Mizuho Securities Adding Staff and Specialties

Wall Street banks is Shinelli Basak. She's insurance company is a boutique investment banks reporter for Bloomberg News. She's also getting her m b A at n y U. And before we get into the details of what to expect right before bitcoin starts trading on the futures exchange this Sunday, for the first time time, you said that they're crypto clubs and everyone's a crypto trader in your MBA classes. And it's shocking how many people talk about it in an MBA program. It comes up almost every day. What

are they talking about? They're talking about how they can trade it. All their friends are in the market in some fashion, whether they're in technology somehow or whether they're at a bank and thinking of leaving actually to kind of you know, get into the market in different ways to do what well. For example, one of the biggest investors we know in this space is Mike Novograds, right, I mean Mike Novagrads has people he's hired from Millennium,

Goldman and Morgan Stanley, right. So you know, while the big banks have been very slow to get in, we've seen talent move to places where they can do more active in the market. Curious, how do they expect this to be cleared? If a lot of the banks are not willing to do that, how do you clear a trade? I am very curious to see what volumes look like on Sunday and Monday. I've been asking everybody what they're expecting. Because Golvin has said they'll be able to do it immediately.

All the other banks pretty much have said they're not going to be ready on day one, or they're not going to do it at all. They're still waiting. What's the main obstacle is that the margins that people have to post. The margins are wicked high. How are they they used to be? But after so much volatility the

last couple of weeks, CEBO actually raised the requirements. So that means that anybody looking to make a bitcoin trade has to post forty four percent of whatever the trade they're trying to put on the equivalent of that in some kind of hard asset cash correct aside. And and so what does that mean? If the price goes, you know, up rapidly, then the banks have to be worried about it. Right, the price yesterday alone surge. So if this is something that is going to be tradeable, what is going to

be the deliverable cash? It's actually cash settled, a cash settled, So really everybody, all they just want to do is they're just trading this to make dollars. They're using this to make money. Well, that's the other question that's coming up here too, right, I mean, because it's cash, that'll the shows that the futures market is pretty much a speculators market, right, and so there's kind of inherent differences between how people trade bitcoin now and how they will

be trading them moving forward. There was a story on the Bloomberg that cited a statistic that I thought was rather shocking that when thousand investors, which is a relatively small pool in the scheme of the millions of investors out there, only when thousand investors account for of the bitcoin holdings, what potential risks does that concentration offer up. Well, it's definitely a huge concentration risk, and I think it's also another reason people are kind of excited for the

futures market. They're hoping that a lot of big institutional investors will start to get into the market because now we know the investors are not necessarily institutions. Pensions are not investing in bitcoin, they're really worried about custody issues. Endowments are not really although people are in talks with endowments of certainly they're not investing in this yet, so

it's kind of limited. But it's also a lot of retail investors also, So really it's you know, it'sbody once told me the average age of a bitcoin investors twenty two. I don't know how true that is, but it's it's what I'm trying to do at the younger generation. So okay, right, well, let's hope not. The thing that occurs to me though, is if you have to put up so much margin, and if the trade moves against you during whatever time train, you know, before it expires, Uh, how are you going

to manage the big price swing? So you're gonna then get a call from your broker whoever is executing the trade, saying you better put more money in the account by you know, four o'clock, or we're going to close out your account. Because it can go up and it can go down as much as we've seen what is the fifteen thousand one day, ten thousand another day, You're gonna

have to be constantly monitoring your margin. Require That's absolutely true, and the people are already thinking about that right now. And um, you know, I wonder too. It means you also have less leverage on the investment, right So I'm wondering if it makes it somehow less attractive. So let's talk about the deliberations that are going on inside the biggest Wall Street banks right now. Goldman Sachs, as Pin was saying, has decided to start clearing bitcoin futures from

day one. What's the debate internally here? The debate internally comes from a couple of ways. We talked about the volatility for a while that's definitely a huge concern reputational risk. I mean, we've seen every bank CEO come out in some fashion saying something the most promised in An example of this is Jamie Diamond who has called it a

bubble and a fraud. UM. However, JP Morgan, that doesn't mean their clients are not asking about it, and they have to and they they are one of the people that have been weighing offering the futures contracts to their clients. So there's this inherent disconnect between what they have to address to clients and how maybe the banks feel about it. There's also no your customer, customer and undering leandering concerns

