WEBVTT - Markets, Geopolitics, And Chips (Podcast) 0:00:00.800 --> 0:00:04.040 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside 0:00:04.040 --> 0:00:06.920 my co host Matt Miller. Every business day we bring 0:00:06.960 --> 0:00:11.520 you interviews from CEOs, market pros, and Bloomberg experts, along 0:00:11.520 --> 0:00:15.520 with essential market moving news. Find the Bloomberg Markets Podcast 0:00:15.560 --> 0:00:18.439 on Apple Podcasts or wherever you listen to podcasts, and 0:00:18.480 --> 0:00:23.400 at Bloomberg dot com slash podcast. Moving higher in these 0:00:23.440 --> 0:00:26.520 markets here smp U eight ten, so one percent. I 0:00:26.560 --> 0:00:28.960 think this move, Matt has taken a lot of people 0:00:29.280 --> 0:00:31.400 by surprise here and they're trying to figure out is 0:00:31.440 --> 0:00:33.879 it real? Do I buy it? Do I fade it? 0:00:33.920 --> 0:00:36.240 What do I do? Here? Let's check in with somebody 0:00:36.240 --> 0:00:38.600 who does this stuff for living, Megan Hornum and chief 0:00:38.640 --> 0:00:42.560 investment officer for Verdin's Capital Advisors. So what say you, Megan? 0:00:42.600 --> 0:00:45.120 As we look at this market, equity markets bouncing, you know, 0:00:45.200 --> 0:00:48.479 I don't know, they're teen percenters so off the bottom? 0:00:48.640 --> 0:00:52.479 Is this real? I think for certain areas of the 0:00:52.560 --> 0:00:55.120 market that got hit the most that yes, I think 0:00:55.120 --> 0:00:57.600 that this is a good opportunity to maybe be adding 0:00:57.640 --> 0:01:00.480 just some of those areas. So I mean, in that instance, 0:01:00.560 --> 0:01:03.200 look at some things like small cap mid cap stocks, 0:01:03.520 --> 0:01:06.040 These areas were beaten down the most and they're actually 0:01:06.080 --> 0:01:09.039 benefiting from this rebound we've seen. But if you look 0:01:09.080 --> 0:01:12.920 at your large cap, your technology, your growth, I'm still 0:01:12.959 --> 0:01:16.479 a little nervous about adding and you know, getting aggressive 0:01:16.520 --> 0:01:19.840 in that area because they also have rebounded. But I 0:01:19.880 --> 0:01:22.880 don't think it's fully reflecting where the interst rate market 0:01:22.880 --> 0:01:24.959 will go. And that's the one thing I think is 0:01:25.040 --> 0:01:29.680 a head wind there to those those stocks. The path 0:01:29.760 --> 0:01:32.520 looks like, oh sorry, my mic was off. What do 0:01:32.560 --> 0:01:35.640 you think the FED path looks like? Megan? So, I 0:01:35.640 --> 0:01:37.560 think between now and I know a lot of people 0:01:37.600 --> 0:01:39.760 are focused on the September meeting, and while they go 0:01:39.840 --> 0:01:43.119 fifty or while they go seventy five, right now, fifty 0:01:43.200 --> 0:01:45.840 is a definite. Uh, seventy five is still up in 0:01:45.880 --> 0:01:48.480 the air. Because keep in mind that between now and then, 0:01:48.880 --> 0:01:52.240 we'll get two jobs reports, will get at least two 0:01:52.680 --> 0:01:55.640 CPI reports, will get a lot more information on inflation, 0:01:55.680 --> 0:01:58.720 and we'll also get more information on just where economy is. 0:01:59.280 --> 0:02:02.920 We did get that second consecutive quarter of negative GDP 0:02:03.680 --> 0:02:06.640 we um we've seen today. Like you mentioned, the services 0:02:06.640 --> 0:02:09.959 sector was was much stronger, but manufacturing is getting weaker 0:02:10.320 --> 0:02:12.880 pretty rapidly, So they want to look at all of 0:02:12.919 --> 0:02:15.840 these things in way that against the future outlook for 0:02:15.840 --> 0:02:18.440 the second half of this year before they decide that, hey, 0:02:18.480 --> 0:02:21.000 it's going to be seventy five basis points. We'll be 0:02:21.040 --> 0:02:23.600 looking at the Jackson Whole meeting, which also comes out 0:02:23.639 --> 0:02:28.519 at the end of the of August. August they tend 0:02:28.600 --> 0:02:31.000 to give some more indication during those meetings, and it 0:02:31.040 --> 0:02:34.040 also tends to be a market mover. That's why I'm mad. 0:02:34.080 --> 0:02:35.600 I think I need to go out the Jackson Hole. 0:02:35.639 --> 0:02:38.120 What do you think? Have you not already got tickets? 