Speaker 1: This is Bloomberg Business Week Inside from the reporters and
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Speaker 1: Podcast with Carol Messer and Tim Stenebec from Bloomberg Radio.
Speaker 1: We'll set your alarms everyone, because tomorrow we will get
Speaker 1: Warren Buffett's always closely watched annual letter to shareholders, along
Speaker 1: with Berkshire's full year twenty twenty two results. This is
Speaker 1: coming about eleven days after we got news that Buffett
Speaker 1: had slashed his holding of TSM. We're talking about Taiwan
Speaker 1: Semiconductor Manufacturing, just months after disclosing a major stake, an
Speaker 1: unusually quick reversal by the legendary stock picker who tends
Speaker 1: to buy and hold in a big way. Yeah. And also,
Speaker 1: just Berkshire is such a beloved like we love to
Speaker 1: watch it, We love to analyze this letter. So we're
Speaker 1: going to break it down with Bloomberg News Regional Banks
Speaker 1: and Insurance reporter at Max Reyes. He's here with us
Speaker 1: in our Bloomberg Interact of Broker's studio. Max, thank you
Speaker 1: so much for joining us to talk about this. First
Speaker 1: of all, just to give us the breakdown on why
Speaker 1: we know and love this annual letter so much. Sure,
Speaker 1: I mean, I think there are a lot of executives
Speaker 1: who do these, but Warren Buffett really sort of set
Speaker 1: the template. He set the mold when it comes to
Speaker 1: doing them. Buffett is known for talking about any number
Speaker 1: of things. Very often returns to his love for and
Speaker 1: his major bets on the US economy, but you know,
Speaker 1: literally anything could come up. The one thing I would
Speaker 1: say is that he's become a bit more reserved in
Speaker 1: terms of what he talks about. But it's I'm still
Speaker 1: expecting to see some surprises tomorrow. You never know. Last year,
Speaker 1: for the first time, he gives them space to Greg Abele,
Speaker 1: who's sort of the air apparent there. So I'm just
Speaker 1: curious to see what he has in store for us. Okay,
Speaker 1: real quickly, on that succession plan, do you anticipate any
Speaker 1: more of that coming up in the letter coming out tomorrow?
Speaker 1: I really don't want to jinx it, but that's what
Speaker 1: you're hoping for, So I think I don't think we'll
Speaker 1: hear more about what Buffett is wanting to do. I
Speaker 1: think Buffett will you know, he's there for the long term, right.
Speaker 1: But what we what we have been hearing, what we
Speaker 1: have been wondering about, is whether or not there might
Speaker 1: be plans around declaring or noting Joe Brandon, who runs
Speaker 1: Allegheny the the insurer they bought last year, whether or
Speaker 1: not that might make it clear that he's ready or
Speaker 1: trime to take over the insurance business. Right. Um, currently
Speaker 1: a g Jane runs that, but it's unclear how long
Speaker 1: he'll be there, how long he'll stay, and whether or
Speaker 1: not there are thoughts about making a sort of clear
Speaker 1: indication as to who's going to be in that role next.
Speaker 1: But we know really who the successor is, right for Buffett, Yeah, Yeah,
Speaker 1: that's that's Greg. That's Greg Gabel And so we think
Speaker 1: Jane will ultimately leave because that those two were in
Speaker 1: the running for a while sort of. Yeah, so so
Speaker 1: right now they're both vice chairmen. Essentially, Jane runs all
Speaker 1: of the insurance. Greg Abele runs everything else, ventially non
Speaker 1: insurance as they call it. But insurance has been a
Speaker 1: big business for it's sort of the business, and that
Speaker 1: it is what allowed Berkshire to be Berkshire. Right. They
Speaker 1: use the cash that the insurance businesses generate to do
Speaker 1: all of the deals and all of the stock picks
Speaker 1: that we love to talk about. Right. So, but having
Speaker 1: said that, are we expecting at some point Jane, because yeah,
Speaker 1: just as he gets older, you know, as as the
Speaker 1: company evolves, and kind of going back to what we
Speaker 1: were saying about Taiwan semi right, that's another sign of
Speaker 1: how Berkshire is changing, not just in terms of the leadership,
Speaker 1: but in how those stock decisions are being made, what
Speaker 1: stocks are picking, how long they are in them when
Speaker 1: they rotate out. That kind of comes down to very
Speaker 1: often Buffet's deputies, you know, Todd Combs and then Ted Weschler.
Speaker 1: So I think what we're seeing is Berkshire slowly but
Speaker 1: surely moving towards this era where a lot of the
Speaker 1: folks at the top who have been there basically forever
Speaker 1: eventually are not How are your sources reading the swift
Speaker 1: change on TSMC? Is it as big of a deal
Speaker 1: as it seems? It's a big question mark. A lot
Speaker 1: of folks who I spoke to say that they think
Speaker 1: it's indicative of a bet, that that bet was made
Speaker 1: by Todd or Ted, because again Buffett is known for
Speaker 1: really sticking around there are some exceptions to that he
Speaker 1: did something that looks kind of similar on Oracle. The
Speaker 1: real thing that makes this difficult to sort out is
Speaker 1: the fact that unless Buffett talks about it, either in
Speaker 1: the letter or the annual meeting, we just won't know
Speaker 1: who made the call. He's gone out of his way
Speaker 1: on some occasions to spell out this is my chunk
Speaker 1: of the portfolio, this is someone else's, but it's not
Speaker 1: always clear. So that's the thing that we also have
Speaker 1: to sort of wonder about well. And it's interesting because
Speaker 1: for such a long time, right, Berkshire was really kind
Speaker 1: of your old line companies, right. We know. It was jewelry,
Speaker 1: it was chocolate, it was trained, it was like things
Speaker 1: that you felt like the old time economy, if you will.
