Speaker 1: This is Bloomberg Business Week. I'm Karl Masser and I'm
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Speaker 1: if I look at the Bloomberg terminal right now, the
Speaker 1: headline right on top is Sam Bankman free released on
Speaker 1: two hundred fifty million dollar bond in ft X fraud case.
Speaker 1: Let's check in with someone on the ground. We have
Speaker 1: Ava Benny Morrison on the phone from the Southern District
Speaker 1: Court of New York in New York City. But we're
Speaker 1: gonna get to the bill package in just a minute,
Speaker 1: but tell us a little bit about the scene on
Speaker 1: the ground. Good afterday. So at the moment, we're waiting
Speaker 1: outside the front doors of the Southern District of New
Speaker 1: York District Court House in downtown Manhattan. Um. There's dozens
Speaker 1: of photographers of cameraman UM, a lot of reporters, all
Speaker 1: waiting to Sam Batman free to walk out. In the
Speaker 1: last hour, he's been granted um bail. It was a
Speaker 1: very very stringent bail package. UM. And he was told
Speaker 1: by the judge that he'll be able to walk out
Speaker 1: of court today. Um. Once he and his parents signed
Speaker 1: a paper work. Even did was there a plee entered today? No,
Speaker 1: there wasn't a poet entered today. It was the first
Speaker 1: time that he had appeared in court on the US charges, um,
Speaker 1: and the court heard that he'll have a chance to
Speaker 1: enter a plea at a later date. The next court
Speaker 1: date was stepped out for January. So this must be
Speaker 1: some house to parents have it securest million dollar bond.
Speaker 1: Can you explain how that works? Well, it's it's not
Speaker 1: so much the worth of the house, um, but it
Speaker 1: is that he will be on the hook and his
Speaker 1: parents will be on the hook for two hundred fifty
Speaker 1: million dollars if he breaches any of these bail conditions.
Speaker 1: Now there are fifteen bail conditions. He's essentially going to
Speaker 1: have to live in home detention with electronic monitoring in
Speaker 1: his parents house in California. Uh and uh they used
Speaker 1: their house um as a surety UM attached to the bond.
Speaker 1: So again, if he tries to flee, if he breaches
Speaker 1: any of these conditions and a warrant is put out
Speaker 1: for his arrest, the judge warned him actually today UM
Speaker 1: that he will be UM. You know, he will have
Speaker 1: to pay two hundred and fifty million dollars. And I'll
Speaker 1: make the point as well that the prosecutors said that
Speaker 1: this was the largest pre trial bond um in history.
Speaker 1: So Ever, I mean, you've been covering this story every
Speaker 1: step of the way, and it's just a whirlwind. I mean,
Speaker 1: it was just ten days ago on December twelve, that
Speaker 1: Sam Bankman Fried was arrest did in the Bahamas. And
Speaker 1: ten days ago we thought that he was going to
Speaker 1: fight extradition. Walk us through how we got there, how
Speaker 1: we ended up here at this New York court appearance today.
Speaker 1: You're very right. It has been a wild ride over
Speaker 1: the past ten days. Bankman freed has been living in
Speaker 1: the Bahamas for some time, and it was last Monday
Speaker 1: evening that the behind me in authorities acting on a
Speaker 1: proditional restaurant from the US. Arrested bankman freed. He was
Speaker 1: accused of orchestrating a year long fraud through FTX and
Speaker 1: FTX hedge fund um aur a meter research. He appeared
Speaker 1: in court in the Bahamas and he was denied bail,
Speaker 1: and initially he indicated that he would fight extradition to
Speaker 1: the US um but I think there was maybe a
Speaker 1: bit of an insumption that he would be granted bail
Speaker 1: and he would be able to uh leave, moved back
Speaker 1: into his apartment in the Bahamas and fight extradition from there.
Speaker 1: But he was taken to quite a notorious prison in
Speaker 1: the Bahamas, where he has been for more where he
Speaker 1: was for more than a week. Then he changed his
Speaker 1: mind over the weekend and decided that he was going
Speaker 1: to consent to extradition back to the United States, and
Speaker 1: that played in his favor in the bail hearing today.
Speaker 1: The prostitutor said that if he hadn't have if he
Speaker 1: hadn't had consented be coming back to the United States,
Speaker 1: then he may not have been getting bail today. He
Speaker 1: was flown back from the Bahamas to um White Plains
Speaker 1: north of Manhattan last night. He was escorted by FBI
Speaker 1: agents and then appeared for the first time in court today.
Speaker 1: And another major announcement regarding this case is former Element
Speaker 1: the chief executive officer Caroline Ellison and former ft X
Speaker 1: Chief Technology Officer Gary Wayang. They pleaded guilty to fraud
Speaker 1: and we're cooperating with the prosecution. Boy, I didn't see
Speaker 1: that coming give us kind of what we know now.
Speaker 1: I think there was a lot of rumor and speculation
Speaker 1: at out who from FTX was co operating or wasn't cooperating.
