This is Bloomberg Business Week. I'm Carole Masser and I'm Tim Stanevik. We're here every day bringing you the latest news from the world's of business and finance, clus technology, politics, economics, all harnessing the power of Business Week reporters and editors, not to mention our journalists and analyst in more than one twenty countries. You can download Bloomberg Business Week on iTunes, SoundCloud,
or Bloomberg dot com. You can also listen to our radio show at two pm Eastern Time on Bloomberg Radio or stream us live on YouTube and Bloomberg dot Com. Bloomberg business Week magazine it's on the shelves right now. As the kids used to say, the cover is the Bloomberg fifty, the people who defined a global business in two and Mike are You're gonna be shocked to find out that I am not on it. I did not make the list exactly. But we've got the person responsible
for that, Brett Bagan. He's a senior editor of Bloomberg Business Week, joining us via zoom from New York City. So Brett the fifty folks who really defined global business to talk to us about maybe some themes that emerged
from your list this year. Yeah, So I would say that the biggest theme that emerged is the tentacles really that the war in Ukraine had, So we have obviously Vladimir z Lensky is on the list UM, but then when you start to look into other UH industries, you see people like in the finance world like Dolly Singh, who was the architect of the sanctions regime against Putin.
He's on our list. And then even people like Todd Bowley who want winds up investing in buying the Chelsea Football Club after UM the Russian oligarch Romano Bromvich was pressured to sell it. So that was one of the sort of major themes UM. And then I would say it was also sort of hard to avoid um what's
going on in crypto and the crypto winter. UM. So we had some familiar names like uh uh Serena Williams who's raising money UM including investing in in some crypto stuff, people like Katie Hahn, and up until about a month ago, UM we thought we were going to have someone with the initials SPF on the list, but we wound up we wound up putting his replacement John Rayan Insteady certainly an influential character, but I guess not the type you
want this particular list. My favorite, though, Brett is Bad Bunny for those who are what's going on to reggaeton man? Okay there, what's he doing on there? Brett? Yeah? So UM,
Bad Bunny is kind of fascinating. You know, he sort of emerges in the pandemic from He's really sort of first recognized when he was a teen for his work on SoundCloud UM and has been an incredibly prolific UM musician in the last couple of years, and that really culminated this year in him selling more are tickets to concerts and having the number one album UM of the year when he had competition from some huge names Harry Styles, Beyonce, Bts, etcetera. So no one had a bigger tour this year and
no one had a bigger album this year. And Bad Bunny and he really appears appeals to like a gen Z crowd. He sort of challenges gender norms. He and his music is great and he surprises for you this year. I mean there are always surprises to me. UM. I would you know, I would say that, Um, we look at people like someone like Tom Oxley who makes the list because when you try to explain what he does,
it's it's not just surprising, it's sort of shocking. He's a neuroscientist and entrepreneur who is looking into the world of brain computer interfaces and has successfully implanted device essentially allows people who are suffering from things like als to communicate via their thoughts. You know, the world of science fiction, we've heard about this for you know, years, and it's always been something in novels, but he's actually making it
happen in in Australia. In this trial run, they were able to get people to actually um send emails using this technology and to order things online. So learning about people like that is always one of the most fascinating parts of businesses to get, you know, Brett. One name that chumped out in my world of market coverage is Ken Griffin, billionaire founder of Citadel. What what caught your eye with him this year? Yeah? Ken Griffin is you know,
fascinating in normal times. But this, uh, this move to Miami, you know, it is not the first to do it, but he is certainly the wealthiest, certainly the richest to do it, and he's really signaling a move down there and in an attempt to make Miami into I think what we referred to as Wall Street South Um. He's building a tower there that I believe he's estimated to be at about a billion dollars. And there's also just a you know, fascinating backstory here with him wanting to
leave um Illinois because of his battles with JB. Pritzker there and to go down to Florida was generally perceived as being more business friendly where the governor is Rond de Santas and and Griffin is one of his biggest contributors. So it's like a story within a story within a story on that one. You know, I was glad to see Nick Hayak on because I interviewed him this earlier this week and doing research. He's the president's CEO of
the Swatch Group in Switzerland. I didn't know that the Swatch Group was the biggest watch company in the world and they have a huge market cap. Just a fascinating story when I did the research. Interesting to find him on your Bloomberg Business Week fifty. Yeah, Nick Hik is like, you know, it's a very story. He's the kind of person who you know, wouldn't have made it on last