Speaker 1: And then when it made the Apple investment a few
Speaker 1: years ago, we realized, okay, things were a little bit different.
Speaker 1: Right now, the younger generation, if you will, at Berkshire
Speaker 1: was certainly making it's mark. Yeah, I mean to your point, right,
Speaker 1: Buffett in Berkshire are kind of infamous for how late
Speaker 1: that they woke up to the sort of value of tech.
Speaker 1: But we are definitely seeing changes there. There's right, there's
Speaker 1: any kind of number of metaphors about how a ship
Speaker 1: is slow to turn or that sort of thing. What
Speaker 1: we are seeing at turn, We're seeing these changes coming about.
Speaker 1: I do wonder in terms of bigger, broader macro like
Speaker 1: if you think about it, I still remember during the
Speaker 1: financial crisis when I want to say, I can't remember
Speaker 1: was it who Buffett was on with? Was it Jamie
Speaker 1: Diamond on sixty minutes? And I remember working in like
Speaker 1: the dark depths, but who basically went on and like
Speaker 1: provided some comfort for everyone, you know, in terms of
Speaker 1: talking about the US economy it's going to exist, and
Speaker 1: my faith in America and those kinds of things. And
Speaker 1: we've seen him in times of stress certainly come out
Speaker 1: and lend his support. We're at this interesting juncture of
Speaker 1: trying to figure out what post pandemic life is like, right,
Speaker 1: and we talk a lot about the FED and high inflation.
Speaker 1: Is it safe to assume that he will dress some
Speaker 1: of these in terms of high inflation, some of the
Speaker 1: big macro stories that are out there. I wish I
Speaker 1: could say yes, and we'll definitely see that, I know,
Speaker 1: we hope. So yeah, again, it's the kind of thing
Speaker 1: where but he tends to touch on the exactly. So
Speaker 1: our assumption is it he'll talk the macro picture, he'll
Speaker 1: walk us through what he sees there, what he thinks there.
Speaker 1: But I don't want to commit to any promises that
Speaker 1: I won't be able to keep come tomorrow morning when
Speaker 1: we see what the case actually is. Well, another story
Speaker 1: I love and the Buffet space is I think it
Speaker 1: was Lebron James. He gave him the investment advice to
Speaker 1: play basketball, right, like, just be good at what you're
Speaker 1: good at, put your money in an index fund. Do
Speaker 1: you mean if it wasn't for Warren, we wouldn't have
Speaker 1: Lebron James. I mean it's possible that he's responsible for Lebron. Right,
Speaker 1: I can't believe I'm talking about sports. This is so
Speaker 1: out of character. But is that investment advice of just
Speaker 1: like stick to a traditional index fund still the mainstay
Speaker 1: of Warren Buffet in Berkshire or do you think it
Speaker 1: is starting to modernize a bit? I think I think
Speaker 1: this is might be not a super helpful answer. But
Speaker 1: what you're saying about sports there, Buffett and people in
Speaker 1: a circle have always stuck to this sort of stick
Speaker 1: to what you're good at ideology. There's actually Charlie Munger
Speaker 1: once said something along lines of, you know, Buffett just
Speaker 1: keeps his head down and focuses on what he needs
Speaker 1: to do to make the company run well and does
Speaker 1: lets the other stuff fall to the side. The same
Speaker 1: reason Buffet's good at his job. It's the same reason
Speaker 1: that Roger Federer is good at a tennis right. It's
Speaker 1: an idea that if you're focusing on what makes sense
Speaker 1: to you and what you know well, and you just
Speaker 1: knock that out right, that's the best thing you can do.
Speaker 1: So if those strategies have been working for you, that
Speaker 1: makes sense. I feel like Berkshire thinks that its strategies
Speaker 1: have been making sense. That's that kind of thing. So
Speaker 1: his strategy is not shifting, then this isn't ye, I
Speaker 1: would say. I would say that Buffett's doing his own thing.
Speaker 1: His deputies are doing what they're doing, that sort of thing. Yeah,
Speaker 1: he definitely has. He does his thing for sure. Shares
Speaker 1: a Berkshire. I'm just looking at them Class A shares.
Speaker 1: They're just down about one percent so far here in
Speaker 1: twenty twenty three. They were up about four percent last year.
