg dot com slash podcast. You know, this year,
Speaker 1: it's been a tough year on Wall Street from a
Speaker 1: profit perspective. But let's let's be honest. They had was awesome,
Speaker 1: was even better. But then the traders at Goldman Sachs
Speaker 1: are doing a lot better this year than they did,
Speaker 1: like record, but the bankers not so much. Right, So,
Speaker 1: if you're doing I P O s and stuff like that,
Speaker 1: M and A trades, not so much. I'll tell you
Speaker 1: what though, if I'm working in the business for you, Paul,
Speaker 1: and I make you a lot more money this year
Speaker 1: than I made you last year, you should pay me
Speaker 1: more this year than you paid me last. So this
Speaker 1: is how the conversation goes. And you're right the conversation.
Speaker 1: I'm gonna your boss. I'll say, yes, you had a
Speaker 1: great year, we appreciate it. But the bonus pool is
Speaker 1: down because overall going across the street. Yeah, that's what happens.
Speaker 1: So Shrie not AAJ and he's hopefully not going across
Speaker 1: the street. Uh. He's here in a Bloomberg Interactive broker studio.
Speaker 1: He's a Bloomberg News. He covers all things kind of
Speaker 1: just Wall Street financial services, all the big you know,
Speaker 1: mucky MUCKs on Wall Street. So shreet, how tough is
Speaker 1: it gonna be on Wall Street here? Because we're it's December.
Speaker 1: This is bonus discussion time, just front center for everybody.
Speaker 1: So let me give you just a window into some
Speaker 1: of the discussions happening. As heated as Matt sounded just
Speaker 1: that horrified at the thought that he would not be
Speaker 1: paid for good performance, I can guarantee you some of
Speaker 1: the discussions happening inside Goldman Sachs have been much more heated.
Speaker 1: The initial plans that they have discussed, especially for their
Speaker 1: traders who have had a bumper or on their way
Speaker 1: to pretty phenomenally are the best since two thousand nine.
Speaker 1: Of course, two thousand nine has all other audities that
Speaker 1: sort of led to that record. Here the best year
Speaker 1: in thirteen, the best year in the best time in
Speaker 1: thirteen years. Black kids weren't even there thirteen years ago, right,
Speaker 1: and some of them were there now are in much
Speaker 1: more senior position than expecting much bigger payouts. But the
Speaker 1: initial round of discussions, as they typically tend to happen
Speaker 1: across Wall Street post Thanksgiving. Around Thanksgiving, the conversations and
Speaker 1: the numbers relate to deskheads have led to somewhat of
Speaker 1: an allergic reaction, and you can see that, and that's
Speaker 1: why it's a surprise across the street. There is no
Speaker 1: doubt that do You Making has come off its highs
Speaker 1: of last here if you've had a massive slowdown invest
Speaker 1: banking across the board, revenues are down about and the
Speaker 1: culture of Wall Street is today as it has been
Speaker 1: yesterday and for decades in the past and will be
Speaker 1: in the future, is pay for performance. So you expect
Speaker 1: banker bonuses to be cut significantly. Not so much traders.
Speaker 1: And that is why it was a bit of a
Speaker 1: surprise for us that even though they've had a pretty
Speaker 1: good year at Goldman, the traders, they are talking about
Speaker 1: cutting their bonus pool. But in some ways the smoke
Speaker 1: signals coming out of Goldman sacks will make a lot
Speaker 1: of people across the street and c and twitchy because fine,
Speaker 1: and they may not. The delta between the revenue performance
Speaker 1: said Goldman and the bonus discussions might be pretty large,
Speaker 1: But there will be a gap elsewhere in every other
Speaker 1: major bank. This thread of austerity will carry over across
Speaker 1: the street. So so what does what does that mean
Speaker 1: for me? If I would say I'm going across the street,
Speaker 1: I go across the street and they're facing the same problems.
Speaker 1: Are we going to see a big This is exactly
Speaker 1: what I was wondering when I was reading probably your
Speaker 1: story this morning. I was I was thinking, does this
Speaker 1: mean a bunch of traders are gonna leave Goldman Sachs
Speaker 1: and they're gonna go over to Jeffreys? But Rich Handler
Speaker 1: is saying it's gonna be a tough year here too.
Speaker 1: But boys, you know, so are they going somewhere else?
Speaker 1: And that's a good point because banks are not the
Speaker 1: only game in town. There is still a really strong
Speaker 1: bid from hedge funds and other by side firms. And
Speaker 1: if you're in the top quartile, top decile of performance
Speaker 1: at any institutions, you will still be bid up. Yes,
Speaker 1: we're talking about an uncertain twenty three. Yes, there are
Speaker 1: other challenges on the horizon. But if you're at a bank,
Speaker 1: a trader, I cannot live in a vacuum. Right. You
Speaker 1: are not on the only division at the film. It is,
Speaker 1: after all the culture of one large bank. There are
Speaker 1: other divisions. And as one of the executives that pointed
Speaker 1: out to me, you can only be as happy as
Speaker 1: your unhappiest child. So for safe, for instance, at Goldman,
Speaker 1: you have a consumer business that's losing not of a
Speaker 1: billion dollars in a year. Two bad traders. If you
Speaker 1: did really well, we still can't pay you that. Hedge
Speaker 1: funds don't have that same risk exactly right, And that's
Speaker 1: the argument you cannot make to your top people. So um,
Speaker 1: one of the story I want to read free So
Speaker 1: if you know, if you know a reporter covers this sector,
Speaker 1: let me know is the story that was a year ago,
Speaker 1: and they were great stories. Every investment bank had to
Speaker 1: raise the pay for their junior bankers and they were
Speaker 1: doing it almost on a weekly basis to one up
Speaker 1: each other. Does that ever reverse itself? I mean, because
Speaker 1: you know we'll literally the assarch and and also come
Speaker 1: into a investment banking at eighty five grand, and I
Speaker 1: think where we ended after a six month period was
Speaker 1: like a hundred fifty grand or something like that. Does
Speaker 1: it ever go back? Do you think? I mean, you've
Speaker 1: you've you've seen wal Street over the years, Paul, And
Speaker 1: like you know, King today, Paper tomorrow, and King again.