0:02:38.120 --> 0:02:39.880 Are you not going to Jacksonly? I don't know. I mean, 0:02:40.000 --> 0:02:42.960 I know Michael McKee's going. I've volunteered to carry his luggage. 0:02:43.000 --> 0:02:44.120 But I mean, I think I need to be out. 0:02:44.200 --> 0:02:47.000 Are we broadcasting, Eric? Are we broadcasting from Jackson Hole? 0:02:47.040 --> 0:02:50.440 Are you not? Have you not already? Can you clear 0:02:50.480 --> 0:02:53.120 that with Colin and Anthony? Bob? I see Bob, and 0:02:53.120 --> 0:02:55.000 are you can pull the you can pull the strings? 0:02:56.240 --> 0:02:58.000 All right? Very good? All right? Megan. So we're thinking 0:02:58.000 --> 0:02:59.919 about here. You know, I'm an equity person, but I 0:03:00.000 --> 0:03:01.880 look at the fixed income and I see the negative 0:03:01.919 --> 0:03:05.160 returns year today and you know, I listened to credit 0:03:05.680 --> 0:03:09.160 strategists and portfolio managers saying, we've never had an under 0:03:09.160 --> 0:03:11.280 performance like we've seen in the first six seven months 0:03:11.280 --> 0:03:15.200 of Why don't I just jump into the deep end 0:03:15.320 --> 0:03:19.560 and start buying bonds because I wouldn't buy a tenure 0:03:20.400 --> 0:03:22.880 tenure treasury when it's at a two eighty two and 0:03:23.000 --> 0:03:26.239 you have inflation at nine percent. That's why, Okay, that 0:03:26.240 --> 0:03:29.080 that makes sense to me in the midst of an 0:03:29.120 --> 0:03:32.240 aggressive FED tightening cycle, where I do think that the 0:03:32.280 --> 0:03:34.079 market is getting a little ahead of itself that there's 0:03:34.080 --> 0:03:37.040 going to be cuts next year, Will there'll be a pause? 0:03:37.560 --> 0:03:40.280 That could quite possibly be the case, but the Federal 0:03:40.360 --> 0:03:43.040 Reserve doesn't want to get in a system of like 0:03:43.120 --> 0:03:46.720 the early nineteen seventies early nineteen eighties, where they would 0:03:47.120 --> 0:03:50.080 raise rates rapidly and then have to cut quickly. They 0:03:50.160 --> 0:03:52.440 want to try and smooth this out. So I think 0:03:52.480 --> 0:03:54.040 the market is getting a little ahead of itself that 0:03:54.080 --> 0:03:57.040 will be in for cuts next year, and that's why 0:03:57.080 --> 0:04:01.520 you're seeing interest rates rally. There's really not much opportunity 0:04:01.680 --> 0:04:04.280 or really any reward for the risk you're taking in 0:04:04.320 --> 0:04:07.320 an interest rate environment in long term bonds now short 0:04:07.440 --> 0:04:10.680 term bonds. They're adding a little bit of yield now. 0:04:10.720 --> 0:04:12.680 I mean you've got about a three fifteen on on 0:04:12.800 --> 0:04:16.200 the two year Treasury floating rate notes. They should keep 0:04:16.240 --> 0:04:19.080 pace with what the Feds doing so in your fixed 0:04:19.080 --> 0:04:21.840 income allocation because you can abandon it. I mean, we've 0:04:21.880 --> 0:04:25.760 seen that it still does have a diversification benefit even 0:04:25.800 --> 0:04:28.080 though it isn't what it used to be. It's been 0:04:28.080 --> 0:04:31.200 a tough year for that sixty forty portfolio, but you 0:04:31.200 --> 0:04:34.760 should always have something stay short um, keep defensive there 0:04:34.800 --> 0:04:39.120 from a maturity positioning, all right, In terms of UH 0:04:39.200 --> 0:04:41.359 stocks right now, if you wanted to get into this market, 0:04:41.400 --> 0:04:44.400 how would you get involved? Would you you know, by 0:04:44.400 --> 0:04:48.000 an index tracker? Would you look for active management UM 0:04:48.120 --> 0:04:52.920 other sectors that you like. It's definitely active management UM. 0:04:53.080 --> 0:04:54.839 That's where you need to be right now, being in 0:04:54.880 --> 0:04:58.200 an index level right now with the uncertainty, especially from 0:04:58.240 --> 0:05:01.520 an earnings perspective. Keeping mind, we haven't seen earnings really 0:05:01.560 --> 0:05:05.000 come down to reflect the