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Speaker 2: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside

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Speaker 2: my co host Matt Miller.

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Speaker 1: Every business day we bring you interviews from CEOs, market pros,

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Speaker 1: and Bloomberg experts, along with essential market Moven News.

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Speaker 2: I'm the Bloomberg Markets podcast called Apple Podcasts or wherever

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Speaker 2: you listen to podcasts, and at Bloomberg dot Com Slash podcast.

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Speaker 3: I actually think it's a huge black eye for Silicon Valley.

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Speaker 3: That's just my East Coast bias problem. Let's check in

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Speaker 3: with Dan Ives.

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Speaker 2: He's a senior equity analyst a web Bush Securities. Dan

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Speaker 2: you follow Microsoft closer, you follow the tech space as

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Speaker 2: closely as anyone else at here. We've had a few

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Speaker 2: days here to kind of digest what is a very

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Speaker 2: fluid situation still to this minute.

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Speaker 3: What are some of your takeaways here?

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Speaker 4: I mean, if you have a clown show that runs

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Speaker 4: the board, this is what happens. And essentially this is

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Speaker 4: four individuals that took down a ninety billion dollar company.

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Speaker 4: And I think when what happened over the weekend, they

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Speaker 4: were essentially seven year olds playing checkers at the kids table,

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Speaker 4: and then the Della, the grandmaster chess wizard basically was

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Speaker 4: three steps ahead took Alman. Now essentially this is a

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Speaker 4: shell company where all the assets essentially moved to Microsoft.

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Speaker 5: And is it all a surprise that all been so quickly?

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Speaker 5: It seems to me it makes sense. But it seems

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Speaker 5: that like very swift move for Microsoft to swoop in

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Speaker 5: and snag Altman that quickly.

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Speaker 4: Almost the golden child of AI, I mean, no different

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Speaker 4: than Zuckerberg to social media, must to electric vehicles. He

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Speaker 4: was the asset, you know him, Brockman and some of

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Speaker 4: the top leaders. The last thing that could have happened,

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Speaker 4: the worst case would have been them going to an

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Speaker 4: Amazon of Google and Apple because there's just massive, massive

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Speaker 4: demand for these assets in terms of not just them,

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Speaker 4: but the seven hundred open Aim boys. Look, this is

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Speaker 4: a board. I mean they're gonna be dealing with legal

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Speaker 4: issues for probably you know, the next decade because of this.

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Speaker 4: But the reality is they took down a ninety billion

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Speaker 4: dollar company by themselves.

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Speaker 2: You know, with a little bit of hindsight, Dan, do

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Speaker 2: we know why they did what they did? What was

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Speaker 2: the core issue here for the actions on Friday?

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Speaker 4: I think Paul, you hit on it. It's typical four to

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Speaker 4: oh eight Valley, you know, where they you know, whether

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Speaker 4: it was egos, political and not communication. I mean, all

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Speaker 4: men became the face AI. It's a board that probably

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Speaker 4: felt slighted, you know, obviously went back and forth, and

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Speaker 4: then I do think they underestimate the ramifications. I mean,

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Speaker 4: when you look at you chief scientist, co founder, one

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Speaker 4: of the four vooted, was key in getting them fired.

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Speaker 4: Then all of a sudden yesterday morning says, oh, he

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Speaker 4: actually regrets it.

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Speaker 6: Paul.

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Speaker 4: That's like that's literally like burning someone's house down and

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Speaker 4: then the next day coming with a Hallmark card and

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Speaker 4: a he's a chocolate, saying I'm sorry, all right.

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Speaker 2: So one of my issues or one of my questions,

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Speaker 2: I guess Dan, is I mean the sam Altman and

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Speaker 2: others are obviously key to this whole AI technology. But

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Speaker 2: doesn't the intellectual property reside at open ai. Doesn't the

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Speaker 2: entity control it and have most of the value as

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Speaker 2: opposed to what's behind or what's between sam Altman's.

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Speaker 4: Ears before Microsoft? Yes, after No, I mean now essential

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Speaker 4: that technology is baked into Microsoft's ecosystem, and that was

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Speaker 4: part of the deal. You know, in my even though

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Speaker 4: it's forty nine percent, if you look how Microsoft actually

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Speaker 4: structured the deal, I mean open AI. That technology is

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Speaker 4: essentially embedded in Microsoft. That's why they recognize that the

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Speaker 4: value of open ai is basically goes up and down

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Speaker 4: the elevators if they come to Microsoft that open ai

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Speaker 4: essentially is a board with a third rate ce interim

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Speaker 4: CEO former Twitch And that's it. And now they'll just

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Speaker 4: be spending all their time with lawyers.

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Speaker 5: And Dan, what happens next and how do you incorporate

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Speaker 5: sam Altman into your? Valuation of Microsoft stock was up

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Speaker 5: two percent yesterday, but is not really continuing to add

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Speaker 5: to those games.

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Speaker 4: When we went to bed midnight Sunday. I mean Microsoft

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Speaker 4: could have been down eight ten percent if Nidela didn't

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Speaker 4: swoop in, because that was the fear. Now it's essentially

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Speaker 4: I'd say Microsoft's in a stronger position today. You show

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Speaker 4: the reaction yesterday then it was on Friday. It's a

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Speaker 4: win win because either way, the legal, the global pressures,

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Speaker 4: the board, they're lawyers, they're gonna resign. Then it's actually

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Speaker 4: a better situation than was before Friday because you don't

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Speaker 4: have a GV circus show board. They're blocking things and

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Speaker 4: then if they just sit there, then they'll all just

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Speaker 4: go to Microsoft and it's essentially a shell company. But

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Speaker 4: it goes back to they were playing checkers, I eight

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Speaker 4: year olds, Nadell was playing chess.

