Jamie vs. the Crypto Bulls

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You don’t have to watch this ridiculous Matt Damon commercial over and over to realize that the crypto markets are on fire. Venture capitalists, in particular, are placing huge new bets in the crypto market: FTX, the crypto exchange, has just launched a $2 billion fund, competing with similarly sized funds from a16z ($2.2 billion) and Paradigm ($2.5 billion) last year. On the other side, however, Jamie Dimon says that cryptocurrency has no intrinsic value and called bitcoin worthless.

Several things are happening here. VCs are focused on the Next Big Thing and believe the blockchain technologies behind digital currencies, smart contracts, and NFTs will lead to a whole new architecture for the internet and a wave of significant new companies that could become the next Google, Amazon, or Meta. VCs are raising these big funds, or have already raised them, with the intention of placing a lot of bets on what they hope that future will look like.

The big banks, meanwhile, are trying to shore up economic moats that are slowly but surely eroding. You can see concern growing at JPMorganChase, for example, which is feeling increased competition in its payments and consumer lending businesses. On Friday, Jamie announced that the bank would spend a few dollars to defend its territory. Speak of an understatement: JPMorganChase made record $48 billion in profit in 2021 and is increasing its $12 billion in technology spending by 20% this year to keep pace.

Jeremy Barnum, the banks’ chief financial officer, explained that part of the reason for the increase in spending is due to competition from new entrants, alluding, I presume, to companies like Square (now Block) and Stripe , in the payments industry, and to new consumers. lenders like Lending Club and SoFi, which have reduced the price of consumer loans to big banks. Why would someone, for example, borrow $100,000 from JPMorganChase at 6% interest when the Lending Club would offer them the same $100,000 at 4% interest? So while moats remain huge within the big banks in most investment banking activities, such as debt and equity underwriting, trading, corporate lending, and mergers and acquisitions, concerns competition is increasing in other parts of the consumer lending and payments industry. (That’s one of the reasons James Gorman, the CEO of Morgan Stanley, told me at our recent lunch that Morgan Stanley isn’t in those businesses.)

When it comes to Bitcoin and cryptocurrencies in general, Jamie might end up being right. But who knows? (JPMorganChase, for what it’s worth, created its own digital coin to speed up corporate payments.) I prefer to think of it this way: if someone is willing to pay $43,000 for a single bitcoin, then its value $43,000, the same way a Picasso is worth $30 million if someone pays $30 million for it, whereas for someone else it might just be a canvas with a few cans of paint above.

Larry Finks Last Milestone

Larry Finks BlackRock now manages $10 trillion in assets, according to the company’s earnings report on Friday. That’s a staggering amount that impacts the efficiency of markets when so much money is concentrated in a few passive investment funds.

But I worry less about the absolute dollar amount BlackRock is managing and more about the seemingly endless Finks being considered the most powerful man on Wall Street. Every few months or so, there’s a new wave of flattering media coverage about Fink, or a string of Fink’s cable television appearances. Last week, we were treated to another lavish profile, this time in the Wall Street Journal. It began, Few private citizens wield more power in America today than Larry Fink, the chief executive of BlackRock, Inc. (The Journal reporter met Fink at his horse farm in Westchester County.)

According to the Journal, BlackRock funds are among the top three shareholders of 400 of the S&P 500 companies. Ok, I get it, by controlling so many assets under management equivalent to about 10% of global GDP, Fink has immense power, theoretically anyway, as a major shareholder in a wide range of companies to advance any agenda that seems to be important to him at any given time. At the moment, Fink seems quite concerned about BlackRocks’ ESG agenda on environment, social and governance and its warning that we all need to start preparing for the day when fossil fuels are no more. available or will no longer be commercially viable. He seems content to be in the middle of a firestorm between people who think he’s too aggressive and people who think he’s not aggressive enough.

For all his lofty investment philosophy, Fink is also a political creature who was able to sweep apparent narrative downsides such as his departure from First Boston and his fallout with Steve Schwarzmann under the rug. He was shortlisted to be Hillary Clinton’s Treasury Secretary, but then accepted a role on Trump’s CEO Advisory Council at least until he became a liability to do so after Charlottesville. Finks’ name has also been proposed to be Joe Bidens’ Treasury Secretary. That post went instead to Janet Yellen. But the number two job at the Treasury went to Finks’ chief of staff, Adewale Wally Adeyemo, while the head of the Bidens National Economic Council, Brian Deese, was in charge of BlackRocks’ sustainable investment initiative. As longtime contrarian investor Sam Zell once told CNBC, I had no idea Larry Fink had been named God. As usual, Zell is right.