year and probably won't get on next year. But the Moon Swatch is this genius stroke that he had where um, they've basically took Um a Swatch and which is one of the lower end brands, right, and they combine that with Omega, which is one of their hiring bread and you had a watch that would normally cost about seven thousand dollars and they swapped out basically the parts to make it a two DFT watch UM, and it was
wildly popular. I actually looked for one even as recently is about a week ago, and I walked into the boutique, the Swatch boutique, and they said they almost knew exactly why why were there, And they said, we don't have any you know, like almost right off the bat. And this is months and months and months after this this partnership,
So it's really really just a genius stroke. The Watchers are super cool and you basically get to own this iconic watch time piece, but you only have to spend two hundred fifty dollars on it versus the seven thousand that it would the original would cost. Another one someone I did not know of Picky Cole. Uh, I'm not sure if you're allowed to say the name of a restaurant. I think this is this a family program, business business. We put it in print, we did, and our complying,
our alert compliance flagged me every single um. Yeah. So Pinky Cole was fascinating. She raised million dollars this year with the help of Danny Meyer of shake Shack fame and of course of Unit Square, etcetera. Um So, she started a vegan burger chain called Slutty Vegan uh. And you know, it's basically fast food for vegans. She was trying to change people's perception of vegan food from like tofu bowls and grain bowls, and she liked junk food
and wanted to be able to eat junk foods. So she needed Slutty Vegan basically so that we would talk about it, joke about it, and the burger. The burgers all have fun names like Hollywood Hooker, Manage One night Stand. It's it's great, that's fun. All right, that's good. It's a great uh collection and maybe of different people on there.
It's a great read. Uh. So I suggest people run out to the you know you've got the you know place and get magazines, right, you can do that still, plus you can do it on that bloom Bloomberg dot com exactly. All right, good stuff. Brent Bigan, Senior editor Bloomberg Business Week, joining us v Assume from New York's City. Um, and it's a really good, good collection of diverse individuals. I got the usual suspects, you know, kind of the big players out there, but there's also some new ones.
Serena Williams. I saw I was on there too, which is really cool. So cruise back in the back in the book. Oh it is good news for him. Alright, this is Bloomberg. These sees Bloomberg Business Week with Carol Messerer and Tim Stinebeck on Bloomberg Radio. All right, elon Musk, No surprise, I guess Michael still in the news. But now he's saying, Okay, now I'm really done. I'm really done selling stock and I mean it this time. I don't know we've heard that before. Let's bring in Sarah Fryar.
She's a big tech team leader for Bloomberg News. She's also the author of No Filter, The Inside Story of Instagram. She's uh joined us on zoom from San Francisco Sarah, do we believe him this time? I know you were in the Twitter spaces called yesterday, and I guess some shareholders weren't too happy. What do you think, Well, I think it's it's difficult to say whether we believe him. Certainly,
it's it's um, it's what he has promised. I think shareholders were also really interested in what he said right afterwards, which is that he will be spending more of his time on Tesla going forward. They felt he was distracted by the Twitter project. They said, you know, why didn't you come back, uh to this company that is that is a much bigger part of your life and net worth. He said, don't worry, Tesla is way more complex than
Twitter ever will be. He said, Twitter has about ten percent of the complexity of Tesla, So of course he will need to be spending more of his attention on that club any going forward, which which shareholders are happy
to hear. But then they confronted him with this this problem they have with how he has brought so much political you know, controversy into his his run of Twitter, bringing back UM people who had been banned, and making his own proclamations about politics and um causing you know a lot of people who loved his brand, including these investors, to feel a little alienated and to feel a little different writing around in their Tesla's and being owners of
Tesla stock. And what I thought was really interesting is he responded to responded to those fears by saying, of course, I'm not going to stop talking about politics just to satisfy shareholders. Of course, not um. And I don't think that they were very pleased to hear that. Not pleased,
but probably not surprised. Yea, I would guess if you know anything about but sorry, I wonder if he got into sort of any of the nitty gritty on Tesla Tesla's business because obviously, you know, the stock has taking a huge hit this year, but especially this week that those news of the discount on some models seemed to really knock a lot off the stockers down something like eight or nine percent that day. Did he talk about that at all or really any of the sort of