whether you know, the economic 0:05:05.080 --> 0:05:09.000 or session or economic slowdown. We haven't seen a pretty 0:05:09.040 --> 0:05:12.280 move there, So I would it would definitely recommend being 0:05:12.279 --> 0:05:14.480 in the active side of it. People that can pick 0:05:14.520 --> 0:05:18.400 out stocks not indexing um, you know, being having dry 0:05:18.400 --> 0:05:20.440 powder on the sidelines too to be able to put 0:05:20.440 --> 0:05:24.400 that to work. That's what we recommend right now. So, Meg, 0:05:24.480 --> 0:05:27.000 we just had some I S M services data come 0:05:27.040 --> 0:05:31.400 out better than expected. I mean, is the consumer as 0:05:31.440 --> 0:05:36.159 strong as maybe we think here she is? Right now? 0:05:36.200 --> 0:05:39.159 The consumers shifted from that good space spending that we 0:05:39.200 --> 0:05:41.559 saw coming out of the pandemic, and now they're spending 0:05:41.600 --> 0:05:45.440 on services and experience, and I think that that still 0:05:45.480 --> 0:05:47.839 has a little bit of room to go. But people 0:05:48.080 --> 0:05:51.480 whether it's travel or vacation or going out to restaurants, 0:05:52.160 --> 0:05:55.960 we're still seeing people that are getting trips and things 0:05:55.960 --> 0:05:58.080 like that that they didn't use during the pandemic or 0:05:58.160 --> 0:06:00.400 last year. So you still have a pent up amand 0:06:00.600 --> 0:06:03.799 for that side of the economy. But how many trips 0:06:03.800 --> 0:06:05.960 to Disney World are you gonna take? Really? You know? 0:06:06.120 --> 0:06:09.359 I mean, this is going to fade, especially if you 0:06:09.440 --> 0:06:12.520 look at the consumer. I don't disagree that the balance 0:06:12.560 --> 0:06:15.840 sheet of the consumer is stronger than it's ever been 0:06:15.960 --> 0:06:18.240 leading up to any recession. If you look at you know, 0:06:18.279 --> 0:06:21.600 net worth, but they're taking out credit card debt at 0:06:21.600 --> 0:06:24.640 a double digit pace, and the savings during the pandemic 0:06:24.640 --> 0:06:26.640 has been dwindled away, so I don't think that this 0:06:26.720 --> 0:06:29.599 is sustainable in the second half. All right, Megan, great stuff. 0:06:29.640 --> 0:06:32.279 As always, always appreciate getting some of your valuable time. 0:06:32.279 --> 0:06:37.520 Megan Horneman, Chief Investment Officer, Verden's Capital Advisors Again, SMP 0:06:37.680 --> 0:06:40.440 five dred up seven tenths of one percent. How about that? 0:06:41.200 --> 0:06:48.960 This is bloomer. Let's get to our next guest. Mc mulroy, 0:06:49.040 --> 0:06:52.839 co founder of the Mobo Institute, Former Deputy Assistant Secretary 0:06:52.880 --> 0:06:54.880 of Defense for the Middle East at the U S 0:06:54.920 --> 0:06:57.520 Department of Defense. I'm gonna keep going on this resume 0:06:57.560 --> 0:06:59.640 here because it's just lying after the line. Former Power 0:06:59.640 --> 0:07:02.719 of mill Terry Operations officer at the CIA. I don't 0:07:02.800 --> 0:07:04.719 know what that is, but I'm sure it was on 0:07:04.800 --> 0:07:08.159 some TV show. Former US Marine Infantry officer. That gets 0:07:08.200 --> 0:07:11.360 my attention. Uh. So he's had quite uh the life 0:07:11.360 --> 0:07:13.520 so far. Mick mulroy, thank you so much for joining 0:07:13.560 --> 0:07:16.480 us here. So much geopolitical stuff to kind of talk 0:07:16.480 --> 0:07:19.560 about here. First, you know, our Speaker of the House 0:07:19.800 --> 0:07:24.920 went to Taiwan, had some meetings. Left Taiwan. I guess 0:07:24.960 --> 0:07:29.080 that's good. What do you what's your takeaway? Well, great 0:07:29.120 --> 0:07:32.320 to be with you guys. I think I think, quite frankly, 0:07:32.400 --> 0:07:36.480 the Chinese are obviously very angered about this. I think 0:07:36.520 --> 0:07:40.520 they way overstated the significance. I don't see how a 0:07:40.720 --> 0:07:44.680 civilian leader with her staff going to do meetings would 0:07:44.760 --> 0:07:50.600 challenger territory integrity. But they obviously are very irritated by it. 0:07:50.680 --> 0:07:53.920 And