Speaker 1: Sometime in the future, these cycles will repeat themselves. It
Speaker 1: was certainly top of the cycle last year. The war
Speaker 1: for talent was was a phrase that made its way
Speaker 1: into eight K filings across the street as they were
Speaker 1: lavishing bonuses left right and center. Not so much right now.
Speaker 1: Clearly you can't walk across the street to another bank
Speaker 1: because they're dealing with the same challenges. Last year they
Speaker 1: were talking about pay, the pay for performance culture that
Speaker 1: embodies and exemplifies sort of the month ro on Wall Street.
Speaker 1: Today it feels like pay for someone else's performance. And
Speaker 1: unfortunately that's how twent and this is when it gets ugly,
Speaker 1: is it's it's one thing to have a conversation we're
Speaker 1: gonna cut your bonus, profits down when it's really ugly
Speaker 1: because profits, we're gonna cut your bone us and profits
Speaker 1: are up is apart for some people, but for something
Speaker 1: when it gets really ugly is when they craft these
Speaker 1: creative equity like instruments to give to you, um, you know,
Speaker 1: restricted stock units. We had them at one point. Um.
Speaker 1: That's when it gets funky. Now you know they try
Speaker 1: to say, hey, you know they're trying to incentivize you,
Speaker 1: but you already have way too much exposure to your
Speaker 1: employer exactly, so they try to give you some deep
Speaker 1: dis kind of things that we haven't seen those stories yet.
Speaker 1: And when you start to see those stories, that's when
Speaker 1: it gets bad, because that's when they say, we don't
Speaker 1: even want to give you equity because we know you're
Speaker 1: not gonna take our equity because our equity sticks. So
Speaker 1: we're gonna give you these leverage restricted stock units that
Speaker 1: will pay out two to one in five years if
Speaker 1: we turn things around. Let's take a trip down the
Speaker 1: rabbit hole. Two thousand eight. Goldman Sex terribly across the street.
Speaker 1: Goldman actually made money. Goldman actually did well do your
Speaker 1: of the financial crisis. What I love the scene if
Speaker 1: people were told it's really gonna be hard to pay you,
Speaker 1: our police accept some equity five six, ten years down
Speaker 1: the line that paid off in speeds that was worth
Speaker 1: a few billion dollars they made off like any credit suite.
Speaker 1: We got that in either two thousand one or two
Speaker 1: thousand two, you know, when the dot com thing had
Speaker 1: at burst and that thing ripped. Man, that which the
Speaker 1: one thing that in my years that really had like
Speaker 1: a three four, five x twenty years later. Would you
Speaker 1: take credits to ees Equity today? No? No? And you
Speaker 1: also had a policy right of anything invested you sold
Speaker 1: sell it right away. Yeah, so I sold Swiss francs
Speaker 1: and it isn't that the normal you would want to
Speaker 1: do that, right? And if a majority of your Stearns
Speaker 1: and Lehman brothers they didn't sell because when you sell,
Speaker 1: it's perceived as you're not supporting your firm and all
Speaker 1: that kind of stuff. But let's talk about smart financial policy. Yes,
Speaker 1: I can see top management. You know, the optics are
Speaker 1: just as bad. You don't want to do this. You
Speaker 1: want to be seen as having skin in the game.
Speaker 1: But for almost everyone else, because the majority of it
Speaker 1: is linked to stock and prudent financial advice says you
Speaker 1: need to be diversified more off them. They're not as
Speaker 1: soon as it best. You know, as it is, you're
Speaker 1: pretty much attached to the firm you're working at. Your
Speaker 1: fortune is tied to them, so as soon as you
Speaker 1: stalk best, you might as well take it out and
Speaker 1: put it in an index fund if you again that
Speaker 1: we saw it the Great Financial Crisis. Unfortunately, too many
Speaker 1: people at bear Stearns and Lehman Brothers did not do that,
Speaker 1: and they just got wiped out, wiped out. Bummer. But
Speaker 1: at least a lot of them could go become teachers. Yes,
Speaker 1: they good, all right, So I guess we'll get some
Speaker 1: more color on this over the next several months. And
Speaker 1: the payofs are usually February right three, kind of February
Speaker 1: March timeframe. So so don't be too happy to have
Speaker 1: your initial discussion and decided to leave it. Leave it,
Speaker 1: leave at your end, because then you will not get you.
Speaker 1: You gotta stick around at least until don't read our
Speaker 1: stories and leave. Yeah, exactly right. So that's when you
Speaker 1: see the turnover on Wall Street is kind of in
Speaker 1: that February March. When people get paid, then they can
Speaker 1: start moving around street. Not Rodging does all that stuff
Speaker 1: for Bloomberg News. We appreciate that. All. Let's talk a
Speaker 1: little global investment banking, little European investment banking. Credit Suis
Speaker 1: in particular, that is a story that just keeps on giving.
Speaker 1: It was once a proud, proud uh you know, European
Speaker 1: and global investment bank. Now it's having some hard times.
Speaker 1: Marion Hoftemeyer, financial reporter with Bloomberg News. She's based in Switzerland.
Speaker 1: She joins as does senior banks analysts at Bloomberg Intelligence.
Speaker 1: Alison Williams. Uh, Mary, I want to start with you here,
Speaker 1: give us the latest on what's going on with Credit Swiss.
Speaker 1: What can you tell us? So? The latest that's going
Speaker 1: on right now is we have this ongoing volatility in
Speaker 1: the share price that's partially related to the capital race.
Speaker 1: There's currently a rights issue happening um that will help
Speaker 1: them shore up their balance sheet. But separately to that,
Speaker 1: last week we had quite some concerning news around profitability
Speaker 1: and asset outflows at their wealth division, which has caused
Speaker 1: some concern because we've seen four billion francs leave the bank.