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Speaker 2: So do you think Sam Alman? I mean, I don't know.

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Speaker 2: I haven't even seen an interviewed. There's a guy, I mean,

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Speaker 2: for us who aren't tech folks really under the radar?

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Speaker 2: Can he work and can these people work in a

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Speaker 2: big corporate organization like Microsoft? Can he report to somebody,

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Speaker 2: some other executive, whether it's Nadella or someone else.

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Speaker 4: Oh, it's a great question. And in Microsoft, I mean

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Speaker 4: they're very well versed in doing this in terms of

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Speaker 4: almost an entrepreneur atmosphere in that Redman headquarters on campus.

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Speaker 4: Just leave them alone do what they do. I mean,

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Speaker 4: it's similar to the success they've had with LinkedIn and

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Speaker 4: other assets that's part of that DNA and Microsoft, which

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Speaker 4: speaks to why all men Brockman signed up so quickly.

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Speaker 4: And now either way it's a win win for Microsoft.

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Speaker 4: They are positioned for a Nadella just a phenomenal PR

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Speaker 4: show yesterday, because that's just putting more and more pressure

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Speaker 4: on the board because either whichever which way it happens,

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Speaker 4: it's a win for Microsoft.

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Speaker 2: So, Dan, from your perspective, what do you think is

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Speaker 2: a better structure for this AI investment and technology to

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Speaker 2: continue to flourish. Is it for Sam to go back

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Speaker 2: and his team to go back to OPENII with a

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Speaker 2: revamped board. Would that be better than sitting within the

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Speaker 2: halls of Microsoft. How do you think that should play out?

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Speaker 4: You get rid of the four circus show board members

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Speaker 4: and you put in Brett Tayler, Marissa Meyer, you have

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Speaker 4: someone from Microsoft, a legit board governance is there? I

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Speaker 4: think that would also give comfort to the Beltway. You're

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Speaker 4: just given how important this technology is, and then they

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Speaker 4: go back it's actually buried than before. That's the ideal situation.

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Speaker 4: That's what everyone thought was going to happen Sunday, and

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Speaker 4: they're just turned into what's going to be an infamous

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Speaker 4: probably a Netflix documentary at one point in terms of

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Speaker 4: what happened here, and.

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Speaker 5: You mentioned Alman could have gone to Amazon, Google, Alphabet

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Speaker 5: and others. How does this move impact those companies and

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Speaker 5: their ambitions within AI?

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Speaker 4: Yes, basically offering to match any offer out there for

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Speaker 4: AI engineers. I mean there's massive, massive demand, call it

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Speaker 4: fifty x for everyone. Employee, Google, Amazon, They're going to

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Speaker 4: be aggressive trying to get assets because of this air pocket. Look,

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Speaker 4: it definitely gives them a window that they could gain

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Speaker 4: some share, get some engineers, get some helpers. Then maybe

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Speaker 4: they could have gone before with significant pay packages. This

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Speaker 4: is going to be you know, a friends. You look

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Speaker 4: right now, if you're an AI developer, engineer in the valley,

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Speaker 4: I mean you probably drinking of mimosas in the morning.

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Speaker 2: So Dan, I mean, just again, I'm an old school

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Speaker 2: East Coast Wall Street guy.

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Speaker 3: It's almost embarrassing for Silicon Valley.

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Speaker 2: I mean I would almost be like, God, this past

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Speaker 2: four or five days makes us look like a bunch

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Speaker 2: of kids here.

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Speaker 3: What are you hearing out there.

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Speaker 4: For the weekend? I mean from people you know very

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Speaker 4: close to the situation. It's an embarrassment. It's a historical embarrassment,

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Speaker 4: and it just shows what happens when you don't have

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Speaker 4: adults in the room and some of these political sort

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Speaker 4: of back and forth. This is what happened. But that's

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Speaker 4: also why you need the Nedallas and Microsofts to basically

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Speaker 4: swoop in and make sure that this goes no further.

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Speaker 4: And that's why right now the board backs against the Well,

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Speaker 4: they're probably on their phone with lawyers the whole day exactly.

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Speaker 3: All right, Dan, thanks so much for joining us. Really

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Speaker 3: appreciate it.

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Speaker 2: Just been an extraordinary story there, Dan Ives, Managing director,

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Speaker 2: Senior Ecoity analyst at Wedbush Securities, kind of giving us

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Speaker 2: some of the latest.

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Speaker 7: Here. You're listening to the team Ken's are live program

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Speaker 7: Bloomberg Markets weekdays at ten am Eastern on Bloomberg dot com,

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Speaker 7: the iHeartRadio app and the Bloomberg Business app, or listen

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Speaker 7: on demand wherever you get your podcasts.

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Speaker 2: All right, we're streaming live here at YouTube as well,

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Speaker 2: so check us out there, So Bailey, it's a time

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Speaker 2: of year where strategists and people in the money management

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Speaker 2: business start thinking about next year, you know, and a

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Speaker 2: lot of folks even think of being farther out over

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Speaker 2: the next three, five, ten years.

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Speaker 3: One of those is Shanad Colton Grant.

