Brian Moynihan: Blockchain not Bitcoin

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populism hits the financial markets
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is it a fluke or does it point to
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something deeper this is bloomberg wall
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street week i’m david weston
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this week special contributor larry
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summers of harvard
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yes there is retail fraud
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not everything that’s done by short
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sellers
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is especially attractive bank of america
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ceo
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brian moynihan it’s good people
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investing i think people have to be
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careful and we all know that
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charming mossovar rachmani of goldman
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sachs
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it is clear that this is not necessarily
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justified from a valuation perspective
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jared bernstein of the council of
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economic advisors
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related company’s ceo jeff blau
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and peter atwater of financial insights
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there was a lot going on this week the
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federal reserve had its first meeting of
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the new year
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the economy is a long way from our
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employment and inflation goals
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and it is likely to take some time for
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substantial further progress to be
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achieved
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president biden issued a new series of
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executive orders janet yellen was sworn
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in as the first woman to be the u.s
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treasury secretary and oh yes the titans
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of tech
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announced their earnings from last
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quarter but despite
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all of the major news global wall street
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was consumed with the story of what had
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been
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a small largely overlooked company that
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sold
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video games at the local mall a company
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that the big hedge funds were happy to
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bet against
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until a flash mob on the social media
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site reddit
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decided to take on the shorts and the
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rest
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is history this has captured the
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attention of the america
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and every trader and nitrater alike the
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word nuttiness comes to mind to be
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honest
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the gamestop story is good fun to watch
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a sort of financial porn
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but we need to ask ourselves whether
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there’s more to it than just a battle of
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the netizens versus the shorts
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whether a combination of the liquidity
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in the market driven by the fed
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put together with the phenomenon of
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social media with just a pinch of
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lingering resentment of a financial
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system
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that seems to be rigged is part of a
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larger truth
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something that could point to an ugly
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reckoning around the corner
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with historically loose monetary and
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fiscal policy
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it’s really been the printing of money
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by the central bank and the distribution
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by the the government that’s financed a
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lot of the activity
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here to help us make some sense out of
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these markets and how they’re reacting
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to the news of the week
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is charming most of our rachmani she is
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chief investment officer at goldman
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sachs wealth management sure i mean
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always a pleasure to have you on we had
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a fair amount of up and down in the
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equity markets this week on wednesday
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they were down the most since october
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and you can tell us why that is maybe
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because of what we heard of jay powell
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the fetch here
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and then on thursday they came roaring
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back again what do we make out of all
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this is it telling us anything more
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fundamental about the economy
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first of all thank you for having me i
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always enjoy being on your show as well
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in terms of the specifics of this type
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of volatility
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if you think about the equity markets on
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average the volatility is around 15
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now since the pandemic we’ve been above
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20 for a long period of time
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so seeing this type of market moves is
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inevitable
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in fact if we go back and look at the
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post global financial crisis period
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we have had episodes of the market down
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five percent
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uh at least 95 percent of the time
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episodes of down 10 75 of the time
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so one has to look at this at this kind
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of market move and recognize
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that this is just a lot of noise the
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main
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signal and the main message that we’re
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giving our clients
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is to stay invested we have good
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economic growth
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we have a very very favorable
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earnings outlook and so when you combine
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all of those
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our recommendation continues to be stay
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invested
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and look beyond this kind of volatility
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at this time
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as you know we heard from chair powell
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this week and he was asked about the
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question of
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bubble or froth or sort of extended
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valuations because of the
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very accommodative monetary policy he
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sort of dismissed that i think it’s fair
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to say he didn’t think that’s
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the real problem here do you have any
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concern about that at all because
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there’s a lot of talk around right now
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about
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things being overextended when we look
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at equity valuations
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uh there are a couple of different
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perspectives we bring to bear
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first and foremost we look at a series
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of metrics
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but we look at them not just compared to
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long-term averages
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but one actually has to look at them in
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the context of a period of low and
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stable inflation
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so when you’re looking at the
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environment we have been in since
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april of 1996 which is low and stable
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inflation
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we actually are not as expensive as
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people think we are
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in fact based on looking at the broad
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range of uh
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these metrics our view is that given a
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view on where we’re going to be
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on earnings this year we’re probably
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about 14 to 20 percent overvalued
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that is not a bubble in addition we
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actually look at equity risk premium
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what are equities yielding relative to
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what bonds are we
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yielding that is also above average and
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finally we actually have something we
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called
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um is it’s an indicator that looks at
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explosive price behavior
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and we have to get that to around 90 to
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100 to think we’re in a bubble
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that currently stands at 26 it’s at a
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hundred percent for bitcoin
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but for something like equities it is
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not showing bubble levels at all
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furthermore if we compare it to where we
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were in the dot-com bubble levels
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we’re substantially below that so
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definitely not a bubble trouble yet from
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our perspective
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charming a moment ago you explo referred
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to explosive growth
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we cannot talk about explosive growth
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this week without talking about gamestop
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i mean you just have to talk about it
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give us your take on game stock what is