Speaker 1: We're going to get full year results what are you
Speaker 1: watching out for it in that regard? Well, So I
Speaker 1: also cover the insurance world pretty closely, so I'm I'm
Speaker 1: kind of an insurance nerd. I'm really curious about what
Speaker 1: we see with Geico. Overall, the results for auto insurers
Speaker 1: across the board have been really difficult because inflation has
Speaker 1: squeezed margins, squeezed out the profitability, And what people really
Speaker 1: want to see is a better sense of what Berkshire
Speaker 1: is doing to combat that, whether that's rate hikes, whether
Speaker 1: that's cutting back on advertising that sort of thing. We've
Speaker 1: gotten a lot of granularity, say advertise so much as yeah, yeah,
Speaker 1: the Gecko all that. So we've gotten a lot of
Speaker 1: granularity in visibility into that from other insurers. I'm keen
Speaker 1: to see what, if anything Berkshire has to say about
Speaker 1: that and how results compare to the sort of difficult
Speaker 1: period we've seen the last few years. Is there one
Speaker 1: particular data point or choice that's gonna be really critical
Speaker 1: for you that you're really on the lookout for on that? Uh,
Speaker 1: it's funny you said the press are here just because
Speaker 1: I control f It's just like succession buffett able. But
Speaker 1: on underwriting specifically, it's just whether or not you know,
Speaker 1: how how the bottom line looks, how underwriting profitability is
Speaker 1: shaping up. Just those factors are going to be what
Speaker 1: determines kind of trajectory at Ico just twenty seconds, which
Speaker 1: of his businesses are doing the best right now? Because
Speaker 1: he's got energy, he's got railroad, he's got manufacturing, He's
Speaker 1: got a lot. Obviously the bets on energy have really
Speaker 1: been paying off. The railroad is a consistent performer, right,
Speaker 1: and that's that's what he looks for. He looks for utilities,
Speaker 1: the sorts of things that will bring in the cash
Speaker 1: in the long term consistently. Well, we really want to know, Max,
Speaker 1: is what time do you have to get up in
Speaker 1: the morning to like read this? What time doing am Eastern? Okay? Sorry,
Speaker 1: tough Friday night for you. We'll be looking forward to
Speaker 1: it because it's certainly a must read. Max. That was
Speaker 1: a great comprehensive background. Uh and and breakdown if you will,
Speaker 1: Max ray As he's Regional Banks and Insurance for Porter
Speaker 1: here at Bloomberg News, joining us in our interactive Brokers studio.
Speaker 1: You're listening to the Bloomberg Business Week podcast. Catch us
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Speaker 1: Alexa play Bloomberg eleven thirty. All right, speaking of pain,
Speaker 1: we know the strong dollar has created a lot of
Speaker 1: pain across global markets. We talk a lot about the dollar,
Speaker 1: it's impact on earnings, on emerging markets, and so much more.
Speaker 1: This is the US currency has been on a global
Speaker 1: rampage since the Fed started hiking interest rates. Now some
Speaker 1: of the world's biggest investors are saying, Mattie, we talked
Speaker 1: about this at the US dollars rain is finally over.
Speaker 1: So now we have to figure out what this ultimately
Speaker 1: means and what this means for global markets. Yeah, it's
Speaker 1: it's absolutely critical, and we've got an amazing voice on
Speaker 1: our program to talk about this. It's the amn or
Speaker 1: most read on the Bloomberg. It's today's big take. Here
Speaker 1: to discuss is Liz McCormack, chief correspondent for Global macro Markets,
Speaker 1: joining us from zoom here in NYC. Liz, thank you
Speaker 1: for being here with us. Tell us about just the
Speaker 1: status of the dollar. Give us the big context here. Yeah,
Speaker 1: so my colleague Ruth Carson, like you said, it had
Speaker 1: a great big take today that you know, there's a
Speaker 1: lot of investors and of course today was a crazy day, right,
Speaker 1: this hot data even talking about and yields one up
Speaker 1: and the dollar one up. But all that noise said,
Speaker 1: you know that investors are really a lot of them
Speaker 1: leaning into that. Really you know, huge high we saw
Speaker 1: last year and the dollar is just the peak. You
Speaker 1: know that things have gotten more inline. Other central banks
Speaker 1: are tightening as fast as the Fed. That maybe we've
Speaker 1: seen the worst of it. And like Carol said that
Speaker 1: it's been a lot of pain for a lot of folks,
Speaker 1: the strong dollars. So maybe you know, nois aside the
Speaker 1: worst of the dollar strength is over. That's the theme
Speaker 1: that people feel, Liz. How much of this is just
Speaker 1: what's going on with the Fed and the expectations that okay,
Speaker 1: we know the Feds on it's you know, fight against inflation.
Speaker 1: We're going to see some more higher rates. It's going
Speaker 1: to go on for a little while, but ultimately we're
Speaker 1: starting to see the end of the Fed's right rate
Speaker 1: hiking cycle. How much of that is impacting the dollar
Speaker 1: at this point, Well, I think that's a lot of it, right,
Speaker 1: Like like we said, when there's some noise and hot day,
Speaker 1: that moves around. But you know, I was talking to
Speaker 1: a fund manager yesterday, Carroll and kind of asked him
Speaker 1: the same exact thing, and he said, yeah, a lot
Speaker 1: of it is that that the FEDS may be closer
Speaker 1: to done. But then he was leaning and we're not
Speaker 1: seeing that yet. Into that, you know, the FEDS closer
Speaker 1: to done and all this tightening, which as we know,
Speaker 1: has a lagged effect. He sees a recession coming at
Speaker 1: the end of this year early twenty twenty four, and
Speaker 1: that the US is going to weaken sharply and that's
Speaker 1: going to be bad for the dollar, right, So I
Speaker 1: think it's the global mac we're all outlook, and you know,
Speaker 1: things globally've gotten a little better than they were, right.
Speaker 1: You know that Europe has done a good job at
Speaker 1: replacing Russian energy sources, right, and so that was better.