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Speaker 2: She is a global head of investor solutions at a

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Speaker 2: little financial institution known by the name of b NY

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Speaker 2: Mellon and she joins us here. Shanate, thanks so much

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Speaker 2: for joining us here. I know, you guys you've got

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Speaker 2: a what you guys call all capital markets assumptions kind

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Speaker 2: of You guys look out across asset classes for a

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Speaker 2: long period of time. What are you guys thinking about

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Speaker 2: as you look out going forward? Because it's been a

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Speaker 2: you know, it's been twenty twenty two, it's a tough year,

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Speaker 2: and twenty twenty three has been a little bit better.

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Speaker 3: But as you guys think ahead, what are some of

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Speaker 3: your key themes?

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Speaker 8: Well delighted to be here and yes, so we have

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Speaker 8: just published our twenty twenty four capital Market assumptions and

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Speaker 8: these are really the risk and return assumptions that are

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Speaker 8: intended to guide investors in how they develop long term

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Speaker 8: strategic acid allocations. So this is very different than something

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Speaker 8: like a twenty twenty four outlook. This is much more

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Speaker 8: long term in nature. Now your reference to twenty twenty three,

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Speaker 8: or rather the poor market returns in twenty twenty two.

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Speaker 8: So last year when we published these expectations, our expected

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Speaker 8: returns for several asset classes had moved considerably higher following

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Speaker 8: those poor returns for particularly equities and bonds in twenty

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Speaker 8: twenty two. Our outlook for twenty twenty four, of rather

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Speaker 8: our expectations over ten years continue that theme, albeit at

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Speaker 8: a slightly slower pace. And so a couple of themes

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Speaker 8: that I wanted to really highlight. First of all, slowing inflation.

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Speaker 8: Central bank tightening around the globe has really had the

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Speaker 8: desired impact of obtaining inflation from the high single digits

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Speaker 8: we were seeing too low to mid single digits in

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Speaker 8: most developed market economies. But the last mile in getting

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Speaker 8: inflation down to central bank targets is probably going to

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Speaker 8: be the most difficult, and so built into these forecasts

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Speaker 8: we expect that central banks will begin to loosen policy soon,

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Speaker 8: but we still expect that over the next ten years

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Speaker 8: interest rates will settle at higher levels than we've seen

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Speaker 8: in the last decade or so since the financial crisis,

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Speaker 8: and those higher rates are one of the factors that

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Speaker 8: driver moderately higher return and volatility forecasts in twenty twenty four.

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Speaker 5: And how did those high how do those higher rates

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Speaker 5: impact the investment in terms of different asset classes in

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Speaker 5: the interest in where people should be putting money.

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Speaker 8: To work and great point, so I would say when

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Speaker 8: we look across the asset classes, first of all US equities,

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Speaker 8: our expected return for US equities really stand out among

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Speaker 8: equity markets as being revised higher. And that's across capitalizations.

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Speaker 8: It's largely driven by our expectations that the US economy

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Speaker 8: will continue to outperform the rest of the developed world,

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Speaker 8: the focus on innovation in the US as a particular tailwind,

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Speaker 8: specifically when we think about productivity games related to AI.

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Speaker 8: And of course higher rates means higher yield in bonds,

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Speaker 8: and we think bonds will benefit not only because of

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Speaker 8: higher current yields, but they're also going to benefit as

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Speaker 8: the economy slows, which is what we expect, a slowing

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Speaker 8: not an outright recession in the near term.

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Speaker 2: Schneid in twenty twenty two. In particular that sixty to

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Speaker 2: forty portfolio really took a beating. There's this nowhere to

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Speaker 2: hide here. How do you guys think about ALLOCA here?

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Speaker 2: I mean, presumably you know, alternative assets is also someplace

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Speaker 2: you might consider. How do you think about all alternatives

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Speaker 2: as part of a portfolio?

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Speaker 8: Well, it's a great question, and two points here. One,

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Speaker 8: we all think about sixty forty, but the sixty forty

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Speaker 8: twenty years ago was actually quite different and is quite

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Speaker 8: different than what a straightforward public market exposure to sixty

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Speaker 8: forty is today. And so that means that private markets

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Speaker 8: become a much more important part of your portfolio, and

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Speaker 8: also alternatives to really help with diversification. The thing that

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Speaker 8: we often don't talk about when we use the shorthand

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Speaker 8: of sixty forty is, you know, even look at the

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Speaker 8: number of public companies in the US. At the end

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Speaker 8: of the nineties, it was close to eight thousand. Today

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Speaker 8: it's less than four thousand. So companies are staying private

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Speaker 8: for longer, and it means that if you don't have

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Speaker 8: that private market exposure, you are losing out on the

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Speaker 8: ultra high growth phase where companies are going public. A

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Speaker 8: lot of the high the household names that we would

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Speaker 8: think about in recent years it went public, they were

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Speaker 8: already large cap stocks by the the time they came

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Speaker 8: to the market. So if you don't have that private

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Speaker 8: market exposure in your portfolio, you miss out on that completely.

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Speaker 8: So I think that that's point number one in relation

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Speaker 8: to sixty forty. You need to think broader, probably somewhere

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Speaker 8: in the region of a twenty to twenty five percent

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Speaker 8: allocation to private markets and alternatives, depending on your your

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Speaker 8: risk tolerance. But the second point is that actually over

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Speaker 8: the next ten years, purely from an index only perspective,

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Speaker 8: we expect a six point four percent expected return over

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Speaker 8: the next decade or so for that public market only

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Speaker 8: sixty forty portfolio. That's because we see a moderately higher

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Speaker 8: return in a number of equity markets and also those

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Speaker 8: higher fixed income expected returns given the starting point of

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Speaker 8: yields and.