demand dynamics for for Tesla going forward. Well, he he tied it to the economy. He tied it to the interest rate environment, the the inflationary environment. I think that you know what he was trying to get across to these investors is look, you know, this is what's happening in the industry at large, and uh, we're just kind of rolling with with the trend here. And I don't know that that you know, when you look at Tesla compared to the rest of the market, it is being
hit a little harder. Um. So, I don't know if that was a satisfying answer for his investors. Sarah, you know you're out there in Francisco. You know all of these companies, you know, a lot of the Silicon Valley investors there on Sandhill Road too. Is there a sense that Twitter there's even a place for Twitter as a business? I mean, you've got Amazon now on the advertising business obviously, Facebook and Instagram, Google. Where does Twitter fit in? You know,
can it be fixed? Well? Twitter isn't really replicated by any of those other businesses because it is a very real time product. People go to Twitter to figure out what's happening now. And and I think that if you're going to instagrams are going to Facebook, you're going to TikTok. It's more about entertainment around, you know, spending the few
minutes you have while you're waiting for an uber. So I think that the place Twitter has in our our conversation and that's what Musk was drawn to, this idea that you would control this extremely powerful communication platform where you see politicians, celebrities, UM, athletes, actors, journalists, um sharing what's happening to them in real time and what they're thinking.
That said, Twitter as a business has always been rather niche um in one part because advertisers don't really feel the need to be tied to, you know, a place of of controversy or a place where where anything can happen related to the news. It's much safer if you're an advertiser to play on UM, a platform that is more about about making people feel good and more about entertainment. So it's always been a little bit of a struggle
for them to grow. And of course not everyone in the public needs to know what's happening right at the moment it's happening UM as journalists were rather addicted to that and part of the part of the engine of that. But you know, regular people don't need to be glued to Twitter all day. Yeah sor I wonder if it's possible to get a sort of vibe check on what these shareholders were like during this spaces h Q and
A yesterday. You know, did they seem angry? Do they seem like they're itching to hit that sell button or is it more a matter of come on, Ellen, we were on board, but we need you to do this, that and the other thing very much, the latter. I mean, I think a lot of things that must would say, the shareholders would say, oh yeah, that makes a lot of sense. I get it. I just want to you know, you know, are you punching down when you talk about trends rights? Are you punching down when you when you
you know, do this your political commentary that you do? Um, how how can we tell our our daughters or our sons that we admire you as as you you know, really change your your public perstona and taken on so much um controversy with this Twitter bid and And I think that that's something that he didn't really answer to their satisfaction. I think they were very much just trying to to communicate to him, like, man, we're on your side,
Like you really to see this turnaround. It's in all of our financial interests um and And he was like, Hey, like this is this is who I am and and I'm I have great things. Yeah, so, Sarah, one of the next things I guess we'll see in terms of Twitter as a businesses CEO. Are they going to hire a CEO? Now? I can't imagine being taking that position given that Elon Elon Musk be He's still gonna be
involved in the company. Any rumblings out there in the valley about who might get the job want the job, well, Must for his part, says that anybody who wants it is probably not qualified. So you know, maybe you have to not want it and have Must come call on you and say will you step up to the plate. But listen, it's gonna be really complicated position because not only do you have to um run this company where
Musk is still financially in control. He said that he wants to remain in charge of in engineering and software and servers, so he's still going to be a larger than like presence in the office. If if not, you know, making a lot of the decisions still, and you need somebody who can can cater to that well at the same time, putting the business in the direction where it can't succeed and Musk has said that it's been on
the path to bankruptcy. It's may I don't know if that's hyperbolic or not, but certainly Twitter has taken on a lot of debt that must borrowed in order to finance this transaction. And so you know, he explained that they were, prior to his cuts, they'd be on track to to spend way more than they make. Um. Alright, s great stuff. I don't know, We're gonna I know we're gonna continue talking to you over the coming days and months and on this issue because it just seems
to be the story that keeps on giving. Sarah Fryar she's a big tech team leader Bloomberg News. She's also the author of No Filter, the inside story of Instagram. She joins us on Zoom from San Francisco, talking lord elon Musk and a little testo, wellmore coming up. You're listening to Bloomberg Business Week with Carol Messer and Tim Stenovic on Bloomberg Radio. All Right, let's be honest here, stocks disaster bonds even more of a disaster like epic
