Audio Length 00:48:15

Transcript

S1: This ad free podcast is part of your Slate plus membership.

S2: Hello. Welcome to the eco imagination, Ed. Tight Money, your guide to the Business and Finance News of the Week.

S3: I’m Felix Salmon of Axios. I’m here in Seaplane Omada Studios in Brooklyn with Jessamine Molly, the producer. I am also joined by The Magic of Zoom by Emily Peck of Huff Post. Hello by Anish Mansky of Breakingviews. Hello. And we are about to embark upon a lovely three day weekend. It’s Labor Day. We celebrate the working people of this country and all they do for us. So we’re going to talk about that. We’re going to talk about the plight of the workers. We are going to talk about the person who’s kind of in charge of making sure the economy is working for the workers, Mr. Steve Manoogian, the treasury secretary, whether he’s having any success on that. And we are going to talk about General Electric, which is a major employer. It still has hundreds of thousands of employees, believe it or not, even though its stock price is kind of in the toilet. All of that coming up on slate money. So it’s Labor Day weekend, Emily, and this is probably the most tumultuous period that we have ever had in the labor market, at least in living memory on a Labor Day weekend. And you have written about this for Huff Post. And the number that really jumped out at me from your excellent story was looking at quartiles. It turns out that if you make more than 60 thousand dollars a year, you are in the top quartile of earners in the United States. And if you look at that top quartile of earners, employment is down only one percent.

S4: Yes, Felix, it feels like we’re living in two different worlds right now. At the top of the income ladder, jobs have come back more or less. Things are OK. And in the bottom, at the low end of the income scale, employment is down 16 percent from where it was pretty covid. So it’s like basically a catastrophe.

S3: So it’s down 16 times as much for the bottom quartile as it is for the top quartile, which is which is one of those ratios where you’re like, holy crap, am. And that is partly how covid works because it hurts service industry people who work in buildings and no one’s going into buildings and using service industry workers right now. But it’s also partly just the structure of the labor market, the job security for high end. This is so much better than it is for low earners and our glorious capitalism has always treated the high end is better.

S4: Yes. And so for my story, I just I talked to some people at the high end, a woman in Dallas making two hundred thousand dollars a year who just bought a new house and two new cars and a new trailer that she uses to travel with her family and another woman who couldn’t buy her dream home until covid hit. And then it hit and mortgage rates went down. So she’s got a new row house with her new husband. I spoke to mothers who for a different story about the same thing, who are sending their kids to private school that they’re paying thousands and thousands of dollars for because they can afford it. And the public schools right now are kind of a mess. So what’s happening is it’s total. There is already massive inequality in the United States. Right. But covid has really exacerbated this inequality. And I think the consequences are going to be pretty bad. I mean, we had a jobs report out on Friday that showed, like for white people, unemployment is in the single digits now. But for black and Latino workers, it’s still double digits. It’s still really bad. And I think one big problem is I don’t begrudge anyone holding on to their job or having job security. I have I have a job. I’m very excited about it or buying a new house or taking advantage of low rates or anything. But as more affluent people kind of are protected from this crisis, there’s going to be less political appetite to do something for those at the bottom who are seeing like high unemployment still, who are food insecure, et cetera, et cetera. And then ultimately that’s bad for everyone.

S5: Yeah, I think this is goes back to what we’ve talked about a little bit over a number of episodes is the response of monetary and fiscal policy. The monetary response really helps higher earners. It helps those who have significant assets, financial assets, homes, helps people to be able to buy homes, finance high cost purchases. The fiscal response while helping everyone certainly really helps people at the bottom. And the issue is that when you’ve had as much monetary response as we’ve had to the point that it hasn’t just like brought liquidity back to the market, but actually propped up the market, that puts less pressure on individuals. It also puts us pressure on politicians to have more of a fiscal response because they are paying more attention to the markets.

S3: And the way that when we talk about fiscal response, it sounds very sort of technocratic and an econ Ph.D. But fiscal response is just another name for what members of Congress do and what members of Congress do. And there have been many, many studies which have shown this is basically what their big donors want them to do. And they’re big donors by definition, are rich people. And there was that one brief shining moment in March when the stock market was down 40 percent or whatever it was, that they came out and did a big giveaway to the poor. But that was kind of unprecedented, certainly among Republican administrations. And if you look at the stalemate in Congress right now, it doesn’t look like we’re going to get anything like that, at least until basically January. And the reason why is actually what you just said, which is that there’s this wealth effect. The rich people don’t just feel better off because they still have their jobs and they’re spending less money on travel and clothes and that kind of thing. They also feel better off because the stock market is going through the roof. And those two things together just make everyone feel like, hey, maybe it’s not so bad.