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Speaker 5: Looking at AI obviously being the theme of the year,

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Speaker 5: does AI have to work to drive markets hire especially

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Speaker 5: equity markets when you're looking at what we've seen from

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Speaker 5: the likes of Nvidia and Microsoft in terms of sheer

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Speaker 5: market cap being added this year.

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Speaker 8: Well, look, clearly it is not the only driver, but

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Speaker 8: there's been a huge amount of excitement about the technology

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Speaker 8: this year. What we think is really interesting when we

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Speaker 8: look ahead, and similar to if we think about the

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Speaker 8: advent of the Internet and we go back and think

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Speaker 8: about dot com. Look, there's a lot we don't know

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Speaker 8: about exactly how this will evolve, but what we can

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Speaker 8: say is that AI has the potential to significantly impact

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Speaker 8: global GDP and global inflation over the next decade. What

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Speaker 8: we're looking at near term is an early promise to

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Speaker 8: automate some tasks, but really the full extent of its

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Speaker 8: impact on productivity, global growth, disinflation. We haven't seen it yet,

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Speaker 8: but our sense is that over the next ten years

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Speaker 8: we're going to see astounding progress. We'll see a lot

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Speaker 8: of new jobs created, new products and services that I

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Speaker 8: really haven't been invented yet. And in the context of

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Speaker 8: a broadly declining population in an economy, increased productivity is

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Speaker 8: critical to support ongoing economic growth.

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Speaker 2: Shanate, thank you so much for joining us. Really appreciate

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Speaker 2: getting your insights here. Shand Colton Grant. She's a global

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Speaker 2: head of Investor Solutions at bny Mellon.

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Speaker 7: You're listening to the tape Ketsur Live program Bloomberg Markets

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Speaker 7: weekdays at ten am Eastern on Bloomberg Radio, the tune

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Speaker 7: in app, Bloomberg dot Com, and the Bloomberg Business App.

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Speaker 7: You can also listen live on Amazon Alexa from our

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Speaker 7: flagship New York station, Just say Alexa, Play Bloomberg eleven thirty.

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Speaker 2: Let's talk bonds. Let's talk risk at Harrison Joints. And

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Speaker 2: he's a senior editor at Bloomberg News and author of

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Speaker 2: Everything Risk, a column to check that out. And Lis McCormick,

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Speaker 2: chief correspondent of Macromarkets at Bloomberg News. Both of those

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Speaker 2: folks join us. Ed hears in studio, Liz is joining

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Speaker 2: us via zoom and I want to start with you

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Speaker 2: because I got a problem, my friend. You got your

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Speaker 2: latest note out. Your another's opinion piece evokes nineteen ninety nine.

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Speaker 2: I was there, dude, and two thousand was there. It's

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Speaker 2: just not good, that whole burst thing of the bubble.

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Speaker 2: Although I did top tick the market, signed my contract

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Speaker 2: with Credit Swiss First Boston, February of two thousand, oh boom,

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Speaker 2: top ticked it. Three weeks later the world came to

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Speaker 2: an end. I didn't care, so Ed you talk about

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Speaker 2: markets and bubbles bursting. How do you kind of feel

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Speaker 2: like we are right now as we head into twenty

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Speaker 2: twenty four.

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Speaker 9: Yeah, I think that we're u It's a good quick

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Speaker 9: question because I think we're at a point where if

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Speaker 9: things get a little more exciting, they could be too exciting.

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Speaker 3: Okay.

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Speaker 9: I think it's interesting that we're talking about this on

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Speaker 9: the day that in Video is right awarding, because I mean,

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Speaker 9: is that not the company that sort of tells you

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Speaker 9: whether or not it's going to be exciting or not.

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Speaker 9: Because if Nvidia is able to continue to outperform and

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Speaker 9: therefore the stock goes higher, that tells you what the

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Speaker 9: sentiment is.

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Speaker 7: Yep.

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Speaker 5: Well, with that in mind, I guess are you in

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Speaker 5: the camp of this is a market driven by seven

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Speaker 5: plus three stocks? And how does that impact kind of

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Speaker 5: your view of risk? More broadly speaking, given every time

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Speaker 5: I pull up a GP on the S and P

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Speaker 5: or Nasdaq one hundred, it seems everything's rosy, but not

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Speaker 5: so much under the surface.

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Speaker 9: Yeah, Well, you know, the interesting bit is how the

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Speaker 9: rustle two thousand actually responded recently as we've gone up.

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Speaker 9: I mean, all of this was driven by rates from

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Speaker 9: where I can sit, and that says that, you know,

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Speaker 9: rates went down, everything went up because of the potential

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Speaker 9: for a soft lane. And it's interesting when you say

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Speaker 9: seven plus three, you know, I'm thinking about the Magnificent seven.

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Speaker 9: It used to have Netflix in there. Do you remember,

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Speaker 9: like a two years ago, Netflix was ejected and yet

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Speaker 9: they continue to go higher. So what it tells you

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Speaker 9: is is that as long as the economy holds and

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Speaker 9: these companies can keep their margins going, we still have

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Speaker 9: the potential for the reality to continue higher. The hope, however,

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Speaker 9: is that it doesn't go into two thousand mode, you know,

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Speaker 9: so that so that we don't get that sort of

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Speaker 9: negative reaction on the backside of that.

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Speaker 2: All right, Liz, you're coming to us from what I

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Speaker 2: call the yellow room, so great paint drop there. What's

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Speaker 2: the bond market telling us here about where we are

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Speaker 2: kind of in the cycle. It seems like we've seen

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Speaker 2: maybe peak rates. What are you seeing in the bond market?