Speaker 1: China has reopened faster than some thought, So kind of
Speaker 1: things are helping the other currencies. As of course, the
Speaker 1: dollars always against a pair, right, And then the factors
Speaker 1: we're talking about with the fit and maybe a US
Speaker 1: recession coming faster is kind of kind of taken the
Speaker 1: dollar down. But we just got this paper from investors
Speaker 1: saying that we should go up to potentially a six
Speaker 1: point five percent terminal rate. I have to wonder, and
Speaker 1: I'd love for you to help me understand this, Liz.
Speaker 1: If we're going to get a higher terminal rate, why
Speaker 1: does that not mean a stronger green back? How have
Speaker 1: we already reached the peak then? And what are you
Speaker 1: and the people you speak with thinking about that? Well, Maddie,
Speaker 1: that's like the million dollar question. People saying where the terminal? Right? Right?
Speaker 1: So I saw that paper was great. They're saying six
Speaker 1: and a half. We've had some people on TV and
Speaker 1: on the radio saying it could be higher. But there's
Speaker 1: a lot of people saying, listen, the Fed's probably going
Speaker 1: to get to five and a quarter five and a
Speaker 1: half and maybe just stay there for a long time.
Speaker 1: So I think the jury's out from economists investors of actually, really,
Speaker 1: how high does the FED have to go? Like I think,
Speaker 1: in fact, Ruth had it in her story. One investor
Speaker 1: we talked to that said, listen, I don't think the
Speaker 1: Fed's got to get to six percent. Those were his
Speaker 1: exact words. I'm forgetting his name right now, but that
Speaker 1: some people think that five and a half. I mean,
Speaker 1: think about where we were about a year ago at zero,
Speaker 1: right five and a half. They've done a lot of tightening.
Speaker 1: So I think that's why they stepped down from fifty
Speaker 1: to twenty five, and of course I've gone from seventy
Speaker 1: five to fifty. That I don't know. That's the big
Speaker 1: question that maybe the FED doesn't have to get to
Speaker 1: six or seven, and if they get to five and
Speaker 1: a half and stay there for a year, that may
Speaker 1: not be enough to keep the dollars stronger relative to
Speaker 1: its global peers. You know, Liz, I think the person
Speaker 1: who're talking about is Eric Stein, chief and investment Officer
Speaker 1: of fixed income at Morgan Stanley Investment Management, who said
Speaker 1: the FED says they're going to get inflation to two percent,
Speaker 1: but in reality, I'd say they get more to a
Speaker 1: level of like three percent. I don't think that they
Speaker 1: will continue to port rate to six percent just because
Speaker 1: of that, you know, Can I ask you something, you
Speaker 1: understand these markets and the FED really really well and
Speaker 1: investor sentiment does the FED? Can they come back now
Speaker 1: and say, yeah, we got it wrong. It's not going
Speaker 1: to be two percent, Like, can they how do they
Speaker 1: do that? How do they unwind? Or does it really matter?
Speaker 1: Can they continue to stick to two percent even though
Speaker 1: markets maybe see something ultimately a little bit differently? Well,
Speaker 1: you know, I don't think, and you know we have
Speaker 1: Mike McKeon, who's our expert, how we talked about this. Yes,
Speaker 1: I don't think that they want to come out and
Speaker 1: say that, especially now where they're really talking. We had
Speaker 1: one of the FED officials today talking about we have
Speaker 1: much more credibility. So if I think if they design
Speaker 1: to god, I say, well we're at three percent, that's
Speaker 1: pretty good. I think for now they're going to keep
Speaker 1: talking that, you know, we're still on course to eventually
Speaker 1: get to two percent, Like I think it was Romaine
Speaker 1: and your previous segment was saying eventually we get to
Speaker 1: two percent. But I don't think they want to lose
Speaker 1: that credibility. So maybe at some point, we know a
Speaker 1: lot of people have said that. I think Muhammad Alarian
Speaker 1: has talked about that that going for two percent is
Speaker 1: just not the right number. But like you said, they've
Speaker 1: got to be very careful because so much about the
Speaker 1: FED winning on inflation is credibility the market believing they'll
Speaker 1: do what they say. So, I mean that might be
Speaker 1: a big rethink, but I suspect they want to get
Speaker 1: through this year before they even kind of flick at
Speaker 1: that they're thinking about thinking about thinking about that. Yeah, yeah,
Speaker 1: Well I just have to wonder too about the Fed's
Speaker 1: ability to achieve that goal with the tools that they have.