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going on there is that a fluke is it a
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symptom of something else
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what’s driving that when we look at
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these types of uh
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headlines and this kind of price action
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um it is clear that you this is not
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necessarily justified from a valuation
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perspective
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so what is it driving driving in an era
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of social media
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easy access to trading very low cost
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in terms of transaction costs for people
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you could have a lot of momentum and a
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lot of investors can pile into an
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investment theme
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and that does mean that you’re going to
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end up with prices that
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don’t probably reflect fair value and
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this could be seen
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in many areas it’s not just individually
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in a particular stock
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you could see it in other sectors and
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asset classes and again cryptocurrencies
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are a good example where you see the
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same
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type of price action where it’s not
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clear these are justified by
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any value argument and any fundamental
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arguments
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yeah i don’t hear anybody arguing that
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it was justified by value arguments
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does it pose anything of a risk for the
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rest of the market in terms of the price
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action it’ll get some attention it’ll
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get a lot of headlines
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but at the end of the day again one has
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to separate all this noise
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from the main signal it’s not as if we
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would recommend our clients have a
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significant
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allocation to any of these sectors or
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specific talks
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core assets really need to be uh in
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something like the s p 500 in something
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like ifa
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very small allocation for example to
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emerging markets but it needs to be more
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diversified
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one of the pillars of our investment
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philosophy is the real way
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to create good long-term wealth is
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through having some diversification in
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the portfolio
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okay charming as i say it’s always a
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great pleasure to have you with us that
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charming most of our rachmani
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of goldman sachs coming up
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what caused the gamestop spectacle and
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what should be done about it
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from peter atwater of financial insights
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what we’re seeing today is very aimed at
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going after companies that everybody was
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convinced was
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you know we’re on their way out in the
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stretcher
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this is wall street week on bloomberg
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[Music]
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a video game store is at the heart of a
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titanic struggle between
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short sellers and retail investors until
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recently gamestop
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was a company whose time seemed to have
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passed with serious gamers turning to
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the internet not the mall to get their
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games
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but then social media got involved
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starting a meteoric rise
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in gamestop stock after reddit’s wall
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street bets forum started pumping the
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stock to its users
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the army of social media empowered day
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traders catapulted the former small caps
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market value
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beyond those of even members of the s p
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500.
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it just reflects the liquidity that
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exists and the new players in the
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markets you know historically it’s
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indicative of a bubble type environment
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but you know to go for a long time
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the amateur day traders were targeting
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short positions held by
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gabe plotkin’s melvin capital and andrew
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left
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citroen research hedge fund titans ken
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griffin and steve cohen
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injected a total of two and
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three-quarters billion dollars into
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melvin capital
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amid the short squeeze distress what’s
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happening is that the retail right now
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is stronger but
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the short bets come back and fill in so
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it’s it’s just a battle that’s going to
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continue you’re going to see
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game stuff go way higher within a matter
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of days the reddit army had pushed the
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rally so high
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that melvin capital and citroen threw in
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the towel on their short positions
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citron research will no longer be
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publishing what can be considered
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as short selling reports the reddit army
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of day traders also boosted other
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has-beens including blackberry
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retailer express and amc which is
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fighting to save
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off bankruptcy hedge funds are now on
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the hunt for other companies that could
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end up on the reddit mob’s radar
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i think you’re going to see a number of
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hedge funds declare bankruptcy in the
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next several days
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online brokerages reported service
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disruptions caused by the retail trading
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frenzy
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and a number of them including robin
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hood took the rare step of limiting some
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transactions on shares of gamestop
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amc and others you’re witnessing the
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french revolution of finance where the
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proletariat is rising up to change
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the order structure and finance there’s
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been a surge in overall retail
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trading activity as people stuck at home
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tried their hands at trading
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according to bloomberg intelligence
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individual investors accounted for
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almost 20
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of the trading volume in 2020. the fact
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that retail investors are going to be
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able to communicate with one another
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that they can actually consolidate their
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buying power is something i don’t think
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the regulars would have anticipated
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even three years ago
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[Music]
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so what caused the perfect storm that
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some call gamestop
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we asked peter atwater president of
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financial insights
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and he said it was something that had
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been in the works for some time
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what we’ve seen over the past couple of
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years have been these flash mobs with
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money as i call them where
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investors particularly using social
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media get together and
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you know aim at a single company you saw
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this with tilray beyond
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me just one after the other and what
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we’ve started to see
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is they move from moving shares to
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buying options to now buying options and
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things that are
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you know most shorted and to me this
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just reflects
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on the the confidence of the crowd
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they’ve gotten much more strident
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much more aggressive and and honestly
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they’ve succeeded at it so
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so behaviorally this looks very very
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predictable
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and it’s coming to a head let’s talk
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about regulation
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because there’s various discussion about
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whether the sec or someone else should
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be getting involved does this
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potentially
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lie afoul of what’s going on with the
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sec in terms of
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existing regulation i i don’t know if it
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runs a foul or not
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but as a researcher i have found that