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Speaker 6: Yeah, so I'm going to get to that, just kind

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Speaker 6: of getting my head around. Just meant and could marry

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Speaker 6: the one of the McCormick things. But yeah, the bond market,

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Speaker 6: so it seems like, you know, I hate to go

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Speaker 6: with consensus, because you know, we know what happened with

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Speaker 6: the consensus going into this year, but definitely most of

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Speaker 6: Wall Street things, and I don't think that's a bad

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Speaker 6: call that you know, we've seen the peak and rates,

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Speaker 6: like someone was saying, getting the ten year note, or

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Speaker 6: remember we had almost five's all across the curve. That

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Speaker 6: happening again is a very high bar a right, because

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Speaker 6: most likely the Fed is done. But I think the

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Speaker 6: bond market is saying the worst is over. How fast

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Speaker 6: rates go down is an open question, right, There's a

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Speaker 6: lot of uncertainty I think into next year. Even people

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Speaker 6: saying the Fed's gonna cut. You know, Rich Miller in

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Speaker 6: Washington was saying some smart stuff earlier to me and

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Speaker 6: some others that you know, the question is if the

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Speaker 6: Fed starts cutting, why, you know, are they cutting for

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Speaker 6: these kind of call it technical just to so rates

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Speaker 6: don't get too restrictive if inflation goes down or if

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Speaker 6: the economy is doing very poorly and they have to

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Speaker 6: cut quickly then and a lot that that's the bigger

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Speaker 6: juice for the bond market. So I think just how

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Speaker 6: far yields can go the shape of the yield curve

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Speaker 6: most people see steepening. You know that's going to be

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Speaker 6: yet to be seen because you know this, you know,

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Speaker 6: recession we everyone thought was coming this year didn't pan out.

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Speaker 6: So we'll see what happens next year.

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Speaker 2: I you know, Liz, I try to avoid, you know,

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Speaker 2: these Treasury auctions because there are a lot of smart

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Speaker 2: people like you and Ira Jersey that do focus on them.

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Speaker 2: But what what have you learned from some of the

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Speaker 2: recent auctions out there? Is are Treasury refunding working.

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Speaker 7: Well?

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Speaker 9: Yeah?

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Speaker 6: I mean so the twenty year, which, to be honest

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Speaker 6: is all has always been like the lame duck here

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Speaker 6: or the problem child that is for Treasury. That didn't

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Speaker 6: go so bad yesterday, and people were worried about that.

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Speaker 6: We didn't have a thirty year recently after the refunding

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Speaker 6: even though they cut you know, they didn't increase it

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Speaker 6: as much, so the size wasn't as big. Didn't go well.

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Speaker 6: But somebody was saying, and I think they're right, Like,

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Speaker 6: you know, we've seen so much volatility and rates. To

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Speaker 6: see a poor auction, you know, it was not surprising.

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Speaker 6: I mean it was terrible. He had a huge tale,

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Speaker 6: But I think you know, you know, Treasury is getting

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Speaker 6: their paper done. You know, we'll see we've gotten through

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Speaker 6: the new issues of the refunding stuff, so you know,

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Speaker 6: now it's going to be just the kind of regular

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Speaker 6: monthly and then the reopening.

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Speaker 10: So I don't know.

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Speaker 6: I think if volatility can calm down, then in general

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Speaker 6: the auctions can go a little better.

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Speaker 5: And is the market right now built on those FED

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Speaker 5: cuts actually playing out? Because I remember six months ago

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Speaker 5: we were talking about cuts in twenty three and now

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Speaker 5: we're lining up cuts starting in the second half.

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Speaker 9: You know, it's hard to say what's going on, to

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Speaker 9: be honest, because you know, people talk about paying more

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Speaker 9: for longer maturity bonds, you know, term premium not in there.

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Speaker 9: We have one hundred basis points of differential between the

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Speaker 9: front of the curve and the ten year, you know,

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Speaker 9: fifty between the two year and the ten year, and

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Speaker 9: so you know, the market isn't telling a very consistent

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Speaker 9: story because I think Liz, what she was pointing out

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Speaker 9: is is there are two ways to look at it.

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Speaker 9: One is that inflation comes down and the FED says, okay,

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Speaker 9: really yields are high. Therefore we have room to bring

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Speaker 9: it down or we fall into a recession and we

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Speaker 9: get those cuts. I think, you know, some people are

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Speaker 9: saying basically the cuts that are priced in are sort

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Speaker 9: of a mix between those two scenarios. Scenario one might

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Speaker 9: give you a cut or two at the end of

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Speaker 9: the year. The other scenario could give you six seven cuts.

437
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Speaker 9: You know, that's the sort of like the two thousand

438
00:23:07,560 --> 00:23:09,840
Speaker 9: episode that we're talking about, where the FED just has

439
00:23:09,880 --> 00:23:13,080
Speaker 9: to go to town and cut more. And so we're sort

440
00:23:13,080 --> 00:23:15,480
Speaker 9: of somewhere in the middle, and it's hard to say

441
00:23:15,560 --> 00:23:17,640
Speaker 9: what the market is exactly telling us.

442
00:23:18,000 --> 00:23:22,040
Speaker 2: And do you think the FED risk kind of you know,

443
00:23:22,200 --> 00:23:24,800
Speaker 2: going too far, staying high too longer, and pushing this

444
00:23:24,840 --> 00:23:26,640
Speaker 2: economy to your recession. What are you hearing out there?