Speaker 1: So and this is an important business to them, right Allison.
Speaker 1: I kind of romanticize the Swiss banks as these asset
Speaker 1: managers that give you, um, you know, anonymous numbers. I
Speaker 1: know they don't really work that way anymore. At least
Speaker 1: they divulge everything when any country asks. But is it
Speaker 1: the most important business? For credit sweets as well as
Speaker 1: u B s it is the most important business. And
Speaker 1: and keeping in mind that this is where they're pivoting
Speaker 1: to focus more on, given some of the changes. But
Speaker 1: I think you know, what was important that we heard
Speaker 1: this morning, UM, actually from from a Bloomberg interview with
Speaker 1: the chairman, was that, uh, the outflows have stemmed and
Speaker 1: the hood is improving, so you know, signs that things
Speaker 1: could be setting UM. To Marian's point, we think that
Speaker 1: the shares will remain volatile until they're done with the
Speaker 1: capital raise. I mean, it's it's difficult when we know,
Speaker 1: or when investors know, um, you know, money is coming
Speaker 1: at at a price that's below it's being traded in
Speaker 1: the market. I think that inherently there is going to
Speaker 1: be pressure. But I think that the key thing is
Speaker 1: that the fundamentals for the banks steady, and and the
Speaker 1: other insights were you know, it wasn't institutional people backing away.
Speaker 1: It was retail so UM and and sort of the
Speaker 1: significance there is that the retail investor UM was perhaps
Speaker 1: more worried than a lot of the headlines that were
Speaker 1: coming across in early October and the social media and um.
Speaker 1: The second point that that the chairman made was that, um,
Speaker 1: it's not clients leaving, it was clients pulling some funds
Speaker 1: and so that the significance of that is that those
Speaker 1: can come back. Well, you know, then the client is
Speaker 1: gone that you know, then then they're really gone. But
Speaker 1: if it's a matter of you know, moving funds around
Speaker 1: because they're worried that that money can come back, I'll
Speaker 1: go ahead and plug that interview. That was Francine Laquais
Speaker 1: this morning interviewing so Leman and uh. I recommend people
Speaker 1: go on Bloomberg dot com to watch that, especially if
Speaker 1: you you know, work at Credit swee exactly, Mary, and
Speaker 1: how much do we know how much they have in
Speaker 1: total assets under management? Because it was like ninety billion
Speaker 1: dollars that left, right, Yeah, so at the end of
Speaker 1: three Q they were looking at around I think one
Speaker 1: point four trillion across their wealth management businesses. UM, so
Speaker 1: it's it's it's a it's a decent amount that's gone down,
Speaker 1: but it's it's you know, as Alison was saying, you know,
Speaker 1: it could come back, especially if the client hasn't totally
Speaker 1: left the bank, Um, they'll they'll eventually come back when
Speaker 1: they feel that the bank can offer them what they
Speaker 1: need and offer them stability. Um. So it's definitely a
Speaker 1: dip down, especially when you compare it to UPS, which
Speaker 1: is looking at three trillion working Stanleys more in the
Speaker 1: four to five trillion range in terms of wealth management assets.
Speaker 1: So it's it's you know, they're starting to look a
Speaker 1: lot smaller than they used to be. Marrying you're based
Speaker 1: insert You've got to feel for, you know, kind of
Speaker 1: what's going on within the country here. How much is
Speaker 1: it I don't know, for the national government or just
Speaker 1: the people or the country, is this is kind of
Speaker 1: like a national embarrassment or how concerned are they about
Speaker 1: what's happening to the once great credit Swiss name. Definitely
Speaker 1: for you know, private banking. This is a private banking country,
Speaker 1: So for private banks across the country and the people
Speaker 1: in the industry, it's not a good look. Everybody feels
Speaker 1: like they're suffering, you know. I've I've talked to private
Speaker 1: bankers at competitors who are having to defend Swiss private
Speaker 1: banking to their clients internationally, even though they don't even
Speaker 1: work at Credit Suite, So there's a little bit of
Speaker 1: you know, having to to grapple a bit with the
Speaker 1: reputational hit that the bank has had and that has
Speaker 1: had on the whole country in terms of you know, politicians, government, etcetera.
Speaker 1: It is definitely something that's on top of mind because
Speaker 1: you have one of your big champions and banking is
Speaker 1: a huge part of GDP here in Switzerland. UM, that's
Speaker 1: really undergoing kind of an embarrassing suffering that goes from
Speaker 1: mismanagement to scandals despiring to just problems in business and
Speaker 1: then risk implodion. So Allison, UM, somebody's going to take
Speaker 1: advantage of the situation, right, another bank has to be
Speaker 1: holding now those nine billion, and then some who's benefiting
Speaker 1: from the problems that credit sweez so UBS is the
Speaker 1: one UM that that has featured in some Bloomberg News reports. UM.
Speaker 1: Their management actually has spoken as well and said, UM,
Speaker 1: the comments are along the lines of, yes, some money
Speaker 1: is coming to them, but they're not you know, it's
Speaker 1: not something that they're proactively seeking and it's not UM
Speaker 1: you know, they're not looking to benefit UM from their
Speaker 1: peerist troubles. But there is some money flowing there. Uh,
Speaker 1: And as I said, it's not the clients leaving, but
Speaker 1: the clients are diversifying. So it would make sense UM
Speaker 1: to be diversifying UM across the close competitor UM. But
Speaker 1: I think that and you know when when we did
Speaker 1: get that eight billion number, to put it in context,
Speaker 1: that those outflows were basically more than the inflows of
Speaker 1: the past two years combined from credit suites. And I
Speaker 1: think that's what really took people, took people back, But
Speaker 1: it is it is something of UM. You know, it
Speaker 1: was news I guess too two investors when they announced
Speaker 1: it last week, but it really related to early October.