it looks like they're going to conduct more substantial 0:07:53.920 --> 0:07:59.280 military operations. And they've done awes and that includes essentially 0:07:59.560 --> 0:08:03.480 surround ning the island of Taiwan uh in what looks 0:08:03.520 --> 0:08:06.160 like it could be UH. An example of what they 0:08:06.240 --> 0:08:08.880 could do if they were to do a blockade of Taiwan, 0:08:08.960 --> 0:08:12.560 and that is that is very troubling and quite frankly, 0:08:12.880 --> 0:08:16.400 because it's live fire and we have multiple naval assets 0:08:16.400 --> 0:08:19.720 in the in the area, UH, the chances of escalation 0:08:19.760 --> 0:08:23.920 are are pretty high. So how does the US military 0:08:23.960 --> 0:08:27.000 deal with this? I know that well. It's been reported 0:08:27.000 --> 0:08:31.120 that the Ronald Reagan Strike Group is in the area, 0:08:31.440 --> 0:08:34.840 which consists of a naval aircraft carrier and then a 0:08:34.880 --> 0:08:40.600 bunch of other big, powerful, um you know, weaponry. Would 0:08:40.720 --> 0:08:43.280 would they not want to just back up while the 0:08:43.360 --> 0:08:47.920 Chinese do these live fire exercises just in case something 0:08:47.960 --> 0:08:52.600 goes wrong. Yes, essentially, that'd be correct. I mean they 0:08:52.600 --> 0:08:56.319 have to do direct military to military coordination to ensure, 0:08:57.120 --> 0:08:59.400 uh that we know where they're going to be firing 0:08:59.400 --> 0:09:03.840 and operating, so that we don't obviously, um get in 0:09:03.880 --> 0:09:06.720 that space. We won't want to put it as we're 0:09:06.760 --> 0:09:09.160 backing up to let them do this, because that would 0:09:09.200 --> 0:09:12.760 look I think in some ways as we're facilitating this 0:09:13.480 --> 0:09:21.320 really um significantly enhanced military exercise that is not in 0:09:21.400 --> 0:09:23.920 line with you know, keeping the peace so to speak, 0:09:24.240 --> 0:09:26.000 So we don't we probably will not put it as 0:09:26.040 --> 0:09:30.160 we're moving our assets, as you said, pretty significant out 0:09:30.160 --> 0:09:33.120 of the area, but more coordinating to ensure that there's 0:09:33.160 --> 0:09:37.200 no mistake that could you know, cause an eruption and 0:09:37.320 --> 0:09:41.040 in a conflict. Right, So there's a simmering cold war 0:09:41.080 --> 0:09:43.000 there in in Asia, but we've got a hot war 0:09:43.679 --> 0:09:47.280 uh in Europe. How do you tie all that together, 0:09:47.480 --> 0:09:51.079 what's going on in Ukraine with maybe this visit to Taiwan. 0:09:51.400 --> 0:09:55.120 I mean, how do you view America's kind of foreign 0:09:55.200 --> 0:09:59.680 policies that relates to some of these really hot areas well? 0:09:59.679 --> 0:10:01.199 I did. It's a good question. I do think they 0:10:01.200 --> 0:10:05.120 are connected because if you look at what the what 0:10:05.240 --> 0:10:07.080 the what the partnership of the U S it's meant 0:10:07.080 --> 0:10:11.360 to Ukraine uh in its fight against Russia means uh. 0:10:11.600 --> 0:10:13.440 That is also what China is looking at when it 0:10:13.480 --> 0:10:16.920 comes to the partnership between Taiwan and the United States, 0:10:16.960 --> 0:10:20.120 which is by law, it's not just something we wanted 0:10:20.120 --> 0:10:23.040 to do, like in the Ukraine, but the Taiwan. There's 0:10:23.040 --> 0:10:27.199 a specific act that requires the United States to militarily 0:10:27.280 --> 0:10:30.840 support Taiwan, not with troops, but with you know, advanced 0:10:30.840 --> 0:10:34.040 weapons systems, by US intelligence sharing. Those are all things 0:10:34.080 --> 0:10:39.760 we're doing for Ukraine, and it has essentially um allowed 0:10:39.800 --> 0:10:44.120 the Ukrainians to first repel the assault on Kiev but 0:10:44.200 --> 0:10:46.960 now come to almost virtual standstill on the Dome Boss 0:10:47.000 --> 0:10:49.200 and down in the south what they look like they 0:10:49.240 --> 0:10:51.600 could even take back the Key city or Kersan. So 0:10:52.120 --> 0:10:54.880 I think that the Chinese are looking at just what 0:10:55.280 --> 0:10:58.600 how significant being a military partner with the United States 0:10:58.880 --> 0:11:02.920 is for Ukraine, and highly concerned about what that could 0:11:02.920 --> 0:11:07.600 mean for Taiwan should they want to try to actually invade, 0:11:07.800 --> 0:11:12.120 invade Taiwan and make it Yeah. I mean when when 0:11:12.120 --> 0:11:19.720 when Pelosi sort of vowed America America support for Taiwan. 