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Speaker 2: What's so while you like, all right, it is all
Speaker 2: about that big jobs report. Just talking about a little
Speaker 2: bit with our TV team here. But you know, Jess,
Speaker 2: you take a look at some of the headlines that
Speaker 2: are among the most read in the Bloomberg yep US
Speaker 2: hiring surges, bolstering the case for another FED rate hike.
Speaker 2: You got the five percent bond market, meaning more pain
Speaker 2: is heading everyone's way. We just talked about that with
Speaker 2: remaining Katie, and then treasuries sliding as jobs beat makes
Speaker 2: another hike a coin to us. I feel like we
Speaker 2: keep going back and forth, right when it comes to
Speaker 2: what's the Fed do next?
Speaker 3: Right, and whether or not we're headed for ace landing
Speaker 3: or hard landing.
Speaker 2: Carol, exactly, all right, So to talk about it all
Speaker 2: the day's trade, the week's trade, and the news. Bloomberg
Speaker 2: Intelligence Chief US Interest rates strategist Iri Jersey on ZUM
Speaker 2: New Jersey and also with us Bloomberg News Economics editor
Speaker 2: Mollie Smith and Molly just quickly we talked about a
Speaker 2: little bit with our TV colleagues Bloomberg, TV, Radio, online, everywhere.
Speaker 2: The terminal have been all over today's jobs report. But
Speaker 2: what are some of the highlights and what you think
Speaker 2: the street and the Fed is paying most attention to.
Speaker 4: I mean, yeah, the headline number obviously was kind of frightening.
Speaker 4: You know, when we first saw it was like, wait,
Speaker 4: did I see us ride three thirty six, you know,
Speaker 4: above well above all estimates in the Bloomberg survey and
Speaker 4: also the sizeable revisions to the prior two months, So
Speaker 4: that was really just a bullish line across the board,
Speaker 4: especially seeing so many of the recent jobs reports have
Speaker 4: been the opposite. We've seen big, big downward revisions in
Speaker 4: prior months, and I think it was just really impressive
Speaker 4: in terms of like the base nature of hiring. You know,
Speaker 4: it wasn't particularly concentrated anywhere, seeing the unemployment rate held
Speaker 4: at the same level, and wages also not so exciting,
Speaker 4: So it was yeah, I think just like the payrolls
Speaker 4: number was really by far and away the big story here.
Speaker 3: I wanted to bring you into this conversation because, especially
Speaker 3: when we're looking at what's happening in the bond market,
Speaker 3: what do you make of this as far as the
Speaker 3: speed in which we've continued to see bond year olds
Speaker 3: climb from here.
Speaker 5: Yeah, liquidity is not great, but you know, really a
Speaker 5: lot of this was positioning. So you had a lot
Speaker 5: of people back in the summer, you know, talk about
Speaker 5: June July August timeframe when a lot of strategists and
Speaker 5: then real money managers were getting long duration, so they
Speaker 5: were buying ten year notes, thirty year bonds and those
Speaker 5: sectors in the anticipation that the FED was going to
Speaker 5: be done. And usually when the FED is done hiking,
Speaker 5: the long end of the market does really well from
Speaker 5: a total return perspective. But what's happened now is that
Speaker 5: with the turn in the data the last six or
Speaker 5: eight weeks, you've seen and haven't seen the slowing that
Speaker 5: I think most people had been anticipating. You have a
Speaker 5: lot of people in bad positions and then you so
Speaker 5: they wind up stopping themselves out. There were some really
Speaker 5: important technical levels that got broken last week, and as
Speaker 5: those got broken, you then had stops that got hit.
Speaker 5: So a lot of this move was part of this
Speaker 5: move was technical in the positioning piece of it. But
Speaker 5: I think a big piece is just a reimagination. Imagining
Speaker 5: of what the Federal Reserve is going to do and
Speaker 5: what the FED does next. I don't think matters very much.
Speaker 5: It's more what is the FED going to do next, next, next?
Speaker 5: So what is it going to do in late twenty
Speaker 5: twenty four, twenty twenty five, We've now priced out a
Speaker 5: lot of the cuts that had been priced into the market,
Speaker 5: you know, even after you had still had about sixty
Speaker 5: base points of cuts priced in after the FED meeting
Speaker 5: last month. Now those are you know, now people are saying, well, hey,
Speaker 5: maybe they won't actually cut interest rates.
Speaker 2: So at this point, if I've bled's futures, are saying
Speaker 2: no cuts next year.
Speaker 5: Just about yeah. So you know, it depends on if
Speaker 5: there's a hike or not. Right, so, good things. If
Speaker 5: they hike again and then yes, there's a cut priced end.
Speaker 5: If they don't. If they don't hike, then there's no
Speaker 5: price a cut price end.
Speaker 1: Right.
Speaker 5: So but basically you're talking about interest rates not doing
Speaker 5: very much in the very front end of the curve
Speaker 5: over the next fifteen months. Or so, and because of that,
Speaker 5: the whole yield curve has had to reprice, so you have,
Speaker 5: you know, five year notes need to be closer to
Speaker 5: five percent, and so do ten year notes, just because
Speaker 5: if you average out what the policy rate's going to
Speaker 5: be over the next ten years, that's come up quite
Speaker 5: a bit. Interestingly, Carol, I was just looking at this
Speaker 5: earlier today. If you look at what the market thinks
Speaker 5: the ten year notees going to be, so you look
Speaker 5: at the fifteen month forward tenure rate, that is exactly
Speaker 5: where we are today, four point eight percent. So the
Speaker 5: market seems to think now right now that there's going
Speaker 5: to be very little movement in the long end of
Speaker 5: the curve. Is that going to happen? No, it's not.