Speaker 1: And I think that just the fact that things that
Speaker 1: are studied and they're heading in the right direction. UM.
Speaker 1: It will help UM eventually gives give some studiness to
Speaker 1: to the shares. We are awaiting comments from President Biden
Speaker 1: from Washington, d C. Commenting about the the averting the
Speaker 1: rail strike, and we'll bring those two in just moments
Speaker 1: when he appears. Als. I wanted to ask you just
Speaker 1: about Credit sweet. I mean, you know, when I was
Speaker 1: there back in the day, we consider ourselves a bulge
Speaker 1: bracket firm. We could compete with anybody anywhere in the world.
Speaker 1: Are those days gone for Credit Swiss. I think it's
Speaker 1: it's a tough time for them. But I think that um,
Speaker 1: you know, and you know, and you're the business you're
Speaker 1: referring to is really the the investment banking part of it,
Speaker 1: which for everyone has been a very difficult year. I mean,
Speaker 1: if you look at the industry while it is down
Speaker 1: or so, and especially on the equity side of things, uh,
Speaker 1: you know, I P O s or something like of
Speaker 1: what they were uh last year. So I think that's
Speaker 1: been tough for everyone. And you know, Credit Sweets is
Speaker 1: taking this approach. They're going to spin out their investment bank.
Speaker 1: They're bringing back the name Credit Sweets First Boston. UM.
Speaker 1: They also had some comments this morning that they are
Speaker 1: getting interest in that unit. So so again that's a positive.
Speaker 1: And I think by trying to spin out the bank
Speaker 1: and separate the bank out um from some of the
Speaker 1: businesses that have given them a little bit more UM pressure, UM,
Speaker 1: they're hoping that they can isolate that. And so it's
Speaker 1: it's gonna be tough to see when the environment is bad, um,
Speaker 1: you know, it's tough to make a turnaround. It's tough
Speaker 1: to make a turnaround when the market's going against you. Um,
Speaker 1: but we'll see how that plays out. Marian, tell us
Speaker 1: a little bit about Zurich. Right now we have you know,
Speaker 1: at this time of day, probably most of our listeners
Speaker 1: are are in the US. It's a little bit later obviously,
Speaker 1: six hours later where you are five hours later in London. Um,
Speaker 1: the main what square is it? Paradha plots? What do
Speaker 1: you what do you call it? Is that where ubs
Speaker 1: and credit? Is that where all the bank all the
Speaker 1: private wealth managers are located, many of them? Yes, we
Speaker 1: have we have pie not so far Julia Sparry if
Speaker 1: g uh Saffra is also around the corner. And and
Speaker 1: what's what's the environment like? I mean here in New
Speaker 1: York on Wall Street, everybody's worried about bonuses. I guess
Speaker 1: it's got to be much worse. They're considering the problems
Speaker 1: that credit sweete. Although maybe ubs bankers are doing well.
Speaker 1: I think the mode is definitely around, you know, trying
Speaker 1: to get to the end of the year and hopefully
Speaker 1: turn a page and move on to three and hopefully
Speaker 1: things go up from there. Um. You know, it's been
Speaker 1: it's been a hard year for everybody across the industry,
Speaker 1: as Alison was saying, and that that includes wealth as well.
Speaker 1: I mean, you know, with the stock markets not doing
Speaker 1: as well as they have previously, that means a lot
Speaker 1: of billionaires have lost some wealth. Um, and that definitely
Speaker 1: is impacting both you know, ubs and credit sweetes among
Speaker 1: other private banks in terms of asset outflows and and
Speaker 1: just a little bit of nervousness around market. Right So
Speaker 1: you know, just like bonuses on Wall Street in New
Speaker 1: York might not be looking so great, I think, um,
Speaker 1: a lot of bankers and private bankers in Switzerland product
Speaker 1: lats will be anticipating, you know, looking at that and
Speaker 1: maybe not being so pleased at what might be coming
Speaker 1: for them as well. Is the Swiss finance industry, you know,
Speaker 1: centered in Zurich or is a lot of it in Geneva?
Speaker 1: I know I always hear about you know, hedge funds, funds,
Speaker 1: guys and women working in SOUG. Is it spread out
Speaker 1: or is it is it all there? It depends what
Speaker 1: part of the fine industry you're looking at. When you're
Speaker 1: looking at the global quote unquote investment banks which were
Speaker 1: ubus and credit spees which are both now more wealth management.
Speaker 1: They're they're very Zurich based UM, but private banking has
Speaker 1: historically been very big in Geneva. Now it's become a
Speaker 1: little bit more split between Geneva and Zurich. And then
Speaker 1: if you look at hedge funds, yes, you're still looking
Speaker 1: at some of the smaller towns just outside of Zurich,
Speaker 1: like Zoom. You mentioned UM, and then a lot of
Speaker 1: commodity trade finance is also in Zoogan and in around Geneva.