Speaker 1: Banquetfried had been very vocal about what happened at ft
Speaker 1: X or his version of events ever since it all
Speaker 1: collapsed early last month. He was doing a lot of
Speaker 1: media interviews UM, but his co executives and the people
Speaker 1: that are closest to him UM were noticeably quiet. And
Speaker 1: the timing on this announcement about UM Ellison and sorry
Speaker 1: about the Caroline Ellison and Gary Wayange pleading guilty was
Speaker 1: really interesting. UM. The prosecutors here in New York waited
Speaker 1: until he was on the plane in the custody of
Speaker 1: US law enforcement UM and on his way to New
Speaker 1: York before they announced that Caroline Ellison and Gary Wang,
Speaker 1: who had been with Banker and Freed from the very
Speaker 1: early stages of ftx UM, had actually been cooperating the
Speaker 1: SUN and they had both pleaded guilty to fraud charges.
Speaker 1: Ellison has pleaded guilty seven charges, Wayang has pleaded guilty
Speaker 1: to four, and they have agreed to cooperate with prosecutors.
Speaker 1: This is obviously a massive blow for bank and Freed.
Speaker 1: Uh and they will be really, really valuable for the
Speaker 1: prosecution case. Well, that's what I've been wondering what this
Speaker 1: means for bank Man Freed's defense, because, I mean, during
Speaker 1: his media tour, he was very clear that he it
Speaker 1: wasn't necessarily intentional, it was management missteps that at least
Speaker 1: is what he was trying to present. But now that
Speaker 1: you have these two, these two very inner circle people,
Speaker 1: I don't know how much more inner circle you can
Speaker 1: get plead and guilty cooperating. I mean, what does that
Speaker 1: mean for bank man Freed exactly? And during his media
Speaker 1: interviews before his arrest, he was attempting to shift the
Speaker 1: blame a little bit to Alameda and saying that he
Speaker 1: didn't have as much oversight over Alameda as he should have,
Speaker 1: and he wasn't quite sure what was going on there,
Speaker 1: because one of the key issues of this case obviously
Speaker 1: is the use of FTX customer funds um to place
Speaker 1: high respects and prop up Alameda, And so he was
Speaker 1: attempt him to sort of put that hedge fund house
Speaker 1: arms lank Um and we sort of got maybe a
Speaker 1: little bit of a preview or the argument he might
Speaker 1: put up at a future court case. But Gary Wayang,
Speaker 1: I think will be a difficult witness to get around.
Speaker 1: He lived with Bankman Freed in the Bahamas. He was
Speaker 1: the chief technology officer of ft x UM. He wrote
Speaker 1: the codes that helped establish FTX. He was, you know,
Speaker 1: all accounts working side by side with him. So it
Speaker 1: might be a difficult argument for Bankman Free to make
Speaker 1: that he didn't know what Wayne was up to when
Speaker 1: Wayange has admitted to UM engaging in fraud. So we
Speaker 1: only have about twenty seconds left with you. But I
Speaker 1: am curious what should we be watching for next? What's
Speaker 1: next in the timeline? Uh, well, we're waiting now for
Speaker 1: bankman Free to walk out of the court house, his
Speaker 1: parents Barbara and Joseph to standford awful professors were um
Speaker 1: here in court. We're waiting for them all to walk work,
Speaker 1: walk half and then he will have to make his
Speaker 1: way back to California. So I guess we're watching to
Speaker 1: see as he abides by those bowel conditions. But also well,
Speaker 1: students have their eye on alright, great stuff. That is
Speaker 1: ava Benni Morrison on the phone outside the Southern District
Speaker 1: Court of New York in New York City, giving us
Speaker 1: all the latest on Sam bankman Fried and that FTX
Speaker 1: fraud case. Definitely a lot of moving parts here, these
Speaker 1: sees Bloomberg Business Week with Carol Masser and Tim Stinebeck
Speaker 1: on Bloomberg Radio. Well, how about this for an uplifting
Speaker 1: uh title? Here? Federal Reserve doesn't care about misery investors
Speaker 1: are feeling. And then I read along supporting stock and
Speaker 1: bond markets. That's not the business of the Federal Reserve.
Speaker 1: As I read those two things, I said, this feels
Speaker 1: it sounds like a Michael Reagan, you know, piece of writing.
Speaker 1: And sure enough, that's what it is. Joe Weber, editor
Speaker 1: Bloomber Business Week, joins us here in our Bloomberg Inner
Speaker 1: Actor Broker studio, and he said, Mike Reagan, Senior editor
Speaker 1: for Bloomer Market Joints is on zoom from New Jersey
Speaker 1: with his Maryland Turps sweatshirt. Looks like there we go.