Speaker 6: So.
Speaker 5: That means that there's going to be a lot of
Speaker 5: relative value and trades to do. But it might be
Speaker 5: a little bit early to try to think about exactly
Speaker 5: getting long because of the full momentum in the market
Speaker 5: and the good economic data.
Speaker 2: Molly, I want to bring you back in here, because
Speaker 2: the economic data from day to day can can re
Speaker 2: create or you know, it's like a whole new think
Speaker 2: among the investing public or traders about what happens, and
Speaker 2: I just wonder, you know, here we are digesting an
Speaker 2: important data point, but I do wonder we've got inflation
Speaker 2: next week. Could could sentiment change much, you know from
Speaker 2: what we heard from IRA Oh absolutely.
Speaker 4: I mean, take a look at what happened this week.
Speaker 4: You know, there was a bit of a relief rally
Speaker 4: on Wednesday after the ADP data showed a really weak
Speaker 4: private payrolls print, and then two days later, you know,
Speaker 4: gangbusters on the government shops reports. So you can see
Speaker 4: it's really a very pickle environment right now, and it
Speaker 4: doesn't take a whole lot to move the needle. I
Speaker 4: mean in terms of next week coming up. Obviously CP
Speaker 4: is going to be the big highlight later in the week.
Speaker 4: We also have producer price index before that, you know,
Speaker 4: maybe you know you miss inflation expectations if that loves
Speaker 4: the needle in anything. And of course we get the
Speaker 4: Fed minutes as well, so all of those some good
Speaker 4: data points. Look go ahead to hey.
Speaker 3: Mollie when it comes to what we're seeing with the
Speaker 3: wage pressures ease in here, how much of that today
Speaker 3: was part of offsetting maybe some of the labor market
Speaker 3: strength that people maybe would have been concerned about there.
Speaker 4: I mean, it's it's a little bit tough because like
Speaker 4: you can't really compare this with the Jewel support because
Speaker 4: it's not the same month. But if you were to
Speaker 4: look at it at the value of you know, you know,
Speaker 4: job openings going up by a ton and then wages
Speaker 4: coming down a little bit, like that would make sense, right,
Speaker 4: you know, like that workers like maybe you don't have
Speaker 4: as much leverage here, you know that there's that there's
Speaker 4: so many job openings right now, or that they can
Speaker 4: they do have a lot of choice actually in that
Speaker 4: So it's I mean, but yeah, like I said, it's
Speaker 4: you know, it's two different months. It's a little tough
Speaker 4: to square the two here. But I mean, at least,
Speaker 4: like I think the FED will probably you know, if
Speaker 4: there is some positive takeaway from this report to see
Speaker 4: a more modest number on the wage side, that is
Speaker 4: certainly a good one for them.
Speaker 2: We've talked a lot about five percent, but we've also heard,
Speaker 2: you know, various individuals talk about six percent or seven
Speaker 2: percent when it comes to US yields. Is that Are
Speaker 2: you ruling that out yet? In terms of your analysis
Speaker 2: and research, a.
Speaker 5: Seven percent would be pretty astounding six. See, I can
Speaker 5: create a realistic scenario where we get to six percent,
Speaker 5: but I think that would require a reacceleration of inflation
Speaker 5: and the Federal Reserve to start hiking rates more. It's
Speaker 5: hard to see at this point how the market is
Speaker 5: going to price for a steeper yield curve. So let's
Speaker 5: say that the Fed does nothing right now, a significantly
Speaker 5: upward sloping yield curve in an environment where you don't
Speaker 5: have accelerating inflation. So I could see a flat yield curve, right.
Speaker 5: I can see a scenario where we wind up getting
Speaker 5: a completely flat yield curve at five and a quarter percent,
Speaker 5: But the market's always going to be pricing for the
Speaker 5: Fed snacks move at some point, right, So it could
Speaker 5: be that the market prices for the Fed not to
Speaker 5: cut interest rates until twenty twenty six. But even if
Speaker 5: it does, then that still means that you're going to
Speaker 5: have ten year yields need to be below the overnight rate,
Speaker 5: and so it's going to be hard I think, to
Speaker 5: get tenure yields up to six percent without the Fed hiking.
Speaker 5: But that being said, you know, oil goes back to
Speaker 5: over one hundred and you wind up with a reacceleration
Speaker 5: in the labor market, and the next thing, you know,
Speaker 5: you could wind up with the market pricing for interest
Speaker 5: rate hikes and that could certainly push yields more than
Speaker 5: nowhere near my base case scenario for sure. But that's
Speaker 5: but there is a realistic scenario where we get there.
Speaker 3: What do you think ira would be the make or
Speaker 3: break level in the tenure treasury yield to really see
Speaker 3: asset correct classes basically having to reprice, especially in the
Speaker 3: stock market collapse.
Speaker 5: Right, Well, I guess well that's a better question for
Speaker 5: Geena Martin Adams are equity strategists, right, because I think
Speaker 5: that comes more down to valuation. Right, So, if if
Speaker 5: you look at what's been moving this market, though, it
Speaker 5: is there are tighter financial conditions. I think you mentioned
Speaker 5: that a little bit earlier in this in the segment
Speaker 5: where if this whole entire move has not been on
Speaker 5: higher inflation expectations. So even though we had this blowout
Speaker 5: jobs report, it wasn't that that inflation break evens and
Speaker 5: the market's expectation of inflation moved up. It's all been
Speaker 5: in real yields, and real yields tend to move because
Speaker 5: of tighter monetary policy, market volatility, and fiscal deficits, so
Speaker 5: that that's in fact our model. Those are the three
Speaker 5: inputs to our model for ten year tips shields. Ten
Speaker 5: year tips shields approaching two and a half percent, our
Speaker 5: model says two point six percent, so reasonably close. But
Speaker 5: it's because in large part because of the expectations of
Speaker 5: what the Fed's going to do as well as the
Speaker 5: just the massive volatility we've had in treasury yields, and
Speaker 5: investors want to be compensated for that volatiley and that
Speaker 5: shows up in tips yields for sure.