445
00:23:27,080 --> 00:23:34,040
Speaker 9: Well, I think that a softish landing is not terrible

446
00:23:34,560 --> 00:23:37,600
Speaker 9: from everything that I've heard that Jerome Powace said. And

447
00:23:37,640 --> 00:23:39,440
Speaker 9: you know, if you think about the numbers that they've

448
00:23:39,440 --> 00:23:41,359
Speaker 9: been putting out for the last six months, I think

449
00:23:41,400 --> 00:23:44,520
Speaker 9: it's you know, the summary of economic projections in September

450
00:23:44,560 --> 00:23:47,680
Speaker 9: and then in June. Basically the numbers that they put out,

451
00:23:48,200 --> 00:23:51,760
Speaker 9: if you back out where we are in the unemployment rate,

452
00:23:51,800 --> 00:23:55,879
Speaker 9: it suggests a mild recession, even though of course he says,

453
00:23:55,920 --> 00:23:58,240
Speaker 9: and the FED economists say they don't expect the recession.

454
00:23:58,359 --> 00:24:00,840
Speaker 9: But if you had a mild recession, I think that

455
00:24:01,040 --> 00:24:05,359
Speaker 9: no one would be they'd be nonplussed. I mean, because

456
00:24:05,760 --> 00:24:08,080
Speaker 9: that takes the risk off the table of you know,

457
00:24:08,800 --> 00:24:13,000
Speaker 9: just hyper extending a into a bubble and then crashing down.

458
00:24:13,800 --> 00:24:16,960
Speaker 5: Liz, looking at that MC minutes later today, somewhat dated

459
00:24:16,960 --> 00:24:19,639
Speaker 5: at this point, just based on more recent data. What

460
00:24:19,680 --> 00:24:21,879
Speaker 5: do you have your eye on from these minutes and

461
00:24:21,880 --> 00:24:24,040
Speaker 5: what could be driving the market in the days and

462
00:24:24,080 --> 00:24:24,600
Speaker 5: weeks a cup.

463
00:24:26,160 --> 00:24:29,280
Speaker 6: Yeah, so it's definitely data, especially as long rates, which

464
00:24:29,359 --> 00:24:32,520
Speaker 6: you know, were one of the reasons why financial conditions

465
00:24:32,520 --> 00:24:33,840
Speaker 6: had tightened, have come down a lot.

466
00:24:33,960 --> 00:24:35,160
Speaker 10: So they have these but.

467
00:24:35,160 --> 00:24:37,760
Speaker 6: I'd like to see in the minutes, like how confident

468
00:24:37,840 --> 00:24:41,960
Speaker 6: policy makers were that, you know, or not that policy

469
00:24:42,080 --> 00:24:45,159
Speaker 6: was sufficiently restrictive right, which Pale had said in the

470
00:24:45,200 --> 00:24:48,840
Speaker 6: pressure he thought we were. But you know, that might

471
00:24:48,920 --> 00:24:51,119
Speaker 6: kind of give an inkling of you know, if that

472
00:24:51,320 --> 00:24:55,240
Speaker 6: was kind of just a squishy consensus or not. Again,

473
00:24:55,400 --> 00:24:58,480
Speaker 6: the bar seems high for them to hike again. But

474
00:24:58,840 --> 00:25:02,560
Speaker 6: given the the backdrop of easing financial conditions since the

475
00:25:02,600 --> 00:25:05,640
Speaker 6: meeting happened, I'm just really looking to see how much

476
00:25:05,680 --> 00:25:09,200
Speaker 6: they thought conditions were tightened, and was it all about

477
00:25:09,280 --> 00:25:11,639
Speaker 6: long rates because a lot of that is reversed, and

478
00:25:11,720 --> 00:25:14,119
Speaker 6: what that might mean for the future policy.

479
00:25:14,920 --> 00:25:17,840
Speaker 2: Ed you've got your everything risk column out there, what's

480
00:25:17,880 --> 00:25:21,639
Speaker 2: your biggest risk that you think the market needs to

481
00:25:21,680 --> 00:25:23,320
Speaker 2: really be cognizant of going forward.

482
00:25:23,760 --> 00:25:28,320
Speaker 9: I think the risk is the risk of credit adding

483
00:25:28,359 --> 00:25:32,960
Speaker 9: to some downside risk in twenty twenty four, because we've

484
00:25:32,960 --> 00:25:35,359
Speaker 9: done a really good job in twenty twenty three of

485
00:25:35,480 --> 00:25:38,919
Speaker 9: keeping those credit spreads tight. But you know, we have

486
00:25:39,080 --> 00:25:45,920
Speaker 9: all the commercial property we've got, you know, some bankruptcies

487
00:25:45,960 --> 00:25:50,360
Speaker 9: bubbling up, and we have a decent number of bonds

488
00:25:50,400 --> 00:25:55,000
Speaker 9: coming to market for refinancing in twenty twenty four. That

489
00:25:55,160 --> 00:26:00,280
Speaker 9: sets up the potential that you know, credit is is

490
00:26:00,520 --> 00:26:02,640
Speaker 9: front and center in twenty twenty four in a way

491
00:26:02,640 --> 00:26:05,560
Speaker 9: that it hasn't been in this entire cycle.

492
00:26:05,320 --> 00:26:07,120
Speaker 2: Right because we really haven't seen I mean, I guess

493
00:26:07,119 --> 00:26:08,680
Speaker 2: it's from all that stimulus money we had at the

494
00:26:08,680 --> 00:26:09,520
Speaker 2: beginning of the pandemic.

495
00:26:09,560 --> 00:26:10,720
Speaker 3: But that's a good play out.