0:11:20.320 --> 0:11:23.800 I and I instantly thought of the support that we 0:11:23.840 --> 0:11:28.040 had for Afghanistan, which was clearly limited. Right, we will 0:11:28.040 --> 0:11:30.400 support you, but not for longer than twenty years. And 0:11:30.400 --> 0:11:34.200 then we're piecing out how how do we look right now? 0:11:34.280 --> 0:11:36.920 Mick as a as a partner globally, I mean, when 0:11:36.960 --> 0:11:42.360 you think of Afghanistan, Ukraine, Taiwan, so I think it's 0:11:42.400 --> 0:11:48.800 a mixed bag. So Afghanistan I disagreed, as I did 0:11:48.840 --> 0:11:52.400 most analysts on the news and most people I know, 0:11:52.480 --> 0:11:55.000 with the complete withdrawal. Obviously we didn't need to have 0:11:55.040 --> 0:11:57.240 a level that we've had in the past, but having 0:11:57.480 --> 0:11:59.280 a residual force I think was the way to go. 0:11:59.559 --> 0:12:02.120 It did indicate that we were not the partners that 0:12:02.200 --> 0:12:05.920 we should have been in Afghanistan. But Ukraine, I think 0:12:06.040 --> 0:12:09.600 it's a different story. Um, it shows that having being 0:12:09.600 --> 0:12:12.679 a partner with the United States, and we've been considerable 0:12:12.720 --> 0:12:15.640 as as you all know, amount of resources trying to 0:12:15.679 --> 0:12:18.520 support them, I think that shows the United States being 0:12:18.520 --> 0:12:21.079 a better partner. And I think that's what Taiwan is 0:12:21.080 --> 0:12:23.400 looking at right now and what future partners you're going 0:12:23.440 --> 0:12:25.800 to look at when it comes to whether they should 0:12:25.920 --> 0:12:29.960 throw in with the United States. Um, we need to 0:12:30.080 --> 0:12:32.400 we need to present, and we need to be the 0:12:32.480 --> 0:12:34.720 partner that we would want and return. And I think 0:12:34.720 --> 0:12:36.760 going forward we need to keep that in mind every 0:12:36.760 --> 0:12:41.079 time we make a decision on whether to withdraw forces 0:12:41.160 --> 0:12:43.880 or support or not support. Nick talked to us about 0:12:43.920 --> 0:12:48.760 the strike in Afghanistan Monday night, reportedly taken out a 0:12:49.000 --> 0:12:52.840 senior al Qaeda leader. Give us what that means. I mean, boy, 0:12:52.840 --> 0:12:57.520 it's twenty years after years after nine eleven. For those 0:12:57.559 --> 0:13:00.120 of us in New York, it's still very very fresh. 0:13:00.120 --> 0:13:02.760 But boy, that's a it's a long time to be 0:13:02.840 --> 0:13:06.360 hunting somebody. Yes, it is. And I think that actually 0:13:06.360 --> 0:13:09.760 shows that if you do harm the United States, we 0:13:09.800 --> 0:13:13.439 will find you eventually, and we will you will, you 0:13:13.480 --> 0:13:16.680 will face justice. And in this form it was, it 0:13:16.800 --> 0:13:19.920 was a strike, and you know, and and that too 0:13:20.000 --> 0:13:23.120 is a mixed bag. It does show that, uh, my 0:13:23.200 --> 0:13:28.920 former colleagues at the CIA can facilitate operations in Afghanistan 0:13:29.160 --> 0:13:32.600 even after withdrawal. I think personally it was a masterclass 0:13:32.600 --> 0:13:34.719 and how to do these operations. So my hats are 0:13:34.840 --> 0:13:38.000 off to them. But it also indicates that the Taliban, 0:13:38.280 --> 0:13:42.520 including some of its most senior leaders uh and specifically 0:13:42.520 --> 0:13:46.640 Sara Ja Khani felt like they were totally okay with 0:13:46.679 --> 0:13:49.600 facilitating the leader of al Quaina, one of the plotters 0:13:49.600 --> 0:13:52.800 in eleven, living at his house likely or one of 0:13:52.800 --> 0:13:57.640 his houses in Cobble. So it indicates that Afghanistan