Speaker 2: Hey, can you in thirty seconds your call him on
Speaker 2: the six trillion dollars title wave in the treasury market.
Speaker 2: What do we need to keep on our radar just
Speaker 2: quickly if you could.
Speaker 5: Yeah, So that's all about tea bills. There's still tee
Speaker 5: bill The amount of tea bills are going to need
Speaker 5: to be issued over the next quarter is still going
Speaker 5: to rise. So there's going to be plenty for money
Speaker 5: market investors to supply for them to invest in.
Speaker 2: That's good because there's demand out there anyway, as we know. Hey, guys,
Speaker 2: thank you so much. I really appreciate it and have
Speaker 2: a great weekend, Bloomberg Intelligence Chief US interest rates strategist
Speaker 2: Ari Jersey out there on zoom in New Jersey, and
Speaker 2: of course Bloomberg News Economics editor Molly Smith joining us
Speaker 2: on the phone in New York City. Can find Molly
Speaker 2: at Molly Smith News on Twitter, and you can certainly
Speaker 2: catch Ira in his research and his team's research on
Speaker 2: the Bloomberg. You are listening and watching Bloomberg Business Week
Speaker 2: on this Friday, Carol Master along with just metten In
Speaker 2: for Tim Stanevik, and this is Bloomberg.
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Speaker 2: Nonfarm payrolls increased three hundred and thirty six thousand last month.
Speaker 2: I feel like we shall get like headbands and caps
Speaker 2: and T shirts because it really was a shocking number.
Speaker 2: It's the most since the start of the year, after
Speaker 2: sizeable upward revisions to the prior two months, so that's
Speaker 2: it's not just this past month, it was the prior
Speaker 2: months to September as well. A Bureau Labor Statistics Report
Speaker 2: of course coming out with all of this earlier today,
Speaker 2: the unemployment rate, by the way, holding it three point
Speaker 2: eight percent, wages rising at a modest pace, and maybe
Speaker 2: that was some of what Colm folks down. So let's
Speaker 2: get to it. Back with us on a Job's Day,
Speaker 2: Becky Frankwitz, she's Chief Commercial Officer in president North America
Speaker 2: at Manpower Group. On zoom from Durham, North Carolina. Becky,
Speaker 2: it is good to have you here with jessin myself.
Speaker 2: So it was quite a strong report, kind of a
Speaker 2: shocker when it first crossed. Was it a surprise to you?
Speaker 7: Okay, it's a blockbuster report. I mean, Carol, what we're
Speaker 7: seeing as employers as we go into the holiday season,
Speaker 7: they really want to enter the first of the year
Speaker 7: fully staffed. And so when you think about what Jobs
Speaker 7: Report Friday really is, it's the match between open opportunities
Speaker 7: and people and what they want to do, and so
Speaker 7: we're seeing that match increase. So it just shows the
Speaker 7: resilience of an increasingly cost conscious American consumer. We saw
Speaker 7: that because we saw services, leisure and hospitality go significantly
Speaker 7: up almost one hundred thousand jobs out of all the
Speaker 7: jobs created over two hundred thousand. We're in services versus
Speaker 7: durable goods, and so Americans are wanting to continue to
Speaker 7: experience experiences and eating out, and that's why we're seeing
Speaker 7: you know, companies like Dominoes fall into a top employer
Speaker 7: from cost consciousness, Walmart, Dollar General following in the top employers,
Speaker 7: and so, you know, a very resilient yet cost conscious
Speaker 7: American consumer.
Speaker 3: So what industries are seeing the highest demand for labor
Speaker 3: at this point versus those that are seeing the weakest.
Speaker 7: Yeah, so this is a headline that hasn't necessarily been
Speaker 7: covered today if you think about in real time data Jess,
Speaker 7: and that's usually the view that we bring because we
Speaker 7: can track bisector by day what's happening versus looking just
Speaker 7: back at BLS as we look ahead. What we're seeing
Speaker 7: today is warm up in holiday hiring and the heavyweight
Speaker 7: holiday heroes is going to be operations and logistics. So
Speaker 7: for the first time in three years we saw it
Speaker 7: jobs fall out of the top three sectors. So it's
Speaker 7: been medical sales. It now it is medical sales, and
Speaker 7: think about sales is getting ready for the recovery in
Speaker 7: the economy. So companies want to have a full sales team.
Speaker 7: And now in the number three position is operations and logistics.
Speaker 7: And how that's tied to holiday is we are seeing
Speaker 7: more clicks than bricks from Americans as we go into
Speaker 7: the holiday hiring period, and so Americans are shopping more online.
Speaker 7: You know a little bit they recovered from covid went
Speaker 7: out into retail last year. Thish we're seeing American shop online.
Speaker 7: That's evidence by big headlines from Amazon, you know, hiring
Speaker 7: one hundred thousand more workers than last year target hiring
Speaker 7: one hundred thousand workers given their click and collect program.