S4: Exactly. And those are the people with the power to push Congress to act. And that’s pulled back.

S3: Now, Congress never does what poor people want.

S5: One of the clichés of this crisis is that it’s just exacerbated underlying trends, but I think this is another instance where that cliche is very apt, that obviously this is something that we’ve been seeing for a while, that this is an extreme example of it. But where because since the financial crisis, so much of the support has been from the Fed and it has enabled so many people to feel like the economy is doing quite well, whereas you still had a significant portion of the population who that really hasn’t been the case. And and I think that what we’re seeing now is just an acceleration of that. And I do wonder, though, if it’s like we’re reaching a breaking point, if this is just showing us in such stark relief what is happening, if that could potentially make something change or if we will just continue to go on this kind of shaped recovery and things will just continue to get worse for those at the bottom?

S4: Well, I mean, that 16 percent number, the employment rates for low wage workers, that could get worse now because the Kahrizak stimulus, you know, the twelve hundred dollar checks are long gone. The amped up unemployment insurance is gone. The eviction moratorium has expired. I think we kind of the stimulus the Kahrizak actually did work a bit. I mean, unemployment is coming down. And I think everyone pretty much agrees that it was necessary and it helped keep things going for a long time. But now that rug is pulled out. So I wonder if these numbers are are going to get worse. And I actually kind of wonder if even for the people, you know, making the sixty thousand or more, if things are going to get maybe worse to possible.

S3: If you look at if you look at PPP, which was the other main plank of the Cars Act, there was absolutely enormous debate over how many jobs saved. Like I have literally seen estimates all the way from zero to 50 million. And I am not going to try and get in that very useful range where in that range actually lies. But let’s assume that it’s somewhere in that range. Those jobs are going to start falling away now that the PPP is expiring. And it’s almost certainly not going to be. And again, those jobs tend to be people, relatively low wage workers working for small businesses, often in the service industry, maybe in restaurants, that kind of thing. And I’m with Emily, that there is actually a real risk here of, if not a double dip recession and certainly like a double dip recession and that you could see another wave of decreasing employment.

S5: It’s true, although I would say maybe to play devil’s advocate a little bit, that we are seeing improvements in reopenings and while I understand that there are definitely parts of the country where the cases are increasing, like overall, we are getting some positive news. We are getting some positive news on treatments. Hopefully at some point in the next year we’ll have some type of vaccine. It does seem like, you know, the economy is coming back. So that should help to offset some of the reduced fiscal support. Now, I obviously agree with both of you that we need more fiscal support. We aren’t done yet. We aren’t anywhere close to being done yet. But I also do think that that should provide a reason, a lot of support, so that hopefully we won’t just continue to see horrible numbers of people unemployed or more people getting laid off or evicted.

S4: Yes, I think that yesterday CNN had a video that was going around that followed one sheriff as he evicted families, I want to say was in Texas, I’d have to go back and check. But it was pretty harrowing. And the CDC just did this unprecedented thing where they said you can’t do evictions anymore, but there’s no money behind it.

S5: It’s really complicated to the process of how it’s so good in thought that, yes, of course, like right now with the absolute last thing we want is a bunch of people being evicted. However, if you actually look at the way the policy is done, you have to like prove all of these different things in order to be able to get it. And it’s like a lot of people have the time and ability to do that right now, especially if you’re in a position where you get about to get evicted.

S4: Right? Yeah.

S3: The idea that you’re going to be homeless or something and the idea also the agency that is going to prevent evictions is not, you know, HUD or anyone like that. It’s the Center for Disease Control. You’re like, OK, that’s really embarrassing. It’s not going to say that’s really not the CDC. This is not what it’s designed to do.

S5: It’s not their wheelhouse.

S4: Right. And this is just the abdication of government’s responsibility to citizens who don’t make enough money to count. That’s what it feels like to me. And it’s going to wind up biting us on the butt.

