Goldman Embarking on Third Major Reorganization

You can also listen to our radio show at two pm Eastern Time on Bloomberg Radio, or watch us on YouTube search Bloomberg Global News. Well as we try to figure out the new way forward when it comes to the metaverse, crypto, and so much more, there's something going on in the video game industry that may already give you a clue about the future. Brian Feldman writes all about it. He's freelance reporter for Bloomberg Business Week. He joins us on the phone from Brooklyn. Check out Brian's story.

It's online right now. It's called the game Industry's n FT failures hold lessons for the metaverse. We've all we've also got with us right now Joel Weber. He is the editor of Bloomberg Business Week. He's with us right now in the Bloomberg Interactive Broker's studio. Joel all fun and games until the publisher did did until the publisher of your video game. And by the way, your video game is, you know, tied its image closely to making fun of pretty much everything when it comes to the

crypto universe and everything related. UH starts selling n f T s for real money. Yeah, And you know, there's been I think a lot written about how there's a lot of potential in n f T s and what I was intrigued by and what what we were intrigued by here was that UM video game. The gaming industry was got in on this really quickly, and there's a bit of tension there, which is that the gamers themselves weren't as into it UM, and so that that piqued

our interest, and Brian did a great job with the story. So, so Brian tell us more, how did video gamers beat n f T s UM. I'm trying to think of the short version of it UM. Basically, gamers for about a decade and a half have had to sort of

tolerate increasingly aggressive UM pricing models for games. So where you used to pay you know, one price for one game and take the entire thing home, now you sort of have to buy a piece meal UM perpetually into the future in order to participate in online games, the types of which UM the metaverse wants to be uh. And because these games are perpetual and so susceptible to

public feedback, UM gamers made themselves known. UH. They immediately registered there um annoyance with the idea of pushing n F T s UM into the space uh and sort of scared a lot of people off of their initial uh curiosity. So let's spin it forward a little bit because, as as we teased a little bit, the metaverse has some interesting uh well interesting in and of itself, right, But what does it potentially hold for for games and

where the metaverse could go? UM? I mean, I think in terms of what you know, people theorize the metaverse to be UM. You can look at pre existing games

and sort of get an idea. Um. You know. Fortnite is referred to as a sort of metaverse game where winning is sort of less of an objective than just like hanging out with people um and doing funny dance and stuff, um minecraft similarly, And so if you look at those as a model for like sort of prototypical metavers is that already have millions of early adopters um than trying to sort of uh push h n f t S or crypto things or experiences that people don't

necessarily want UM on something they're already used to, uh, is a problem that I think a lot of companies are going to experience. Well, Brian, this this was like the one place that the metaverse was supposed to succeed, That crypto was supposed to succeed, that n f t S we're supposed to succeed. Right, it was, And many people have argued that, you know, even if they do only succeed in gaming, it's such a huge industry that

that's kind of enough. Um, what is it? What does this say about a company like Facebook that's trying to you know, pivot into going all in on the metaverse and get us to do our meetings in the metaverse. If if n f t S can't take off when it comes to gaming, I mean, I think I think

so it has to do with messaging. Um, you know, I think for a long time, game companies have put out you know, pre rendered trailers that show you know, fantastical ideas and like what they hopefully think that finished products will look like, and have based a lot of criticism and backlash when the finished products fall short of that.

UM and So I think some of it has to do with realizing that UM possible metaverse rumors are a lot more tax tex savvy UM and a lot more uh wary of marketing material than tech companies might think. UM and so it's about, you know, making sort of a clear, uh an accurate message to them rather than just saying, well, we hope it's like this one day. UM. It's about expressing, like what the tangible benefit is currently or in the near future. Okay, so you have this

great line in here. Digital horse armor may be a waste of money, but it can at least be fun. So, I mean, there could be fun, but maybe maybe n f t s aren't exactly what people are looking forward. And that gets to this idea that you know, as you read the n f t s are sort of inherently vehicles for financial speculation. So I'm curious how has this gone over within the game industry. Itself, like because they were the ones that were sort of administering the

kool aid in this instance. So. Um, A lot of gaming lad NFC programs that were announced towards the end of last year and at the beginning of this year never really made it off the ground because you know, they were announced before they had actually launched, and then because of so we're backlash, like quickly backed off the sort of one example that did really be it all the way through was this ubsoft program that gave people U n f T s for playing one of their games.

