Latest / Bloomberg Intelligence / Microsoft and OpenAI, Treasury Auction, and CZ Zhao

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Microsoft and OpenAI, Treasury Auction, and CZ Zhao · Bloomberg Intelligence

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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 2: I'm the Bloomberg Markets podcast called Apple Podcasts or wherever
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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
• 1:01
  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,
• 9:09
  Speaker 2: Senior Ecoity analyst at Wedbush Securities, kind of giving us
• 9:13
  Speaker 2: some of the latest.
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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
• 9:34
  Speaker 2: of year where strategists and people in the money management
• 9:37
  Speaker 2: business start thinking about next year, you know, and a
• 9:40
  Speaker 2: lot of folks even think of being farther out over
• 9:42
  Speaker 2: the next three, five, ten years.
• 9:44
  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
• 9:55
  Speaker 2: for joining us here. I know, you guys you've got
• 9:58
  Speaker 2: a what you guys call all capital markets assumptions kind
• 10:01
  Speaker 2: of You guys look out across asset classes for a
• 10:04
  Speaker 2: long period of time. What are you guys thinking about
• 10:06
  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,
• 10:12
  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
• 10:16
  Speaker 3: your key themes?
• 10:18
  Speaker 8: Well delighted to be here and yes, so we have
• 10:21
  Speaker 8: just published our twenty twenty four capital Market assumptions and
• 10:25
  Speaker 8: these are really the risk and return assumptions that are
• 10:28
  Speaker 8: intended to guide investors in how they develop long term
• 10:32
  Speaker 8: strategic acid allocations. So this is very different than something
• 10:36
  Speaker 8: like a twenty twenty four outlook. This is much more
• 10:39
  Speaker 8: long term in nature. Now your reference to twenty twenty three,
• 10:43
  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
• 10:53
  Speaker 8: returns for several asset classes had moved considerably higher following
• 10:57
  Speaker 8: those poor returns for particularly equities and bonds in twenty
• 11:00
  Speaker 8: twenty two. Our outlook for twenty twenty four, of rather
• 11:04
  Speaker 8: our expectations over ten years continue that theme, albeit at
• 11:09
  Speaker 8: a slightly slower pace. And so a couple of themes
• 11:12
  Speaker 8: that I wanted to really highlight. First of all, slowing inflation.
• 11:15
  Speaker 8: Central bank tightening around the globe has really had the
• 11:18
  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
• 11:25
  Speaker 8: most developed market economies. But the last mile in getting
• 11:28
  Speaker 8: inflation down to central bank targets is probably going to
• 11:31
  Speaker 8: be the most difficult, and so built into these forecasts
• 11:36
  Speaker 8: we expect that central banks will begin to loosen policy soon,
• 11:39
  Speaker 8: but we still expect that over the next ten years
• 11:41
  Speaker 8: interest rates will settle at higher levels than we've seen
• 11:44
  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
• 11:50
  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.
• 12:04
  Speaker 8: To work and great point, so I would say when
• 12:08
  Speaker 8: we look across the asset classes, first of all US equities,
• 12:12
  Speaker 8: our expected return for US equities really stand out among
• 12:16
  Speaker 8: equity markets as being revised higher. And that's across capitalizations.
• 12:20
  Speaker 8: It's largely driven by our expectations that the US economy
• 12:23
  Speaker 8: will continue to outperform the rest of the developed world,
• 12:27
  Speaker 8: the focus on innovation in the US as a particular tailwind,
• 12:30
  Speaker 8: specifically when we think about productivity games related to AI.
• 12:35
  Speaker 8: And of course higher rates means higher yield in bonds,
• 12:38
  Speaker 8: and we think bonds will benefit not only because of
• 12:41
  Speaker 8: higher current yields, but they're also going to benefit as
• 12:44
  Speaker 8: the economy slows, which is what we expect, a slowing
• 12:48
  Speaker 8: not an outright recession in the near term.
• 12:52
  Speaker 2: Schneid in twenty twenty two. In particular that sixty to
• 12:54
  Speaker 2: forty portfolio really took a beating. There's this nowhere to
• 12:57
  Speaker 2: hide here. How do you guys think about ALLOCA here?
• 13:00
  Speaker 2: I mean, presumably you know, alternative assets is also someplace
• 13:06
  Speaker 2: you might consider. How do you think about all alternatives
• 13:09
  Speaker 2: as part of a portfolio?