Speaker 1: All right, Maryland football, are they bowling? Yeah, Maryland has
Speaker 1: they are? Yeah, the Duke's mayonnaise ball, which we of
Speaker 1: course is the most sure, absolutely exactly. All right, Joel,
Speaker 1: talk to us about kind of what we're doing here
Speaker 1: with this column. Here the feder reserves not in the
Speaker 1: business supporting stocks and bonds. Yeah, you know, when we
Speaker 1: just we're talking about um. The year that's been one
Speaker 1: of the themes has just been how you know, for
Speaker 1: a long time, it felt like there was a punch
Speaker 1: bowl and the FED was there to like host a
Speaker 1: great fun party and everything always went up. And then
Speaker 1: all of a sudden that punch bowl was taken away
Speaker 1: and um some carnadge and suit and obviously um inflation
Speaker 1: being a huge theme of the year, and the FED
Speaker 1: continuing to raise rates and any sort of uh accommodation
Speaker 1: that once may have felt like it from the Fed
Speaker 1: is nowhere to be seen. And in fact, that uh
Speaker 1: J pal might look a little bit like a certain
Speaker 1: you know, movie poster and from the movie Misery or something,
Speaker 1: right right, Mike, that was where we went with the
Speaker 1: art in this one. Yeah, pretty much. You know, it's
Speaker 1: interesting in that, you know, you can have this economy
Speaker 1: that on the surfaces is sort of booming. You know,
Speaker 1: we got that GDP print this morning three points percent.
Speaker 1: We've got a unemployment rate that's three point seven percent,
Speaker 1: you know, near a fifty some year low. But if
Speaker 1: the inflation picks up like it has this here, it's
Speaker 1: it's an economic uh emergency basically that the FED has
Speaker 1: to fight because you know, inflation really can cause maybe
Speaker 1: less pain less misery than unemployment uh per person that
Speaker 1: it affects, but it affects everyone, right, a broader swath
Speaker 1: of the population. So I went back to this, uh
Speaker 1: one of my favorite indexes, the misery index. It's called
Speaker 1: Arthur Oakin, who was a advisor to lb J president
Speaker 1: Lyndon Johnson in the in the sixties. And I love
Speaker 1: it because the math and it's very simple. It's just
Speaker 1: the unemployment rate plus the inflation rate, and the idea being,
Speaker 1: you know, it's either ones elevated you've got problems in
Speaker 1: the economy, um And in this case, it's it's the
Speaker 1: inflation that's elevated. So as you put out Joel, you
Speaker 1: know that the markets got used to this, the FED
Speaker 1: that would always come to the rescue if the stock
Speaker 1: market or even the bond market was looking wobbly and
Speaker 1: and you know, headed towards a bear market or a
Speaker 1: big drop. And I think there was a tough lesson
Speaker 1: for investors to learn this year that it's not the
Speaker 1: case this time that you know, um, it's it's really
Speaker 1: this inflation is causing so much misery for so many
Speaker 1: people that that um, they're willing to really just allow
Speaker 1: the markets to to create this pain for investors this year.
Speaker 1: So a lot of misery to go around. To say,
Speaker 1: my personal Misery index has a few more components than
Speaker 1: just those two, but it's a pretty good give me
Speaker 1: with the With the next one, it depends heavily on
Speaker 1: the weather, but in any case, yeah, it's going to
Speaker 1: be disgusting tomorrow. But Mike, I do want to push
Speaker 1: back a little bit on the headline. So the Fed
Speaker 1: doesn't care about the misery investors are feeling. But if
Speaker 1: you look from the perspective of financial conditions, in some way,
Speaker 1: they they do care, and they actually like it when
Speaker 1: you think about what they're trying to accomplish, fight with
Speaker 1: me a little bit, Yeah right, No, I mean you're
Speaker 1: absolutely right. I would never fight with you, thank you,
Speaker 1: because they're just gonna throw me under the bus there. Well,
Speaker 1: Joel put that in there. Well, that's the thing. You know.
Speaker 1: The financial conditions are exactly the one tool that the
Speaker 1: FED has at its disposal, and the way, you know,
Speaker 1: the remote control for that tool is is interest. Right,
Speaker 1: So if uh, you know, unemployment is their concern, if
Speaker 1: inflation is not an issue. As you know, it wasn't
Speaker 1: really an issue for how long they're from you know,
Speaker 1: basically since the global financial crisis in two thousand and
Speaker 1: eight all the way up until COVID there there was
Speaker 1: no no real worry about the inflation from Feds. So
Speaker 1: they really were focused on that other side of their mandate,
Speaker 1: the the employment situation and trying to make sure the
Speaker 1: economy was at full employment. So, um, you know, if
Speaker 1: you can keep rates low to keep financial financial conditions
Speaker 1: accommodative to the economy, Um, that's what they did for
Speaker 1: so long. It kind of lulled the market into thinking, uh,
Speaker 1: you know, the FED has this unspoken third mandate to
Speaker 1: to really prop up the stock and bond markets. Um. Well,
Speaker 1: and doesn't it feel just like the markets like that
Speaker 1: that third rail is like, you know, if you're in
Speaker 1: the markets, that's what you really do want. All all
Speaker 1: year it felt like that. It was just like, at
Speaker 1: some point here the Fed's gonna cave and it's all
Speaker 1: gonna go our way, and we'll be we'll be ready
Speaker 1: for that moment. And yet that moment simply has has
Speaker 1: not happened this year, and if we look ahead, probably
Speaker 1: not gonna happen for for a while. Still. Yeah, yeah,
Speaker 1: I would think I would guess at least not until
Speaker 1: and not in the first half of the year for sure.