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regulators
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when they act react to sentiment and so
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i expect that if sentiment becomes too
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extreme
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people become concerned about systemic
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safety
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then you’ll see the regulators moving in
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force and and
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you know that that’s what they do they
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will close the barn
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doors at the moment that the the animals
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have already left they’ll they’re going
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to pour
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water on a fire that was already
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extinguishing
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those who defend short selling say this
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is a way of really communicating
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information in early stage
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at least questions about a company that
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really facilitates an effective market
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functioning
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uh does this get in the way of that or
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is this just that same
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market signaling on steroids as it were
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yeah
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i’m in the camp that this is signaling
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on steroids i mean what you
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have right now is absolute speculation
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using enormous leverage
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you know targeted where they believe it
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will be most effective
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and i step back and say that only
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happens david
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near the climax of a confidence cycle
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where people are so certain that they’re
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going to win
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that they bet the ranch in things that
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have enormous leverage this is
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this is flipping houses um you know from
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2005
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on steroids in 2021 well that’s one of
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my questions actually because you are a
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researcher
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looking back through history whether
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it’s the housing bubble or going back
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further than that to tulips and south
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sea and things like that
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are there analogies that would inform us
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now that might inform where we’re going
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or is this a one-off
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no i think that the the analogies hold
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these are these tend to be climatic
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events
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where you know the crowd is enormous
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it’s moving
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in a manic very frequent way i mean it’s
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to me it’s less
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of a bubble than it’s a series of one
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craze right after the other
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and those those high energy moments tend
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to happen
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you know just at the at the peak in the
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confidence cycle
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peter we can’t get in the minds of the
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people who are participating
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particularly on reddit here
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but from your research from your
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reporting is this about finance as a
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base or is it actually about
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politics or about social norms and a
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real resistance to sort of
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some of the institutions we’ve had
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including going all the way back to 2008
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and
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sort of a resentment about the fact that
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perhaps those in the financial
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system were not held properly to account
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i i i sort of look at the evolution of
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of this
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this paradigm starting with sort of
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gamesmanship people going online and
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using
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uh social media to to make money almost
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as a game
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then it became very greed filled and now
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what you’re seeing
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is i i think a consequence of that
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k-shaped recovery
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that i’ve been talking about for the
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past year where
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there is a there’s a jealousy there’s an
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anger there’s a frustration at the
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system and i think
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that the size of the crowd now
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encompasses that
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aspect i mean don’t get me wrong there’s
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there’s always a stridents to peaks in
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the market
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but this is this has got anger behind it
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and the behavior of the mob in many ways
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reminds me of what we saw two weeks ago
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at the capitol it’s a it’s a mishmash of
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a whole lot of people
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again we’re reaching for analogies
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because it’s so unprecedented but i also
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wonder if it has
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something to do in parallel with some of
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the cryptocurrency speculation the
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extreme volatility there and is it
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perhaps a generational issue
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you know what started though was was
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very futuristic
15:36
you know bitcoin tesla you know evs it
15:39
was very
15:40
oriented towards possibility what we’re
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seeing today is very
15:45
aimed at going after companies that
15:48
everybody
15:49
was convinced was you know were on their
15:51
way out in a stretcher
15:52
you know the retailers these are these
15:54
are companies that nobody
15:56
was expecting to prosper and the short
15:59
interest just
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really has enabled the crowd to catalyze
16:02
around them
16:05
that was peter atwater president of
16:06
financial insights
16:09
coming up bank of america ceo brian
16:11
moynihan on the rise of retail investors
16:14
and
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what it means for the markets it’s
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already been pretty democratized it’s
16:18
good people are investing i think people
16:19
have to be careful and we all know that
16:23
this is wall street week on bloomberg
16:36
this is wall street week i’m david
16:38
weston brian moynihan during his time as
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chairman and ceo of bank of america has
16:42
emphasized the strategy of responsible
16:44
growth
16:45
what went on with gamestop this week
16:48
seems like just the opposite of that as
16:49
some
16:50
would say was the earlier parabolic
16:52
increase in bitcoin
16:53
but brian says that it’s not a problem
16:55
with the democratization of finance
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the forces are larger than that
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it’s already been pretty democratized we
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we everybody talked about free trading
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i think somewhere in like 2007 or
17:09
something like that i
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i was riding around manhattan on a
17:12
double decker bus was free trading on
17:14
the side
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side of it from bank of america this is
17:16
not a new concept and so
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you know we we’ve seen 30 percent growth
17:21
in in our
17:22
uh balances for our in our maryland
17:24
which is our more affluent segment we’ve
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seen a
17:27
net growth of 10 i think in in
17:30
what you call sort of digital brokerage
17:32
accounts and stuff and so it’s it’s good
17:34
people are investing i think people have
17:35
to be careful and we all know that but i
17:37
think if you look at it overall
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if you look longer term what what are
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the themes in financial services
17:42
more and more digital we saw we’re now
17:44
up to 80 of our direct consumer loans
17:46
done digitally
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up from the start three years ago uh
17:50
more and more digital
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more and more demand for i want digital
17:53
and i want high touch i want the
17:55
branches and i want the digital
17:57
more and more artificial intelligence
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applied more and more operational
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excellence
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across all our platforms in terms of
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process engineering and taking out paper
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and
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putting in digital work those are the
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themes are just going to be tremendous
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artificial intelligence distributed
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networks
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data information movement all those
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things are incredibly important
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but those things have been with us now
18:18
the questions we may have made a step
18:20
change and we’ll be after that so
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yes investors yes borrowers yes
18:24
everything but
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it’s really the digital it’s the new
18:27
news not as much as the underlying
18:29
asset cost when we talk about a lot of
18:31
capital looking for
18:32
a limited number of investments it’s not
18:34
limited to esg goodness knows
18:36
we’re seeing a lot of situations that
18:38
some people think
18:39
might be a bubble or at least froth or
18:41
something are you concerned that in fact
18:42
because the liquidity that’s been
18:44
injected for good and sufficient reason
18:45
to help the economy
18:46
that we really are risking ourselves in
18:48
some places i’ll give you two examples
18:50
bitcoin goodness knows has gone all over
18:52
the place and another gamestop right now
18:54
that is really quite a phenomenon and
18:55
it’s not the only one right now that’s
18:57
really getting bid way up
18:58
should we be concerned that maybe this
18:59
is an indication that maybe we’re
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getting a little bit out over our skis
19:03
yeah you know those issues the moment
19:06
happen that time you know in the ebbs
19:08
and flows in the market and frankly i
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don’t have great insight as to
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uh those things uh we’ve been clear
19:14
about how we stand on bitcoin and
19:16
versus blockchain which is a technology
19:17
and stuff but let me let me back up
19:19
and and and the question is when you
19:22
look at the economy
19:24
and it’s about as big as it was in 2018
19:27
the projections from our team offered to
19:28
grow up five percent this year
19:30
in 21. um laugh at in 2018 in the
19:33