• 13:11
  Speaker 8: Well, it's a great question, and two points here. One,
• 13:15
  Speaker 8: we all think about sixty forty, but the sixty forty
• 13:19
  Speaker 8: twenty years ago was actually quite different and is quite
• 13:22
  Speaker 8: different than what a straightforward public market exposure to sixty
• 13:25
  Speaker 8: forty is today. And so that means that private markets
• 13:28
  Speaker 8: become a much more important part of your portfolio, and
• 13:32
  Speaker 8: also alternatives to really help with diversification. The thing that
• 13:36
  Speaker 8: we often don't talk about when we use the shorthand
• 13:39
  Speaker 8: of sixty forty is, you know, even look at the
• 13:41
  Speaker 8: number of public companies in the US. At the end
• 13:43
  Speaker 8: of the nineties, it was close to eight thousand. Today
• 13:47
  Speaker 8: it's less than four thousand. So companies are staying private
• 13:50
  Speaker 8: for longer, and it means that if you don't have
• 13:53
  Speaker 8: that private market exposure, you are losing out on the
• 13:56
  Speaker 8: ultra high growth phase where companies are going public. A
• 14:01
  Speaker 8: lot of the high the household names that we would
• 14:03
  Speaker 8: think about in recent years it went public, they were
• 14:06
  Speaker 8: already large cap stocks by the the time they came
• 14:09
  Speaker 8: to the market. So if you don't have that private
• 14:11
  Speaker 8: market exposure in your portfolio, you miss out on that completely.
• 14:14
  Speaker 8: So I think that that's point number one in relation
• 14:16
  Speaker 8: to sixty forty. You need to think broader, probably somewhere
• 14:20
  Speaker 8: in the region of a twenty to twenty five percent
• 14:22
  Speaker 8: allocation to private markets and alternatives, depending on your your
• 14:26
  Speaker 8: risk tolerance. But the second point is that actually over
• 14:31
  Speaker 8: the next ten years, purely from an index only perspective,
• 14:36
  Speaker 8: we expect a six point four percent expected return over
• 14:40
  Speaker 8: the next decade or so for that public market only
• 14:43
  Speaker 8: sixty forty portfolio. That's because we see a moderately higher
• 14:48
  Speaker 8: return in a number of equity markets and also those
• 14:52
  Speaker 8: higher fixed income expected returns given the starting point of
• 14:58
  Speaker 8: yields and.
• 14:59
  Speaker 5: Looking at AI obviously being the theme of the year,
• 15:02
  Speaker 5: does AI have to work to drive markets hire especially
• 15:06
  Speaker 5: equity markets when you're looking at what we've seen from
• 15:08
  Speaker 5: the likes of Nvidia and Microsoft in terms of sheer
• 15:11
  Speaker 5: market cap being added this year.
• 15:14
  Speaker 8: Well, look, clearly it is not the only driver, but
• 15:17
  Speaker 8: there's been a huge amount of excitement about the technology
• 15:19
  Speaker 8: this year. What we think is really interesting when we
• 15:22
  Speaker 8: look ahead, and similar to if we think about the
• 15:27
  Speaker 8: advent of the Internet and we go back and think
• 15:30
  Speaker 8: about dot com. Look, there's a lot we don't know
• 15:33
  Speaker 8: about exactly how this will evolve, but what we can
• 15:37
  Speaker 8: say is that AI has the potential to significantly impact
• 15:40
  Speaker 8: global GDP and global inflation over the next decade. What
• 15:44
  Speaker 8: we're looking at near term is an early promise to
• 15:47
  Speaker 8: automate some tasks, but really the full extent of its
• 15:51
  Speaker 8: impact on productivity, global growth, disinflation. We haven't seen it yet,
• 15:56
  Speaker 8: but our sense is that over the next ten years
• 16:00
  Speaker 8: we're going to see astounding progress. We'll see a lot
• 16:04
  Speaker 8: of new jobs created, new products and services that I
• 16:08
  Speaker 8: really haven't been invented yet. And in the context of
• 16:11
  Speaker 8: a broadly declining population in an economy, increased productivity is
• 16:15
  Speaker 8: critical to support ongoing economic growth.
• 16:18
  Speaker 2: Shanate, thank you so much for joining us. Really appreciate
• 16:20
  Speaker 2: getting your insights here. Shand Colton Grant. She's a global
• 16:24
  Speaker 2: head of Investor Solutions at bny Mellon.