S3: On which, happy note, I think we should have a little chat about the Treasury secretary, Steve Mnuchin, because he is one of the most fascinating characters of the Trump administration. He is deeply loathed by many left leaning urban elites, including his own dad and stepmom. He is a very predictable cheerleader for whatever the president wants to do, and he will happily change his mind on anything if the president has changed his mind on that. He does not consider it his job to make policy. He considers his job to just simply be to follow orders. He seems to really like his job. And I don’t quite understand why, if all he is doing is kind of rubber stamping the whims of Trump, he seems to be happy in it. And yet somehow also at the same time, he’s quietly a hero of this crisis, which I will get to. But Anna, what’s your sort of if you had to give him a letter grade as Treasury secretary, what would you what would you give him or what? I guess there were two different questions here. One is what kind of letter grade would you give him as a member of Donald Trump’s cabinet? And then the second is, what kind of grade would you give him as Treasury secretary?

S5: Well, I guess as a member of Donald Trump’s cabinet, it depends on if I’m Donald Trump, I probably would give him an A because he seems to do whatever Donald Trump wants as a as a normal human. I’d probably give him an F because he does whatever Donald Trump wants. As a Treasury secretary, I would probably give him like a B plus. On the one hand, it is probably true that in March and April, when everything was just falling apart, almost any reasonable person in that role probably could have pushed through stimulus because there was just so much appetite for it because of what was happening on both sides of the aisle. However, the fact that he did and the fact that he at that moment saw this pragmatism over ideology is a plus because it is possible we could have had some real lunatic in there who wouldn’t have who would have said, oh, no, this is not what governments are supposed to do. And then that would have been absolutely disastrous and say what you will about Manoogian. But he is actually still trying to push for there to be stimulus. Now, he and Pelosi are agreeing on a number, but that’s tends to be how negotiations go, that you both agree that you need to do something and then you figure out a number in the middle. That’s fine in that sense. I think that while I have a lot of disagreements with Steve Manoogian, I think when history is written about this moment, he will probably come out OK in comparison to everybody else.

S4: Yeah, I mean, well, the reason we’re talking about Steve Manoogian is because The New York Times had a great profile of him by James Stewart and Alan Rapaport that had all kinds of like delicious details. His father saying that his son’s politics appall me to a perfect stranger. You know, his his stepmother reminding people that they are not actually related, that she’s not his biological mother. But I mean, I think you give Steve Manoogian as a member of Trump’s cabinet. I think you give him an A because he seems to be sane and the piece goes through kind of like the back and forth of how he negotiated for the stimulus packages with Pelosi. And he didn’t get hung up on politics. He just sort of like rammed it through. Pelosi and the Democrats wanted paid leave. He was like, fine, they wanted the extra six hundred dollars and the unemployment benefits, he was chill with that, like he just went for it. But he also he had the stock market falling to sort of make his case. That’s what gave them the sense of urgency in the White House. And once that recovered, know he didn’t have the backing of Trump anymore. They they made him go to all the negotiation meetings after the Carers Act for the next stimulus. They made Mark Meadows go with him, the chief of staff. And he is just like, you know, some like lunatic Tea Party guy who doesn’t want to do anything for anyone and kind of steamrolling the whole thing. So it wasn’t clear to me that, like it’s like what Anna said, like he had the the moment behind him. He had the power of government behind him more than any kind of like, brilliant dealmaking strategy.

S3: The kicker of that story was amazing where, like, Trump was extolling the praises of. Steve Mnuchin, after the site went past, went through and he was like, wow, look at this amazing thing we’ve done now. Trump has changed his mind and decided that it was terrible and that was this big giveaway to poor people and and the notion of a complete go. And he needs to be babysat by Mark Meadows the whole time. And then The New York Times went along to the White House and said, can you give us just like a pro forma? We love Steve Mnuchin. How is Steve doing in his job? And the White House came back with a statement that didn’t mention Manoogian at all, said, you know, Trump is doing great and it’s all Trump and basically just kind of implied that Manoogian was irrelevant and Omiya sort of tool of Trump, which is possibly true.