with with these contracts as well. Is it useful to to think of bitcoin as a commodity or is a currency? That's the big debate, right what what? What is it? Um? You know there there are arguments for it to be both. UM. I think that generally, walking into the futures market, people are behaving as if it's a currency. I gotta say, one thing that I'm struck by is that the actual price that you can get on bitcoin is completely different

from coin based to other other exchanges. So you have to wonder what the real value is and how are people not going to just simply get scammed? Right, We're definitely wondering kind of what the differentiation is among different exchanges and also not only just bitcoin, but now you have a lot of other options to invest in the cryptocurrency space and how those prices are connected to each other. One of the biggest mysteries in this world, for example,

is tether. We had a fantastic story and if you haven't read it yet, I really suggest you guys look at it. By might not licening you know what is underpinning the value of tether. Well, we'll go and we'll explore that at another time. I want to thank you

very much for being with us, just as shoes gold shoes. Uh. The Commodity Futures Trading Commission says that bitcoin is a commodity anyway, Thanks very much, Snali boss, much appreciated, and uh, we'll be looking forward to more reports on what happens to bitcoin. I have a feeling Sunday is going to be an important day. Blame Japanese banks for the flat

treasury curve. That's according to City Group strategists. Here with us is the CEO of the U S arm of a Japanese bank, to comment on those Japanese flows and what they're doing to US markets. Jerry Rosieri, president and chief executive officer of Missoojo Securities, joins us here in our eleven three studios. Jerry, thank you so much for joining us. SO is this the case? Is it Japanese banks that are flooding into longer term US treasure ease

that's keeping the yield curve flat? Well, that has been the case over many years. UH. You know, foreign foreign holdings by the Japanese have increased substantially over the last five to seven years. Up over that time period. UM, I think the bigger movement into US treasuries and and similar risk risk free assets was in two thousand sixteen

two thousand seventeen. It's been less of a fixed income story. UH. And in fact, we've seen evidence that the banks and UH, particularly the regional banks in Japan will be pulling back a little bit, much of that dictated by the regulator. To be really clear, they've pulled back a little bit on their investments in US treasuries, I would say, not not pulling back in terms of UH selling assets, but the pace of buying, I would say, has has lessened.

So this is not exactly the dynamic that well, I think, I think. You know, whenever you see moves, particularly in the U S treasury market, you'll curve flattening, you'll curve steeping. Uh. It's it's always common to to blame uh, non US investors oftentimes Asia. Uh, you know, and uh and uh. Certainly the Japanese are large holders at last China of US treasuries. I just want to ask a little bit

and maybe get an update. I know in twenty fifteen, Missouho paid what about three billion dollars for the loan book of Royal Bank of Scotland. Right about that was a thirty six and a half billion dollar loan book for North America. Can you give us an update on that and whether if you were to be able to

buy that today, what would that be worth? Well, they were basically a loan commitments, So the reason we pursued that transaction was to elevate our client penetration here in the America's So the book itself was interesting, but more importantly, we are looking to establish long term lending relationships in the US and that's what we've actually done. We've uh, we've more than uh I think for top tier lending relationships of increased ten times over the last two and

a half years. And you're hiring human beings, right, Yeah. So with the the the asset purchase in and of itself was interesting, but we actually wouldn't have pursued that unless we were able to bring a number of people over from the institution. So we took on about a hundred and twenty people from RBS along with those assets. Just with respect to MISSOO Securities, how much has it expanded and how much do you plan to continue expanding

from a head count perspective? Sure? So so in the US I joined the company two thousand, ten UM and we securities, we were maybe a little over three hundred people. Uh now we're hentering heading towards eight hundred UM. It's been a h I say, a measured expansion. We've tried to uh move at a pace that sort of suits our organizations tolerants. Uh. And but having said that, uh, it's been very targeted. So it's been capital markets, so

debt capital markets, it's been equity capital markets. We've expended our high yield business over the last couple of years, also on the sales and trading front as well, growing out our equity platform as well as diversifying our fixed income platform. Any thoughts are maybe comparisons between now and the and the time of Lehman Brothers. Whether the banks and the brokerage firms have they changed at least the