proportions disaster. Right, That's what the fixing come people tell me. They've they've never seen it ever. Don't even get started on crypto. Then, don't even get started on crypto. Let's talk about another kind of hot item with the kids. E t F S E t This is a surprising turn of events for E TFS, and I think Emily is going to explain it to us. All all right, I'm like geo. She's cross asset reporter for Bloomberg News,
joining us here on our Bloomberg Interactive Broker studio. It's cross asset reporter, just another way to say et F reporter because you Hadi Greifeld. She's also a cross s reporter, but she talks a lot about E t F S. Cross asset is everything, every little thing, but E t F S does fall under our coverage and we love them. So how highs lows just give us a thirty foot picture. Okay, so thirty thousand foot picture. We obviously have had a bear market in stocks, but not every E t F
has done poorly. The ones that you would imagine that have done well in the equity side, the energy linked stocks, the crypto linked ones have done poorly. But then when you look at the more are alternative space, the commodity funds have done really well, and then some hedge fund tracking hedge fund style et F. So the hedge fund hedge fund strategies one is a managed futures one. So
that's a specific trend falling strategy. I know, Mike, you had Andrew Beer on your What Goes Up podcasts a few months ago, But that fund has done incredibly well this year. It's up about year to date. It's started two with about sixty million in assets and it crossed over one billion and just months. A lot of trust there in terms of flows into those kind of alternative strategies. What really shocked me though, is, you know, Paul and I were talking about how the I p O market
was basically dead for good reason. Who wants to try to float in IPO in this market? But how many new ETFs. My eyes popped out of my head when I saw this. Yeah, so right now that tally is four hundred twenty two new e t and that's a record. We had a record last year. Emily has written about every one of them. Yes, every PR person has pitched me on the brand new ETF. But we had a record last year, and then this is another year which is surprising because you wouldn't think that any common theme
among them. You know, I'm sure that they're not all exactly the same strategy, but any themes pop out. Well. There were a lot of interest rate hedging strategies. Everyone was trying to kind of figure out, like how do we position for the bear market in bonds? So some of them were more successful than other. Some of the funds were betting on the yield curve um steepening, and then some we're betting more on inflation depending on the kind of derivatives that they had in the fund. So
it was a mixed bag for those. And then there were still a lot of E s G funds coming out, which was surprising given the year that E s G has had. But there is some appetite, at least on the issuer side to launch a fund with that kind of label in it. And I guess some of these are years in the making, so you know, you get them across the finish line when it's the right time or not. Another thing that really boggles my mind this year is cathy Woods Innovation Arc Innovation Fund had a
very awful year. You know, those high growth tech stocks, uh, not so high on the profits. Yet Um just got collaborated this year. She actually had influence this year though she did yeah over one billion. Yeah. Well, I wonder what is that play out across that whole sort of growth, this tech innovation strategy or is it just her her special mojo? Do you think? I don't have the details of every single tech et F, but I do know that there are fans that just they love arc they
want to hold on. I was actually talking about it with the source this morning who was kind enough to take my call on Christmas eve eve Um, who was saying that there are these people that she has a long term thesis. They feel like they're making the right call by investing for the longer terms. So even though the fund has fallen there, they're still interested in this innovation.
What is an active e t F fund? So an active e t F Normally when retail investors think of ETFs, they usually think of funds at track indexes, index funds passive strategy. But we're seeing the growth of e t fs that have active managers that actively buy and sell and change the waitings of different stocks. And so what we've really seen this year in two is these large legacy asset managers companies that are known for their actively
managed mutual funds. Launching et F s. Capital Group was the big cahuna this making with the still the low cost structure that makes ETFs the cool thing most of the time. The active e t fs are lower fee than the mutual I have to say the manager, which was the whole part of the lower fees was there's nobody really I had to pay and have to pay
some start portfolio. Yeah, the fee, it's it's lower than the mutual fund, but it's it's more expensive than a passive E t F across the for the most part, Emily smart to call sources on two days before Christmas. You might get them with a few egg nogs and you know, I'll tell you a little bit more than they had planned. But but Emily, you know, there's so many players in the E t F space now, um is anyone making ground on the on the big two?