Speaker 1: So we're a little bit split between the two sides. Yeah,
Speaker 1: So Alison, you know, aside from Credit Swiss, the other
Speaker 1: name out of Europe that is just as intriguing to
Speaker 1: me is Deutsche Bank. I mean, at one time they
Speaker 1: were absolutely you know, in the top five seven globally
Speaker 1: in terms of global investment banks, commercial banks. Where are
Speaker 1: they now? Give us the latest on Deutsche Bank? I think,
Speaker 1: you know, Deutsche Bank is is uh is perhaps the
Speaker 1: future that credit suites can look forward to in a
Speaker 1: way they uh, you know, sort of left behind. We're
Speaker 1: gonna try to be all things to all people and
Speaker 1: said we're going to pick our shots and focus on
Speaker 1: those businesses. And they really have focused in on fixed
Speaker 1: income trading. They you know, largely get out of the
Speaker 1: equities trading business. They do have sort of a small
Speaker 1: effort that supports UM their capital markets franchise, but they
Speaker 1: really said we're gonna focus on fixed income trading, and
Speaker 1: you know they when they made that decision, it was
Speaker 1: a tough market, a tough time for fick UM. But
Speaker 1: as that's improved, they have really sort of ridden the
Speaker 1: wave and if you look at their numbers, they are
Speaker 1: showing that they are competing in that business. So not
Speaker 1: everything to everyone, but but winning in the business that
Speaker 1: they want to. All right, well, we'll continue to cover
Speaker 1: obviously what's going on at credit Sweets and UH it
Speaker 1: did seem for a while like it was in the spotlight,
Speaker 1: UM in terms of problems. Now, UM, we're looking across
Speaker 1: the industry and looking at uh issues as we get
Speaker 1: closer to the bonus season, UM for bankers at an
Speaker 1: array of different um. Yeah, so all right, Marion Hofftemeyer,
Speaker 1: Financial reporter, Bloomer News in Zurich, which is very cool
Speaker 1: to get somebody ready. I love Zerich so much. By
Speaker 1: the way, you know, a lot of people think it's
Speaker 1: a little bit provincial. It's a little bit small, but
Speaker 1: I like that about it. That's the charm. And we
Speaker 1: also had Alice and Williams, by the way, Bloomberg Intelligence
Speaker 1: joining us there as well. This Sam bank Man freed
Speaker 1: FTX story, it just is the gift that keeps on giving,
Speaker 1: and it's journalists. It's not a gift for anybody who
Speaker 1: was invested, obviously, you know exactly in in the exchange,
Speaker 1: a lot of people lost a heck of a lot
Speaker 1: of money. I think a lot of people lost life savings,
Speaker 1: life savings. I mean billions of dollars of customer money
Speaker 1: is missing. And you know, and he's talking to pretty
Speaker 1: much the media at large here, which seems odd from
Speaker 1: a you know, a legal perspective. But anyway, Zeke Fox
Speaker 1: has got a great, great article on the Bloomberg terminal,
Speaker 1: the big take story here today about some time with
Speaker 1: Sam Bankman freed again, because Zeke already had spent a
Speaker 1: lot of time with him in the Mamas after the collapse,
Speaker 1: he went back, Zeke went back down there. Actually, correct
Speaker 1: me if I'm wrong, Z. Did you not go back
Speaker 1: after November eight to hang out with him in his
Speaker 1: kind of abandoned penthouse. Yes, so I had profiled him
Speaker 1: in the winter when things were like at their peak
Speaker 1: and it was going great, and last winter, like in February,
Speaker 1: I've been down there. I spent two days with him
Speaker 1: at the at the office and seeing like what I
Speaker 1: thought was a bunch of like you know, genius kids
Speaker 1: making billions of dollars trading crypto um. Then the whole
Speaker 1: exchange blew up. I was clearly my impression was dead wrong,
Speaker 1: and I decided to come back to the Bahamas to
Speaker 1: speak with him about what happened, to try and figure
Speaker 1: out why what I had missed. I'm some people after
Speaker 1: FTX collapsed, a lot of people are saying this was
Speaker 1: all a total scam from the start, and I was
Speaker 1: just wondering, like maybe the story is a bit more
Speaker 1: complicated than that, like what really happened? And I decided,
Speaker 1: even and if you I couldn't believe everything that this
Speaker 1: guy was gonna tell me to be worth hearing him
Speaker 1: out and trying to figure out his side of the
Speaker 1: story and maybe there'll be something to learn from that.
Speaker 1: So Zeke, I mean, you've had again, as you mentioned,
Speaker 1: a lot of exposure to Sam Bank Ben Freed. I
Speaker 1: watched his interview with the deal Book interview. That was
Speaker 1: the first time I had seen him speak. Thank thanks
Speaker 1: for never watching our interviews with him, Paul, I don't know.
Speaker 1: I'm sorry, I've show like three times. I know I
Speaker 1: was behind the curve, I admit, But what do you
Speaker 1: think is going on? Zeke? Is he do you think,
Speaker 1: like some suggest there's some fraud involved here? Was he lying?
Speaker 1: Or is he an idiot? Which one is? There? You go?
Speaker 1: Thank you? So I came. I went to go interview him,
Speaker 1: open to both possibilities, and I think both things are
Speaker 1: still possible. I came down on the fraud side. I
Speaker 1: think it's quite likely that there was intentional misconduct here,
Speaker 1: and that his argument is essentially like I don't pay
Speaker 1: any attention whatsoever to like my billions of dollars and
Speaker 1: what I'm doing with them. Meanwhile, he's like a genius soup,
Speaker 1: studied physics and m I T and was trained as
Speaker 1: a trader at Jane Street Capital, which is for like, uh,
Speaker 1: you know, one of the most elite trading firms on
Speaker 1: Wall Street. So well, it's certainly possible that he anything
Speaker 1: is possible, like, but he's sitting on a pile of
Speaker 1: like tens of billions of dollars. He's all about this,
Speaker 1: and now he's trying to say I didn't pay any
Speaker 1: attention to my money, Like, what was he doing? I mean,
Speaker 1: I can think of some things, but it just seems unlikely.
Speaker 1: His version of the story doesn't make sense to me. Well,
Speaker 1: he was playing video games, right. He was big into
Speaker 1: some kind of Dungeons and Dragons role playing game, wasn't it. Yeah,
Speaker 1: I mean the first time that this it at him, Um,
Speaker 1: I just pulled up a chair next to him. Like
Speaker 1: most corporate executives would be like really nervous. It would
Speaker 1: all be like stage managed. He really didn't seem to care.
Speaker 1: And he was doing other interviews. He was doing taking
Speaker 1: like important calls, emailing with other billionaires. And then on
Speaker 1: one of his many screens, he was playing a kind
Speaker 1: of it's kind of like a Magic the Gathering type
Speaker 1: computer game where you have an army of fairies and nights,
Speaker 1: which is, by the way, kind of ironic now, Zeke,
Speaker 1: because you know Mount cox h is the first big
Speaker 1: explosion and that stands for Magic the Gathering online exchange
Speaker 1: Mount cox Um. True, I know I always got to
Speaker 1: kick out of that one, Zeke. All Right, he's down
Speaker 1: in the Bahamas. Still, what is he? Is he there
Speaker 1: because there's no extradition? Is he there for legal protective reasons?