way that they perceived their balance sheets? I mean, does that inform the day to day operations of of the organization? I mean things are you know, I'm former Leman Brothers. I was there for twenty three years, so I know that situation well. But uh yeah, the environment is a lot different. I mean there's less leverage, uh you know, the regulatory environments different. Um but you know, I would say that uh you know, the the industries have been

expanding since two thousand and eight. Uh so employments up in business actually is pretty decent. Where is the biggest opportunity for MISSOO host securities in US markets? Is it highel bond trading? Is it underwriting investment grade bonds? So we're we're already top ten in corporate investment grade debt in the U S which is trading in terms of origination UH. In terms of trading activities, we've been aggressively

expanding our equity platform UH and cash businesses. We're working on both derivatives and ffects for fixed income UH and equities UM. In the fixed income side, we've been expanding our security securitized products area as well as in our high yield trading area. And just real quick, are you using balance sheet? Yes? We do? And is that increasing? Our balance sheet has been relatively stable. UM, it's but

it's not a constraint on our business. I would say, thanks very much for coming in and spending time with us. Much appreciate it. Very interesting UH. Jerry Rozsieri is the president and the chief executive of Missouho Security. Total addressable market? What is it? And why does it matter? Well, we have Bill Smede to help us answer this question. He is the chief executive officer and chief investment officer for

smed Capital Management. They're based in Seattle, helping to manage more than two point two billion dollars and you can follow Bill on Twitter at Smede Cap, s m E A d cap alright, smead cap. What is total addressable market t A M. Well, it means how many possible customers or how many possible widgets that you can sell based on the population available and those that have access

to what you're doing. And it's become quite a popular thing where you know, we're we're ten years into maybe the best stretch that growth has ever had against value. So when when when valuations aren't very enjoyable to talk about, it's pretty easy for growth people to kind of slip into talking about possibilities and potential and uh, total addressable

market is a way to to think about potential. Well, I could guess, I could say potentially at one point I was going to play for the NBA, but I knew that wasn't gonna happen, So potential goes out the window. Does this make any sense? Well, you know it doesn't certain circumstances. I think you know. Warren Buffett says, what the wise man does at the beginning of the fool to us at the end. So so let me give

you an example. When he bought Coca Cola, he actually paid a much higher price earnings ratio than he normally used to pay. He paid eighteen times earnings. But he could see that Coke was in the early stages of beginning to sell soda pop all over the world rather than just the you know, the most sophisticated parts of the world. And so you know, by the time he got done, we were on a one week mission trip with our family and they were drinking phantom on a

relatively deserted island off the coast to Honduras. And that was about ten years ago, right, So they went from from mainly mainly dominating the highly populated parts of the western world and they went all the way around the world. So that market got addressed by Coca Cola. So it's a good time to think about it at the beginning, but but it's it's not good at all when you get in the late stages of a lot of financial euphoria like we are now to think about that because

it usually breeds trouble. Bill, What could be in your mind the next Coca Cola, if not on that scale, but has the potential to really take off. I think you did home in on some pharmaceutical companies. Correct. Well, yeah, the there's an enormous population, both in the States and Europe of of baby boomers and osteo processes is a is a malady that that has a tendency to hit as you get older, and it's especially prevalent in women.

And so you know, m Gen makes the most successful uh drug for treating osteo process Prola, and then as a bit of good fortune, they found out in testing thirty people that it also caused tumors that were close to the bone to stop growing, and they sell that as Xchieva. And so you know, even though that's a blockbuster already prolia Is, it's just got a lot of population in its way, and and that's something that the

company has to look forward to. Another case, in Mgen's case, they're introducing Rapata, and the health insurance industry has been slow to take it on given all the tweets and grief associated with pharmaceutical prices. So uh it's been a slow to be adopted. But if you combine that with staatens, people with terrible high bad cholesterol dropped down to about

seventy bad cholesterol. In effect, we could have a nation of marathon runners running around people that were formerly had the blood of of someone with severe heart disease potential and and and very likely at some point time to get hit by heart attack or stroke to a bunch of marathon runners around running around because of the way that this attacks bad cholesterol in the bloodstream. Well, Bill,

eventually those marathon runners might have to head home. Can you talk about the home building market and specifically Lenar Well, Yeah, Leonard now owns more build uble lots than anybody because they're they're merging with call Atlantic and UH as you go forward, the three things that are gonna be tough to deal with to build all the homes we're gonna need, and the total addressable market is that some large percentage I think Zillo is on the cutting edge of of