• 16:27
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  Speaker 2: Let's talk bonds. Let's talk risk at Harrison Joints. And
• 16:51
  Speaker 2: he's a senior editor at Bloomberg News and author of
• 16:54
  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
• 17:00
  Speaker 2: folks join us. Ed hears in studio, Liz is joining
• 17:02
  Speaker 2: us via zoom and I want to start with you
• 17:04
  Speaker 2: because I got a problem, my friend. You got your
• 17:06
  Speaker 2: latest note out. Your another's opinion piece evokes nineteen ninety nine.
• 17:11
  Speaker 2: I was there, dude, and two thousand was there. It's
• 17:15
  Speaker 2: just not good, that whole burst thing of the bubble.
• 17:17
  Speaker 2: Although I did top tick the market, signed my contract
• 17:20
  Speaker 2: with Credit Swiss First Boston, February of two thousand, oh boom,
• 17:24
  Speaker 2: top ticked it. Three weeks later the world came to
• 17:26
  Speaker 2: an end. I didn't care, so Ed you talk about
• 17:30
  Speaker 2: markets and bubbles bursting. How do you kind of feel
• 17:32
  Speaker 2: like we are right now as we head into twenty
• 17:35
  Speaker 2: twenty four.
• 17:36
  Speaker 9: Yeah, I think that we're u It's a good quick
• 17:38
  Speaker 9: question because I think we're at a point where if
• 17:41
  Speaker 9: things get a little more exciting, they could be too exciting.
• 17:45
  Speaker 3: Okay.
• 17:45
  Speaker 9: I think it's interesting that we're talking about this on
• 17:47
  Speaker 9: the day that in Video is right awarding, because I mean,
• 17:50
  Speaker 9: is that not the company that sort of tells you
• 17:54
  Speaker 9: whether or not it's going to be exciting or not.
• 17:55
  Speaker 9: Because if Nvidia is able to continue to outperform and
• 18:00
  Speaker 9: therefore the stock goes higher, that tells you what the
• 18:04
  Speaker 9: sentiment is.
• 18:05
  Speaker 7: Yep.
• 18:06
  Speaker 5: Well, with that in mind, I guess are you in
• 18:08
  Speaker 5: the camp of this is a market driven by seven
• 18:10
  Speaker 5: plus three stocks? And how does that impact kind of
• 18:13
  Speaker 5: your view of risk? More broadly speaking, given every time
• 18:16
  Speaker 5: I pull up a GP on the S and P
• 18:18
  Speaker 5: or Nasdaq one hundred, it seems everything's rosy, but not
• 18:21
  Speaker 5: so much under the surface.
• 18:22
  Speaker 9: Yeah, Well, you know, the interesting bit is how the
• 18:24
  Speaker 9: rustle two thousand actually responded recently as we've gone up.
• 18:28
  Speaker 9: I mean, all of this was driven by rates from
• 18:31
  Speaker 9: where I can sit, and that says that, you know,
• 18:33
  Speaker 9: rates went down, everything went up because of the potential
• 18:37
  Speaker 9: for a soft lane. And it's interesting when you say
• 18:39
  Speaker 9: seven plus three, you know, I'm thinking about the Magnificent seven.
• 18:43
  Speaker 9: It used to have Netflix in there. Do you remember,
• 18:45
  Speaker 9: like a two years ago, Netflix was ejected and yet
• 18:49
  Speaker 9: they continue to go higher. So what it tells you
• 18:51
  Speaker 9: is is that as long as the economy holds and
• 18:55
  Speaker 9: these companies can keep their margins going, we still have
• 18:59
  Speaker 9: the potential for the reality to continue higher. The hope, however,
• 19:04
  Speaker 9: is that it doesn't go into two thousand mode, you know,
• 19:07
  Speaker 9: so that so that we don't get that sort of
• 19:10
  Speaker 9: negative reaction on the backside of that.
• 19:13
  Speaker 2: All right, Liz, you're coming to us from what I
• 19:15
  Speaker 2: call the yellow room, so great paint drop there. What's
• 19:19
  Speaker 2: the bond market telling us here about where we are
• 19:21
  Speaker 2: kind of in the cycle. It seems like we've seen
• 19:24
  Speaker 2: maybe peak rates. What are you seeing in the bond market?