Speaker 7: So we have some optimism in the upcoming months. So
Speaker 7: I'd say that's one of the standouts is logistics, and
Speaker 7: again medical continues to be in number one and number
Speaker 7: two sales for the reasons I mentioned.
Speaker 2: It's interesting. I mean, I don't know. Do you talk
Speaker 2: to some of the companies that are posting or that
Speaker 2: you're that are looking to hire. Is it because they
Speaker 2: are doing more business there's demand out there? Is it
Speaker 2: again that labor hoarding story at Becky? What is it?
Speaker 2: Because it's interesting to hear what you say about that
Speaker 2: they want to kind of be stocked with workers heading
Speaker 2: into the new year.
Speaker 7: Yeah, so it's really I mean, Carol, it's actually not
Speaker 7: very complicated. What's fueling our economy today is the confidence
Speaker 7: of the American consumer. We continue to spend, and as
Speaker 7: long as we continue to spend, that generates demand. Again,
Speaker 7: we're spending on services much more than good so keep
Speaker 7: that in mind. But as long as we continue to spend,
Speaker 7: it generates demand and companies are going to seek to
Speaker 7: fill their open positions. Now, I want to be clear,
Speaker 7: as we look at the job demand, which is what
Speaker 7: fuels ultimately BLS, we have seen a little moderation month
Speaker 7: over month, Carol. It came down about five percent month
Speaker 7: over month in terms of overall jobs created in the economy.
Speaker 7: But you know, people say, hey, the fall weather's here,
Speaker 7: the labor market's cooling, But I would tell you it's
Speaker 7: not winter yet.
Speaker 8: Hence the holiday hiring optimism.
Speaker 3: So what's really driving some of that optimism when it
Speaker 3: does come to the holidays.
Speaker 7: Yeah, it again, we as Americans now are are buying
Speaker 7: more online. So in COVID, we didn't really have the
Speaker 7: optionality we had to buy online, so you saw a
Speaker 7: significant increase in option logistics to fuel that During Covid.
Speaker 7: Then we got to go back to stores, and so
Speaker 7: last holiday season people went back into you know, shopping
Speaker 7: malls and retail stores. And now we're seeing that moderate
Speaker 7: again to more click you know, and you also know
Speaker 7: when you click, you tend to spend more. It's hard
Speaker 7: to keep up with your basket if you will, across
Speaker 7: multiple providers.
Speaker 8: And so it's giving some optimism.
Speaker 7: And we're seeing the traditional retailers again, I said, Amazon,
Speaker 7: but Target again with their click and collect program. They're
Speaker 7: hiring as well, so it's not limited just to the
Speaker 7: online retailers.
Speaker 2: Probably my husband's like slayer well babe with Amazon, right,
Speaker 2: it's so easy. It's terrible because it's just like, oh
Speaker 2: I want, I think I do. It's like crazy. But
Speaker 2: it is interesting when you talk about logistics and getting
Speaker 2: kind of gearing up for the holiday season. That makes
Speaker 2: me think, though, they'll get through the holiday season and
Speaker 2: let some of those folks go. I mean, are these
Speaker 2: full time positions. Are they getting all the benefits and
Speaker 2: everything or is it temp.
Speaker 7: Yeah, Carol, so this is seasonal. It happens every year,
Speaker 7: you know, if you're call Last year, you and I
Speaker 7: talked about the fact that we weren't seeing the increase
Speaker 7: that we thought we would, so last year was a
Speaker 7: little bit of a different from the past. But this
Speaker 7: year we're seeing holiday hiring come back with strength, and
Speaker 7: it usually is people who want to get a second
Speaker 7: income to out their holiday shopping or someone who just
Speaker 7: wants to go to work part time to get their
Speaker 7: holiday shopping. So this is a fairly normal cadence for
Speaker 7: the American economy. Again, last year was abnormal though, so
Speaker 7: it's very nice to feel some normalcy come back into
Speaker 7: the patterns.
Speaker 2: So, Beck, if you had to use a word or
Speaker 2: two words to describe the labor market right now, what
Speaker 2: would it.
Speaker 8: Be, I'd say very tight.
Speaker 7: It's very tight, and so we're seeing you know, it's
Speaker 7: taking forty four days on average, Carol to fill a job.
Speaker 8: That's very long.
Speaker 7: That that's why employers get anxious because by the time
Speaker 7: I get somebody through the process, if I can't speed that.
Speaker 8: Up, they may make another choice. And so, you know
Speaker 8: when you.
Speaker 7: Said labor hoarding, it's different than it was where I'm
Speaker 7: scared I can't hire people, but the time to hire
Speaker 7: is taking so long, and it's causing employees to possibly
Speaker 7: have other options and so that it's still a very
Speaker 7: tight labor market.
Speaker 8: You saw unemployment not move.
Speaker 4: Oh.
Speaker 7: In one highlight that I want to point out that
Speaker 7: is a little bit concerning is we did see for
Speaker 7: the first time in a long time, female participation drop
Speaker 7: only two tenths of a point. It's not alarming, but
Speaker 7: it's the first time and it's very concerning. And if
Speaker 7: you think about ops and logistics roles, they're over represented
Speaker 7: by men, and we cannot have another sheet session on
Speaker 7: our hands, and so I really want to watch that.
Speaker 8: I'll be watching that closely.
Speaker 7: Hopefully the retail in store is that comes back a
Speaker 7: bit offset some of that, But that's a little bit concerning.
Speaker 8: I don't like to see that number.
Speaker 3: Any indication as to why we are seeing that.
Speaker 7: Yeah, so it's you know, there's a lot of headlines
Speaker 7: around the childcare situation and what's going to happen the
Speaker 7: cliff that could possibly happen there.