is 0:13:57.720 --> 0:14:00.720 now and that and that giadist Inc. It's going to 0:14:00.760 --> 0:14:03.559 be a safe haven in the future. So it shows 0:14:03.559 --> 0:14:05.720 that we can get to you, but it also shows 0:14:05.800 --> 0:14:08.600 that we have no partner in the Taala bomb. They're 0:14:08.640 --> 0:14:11.719 not only not helping us on our counters effort, they're 0:14:11.720 --> 0:14:15.040 actually facilitating Mick. Thank you so much for joining us. 0:14:15.400 --> 0:14:17.480 We covered a lot of topics that we really appreciate, 0:14:17.520 --> 0:14:21.080 getting the perspective, the value of your experience at c 0:14:21.240 --> 0:14:23.520 i A, at the in the Marines and then obviously 0:14:23.560 --> 0:14:27.080 in a secretary defense as a deputy assistant there mc mulroy, 0:14:27.200 --> 0:14:33.000 co founder of the Lobo Institute. Alright, a couple of 0:14:33.040 --> 0:14:37.080 our hack reporters from Bloomberg News not a Rogen Max 0:14:37.120 --> 0:14:40.920 Abelson teamed up to take a look at Goldman SAXS 0:14:40.920 --> 0:14:43.600 and you've got a big take story out that's really fascinating. 0:14:43.600 --> 0:14:47.560 The headline they quit Goldman Star Trading team. Then it 0:14:47.640 --> 0:14:50.720 raised alarms. Shree, not a rogen joins us here in 0:14:50.720 --> 0:14:53.760 our Bloomberg inactive broker studio. He's from Bloomberg News. Shree, 0:14:53.880 --> 0:14:57.200 You and Max did this great story. Uh A pretty 0:14:57.240 --> 0:15:00.320 a couple of pretty profitable traders left Golden sacked. But 0:15:00.360 --> 0:15:04.720 Goldman Sacks wasn't letting them go easily, did they Look, 0:15:04.760 --> 0:15:08.600 It's it's very rare that Goldman Sachs suspects its own 0:15:08.800 --> 0:15:11.240 of trying to steal code on their way out to 0:15:11.320 --> 0:15:13.240 a hedge funds. So these are traders. They're not just 0:15:13.280 --> 0:15:16.720 some guys slinging around corporate bonds. These are like from 0:15:16.760 --> 0:15:20.640 the block, from their prop trading desk and their program desk. 0:15:20.680 --> 0:15:23.880 What is it prop trading? That's the word. That's definitely 0:15:23.960 --> 0:15:27.480 not stop trading, but it is the program trading desk. 0:15:27.520 --> 0:15:29.920 And you know, effectively, what this group does is it's 0:15:29.920 --> 0:15:33.520 only a group of about twenty people globally. They craftedgorythms 0:15:33.640 --> 0:15:36.240 and they are trying to position themselves. You know, one 0:15:36.280 --> 0:15:38.000 of the key remits of this desk is to do 0:15:38.080 --> 0:15:41.520 these index rebalance trades. In the last few decades, passive 0:15:41.560 --> 0:15:45.400 investing is really shot through the roof. Indexes frequently changed 0:15:45.400 --> 0:15:48.480 their composition, and when that happens, you know that will 0:15:48.520 --> 0:15:50.800 force changes in these et s and other passive funds 0:15:50.880 --> 0:15:53.680 that have to mirror the indexes. That gives an opportunity 0:15:53.720 --> 0:15:55.880 for sophisticated films like Goldman Sachs or a hedge fund 0:15:55.920 --> 0:15:59.000 like Millennium Management to move ahead of that and know 0:15:59.120 --> 0:16:00.800 that there's going to be a man coming down the 0:16:00.800 --> 0:16:03.160 bike and make profits. And this desk, we say in 0:16:03.200 --> 0:16:05.800 the story, conservative estimates in the last couple of years 0:16:05.800 --> 0:16:08.880 made about seven million dollars each by itself may not 0:16:09.040 --> 0:16:11.440 sound like a huge figure, but then think about the 0:16:11.480 --> 0:16:13.960 fact that this disc is only about twenty odd people. 0:16:14.200 --> 0:16:17.760 That makes it one of the most profitable desks at 0:16:17.840 --> 0:16:20.080 least on a purpose and basis at Goldman Sex. It 0:16:20.160 --> 0:16:22.600 does that sound like a huge figure to me. To me, 0:16:23.040 --> 0:16:25.520 but here's the crux of the story. Three. The part 0:16:25.560 --> 0:16:30.920 that gets me is these guys alleged that while they 0:16:30.920 --> 0:16:34.560 were there and everything was going well, they were beloved 0:16:34.840 --> 0:16:40.040 and um in in their reviews. By the way, employee 0:16:40.080 --> 0:16:42.240 reviews are like the bane of my existence. But in 0:16:42.320 --> 0:16:47.280 their reviews, manople and they were lauded as let me 0:16:47.320 --> 0:16:50.520 find the exact words here. They were lauded in their 0:16:50.560 --> 0:16:56.480 reviews as exceptional, impeccable worth work, ethic, outperforming culture carrier. 