• 19:28
  Speaker 6: Yeah, so I'm going to get to that, just kind
• 19:30
  Speaker 6: of getting my head around. Just meant and could marry
• 19:32
  Speaker 6: the one of the McCormick things. But yeah, the bond market,
• 19:38
  Speaker 6: so it seems like, you know, I hate to go
• 19:41
  Speaker 6: with consensus, because you know, we know what happened with
• 19:43
  Speaker 6: the consensus going into this year, but definitely most of
• 19:46
  Speaker 6: Wall Street things, and I don't think that's a bad
• 19:48
  Speaker 6: call that you know, we've seen the peak and rates,
• 19:51
  Speaker 6: like someone was saying, getting the ten year note, or
• 19:54
  Speaker 6: remember we had almost five's all across the curve. That
• 19:58
  Speaker 6: happening again is a very high bar a right, because
• 20:01
  Speaker 6: most likely the Fed is done. But I think the
• 20:03
  Speaker 6: bond market is saying the worst is over. How fast
• 20:07
  Speaker 6: rates go down is an open question, right, There's a
• 20:10
  Speaker 6: lot of uncertainty I think into next year. Even people
• 20:13
  Speaker 6: saying the Fed's gonna cut. You know, Rich Miller in
• 20:16
  Speaker 6: Washington was saying some smart stuff earlier to me and
• 20:19
  Speaker 6: some others that you know, the question is if the
• 20:21
  Speaker 6: Fed starts cutting, why, you know, are they cutting for
• 20:24
  Speaker 6: these kind of call it technical just to so rates
• 20:27
  Speaker 6: don't get too restrictive if inflation goes down or if
• 20:30
  Speaker 6: the economy is doing very poorly and they have to
• 20:32
  Speaker 6: cut quickly then and a lot that that's the bigger
• 20:35
  Speaker 6: juice for the bond market. So I think just how
• 20:38
  Speaker 6: far yields can go the shape of the yield curve
• 20:41
  Speaker 6: most people see steepening. You know that's going to be
• 20:44
  Speaker 6: yet to be seen because you know this, you know,
• 20:46
  Speaker 6: recession we everyone thought was coming this year didn't pan out.
• 20:49
  Speaker 6: So we'll see what happens next year.
• 20:51
  Speaker 2: I you know, Liz, I try to avoid, you know,
• 20:54
  Speaker 2: these Treasury auctions because there are a lot of smart
• 20:56
  Speaker 2: people like you and Ira Jersey that do focus on them.
• 20:59
  Speaker 2: But what what have you learned from some of the
• 21:00
  Speaker 2: recent auctions out there? Is are Treasury refunding working.
• 21:06
  Speaker 7: Well?
• 21:06
  Speaker 9: Yeah?
• 21:06
  Speaker 6: I mean so the twenty year, which, to be honest
• 21:09
  Speaker 6: is all has always been like the lame duck here
• 21:12
  Speaker 6: or the problem child that is for Treasury. That didn't
• 21:16
  Speaker 6: go so bad yesterday, and people were worried about that.
• 21:19
  Speaker 6: We didn't have a thirty year recently after the refunding
• 21:21
  Speaker 6: even though they cut you know, they didn't increase it
• 21:25
  Speaker 6: as much, so the size wasn't as big. Didn't go well.
• 21:27
  Speaker 6: But somebody was saying, and I think they're right, Like,
• 21:30
  Speaker 6: you know, we've seen so much volatility and rates. To
• 21:32
  Speaker 6: see a poor auction, you know, it was not surprising.
• 21:36
  Speaker 6: I mean it was terrible. He had a huge tale,
• 21:37
  Speaker 6: But I think you know, you know, Treasury is getting
• 21:40
  Speaker 6: their paper done. You know, we'll see we've gotten through
• 21:43
  Speaker 6: the new issues of the refunding stuff, so you know,
• 21:46
  Speaker 6: now it's going to be just the kind of regular
• 21:48
  Speaker 6: monthly and then the reopening.
• 21:50
  Speaker 10: So I don't know.
• 21:51
  Speaker 6: I think if volatility can calm down, then in general
• 21:53
  Speaker 6: the auctions can go a little better.
• 21:56
  Speaker 5: And is the market right now built on those FED
• 21:59
  Speaker 5: cuts actually playing out? Because I remember six months ago
• 22:02
  Speaker 5: we were talking about cuts in twenty three and now
• 22:04
  Speaker 5: we're lining up cuts starting in the second half.