You know, black Rock Vanguard obviously have dominated the space for years, but they're you know, getting attacked from all sides with different strategies and different new products. Is are they making any headways all these upstart competitors? Yeah, I mean the big asset managers are starting to UM reached the top reach Vanguard and black Rock. We don't think that the assets are going to replace or get bigger than Van Goard or black Rock. But three names that
I'm watching Dimensional JP Morgan, and Capital Group UM. They had some of the most successful et F launches in two This is from Bloomberg Intelligence. They've taken in sixty percent of the assets gathered by all of the new et F that have launches, sixty eight percent of the assets went to those three companies. So they have been able and they're launching this active strategy, which some strategists were doubtful that active would take a place in the e t F world. I guess in some way, maybe
they're cannibalizing a little their mutuals. We are seeing a lot of companies fidelity to converting their mutual want e t s. That's a thing, yes, yes, so it started in one and we're seeing now there's a tool. They're in the town. There's a new tool. Bomberg Intelligence keeps a tally of how many I think it's a little bit over thirty five now mutual funds to have UM flipped to e T f s. But it is a little bit of saving yourself, not wanting the competitor to
launch an ETF, so you're gonna do it yourself. I mean, is there any future I don't, Michael, you might know to it, like for the traditional mutual fund structures or future there that we all grew up with it or I don't know. It seems like they're gonna die by a million cuts with all these conversions to two E t f s and ETFs that replicate the same strategies.
Because I grew up as an and I have a lot of mutual fund yes manager friends who are gonna I'm gonna hear about something they're not listening to that. I mean, I started my career as an analyst and you had to go to Boston three or four times a year, and the great thing about is you could just take a within a ten minute walk radius. Fidelity part them well, I mean the big bunny managers in the world and boom, they were right there. But I'm
wondering about that business now. Yeah. I mean a lot of those aims that you mentioned, I saw them at the E t F conferences that I attended this year. The one thing that I think is keeping mutual funds still in business is that in a lot of retirement accounts, it doesn't really make sense to have the e t F, the tax advantages of the et F, it's kind of canceled out by the retirement accounts. So until that changes, we probably won't see a very large flip and a
complete death of mutual funds. They'll stick around. The conference schedule tracks me up. ETFs and crypto are keeping the conference industry alive, I think, and I don't see any like et F conferences in Milwaukee, you know, bringing your sunscreen, that that sort of thing. Alright, so, uh, Emily, good stuff. We're gonna let you cross as. I'm just gonna call them et F slash crypto reporters. It's like the fancy pooh me. Have you seen that, you know? Et F reporter? Okay,
put a tuxedo on pool and their cross exactly. I am a cross as reporter Blomberg News. Joining us here on our Bloomberg Interactive Broker studio. These sees Bloomberg Business Week with Carol Messerer and Tim Stinavic on Bloomberg Radio. Let's talk a little crypto, but maybe from a little bit different angle. Bruce Roger's chairman, CEO and president of l M Funding It's tickers l m f A joins us via zoom from Tampa, Florida, where I think even
the cold weather is going to reach. Uh Tampa, Bruce, Are you guys getting ready for a little bit chillier than usual Christmas? Down to Tampa? Sure it was seventy and sunny when I came in, so I wore my leather jacket. Good for you, Well, somehow try to, you know, bear through it. Uh, Bruce, talk to us about LM funding. What what do you guys do? Where do you how do you participate in the crypto space? Well, we made a pivot into bitcoin a year ago um as an
outpouring of an effort to do a spack. So we founded as back and looked at a bunch of different industries to pivot our l m f A ticker and landed on bitcoin mining. And the reason we landed on that it seems like it's bearing its way out. We looked a lot of exchanges and a lot of the different defied plays, and I just never as a lawyer, could come to grips with the regulations on that, so we started buying bitcoin and put it on our balance sheet,
kind of the micro strategies piece. And then I realized the cheapest way to buy a bitcoin if you believe in this stuff is the mining, and so we bought a bunch of mining machines at the peak of the market. Fortunately with a variable price contract so we didn't get burned too badly. And now we're up in mining at a in the bigcoin winner at the hardest of times.