S5: Well, it also somewhat shows you how when you are effective at your job, that makes you not very popular in this administration. Because the one thing I will give Manoogian is that, you know, Trump talks about being a dealmaker. But what Manoogian did is actually how deals are made like that is actually when people in Wall Street negotiate deals, that is the kind of thing that happens. And unfortunately, that is the kind of thing we actually haven’t seen much of, not only in this administration, but, frankly, in a number of administrations.

S3: Now, the thing I really wanted to mention in here was the single greatest thing that Manoogian did. And it goes back to what you were talking about in the first segment about how we’ve had a lot of monetary policy, but not enough fiscal policy. And the thing that I think very few people appreciate is that the overwhelming majority of the monetary policy that the Fed has been doing and certainly the monetary policy that really goosed the markets was done only because Steve Mnuchin signed off on it. The Fed has been going out into the markets, buying up a bunch of credit agencies and even junk bonds. They’ve been guaranteeing loans. They’ve been announcing that they would do that kind of thing. There was this huge slew of Fed programs which basically persuaded the market that it will never go down. And if anything bad happens, the Fed will be there to catch them. And that kind of knowing that the Fed will be there if anything falls has really propelled the market to new record highs. The Fed has done a very good job at bringing liquidity back, and it’s done all of that under emergency powers that under the Dodd-Frank Act, it could only do with not only Steve Mnuchin signoff, but also, as Steve mentioned, ultimately backstopping the whole thing and saying if you fed if you make any losses, don’t worry, I will eat the losses. That’s not on your account. It’s on the government’s account. And he did that very quietly and he took no credit for it. But basically, if Manoogian and Powell weren’t working hand in hand all the way through this, we wouldn’t have seen anything like the kind of effective monetary policy that we have seen.

S5: The reality is the Fed actually hasn’t had to do that much of what it said in terms of those programs. It actually has bought very few corporate bonds, it’s thought very little junk rated debt. However, just the ability to say that it will and to have, as you say, it can only set up these programs if it has the Treasury along with it. The fact that that has been set up has had a significantly positive impact for the market. Now, one could argue moving forward whether that can create its own massive troubles, but in this moment, at least, stabilizing things. Yes, I think that you can give credit to both of them.

S4: What’s also interesting about the piece was it made pretty clear that Steve Mnuchin seems to have no moral compass at all. Like they say, you know, he’s one of the rare cabinet secretaries who has no political beliefs that anyone could kind of tell, like, I guess is that he’s a registered Republican. But he gave money to Kamala Harris. But he reads Ayn Rand.

S3: Yeah, he is not like I think in this in that sense, he’s a little bit like Anthony Scaramucci say they love being close to power much more than they care about. They’re not policy wonks and they’re definitely not ideologues. He, unlike the might come in at Meadows, might have come in as a sort of Tea Party ideologue. Mnuchin just came in as a financier who was like, oh, my God, I get to be Treasury secretary. Whew. That’s amazing.

S4: Toye Yeah, but he’s doing it in a like this. What makes him so unusual in the White House is he is actually competent about it. And then I started thinking, like two Treasury secretaries even need to have.

S3: And he’s he’s actually I think I think we’re grading on the curve here, like compared to the rest of the Trump cabinet, compared to other Treasury secretaries, he is not that competent. He is notoriously he is a notorious micromanager and he still has a huge number of positions that remain unfilled. Know, three and a half years into the Trump administration, Treasury just doesn’t have the deep technocratic competence that it used to. It has become smaller. It has become politicized. It. Become weaker. All of these things are true as they are with virtually all government agencies, but maybe to a slightly lesser extent than somewhere like an apartment of energy or something like that. Like it’s it’s I think he has damaged Treasury, but he’s damaged Treasury less than the didn’t like, say, Rex Tillerson damaged state.

S5: Uh huh.

S4: I like that because people don’t want to work there. Is that why he’s having trouble bringing people in or is it more like that?

S3: I think he hasn’t even advertised jobs. I think he’s he’s such a micromanager. He doesn’t want other people doing those things. He wants to do more himself.

S5: Wow. Although I would say in general, having political leaders who were more focused on actually getting something done as opposed to simply passing a purity test, making sure they are ideologically, you know, following the rules might not be the worst thing in the world, which is what we had under Geithner say and what we don’t have under Paulson to.