Speaker 1: Maybe towards the back half of the year we'll start
Speaker 1: getting some hints and some clues. Um. But yeah, you know,
Speaker 1: and to Katie's point, I mean, now they're using that
Speaker 1: tool of financial conditions for the opposite purpose to to
Speaker 1: really cool off the economy, to undergree to cool off
Speaker 1: the job market. Um and inflation. Uh So it's you know,
Speaker 1: it's what they've always said that they do. You know,
Speaker 1: they haven't made it much of a secret or much
Speaker 1: of a mystery, but investors sort of hear what they
Speaker 1: want to hear, I think, and Um, you know, so
Speaker 1: that this is the year where it was kind of
Speaker 1: a reality check for markets, I think, and that's sort
Speaker 1: of the point of this column is that you know, uh,
Speaker 1: to go back to Arthur Oakan and his his delightfully
Speaker 1: simple index. You know, that's it. Job market and inflation
Speaker 1: UH are to him as far as how do you
Speaker 1: gauge sort of whether the nation is miserable or not?
Speaker 1: And so the FED to to fulfill their mandates from Congress,
Speaker 1: those are the two inputs they look at. So you know,
Speaker 1: if if it's the unemployment rate that's causing the misery,
Speaker 1: they're gonna err on the side of being too accommodative
Speaker 1: to financial conditions and and actually will prop up the
Speaker 1: stock market in the bond market, um to some degree.
Speaker 1: If though it's inflation like we saw this year, Um,
Speaker 1: they're turning that knob the other way and tightening financial
Speaker 1: conditions to uh to make sure that you know, the
Speaker 1: child market doesn't get too hot, wage growth doesn't get
Speaker 1: too hot and feed into that inflation problem by forcing
Speaker 1: companies to raise prices to cover these higher wages. So UM,
Speaker 1: and I think you're right Sol that, Uh, it doesn't
Speaker 1: seem like they'll be turning that knob back the other direction. Uh,
Speaker 1: at least not in the foreseeable future. Again, maybe maybe
Speaker 1: they'll start hitting at it later in Alright, great stuff.
Speaker 1: Mike Greagan, senior editor for Bloomberg Markets, joining us on
Speaker 1: Zoom from New Jersey, donning his Maryland terps. Uh, pull
Speaker 1: over there, good stuff. Joe Webber, Editor Bloomberg Business Week.
Speaker 1: Here in a Bloombergan Actor broker studio. You're listening to
Speaker 1: Bloomberg Business Week with Karrol Messer and Tim Stenovic on
Speaker 1: Bloomberg Radio. Well, it's been over an hour, Paul. We
Speaker 1: haven't even talked about Elon Muskat that button on. I know,
Speaker 1: but there's so much going on there. You know. You
Speaker 1: talked to some of these shareholders and the south side
Speaker 1: analysts that have been recommending this company, recommending this technology,
Speaker 1: recommending this management team. They're they're understandably upset. Well, let's
Speaker 1: talk to a shareholder now, someone who has been following
Speaker 1: Tesla for a while. His name is Gary Black. He
Speaker 1: is a portfolio manager. Uh. He manages the Future Fund
Speaker 1: active exchange traded fund. That's my world at cover ETFs.
Speaker 1: The ticker there is f F and D Gary joins
Speaker 1: us on the phone from Chicago, and Gary, I'm looking
Speaker 1: at your holdings right now. I see Tesla is your
Speaker 1: biggest position by market value. But I don't know, looking
Speaker 1: over your notes, you don't seem too pleased with Elon
Speaker 1: Musk right now. Well, it's definitely hurt us this year.
Speaker 1: And I guess you know. Look, we look at Tesla
Speaker 1: and it's got great fundamentals as ev adoption global EVY adoption.
Speaker 1: Right now it's about ten percent global. We think it'll
Speaker 1: be by uh, Tesla earnings should explode, and you know,
Speaker 1: from a fundamental standpoint, we're looking for about seven dollars
Speaker 1: and earnings next year, which kind of puts Tesla about
Speaker 1: a I don't know an e tempe, which is about
Speaker 1: where the SMP is. But it's growing earnings at a year.