But um, I still believe in bitcoin and what it can do, and it solves the trust problem between humans, and it does so by having lots and lots of humans participate in every transaction. So that's the story of why bitcoin for us. Yeah, first talk to us a little bit about the climbing climate for miners these days. You know, we did have Core Scientific, one of the largest miners of bitcoin, file for bankruptcy protection earlier in
the month. What are the challenges facing bitcoin miners? Obviously the dropping prices is one leverage. What's going on in the space in general? Are we gonna see more more sort of bankruptcies or failures like like we saw with Course Scientific. I think that anybody that levered up a year ago and the asset that we're all betting on to make us money is down. That leverage is gonna be very hard to pay back. So I feel very fortunate and that we did not lever up and we're
entirely cash based company. Um. The overall it's as bad as it could be, but it can always get worse, you know. UM, gas prices are up, so Winner's cold electricity is going to be expensive. Um. We made the We've we've tried three different approaches to uh to getting machines hosted. We went with the startup entrepreneurial guy and he went bust, and then we said, nope, we're gonna go big balance sheets for our hosts. We went to Compute North and they went bust and we're still kind
of working a way out of that. And we moved a bunch of our Core machines too, I'm sorry, bunch of our Compute North machines to Core and unfortunately there that seems to be working out well. I've reviewed their plan and uh, it looks like that we're gonna be able to stay energized based on what they've informed us so far. Uh, soaper it's just looking at your background originally from Bowling Green, Kentucky, and just so you know, I'm a huge fan of Bowling Green, Kentucky, have spent
a lot of time there. And I also note that you're in the United States Navy for four years and the surface warfare officers, So thank you for your service. My question to you here is, I mean where I mean the bitcoin mining. I mean that seems like the nuts and bolts of the business, and I get that, and that's where you guys are focused in. But when you see a big exchange like ft X blow up and you know, Sam Bankman, find what does that mean to you as an industry participant? How how cripple thing
is that? If it is at all or in terms of credibility, there's nothing good about it, um other than I guess it gets this out of the way. UM. I thought as a bitcoin miner, as when I did not buy into the DeFi thing, when we were looking at different companies with our SPACs, I just I could not figure out what securities laws they were trying to comply with and find out they weren't. UM. So there's
some scatting forward there and watching it it failed. But what I didn't realize is that our hosting companies were intertwined with the DeFi situation, and that it's it's sucks some liquidity out of the coin and it sucks some Uh well, let's put some some miners into a bad place because of the financing. Uh it the whole DeFi thing.
To me, I heard this it was either late night TV or maybe on Bloomberg when somebody compared it to the Right Brothers financing their company by selling frequent flyer miles. And I loved it because I thought through the example, and it is kind of what sambrankmun freed and the magic box we're talking about. You know, they just had here. We got an idea. We got this idea. It was gonna be a wing and we're gonna run down a
dune into the wind and we're gonna fly. And so what we think you should do is by tickets on these planes that are gonna shuttle people over around the Earth. And it would have worked out, well, it really wouldn't work because the airline business turned out not to be
so good and so forth. But even if they had done, it had taken the time delay in flying and the first flight was a little bit, and people would have got ansty so they would have had to invent the stable coin too, and and we would have got through that whole thing. If the right bones, the irony is the right brothers could have financed their operations by selling frequent flyer miles because it wasn't illegal back. Yeah, person,
it's good to hear that. Uh, you know, your company's not levered up like some of these other miners, and and maybe can weather this, uh, this turmoil in the market a lot better than those that were. But I wonder what if any risk there is to bitcoin as more miners struggle, and you know, if they do start failing on plugging the rigs. Um, is there a risk to sort of I don't know the integrity of bitcoin