496
00:26:10,640 --> 00:26:14,480
Speaker 9: If you think about the pandemic. Was there any credit stress? Yeah,

497
00:26:14,600 --> 00:26:17,359
Speaker 9: except for March twenty twenty. I mean we really haven't

498
00:26:17,359 --> 00:26:19,639
Speaker 9: seen it. We saw it with Shale oil in twenty

499
00:26:19,760 --> 00:26:24,680
Speaker 9: fifteen sixteen, but really we've not had a bout of

500
00:26:24,720 --> 00:26:26,200
Speaker 9: credits dress in a very long time.

501
00:26:26,280 --> 00:26:28,080
Speaker 2: Good stuff, all right, Thanks so much for joining us.

502
00:26:28,160 --> 00:26:30,600
Speaker 2: Ed Harrison, Senior editor at Bloomberg News and author of

503
00:26:30,640 --> 00:26:33,359
Speaker 2: the Everything Risk column, Joining us live here in our

504
00:26:33,359 --> 00:26:36,240
Speaker 2: Bloomberg Interactive Broker studio. Joining us VI assume Lis McCormick,

505
00:26:36,480 --> 00:26:40,800
Speaker 2: Chief correspondent of Macroadvisors at Bloomberg News. Little roundtable of

506
00:26:40,840 --> 00:26:42,960
Speaker 2: what's out there in terms of risk out there in

507
00:26:43,119 --> 00:26:44,240
Speaker 2: those markets.

508
00:26:44,400 --> 00:26:48,040
Speaker 7: You're listening to the tape Cansur Live program Bloomberg Markets

509
00:26:48,080 --> 00:26:51,480
Speaker 7: weekdays at ten am Eastern on Bloomberg Radio, the tune

510
00:26:51,520 --> 00:26:54,480
Speaker 7: in alf Bloomberg dot Com, and the Bloomberg Business App.

511
00:26:54,520 --> 00:26:57,320
Speaker 7: You can also listen live on Amazon Alexa from our

512
00:26:57,359 --> 00:27:03,560
Speaker 7: flagship New York station Just Say Alexa playing Bloomberg eleven.

513
00:27:04,040 --> 00:27:04,280
Speaker 8: Man.

514
00:27:04,400 --> 00:27:05,680
Speaker 3: What a story here.

515
00:27:05,720 --> 00:27:10,120
Speaker 2: Finance founder Chang Peng Jao agrees to step down, plead guilty.

516
00:27:10,200 --> 00:27:11,640
Speaker 3: That's according to the.

517
00:27:11,560 --> 00:27:16,520
Speaker 2: Wall Street Journal, just another crypto exchange after FTX going

518
00:27:16,560 --> 00:27:19,520
Speaker 2: down and just extraordinary. Let's break it down a little

519
00:27:19,560 --> 00:27:23,040
Speaker 2: bit with somebody who's really into this business. Matt Siegel,

520
00:27:23,480 --> 00:27:25,320
Speaker 2: he's over at van Ck and we talked about a

521
00:27:25,320 --> 00:27:30,520
Speaker 2: lot about crypto. Mattan I know they're investigating Finance and

522
00:27:30,680 --> 00:27:32,480
Speaker 2: mister Jao for a while, but I mean.

523
00:27:32,320 --> 00:27:36,679
Speaker 3: This is a leading exchange here. What do you make

524
00:27:36,720 --> 00:27:37,000
Speaker 3: of this?

525
00:27:41,200 --> 00:27:44,800
Speaker 10: Thanks for having me. Yeah, it is a big deal. Finances,

526
00:27:44,960 --> 00:27:48,840
Speaker 10: you know, the largest spot crypto exchange by some size.

527
00:27:48,880 --> 00:27:52,040
Speaker 10: But we've been seeing all year that Finance has been

528
00:27:52,560 --> 00:27:57,879
Speaker 10: losing share as investors have been anticipating some type of

529
00:27:58,160 --> 00:28:01,080
Speaker 10: enforcement actions. We see this every site called. Old main

530
00:28:01,160 --> 00:28:05,720
Speaker 10: characters in crypto retire or get arrested, new main characters emerge.

531
00:28:06,560 --> 00:28:08,600
Speaker 10: You know, you can see Coinbase kind of acting while

532
00:28:08,600 --> 00:28:12,080
Speaker 10: on this news, probably bullish for coin.

533
00:28:13,760 --> 00:28:15,760
Speaker 5: Yeah, I was gonna ask, so who are the winners?

534
00:28:15,760 --> 00:28:19,240
Speaker 5: As you mentioned Coinbase right now little changed on the day.

535
00:28:19,240 --> 00:28:22,640
Speaker 5: Bitcoin actually briefly turned positive, Like what is the read

536
00:28:22,680 --> 00:28:26,159
Speaker 5: across two other tokens to other exchanges on this news.

537
00:28:29,040 --> 00:28:31,160
Speaker 10: I think it's a continuation of the trend we've seen

538
00:28:31,160 --> 00:28:34,120
Speaker 10: this year, which is coinbase picking up market share because

539
00:28:34,160 --> 00:28:38,560
Speaker 10: they are the closest thing to a regulated entity inside

540
00:28:38,600 --> 00:28:42,760
Speaker 10: the US given their custody solution and that's despite the

541
00:28:42,800 --> 00:28:45,400
Speaker 10: fact that you know, the SEC has has sued coinbase

542
00:28:45,480 --> 00:28:49,440
Speaker 10: as well for selling on registered securities. But I think

543
00:28:49,480 --> 00:28:51,920
Speaker 10: the most important thing here is that, according to the

544
00:28:51,920 --> 00:28:55,080
Speaker 10: news reports, at least finance will continue to be able

545
00:28:55,120 --> 00:28:59,960
Speaker 10: to operate, So this should not have any dramatic impact

546
00:29:00,240 --> 00:29:05,040
Speaker 10: on the market on anyone's coin holdings. It'll probably be

547
00:29:05,280 --> 00:29:09,760
Speaker 10: a gradual market share loss as the story plays out.