Goes to recoun uh break points I believe, and uh you could earn them by getting a certain number of kills or spending enough time in the game even uh and because it's all on the blockchain, you can track that activity. Um. And the numbers aren't so great, are they just quickly just got about fifty seconds? Um? No, they're not. They're they're in I believe, like the four figures. And at this point, if you exchange the crypto there into real money that includes a sense right now I'm

just kidding. Um. Yeah, and you can read those numbers in the story. Hey listen, Brian, thank you so much. Brian Feldman. He's freelancer porter up Bloomberg Business. We check out this story on the up Bloomberg Business Week and our thanks to Jill Webber, editor a Bloomberg Business Week magazine. You are listening and watching Bloomberg Radio. This is Bloomberg Business Week with Carol Messer and Bloomberg Quick Takes Tim

Stinovic on Bloomberg Radio. So much going on when it comes to the big banks, and of course we had some more earnings this morning. They're all on our radar again. Be of A Shares rallying his loan revenue top to estimates. Also in an interest income up to the highest level at least a decade. You've got Goldwin also higher. They're reporting earnings tomorrow. But we've got some news that's going to combine. It's investment, banking and trading business. And then

there's some stuff on credit Suez. Oh my god, I'm exhausted already. Well, Fortunately we have Trina Rajin here to help us out because he can report on all that and more. He's finance reporter for Bloomberg News. He's with us right now in the Bloomberg Interactive Broker studio. Ushure I want to start with gold the Goldman's story, Goldman shaking up its leadership ranks and yet another overhaul. What's the big headline here, what's the what's the what's the

re org? Who's taking who's taken over? For these divisions? I'll start with the last three words of the headline, yet another overhaul, And I feel to some extent that's more the news than actually what they're moving around. It's not the rearranging of the deck chairs, to be clear, without any Iceberg inside, but it is not about the

changes itself, but the fact that it's happening again. Because David Solomon, the CEO of Goldman Sachs, is four years into the top job at the Wall Street giant, and this is this is the third major restructuring he's undertaking. Not just that with this move he will be undoing a lot of the signature moves he put in place and changes he made just two years ago. That is not a good look and that gives a little bit of whiplash to investor. So let me actually step in

and tell you what the changes are. You have a Goldman Sachs with four distinct divisions trading, investment, banking, two units where their strength is it's fair to say unparalleled. Then they had this as management business, which is the Coleman Sachs asset management business, investing in public markets and behalf of other investors, as well as this merchant bank, which was sort of their in house private equity shop. And then the fourth pillar, which was actually created in

was this consumer and wealth management business. Because that catered to individual money, some very very very very rich people and some averages, but those were all people that Goldman

were targeting. They wiped the slate clean. They've combined banking and trading in a way to try and showcase to the market that hey, if you see banking and trading as one combined group, similar to how JP Morgan does it, similar to how Morgan Stanley does it, you may be able to appreciate how well I can't use the word so how good it is. That's one goal with c IB. Then what they did, and we've talked about for a few months now, they've had major issues with their consumer business.

They're effectively dismembering that, bringing back wealth management into their asset management business, shoving a part of their direct to consumer business which operated under the Marcus brand name into

that unit. And then the third is this weirdly named business called platform Solutions has such a mckensey and ring to it, but it is taking their you know, the online loans provided that they bought last a green sky, the credit card partnerships which is the ones that they have with Apple in general motors, and the transaction banking business, bringing it under one roof having it as a standalone business. Think of it somewhat like embedded finance, which a lot

of people are hot on, including mckensey. Wow, I'm actually closed on this mckensey conspiracy theory. They might have been behind this name to declare. I do not know for sure. I hear some reporting a little bit later on. But it is a stand alone business and it will be interesting to watch because that business wild report losses for the first stable future for the next quarter or two