Speaker 1: But it's the noise from Twitter and Ellen tweeting out
Speaker 1: his um his political views and all the drama that
Speaker 1: is killing the stock right now, and we just have
Speaker 1: to stomach it and wait till that ends. Well, it's
Speaker 1: it's interesting, Gary, I mean, Tesla is theoretically a publicly
Speaker 1: traded company. There is public shareholders, board of directors. As
Speaker 1: a shareholder are you frustrated that no one entity, no
Speaker 1: one person, whether no board is able to rain in?
Speaker 1: Mr Musk, I believe that the reason you saw this
Speaker 1: Twitter poll that came out Sunday night where you said
Speaker 1: should I step down from Twitter as CEO? I think
Speaker 1: the board frustrated them to do it. I know very
Speaker 1: I've been on two public boards, I've been a CEO.
Speaker 1: I know very few public boards will allow somebody to
Speaker 1: moonlight as a CEO and another company I certainly wasn't
Speaker 1: able to do it. And you know, a Twitter, he's
Speaker 1: basically rebuilding it from the ground up. So I've written
Speaker 1: letters to the board. I've you know, not been an
Speaker 1: activist because we don't practice that style of management. But
Speaker 1: I'm frustrated. I know um Leo Kogowan, who is the
Speaker 1: third largest individual shareholder after Ellen and Larry Ellison, has
Speaker 1: he voiced his frustrations. Many of us are frustrated. But
Speaker 1: you know, I believe that the board is trying to
Speaker 1: pressure Ellen in in a in a nice way, you know,
Speaker 1: in a constructive way. I'll say to do the right thing,
Speaker 1: which is to step off the Twitter board, bringing a
Speaker 1: new CEO and focus on Tesla. Tesla has a clear
Speaker 1: path to being a three trillion dollar company because of FSD,
Speaker 1: because of ev adoption, because of all the new product
Speaker 1: launches coming like Cybertruck. There's a thirty dollar ev coming
Speaker 1: um and yet it's it's you know, from a stock standpoint,
Speaker 1: it's failing miserably because of all the Twitter noise. So
Speaker 1: I do believe they're trying to do something about it.
Speaker 1: I don't think that that that pol would have just
Speaker 1: showed up out of nowhere on Sunday Unite unless the
Speaker 1: board was pressuring him to step down. Garry, did you
Speaker 1: vote in the poll? Of course I voted yes. One
Speaker 1: of the debates, one of the debates is, you know,
Speaker 1: did Ellen know the results beforehand? I think he viewed
Speaker 1: that he was going to win, I meaning the people
Speaker 1: say no, don't step down, because he was tweeting all
Speaker 1: throughout the pole like be careful what you wish for
Speaker 1: and nobody can do this. You know, nobody would be
Speaker 1: liot enough to take this job. And you know that's
Speaker 1: partially true because he has vowed to stay on as
Speaker 1: the head of I think software and I don't know
Speaker 1: what he calls it, buts and and you know, look
Speaker 1: if I'm and we can go through the names of
Speaker 1: people who I think could be interested, but if I'm
Speaker 1: one of those people, I don't know if I would
Speaker 1: want to sign up if he's going to be very,
Speaker 1: very involved, and you know, and look what he's done again,
Speaker 1: I'm voicing my frustration. I'm not knocking the guy because
Speaker 1: he's brilliant, but you know, he has basically blamed the
Speaker 1: test of stock price to client underfed raising interest rates.
Speaker 1: That's that that's just not true. If you look at
Speaker 1: tests of stock price this year through September, uh they
Speaker 1: were actually outperforming Nazdak. They were down twenty five, but
Speaker 1: NASAC was down thirty three. Since October one, um Tesla
Speaker 1: is down fifty two and Nazac is down three. And
Speaker 1: you know what has happened in that time is they
Speaker 1: missed on third quarterblans because of China. And that's again
Speaker 1: their own vault because they didn't have a thirty thou
Speaker 1: dollar EV one and two he bought where he took
Speaker 1: possession of Twitter and then you know, I made a
Speaker 1: series i'd say mistakes um at at running Twitter, and
Speaker 1: you know, he he angered a lot of the advertisers
Speaker 1: by saying if you leave, I'm gonna name and shame you.
Speaker 1: That's not the way you treat an advertiser. Um. And
Speaker 1: then there was a there was a constant like constant
Speaker 1: action that you know, created a lot of drama, like
Speaker 1: when they launched that Twitter blue and you know, they
Speaker 1: didn't think it through and people signed up, and then
Speaker 1: you had things like you know, super Mario putting his
Speaker 1: middle finger up. Uh, you know, and if you're an advertiser,
Speaker 1: that's what you're most concerned about, product adjacency. So I
Speaker 1: just think the drama's got to stop. And then, you know,
Speaker 1: the third thing is him tweeting out constantly his political beliefs.
Speaker 1: That's fine, he can have his political beliefs, but but
Speaker 1: you're gonna you're gonna anger the very when you when
Speaker 1: you accused people of having woke mind virus and stuff
Speaker 1: words like that, you're basically angering the very people that
Speaker 1: you're trying to buy get to buy e v s.