measuring this, some very large percentage of the millennials that our ages twenty two tote are going to end up buying a home, and many of those homes need to be built because the people at the other end aren't moving out of their homes as fast as people are moving in. So so UH, having a lot of buildable lots is one of the ingredients that would help you meet that addressable market. And then of course the labor

is going to be a big challenge. Right. We think that you might see a very generous green card set up for people in carpentry, plumbing, electricians, etcetera. Uh, bricklayers, roofers, you name it, and and uh and then the materials and we could see some inflation in the materials as well. But uh, that's right, those are in front of us because even today, the home building that's being done today

is way better than five years ago. But it wouldn't It would have been a bad number in nineteen sixty, seventy eighty five or ninety five. Rights, it's we're as still at recession low levels of home building compared to past decades. Okay, but Bill, when does the stock get too expensive? I mean you're looking at Lenar right now.

The stock is up within so far this year and it sports a pe of over sixteen for a home builder, right, So, so, uh, what you've got here is a historically cyclical business in a secular surge, and we think we're we've finished the third inning is where we think we are now what that means PIM and for low turnover portfolio managers like the US, this is one of the challenge of being our investors is we want to sit through whatever correction comes next to get to where this is going to

be in five or six years. So you're right. This industry, the earnings are growing twenty percent a year on about ten revenue growth. Right, So there's people out here in Seattle excited about the company whose revenue is growing and whose profits don't go at all. And this is an industry whose revenue is growing ten percent and the profits are growing twenty So you're absolutely right. They've had a good run. They could have a correction at any time. Fact,

this market could have a correction at any time. But for the long duration investor that wants to catch this next five to ten years aging of the Moneial group, it's a nice addressable market to consider. Build. Another way to hedge against the downturn is holding more cash? Are you doing that? No? We we We kind of made a decision ten year our fund are our fund will be ten years old, our strategy ten years old right after the first of the year, and and we just

made a choice. At the beginning. We assume that most of the people that would invest with us, we would be a part of their total portfolio. Someone else is likely doing the asset allocation, and so we don't really feel like we have any special competency to time the market. In fact, you know what we got started at the beginning of Oh wait, the next fourteen months was the worst market decline in eighty years, So I don't think people should be coming to us for market timing. Bill Smide,

thank you so much for joining us. Bill Smeede, Chief executive Officer and chief investment Officer. It's Smeed a capital management overseeing two point two billion dollars in Seattle. What would you like to do for a job? Perhaps a game to hester you don't need any experience for that, or a heavy equipment operator. We hope you have experience for that. Here to help us understand the job market right now is the chief executive of Zip Recruiter. Ian

Siegel is also the founder. Great to have you with us, ce In, Thanks for spending time. You know, I was looking at your side, looking at a trending job titles, trending job types, and I'm seeing that one of them is a boat captain. Where does this information come from? Well, we a Zipp Recruiter, are probably the single largest starting point for small and mid sized businesses that do job posting in America, and so we end up getting all

the interesting jobs on our site. So if you, for example, run a small ship business, or let's say you are in a hurricane struck area and hurricanes have knocked out your business that will last few months, then it seems likely that you're going to go on a hiring binge right now to restock the captains for your ships. So I is it fair to say that zip recruiter is

sort of a byproduct or caters to the gig economy. Well, certainly, the gig economy makes up a lot of the jobs that you will find on our site, and that's because the gig economy increasingly represents a large percentage of opportunities for people to work in America. So, whether it's Uber or list or delivery Hero or a multitude of on demand services, the gig economy has become a material option for a lot of job diggers, not just for full time work, but also as a second job to bolster

their income. So in one thing that a lot of economists sort of decry is that there isn't a tremendous amount of visibility into the gig economy. And I'm wondering, from your perspective, you probably have one of the best views into it. Frankly, and I'm wondering what kinds of wage increases are you are you seeing and and has that been a positive trend that you've been noticing? Well, I mean, if you if you look at the health of the global job market and want to see global,