Speaker 1: Why is he? Surely there is extradition. I think the
Speaker 1: question Paul wants to know to have answered, is why
Speaker 1: hasn't anybody grabbed him yet? Like, why haven't the cops
Speaker 1: grabbed him? Why hasn't the Department of Justice gone down
Speaker 1: there and gotten him? Or Russian mobsters that lost two
Speaker 1: hundred million dollars on the exchange, Like, isn't somebody gonna
Speaker 1: get him? His parents should bring him home, really, his
Speaker 1: parents should get him. I certainly had that feeling when
Speaker 1: I was in his penthouse, just like the curtains were
Speaker 1: drawn and I just felt like, you know, I could
Speaker 1: feel the presence of these invisible enemies drawing closer from outside.
Speaker 1: And when it comes to the Department of Justice, I
Speaker 1: mean there are certain you count point to examples where
Speaker 1: people got arrested really quickly. Also you can, yes, but
Speaker 1: like you could think of other cases where it took
Speaker 1: them years to figure out whether to bring charges and
Speaker 1: so like he's, uh, you know, as of now they
Speaker 1: opened an investigation that's known, but um, it's possible they
Speaker 1: could decide not to are Jim See just wrote real quickly,
Speaker 1: based upon your most recent experience. Do you think he's
Speaker 1: a sound mind. At this point when I was talking
Speaker 1: to him, I felt like he was delusional. He was
Speaker 1: trying to tell me that he was going to save
Speaker 1: the company. It just seemed so improbable, and that he's
Speaker 1: smart enough he should know better. As I thought about
Speaker 1: it some more, I thought that, Um, this could be
Speaker 1: sort of a self serving position to take like it's
Speaker 1: It could be part of sort of his defense that
Speaker 1: it was all just a mistake. I'm going to save
Speaker 1: the company now I'm still trying for everybody. So, um,
Speaker 1: all right, that's it's just fascinating stuff. Zeke Fox Bloomberg News.
Speaker 1: He's got the big take story on that. Check it
Speaker 1: out on Bloomberg dot com. Okay, let's talk it. You
Speaker 1: know you got a job. Some of it comes in
Speaker 1: strong again. I mean, if you're the Federal Reserve, how
Speaker 1: do you put that into the blender of things you're
Speaker 1: looking at. Let's check on Jeffrey Cleveland, Rector in chief
Speaker 1: economists that paid in and regal. You know, I'm not
Speaker 1: sure I'm buying this recession talk, Jeff, I mean, I
Speaker 1: got a fully employed economy out there. How do you
Speaker 1: really kind of take into context of what we saw
Speaker 1: this morning with the jobs print. Well, I think we
Speaker 1: have to go back to chair pal speech on Wednesday
Speaker 1: at Brookings UM. You know, you know, kudos to chair
Speaker 1: Pal or FED staff whoever put that together. But I mean,
Speaker 1: I think he laid it out really nicely in terms
Speaker 1: of the key drivers of inflation. You know, sure there's
Speaker 1: goods prices, but you know that seems to be fading.
Speaker 1: Everyone knows the rents, the housing story that that probably
Speaker 1: fades next year. But it's that third category that he highlighted,
Speaker 1: the non housing services that could be, in his words,
Speaker 1: the most important category for understanding the future evolution of
Speaker 1: core inflation. And then he ties that category two wages.
Speaker 1: And then this morning low and behold, what do we see?
Speaker 1: Wage growth accelerates? So he set that up nicely. I
Speaker 1: think this is the situation we're in. The Labor market
Speaker 1: is still pretty strong, UM tight labor markets, supply constraint
Speaker 1: on the on the labor supply side, and wages are
Speaker 1: arguably accelerating. Here in the latest set of data that
Speaker 1: is going to keep the Fed on guard against inflation.
Speaker 1: That's gonna keep them in tightening mode. So maybe there
Speaker 1: were some hopes. I don't know, the hope springs eternal
Speaker 1: for the FED to pivot. Yeah, talk to bond traders
Speaker 1: all day, you'll you'll get a lot of that over
Speaker 1: the last nine months. But it's been it's been wrong
Speaker 1: every time. I think it was wrong against equity bowls
Speaker 1: as well. I mean, they've been hoping since the summer that, um,
Speaker 1: the FED was gonna pivot. They can't go on. I
Speaker 1: would hear so many people say, wait till there's a recession,
Speaker 1: and you know, millions of more more people are added
Speaker 1: to the unemployment list, but it just isn't happening in
Speaker 1: terms of in terms of inflation. Jeffrey, what, um, what's
Speaker 1: the trajectory look like for non housing services? Because as
Speaker 1: you mentioned, goods prices are coming down. We're already you know,
Speaker 1: we're worried about inventory and that um in in those prices.
Speaker 1: And then the rent story is one that people can
Speaker 1: put aside because um, you know, it's it sticks around
Speaker 1: for a year. But what about non housing services? Are
Speaker 1: they are they as well going to come down in
Speaker 1: three Are they still on an upper trajectory. Well, if
Speaker 1: you believe the FED chair then they're highly correlated with
Speaker 1: wage growth and rage growth. Running let's say five to
Speaker 1: six percent year on year is telling you that the
Speaker 1: non housing services prices could be could be pretty elevated.