Speaker 1: And so the big question that we have and everybody's
Speaker 1: trying to and this is why I think the stock
Speaker 1: is getting hammered. Is the testa EV brand taking a
Speaker 1: hit because of all this Twitter drama. And I would
Speaker 1: say I don't believe so. But the more he stays
Speaker 1: on Twitter and keeps tweeting out you know stuff, I
Speaker 1: think the more likely is that the EV takes it
Speaker 1: hit and it's and it becomes no longer cool to
Speaker 1: drive Teslas anymore, becomes almost like, I don't know, it's it's, it's,
Speaker 1: it's it's The people will be embarrassed if he doesn't,
Speaker 1: not at all. So Gary, given that backdrop, who in
Speaker 1: the right mind would take the job at CEO? Do
Speaker 1: you have any thoughts as to I don't know who
Speaker 1: might take that job because they're not even really gonna
Speaker 1: be the CEO. Yeah. Well, look the people who are qualified,
Speaker 1: if Ellen would would let them do the job. Cheryl
Speaker 1: Sandberg X Facebook could clearly do it. Um Brett Taylor
Speaker 1: if he's x U CRM salesports dot com he was
Speaker 1: the co CEO. Um, he could do it. Um. Marissa
Speaker 1: Mayer ex Google uh and um um Yahoo could do it.
Speaker 1: But you know, you need somebody who really can regain
Speaker 1: the trust of advertisers. You need somebody who's proven they
Speaker 1: can monetize a user base. Because Elana said he wants
Speaker 1: more user fees and he wants to do more e commerce.
Speaker 1: You need somebody with you know, the tech passion because
Speaker 1: Ellen is not going to hire somebody unless they're technic. Technologically, um,
Speaker 1: you know they have good tech skills. You need somebody's
Speaker 1: strong financial actiment because the company's got huge debt. And
Speaker 1: then you need somebody who can lead the troops. And
Speaker 1: then I would have a six fact. You need somebody
Speaker 1: who complements Elon, and Elon respects and shares his vision
Speaker 1: and his work ethic. And look, there's there's probably a
Speaker 1: handful of people in the world that can do all
Speaker 1: those six things, but it can't be somebody who's just
Speaker 1: that you know, there are a lot of names thing
Speaker 1: thrown around. Um that's just a tech person, you know
Speaker 1: who has a YouTube podcast and talks about technology, which
Speaker 1: some of the names out there and extent that that's
Speaker 1: just that's crazy. UM won't respect that. So I think
Speaker 1: there are people out there, But will Ellen give the
Speaker 1: person enough room to actually make decisions and you know,
Speaker 1: do what they need to do if he's going to
Speaker 1: still be in love? I think that's the challenge. And look,
Speaker 1: during the interview process, you can that's what that's what
Speaker 1: you figure out. And I've worked for entrepreneurs before the
Speaker 1: CEO something you have to figure out will the person
Speaker 1: give your room to make decisions or not? And Gary,
Speaker 1: just a little bit more of a technical Wall Street question.
Speaker 1: Do you have any knowledge of some of these stock
Speaker 1: sales from Elon Musk. Were they solely primarily to raise
Speaker 1: cash for to support the debt or were they potentially
Speaker 1: margin calls from investment banks that where he may have
Speaker 1: pledged his stock is collateral. No, they weren't margin calls.
Speaker 1: I know that because he doesn't margin himself up that much.
Speaker 1: And look there there was seven and a half billion
Speaker 1: dollars worth of test. Elon sold seven a half billion
Speaker 1: dollars with the stock since he took over Twitter. Since
Speaker 1: October he sold forty one million shares. And what I
Speaker 1: gather from both talking to people listening to him on
Speaker 1: that that is going into Twitter. It's partly too, some
Speaker 1: of the debt, which is very expensive. There's about three
Speaker 1: billions a debt that is um eleven point seven and plus.
Speaker 1: I think you know he's mentioned this. It's burned cash
Speaker 1: at the rate of about three billions while he's cut
Speaker 1: about half the people out. Gary, we only have about
Speaker 1: a minute left with you and I want to get
Speaker 1: back to Tesla, And I mean, at a certain point
Speaker 1: do you start selling out of Tesla again, It's the
Speaker 1: biggest position in your fund. At what point would that
Speaker 1: change if we thought fundamentals had changed, meaning that the
Speaker 1: brand is now no longer in favor and people aren't
Speaker 1: gonna buy it anymore, we would then we would cut
Speaker 1: our estimates, and we would we would sell some. But
Speaker 1: at a hundred and twenty four dollars, the stock is
Speaker 1: selling at the same multiple as the SFP five for
Speaker 1: next year on our estimates, and yet it's growing at
Speaker 1: a year and I can't in good conscience, you know,
Speaker 1: sell it now? Are you at it? We've been holding
Speaker 1: off because we felt that there still could be some
Speaker 1: more you've got window dressing going on. This is more
Speaker 1: from a trading standpoint. You know, people who have lost
Speaker 1: Funny tested down six percent this year, you know, do
Speaker 1: not And this is more hedge funds. They do not
Speaker 1: want to show it in one of their top ten positions.