Speaker 8: That's concerning.
Speaker 7: But I also think the mix and the economy is
Speaker 7: changing a bit as we see this growth in OPS
Speaker 7: and logistics, and so that something for all of us
Speaker 7: to keep a close eye on.
Speaker 2: Hey, Becky, you mentioned forty four days on average to
Speaker 2: fill a job. You said, that's very long. Is that
Speaker 2: kind of where we were twenty nineteen. Give me a
Speaker 2: little perspective.
Speaker 7: Yeah, so no, it's taking much longer now to fill
Speaker 7: a job, you know it is.
Speaker 2: So it's above what it was back in twenty nineteen,
Speaker 2: just before the pandemic shutdown.
Speaker 7: Yeah, it's a labor market's tighter, Carol. So it's it's
Speaker 7: above what it was in twenty nineteen. And again it's flattened.
Speaker 7: We had seen it increasing, which is definitely not a
Speaker 7: good thing. Now it's kind of flattened. So I'm hoping
Speaker 7: there's stabilization there and then we'll see that come back down.
Speaker 2: Interesting, like we keep hearing it. We talked with a
Speaker 2: CEO over at Omni Hotels. You can check it out
Speaker 2: on our podcast view. But he talked about strength in
Speaker 2: the labor market, but he said it wasn't as bad
Speaker 2: as it was kind of coming out of the pandemic,
Speaker 2: but nonetheless also seeing some strength there. Hey, Becky, great
Speaker 2: color on the US jobs picture, so so appreciate it.
Speaker 2: She's Chief Commercial Officer, President of North America at Manpower Group.
Speaker 2: Joining us on Zoom from Dorham, North Carolina. And this
Speaker 2: you know, I feel like job's data strong good shows
Speaker 2: the economy. If you have a job, right, you're going
Speaker 2: to spend, You're going to go places you just travel.
Speaker 2: But it does it, you know, continue to provide a
Speaker 2: predicament a little bit for the fed right.
Speaker 3: And hey, we are seeing some of those wheach pressures ease.
Speaker 2: Yeah, interesting, all right, so something for us to continue
Speaker 2: them all over.
Speaker 1: You're listening to the Bloomberg Business Week podcast. Catch us
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Speaker 2: Hey, it's the fourth day in the fraud trial of
Speaker 2: FTX co founder Sam Makmin Freed. FTX co founder Gary
Speaker 2: Wang on the stand again. The Cryptocurrency Exchange is other
Speaker 2: co founder and he did plead guilty in December. Green
Speaker 2: to cooperate in this case against SBF. Keep in mind,
Speaker 2: Wong Bankmin Freed's MIT roommate, is the first of three
Speaker 2: star witnesses testifying for the government. In our weekly look
Speaker 2: at the world of crypto, let's get an update on
Speaker 2: the trial back with US and following all the details.
Speaker 2: Bloomberg News legal reporter Ava Benny Morrison, She's on the
Speaker 2: phone from Manhattan Federal Courthouse. Talk about the day, Ava,
Speaker 2: what went on and what did you hear?
Speaker 6: So it was a big day today We heard from
Speaker 6: Gary Wong. He continued giving his testimony. Much of it
Speaker 6: was a sort of painstaking description of how Alameda and
Speaker 6: FTX operated, but towards the end of the day he
Speaker 6: gave a description of the final frantic days at FTX,
Speaker 6: talking about how he was in the Bahamas with Sam
Speaker 6: and some of the other top executives as ftx's financial
Speaker 6: situation was getting worse and worse. He talks about when
Speaker 6: bankruptcy and then him and Sam went on a drive
Speaker 6: to the Securities Commission in the Bahamas and Sam instructed
Speaker 6: him to transfer the remaining assets of FTX to the
Speaker 6: Bahamas regulators. This was at a time when the US
Speaker 6: was trying to get a hand on it, and he
Speaker 6: said that Sam wanted him to do that because he
Speaker 6: thought the Bahamas were more friendly and they might be
Speaker 6: inclined to keep him as CEO of the company.
Speaker 3: Will we continue to have more testimony from him.
Speaker 6: Yes. So the prosecutor finished his direct examination of Gary
Speaker 6: today and now we're in cross examination. We only got
Speaker 6: to hear a little bit of what Sam's lawyer had
Speaker 6: to say. He was sort of questioning Gary on whether
Speaker 6: changing the FTX code really gave Alameda special privileges or
Speaker 6: if it was just a bolster of their role as
Speaker 6: a market maker on FTX. Gary's cross examination will continue
Speaker 6: into next week, and then we're expecting to hear from
Speaker 6: Caroline Ellison, who was the CEO of Alameda Research.
Speaker 2: It feels damaging. So far, everything you've been hearing and
Speaker 2: listening to.
Speaker 6: It's been pretty compelling. We've been wanting to hear from
Speaker 6: these cooperating witnesses ever since we heard they pleaded guilty
Speaker 6: and admitted to committing afford with Sam Bateman freed. They
Speaker 6: have a very rare and valuable insight into what was
Speaker 6: going on inside the company and inside that in a circle.
Speaker 6: Sam's in a circle. So it's been very interesting.
Speaker 4: To say the.
Speaker 2: Least, Sam's in the room right, I assume what can
Speaker 2: we any inside or anything about, you know, as people
Speaker 2: are testifying what he's doing.
Speaker 6: It was interesting He and Gary have been friends since
Speaker 6: high school. They went to mathcamp together, they lived together
Speaker 6: when they're in college. Despite that history, there was no
Speaker 6: acknowledgment when Gary walked in the court of Thursday and today.