Speaker 1: I mean, we would all love for inflation to come down, Liz,
Speaker 1: but can the FED do that with the tools that
Speaker 1: they currently have at their disposal. Well, it's funny that
Speaker 1: one thing, you know, an investor said to me, and
Speaker 1: I always love when they bring something up because they're
Speaker 1: supposed to be smarter than me, and they are, but
Speaker 1: I'm not asking that about they are. Well at least
Speaker 1: they say. Well Liz, by the way, and one guy
Speaker 1: said to me, an investor, listen, Liz, you know, rate
Speaker 1: hikes are one thing, but I'm really worried about the
Speaker 1: quantitative tightening, which we've kind of forgotten about, which is
Speaker 1: the FED rolling off its balance sheet, which is at
Speaker 1: full speed now. And you know what if that does
Speaker 1: continue on for another year or so, like the FED
Speaker 1: would like, there's some saying if the Fed, of course
Speaker 1: has to eventually cut, they'll stop that. But so you
Speaker 1: do have these two tools going. The rate tool is
Speaker 1: the most blunt. Chair pals made that very clear. But
Speaker 1: they also are like pretty quickly trying to bring that
Speaker 1: balance sheet down. So there is a lot of tightening
Speaker 1: in the system. And like you said, none of us
Speaker 1: feel too good. My vegetables are still more expensive than ever,
Speaker 1: but eventually they should get there. We hope to bring
Speaker 1: down inflation. Hey, Liz, when you look at the trade,
Speaker 1: especially in the treasury trade over the last couple of weeks,
Speaker 1: it does feel like investors have gotten religion to some
Speaker 1: extent in terms of what the FED officials and FOEMC
Speaker 1: members have been saying. So what do you think our
Speaker 1: audience has to kind of note when it comes to
Speaker 1: that treasury trade. I mean, right now I'm looking at
Speaker 1: a two year note. It's off its highs of the day,
Speaker 1: but we're still at four point eight. What is it
Speaker 1: that they need to understand about the action that we've
Speaker 1: seen over the last week or so. Well, you know,
Speaker 1: it's interesting you bring that up because we were looking because,
Speaker 1: like you said, this month has been brutal for bonds, right,
Speaker 1: feel just took off. Remember how January was also the
Speaker 1: everything rally, everything round, including bonds, And I remember one
Speaker 1: investment manager saying to me it was like January twenty fifth, Well,
Speaker 1: if we could stop the year now, I've had a
Speaker 1: great year, you know. Unfortunately it doesn't work that way, right,
Speaker 1: But so I think you know, remember all the street
Speaker 1: analysts called this the year of the bond, right, you know,
Speaker 1: things are better, yields are better, So I don't think
Speaker 1: we want to write that off yet. This was a
Speaker 1: brutal beating this month. Rates are very high, like you said,
Speaker 1: but what if it does prove the FED gets to
Speaker 1: five and a quarter or five and a half and
Speaker 1: stop sin platient starts to come down. You know, six
Speaker 1: months time, things could be looking better. So I don't
Speaker 1: think a lot of people who are bullish on bonds
Speaker 1: are willing to give up. They're kind of like willing
Speaker 1: to basically take the pain for a while. That may
Speaker 1: not be true if this keeps up for another three
Speaker 1: six months, But for now, I think the bullish bond
Speaker 1: people are saying, Okay, yeah, I'm not doing so great now,
Speaker 1: but I do think it'll be better. I'm making some
Speaker 1: decent income. I don't think fed's going to six percent.
Speaker 1: You know, they're in that camp, you know, So we'll
Speaker 1: see really quickly here, Liz. The thing that I would
Speaker 1: love for you to help me be smarter on is
Speaker 1: the FED updating it's basic model of understanding in like
Speaker 1: thirty seconds. Can you tell me do you think that
Speaker 1: update was enough? Do they understand our current economy? Well,
Speaker 1: that's another million dollar question. Let's talk about their update
Speaker 1: on what they think. The neutral rate is kind of
Speaker 1: that standard based rate where they're not adding stimulus or
Speaker 1: removing it, and they haven't updated that yet, and a
Speaker 1: lot of people think it's higher now. So fed's long
Speaker 1: run rate is like a two and a half. People
Speaker 1: in the market think, like you're saying, it's a different
Speaker 1: world now, that might be higher. So that could be
Speaker 1: a game changer. So there are some questioning some of
Speaker 1: the FENS models. You know, the jury's out on who's
Speaker 1: right or if they adjust, but it's an open question. Yeah,
Speaker 1: there's a lot going on, and certainly for the FED
Speaker 1: to have to kind of figure out, Liz McCormick, you
Speaker 1: always figure out so much for us here. So appreciative, Liz, McCormick.
Speaker 1: She's Chief correspondent for Global Macro Markets at Bloomberg News,
Speaker 1: joining us via zoom in New York City. Yeah, I
Speaker 1: think she's probably smarter than a bunch of people. I
Speaker 1: think she's smarter than a lot of people. Should probably
Speaker 1: no dabt about it. Check out her stories on the
Speaker 1: Bloomberg terminal. You can find amat Bloomberg dot com. You
Speaker 1: can also check her out on Twitter at McCormick. Liz.
Speaker 1: All right, you are listening watching Bloomberg Business Week Karl
Speaker 1: Masser along with Mattie Mills, and this is Bloomberg Radio.
Speaker 1: You're listening to the Bloomberg Business Week podcast. Catch us
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Speaker 1: play Bloomberg eleven thirty. Be Vancume out with her last
Speaker 1: month they did, and it was about our favorite topic here,
Speaker 1: Carol Master, digital currencies. We thought maybe with Sam and
Speaker 1: Be going away, but it is not. Some might say
Speaker 1: it's hard to imagine this report from Bank of America
Speaker 1: saying that central Bank digital currencies otherwise known as CBDCs,
Speaker 1: along with stable coins, are the future of money and payments.
Speaker 1: But alas here we are, especially after you know the
Speaker 1: corners that we've seen right, especially in the latter half
Speaker 1: of twenty twenty two. It's interesting to see that report.
Speaker 1: So let's get to it. We have a good guest
Speaker 1: in our weekly look at the world of cryptocurrencies joining
Speaker 1: us once again. Delighted to have him back, Tony Saliba.