Speaker 1: Institutional managers are so focused on it. But that's something
Speaker 1: that we've kind of been waiting for. And look, we'll
Speaker 1: probably get to it at the end of the year.
Speaker 1: All right carry. Unfortunately have to go. We have to
Speaker 1: catch up with you next year. That is Gary Black,
Speaker 1: portfolio manager of the Future Fund Active E t F,
Speaker 1: joining us on the phone from Chicago. I'm a journal now,
Speaker 1: but you let me drive? Oh no, no, no, no please,
Speaker 1: I'll do vels. I want to drive. It's a good
Speaker 1: question time drive to the clothes on blue Berg Radio.
Speaker 1: All right, we are about eighteen minutes away from the
Speaker 1: close of trading on this Thursday. Let's get a little
Speaker 1: insight on the auction with Christopher Zooki is founder, chairman
Speaker 1: and chief investment officer over at c A Z Investments.
Speaker 1: He joins us on Zoom from Houston. Christopher, great to
Speaker 1: have you. It's uh looking like an ugly end to
Speaker 1: an ugly year, thinking about three. Do you see any
Speaker 1: brighter lights there or is there more pain ahead? Well,
Speaker 1: thank you for having me. It's it's tough to be
Speaker 1: in a bad mood when you hear songs like that
Speaker 1: in the intro, but then you look at the screen
Speaker 1: and everything is red, so it kind of wakes everybody
Speaker 1: up and makes them a little bit of a reality
Speaker 1: of what this year has been. So, you know, we
Speaker 1: do look at two thousand twenty three, much the same
Speaker 1: as we did when we started this year. We talked
Speaker 1: about at the begin ending of the year what we
Speaker 1: call the double punch to the gut. When you look
Speaker 1: at most major bearer markets, the comprise of two phases.
Speaker 1: The first phase is the valuation compression, as everybody goes, oh,
Speaker 1: it was way too high. It needs to be lower,
Speaker 1: and that first punch hurts. But it's the second punch
Speaker 1: to the gut that really really does the damage, because
Speaker 1: that is the earnings recession, that is the earnings decline,
Speaker 1: and we feel like we're at the beginning of that.
Speaker 1: And whether you talk about Carmacks, you talk about some
Speaker 1: of the other names that have not been great, Microns, numbers, etcetera,
Speaker 1: it is clear that we are at the beginning of
Speaker 1: this earnings decline, not the end of it. Chris, I
Speaker 1: love your resume because it's got some of the names
Speaker 1: that I just love on Wall Street, Potential Securities, Lehman Brothers,
Speaker 1: and one of my alma Maters Pain Webber great firms. Unfortunately,
Speaker 1: none of those three around anymore. So I'm not sure
Speaker 1: what that says about you and me, and maybe been
Speaker 1: too long in this business but you know, Chris, you
Speaker 1: could take a look at the argument that says, all right,
Speaker 1: I've got inflation, I've got light at the end of
Speaker 1: the tunnel as it relates to interest rate increases, that's
Speaker 1: probably a mid twenty three event. And how much can
Speaker 1: earnings risk be? So I got two out of three
Speaker 1: things working for me, maybe I should be putting on
Speaker 1: some risk. Here is goe. But you think that earnings
Speaker 1: risk opponent is still too much that you don't want
Speaker 1: to get in front of that. I think so you
Speaker 1: definitely have to look at the third as the most severe.
Speaker 1: But I'll add a couple to them, all right. And
Speaker 1: to be very very clear, this market right now, you know,
Speaker 1: rallied again for no real reason. It is likely to
Speaker 1: come down, and obviously today is maybe the precursor of
Speaker 1: things to come. But what concerns us the most right
Speaker 1: now is the consumer. Because most people are not talking
Speaker 1: about that. They're talking about the FED, they're talking about rates.
Speaker 1: All those matter tremendously, But the actual economy and what
Speaker 1: drives companies earnings plus the GDP. Last time we looked
Speaker 1: as the consumer themselves. So those consumers are just now
Speaker 1: beginning to field the real impact of rates that have
Speaker 1: come through this year. You know, looked at I think
Speaker 1: the number was mortgage payment at the beginning of the
Speaker 1: year would buy you a four eight thousand dollar house.