in the second quarter was the economy
19:35
was this big it was projected to grow at
19:37
like one half to two percent
19:38
and the interest rate environment was
19:39
100 150 basis points higher
19:42
and there wasn’t all this uh so there
19:44
wasn’t interest rate accommodation there
19:45
was a fiscal stimulus out there
19:47
now you have the same thing so the
19:49
fiscal stimulus is needed to help people
19:51
make it across the river here you have
19:53
six percent plus unemployment you have
19:54
these companies have an open that’s the
19:56
ppp
19:56
program you have holes in state budgets
19:58
and and that were created by the
20:00
cost of paying for all this work and
20:03
maybe tax
20:04
loss revenues and stuff those ought to
20:06
be dealt with and i think if we deal
20:07
with that
20:08
responsibly then what happens but the
20:10
possibility of overshooting here
20:12
is real and that’s what you’re hearing
20:13
less about the equity trading values the
20:15
moment but more about the question
20:17
when rates are one percent are going to
20:18
stay there for a long time
20:20
it’ll lead to risk and that could lead
20:21
to bubbles but the real question that
20:23
would be fundamentally bad for everybody
20:25
is if
20:25
if we miss the inflation turn and it’s
20:27
not there now but that’s one of the
20:29
challenges that
20:30
you know every that chair powell and his
20:32
colleagues have is to is to really be
20:34
watching this thing and they need to
20:36
make sure this great economy
20:37
grows again at the right rate and above
20:39
that right rate
20:40
and there’s some inflation in order to
20:42
make sure it doesn’t go backwards but on
20:43
the other hand
20:44
it’s going to be an interesting you know
20:46
as we move through the end of this year
20:47
the next year when this has all come
20:48
true the vaccine’s out and stuff it’ll
20:50
be interesting to see how they play
20:51
through that
20:52
well exactly let’s pursue that just for
20:54
a moment because uh there’s been a lot
20:56
of money given to a lot of people
20:58
again for good and sufficient reason
20:59
they’ve needed it but the indications
21:01
are a lot of it’s getting saved it’s not
21:02
getting spent in part because they don’t
21:04
have a place to spend it frankly because
21:05
a lot of the economy is shut down
21:07
how concerned are you as you look at the
21:09
economy because you have a real vantage
21:10
point into the economy broadly
21:12
i’ll continue there might be a snapback
21:14
that might actually trigger
21:16
believe it or not inflation we haven’t
21:17
talked about in a long time well
21:19
there’s been i mean it’s kind of
21:20
interesting if you traced last year
21:22
and we’ll see what the fourth quarter
21:24
all ends up final but
21:25
if you think about down 30 up 30 and up
21:28
a few percent
21:29
you have three four percentage points or
21:30
whatever it turns out to be and then
21:32
this quarter
21:32
the projections are may come down closer
21:34
to flat and that has a little bit to do
21:35
with the first quarter but
21:37
if you actually then pull that apart and
21:38
look at our our consumer
21:40
uh what we call consumer spending and so
21:43
debit and credit card spending is one
21:45
thing but this is around you know people
21:46
taking money on
21:47
atms and spending it writing checks for
21:50
services
21:50
uh p2p the zell product which is huge
21:53
right now
21:54
if you look at that spending through the
21:57
first 23 days of january
21:59
it’s up eight or nine percent over last
22:01
year’s first 23 days of january which
22:03
was up nine percent of the year before
22:05
so it is bigger in dollar amount it is
22:07
growing faster than it grew from
22:10
uh uh from eight uh from 19 to 20 18 to
22:14
19 and as fast as 19 to 20
22:16
if you look at the customer obviously
22:17
for the people who are unemployed and
22:19
you can see them receiving unemployment
22:20
benefits they’re using the money faster
22:22
if you look at the rest of customers
22:23
they’re using a discretionary retail not
22:25
uh sustenance retailing not you know so
22:27
they they are paying for their food
22:28
because they’re employed and so i think
22:30
these stimulus dollars can be spent much
22:32
more precise and i think the last
22:34
case was a good one and that it went
22:35
unemployment to the unemployment some
22:37
supplement there this
22:39
dollars under seventy five thousand
22:40
those are those are good items and
22:41
future stimulus ought to be likewise
22:43
geared
22:44
because otherwise it gets diminishing
22:46
returns and then you have the issue how
22:47
you pay for it long term and
22:50
the issue of whether it creates
22:51
inflation but there’s a lot of pent-up
22:53
savings and we would expect a good
22:54
second half of the year
22:56
now this is the mistake everybody makes
22:58
is they get talked about all the
22:59
economics and they forget there’s one
23:01
simple question
23:02
which is we have to win the war on the
23:03
virus and
23:05
right now we’re going in with a much
23:07
better
23:08
situation from a fight and that we have
23:10
this vaccine
23:11
and there’s vaccines going into people’s
23:13
arms and that then changes the course of
23:15
this
23:15
and yet that’s still out there but
23:17
that’s a light in a tunnel that wasn’t
23:19
here this year
23:19
you know last year in the summer
23:23
that was brian moynihan chairman and ceo
23:25
of bank of america
23:28
coming up working from home once seemed
23:30
to be the bold new innovation
23:33
but now for many the question is when
23:35
can i come back
23:36
to work people don’t come back to the
23:38
office new york cannot recover
23:40
and that’s really that’s really the sad
23:42
thing that’s happening now
23:45
this is wall street week on bloomberg
23:51
[Music]
23:58
this is wall street week i’m david
24:00
weston wall street has joined so many
24:02
others in figuring out how to work from
24:04
home
24:04
efficiently and effectively but the
24:07
appreciation for all that added
24:08
flexibility just
24:09
may be wearing off it feels like it is
24:13
fraying it is hard it takes a lot of
24:18
inner strength it’s remarkable that it’s
24:20
working as well as it is but i don’t
24:21
think it’s sustainable we have
24:23
10 12 back we weren’t telling they come
24:25
back but a lot of people want to come
24:26
back
24:28
related companies is the largest
24:30
landlord in new york city
24:32
and one of the most important real
24:33
estate developers in the entire country
24:35
and we asked its ceo jeff blau what it’s
24:38
going to take to get people back
24:39
into the office in new york the two
24:42
obvious answer answers are
24:44
vaccine roll out but probably even more
24:47
critical right now is testing um you
24:50
know we all thought
24:51
after new year’s that everyone would
24:52
would return right back to the office
24:54
but
24:55
in an interesting twist i i have a
24:57
feeling that the vaccine announcement
24:59
and the
25:00
closeness of it has really enabled
25:02
companies to just say you know i’m going
25:04
to
25:04
just wait it’s so close i’m not going to
25:06
pull everyone back to the office yet
25:08
you know unfortunately in new york
25:11
you know office actual occupancy people
25:13
showing up for
25:14
at their desk every day is under 10
25:17
um and it’s it’s critical that we kind
25:20
of
25:20
really push testing make people feel
25:23
safe and comfortable
25:24
until they ultimately do get vaccine so
25:26
people come back to the office if people
25:28
don’t come back to the office new york
25:29
cannot recover one of the things we’re
25:31
very conscious of in new york obviously
25:32
are the financial organizations uh do
25:34
you have a sense of companies in
25:36
in wall street how eager they are to get
25:38
their people back in
25:40
you know i’d say it varies i mean i’m
25:42
sure you’ve heard david solomon really
25:44
encouraging
25:45
uh goldman to encourage his employees to
25:48
get back
25:49
he had a very uh funny quote he kind of
25:52
said
25:52
well sure you guys all want to work home
25:54
from your living room and you can do
25:56
that
25:57
until your competitor shows up in person
25:59
and wins an assignment
26:00
you guys need to get back to the office
26:02
right so i do think that there is
26:04
pressure
26:05
um the market will ultimately bring
26:07
pressure for people to come back
26:09
you know it’s interesting you hear a lot
26:10
about uh tech tenants or ceos saying
26:14
i’m gonna let my employees just work
26:15
from home until june or december or or
26:18
forever in some cases
26:20
and yet behind the scenes when you talk
26:22
to them and i i spent a lot of my time
26:25
doing exactly that really trying to
26:26
understand
26:27
what their plans are they realize that
26:30
this doesn’t work from a
26:32
long-term perspective they realize that
26:34
culture is not
26:35
does not work it is not created over
26:37
zoom over skype or
26:39
whatever we’re using today and you
26:42
really
26:42
interactions happen in the hallway and
26:44
you bump into each other i know
26:46
certainly here at related that’s how
26:48
we work it’s a little bit less formal
26:50
and our best meetings just occur
26:52
when you walk down the hall and see
26:53
somebody and it’s it’s hard to
26:56
to create that on zoom you can’t
26:57
schedule that interaction
26:59
um how do you how do you train new
27:02
people
27:03
you know you have an incoming class of
27:05
analysts
27:06
uh goldman has 2500 new analysts come in
27:10
and what are they supposed to do on zoom
27:12
so i i ultimately do think
27:14
um i think the long run answer here is
27:18
that
27:18
there will be more flexibility in the
27:20
workplace
27:21
i think that employees value the ability
27:24
to work from home
27:25
a portion of the time if you divide a
27:27
person’s day into
27:29
the bump into a hall an interactive
27:31
meeting and
27:32
writing an investment memo which they
27:34
can do by themselves
27:35
maybe there’s a way to divide that work
27:37
up and the i’m just using this the
27:39
investment memo writing actually happens
27:41
you know on friday at home
27:43
um and the rest is but it also needs to
27:46
be a coordinated day
27:47
in that world of more flexibility as you
27:49
call it does that affect the long-term
27:51
demand
27:52
for commercial real estate as a
27:54
practitioner are you looking at a
27:55
different curve on the out years
27:58
um i don’t really think so because
28:00
ultimately you still need
28:02
for those days that you’re coming in
28:05
people to have an office
28:06
i what i think might happen is that the
28:09
build out of space
28:10
might change so there might be more
28:12
meeting rooms more conference facilities
28:14
more auditoriums
28:15
and smaller certainly private offices
28:18
and and maybe more open cube type
28:22
seating so
28:23
i think it’s going to change i don’t i
28:25
don’t think it will really affect
28:26
the overall demand are you seeing a
28:29
shift in your own business between
28:31
commercial on the one hand and
28:33
and uh residential on the other and
28:35
particularly when it comes to some of
28:36
the big luxury malls you had a really
28:38
big one there
28:39
at hudson yards are you shifting your
28:41
use at that massive project on hudson
28:43
yards
28:44
yes so we spent a lot of time thinking
28:47
about the future of real estate
28:48
development
28:49
um in response to the pandemic but also
28:52
just over time that everything evolves
28:55
and actually if you think about hudson
28:56
yards it really
28:58
had uh many of the features that we
29:00
think are critical today
29:02
i mean the the the words that people
29:04
like to say today are
29:05
15 minute cities what does that really
29:07
mean it means that you want basically
29:09
everything you could work your whole day
29:11
or spend your whole day within a
29:12
15-minute walk so it goes back to
29:15
kind of the live work play nature of of
29:17
the way we’ve been designing our
29:19
mixed-use developments
29:20
so you think about hudson yards here we
29:22
have office retail residential retail as
29:24
you said
29:26
yes is there too much retail in many of
29:28
these things today
29:29
yes and we are converting a former
29:32
neiman marcus base into
29:33
420 000 square feet of of incredible
29:36
office space
29:37
because there is demand for office and
29:39
less demand for retail
29:42
that was jeff blau ceo of related
29:44
companies at the bloomberg year ahead
29:46
summit
29:48
coming up the biden administration takes
29:50
on the battle with covet
29:52
and dealing with the economic
29:53
consequences of it we talked with
29:55
council of economic advisers member
29:57
jared bernstein about what is needed
30:00
this package
30:01
uh uh is is what is what it’s going to
30:05
take
30:05
to finally put covet 19 behind us
30:11
this is wall street week on bloomberg
30:24
this is wall street week i’m david
30:26
weston the bind administration is
30:27
hitting the ground running
30:29
but boy does it have a lot of ground to
30:30
cover we talked with the long time bind
30:33
advisor
30:34
just named to the council of economic
30:35
advisers jared bernstein
30:37
about what it needs to get done
30:40
the biggest problem is a dual problem
30:42
and you yourself david just
30:45
nailed it which is the dual impact
30:48
of the persistence of the virus
30:51
and its impact on economic activity on
30:54
commerce
30:55
unemployment on our ability to really
30:58
get
30:58
a recovery underway and as i think you
31:02
know
31:02
it’s not a uh an impact that is hitting
31:05
everyone
31:06
when the president talks about a
31:08
k-shaped recovery he’s talking about
31:09
something real
31:10
when he talks about racial equity he’s
31:12
also making a connection
31:14
between who gets most hurt by these
31:16
dynamics these dual dynamics were
31:18
describing
31:19
and this uh legislative priority top
31:22
legislative priority
31:23
of passing the american rescue plan uh
31:26
this package
31:27
uh uh is is what is what it’s going to
31:30
take
31:31
to finally put covet 19 behind us
31:35
and get a bona fide recovery underway it
31:38
funds a national
31:39
vaccine campaign to dramatically
31:42
increase the pace of inoculations of
31:45
vaccines it mobilizes a hundred thousand
31:48
public health workers
31:49
it ramps up testing treatments and
31:51
therapeutics
31:52
it engages with emergency paid leave it
31:55
brings science
31:56
back into the picture in a big way it
31:58
provides states and localities
32:00
with the money they need to reopen
32:01
schools which is so important for kids
32:03
and their parents and the economy
32:05
and that and you know i can say much
32:06
more about its components but
32:08
that is the dual challenge we face
32:11
and this plan is designed to attack it
32:14
and attack it hard
32:16
and i must say jared i don’t hear many
32:18
people republican or democrat
32:19
complaining about trying to really
32:20
attract the coronavirus getting the
32:22
vaccination program up supporting public
32:24
health things like that
32:25
there are other issues though that
32:26
people ask is it really targeted at that
32:28
k
32:28
aspect you just addressed how do we make
32:30
sure the dollars get to the people who
32:32
need it the most
32:33