or three or four or more. Not many Wall Street banks have a stand alone division that where the p m L. It will be so visible and so painful. Goldman's got to hope that investors don't pay too much scary attention to it. Are willing to cut them some slag and actually see the new, new, new narrative that they're trying to uh spread and believe in it. What prompted this shift a number of things. First off, why

this shift just in January? You did a massive change of the asset management leadership in twenty We just talked about all the other changes they made, but the mumbling and grumbling outside of Goldman Sacks had been clear for the better part of the last six months. They worried about the situation mass and management group and how the

new leadership is getting along. They really worried about the consumer business, which, as we've reported at mid year, they projected, would lose while more than one point two billion dollars in a year, in a year when the bank's total earnings is expected to drop from the success, the fabulous success they had in one that was just too hard USh your spotlight on that business. So it was clear

something had to be done. And it's fair to say that the problems with consumer accelerated some of the discussions they had about other orcs. If you're bringing back ASCID in wealth management and making this large one unit, you probably do the c IB aspect of it. The banking and trading combination is something people had been pushing forward

the film. David Solomon and his steam had been reluctant about that because they were more interested in steering investor attention towards asset management and consumer, those recurring fee businesses

that they think investors will appreciate. Now that they've actually made this Combined Banking, Global Banking and Markets Group, perhaps it's an acknowledgement that maybe it is fair to shine the spotlight on their crown jewel, and maybe it will give them a boost with investors that we don't know yet and that we'll see over the coming months and quarters. All Right, Well, an incredible story and then ahead of of course, government has its earnings tomorrow. We're gonna leave

it on that note. Bloomberg News Finance reporter Street daraj And in Bloomberg Interactive Brokers Studio shares a Goldman Sacks. By the way, they are up two percent in today's session. You're listening to Bloomberg Business Week with Carol Masser and Bloomberg Quick Takes. Tim Stinovic on Bloomberg Radio. Well, we've been talking about the Chinese markets. We see Chinese ad rs trading up this on news that Chinese regulators are wrapping up efforts to support the stock market. You've got

a luck going on. A lot of news flow out of China generally, uh and what is one of the key economies of our time. Yeah, very busy weekend. As president, she reaffirmed policies at the center of frictions with the US. He spent two hours heading back and it was opened. In this crucial party gathering, we got Eric Shatzker with his editorial director for Bloomberg New Economy. He's with us right now in the Bloomberg Interactive Broker studio. So Eric, before we we went to we talked a little bit

about what happened over the weekend in China. We also talked a little bit about um another lockdown of more than a million people in China. And I'm thinking to myself, in a in a country the size of China that has a policy for COVID's era that we already know has affected the country's economy so much, how does something like this actually end? I mean, how do we go back to a China that isn't increasingly isolating itself from

the rest of the world. It's an excellent question as far as COVID goes, and you'll hear me say this word again and again and again. It's all about control, right, demonstrating that the Chinese political model is superior to the model that we practice here in the West, where we had COVID restrictions initially but eventually recognized that the economy had to reopen because we operate a democratic society where

people's free will counts for something. It's consistent with what we heard from PRESIDENTI over the weekend, what he talked about. Let me say this. His commentary pointed to a China that on the one hand, is more geopolitically assertive, but on the other hand, is more economically isolated and less of a trading partner to the rest of the world. Um again, because of control. He and I'm sure you've

been talking about the response. In his speech to the US ban on exports of advanced semiconductors and related equipment, he talked about winning the battle in key core technologies and moving faster and achieving technology self reliance. But the challenge for President she and for China is that he envisions this being done within a political framework that prioritizes

above all ideological rectitude national security and party control. There's that control world again, This is not the China that evolved into something resembling capitalism right in the years in the you know, three decades really and plus that followed. Uh, you know, Deng Xiaoping's reform arms back in For the

past at least five years, if not more. Uh, President, she has been growing suspicious of market forces and the threats that they present to political stability, and the perceived threat that he feels or felt anyway in May may no longer field because he's put them in a box from tycoons like Jackman pony mom. So how do we need to think I think about our audience, the investing audience, how do we need to think about China going forward?