Speaker 1: He's founder and CEO of Liquid Mercury. They work with
Speaker 1: coin base, Crack and SeeMe Group and more, and he
Speaker 1: joins us via zoom from Chicago to Tony. Good to
Speaker 1: have you back here on Bloomberg Business Week. Do me
Speaker 1: a favor, just set the stage, remind our audience about
Speaker 1: what you all do at Liquid Mercury. Hi, Carol, thank you.
Speaker 1: Loquid Mercury delivers institutional technology for traditional finance Wall Street,
Speaker 1: if you will, and for crypto natives to trade all
Speaker 1: range of digital currencies. We have a product that we're
Speaker 1: partnered with Gemini with for individuals. So we're a fintech
Speaker 1: company that focuses on everything digital currencies, digital assets. So
Speaker 1: it's the actual platform, technology, advice or all of the
Speaker 1: above just technology and the platform is technology. We do
Speaker 1: training and options because we're options people, and crypto options
Speaker 1: are coming to the US, but most of our clients
Speaker 1: doing crypto options are non US. Okay, but no advice really,
Speaker 1: just fast best execution. Okay. So I can tell by
Speaker 1: your background that you're you're doing great. But Tony, I
Speaker 1: have to bring up some of the scary aspects of
Speaker 1: crypto from this year. We've got gem and I you
Speaker 1: mentioned you got fintech, some scary words there. Where are
Speaker 1: you at right now with crypto? Well, so, one of
Speaker 1: the things I've learned. I've been in the crypto space
Speaker 1: for about six years and one of the things I've
Speaker 1: learned is that after forty years in traditional finance, cycles
Speaker 1: are much faster in crypto and the scam bankman fraud
Speaker 1: as I like to refer to it announcement of November,
Speaker 1: and to be fair, that's your opinion. They're still exploring
Speaker 1: it and investigating. It's just my opinion to be fair. Yeah,
Speaker 1: but clearly there was some problems and that caused a
Speaker 1: lot of issues that rippled throughout the industry. Prices collapse
Speaker 1: in a lot of respects, and most of them have
Speaker 1: rebounded at least fifty percent off of the lows for
Speaker 1: our business and businesses like ours. There's been a little
Speaker 1: bit of delay in terms of closing deals and onboarding
Speaker 1: and things, but nobody said that's it. I'm walking away.
Speaker 1: In fact topic, as you mentioned, the cdbcs are definitely
Speaker 1: top of mind with everybody because they're moving forward. The bank,
Speaker 1: you know, Bank and Japan just announced before last that
Speaker 1: they're moving forward with theirs. So yes, it is. As
Speaker 1: much as I hate to say that the central bank
Speaker 1: digital currencies is the cash of the future, it's pretty
Speaker 1: much a fact. Okay, But why why do you hate
Speaker 1: to say that? Because it's really interesting because CBDCs, if
Speaker 1: I'm correct, they would still be pegged to the dollar, right.
Speaker 1: Is that why you're not a fan? Well, well, no,
Speaker 1: I'm I'm cautious because it's coming from the government and
Speaker 1: from central banks, where that's not very crypto world is. Yeah,
Speaker 1: it's really ladies. It's the issue of privacy, right. So
Speaker 1: right now people know that they can put money in
Speaker 1: a vaulter in their mattress if they so want to,
Speaker 1: if they're afraid of other things, and that really won't
Speaker 1: be the case. So much With the central bank digital currencies,
Speaker 1: they'll and I'm just given the worst case scenario, right,
Speaker 1: they'll be able to track your purchases. It could get political,
Speaker 1: it could get social where but they already do, they
Speaker 1: already do, right, It's it's just like you know, electronic
Speaker 1: money in a bank account, using cards, smartphone, you know, right,
Speaker 1: I mean, well, they absolutely, but this will become much
Speaker 1: more absolute. Right now forever you know, we've all known
Speaker 1: we can't take more than ten thousand dollars out of
Speaker 1: the country without letting the fagans know about that. That
Speaker 1: number has been the same for fifty years. Clearly that
Speaker 1: is an infringement on some levels of your privacy, of
Speaker 1: your own freedoms. But with the CBDCs it becomes more absolute.
Speaker 1: They could turn you off, you know, your buying power
Speaker 1: off should you violate some here to afford unknown set
Speaker 1: of rules that may they may come come up with.
Speaker 1: It's just another link. Now. Having said that, I think
Speaker 1: companies like ours will come up with solutions that'll try
Speaker 1: to help break that chain and allow you to have
Speaker 1: a little bit more freedom. That's the only ominous aspect
Speaker 1: of this, ladies. I think generally it is gonna make
Speaker 1: currency much more efficient. I think it'll become more ubiquitous.
Speaker 1: People will learn how to use these sort of apps
Speaker 1: much faster. But because it isn't that kind of tony
Speaker 1: the whole point like it just it would make it
Speaker 1: maybe more efficient, right, cut out the intermediaries and bummer
Speaker 1: for them, right in terms of their industry. I'm not
Speaker 1: making a call here or anything, but I mean the
Speaker 1: point is efficiency and transparency and clarity, and would also
Speaker 1: mean that you know, no funny agents right can do
Speaker 1: something like it would be much more clear, hopefully, and
Speaker 1: I feel like it just takes the existing system up
Speaker 1: several notches. Probably you're already in digital world. Yeah we
Speaker 1: started with the only possible worst case scenario, but you're
Speaker 1: absolutely right, this makes it much more efficient. I think
Speaker 1: regional banks like things could be settled faster, right, like
Speaker 1: think about that maybe more cheaply, Like there are benefits totally.