• 22:07
  Speaker 9: You know, it's hard to say what's going on, to
• 22:10
  Speaker 9: be honest, because you know, people talk about paying more
• 22:13
  Speaker 9: for longer maturity bonds, you know, term premium not in there.
• 22:18
  Speaker 9: We have one hundred basis points of differential between the
• 22:21
  Speaker 9: front of the curve and the ten year, you know,
• 22:23
  Speaker 9: fifty between the two year and the ten year, and
• 22:26
  Speaker 9: so you know, the market isn't telling a very consistent
• 22:30
  Speaker 9: story because I think Liz, what she was pointing out
• 22:33
  Speaker 9: is is there are two ways to look at it.
• 22:34
  Speaker 9: One is that inflation comes down and the FED says, okay,
• 22:39
  Speaker 9: really yields are high. Therefore we have room to bring
• 22:43
  Speaker 9: it down or we fall into a recession and we
• 22:47
  Speaker 9: get those cuts. I think, you know, some people are
• 22:50
  Speaker 9: saying basically the cuts that are priced in are sort
• 22:54
  Speaker 9: of a mix between those two scenarios. Scenario one might
• 22:59
  Speaker 9: give you a cut or two at the end of
• 23:01
  Speaker 9: the year. The other scenario could give you six seven cuts.
• 23:04
  Speaker 9: You know, that's the sort of like the two thousand
• 23:07
  Speaker 9: episode that we're talking about, where the FED just has
• 23:09
  Speaker 9: to go to town and cut more. And so we're sort
• 23:13
  Speaker 9: of somewhere in the middle, and it's hard to say
• 23:15
  Speaker 9: what the market is exactly telling us.
• 23:18
  Speaker 2: And do you think the FED risk kind of you know,
• 23:22
  Speaker 2: going too far, staying high too longer, and pushing this
• 23:24
  Speaker 2: economy to your recession. What are you hearing out there?
• 23:27
  Speaker 9: Well, I think that a softish landing is not terrible
• 23:34
  Speaker 9: from everything that I've heard that Jerome Powace said. And
• 23:37
  Speaker 9: you know, if you think about the numbers that they've
• 23:39
  Speaker 9: been putting out for the last six months, I think
• 23:41
  Speaker 9: it's you know, the summary of economic projections in September
• 23:44
  Speaker 9: and then in June. Basically the numbers that they put out,
• 23:48
  Speaker 9: if you back out where we are in the unemployment rate,
• 23:51
  Speaker 9: it suggests a mild recession, even though of course he says,
• 23:55
  Speaker 9: and the FED economists say they don't expect the recession.
• 23:58
  Speaker 9: But if you had a mild recession, I think that
• 24:01
  Speaker 9: no one would be they'd be nonplussed. I mean, because
• 24:05
  Speaker 9: that takes the risk off the table of you know,
• 24:08
  Speaker 9: just hyper extending a into a bubble and then crashing down.
• 24:13
  Speaker 5: Liz, looking at that MC minutes later today, somewhat dated
• 24:16
  Speaker 5: at this point, just based on more recent data. What
• 24:19
  Speaker 5: do you have your eye on from these minutes and
• 24:21
  Speaker 5: what could be driving the market in the days and
• 24:24
  Speaker 5: weeks a cup.
• 24:26
  Speaker 6: Yeah, so it's definitely data, especially as long rates, which
• 24:29
  Speaker 6: you know, were one of the reasons why financial conditions
• 24:32
  Speaker 6: had tightened, have come down a lot.
• 24:33
  Speaker 10: So they have these but.
• 24:35
  Speaker 6: I'd like to see in the minutes, like how confident
• 24:37
  Speaker 6: policy makers were that, you know, or not that policy
• 24:42
  Speaker 6: was sufficiently restrictive right, which Pale had said in the
• 24:45
  Speaker 6: pressure he thought we were. But you know, that might
• 24:48
  Speaker 6: kind of give an inkling of you know, if that
• 24:51
  Speaker 6: was kind of just a squishy consensus or not. Again,
• 24:55
  Speaker 6: the bar seems high for them to hike again. But
• 24:58
  Speaker 6: given the the backdrop of easing financial conditions since the
• 25:02
  Speaker 6: meeting happened, I'm just really looking to see how much
• 25:05
  Speaker 6: they thought conditions were tightened, and was it all about
• 25:09
  Speaker 6: long rates because a lot of that is reversed, and
• 25:11
  Speaker 6: what that might mean for the future policy.