Speaker 6: They didn't look at each other. And Sam has just
Speaker 6: been sort of staring straight ahead when he's been giving
Speaker 6: evidence or talking to his lawyers and taking notes on
Speaker 6: our laptops as well.
Speaker 3: What's the timetable for this trial and as far as
Speaker 3: when there could be a verdict reached.
Speaker 6: We're expecting the trial to the last for up to
Speaker 6: six weeks, so a verticte could be a while away yet.
Speaker 6: And we're getting through a couple of the key witnesses
Speaker 6: this week next week, and then we'll expect to hear
Speaker 6: the Sam Bagmand Freed's case maybe in a few weeks time.
Speaker 2: So cross examination just real quickly. We're not seeing that
Speaker 2: yet or it is happening.
Speaker 6: It is happening. Sam's lawyer started cross examining Gary this afternoon,
Speaker 6: but it was less than an hour before the court
Speaker 6: was due to finish, So I think he's really going
Speaker 6: to get into the swing and things next Tuesday.
Speaker 2: All right, So it'll be interesting to see that line
Speaker 2: of questioning as well, hey, Ava, thank you so much.
Speaker 2: You've just kept us up to speed all week on
Speaker 2: this Bloomberg News legal reporter Ava Betty Morrison on the
Speaker 2: phone from the Manhattan Federal Courthouse, where, of course that
Speaker 2: fraud trial against FTX co founder Sam Magmin Freed is underway.
Speaker 2: Let's get more on the trial and oversight of the
Speaker 2: crypto industry with us as Rory Doyle, head a financial
Speaker 2: crime policy at Fernurgo, which provides financial institutions. So we're
Speaker 2: talking about the likes of P and C and Santander
Speaker 2: with compliance and regulatory and risk applications. Rory joining us
Speaker 2: on zoom from the UK. Rory, you've been listening, I
Speaker 2: assume too, our Evin Benny Morrison talk about the SBF case,
Speaker 2: the ft X case. When you think about oversight and
Speaker 2: compliance and risk, certainly among the financial establishment, there's a
Speaker 2: lot at stake when it comes still to the crypto world,
Speaker 2: and is still a lot to be known.
Speaker 9: There is indeed, and I suppose you know listening to
Speaker 9: the feedback there that I mean something that that comes
Speaker 9: straight away to what we're seeing is the immaturity and
Speaker 9: the inexperience of the C suite involved in ft X
Speaker 9: as that the legendary genre from the famous Enron case,
Speaker 9: who's now the liquidator for FTX, has explained he's never
Speaker 9: seen a more inexperienced and a more and c suite
Speaker 9: that that does not, you know, take any advice around
Speaker 9: you know, risk application or you know business risk assessments.
Speaker 9: So there's a lot to have learned, you know, in
Speaker 9: the fintepech world and in the crypto world.
Speaker 3: Talk to us about the compliance risks in solutions that
Speaker 3: you give to your clients that typically are financial institutions.
Speaker 9: So we provide a suite of applications that it's an
Speaker 9: ecosystem for client lifecycle management. So I'm ahead of financial crime.
Speaker 9: So I look after making sure that when a client
Speaker 9: takes our suite systems, they are able to harmonize their
Speaker 9: policies and procedures and let let them integrate with one
Speaker 9: hundred and twenty jurisdictions around the world. So essentially our
Speaker 9: clients obviously are worldwide, so they're able to onboard a
Speaker 9: client efficiently and compliantly from one location, and they may
Speaker 9: be able to want to book their trades out of France,
Speaker 9: and they want to book their trades out of Spain
Speaker 9: book trades at the US, and we give them a
Speaker 9: one stop shop to be able to do that both
Speaker 9: efficiently and compliantly.
Speaker 3: And we're any of them impacted by ftx's collapse.
Speaker 9: And not that I'm aware enough, So we just build
Speaker 9: the systems for them. Then it's totally housed within the cloud.
Speaker 9: But then our clients themselves are the only people who
Speaker 9: have visibility of their accounts.
Speaker 2: I mean, but isn't part of the problem that compliance
Speaker 2: and oversight is different around the world at this point,
Speaker 2: there's not really any clear set of rules. And if
Speaker 2: you think about the established financial world. I'm not saying
Speaker 2: everything's exactly the same, whether it's Europe or Asia or
Speaker 2: the United States. We know it's not, but there is
Speaker 2: kind of an acceptance of a certain level of rules
Speaker 2: and oversight, and that's what enables global financial markets to
Speaker 2: actually work right, or financial global financial transactions to work.
Speaker 2: Isn't that the big problem right now with crypto?
Speaker 9: Yeah, you're absolutely right. But we are seeing around the
Speaker 9: world jurisdictions catching up with the fat F recommendations on crypto,
Speaker 9: so seeing very good laws and regulations coming out of Singapore.
Speaker 9: We've got the financial and Innovation Technology Act coming, you know,
Speaker 9: passing into Congress this this this quarter. Now obviously Congress
Speaker 9: is that a bit of a bit of a ponder
Speaker 9: at the moment, so there may be a delay on that.
Speaker 9: We're seeing the EU Single Rule Book coming into place,
Speaker 9: and that's addressing the use of al anonymous instruments such
Speaker 9: as crypto assets. Australia published a consultation i believe last
Speaker 9: last quarter which gives coverage to various digital currency exchange services,
Speaker 9: so that makes them regulated entities. And your near neighbors
Speaker 9: Canada they produced a consultation paper there last quarter as well,
Speaker 9: and they're harmonizing their transactions reporting rules so for air, crypto,
Speaker 9: in line cash.