I mean in the United States. Uh, you know, you're at four point one percent unemployment, which is a seventeen year low. You've had ninety two months of the economy adding jobs in a row, and so you're really looking at what some would call peak employment. And when you're in that kind of environment, what happens is there is a dearth of talent searching for work, and so employers are forced to do things like raise wages to induce people to leave jobs they currently have and come to

the those employers opportunities. So the gig economy um isn't really benefiting from that wage increase. The gig economy is more like a foundation upon which if you want to work today, there is an opportunity out there for you to go get. But if you are looking for are more full time work and a more traditional role. Right now is a great time, probably one of the greatest

times in our lifetime to be a job seeker. So are you saying that there's sort of a divergence here with sort of the standard jobs being much more sort of competitive and higher paying and paying even higher wages, whereas in the gig economy you're not seeing those pay

raises exactly. And and part of why you're seeing people uh be more patient in their job search is because the employees who are working in a gig economy are using it as a secondary source of income or is a bridging income between opportunities as they look for work that they would consider more meaningful. Well, Ian, when I asked you about being a boat captain, I thought you were going to say that you've got an algorithm or a way to aggregate all of the information that comes

to your site and to your specific company. I'm wondering, then, how do you automate the process of matching the right person with the right job or is that left up to the company that's looking for the worker. Oh no, no, no, no, we are not just at the bleeding edge. We're sorry. We're not the cutting edge of technology. We're at the bleeding edge right now. There is technology that has evolved over the last two years, often referred to as machine

learning or sometimes called deep learning. It's an approach to building algorithms that do things that humans will never be able to match. You give us an example behind absolutely so uh when you use one of these algorithms instead of doing a traditional match the way you would rationally do it, which is I, for example, have been a product manager in my career. Old school algorithms would say I'm going to find all the jobs that have product manager in the job title, and I will just show

you those jobs. Today, the technolog is so good, it says, I'm going to look at everyone who's ever searched for product manager in there in the history of this company, and then see all the other job titles that they've ever looked for, and as a result of that, they're able to cluster opportunities that might be interesting to you that a traditional search engine would not be able to surface.

And that's really the tip of the iceberg, because with these algorithms we can start to use signal data from the job seekers themselves, so we know, for example, if ten job seekers go look at a specific job and none of them apply, there is something unappealing about that job, and the algorithm is smart enough to stop showing it. Ian How does zip recruiter make money? So zip Recruiter was built with a very simple premise is that a lot of small businesses don't have the time to figure

out which job board they should be posting too. So zip recruiter enables you, if you are a hiring manager, supposed to over a hundred job sites with a single click, and then all the candidates from all those different sites come into one easy to review list. And in as far as wages go, can you track individual wage offers

or salary requirements on the site? Yeah, so we get you know, high hundreds of thousands of jobs directly posted through zip recruiter every month, and one of the pieces of information we capture about every one of those opportunities is what salary is being offered. We use a BLS based definition of low skilled, mid skilled, and high skilled so we can watch trends that occur in the hiring market.

And just to make it simple, across all levels, all skill levels, in the past year, there has been wage increase, So it is, as I said, a great time to be a job seeker. So I just not to harp on this, but who pays you. Which is it? Is it the job seeker or is it the potential employer? It's the employers who pay us in order to do that job distribution and collect Canada, it's we never charged job seekers for anything. Okay, what what is next for

ZIP recruiter? Is there a way to tell whether it's been a successful match and then you use that same algorithm or an unsuccessful match brings some kind of remedy or correction. I mean it's been Honestly, it's the most exciting time it's ever been to be working in the job category. The technology that has evolved, uh is so advanced it's starting to feel like magic. So historically, from the time you posted a job to the time you sell that job, it would take you between forty five

and sixty days. And now literally almost instantly after you post a job, we're able to go cherry pick the very best candidates that are in market and notified and instantly of just that job going live, which is inducing unbelievable high quality candidates literally within an hour of a job being posted. The entire recruiting process moving towards an almost real time experience, and it's going to be a real disruption to the way people hire. Ian Segel, thank

you so much for joining us. Ian Siegel, co founder and chief executive officer of Zip Recruiter. Thanks for listening to the Bloomberg P and L podcast. You can subscribe and listen to interviews at Apple Podcasts, SoundCloud, or whatever podcast platform you prefer. I'm pim Fox. I'm on Twitter at pim Fox. I'm on Twitter at Lisa abramowits one before the podcast. You can always catch us worldwide on Bloomberg Radio.