Speaker 1: Anybody try to do a wire transfer lately, the charges
Speaker 1: are really outrageous, takes three days or whatever. So you know,
Speaker 1: this is definitely a positive. We, like I said, we
Speaker 1: landed on the one square on the board that maybe
Speaker 1: private citizens shouldn't be concerned about and when you work
Speaker 1: backwards from there and everything I think is much more positive,
Speaker 1: much more modern, much more efficient and definitely cost effective.
Speaker 1: Does potential regulation from Washington change that calculation for you
Speaker 1: at all? Well, it does in that they dictate to
Speaker 1: the Central Bank, so it'll be you know, their rules
Speaker 1: that you know we adhere to. I think I think
Speaker 1: we're all kind of waiting for more guidance in the
Speaker 1: US on crypto in general, which would be very helpful.
Speaker 1: So we could, you know, sort of lay out the
Speaker 1: white lines on the playing field and know where everybody
Speaker 1: is safe, rather than deal with you know, regulation by enforcement,
Speaker 1: which is what what's happening. Oh you stepped over the
Speaker 1: line taking you down versus oh you're fine because we've
Speaker 1: defined the rules. I think those are coming hopefully this year. Actually,
Speaker 1: So net net Tony, good idea, bad idea. You've laid
Speaker 1: out nicely the pros and cons, and we've had that
Speaker 1: this discussion. I feel like, so people are getting kind
Speaker 1: of both sides. Here is their net net takeaway for you,
Speaker 1: UMA that that good idea, that Net. I'm an optimistic
Speaker 1: person and I'm hoping that um, the you know, positives
Speaker 1: will far outway the one, you know, sell on the
Speaker 1: board playing playing surface that we don't want to land
Speaker 1: on is sort of shuffled into the background. Um, but
Speaker 1: you know there there are definitely, uh, some privacy concerns
Speaker 1: we all have to be aware. Now. Having said that,
Speaker 1: as long as people your audience for sure is enlightened
Speaker 1: know those pitfalls, we go in with eyes wide open
Speaker 1: and try to embrace the new technology and make the
Speaker 1: most of it. Is it good for the crypto die hards,
Speaker 1: like does Bank of America give them, you know, yea
Speaker 1: credibility or or is it that's institutional No, No, I
Speaker 1: think it does. I think it's good for it. Apparatus
Speaker 1: like ours is going to be used for both, so
Speaker 1: that definitely puts a floor under that for the players
Speaker 1: that are in there today. Curists will say, oh, it's
Speaker 1: too centralized, but you don't have to play. You can
Speaker 1: take your money out of the bank by eth or
Speaker 1: bitcoin or some other popular token to utilize and trade
Speaker 1: with and be sort of outside of the orbit in
Speaker 1: that regard. But yeah, generally, I think it's going to
Speaker 1: be enlightening for burd All right, gon leave it there, hey, Tony,
Speaker 1: have a good weekend. Thanks Tony. Salibahi's chief executive officer,
Speaker 1: founder of Liquid Mercury, which, as we said, worked with
Speaker 1: Kraken Cme Group and Moore. Joining us a via zoom
Speaker 1: from Chicago. You're listening to the Bloomberg Business Week podcast.
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Speaker 1: Brier up, other down on Bloomberg Radio. All right, everybody
Speaker 1: just got about sixteen and a half minutes left in
Speaker 1: today's trading session, getting ready to wrap up what's been
Speaker 1: a holiday short and trading week. Remember we had a
Speaker 1: long weekend, so just Tuesday through Friday. Carol Master along
Speaker 1: with Madison Mills and Maddie We're looking at an equity
Speaker 1: market that has definitely been bouncing around. We're off our
Speaker 1: highs and lows of the session, and this is once
Speaker 1: again a day where we've seen yields move up, and
Speaker 1: this is once again on a hot inflation print and
Speaker 1: other red hot inflation print this morning in that PC.
Speaker 1: It's interesting. I loved this data point that Abigail had
Speaker 1: earlier today. She was showing kind of some of the
Speaker 1: selloffs that we've seen over the past week from Bank
Speaker 1: of America. She showed US I think nine billion in
Speaker 1: US stocks and then even four billion sold off in
Speaker 1: the US dollar, all going into the bond market. So
Speaker 1: that really feels like the big focus right now. Yeah,
Speaker 1: I mean, this is what we love to do, is
Speaker 1: watch where the money flows, and specifically when investors are
Speaker 1: a little nervous, worried about even higher rates for longer.
Speaker 1: And this has certainly been what the message has been
Speaker 1: from the Federal Reserve and FED members. Mike McKee talking
Speaker 1: about him, he's at an event here in New York
Speaker 1: and where he continuing to hear where they are saying
Speaker 1: inflation needs to get under control. We're sticking to that
Speaker 1: two percent target. Then as a result rates we're going
Speaker 1: to continue to see the markets at this point still
Speaker 1: pricing in quarter point moves for the next three meetings,
Speaker 1: no doubt about that. They've been really kind of getting
Speaker 1: rid of that thought and market expectations that we could
Speaker 1: see rate this year that's moving into twenty twenty four.