or the transaction times or anything. Um if if a lot of miners fail, or is it just you know, the last company standing like yourself, just get more of the pie. Well, Bitcoin has lots of built in features, but the degree of difficulty the more miners plugged in, the harder it is. The mind So with if miners fall offline, you know, take it to a logical extremes, it becomes easier and easier so that the actual transaction in the coin and the yield is calculated to be
about the same over periods of time. And that's why we say the last coin will be mined in UM. So you got you got some time there. Yeah. Yeah. One of my board members is just in the office. He said, I think we got till twenty forty. I said that this none of the math works if that's true. So you got that check that date. So first talk to us about one of the other aspects of mining. It's just that the power issue. What's your strategy there,
how do you kind of maximize that? So we were driven by capital and so it to us it's the cost of capital to get bitcoin, and I don't want to buy infrastructure right now if I can avoid it, uh, you know, thirty year infrastructure to mind bitcoin. I would rather pay per kill a lot. So we do everything through hosting companies like Core and Compute North that um they up charge us on the cost of electricity and the infrastructure. So that's been our approach to it. And
then with that we're kind of like outsourcing. The dealing with the local politics of bitcoin mining is loud and it throws off a lot of heat. So there are neighbors that aren't gonna like that. So where are your machines physically? I mean, are they just in an I T office park kind of thing? Where where do you house them? Or were they may maybe not just you yourselves, but just the industry. So just relying on public information, the we house a bunch of them at Core Scientific
and uh specifically at their Calvert City, Kentucky facility. Yeah. I wanted the high Point Award there at age nine, so I came back years later to spend some money. Um. Uh so these are that facility, if I recall, used to be a steel uh facility, so it had great power access. There's a new facility out there in the western part of the state of Kentucky. And uh so that brings you to the energy piece, which is you know, if you're on the grid, you're getting whatever energy is
in the grid, and that's where we are. All right, that's good stuff. Uh you know, two thumbs up for Kentucky again. I'm a big fan of bowling your Kentucky. You didn't know that my big big bourbon guy over there poem Yeah exactly. Bruce Rogers, Chairman CEO and president of l M Funding, joining us on Zoom from Tampa, Florida, and you know that whole mining aspect. It's just it's
just fascinating. You know, my understanding level is relatively and elemental, but I mean just the concept that just you know, cranking out code and just kind of running and running and running it, and the power associated with running those machines, and you know, it was it was interesting too to hear Bruce. You know that that's sort of skeptical lawyer's mind. Figure out this is the avenue uh at least likely to get everyone in trouble. Which is which is? It's
good stuff? All right, good stuff? That was Bruce Rogers journal. But you let me drive? Oh no, no, Nobles, I want to drive. It's a good question. M Time this to the clothes on Blueberg Radio. All right, Mike, it's December eve eve for me. So in the rearview, as the kids say, I mean, stocks down twenty plus percent, I got bonds down double digits. Enough. I'm looking forward to and I want to talk to somebody maybe he can give me. It's not like you wanted to retire ever, Paul, No, no, exactly.
So I love this working thing. So as as Tom Keane refers to the four O K, the the two away. So Michael Sheldon, he's the executive director and chief investment officer for High Tower r d M Financial Group. He joined us via zoom from Westport, Connecticut. Michael, I don't care about two give me your call. What's the letter that What was in your letter that you sent out to your clients preparing them for well? I think as we obviously two thousand twenty two is certainly a roller
coaster over the year. As we look ahead to two thousand twenty three, ultimately we're seeing some weakness in the economy in the first half of the year. UM. Either a slowed ending economy or shallow recession appears likely. If you look at some of the data. For example, the leading economic indicator has been negative for nine months in a row. The yield curve continues to point to some weakness.