548
00:29:10,160 --> 00:29:13,240
Speaker 2: Hey, Matt, as someone here, I'm just speaking to myself.

549
00:29:13,280 --> 00:29:15,240
Speaker 2: You know, I don't have a lot of experience in

550
00:29:15,280 --> 00:29:19,600
Speaker 2: the crypto space, but when I see leading exchanges run

551
00:29:19,600 --> 00:29:22,000
Speaker 2: into these legal problems and the executive run into these

552
00:29:22,040 --> 00:29:24,520
Speaker 2: legal problems, I'm just like, this is the wild West?

553
00:29:24,560 --> 00:29:26,200
Speaker 3: Why would I even pay attention to this?

554
00:29:26,560 --> 00:29:29,000
Speaker 2: Can you give us a sense of how much of

555
00:29:29,040 --> 00:29:31,760
Speaker 2: a concern that is for people in the crypto space?

556
00:29:31,840 --> 00:29:34,160
Speaker 3: That, man, this looks bad.

557
00:29:36,760 --> 00:29:39,000
Speaker 10: The main use case, or one of the main use

558
00:29:39,040 --> 00:29:43,240
Speaker 10: cases of digital assets is the ability to custody them

559
00:29:43,480 --> 00:29:48,320
Speaker 10: yourself in cold storage. When you hand over your keys

560
00:29:48,320 --> 00:29:51,320
Speaker 10: to an exchange and leave your keys on an exchange,

561
00:29:51,640 --> 00:29:55,000
Speaker 10: by definition, they are going to hold your coins, settle

562
00:29:55,040 --> 00:29:58,320
Speaker 10: the trade, clear the trade. The whole stack is condensed

563
00:29:58,320 --> 00:30:00,880
Speaker 10: into one, you know, that can be a very efficient

564
00:30:00,960 --> 00:30:03,600
Speaker 10: way of doing business. It just doesn't have a ton

565
00:30:03,760 --> 00:30:07,080
Speaker 10: of regulatory clarity here in the US. But when your

566
00:30:08,040 --> 00:30:11,440
Speaker 10: bank is failing over a weekend, you're pretty happy to

567
00:30:11,480 --> 00:30:14,080
Speaker 10: be able to move your dollar stable coins onto an

568
00:30:14,120 --> 00:30:17,240
Speaker 10: exchange and monetize them, which you can't do during a

569
00:30:17,280 --> 00:30:20,040
Speaker 10: bank run. So there's some inherent advantages to this tech

570
00:30:20,080 --> 00:30:21,680
Speaker 10: as well, though you note.

571
00:30:21,480 --> 00:30:26,760
Speaker 5: The risks, Matt. Four point three billion dollars is according

572
00:30:26,760 --> 00:30:29,760
Speaker 5: to the Journal, what they will be paying, and CZ

573
00:30:29,920 --> 00:30:32,960
Speaker 5: will retain his majority ownership in Finance. Either of those

574
00:30:33,720 --> 00:30:38,760
Speaker 5: that number in that update surprising at all.

575
00:30:38,840 --> 00:30:41,800
Speaker 10: It's a large number, But the SEC claimed in the

576
00:30:41,840 --> 00:30:44,520
Speaker 10: crack and lawsuit yesterday that Krack had made forty three

577
00:30:44,560 --> 00:30:50,160
Speaker 10: billion dollars twenty twenty and twenty twenty one, So presumably

578
00:30:50,200 --> 00:30:54,360
Speaker 10: CZ has negotiated this settlement and can't afford it. Finance

579
00:30:54,400 --> 00:30:55,680
Speaker 10: will continue to operate.

580
00:30:57,120 --> 00:30:57,360
Speaker 7: Wow.

581
00:30:57,480 --> 00:31:00,680
Speaker 2: Just an amazing story, amazing development in the world of crypto,

582
00:31:00,800 --> 00:31:04,080
Speaker 2: So stay on top of that again, Matt Siegel, thank

583
00:31:04,120 --> 00:31:06,400
Speaker 2: you so much for joinings. Appreciate getting and you hop

584
00:31:06,440 --> 00:31:09,240
Speaker 2: on this and give us your thoughts here again. Finance

585
00:31:09,480 --> 00:31:14,160
Speaker 2: founder Changpeng Zhao agrees to step down and plead guilty.

586
00:31:14,240 --> 00:31:15,800
Speaker 3: That's according to the Wall Street Journal.

587
00:31:17,400 --> 00:31:20,520
Speaker 1: Thanks for listening to the Bloomberg Markets podcasts. You can

588
00:31:20,520 --> 00:31:24,320
Speaker 1: subscribe and listen to interviews at Apple Podcasts or whatever

589
00:31:24,400 --> 00:31:28,120
Speaker 1: podcast platform you prefer. I'm Matt Miller. I'm on Twitter

590
00:31:28,320 --> 00:31:30,400
Speaker 1: at Matt Miller nineteen seventy three.

591
00:31:30,680 --> 00:31:33,080
Speaker 3: And I'm Fall Sweeney. I'm on Twitter at pt Sweeney.

592
00:31:33,200 --> 00:31:35,840
Speaker 2: Before the podcast, you can always catch us worldwide at

593
00:31:35,880 --> 00:31:37,640
Speaker 2: Bloomberg Radio