For so many years, right, for so long, it was all about global multinationals looking to get into China have access to that market. So what is it going forward? Well, China will be more inwardly focused, and those who were counting on Sheeta reverse course and increase access may find themselves disappointed. I will emphasize that it is awfully hard to make anything that sounds like a addiction. First of all, you know, he hasn't yet secured his third term as

as president. The Communist Party Congress doesn't end until the twenty of this month, it still has a few days to run. Yes, yes, yes, it's widely baked into the cake.

But if he insists that Chinese scientific advances an innovation need to fall under the umbrella of state control, which is to say, largely done by or directed by state owned enterprises, it will look very different from what we know in the West and what it China was increasingly looking like, which was a somewhat centrally planned but nevertheless still capitalist economy. And if you take that to its logical conclusion, uh to me anyway, it begins to sound

a lot like the Soviet Union. And it's not to say that the Soviet Union didn't have brilliant scientists and didn't achieve great things technologically. It did. If you think about the things that the Soviets did with their space program, if you think about the things that the Soviets did militarily, like develop fighters like the Big Tent and the Big twenty nine that were every bit as competitive with what the United States and Europe could produce and in many

cases better, but ultimately not sustainable. Not sustainable technologically and not sustainable politically. And I don't need to remind everybody what happened in but Eric, in the last thirty seconds that we have with you, with given that pretty much every single American company wants access to China, does that still still does that portend? Potentially a different ending? It does what they see there is one point four billion people to whom they want to sell things. You know,

that's a very naked commercial instinct. But you know, if you're a shareholder of a comp let's looking to grow revenue and grow earnings. It's logical. But bit by bit by bit, you have to ask yourself, if you're the CEO or the board of that company, is this viable over the long run given what we keep hearing out of President Cheat because it does seem like they risks continue to increase. Bloomberg New Economy editorial director Eric Shatsker

here in our interactive broker studio er things. I'm journal Yeah, but you let me drive? Oh no, no, no, no no, honey, Please do the riding gravels. I want to drive. It's good question. Drive this good drive to the clothes up on Bloomberg Radio. All right, folks, just under ten minutes left in today's trading session, getting ready to wrap up

that Monday trade, and what a trade it is. While we have seen some movement, mostly it's game on and it's one for the bulls because we've got broad based rally under I've just heard the numbers from Charlie but Worth repeated the nastac hire by three point six, the SMP higher by two point nine, and the down higher by two percent. Right now, let's get into it with David at Damon. Isn't that Wayne's world to party on? Party on? Excellent? Sorry, I love it, Carol, uh uh.

David Deets is managing Principal and senior investment strategies at Pepack of Private Wealth Management about nine point five billion dollars in assets under management. David joins us once again on the phone from Summit, New Jersey. So David is the worst behind us? Is this started turning over new leaf this week and for the remainder of the year. Well, we don't know whether we've seen the bottom in the six local downturn, but we do know that the conditions

are primed for better returns going forward. I mean, we start with the fact that we're down twenty five year to date on the broad market thirty on the NASTAC That alone should with the appeta of all bargain hunters. On top of that, some of the macro factors that have really beaten down stocks, like a surging US dollar and surging interest rates reverse course today. Now the bond market has seen yields go higher for eleven weeks in

a row. Well, we know that yields don't go to the sky, and so certainly the reversal today I think really help people take more confidence that there was some limit to how high yields would be. And we know that bonds compete mightily for investors attention with stocks, right, so it's always a comparison, right in terms of fixed income bonds versus what we're seeing in terms of valuations

and yield on the equity side of the things. Having said that, at this point, you've got David some specific names on the equity side of things that you like, and among them is Tyson tell us about the story they're thinking behind that. Well, you know, in this part of the economic cycle, we're looking for market leaders, and when you look at the food category, we're talking chicken, we're talking beef for talking pork. Tyson is the apps leader.