Speaker 2: So more's coming fifteen seconds Rory. So does that mean
Speaker 2: you are seeing increased uptick in demand for your services?
Speaker 2: Can you quantify it and just very quickly?
Speaker 9: Yeah, absolutely, especially since we've seen there's a dearth of
Speaker 9: financial crime professionals around the world. There's been an increase
Speaker 9: in screening and sanctions due to the war in the Ukraine,
Speaker 9: and therefore something needs to bridge that gap. All right,
Speaker 9: well we believe we have the solution for it.
Speaker 2: Well, good to check in with you and get the
Speaker 2: playoff of certainly the latest on that trial downtown. Here
Speaker 2: Rory Doyle, thank you, head of financial crime policy at Ennergo,
Speaker 2: joining us from the UK.
Speaker 5: Mark the journal.
Speaker 2: Now about you let me drive?
Speaker 10: Oh no, no, no, no, honey, please out of the gravels.
Speaker 1: Let's I want to drive.
Speaker 6: It's a good question.
Speaker 1: This is the drive to the clothes Well on Bloomberg Radio.
Speaker 2: All right, everybody, just about eighteen minutes left in today's session.
Speaker 2: Carol Master along, we've just met and Jess of course
Speaker 2: in for Tim Stanovik on this job's Friday, and we've
Speaker 2: got to rally underway. One point nine percent higher on
Speaker 2: the NAZAC. Charlie was just talking about amazing the trades.
Speaker 2: So we're seeing buying into the clothes not you know,
Speaker 2: we're almost getting ready to wrap it up. How do
Speaker 2: you make sense of it as somebody who is constantly
Speaker 2: reporting on the market.
Speaker 3: Well, I look at a lot of different corners. I
Speaker 3: brought up earlier about the shorted basket, most shortage stocks
Speaker 3: in Goldman stacks basket, as well as those nonprofitable techs.
Speaker 3: So you're seeing those corners of the market actually higher
Speaker 3: than the broader market. So I think there's some things
Speaker 3: underlying surface there, so it's not just more broadly in
Speaker 3: the equity market, but then also trying to figure out.
Speaker 2: Okay, so does it mean it's a strong trade this
Speaker 2: buying or no?
Speaker 3: Not necessarily?
Speaker 2: Okay, So let's see what Alan Zaffron has to say about.
Speaker 2: Let's if he's been doing some buying or telling others
Speaker 2: to do. He's founding partner co CEO at IQ Capital.
Speaker 2: He's on zoom from Foster City, California. Hey, Alan, always
Speaker 2: get to get some time with you.
Speaker 3: How are you.
Speaker 10: I'm doing great, and it is blazing hot here on
Speaker 10: the West Coast.
Speaker 5: It's blaking out today in the market.
Speaker 2: So do you buy it? Do you buy this trade?
Speaker 10: This is a technical snap back from an over sold condition,
Speaker 10: but fundamentally I don't really buy it in the short run. Basically,
Speaker 10: this is the goldilocks trade. If you think you're going
Speaker 10: to get strong economic growth in moderating inflation, this is
Speaker 10: what you're looking for. On our perception is when the
Speaker 10: Fed has raised rates these many times, inevitably you get
Speaker 10: an economic slowdown that coupled with wage pressures. When you
Speaker 10: see strikes taking place of autoworkers, people in Hollywood. When
Speaker 10: you see the healthcare system Kaija permanente, it's telling you
Speaker 10: wages are going to go up, margins are going to
Speaker 10: get hurt a.
Speaker 5: Bit next year.
Speaker 10: So we're a bit skeptical about the projected twelve percent
Speaker 10: of earnings growth and for the S and P five
Speaker 10: hundred next year, and therefore we're a bit cautious.
Speaker 11: We think equities remain just a bit ahead of themselves,
Speaker 11: not egregiously overvalued, but we wouldn't be surprised if for
Speaker 11: a year from now equities we're trading at about eighteen
Speaker 11: times forward earnings, which gets you to write about where
Speaker 11: we are today.
Speaker 3: You brought up earnings. Clearly, we'll have GP Morgan and
Speaker 3: other banks kicking things off at the end of next
Speaker 3: week for the third quarter earning season. What's your view
Speaker 3: as far as when the S and P five hundred
Speaker 3: looks poised to potentially be coming out of an earnings
Speaker 3: recession in the fourth quarter, how do you think that
Speaker 3: would bode well potentially for the broader equity market At
Speaker 3: a time when people are debating a soft landing or
Speaker 3: a hard landing, boy.
Speaker 10: Bode wealth really going to get that earnings growth? So
Speaker 10: if you you know, this year's entire move up, which
Speaker 10: is at this point about fourteen percent on the index,
Speaker 10: is entirely multiple expansion. We're going to see no earnings
Speaker 10: growth this year. So if you really do buy into
Speaker 10: that twelve percent earnings growth next year, next here, and
Speaker 10: people really believe the Fed is finally on pause and
Speaker 10: we're going to have a more stable and clear environment
Speaker 10: and uncertainty goes away, great markets go higher from there. Again,
Speaker 10: we're just going to try and issue an element of
Speaker 10: skepticism that it's uncommon for a yield treasure yield crip
Speaker 10: to be inverted, for the Fed have raised so quickly
Speaker 10: and meaningfully, and for that to be a real economic impact.
Speaker 10: And therefore we're not quite as bullish as the way
Speaker 10: you phrased that question.
Speaker 2: To make you know, there's a lot of individuals weighing in.