• 25:14
  Speaker 2: Ed you've got your everything risk column out there, what's
• 25:17
  Speaker 2: your biggest risk that you think the market needs to
• 25:21
  Speaker 2: really be cognizant of going forward.
• 25:23
  Speaker 9: I think the risk is the risk of credit adding
• 25:28
  Speaker 9: to some downside risk in twenty twenty four, because we've
• 25:32
  Speaker 9: done a really good job in twenty twenty three of
• 25:35
  Speaker 9: keeping those credit spreads tight. But you know, we have
• 25:39
  Speaker 9: all the commercial property we've got, you know, some bankruptcies
• 25:45
  Speaker 9: bubbling up, and we have a decent number of bonds
• 25:50
  Speaker 9: coming to market for refinancing in twenty twenty four. That
• 25:55
  Speaker 9: sets up the potential that you know, credit is is
• 26:00
  Speaker 9: front and center in twenty twenty four in a way
• 26:02
  Speaker 9: that it hasn't been in this entire cycle.
• 26:05
  Speaker 2: Right because we really haven't seen I mean, I guess
• 26:07
  Speaker 2: it's from all that stimulus money we had at the
• 26:08
  Speaker 2: beginning of the pandemic.
• 26:09
  Speaker 3: But that's a good play out.
• 26:10
  Speaker 9: If you think about the pandemic. Was there any credit stress? Yeah,
• 26:14
  Speaker 9: except for March twenty twenty. I mean we really haven't
• 26:17
  Speaker 9: seen it. We saw it with Shale oil in twenty
• 26:19
  Speaker 9: fifteen sixteen, but really we've not had a bout of
• 26:24
  Speaker 9: credits dress in a very long time.
• 26:26
  Speaker 2: Good stuff, all right, Thanks so much for joining us.
• 26:28
  Speaker 2: Ed Harrison, Senior editor at Bloomberg News and author of
• 26:30
  Speaker 2: the Everything Risk column, Joining us live here in our
• 26:33
  Speaker 2: Bloomberg Interactive Broker studio. Joining us VI assume Lis McCormick,
• 26:36
  Speaker 2: Chief correspondent of Macroadvisors at Bloomberg News. Little roundtable of
• 26:40
  Speaker 2: what's out there in terms of risk out there in
• 26:43
  Speaker 2: those markets.
• 26:44
  Speaker 7: You're listening to the tape Cansur Live program Bloomberg Markets
• 26:48
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• 26:51
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• 26:54
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• 26:57
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• 27:04
  Speaker 8: Man.
• 27:04
  Speaker 3: What a story here.
• 27:05
  Speaker 2: Finance founder Chang Peng Jao agrees to step down, plead guilty.
• 27:10
  Speaker 3: That's according to the.
• 27:11
  Speaker 2: Wall Street Journal, just another crypto exchange after FTX going
• 27:16
  Speaker 2: down and just extraordinary. Let's break it down a little
• 27:19
  Speaker 2: bit with somebody who's really into this business. Matt Siegel,
• 27:23
  Speaker 2: he's over at van Ck and we talked about a
• 27:25
  Speaker 2: lot about crypto. Mattan I know they're investigating Finance and
• 27:30
  Speaker 2: mister Jao for a while, but I mean.
• 27:32
  Speaker 3: This is a leading exchange here. What do you make
• 27:36
  Speaker 3: of this?
• 27:41
  Speaker 10: Thanks for having me. Yeah, it is a big deal. Finances,
• 27:44
  Speaker 10: you know, the largest spot crypto exchange by some size.
• 27:48
  Speaker 10: But we've been seeing all year that Finance has been
• 27:52
  Speaker 10: losing share as investors have been anticipating some type of
• 27:58
  Speaker 10: enforcement actions. We see this every site called. Old main
• 28:01
  Speaker 10: characters in crypto retire or get arrested, new main characters emerge.
• 28:06
  Speaker 10: You know, you can see Coinbase kind of acting while
• 28:08
  Speaker 10: on this news, probably bullish for coin.
• 28:13
  Speaker 5: Yeah, I was gonna ask, so who are the winners?
• 28:15
  Speaker 5: As you mentioned Coinbase right now little changed on the day.