Speaker 1: Today it's something like a three dollar house or maybe
Speaker 1: even less than that. That is a huge wealth effect
Speaker 1: and a negative wealth effect. Car Max is just a
Speaker 1: great example where everybody and their brother bought a new
Speaker 1: car or a used car. I knew to them car
Speaker 1: in two thousand one with all the stimulus money, and
Speaker 1: now they're like, I maybe I don't need a new
Speaker 1: car that much or a new used car that much,
Speaker 1: So I'm going to delay those purchases. And as we
Speaker 1: see that decline of demand and combine that with a
Speaker 1: rising costs that are still there. Inflation maybe peaking, but
Speaker 1: margins are still going to compress because expenses are high
Speaker 1: and demand is dropping. Profit margins compressing is usually would
Speaker 1: cause his most major earnings recessions to occur. I want
Speaker 1: to talk about the bond mark it a little bit.
Speaker 1: You know, we've been talking a lot about the equity market,
Speaker 1: which hasn't been pretty. Hasn't been too pretty in the
Speaker 1: bond market either, But Christopher, I look across Wall street,
Speaker 1: it seems like everyone is a bondable. Do you fall
Speaker 1: on that camp as well. No, we don't, and it's
Speaker 1: because we tend to be a little bit contrarian. We
Speaker 1: definitely got more bullish when things in September October probably
Speaker 1: went a little bit too far because the FED is
Speaker 1: going to begin to taper and they're going to slow
Speaker 1: their rate of increase. But the market right now is
Speaker 1: forecasting in you know, by the end of two thousand
Speaker 1: twenty three, that the FED is going to cut rates
Speaker 1: as much as a hundred forty basis points. We think
Speaker 1: that probably is a little optimistic. It's likely that that's
Speaker 1: pushed out into twenty four, etcetera. So if inflation stays
Speaker 1: stubbornly high and the FED does not give an indication
Speaker 1: that we're going to be cutting rates anytime soon, we
Speaker 1: feel like that could be a real bad place for
Speaker 1: investors to be. The only exception to that, I'm gonna,
Speaker 1: you know, disagree with myself here for a second, because
Speaker 1: I think it's important. The only exception of that would
Speaker 1: be if the recession turns out to be a doozy
Speaker 1: technical term, if it really turns out to be bad, well,
Speaker 1: then the long end of the curve is gonna come
Speaker 1: down a lot more, in which case it would make
Speaker 1: sense to be bullish long term thirty year bonds, maybe
Speaker 1: even ten years. But realistically, we don't expect it to
Speaker 1: be a GFC type procession. We expect it to be
Speaker 1: a serious recession, but not that bad, and so we
Speaker 1: think that the bond market has already adjusted a lot
Speaker 1: to what's likely to occur. So from here the risk
Speaker 1: rewards is not very good. So no haven bid necessarily,
Speaker 1: I don't think so. Um, you could see it. If
Speaker 1: the recession turns out to be just a draconian type scenario,
Speaker 1: you could see that haven bid, but we feel like
Speaker 1: that's gonna be more on the short end. You're just
Speaker 1: gonna see more money flow into you know, two's and
Speaker 1: fives and that kind of thing, as opposed to going
Speaker 1: out and taking more risk on the tens um. Again,
Speaker 1: if it turns out to be a GFC type and
Speaker 1: ten years going to go back to one fifty, well
Speaker 1: then yeah, you want to be long tenures right now,
Speaker 1: we just don't think that's likely. That of Churse, we
Speaker 1: know you're in Houston, we know your native Houstonian, you're
Speaker 1: involved in your community. Just give us a sense of
Speaker 1: on the ground, how are things in Houston, how's the economy,
Speaker 1: how's the outlook as we come out of this pandemic.
Speaker 1: You know, it's a it's we're doing really well as
Speaker 1: a city. And it's a combination of how the energy
Speaker 1: markets are certainly a lot more favorable than they've been
Speaker 1: in a while. We also have such a dominant healthcare
Speaker 1: you know, uh and and fantastic health care facilities you
Speaker 1: know here with the Texas Medical Center and so much
Speaker 1: else that we've done to diversify our city. You know,
Speaker 1: we're dealing with some of the other issues related to
Speaker 1: commercial real estate that everywhere else is right now, but
Speaker 1: not as bad. So when we look at the major
Speaker 1: pockets of the city, we're actually doing really well. Um,
Speaker 1: we've got good job growth. We've got a lot of
Speaker 1: people moving here from other parts of the country. And
Speaker 1: so when you have good job growth and you have
Speaker 1: new you know, people moving in, it means that our
Speaker 1: housing markets are pretty stable and doing okay. And then
Speaker 1: we also have a healthy job market for people that
Speaker 1: want to come here to work. So we welcome you
Speaker 1: to Texas. Good stuff, all right, Christopher, We appreciate you
Speaker 1: taking the time. Christopher's book, founder, chairman and chief investment
Speaker 1: Officer of c A Z Investments, joining us via zoom
Speaker 1: from Houston. He has a cautious outlook, pragmatic outlook, of
Speaker 1: caution outlook, and he says you probably don't want to
Speaker 1: get in front of earnings revisions, downward earning revisions, and
Speaker 1: he thinks we still have more to go for earnings
Speaker 1: next year and beyond. Thanks for listening to Bloomberg Business Week.
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