S3: Yeah, yeah. I mean, like, you know, Paulson brings in, you know, Neel Kashkari from like he’s like you are a competent person who I used to work with at Goldman Sachs. I’m going to bring you in to organize this massive crisis were bailed out and they’re going to put you in charge of it. And yeah, Nishan has done none of that, although I would say sorry.

S5: Last thing, when people say he’s not ideological, I will say the kind of Wall Street mindset is an ideology. It’s just not a particularly strict ideology that at the end of the day, like the outcome is always more important than the belief system.

S4: Is that not the case for all? For a lot of Treasury secretaries? It’s just not an ideological kind of position. You have this quote like this pretend idea are like what you just said. And it’s a neutral seemingly.

S5: I don’t know.

S3: I think I think that’s probably true for other finance ministries in the world. I think that’s not true for the American Finance Ministry, for the US Treasury. The US Treasury has always been an extremely political place, and it has been because the US dollar is the world’s reserve currency and everything happens in US dollars. The US Treasury is a way that America projects soft power throughout the world. If, like for many years and I think even now, today, if an American citizen wants to visit Cuba, they need to get permission from the Treasury Department. And when, you know, the United States starts putting sanctions on Iranian banks, like saying you can’t do any business in Iran, it does that using the power of the Treasury Department. So certainly when it comes to foreign policy, the Treasury is extremely political. I think maybe on domestic policy it’s a bit less so.

S5: Yeah. I would also say, though, a lot of other countries have a very, very political economy and industries. I mean, the of Latin America, as there’s a period this year, I was writing pieces about like every economy minister and Latin American country, like they’re very political.

S3: Maybe one day we will talk about the final Argentine debt swap. But not not do not this week instead.

S5: Gozman, we’ll have to wait.

S4: Steve Manoogian involved in something we’ve never talked about yet on the show, the coin crisis. You know, there’s like a big coin shortage right now.

S5: He is he is in charge. An issue.

S3: Steve Manoogian is in charge of the US Mint. The US Mint is in charge of minting coins. There aren’t enough coins to go around. And Steve Manoogian came out on Twitter and he was like, people, can you find those coins down the back of your sofa and stuff spending them? And you’re like, wow, this is what we have been. This is what we have been reduced to. This is true. This is all true.

S4: He actually made me feel like now if I go to an actual store, I try and have exact change because I feel like I have to help solve a coin shortage. I don’t know. I feel like that.

S3: But you are you are a true, true patriot. And you are you are a true patriot, Emily. And we are all very proud of you. We’ll give you a US flag pin for your lapel, OK? Yes, please do send that. So General Electric (GE) or GE used to be the biggest company in the world. We were 50 billion dollars and it’s in the news this week or it’s in my newsletter this week because Steve Tusa, who is basically the one sell side analyst who’s been getting it right for the past few years, came out with a kind of amazing research note, which you had to read down to the bottom of page four to see exactly what he was saying. But if you read down to the bottom of page four, he did this kind of back of the envelope calculation of how much it’s worth. And the bottom line was basically zero. He’s like, it might be worth 50 cents a share, the equity, the equity. So there’s value in the company, but the value of the company is roughly equal to the value of the company’s liabilities. So the net value of the company, the equity value of the company is essentially zero. And I was like, wow, that is quite amazing for a company that really dominated the American economy for decades and really like less than 20 years ago, was the largest company in the world.

S4: Life comes at you fast.

S5: Well, although it’s actually been kind of a building crisis for a while since they made. I think part of the reason they’re in so much trouble now is the exact reasons that made them so successful in the past as they became so large, they got into all of these industries that they didn’t actually know that much about. It looked like they were doing great in the lead up to the financial crisis because they had essentially become a financial company. And then obviously that exploded. And then now their biggest plays are in power, which is primarily based on fossil fuels. So that wasn’t a great idea. And then aviation, which also obviously right now not doing spectacularly well. Health care is actually one of the areas where there has recently been one of the more profitable parts of the company, but they just simply don’t have not only did they just not seem to have much of an identity right now, they don’t have a plan. And I think that’s the issue. It’s not just that you look and you say that they’re going to have negative free cash flow or their blah, blah, blah, it’s that they don’t seem to have much of a future of how they grow, how they move out of this, because you don’t you don’t believe in eco imagination.

S3: You don’t think they can turn around through eco imagination?