• 28:19
  Speaker 5: Bitcoin actually briefly turned positive, Like what is the read
• 28:22
  Speaker 5: across two other tokens to other exchanges on this news.
• 28:29
  Speaker 10: I think it's a continuation of the trend we've seen
• 28:31
  Speaker 10: this year, which is coinbase picking up market share because
• 28:34
  Speaker 10: they are the closest thing to a regulated entity inside
• 28:38
  Speaker 10: the US given their custody solution and that's despite the
• 28:42
  Speaker 10: fact that you know, the SEC has has sued coinbase
• 28:45
  Speaker 10: as well for selling on registered securities. But I think
• 28:49
  Speaker 10: the most important thing here is that, according to the
• 28:51
  Speaker 10: news reports, at least finance will continue to be able
• 28:55
  Speaker 10: to operate, So this should not have any dramatic impact
• 29:00
  Speaker 10: on the market on anyone's coin holdings. It'll probably be
• 29:05
  Speaker 10: a gradual market share loss as the story plays out.
• 29:10
  Speaker 2: Hey, Matt, as someone here, I'm just speaking to myself.
• 29:13
  Speaker 2: You know, I don't have a lot of experience in
• 29:15
  Speaker 2: the crypto space, but when I see leading exchanges run
• 29:19
  Speaker 2: into these legal problems and the executive run into these
• 29:22
  Speaker 2: legal problems, I'm just like, this is the wild West?
• 29:24
  Speaker 3: Why would I even pay attention to this?
• 29:26
  Speaker 2: Can you give us a sense of how much of
• 29:29
  Speaker 2: a concern that is for people in the crypto space?
• 29:31
  Speaker 3: That, man, this looks bad.
• 29:36
  Speaker 10: The main use case, or one of the main use
• 29:39
  Speaker 10: cases of digital assets is the ability to custody them
• 29:43
  Speaker 10: yourself in cold storage. When you hand over your keys
• 29:48
  Speaker 10: to an exchange and leave your keys on an exchange,
• 29:51
  Speaker 10: by definition, they are going to hold your coins, settle
• 29:55
  Speaker 10: the trade, clear the trade. The whole stack is condensed
• 29:58
  Speaker 10: into one, you know, that can be a very efficient
• 30:00
  Speaker 10: way of doing business. It just doesn't have a ton
• 30:03
  Speaker 10: of regulatory clarity here in the US. But when your
• 30:08
  Speaker 10: bank is failing over a weekend, you're pretty happy to
• 30:11
  Speaker 10: be able to move your dollar stable coins onto an
• 30:14
  Speaker 10: exchange and monetize them, which you can't do during a
• 30:17
  Speaker 10: bank run. So there's some inherent advantages to this tech
• 30:20
  Speaker 10: as well, though you note.
• 30:21
  Speaker 5: The risks, Matt. Four point three billion dollars is according
• 30:26
  Speaker 5: to the Journal, what they will be paying, and CZ
• 30:29
  Speaker 5: will retain his majority ownership in Finance. Either of those
• 30:33
  Speaker 5: that number in that update surprising at all.
• 30:38
  Speaker 10: It's a large number, But the SEC claimed in the
• 30:41
  Speaker 10: crack and lawsuit yesterday that Krack had made forty three
• 30:44
  Speaker 10: billion dollars twenty twenty and twenty twenty one, So presumably
• 30:50
  Speaker 10: CZ has negotiated this settlement and can't afford it. Finance
• 30:54
  Speaker 10: will continue to operate.
• 30:57
  Speaker 7: Wow.
• 30:57
  Speaker 2: Just an amazing story, amazing development in the world of crypto,
• 31:00
  Speaker 2: So stay on top of that again, Matt Siegel, thank
• 31:04
  Speaker 2: you so much for joinings. Appreciate getting and you hop
• 31:06
  Speaker 2: on this and give us your thoughts here again. Finance
• 31:09
  Speaker 2: founder Changpeng Zhao agrees to step down and plead guilty.
• 31:14
  Speaker 3: That's according to the Wall Street Journal.
• 31:17
  Speaker 1: Thanks for listening to the Bloomberg Markets podcasts. You can
• 31:20
  Speaker 1: subscribe and listen to interviews at Apple Podcasts or whatever
• 31:24
  Speaker 1: podcast platform you prefer. I'm Matt Miller. I'm on Twitter
• 31:28
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• 31:30
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• 31:33
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• 31:35
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