Speaker 2: Michael Hartnett over at b of A saying that the
Speaker 2: bond market is going to rally big in twenty twenty four.
Speaker 2: He said, amid a recession, I saw another Wall Street
Speaker 2: house talking about I think this was a buying opportunity
Speaker 2: for equities. I mean, it's kind of like all over
Speaker 2: the place, allan so what's the major risk right here
Speaker 2: and getting and making kind of the wrong decision.
Speaker 10: Well, I think among the major risks, are you think
Speaker 10: about it, the American economy goes to go back to
Speaker 10: basic economy on it's consumption and investments and government spending.
Speaker 10: With exports minus imports, consumption is seventy percent of the economy.
Speaker 10: Guess what COVID did. They made everybody decide they were
Speaker 10: going to eat into their savings and go travel abroad
Speaker 10: and spend all their money and go watch the tailor
Speaker 10: swift concert and savings are cleaning. And if consumption can't
Speaker 10: keep up at this pace next year, and if interest
Speaker 10: rates are higher, which is slowing down investing, and if
Speaker 10: we have chaos in Senate and fiscal spending isn't going
Speaker 10: to bail us out, the C and the I and
Speaker 10: the G the makeup economic growth are all going to
Speaker 10: be less strong than we wish. It doesn't bode well
Speaker 10: for an exceptionally strong equity market. It doesn't mean it
Speaker 10: has to plummet, but earnings growth is going to be challenged.
Speaker 10: We think a bit more than what is current consent.
Speaker 10: This wisdom in the typical tailings of driving economic growth
Speaker 10: aren't going to be as prevalent next year, and therefore
Speaker 10: it's gonna be a little more challenging.
Speaker 3: What about the consumer in our when we're thinking about
Speaker 3: how strong the labor market has held up, how does
Speaker 3: this really signal that a recession is eminent in the
Speaker 3: next couple of quarters.
Speaker 10: It doesn't signal recession is terribly imminent. We would argue,
Speaker 10: it's quite possible we've already been in this kind of bizarre, slowing,
Speaker 10: rolling recession, hitting different sectors at different points in the
Speaker 10: Remember all the tech collayouts that are happening much earlier.
Speaker 10: It's particularly here on the West coast. But what it
Speaker 10: does bode is when wage pressures go up meaningfully, companies'
Speaker 10: margins begin to get crimped. Coupled with higher borrowing costs,
Speaker 10: their propensity to invest in their businesses gets hurt a bit,
Speaker 10: and it's hard to push on all those price increases
Speaker 10: back to the consumers. You get lower profits and less
Speaker 10: profit growth as a result. It may not mean a recession,
Speaker 10: but as you know, the inverted yield curve has yet
Speaker 10: to fail signaling a recession. So either this time is different,
Speaker 10: or at least we're going to see somewhat of a
Speaker 10: slowdown from the rapid economic growth we had seen over
Speaker 10: the past twelve to eighteen months, which has frankly defied
Speaker 10: a lot of the conventional economic models. As a consequence
Speaker 10: partly of COVID and everybody changing their behavior about how
Speaker 10: they intend to spend their dollars, they're accelerating spending at
Speaker 10: the expense of savings. It's not clear that can persist
Speaker 10: for another twelve to eighteen months without some slow down
Speaker 10: in consumption.
Speaker 2: Right, And we've been lucky because the job market has
Speaker 2: been so tight, so people, whether or not their savings
Speaker 2: are being pared down, they're continuing to spend because they've
Speaker 2: got a job and they feel confident about that. And
Speaker 2: I do wonder Allan, as you look at the market,
Speaker 2: and I think about how quickly things can turn. And
Speaker 2: you know, we keep saying about these kind of reinversions
Speaker 2: or signs that are saying, okay, our recession certainly is near.
Speaker 2: I don't know what is the sign that you kind
Speaker 2: of are what is the Is there a data point
Speaker 2: a metric that you really focus on to kind of
Speaker 2: get an indication of where to go next and that
Speaker 2: also guide you and how you invest and got about
Speaker 2: forty seconds left.
Speaker 10: Well, typically the unemployment payroll figures are more of a
Speaker 10: coincident figure, not a leading or backward looking figure. So
Speaker 10: when you see payrolls not going up three hundred and
Speaker 10: thirty six thousand, twice the pace at which consensus expected today,
Speaker 10: but a real drop in payrolls, that tells you the
Speaker 10: party is about to end. And so we saw it.
Speaker 10: Also if you go back to the last time we
Speaker 10: had a recession where payrolls was two thousand and seven
Speaker 10: came down pretty sharply in the fourth quarter, and it
Speaker 10: led to the recession we saw in two thousand and
Speaker 10: eight and nine. At some point when payrolls come down
Speaker 10: pretty sharply, that's the sign that we're in the recession.
Speaker 10: The issue is stocks typically are in front of that
Speaker 10: just a bit, and so the ability for that to
Speaker 10: lead to your decision making is a little flawed because
Speaker 10: it will already dropping by the time you see that
Speaker 10: payroll drop.
Speaker 2: It's a really good point, right Marcus Kinner, certainly read
Speaker 2: into things. Earnings will maybe be really helpful. We'll see
Speaker 2: what CEOs have to say, especially how much guidance we
Speaker 2: get in terms of outlook alan great stuff, have a
Speaker 2: great weekend. Alan Zaffron, jounting partner and co CEO at
Speaker 2: IQ Capital on Zoom from Foster City, California. Don't go anywhere.
Speaker 2: We're going to wrap up the trading day. In the week,
Speaker 2: you're listening and watching Bloomberg Radio.
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