S5: Oh, God, yeah. Because a lot of companies that have huge like, you know, are trading at insane multiples, don’t generate much cash or any cash at all. But they still people believe that they have a future. They believe they’ll grow. They simply do not believe that about, gee, was this inevitable?

S4: I mean, a lot of businesses and companies have come back from the financial crisis. I mean, why what was unique about G.E. that it’s sort of messed up this battle so much that I think I think many liabilities.

S3: Yeah, I think what’s unique about G.E. is that it’s it’s kind of incapable of bouncing back. It put itself levered itself and it’s organized itself in such a way that when things were going great, things would continue to go great. But if something bad happened, then it couldn’t recover. And what you saw after the financial crisis is that G.E., like everyone else, plunged during the financial crisis. But when everyone else recovered from the financial crisis, GE didn’t. And then in the pandemic, GE, like everyone else, the share price plunged during the in March. And then when everyone else recovered and hit new highs, G.E. didn’t. And you see this over and over again, that when you are a kind of brittle and fragile company, bad exogenous shocks like a pandemic or a financial crisis hit you hard. But then once you’re hit, you don’t have the underlying health or strength to be able to recover. And that and that’s happened twice. Now to the point at which, you know, it’s the amount of money that GE is worth on. The stock market is lower than the amount of money that one of their CEOs, Jeff Immelt, spent on stock buybacks thereof of management.

S4: Like, it’s weird because GE was supposed to be brilliantly run and managed and like Jack Welch, the Jack Welch man.

S3: Yeah, I mean, all of us, Jack Welch, whether he was a great manager and if he were still alive, he would tell you that he was an amazing manager. He he would also tell you that the only major management mistake he made was to choose Jeff Immelt as his successor. But that’s actually kind of not true, that what Jeff Immelt did was just continue what Jack Welch had done. He continued to increase the importance of GE Capital. He continued to run the company in the very imperial way. He continued to spend a lot of time and effort on acquisitions and divestments and turning it into this big, like M&A shop. We’ve we’ve talked in a previous episode of Sleep Money about the disastrous Alstom acquisition in France. And, yeah, he in his heart, he believed that whatever GE bought, if you ran it by GE managers, it would be a world beating unit. And that.

S5: Was just not true, and I actually think this is one of the most negative things that Jack Welch did. Is this part of this cult of the CEO, especially the cult of the CEO, and this idea that their capital allocation ideas were always going to be good? And it turns out that they were all bad, not all, but most of them were really, really bad. And that is part of what has happened to them. It’s just they simply did not allocate capital well and they didn’t get any pushback from shareholders, partly because of this belief in this, the wonders of the GSA, for instance, when they’re talking about capital allocation.

S3: There was this obviously this big unit called GE Capital inside GE Capital, which was really at its heart originally just meant to help finance the sale of gas turbines, but grew and grew and grew, became like a credit card issuer, did all manner of derivative stuff for reasons. To this day, no one understands it started getting into reinsurance, which is this incredibly recondite and difficult business to be in. And then Immelt sold off like ninety nine percent of G.E. capital out of capital. We’re not doing that anymore. And he’s like, we’ve sold our insurance businesses, we’ve sold everything. And then five years later, someone found this little footnote saying, actually, there is a little bit of running insurance business that we held on to because no one else wanted it. That turns out to have been this thing called long term care insurance, which has already cost G.E. more than 15 billion dollars. And it’s probably going to cost them a whole bunch more like these are like random things that are hidden away, deep in footnotes that no one ever knew about can be 20 billion dollar mistakes. Like how is that even possible?

S5: One additional detail that I think just perhaps shows the problems of the culture of GE that Larry Culp’s contract was recently extended. This is the current CEO. Yes. And as part of that extension, the price at which his options payout was lowered dramatically. And to me, that is just such that just shows you everything that’s wrong, because if we’re paying these CEOs so much money because they’re supposed to be generating all this value and we’re like, well, but clearly you didn’t do a very good job of that. So we’re just going to lower the bar. You have to pass so that you can still earn out all this money like that mindset is the part of the problem here.

S4: Is there another guy on the horizon? Like Felix was saying, there was a time when GE was like blue chips. Everyone thought it was like a great company. A great managers just could do no wrong. I mean, is this like a keep this in mind kind of a thought when people are talking about the giants of today?