Speaker 1: We laid this out, you know, if you want a
Speaker 1: pictorial be portrayed this as best we could in our
Speaker 1: chart of the week this week, and um, you know,
Speaker 1: it just tells you that maybe inflation won't subside as
Speaker 1: quickly as people expect. At the very least. The way
Speaker 1: I would phrase it is this hopes of getting back
Speaker 1: let's say below three on core inflation like core PC
Speaker 1: by this time next year, I think are really premature
Speaker 1: or far fetched. It seems far more likely to us
Speaker 1: that will be maybe four on core inflation. And the
Speaker 1: risk is you're you're a bit higher than that based
Speaker 1: on beast on that data. So that's the I think
Speaker 1: that is the take home message here your chart of
Speaker 1: the week you just mentioned, where do listeners who are
Speaker 1: interested see that? Do you have a Twitter account? Do
Speaker 1: you pologize? I apologize with a commercial? You can go
Speaker 1: to paidon dot com p A Y D E N
Speaker 1: dot com that's probably the best way to go. But yeah,
Speaker 1: I think we do have the Twitter, and we do
Speaker 1: have the LinkedIn so Twitter fall. Paul only has like
Speaker 1: ten thou followers on Twitter. What's your what's your Twitter handle?
Speaker 1: At pt sweeney at pt sweeney, So everyone listen up,
Speaker 1: get on that thing alright. Follow Paul on Twitter at
Speaker 1: pt sweeney. He actually tweets stuff, stuff important, complain about airlines,
Speaker 1: Complain about airlines. So I mean, essentially, Jeff, the average
Speaker 1: hourly earnings on a year of year basis came in
Speaker 1: at five point one percent. That's well above that four
Speaker 1: point six percent the street was looking for. It was
Speaker 1: well above kind of what we saw last month. That
Speaker 1: kind of gets your attention, doesn't Yeah, because you still
Speaker 1: have labor force participation is constrained, whether it's by the
Speaker 1: pandemic or lack of immigration, early retirements, all sorts of
Speaker 1: factors are keeping labor supply constrained. Labor demand still is
Speaker 1: very strong. We see that in terms of job growth.
Speaker 1: We also see that earlier in the week in terms
Speaker 1: of job openings. Job opening has been come down from
Speaker 1: their pandemic high, but they're way way above anything in history, right,
Speaker 1: So very strong labor demand, soft labor supply. There you
Speaker 1: got wage growth. Um. I like to look at that
Speaker 1: Atlanta Fed wage tracker. You know that's closer to six
Speaker 1: percent year on year. So I think the question is
Speaker 1: for for bond traders, bonding is five to six percent
Speaker 1: nominal wage growth consistent with let's say two percent inflation.
Speaker 1: The FETE chair says, no, that that was the message
Speaker 1: on Wednesday in watching the d C in that speech,
Speaker 1: because wage growth ties back to non housing services cost,
Speaker 1: non housing services cost of core inflation. So that's the
Speaker 1: that's the picture you're in, all right, Jeff, thanks so
Speaker 1: much for joining us. Always great talking to Jeffrey Cleveland
Speaker 1: there from Paydon and Regal, and you can check out
Speaker 1: his chart of the week by going on paydon dot
Speaker 1: com or following on Twitter. Is the Job's days Nathans
Speaker 1: was mentioning, and again the actual print came out at
Speaker 1: two hundred sixty three thousand jobs added. The consensus on
Speaker 1: the street was two hundred thousand. And also note that
Speaker 1: the prior month was revised higher pretty substantially. The prior
Speaker 1: month was an ad of two hundred sixty one thousand
Speaker 1: that got revised hired to two eight four thousands, so
Speaker 1: pretty strong across the board, and that's kind of what
Speaker 1: we've been talking about this morning. Certainly had an impact
Speaker 1: on the markets. Tom Gibbel joins us. We like to
Speaker 1: talk to Tom every time we get these jobs data
Speaker 1: points to get his sense of what he's seeing on
Speaker 1: the ground. And he's a founder and CEO of LaSalle Network,
Speaker 1: one of the biggest staffing networks out there, and he's
Speaker 1: a proud University of Colorado buffalo who was still in
Speaker 1: search of a football coach. Uh, Tom, what do you
Speaker 1: make of the data today? Well, well, yeah, the Dow
Speaker 1: Jones is only down sixty where the futures were showing
Speaker 1: it was going to be down four hundreds. So the
Speaker 1: market settling in and realizing that a good labor market
Speaker 1: is not a bad thing. And I think that's the
Speaker 1: message that we're seeing, Uh excuse me, that economists are
Speaker 1: talking about, and I'm not sure economists are right, Uh,
Speaker 1: is that the Fed's gonna have to raise interest rate
Speaker 1: if the market is strong. And what we're learning is
Speaker 1: the market, the labor market is strong. So what's our
Speaker 1: definition of a recession is what we've really got to
Speaker 1: recalibrate here, What do you expect in terms of next
Speaker 1: year um from from your advantage point? I mean, have
Speaker 1: you started have you started seeing sectors cut job Do
Speaker 1: you think we're gonna see uh more widespread job cuts
Speaker 1: as rates continue to rise? No? I think were you
Speaker 1: see it vertical by vertical? So what I think we
Speaker 1: have here is big tech realizing that they weigh over
Speaker 1: hired during the pandemic, thinking that was gonna last for forever,
Speaker 1: which just proves that even the smartest people in the
Speaker 1: room aren't always the smartest people in the room. And
Speaker 1: and now all those people that they cut, that's the
Speaker 1: talent that the small and medium sized businesses were losing
Speaker 1: out for that they couldn't afford because big tech could
Speaker 1: pay whatever they wanted. Well, now we've got a flood
Speaker 1: of those types of people on the market, so the
Speaker 1: small and medium sized businesses can make it. And then
Speaker 1: we've had a run on saying with interest rates higher,
Speaker 1: the VC firms are not investing as much in pre
Speaker 1: uh profit and pre revenue companies. So where's the recession.
Speaker 1: The recession is hitting big tech, which are still very profitable,
Speaker 1: and it's hitting small companies that don't make money Okay,
Speaker 1: So what's doing well? Healthcare? Uh, professional services, UH, manufacturing
Speaker 1: in the United States. And now we've got the situation
Speaker 1: that China is opening up from COVID, which is going
Speaker 1: to open up a whole another revenue stream for everybody
Speaker 1: in this country. I think things are gonna be much better.