0:16:56.800 --> 0:17:01.360 So these were ideal employees. Then the moment they left, 0:17:02.680 --> 0:17:08.080 they allege that they were warned, Hey, we're essentially going 0:17:08.119 --> 0:17:11.280 to make you guys look really bad. And Goldman Sachs 0:17:11.320 --> 0:17:13.720 will tell you that the two things are not mutually exclusive. 0:17:13.840 --> 0:17:16.399 You could be a great employee and you could do 0:17:16.520 --> 0:17:19.240 some bad things on your way out. And they say 0:17:19.320 --> 0:17:21.880 that when someone leaves a team like this, it's it's 0:17:21.960 --> 0:17:24.720 normal to do sort of customary checks. And they did 0:17:24.800 --> 0:17:27.920 customary checks and they found what they believe is something alarming. 0:17:28.160 --> 0:17:30.760 They accused them of trying to of trying to gain 0:17:30.840 --> 0:17:34.400 improper access to their systems. Ultimately, what is it all 0:17:34.480 --> 0:17:37.159 boiled down to? They suspected, but couldn't really prove, that 0:17:37.240 --> 0:17:39.600 these guys are trying to steal code on their way 0:17:39.640 --> 0:17:41.920 to a hedge fund varish and fund management. In this case, 0:17:42.119 --> 0:17:45.080 Let's assume their standing assumption is use that code base 0:17:45.240 --> 0:17:47.760 as reference to build a new system from scratch, and 0:17:47.840 --> 0:17:51.840 Goldman is very very protective of it. But these guys 0:17:51.840 --> 0:17:54.280 have also come back swinging, and that's what you normally 0:17:54.320 --> 0:17:56.760 don't see when you have this kind of acrimony, and 0:17:56.880 --> 0:17:59.520 it does happen often. You guys know this that banks 0:17:59.520 --> 0:18:02.280 and their tap when they're departing. It's not always the 0:18:02.280 --> 0:18:06.080 most amicable situation, but you'd always plays out in private. 0:18:06.160 --> 0:18:08.600 It rarely plays out in a way where both sides 0:18:08.600 --> 0:18:11.439 are willing to take such a public stand, not willing 0:18:11.440 --> 0:18:13.840 to back down convinced that the other side is wrong. 0:18:14.520 --> 0:18:16.639 The two guys who left believed that Goldman is being 0:18:16.640 --> 0:18:18.600 heavy handed and out to embarrass them and trying to 0:18:18.640 --> 0:18:21.320 send a message to the team effectively, this is retaliation 0:18:21.400 --> 0:18:24.640 for them finding a more lucrative opportunity, and Goldman saying, 0:18:24.680 --> 0:18:28.160 hold on a second, this was serious misconduct and they 0:18:28.280 --> 0:18:31.080 must be called out for that. So both of them 0:18:31.080 --> 0:18:33.520 are standing their ground, but only one of them can 0:18:33.520 --> 0:18:36.280 be right well. They also alleged that as they were leaving, 0:18:36.440 --> 0:18:39.800 their managers were begging them to stay, and when that 0:18:39.840 --> 0:18:43.239 didn't work, said, hey, I would be concerned about your 0:18:43.280 --> 0:18:46.080 behavior in the past. So that's not about taking code 0:18:46.160 --> 0:18:47.879 right now on your way at the door. It's like 0:18:48.080 --> 0:18:50.480 we're gonna make up stuff that makes you look bad 0:18:50.600 --> 0:18:54.119 in terms of past behavior by the By the way, 0:18:54.200 --> 0:18:56.720 let me also ask you this. It seems to me, 0:18:57.119 --> 0:19:00.280 from reading so many of these stories and hearing from 0:19:01.280 --> 0:19:04.840 sources in the industry that the way it's currently set 0:19:04.960 --> 0:19:09.800 up um banks have the advantage because all of these disputes, 0:19:10.200 --> 0:19:12.840 they don't go to court, they go to arbitration, and 0:19:13.040 --> 0:19:16.960 arbitration is almost always, you