for example on the 1400 payments anybody
32:35
will say some people really
32:36
need that desperately frankly some
32:38
people don’t they’ve kept their jobs
32:39
they’re doing just fine
32:41
yeah now that’s important and i think
32:43
the uh thing to recognize
32:45
there is that the checks are are better
32:48
targeted than i think many folks realize
32:50
now that doesn’t mean that they just go
32:52
to folks at the bottom
32:54
but that’s because it’s not just folks
32:56
at the bottom who need the money
32:57
and if anybody’s listening to me in the
32:59
you know 75 100k
33:01
range uh many of them yes many have kept
33:04
their jobs many have lost hours many
33:06
have lost wages
33:07
lots of those folks again i’m not just
33:10
talking about the poorest i’m talking
33:11
about folks in the middle class
33:12
something that’s always been
33:14
very important uh to uh to president
33:16
biden so he talks a lot about the
33:18
struggles that middle class families
33:20
have had in recent decades
33:21
many of those folks face um uh
33:24
uh issues around rent and um mortgage
33:27
payments so
33:28
there’s been these moratorium in play as
33:30
you know and that’s a lot that but
33:31
moratorium is not
33:33
you know forbearance is is not
33:34
forgiveness so at the end of these
33:36
moratoria
33:38
uh people face very significant bills
33:40
now that means that they and this is
33:42
really
33:42
important bit of economics here this
33:44
gets down into some keynesian
33:45
multipliers
33:47
um what we’re talking about here is that
33:50
yes
33:50
some of these expenditures will be
33:53
initially saved and not spent
33:55
and that gives them kind of you know a
33:57
low mo a lower multiplier in a keynesian
33:59
sense
34:00
but that’s just kind of a technocratic
34:02
concern
34:03
i think what’s most important is that we
34:05
finally
34:06
look ahead that was jared bernstein
34:10
member of president biden’s council of
34:12
economic advisors at the bloomberg
34:13
year ahead summit and now it’s time for
34:15
a look at the week ahead
34:17
on global wall street thanks david the
34:20
liquidity squeeze in china will remain
34:23
front and center
34:24
well we’ll be looking at the january
34:26
readings on china’s pmis to get an idea
34:28
of the economy’s pulse
34:30
we also have central bank meetings in
34:31
australia and thailand
34:33
with the rba expected to maintain its 77
34:36
billion
34:36
quantitative easing program india’s
34:39
finance minister has a tough job on her
34:41
hands to help spur a recovery in an
34:43
economy facing its worst recession
34:46
since 1952 when the country’s budget is
34:49
handed down on monday
34:51
and quiet show technology the main rival
34:53
to bike dance in china
34:55
is slated to list in hong kong on friday
34:57
in what would be the world’s
34:58
biggest internet ipo since uber danny
35:02
thanks juliet in the eu a dispute has
35:05
opened up
35:06
between them and astrazeneca with the eu
35:09
saying that they need to fill their
35:10
contractual obligation to deliver more
35:13
vaccines
35:13
despite the fact there was a glitch in
35:15
belgium production
35:17
at the week ahead we also have a boe
35:19
meeting to look forward to
35:21
what will the reaction from the boe be
35:23
considering that data has significantly
35:26
weakened
35:26
in the uk we’ll see what type of
35:28
stimulus they might
35:30
propose or any other support measures
35:32
romaine
35:33
thanks danny well u.s investors will
35:35
have a slew of corporate earnings to
35:36
digest next week more than a quarter
35:39
of the 1000 largest u.s listed companies
35:41
set to report earnings
35:42
big tech will be in focus alibaba
35:45
alphabet and amazon
35:46
and in the healthcare space pfizer amgen
35:48
and regeneron
35:49
will be ones to keep an eye on based on
35:51
the company’s reporting so far
35:53
the s p 500 in aggregate has seen about
35:56
a one percent drop in earnings per
35:58
share despite the fact that revenues are
36:00
actually higher now on the economic
36:01
front keep an eye out for manufacturing
36:03
data on monday
36:04
auto sales on tuesday and u.s monthly
36:06
employment numbers
36:07
that arrives on friday and will be sure
36:09
to bring back into focus
36:11
that two trillion dollar fiscal stimulus
36:13
plan that president joe biden
36:14
is trying to push through congress david
36:18
thanks to juliet danny and romain
36:22
coming up we wrap up the week as always
36:24
with special contributor larry summers
36:26
of harvard
36:28
this is wall street week on bloomberg
36:41
this is wall street week i’m david
36:42
weston we wrap up every week with our
36:44
special contributor larry summers of
36:46
harvard
36:46
and this week we have to get larry’s
36:48
thoughts on the phenomenon that is
36:50
gamestop
36:51
and what it may tell us about the state
36:52
of our markets our economy and maybe our
36:55
politics
36:56
more broadly i should say larry so thank
36:58
you so much for being with us uh you’re
37:00
a macroeconomist you’re not a day trader
37:02
that i’m aware of you’re not a short
37:03
seller that i’m aware of
37:05
so i’m not asking about as a trader but
37:07
from a macro perspective
37:09
is gamestop let me put it simply a fluke
37:12
or a symptom
37:15
i think it’s a bit of i think it’s a bit
37:16
of both i think it
37:18
points up that there’s a lot of activity
37:22
in finance and in financial markets
37:24
that’s not necessarily particularly
37:26
productive
37:27
or particularly rational and that
37:29
there’s a need for
37:30
adult supervision uh sometimes
37:33
uh i don’t think that this is something
37:36
that’s either gonna
37:37
lift the economy up or bring the
37:40
american economy
37:42
uh down but it does seem like there’s
37:45
more risk uh than there has to be
37:49
born in a variety of directions so
37:52
that’s a question really could this be a
37:53
canary in the mine shaft
37:55
the economy’s not going to make it or
37:58
not make it based on gamestop goodness
37:59
knows
38:00
but it could be an indication couldn’t
38:02
it of of of sort of froth or even more
38:05
than fourth maybe a bubble as you know
38:06
chair powell has asked about that
38:08
this week look i i think you’ve got to
38:11
be
38:12
concerned gamestop is one thing
38:16
the uh ways in which ipos have
38:19
popped by a factor of two or three
38:23
the uh new financing vehicles
38:26
associated with some of what’s happened
38:30
in
38:31
the spac sector certainly not all of
38:33
what’s happened in the
38:34
uh spac sector all of this
38:37
has a slight feeling of 2000 or 1929
38:42
uh in the air and so i think the idea
38:46
that we’ve got a new group of financial
38:48
regulators coming in who are
38:50
more committed to regulation than the
38:53
previous
38:54
uh group i think that’s all welcome
38:58
whether that means that markets are in
39:00
some
39:01
aggregate sense uh overvalued uh
39:05
that’s not a judgment uh that i’d be
39:08
prepared to reach
39:09
uh certainly with confidence but i
39:12
certainly think
39:12
risks are uh in a
39:16
two-way direction but i also
39:20
think david that you got to look at both
39:22
sides as yes
39:23
there is retail froth not everything
39:27
that’s done by
39:28
short short sellers is especially
39:31
attractive
39:32
either and certainly there have been
39:34
excesses of the practice
39:37
of uh short selling and then trying to
39:40
disparage and
39:42
so there are things that have gone on in
39:44
the hedge fund
39:45
uh community that i think uh
39:48
can at least be uh questioned
39:51
uh as well and in general the activity
39:55
of some people trying to short and other
39:56
people trying to
39:58
uh squeeze them and people trying to
40:01
create bandwagons
40:02
to the down uh to the downside
40:06
it’s a pretty imperfect uh
40:09
business and i don’t think anybody can
40:12
feel entirely comfortable about what’s
40:14
there
40:15
i guess the other question i’d want to
40:17
put
40:18
is not all well-intentioned regulation
40:23
works out well and you know it turned
40:26
out that in their early incarnations
40:28
certainly circuit breakers ended up
40:31
exacerbating volatility because people
40:34
started selling when they were afraid
40:36
the market
40:37
might close in the incarnation that got
40:40
put in some of the rules we had on money
40:43
market funds
40:44
actually made runs on money market funds
40:47
more likely not less likely so
40:51
indignation and dismay about the status
40:54
quo
40:55
may be a necessary condition for new
40:57
regulation
40:59
but it’s not a sufficient condition for
41:01
any kind of
41:03
regulations i think we’re going to need
41:06
people who are with regulatory
41:07
responsibility to sit down
41:09
consult with all the parties reflect
41:12
very carefully
41:13
on what’s happened here and what its
41:16
lessons are
41:18
larry from your experience having
41:20
studied these things and lived through a
41:21
fair number of them
41:22
where does this all lead i mean this
41:24
week we had the likes of
41:25
alexandria ocasio-cortez joined together
41:28
with ted cruz for goodness sakes to
41:30
agree
41:30
there’s got to be a congressional
41:31
investigation where does washington take
41:33
something like this
41:38
look i’d almost be prepared to say that
41:41
whenever aoc and ted cruz agree
41:44
they’re wrong and that there’s a general
41:47
principle
41:49
when a cause attracts the attention
41:53
of both extremes
41:56
you have to worry a lot about that
42:00
particular uh cause
42:03
and i think the idea that
42:06
somehow the people who are involved in
42:10
this
42:10
are really great social justice warriors
42:13
um and that this is an occasion to get
42:16
the man
42:17
i don’t think is a particularly fruitful
42:20
way to think about
42:21
uh policy but my guess is that two
42:25
things are going to happen
42:26
one is this thing’s gonna in some ways
42:30
set in its own undoing they’re gonna be
42:32
some painful lessons learned
42:34
people are gonna be more careful about
42:36
shorts about shorting
42:38
because they got squeezed and routed on
42:40
the one side
42:41
and people who are involved in pushing
42:43
this stock up to ludicrous levels are
42:45
probably going to end up losing a lot of
42:47
money
42:48
and they’re going to learn a lesson from
42:49
that too so to some extent
42:51
this thing is going to teach its own
42:53
lessons and
42:55
i think the dull work of government
42:58
we’re not going to have any instant
43:00
legislation
43:02
but we’re going to have committees
43:03
formed to study various aspects of this
43:07
to make recommendations that are then
43:09
considered
43:10
is actually going to probably lead us
43:12
with better financial
43:14
markets and a better set of rules
43:17
than the rules we have today okay larry
43:20
let’s wrap up the week as we do every
43:22
week
43:22
with some summer says three quick
43:24
questions number one on the vaccination
43:26
program
43:27
will it over perform or underperform
43:29
what is now expected
43:30
i think it’s going to over perform i
43:32
think it was a masterpiece of spin
43:35
frankly to define the objective as 100
43:38
million doses over
43:39
100 days at a time when even the trump
43:42
administration had figured out how to do
43:44
850 000
43:46
doses a day so i think they’re going to
43:49
see that
43:49
target massively outperformed on
43:52
my best guess would be you’ll see 175
43:56
million doses
43:57
in uh the first hundred days and that’s
44:00
as it should be
44:02
and if we don’t get a bad shock from
44:05
biology
44:06
i think we’re going to make more
44:07
progress more quickly on covid
44:10
than many people expect what kind of
44:12
progress we’re going to see with the
44:13
economy
44:13
second question is will we over perform
44:16
or underperform current expectations for
44:18
the u.s economy
44:19
different people have different
44:21
expectations but i’m betting on growth
44:23
above six percent this year
44:25
and i think that’s over performing on
44:28
most people’s expectations i really
44:30
think we
44:31
very much now are in a world of
44:34
two-sided risk
44:36
both in terms of real activity and in
44:38
terms of possible inflation risk
44:41
third thing jay powell chairman of the
44:44
federal reserve we heard from this week
44:45
we heard from the fomc
44:47
how do you react to what you heard and
44:49
saw
44:52
we’re lucky to have jay there and i
44:55
think in the fullness of it all he’s
44:57
made
44:58
very good judgments i
45:01
think that they need to be more mindful
45:04
of the possibility that the conventional
45:07
wisdom is wrong
45:09
and that we have a little more inflation
45:12
picking up
45:13
a little sooner or that financial
45:16
markets get away from us
45:18
and so i thought he was
45:21
so focused on providing reassurance
45:25
on the fed’s continued stimulus to the
45:28
economy
45:29
that he created a dynamic where if it
45:32
was necessary
45:33
to do things the other way it would come
45:36
as a pretty jarring shock
45:38
and that was my worry about how he
45:41
calibrated the balance
45:43
by all things considered i’m glad he’s
45:45
there
45:46
larry it’s always such a pleasure to
45:48
deal with you every single week that is
45:50
special wall street week contributor
45:51
larry summers
45:52
of harvard finally one more thought
45:57
the vaccination site 800 years in the
46:00
making
46:00
as we press forward urgently impatiently
46:03
to get as many people vaccinated as soon
46:06
as possible
46:06
we face a series of hurdles
46:08
manufacturing doses as fast as we can
46:10
testing and approving new vaccines
46:12
getting the medicine distributed
46:14
covering the last mile and getting it
46:16
into people’s arms
46:18
only vaccinating everybody everywhere
46:22
would get us out of the risk of this
46:24
mutation
46:25
but of all the problems we face real
46:27
estate isn’t really one of them
46:30
google the term mass vaccination sites
46:32
and you get almost
46:33
one and a half million results
46:35
everything from pharmacies to hospitals
46:37
to sports arenas we hope to open up in
46:40
roughly about
46:40
two weeks time to do base center for uh
46:43
mass
46:44
vaccination centers but there’s only one
46:46
that has the highest spire in all of
46:48
england
46:48
the largest cathedral clothes the
46:50
largest cloister and that is the
46:51
cathedral of salisbury
46:53
where according to legend at least back
46:55
in about 12 20 or so
46:57
a bishop shot an arrow into the air hit
46:59
a deer and where the deer fell is where
47:01
they built the cathedral
47:02
and that cathedral now is a mass
47:04
vaccination site
47:06
and now the chapel of saint michael the
47:08
archangel is filled with refrigerators
47:10
for the vaccine the huge nave is full of
47:13
chairs
47:13
rather than pews and that’s where the
47:15
elderly who have been inoculated wait to
47:18
make sure they have
47:19
no allergic reaction wait while two
47:22
church organists play soothing music
47:24
while they wait
47:25
you can call it song freud you can call
47:28
it a stiff upper lip
47:29
but as we all wait for the vaccine we
47:31
believe will save us
47:33
leave it to the brits to do it with
47:35
class
47:36
that does it for this episode of wall
47:38
street week i’m david weston this is
47:40
bloomberg
47:41
see you next week