They have a real lock on the domestic market, pacing their competitors like Pilgrim Spride, and increasingly they're exporting to places like China, which has been battlings mind flu and so forth. But this is a stock that you know, was over about ninety dollars earlier in the year and has come back vital and now it's got a six handle um And so you know you've got a market leader that now trading at less than ten times earnings, a company that has a history of buying back stocks,

buying back to stock and increasing their dividend. And this is the type of thing we think we're investors have gone to sour on the name and it's going to come back. Okay, what about Berkshire Hathaway, that's one of the companies on your list as well. Why are you bullish on Berkshire? Well, you can't look at Berkshire without thinking about Warren Buffin. Of course, you've got the most successful UH investor arguably in the world. Still on top of the helm there. You know, this is a treasure

trove tim of blue chip publicly trade stocks. We're talking Coca Cola, we're talking to Apple, We're taking talking to American Stress and of course great privately traded companies, not small ones. We're talking Burlington Northern Railroad, UM, Geico Insurance, UM, some utilities in the Midwest, and they're trading just a little bit above book value. UM. A couple of things I think are the catalysts. One is, of course interest rates have moved up now they're famous for having all

this insurance money float. Some of it they put to work, others that had been having challenges putting to work. And of course now they're getting a much better yield. And on the three month treasury you can get three point eight percent versus mill about a year ago. On top of that, I like the fact that the air apparent greg able most likely to take over. When Warren Buffett passes the baton just about eighty million dollars worth of stock, well,

he's operating in a microscope. Everyone in the world is looking at the timing of this pick. He doesn't take throwing eighty million dollars into his stock where he's going to be moving up hopefully lightly. So I think that is a great by signal. And of course if Berkshire Hathaway continues to struggle. They have a great record of buying back share, so that gives you a bit of a floor if you're worried about further volatility ahead. What

do you make of um? You know, it's funny we don't talk about the dial a lot because I think if it's you know, limited names in the index. But having said that, the Dow is just down about six this year. That compares with about downside on the S and P five hundred and more than you mentioned earlier on the NAZAC one hundred. For the Dow to see some outperformance, albeit not that much, but nonetheless outperformance, what

does that say about you? Kind of the Dow industrials doing better than what we're seeing the broader market, and certainly a lot better than what we're seeing on the tech side of things. Well, so I just talked about blue chips right liking Berkshire, So I'm just wondering what the bigger theme here is. Yeah, it's a great question. I mean, frankly, the Dow has lagged over the last decade because so much attention has been focused on money chasing those Tex stocks. Of course, those have been hit

really hard. The valuations got the nose bleeds levels fears of recession. On top of that, of course, with the higher interest rates, investors are discarding those stocks which have so called long dated earnings because they're marked down much lower to present value. When interest rates go up, the TAO is much less focused on those high, high valuation growth names, and so I think it's been their turn

in the sun. You've got more companies your your banks um like for example, JP Morgan in American Express, your chemical comes like that, which are not only making good money now relative to stock prices, but also are paying a good dividend. And I think as interest rates move up, people have gravitated towards those lower duration equity names. Hey David, before we let you go, talk a little bit about inflation and what you're seeing, because we got some concerning

comments from Mark Mobius a little earlier today. What do you what do you think is happening with inflation? You know, um, so the latest numbers are terrible. So there's two things I would say. One is, I think inflation is starting to roll over quite frankly. Why do I think that? One is? Commodities tend to be a leading indicator inflation wise. You look at the price of oil has got an eight handle versus you know, close to one thirty UM late spring. Ditto with all your other commodities as well.

We also are seeing distinct signs that the economy is starting to slow and when people have less money to spend, companies are pulling in their belts. They're not going to pay those high prices, and so we're gonna see prices come back. So I think that UM inflation is going to tend to roll over. Finally, stock investors are so worried about inflation. I think your risk in the downside if inflation takes longer to perch from the system, is smaller than your upside if in fact we get some

good news here on inflation. All right, well, certainly one take on inflation in where it goes. David Dits, thank you so much, managing principle and senior investment strategies at Pepack Private Wealth Management, roughly nine and a half billion in assets under management, joining us once again on the phone from Summit, New Jersey. Thanks for listening to Bloomberg

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