Speaker 1: We just did a survey. It showed that of companies
Speaker 1: surveyed plan on hiring next year. Now they don't plan
Speaker 1: on hiring as many as they did last year, but
Speaker 1: it's the highest number of companies we've ever had reported
Speaker 1: a plan on hiring in the next year. And Tom,
Speaker 1: you know, another data point that people focus on on
Speaker 1: these jobs days is the average hourly earnings on a
Speaker 1: year of year basis came in at five point one percent.
Speaker 1: The consensus was four point six percent. So wages are
Speaker 1: still very strong at there. How do you think about that?
Speaker 1: So wages are growing and and and that's because companies
Speaker 1: are making money. And you also have this this pressure
Speaker 1: that exists that says, if inflation is so high, we've
Speaker 1: got to pay people more money. Um, which is which
Speaker 1: is fine. But the real problem I see, if there's
Speaker 1: one dark cloud hanging over things, is the increase you
Speaker 1: seeing of consumer debt and people buying things on credit
Speaker 1: and not being able to pay for it. That that's
Speaker 1: what scares me is we have people that think that
Speaker 1: over the past ten years, with the bailout stirring um,
Speaker 1: COVID and and all the checks that the government was writing,
Speaker 1: that that's just gonna be okay. You're always gonna be
Speaker 1: taken care of. And I feel that that's a little
Speaker 1: bit of a cloud hanging over us. But I think
Speaker 1: that with wages increasing, they'll settle down. Is unemployment ticks up,
Speaker 1: which it will, uh just naturally over the next few months.
Speaker 1: There's still an out number. The biggest thing we don't
Speaker 1: talk about skills gap. Yeah, and the problem why there's
Speaker 1: so many jobs out there is because of of our
Speaker 1: tight immigration laws. Right now we're educating foreign students in
Speaker 1: our best colleges and then we're not letting him stay here.
Speaker 1: And the technology and the other areas is there's a
Speaker 1: skills gap. And then on the low level, the people
Speaker 1: for the who's gonna do the infrastructure package? When we
Speaker 1: start doing that from one point five trillion dollars, when
Speaker 1: Americans have an entitlement that they don't want to do
Speaker 1: the blue collar work. So Tom, what is going on here?
Speaker 1: I have heard reports that UM, the US Citizen Chip
Speaker 1: and Immigration Services U S c i S, has a
Speaker 1: huge backlog of work permits to hand out. And you know,
Speaker 1: we kind of expected this machinery to start turning once
Speaker 1: Biden UM came into office after Trump, but it just
Speaker 1: really hasn't worked out that way. Yeah, I think what
Speaker 1: you have is there's so much pressure to fight on
Speaker 1: the on the things that get UM people really excited
Speaker 1: and heated, whether it was and I'm not saying it's
Speaker 1: good or bad, I'm just saying, you know, Roe v.
Speaker 1: Wade and getting a justice nominated, and then you had
Speaker 1: mid terms and immigration wasn't a sexy talk because you
Speaker 1: had the the economy that was still doing well and
Speaker 1: and the jobs number. So we had a two D
Speaker 1: and fifty thousand jobs. What's the problem with immigration? The
Speaker 1: problem is we still have way more job openings than
Speaker 1: we have people that are looking, and we have a
Speaker 1: skills gap, but no one wants to talk about that
Speaker 1: because it's America first, and they think that if we
Speaker 1: let people in the country after we educate them, we're
Speaker 1: not giving Americans the best job. The fact of the
Speaker 1: fact of the matter is the Americans one of the
Speaker 1: skill set to do the jobs that are needed. So
Speaker 1: Tom on the other end of that job spectrum is
Speaker 1: you know, you think about immigration, whether it's legal or illegal,
Speaker 1: and you know, it just seems that you look at
Speaker 1: the Jolts number, it's still north a ten million, you know,
Speaker 1: job openings out there, and it just feels like a
Speaker 1: lot of those jobs would ordinarily be filled by you know, immigration,
Speaker 1: legal and illegal, and that doesn't seem to be the
Speaker 1: case right now. I'm not sure how that changes. Well,
Speaker 1: I think what ends up happening is be careful what
Speaker 1: you wish for. Is everybody wanted tighter borders, and we
Speaker 1: got into this this battle, this cultural battle, this social
Speaker 1: battle over over what we want and in a lot
Speaker 1: of ways it was necessary to tighten things up. But
Speaker 1: if we don't have immigration coming from south of the
Speaker 1: border and Americans don't want to do lower wage jobs,
Speaker 1: we've got a real problem in our hands. And now
Speaker 1: we've got a situation where you have municipalities, certain people
Speaker 1: talking about raising the minimum wage even again, you know,
Speaker 1: getting it from fifteen to twenty or even five. I mean,
Speaker 1: you just get to a point where you can't pay
Speaker 1: people more just because you want to. If the market
Speaker 1: doesn't allow, what your milk is going to be seven
Speaker 1: dollars a gallon. And that's what we're staring in the face, alright, Tom,
Speaker 1: good Stuff. Always appreciate checking in with you on Jobs Day,
Speaker 1: Tom Gimble. He's a founder and CEO of LaSalle Network
Speaker 1: sALS and National Staffing Recruiting UH firm, and they fill
Speaker 1: lots of jobs on a permanent basis, on a temporary basis,
Speaker 1: and we'll love checking out with Tom getting his perspective.
Speaker 1: Here's thanks for listening to the Bloomberg Markets podcast. You
Speaker 1: can subscribe and listen to interviews at Apple Podcasts or
Speaker 1: whatever podcast platform you prefer. I'm Matt Miller. I'm on
Speaker 1: Twitter at Matt Miller V three. Pet On Ball Sweeney
Speaker 1: I'm on Twitter at pt Sweeney. Before the podcast, you
Speaker 1: can always catch us worldwide at Bloomberg Radio.