‘China: The Bubble that Never Pops,’ author discusses China’s economy

The speculation over the impact that coronavirus has had on the Chinese government and its reputation continues to grow. Tom Orlik, Chief Economist at Bloomberg and author of newly published ‘China: The Bubble that Never Pops’, joins The Final Round to discuss his findings and what can be expected from the Chinese economy in the next decade. S

RENOWNED ECONOMIST NOURIEL ROUBINI DISCUSSES THE FATE OF CRYPTOCURRENCIES AND BLOCKCHAIN

Former senior economist for International Affairs on the White House Council, Nouriel Roubini discusses why he believes the ‘crypto-bubble’ has burst for good.

Famed for predicting the 2007 Global Financial Crisis and Credit Crunch, Nouriel Roubini has predicted two of the biggest bubbles in the 21st century. He is now turning his attention to the cryptocurrency markets and has been highly critical of not only the currencies but the technology behind them, blockchain.

Roubini is a well-respected Professor of Economics at New York University’s Stern School of Business and the Chairman of Roubini Macro Associates, a global macroeconomic consultancy firm in New York. From serving as the Senior Economist for International Affairs on the White House Council of Economic Advisors, to advising the International Monetary Fund and The World Bank, Roubini is thought of as a highly esteemed economist.

Cryptocurrencies have been in steady decline since their peak in January 2018. Do you think this market is capable of ever reaching its original glory or has the bubble well and truly burst?

I have called crypto-currencies the mother and father of all bubbles now gone bust. The crypto bubble has burst for good and will not recover as these were assets with no intrinsic value. Since their peak in early 2018 Bitcoin has lost more than 80% of its value; the other top 10 crypto-currencies – such as ETH, XRP, etc – have lost over 90% of their value while 1000s of other “shitcoins” (a technical term of jargon for this garbage of pseudo-currencies) have lost between 95% and 99% of their value. This is no surprise as a study suggests that 81% of all Initial Coin Offerings (non-compliant securities illegally skirting all securities laws) were a scam in the first place, 11% are dead or failing and the remaining 8% traded on some crypto exchanges have lost over 90% of their value.