Goldman bonus fever

Goldman’s commodity desk had a phenomenal year at $2.2. billion, wowza, and now top traders receive bonuses of over $30 million each. It made me think of the greatest bonus seasons of my time working and covering Wall Street.

First, a note of caution. Bankers and Wall Street traders better load up the bonus dump truck for 2021 because its highly unlikely 2022 will be that good. Last year, it seemed like every aspect of the investment banking business was on fire: mergers and acquisitions, debt underwriting, equity underwriting, IPOs, SPAC, and more. So those people who reap the big Wall Street bonuses probably think they deserve them based on the profits they’ve generated for their businesses. While JPMorganChase may still net $48 billion after paying out what will likely be record bonuses, you know it’s been a very special year.

Of course, the truth is that these bankers and traders should thank Jay Powell for their good fortune, because without the Fed’s prolonged quantitative easing policies, flooding the financial markets with cheap money prices would not reach new heights. and the volume of mergers and acquisitions would not peak. time record. All that is about to change in 2022, as the Fed signals its intention to raise short-term interest rates up to four times, according to Goldman; Dimon sees up to seven increases this year and that he will scale back his QE program. It’s time to fight inflation, it seems, and stop pouring tequila into the punch bowl.

Wall Street bonuses, while absurd to people with no capital at risk, are all relative. When a team of Goldman proprietary traders made a $4 billion profit for the bank by betting against the mortgage market in 2007 and received bonuses of around $10 million each for the achievement, they protested that the bonuses weren’t big enough. They left Goldman to create their own hedge fund. Bank employees must have had a similar feeling when hedge fund manager Bill Ackman made $3.6 billion for his investors on a $27 million investment in three weeks around February and March 2020, reporting something like $500 million for himself. Paydays like these make smart traders wonder what lies behind the hallowed walls of Goldman Sachs for them, if they have the guts to go out on their own.

Once upon a time on Wall Street, bonuses really meant something. Who can forget Mike Milkens’ $550 million bonus in 1987? That’s when bonuses were bonuses! All it took for Milken was to create a whole new vein of funding in the junk bond market and then make his company, Drexel Burnham Lambert, the undisputed king of that market. Of course, two years later Milken was charged with racketeering and securities fraud (and pleaded guilty to securities fraud, spending two years in prison) while Drexel Burnham filed for bankruptcy in 1990 and was liquid. Meanwhile, the junk bond market that Milken created continues to flourish and prosper, earning bankers who underwrite junk bond transactions millions of dollars in annual bonuses. Thanks Mike!

Peloton versus reality

Old Dominion Freight Line, a century-old trucking company, just replaced Peloton in the Nasdaq 100. Was that a sign of the times?

Peloton makes a mean machine, there’s no doubt about it. But the company and its history of being able to create social networks of like-minded Peloton enthusiasts has always struck me as a bit wacky and so hyped. That was certainly my impression when Peloton CEO John Foley spoke about the company in October 2019 at the Vanity Fair New Establishment Summit about a month after the company went public. There was a ton of hype around the company, just like there was two decades ago, when the Stairmaster came out of nowhere to take the home and indoor exercise market by storm. sport.

But these days, the bloom is off for Peloton, just like Stairmaster once was. Over the past year, Pelotons stock has fallen more than 80%, which is likely why the Nasdaq 100 dropped it from the index. There will be more of this in 2022 as equity markets begin to shift into a riskier mode in line with the Fed’s tightening of credit markets and rising interest rates. For the past few years, dating back to the early days of the Trump administration, hype and unbridled enthusiasm have been the theme of equity markets (and debt markets for that matter). This had to change, and change is on the way. I expect investors will continue to tire of holding stocks in companies such as Peloton or BuzzFeed (down 55% since its IPO last month), or even Tesla which is already down 13% in 2022. The rotation into value stocks, like Old Dominion, which would never be accused of being trendy, is underway. Old Dominions stock is up 22% in the past six months.

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