know, a good friend of 0:19:17.000 --> 0:19:19.159 the bank rather than the employee. Is that is that 0:19:19.200 --> 0:19:21.440 the right way to see it? Historically, that's always been 0:19:21.440 --> 0:19:24.879 true when when when employees are dragged through the arbitration process, 0:19:24.920 --> 0:19:28.760 it is really difficult for for for an individual to 0:19:28.760 --> 0:19:31.520 come out on top. And that's partly how a lot 0:19:31.560 --> 0:19:35.520 of these employment contracts are written. Banks are extremely protective 0:19:35.520 --> 0:19:37.600 of their talent. They do realize that there are better 0:19:37.600 --> 0:19:39.800 opportunities on the bi set, that people are willing to 0:19:39.840 --> 0:19:42.560 pay more and they have to do more, and therefore 0:19:42.640 --> 0:19:46.440 these contracts are written with such great latitude that even 0:19:46.480 --> 0:19:49.560 if you sneeze to their displeasure, they may ding you 0:19:49.680 --> 0:19:51.920 for that. And that's why you see in most occasions 0:19:51.960 --> 0:19:55.360 the banks and the institutions always come out on top. Sure, 0:19:55.359 --> 0:19:57.960 you and Max did some awesome reporting here, what is 0:19:58.000 --> 0:20:00.760 the expectation how this may play out, this is this 0:20:00.800 --> 0:20:02.840 is a settlement type of situation. Are they going to 0:20:02.880 --> 0:20:05.320 go to court? I mean any sense to this stage 0:20:05.640 --> 0:20:07.760 as things stand, and we talked about it in the story, 0:20:08.200 --> 0:20:10.800 the lawyer for the two people who's to folks are 0:20:10.880 --> 0:20:13.399 leaving for the Hedge Fund is actually saying what Goldman 0:20:13.440 --> 0:20:17.120 has done hurts their reputation is defammetry, and all litigation 0:20:17.160 --> 0:20:19.760 options are open. Goldman doesn't come out and say that, 0:20:19.800 --> 0:20:21.840 but one has to assume that they would be thinking 0:20:22.320 --> 0:20:24.800 along the same lines because they feel these guys didn't 0:20:24.800 --> 0:20:28.640 cooperate fully with their investigation. They are still very much 0:20:29.080 --> 0:20:31.440 planning to go join this Hatch Fund, which by the way, 0:20:31.480 --> 0:20:33.639 wouldn't be till much later in the year because not 0:20:33.760 --> 0:20:35.600 only did they have to have a three month notice, 0:20:35.600 --> 0:20:38.680 spirit on top of that, Goldman insists that even the 0:20:38.760 --> 0:20:41.800 junior employees on the desk and somewhat mid level vice 0:20:41.840 --> 0:20:44.400 presidents have a six month non compete. That's a nine 0:20:44.400 --> 0:20:49.480 month gestation period, which is pretty remarkable, especially for a bank. Alright, 0:20:49.520 --> 0:20:52.240 three some good good stuff. As I'm always jealous of 0:20:52.240 --> 0:20:54.880 people that get gardening waves because you know that it's 0:20:54.920 --> 0:20:56.800 always worked out so that they get comp and stage. 0:20:56.840 --> 0:20:58.840 It's like they're not getting paid. It's not like these 0:20:58.840 --> 0:21:01.880 guys are CouchSurfing and meantime right they're doing they've done 0:21:01.920 --> 0:21:04.080 well enough that they can spend their gardening leave in 0:21:04.119 --> 0:21:06.640 st Bart's. Absolutely, it's no big deal. And that's kind 0:21:06.640 --> 0:21:09.440 of how I think most players play it out. Sure 0:21:09.600 --> 0:21:13.399 not a rogen Max Abelson with this fantastic big take story. 0:21:13.440 --> 0:21:15.280 I highly recommend you take a look at that Bloomberg 0:21:15.320 --> 0:21:17.600 dot Com slash Big Take or and I Big Take 0:21:18.840 --> 0:21:22.560 Ni Space Big Take right, just and I Big Take 0:21:23.000 --> 0:21:27.400 and I Big Take Good Stuff Street. Thanks so much. 0:21:28.040 --> 0:21:29.600 Let's get right to our next guest, because he's got 0:21:29.600 --> 0:21:32.320 a awesome name. I just think it's cool, Red Bottle. Uh. 0:21:32.440 --> 0:21:35.320 He's a founder principal of Public Private Strategies. Hey, Rett, 0:21:35.359 --> 0:21:38.120 I want to talk to you about this Chips Act 0:21:38.119 --> 0:21:40.240