Crypto was the biggest bubble in human history as, compared to other historical bubbles – such as Tulipmania, the South Sea Bubble and the Mississipi Bubble, the parabolic price increase in the three years before the peak was much worse – at 60X price increase – than other bubbles (that increase at 10 to 30X rates) while its bust since the 2018 peak has been as fast and furious as any previous bubble (see the chart below). The Nasdaq bubble in the late 1990s was miniscule compared to the Bitcoin bubble as it increased 4X in the three years before the peak, not 60X. And this internet bubble included many real companies with real business plans, revenues and profits, not the scammy “white papers” of cryptocurrencies.

Comparing crypto-currencies to the early days of the internet is nonsense. A decade since the launch of the WWW in 1991 there were over 1 billion users of the internet, not the approximate 70 million wallets of crypto most of them dormant. A decade after the launch of the internet there were dozens of killer apps – such as email, web sites, etc – and exponentially increasing transactions in the billions of units; while in crypto there is not a single killer app – apart from useless “krypto-kitties”, Ponzi Pyramids and Casino Games with miniscule transactions – while total transaction volume has collapsed since 2018 by over 85%. And in successful real technologies like the internet or stock trading transaction costs collapse over time. Instead in crypto, transaction costs – measured as miners’ revenues divided by number of transactions – have skyrocketed since 2018. So any comparison of crypto to the early days of the internet is nonsense.

You publicly debated and criticised Ethereum with Vitalik Buterin, its founder. What do you think is the most flawed aspect of these cryptocurrencies in comparison to fiat currencies?

The most flawed aspect of so called “crypto-currencies” is that that they aren’t really currencies or moneys. For an asset to be considered a money or currency it must satisfy three criteria:

  1. it has to be the unit of account for all transactions and the single numeraire for pricing all goods, services and assets/liabilities.
  2. It must be a widely used and cheap means of payments. And
  3. it has to be a stable store of value and have stable purchasing power over goods and services.

Bitcoin alone – let alone thousands of other “shitcoins” fails miserably on all criteria. It is not a unit of account and given the proliferation of thousands of “crypto-currencies” there is no single numeraire for all transactions. It is a lousy means of payments as the “proof of work” authentication method doesn’t allow more than five transactions per second; instead, for example, the Visa network allows for 25K transactions per second and growing. And the transaction costs/fees – as measured by miners’ revenues – are high and growing over time. And it is a very poor store of value as its price can fluctuate by 5% to 20% per days. So, any merchant accepting Bitcoin could lose all its profit margin in a day given the price fluctuations. Also, the supply of most cryptocurrencies – with the exception of Bitcoin – is increased and debased at will by its issuers; so price inflation and currency debasement in the crypto world is several orders of magnitude worse than fiat currency in stable low inflation economies like all advanced economies and most emerging markets.

These fundamental flaws of cryptocurrencies cannot be resolved over time given the famous Buterin “Inconsistent Trinity” principle: ie no cryptocurrency can be at the same time

  1. scalable (in terms of number of transactions),
  2. decentralized and
  3. secure.

Fiat currencies and traditional banking system are scalable and secure but are centralized with reputable institutions that have decades long histories of trust, credibility and reputation (central banks, private banks, other financial institutions). Cryptocurrencies are not scalable and future solutions that may lead to scalability – such as proof of stake – would not be decentralized and would thus not be secure. Decentralization in crypto is a myth as miners are now a centralized oligopoly in shady jurisdictions with poor rule of law such as China, Russia, Belarus, etc.; trading is centralized as 99% of trading occurs in highly insecure and hackable centralized exchanges rather than decentralized exchanges that are all failing given no volume or liquidity. Wealth is centralized as the index of inequality for Bitcoin is worse than North Korea where Kim Jung Un and his lackeys control most of income and wealth. And developers are centralized too as Vitalik Buterin is “benevolent dictator for life” while developers are effectively police, prosecutors and judges as the myth of “the code is law” is over-turned when things go wrong – an hack – and a fork of a crypto-currency takes places on totally arbitrary terms.

‘Cryptocurrencies: Irrational Exuberance or Brave New World?’ Watch Nouriel Roubini speaking:

It is clear that central banks are in talks about challenging current cryptocurrencies with central bank digital currencies. Do you think that central bank digital currencies could compete with our current cryptocurrencies and in what timescale?

A number of central banks are considering issuing central bank digital currencies – or CBDC – but such CBDCs would have nothing to do with crypto-currencies or blockchain while completely dominating such inferior assets. Starry-eyed crypto-fanatics have seized on policymakers’ consideration of CBDCs as proof that even central banks need blockchain or crypto to enter the digital-currency game. This is nonsense. If anything, CBDCs would likely replace all private digital payment systems, regardless of whether they are connected to traditional bank accounts or cryptocurrencies.

As matters currently stand, only commercial banks have access to central banks’ balance sheets; and central banks’ reserves are already held as digital currencies. That is why central banks are so efficient and cost-effective at mediating interbank payments and lending transactions. Because individuals, corporations, and non-bank financial institutions do not enjoy the same access, they must rely on licensed commercial banks to process their transactions. Bank deposits, then, are a form of private money that is used for transactions among non-bank private agents. As a result, not even fully digital systems such as Alipay or Venmo can operate apart from the banking system. By allowing any individual to make transactions through the central bank, CBDCs would upend this arrangement, alleviating the need for cash, traditional bank accounts, and even digital payment services.

Better yet, CBDCs would not have to rely on public “permission-less,” “trustless” distributed ledgers like those underpinning cryptocurrencies. After all, central banks already have a centralized permissioned private non-distributed ledger that allows for payments and transactions to be facilitated safely and seamlessly. No central banker in his or her right mind would ever swap out that sound system for one based on blockchain.

If a CBDC were to be issued, it would immediately displace cryptocurrencies, which are not scalable, cheap, secure, or actually decentralized. Enthusiasts will argue that cryptocurrencies would remain attractive to those who wish to remain anonymous. But, like private bank deposits today, CBDC transactions could also be made anonymous, with access to account-holder information available, when necessary, only to law-enforcement authorities or regulators, as already happens with private banks. Besides, cryptocurrencies like Bitcoin are not actually anonymous, given that individuals and organizations using crypto-wallets still leave a digital footprint. And authorities that legitimately want to track criminals and terrorists will soon crack down on attempts to create crypto-currencies with complete privacy.

Insofar as CBDCs would crowd out worthless cryptocurrencies, they should be welcomed. Moreover, by transferring payments from private to central banks, a CBDC-based system would be a boon for financial inclusion. Millions of unbanked people would have access to a near-free, efficient payment system through their cell phones.

‘Crypto Brawl, Alex Mashinsky vs Nouriel Roubini. BlockShow Americas’ Watch Nouriel Roubini speaking:

What advice would you give to a business that are thinking of offering the possibility of transacting with their customers and clients in cryptocurrency?

First of all, almost no business accepts the use of crypto-currencies in transactions or as a means of payments. Not even crypto or blockchain conferences accept Bitcoin to register, they require hard dollars or euros. Second, any merchant using a cryptocurrency in transactions would be subject to massive market risk as the price of the cryptocurrency can change so fast that the entire profit margin of the business can be wiped out in minutes or hours by such price volatility.

Third and most important point, the business model behind firms requiring the use of cryptocurrencies to do purchases of goods or services is simply to rip off their customers. Indeed, in normal business transactions, customers can buy goods and service with conventional fiat currencies. But in an ICO, customers must convert that currency by buying into a limited pool of tokens in order to make a purchase. No legitimate business that is trying to maximize profits would require its customers to jump through such hoops. In fact, the only reason to restrict a purchase to token-holders is to create an illegal cartel of service providers who are safe from price competition and in a position to gouge their customers. Consider Dentacoin, a ridiculous cryptocurrency that can be spent only on dental services (and which almost no dentist actually accepts). It would be hard to come up with a better illustration of why business cartels are illegal in all civilized countries.