That's the difference between short and long term rates UM. Ultimately, the Fed wants to see I think three or four months in a row of positive meaning inflationary data that's moving in the right direction. Today's data. You talked about the PC data. There were no surprises in that, and that's the good news. The core number, which the FED watches fell from five to four point seven percent on a year of a year basis, and that's the lowest
actually since the fall of two thousand twenty one. So I think the FED wants to seem more positive inflation data, and ultimately that will lead to a shift in FED policy, probably in the spring of next year, after the FED probably raises rates to five and a quarter or so, five to five and a quarter or so, and we see some possible weakness in the first half of the year, but then ultimately we've see things recovering as investors start to look ahead to a rebound in the economy and
corporate profits as we head into two thousand and twenty four. So, so, Michael, what does that shift in FED policy or at least communications look like to you? Is preservably not an actual cut in rates, but at least the end of of the tightening. Yeah, I think you know, if you look at past if you look at past cycles when the
fedtest cut rates, the markets have rallied. In this situation, we're likely to see the FED shift policy first by indicating that they're moving to the sidelines because inflationary data has has started to improve, but maybe they haven't met all of their criteria just yet. So we will probably see rates day at five to five and a quarter percent through much of next year, unless things really change where the credit markets free up freeze up, which we
don't see at this point. UM. So I think that FED shifting policy sort of a more of a neutral bias, will create a more positive environment for the markets. One of the big questions we're thinking about is what kind of weakness or what kind of recession we see next year. And some people think it will be more serious. We
think it will probably be shallow. Um. For example, if you look at the last nine recessions, the unemployment rate rose each of those times on average by three point four percent, So this time around, that would mean the unemployment rate would rise to over seven But given the labor market challenges that we see right now, companies are still trying to hire a lot of workers. Um. We see some layoffs, but we don't think that we're going to see the kind of economic downturn that we saw,
for example, in in oh eight or two thousand two. Yeah, it's tough to see kind of those types of unemployment rates. When you got a Jolts number that's still over ten millions. So so that's right, Michael, talk to us about the consumer here, as we all know the consumer, you know, its generally hanging in there. The consumer has a job if here she won one. Yes, their savings have been run down, yes, the running Usman credit card debt. But you know, we had some good numbers out of Nike
and some others recently. How are you thinking about the consumer going into twenty three. Yeah, it's important to keep an eyeing the consumer because that represents about two thirds of the U S economy. So I mean, looking backwards, if you look at some of the jobs data, we've created more than two hundred thousand jobs per month in each of the last three months. So granted we had
a hold to climb out of out of COVID. The unemployment rate right now is around three point seven percent, which is the lowest level almost since ninety nine, and wages are rising at a more than five percent rate. So at the same time, that wage rate is one of the sticky things that that Powell is trying to bring down. UM, there are some signs that consumer spending will slow equity markets and financial markets in general have been volatile, and we're likely to see some more layoffs
as we head into next year. But but overall, Um, the consumer overall is generally I am pretty good footing. But we do see some slowing in consumer spending during the first half of next year before things likely pick
up again. You know, Michael, with UH, these interest rates expected pretty much by everyone, uh and you included, to stay relatively elevated, say the FED funds rate above five percent for three I think the general thinking is that, you know, gains in the equity market strictly through valuation expansion are pretty much off the table. That you know, in that pe ratio, we really need to rely on the E rather than just the P to get a
gain in in the equity market next year. Um. There's a lot of skepticism about earnings, uh, the estimates where they stand for next year. UM, But I'm curious how you're thinking a about earnings. And you know, am I right to think that valuation expansion is off the table even if the Fed sort of pauses rather than signals are cut. Yeah. In terms of valuation, the markets are
currently trading at about seventeen times forward earnings UM. Valuation levels had pulled back substantially heading into the June lows, and then they've sort of rallied. Valuation levels have moved up with the market heading UM as the markets rallied into the December highs. Right now, the outlook is for corporate profits overall to rise about five for the SMP five hundred next year, and those numbers have been coming down.
Our thinking is that earnings will numbers will have to come down probably when companies start to report their fourth quarter earnings, which will be sometime in January or the second half of January. UM. It's it's a tough call right now. Earnings for the next year two thousand twenty three could very well be flatter or could be negative actually on a year of a year basis. But ultimately the markets bottom ahead of earnings, and the markets bottom
ahead of the economy. So that's why even if there is a downturn next year, we think that the stock market and bottom sometime in the in the spring or summer, before earnings and before the economy starts to get get better. All right, Michael, good Stuff, really appreciate you taking the time on this Friday Christmas Eve Eve. Michael Sheldon, He's executive director and chief Investment Officer of High Tower r d M Financial Group, joining us via zoom from Westport, Connecticut.
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