While You Were Working - January 24

Day 2 at the World Economic Forum featured a bit of he-said, no-he-really-said amongst the Trump Administration, a spot-on analysis of the IPO market in the US, and more pontifications about the next financial cirsis. Here are some of the highlights of those panels, along with other news from Davos.

Steve Mnuchin might have welcomed a weaker dollar ... or maybe he didn't really welcome a weaker dollar

The biggest news out of Day 2 at Davos came from comments made by Treasury Secretary Steven Mnuchin related to the strength, or in this case weakness, of the dollar. Market and pundits reacted to the comments and interpreted them as a shift in US policy toward pushing for a weaker dollar. Tariffs and fears of a trade war mean that interpretation makes sense. However, Commerce Secretary Wilbur Ross, who appears to have stayed awake past 11 am, said that is not what Mnuchin said. Ross claims that Mnuchin meant the administration simply isn’t concerned about the day-to-day fluctuations of the dollar.

Jamie Dimon really likes tax reform

No, he really, really likes it.

Dimon, the chairman and CEO of JPMorgan Chase,o sees few potholes in the immediate road ahead for the economy and doubts central bankers will act against market momentum.

When asked about the recent $20 billion bonus and investment plan announced by the bank, Dimon explained it is meant to help the bank’s employees and expand the bank’s footprint and around the world. When pressed to name one country where the bank will be expanding, Dimon gave a somewhat surprising answer: Ghana.

P.S. Be sure to watch this video all the way to the end, when a helicopter practically drowns out the last few minutes of the interview. Now there are “first-world problems” and “champagne problems” … but I guess we can call that “Davos problems.”

Lloyd Blankfein also likes tax reform

Goldman Sachs Chairman and CEO Lloyd Blankfein likes what President Trump has done on taxes and the economy, but still concerned about other social issues.

Within Goldman, Blankfein says trading might be soft, but all their other businesses are reflecting global growth. Blankfein says the market is in a “sweet spot” and 3% growth is “doable and durable.” However, he expressed concern about what happens when interest rates get normalized.

Blankfein was careful to separate his views of Trump economic performance with his views on Trump social agenda. Blankfein, who has been known to chide Trump on Twitter, says “Political instability is not very good for commerce.”

What’s up with the IPO scene?

The global IPO marketplace is robust, but not so much in the US. This panel in Davos did a great job of pointing out some of the concerns companies face when weighing the decision of going public in the US.

  • The cost of being public, with regard to Sarbanes-Oxley and compliance, is daunting.
  • Short-termism deters companies from going public because the markets don’t have patience for the long game.  
  • Privacy is an issue, especially with tech companies who don’t want to share their secret sauce.
  • Availability of private capital has meant that companies don’t have to go public.
  • Cost of dealing with activist investors and shareholders class-action lawsuits are problematic.

New York Stock Exchange President and CEO Tom Farley, who rather hilariously arrived late for the panel, beat back many of the above concerns. Better yet, Farley did a convincing job of arguing that the public markets are still optimal despite all those challenges. Farley said the rewards linked to overcoming those challenges and taking a company public come in the form of the massive amounts of capital public markets make available.

Another prescient point Farley made centered on corporate governance and strategy in that public companies benefit from having to meet public expectations. Farley cited recent misbehavior among executives at private companies that might have been averted if the companies had protocols in place that public markets demand. Farley also recalled how Facebook showed up for its first quarterly earnings call without a plan for mobile. Facebook got hammered by the markets; and responded by solving the mobile question.

“That was the public market instilling discipline,” Farley explained. Fair point.

Where for art thou, next financial crisis

While one of the panels yesterday pondered if, when and how the next financial crisis will sweep the globe, one of the panels today came right out and asked if this was the year: Could 2018 be the year of the next financial crisis?

With a panel title like that, it was rather odd that Helene Rey, professor of Economics at the London Business School, opened her comments by citing the old adage that economist should never put a date on their predictions.

Well then … thanks for coming.

DTCC President and Chief Executive Officer Michael Bodson was the other member on the panel and he said he is not concerned about a crisis striking in 2018, but very worried about a “very violent and very volatile” market correction. As for what might spark such a correction, Bodson is eyeing things like geopolitics or a housing crash in China.

The conversation meandered quite a bit away from the notion of a crisis this year, but Bodson still shared a couple of interesting anecdotes:

  • DTCC runs a drill each year on dealing with the failure of a firm. This year, the drill called for the failure of the five biggest firms, one after the other. Bodson and team at DTCC found that the sum of the positions for their five biggest clients was $350 billion. The positions of Lehman Brothers when it went down amounted to $350 billion.
  • Bodson’s first day as CEO of DTCC was the day Knight Capital blew up. The problem was first noticed because the errant algorithm routed all the trades through the New York Stock Exchange. Traders at NYSE recognized the problem and alerted Knight Capital that they had a problem. Had the algorithm routed the trades across multiple exchanges, it wouldn’t have been noticed as quickly and the damage would have been even worse.

Bodson finished with comments on the unpredictability of crises. “Whatever it is that is going to cause a crisis, it is nothing we talked about today.” And when asked about whether central banks have the ammunition to deal with another financial crisis, Bodson laughed off the notion that central bankers are out of ammunition.

“Never underestimate the power and the ingenuity of central banks.”

More from Davos

Beyond Davos