Speaker 1: And so as a result, you know, you've got investors thinking, Okay,
Speaker 1: what can I yield or what kind of yields are
Speaker 1: we getting in the treasury trade versus what we see
Speaker 1: on the equity side of things, where there's some risks
Speaker 1: in terms of corporate profit growth, in terms of pressures
Speaker 1: on margins. So that's why you continue to see or
Speaker 1: increasingly you're seeing investors move into the treasury trade. Yeah,
Speaker 1: and I love Tom McKee put it really well in
Speaker 1: one of his commentaries on surveillance this morning. He was saying,
Speaker 1: you know, what's the lesson from the bond market from
Speaker 1: treasuries for equities? And I feel like that's the big
Speaker 1: question right now. I know we've made this joke all
Speaker 1: the time about it is the bond market smart and
Speaker 1: equities are dumb? If it feels also though, like there's
Speaker 1: not a lot to predict right now because so much
Speaker 1: is moving around. Even it was so interesting the Macroman
Speaker 1: column from this morning, he basically the headline was like
Speaker 1: soft landing equals no landing. Well, this is the tricky
Speaker 1: part and it's funny as we talk about with our
Speaker 1: TV colleagues in our simulcast, this whole idea of you
Speaker 1: targets by the FED. And you know, I've said it
Speaker 1: a million times and I mean it because the FED
Speaker 1: will tell you too, this is not an exact science
Speaker 1: and they can set out projections and targets. They have
Speaker 1: repeatedly said, we are data dependent. When we go into
Speaker 1: any FED FOMC meeting, we are going to look at
Speaker 1: all the data points up to that point and make
Speaker 1: a decision and that's ultimately what we see. Having said that,
Speaker 1: we talk to a lot of investment professionals that are
Speaker 1: making investment decisions on a daily basis for their clients,
Speaker 1: and one of them is our next guest our Drive
Speaker 1: to the Closed guest his Charlie Massimo. He is back
Speaker 1: with us, senior VP and financial advisor at Wealth Enhancement Group.
Speaker 1: They specialize in planning for families impacted by autism, so
Speaker 1: they do have to think about those long term investment needs.
Speaker 1: He is joining us on the phone from Washington, DC. Charlie,
Speaker 1: good to have you back on Bloomberg Business Week with
Speaker 1: myself and Maddie Mills tell us about this environment. Isn't
Speaker 1: making it more difficult for you to figure out how
Speaker 1: to play spence or are you increasingly moving money into
Speaker 1: shorter term investments and cash to kind of write it out? Yeah, well,
Speaker 1: thanks for having back, Kyle. I think for many consumers
Speaker 1: and investors, this is a very difficult time, but it's
Speaker 1: a necessary time. I think, no matter what has to
Speaker 1: be done, we need to get inflation of the control.
Speaker 1: And you're talking about data. The data just seems to
Speaker 1: be somewhat inaccurate and changing all the time. But to
Speaker 1: answer you a question, you know absolutely. You know, a
Speaker 1: couple of years ago, four percent bonds you know for
Speaker 1: ten to twenty years look pretty enticing. But now when
Speaker 1: you have a one year Treasury bill paying over five percent,
Speaker 1: it makes absolute sense to cut your losses on the
Speaker 1: long term, bring them down into the short and try
Speaker 1: to eliminate as much risk as you can, especially for
Speaker 1: those people that are in or nearing retirement, Right, you
Speaker 1: get that yielding to get liquidity at the same time, Yeah,
Speaker 1: you're just taking risk off the table, and I think
Speaker 1: for most people they just have to take as much
Speaker 1: risk off the table without making major changes to their
Speaker 1: overall allocations. Can I ask you a question, Charlie. I
Speaker 1: was just mentioning that our Macroman had a column this
Speaker 1: morning saying that a soft landing is actually just a
Speaker 1: delay of an inevitable hard landing. Can you give me
Speaker 1: your perspective on that. Well, you know, I think that's
Speaker 1: fairly accurate. I think a lot of the talk you're
Speaker 1: starting to hear now is that they want to get
Speaker 1: more aggressive with raising rates instead of this twenty five
Speaker 1: basis points at a time, because what you're finding, until
Speaker 1: you can change consumer behavior, you're really not going to
Speaker 1: bring down inflation. And what I mean by that people
Speaker 1: aren't really feeling a lot of pain yet. People are
Speaker 1: still buying homes with a five to six percent mortgage,
Speaker 1: they're still buying cars, they're still taking luxury trips. But
Speaker 1: when mortgage rates go to eight percent, when borrowing for
Speaker 1: a car goes to twelve or thirteen percent, that's when
Speaker 1: consumer behavior is going to change, and that's where we're
Speaker 1: going to start bringing down in inflation. So a soft
Speaker 1: landing may be very difficult, because again I think we're
Speaker 1: at a point we're gonna have to get much more
Speaker 1: aggressive and raising rates. Yeah. I mean, just look at
Speaker 1: the data points. New home sales surged to a one
Speaker 1: year high. A lot of it was, you know, buying
Speaker 1: in the South, but that was a pretty strong number.
Speaker 1: And when we talked with our Mike McKee earlier, you know,
Speaker 1: you had income up, you had spending up, and you
Speaker 1: also had personal savings up, which is really interesting. And
Speaker 1: sentiment is up, so you've got that along with those
Speaker 1: inflation area. It's interesting to see individuals kind of holding up. Charlie,
Speaker 1: thank you so much. Have a good and safe weekend.
Speaker 1: Charlie Massimo, He's senior VP and financial advisor and Wealth
Speaker 1: Enhancement Group, joining us on the phone from Washington, DC.
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