Of course, the crypto-cartels would counter that customers who incur the cost of buying a token will benefit if that token appreciates in value. But this makes no sense. If the price of the token rises above the market value of the good or service being provided, then no one would buy the token. The only plausible reason for forcing the use of a token, then, is to hike prices or bilk investors.

Beyond facilitating illegal activity, crypto-tokens obfuscate the price-discovery benefits that come when a single currency operates as a unit of account or numeraire. In a crypto-utopia, every single good and service would have its own distinct token, and average consumers would have no way to judge the relative prices of different – or even similar – goods and services. Nor would they have any real certainty about a token’s purchasing power, given the volatility of crypto-token prices.

Imagine living in a country where instead of simply using the national currency, you had to rely on 200 other world currencies to purchase different goods and services. There would be widespread price confusion, and you would have to eat the cost of converting one volatile currency into another every time you wanted to buy anything.

The fact that everyone within a given country or jurisdiction uses the same currency is precisely what gives money its value. Money is a public good that allows individuals to enter into free exchange without having to resort to the kind of imprecise, inefficient bartering on which traditional societies depended.

That is precisely where the ICO charlatans would effectively take us – not to the futuristic world of “The Jetsons,” but to the modern Stone Age world of “The Flintstones” where all transactions occur through the barter of different tokens or goods. Even the Flintstones had a more sophisticated financial system than the barter of crypto: they used shells as coins for payments and as a numeraire. Crypto instead takes us back to pure inefficient barter. It is time to recognize their utopian rhetoric for what it is: self-serving nonsense meant to separate credulous investors from their hard-earned savings.

Can we expect Blockchain to disrupt the finance industry over the next 10 years?

Blockchain will not disrupt the finance industry over the next decade. There is indeed a revolution in financial services, but it has nothing to do with crypto or blockchain. This revolution is called “FinTech” and is based on three related elements:

  1. Artificial Intelligence/Machine Learning (AI),
  2. Big Data (BD) and the
  3. Internet of Things (IoT).

It will revolutionize digital payment systems, credit allocation, insurance, asset management, capital market activities, risk management, etc. In the payments sphere you already have digital payment systems used by billions of individuals in billions of transactions a day that have nothing to do with blockchain or crypto: they are Alipay and WeChat Pay in China; UPI- based systems in India, M-Pesa in Kenya and all over Africa; PayPal, Venmo, Square and many other ones in the US and Europe. So, there is a revolution in the provision of financial services that will disrupt many traditional banks and providers of financial services, but it has nothing to do with a decentralized blockchain.

Blockchain is also failing to deliver solutions for both financial services firms and for corporations, non-profit organizations and governments in spite of the myth that blockchain will revolutionize all sorts of financial and corporate transactions. Indeed, faced with the public spectacle of a market bloodbath in cryptocurrencies, boosters have fled to the last refuge of the crypto scoundrel: a defense of “blockchain,” the distributed-ledger software underpinning all cryptocurrencies. Blockchain has been heralded as a potential panacea for everything from poverty and famine to cancer. In fact, it is the most overhyped – and least useful – technology in human history. In practice, blockchain is nothing more than a glorified spreadsheet.keynote speaker Nouriel Roubini blog article feature

But it has also become the byword for a libertarian ideology that treats all governments, central banks, traditional financial institutions, and real-world currencies as evil concentrations of power that must be destroyed. Blockchain fundamentalists’ ideal world is one in which all economic activity and human interactions are subject to anarchist or libertarian decentralization. They would like the entirety of social and political life to end up on public ledgers that are supposedly “permissionless” (accessible to everyone) and “trustless” (not reliant on a credible intermediary such as a bank). Yet far from ushering in a utopia, blockchain has given rise to a familiar form of economic hell. A few self-serving white men (there are hardly any women or minorities in the blockchain universe) pretending to be messiahs for the world’s impoverished, marginalized, and unbanked masses claim to have created billions of dollars of wealth out of nothing. But one need only consider the massive centralization of power among cryptocurrency “miners,” exchanges, developers, and wealth holders to see that blockchain is not about decentralization and democracy; it is about greed.

As for blockchain itself, there is no institution under the sun – bank, corporation, non-governmental organization, or government agency – that would put its balance sheet or register of transactions, trades, and interactions with clients and suppliers on public decentralized peer-to-peer permission-less ledgers. There is no good reason why such proprietary and highly valuable information should be recorded publicly.

Moreover, in cases where distributed-ledger technologies – so-called enterprise DLT – are actually being used, they have nothing to do with blockchain. They are private, centralized, and recorded on just a few controlled ledgers. They require permission for access, which is granted to qualified individuals. And, perhaps most important, they are based on trusted authorities that have established their credibility over time. All of which is to say, these are “blockchains” in name only. It is telling that all “decentralized” blockchains end up being centralized, permissioned databases when they are put into use. As such, blockchain has not even improved upon the standard electronic spreadsheet, which was invented in 1979.

No serious institution would ever allow its transactions to be verified by an anonymous cartel operating from the shadows of the world’s authoritarian kleptocracies. It is no surprise that whenever “blockchain” has been piloted in a traditional setting, it has either been thrown in the trash bin or turned into a private permissioned database that is nothing more than an Excel spreadsheet or a database with a misleading name. Indeed, a recent study of 43 experiments trying to use blockchain for development and non-profit purposes (remittances, refugees identities and services, banking the poor and unbanked, and other lofty philanthropic causes) has shown that zero out of 43 experiments have had any success; so blockchain experiments have had a 100% failure rate.

Do you believe that once the flaws and shortcomings surrounding security, scalability and of cryptocurrencies have been addressed, it would make more sense to transact using it?

I do not believe that the problems of security and scalability of cryptocurrencies can ever be resolved. At the conceptual level security and scalability are incompatible with the decentralization that crypto and blockchain claim to want to achieve. And if you have a system that gets you scalability and security with centralization you are back to traditional financial systems and/or their modern evolution that is non-blockchain based FinTech. The problems of security in cryptocurrencies are extremely severe and cannot be resolved. If you take traditional financial systems based on central banks, fiat currencies and commercial banks you have significant amounts of security. You have deposit insurance for your deposit; you have lender of last resort support by central banks in case of destructive runs; you have support of systemically important financial institutions; you have supervision and regulation with liquidity and capital requirements. And when something goes wrong – like fraud on your credit card balances or bank account – it takes one phone call to block or reverse such fraud and being issued a new credit card or bank accounts. Of course, the provision of such public goods of financial security comes at a modest price of some reasonable fees for the safety of your financial assets, accounts and transactions.

In crypto-land you have instead a total Wild West of financial insecurity; no deposit insurance, no lender of last resort, no support of systemically important institutions, no proper regulation and enforcement of security laws. If an exchange is hacked your money is gone for good as scores of episodes of centralized exchanges being hacked show. If you are subject to a crypto-robbery as someone hacked your computer, or tablet or smart-phone your financial wealth is gone in the black-hole of crypto. If there is a “51% attack” – a form of crypto-robbery that is very common among smaller crypto-currencies your wealth is gone for good. If you lose your private key or someone steals it from you your crypto assets are gone for good. The only safe solution is “cold storage”, the equivalent of hiding your crypto wealth in a cave and hiding on a piece of paper your private key for good and not being able to transact your crypto-assets. It is a return to stone-age financial technology.

There is a reason why all societies rely on trusted institutions with a history of reputation, credibility and redress of fraud to ensure the safety and legality of financial and other transactions. The utopia of having decentralized, permission-less, trust-less algorythms that replace trusted and reputable institutions is a delusion that technology can provide a solution to fundamental problems of trust that only human institutions that have developed for millennia can resolve. There is no decentralized trust-less security or scalability in crypto and there will never be one.