S3: I don’t know what giants of today there are, which are a bit like. There’s one exception, which is very, very different in a bunch of different ways. And that’s Berkshire Hathaway. Berkshire Hathaway is the other big, enormous conglomerate that does a million different things that are completely unconnected to each other. And somehow that’s supposed to be some kind of sense to it. It just announced this week that it was spending six billion dollars buying like minority stakes in Japanese conglomerates, which also have like a million different arms to them. And at some point, yeah, you just don’t know what business you’re in. And Berkshire Hathaway has has been underperforming the broader stock market for a decade now. But everyone thinks Warren Buffett is like Jack Welch used to be thought of as Warren Buffett is going to become a, you know, a butt of jokes in the way that Jack Welch did. He is he has cemented his place in history.

S5: Yeah. And part of Warren Buffett’s problem is just that his style of investing doesn’t work particularly well when markets are being propped up so much by government stimulus. I would say, though, maybe last thing, while I’m not sure if the next GE will look exactly like GE type company, I think one of the things that teaches you is the danger of having so much debt and relying on market participants to trust your narrative. And we’re at a moment where companies are so highly levered and because, again, a Fed policy, they’re becoming even more levered because that is so cheap. And right now it seems fine because, well, rates are low now and everybody believes these companies will continue to grow if some of that belief starts to shift, that puts companies in a very dangerous position and the importance of narrative cannot be overstated.

S3: I just read this new book about Immelt and his period at GE by Tom Grétar and that man from Wall Street Journal. And one of the more interesting characters in this in the book is Beth Comstock, used to be the vice chairman of GE, and she came up through the marketing and communications side of things. This is a woman who at one point was running NBC because why not? GE owns NBC. She understands some things, though. She will put her in charge when she’s at NBC. She’ll spend 600 million dollars buying something called iVillage, which we all use every day. Yeah. Yeah. And then so. So she gets she gets brought back into Undig to become vice chairman, but the things that she did was she created this slogan, which Jeff Immelt completely believes him to the bottom of his heart called Story is strategy. If you could just create a story that people would believe in. That was all you needed to do.

S5: Yeah, it works.

S3: If you look at it, if you look at the share price, it really didn’t work for GE, but it was the worst of it.

S5: And then it really doesn’t. Let’s have a numbers round and I what’s yours, four hundred billion dollars, that is roughly the amount of money in risk parity funds. And I just point this out because Bridgewater, which is this enormous, like one hundred and fifty billion dollar fund manager, came out and said that they were shifting somewhat of their strategy behind risk parity, that I won’t go into all of exactly what makes your party work. But basically it’s a different way of allocating between equity and bonds and different assets. And they’re shifting away from more traditional bonds, sovereign bonds, into things like gold and Treasury linked bonds. The reason I say all of this is that I just think it’s somewhat indicative of this weird moment we’re in where all of these rules we’ve had in the past about correlations between assets and how one thing gives you protection and something else does it like everything’s breaking down. And that’s part of the reason that we’re seeing these changes.

S3: Yeah, I wrote a piece for Wired magazine a couple of years ago about Wealth Front, which is one of the robo advisors who was like putting all of their clients into a risk parity fund that they kind of invented on the fly. And it seemed like an incredibly bad idea back then. And no one really thought it was smart. It is like if you are some massive public pension fund and you want diversification of strategies or something, you know, knock yourself out. But risk parity is never made any sense to me as a sort of thing that normal people should ever get involved in.

S5: No, I agree. And like I mean, I understand the theory of like, you know, it works great theory, but like, lots of things work great in theory.

S3: Yes, like, exactly. My number is 50, which is a number from Alpha Gamma, which is a fashion industry consultancy. And they now project that 50 percent of all fashion industry sales globally are going to be to Chinese people by twenty twenty five, which is only five. Wow.

S1: Yeah. Wow. They’ll buy half of the clothes in the world. Yes. What are you saying. Well, I mean, like high fashion. Not not high fashion. Oh maybe not. Actually doesn’t surprise me.

S3: OK, but if you’re looking at the big fashion houses, LVMH Karig you know those kind of guys. Yeah, it’s not. We know obviously anecdotally the Chinese have been buying a lot of that stuff. And if you walk into, you know, the PM’s store in Paris, it’s all Chinese people. But actually it really is China now. It’s the only only country that matters in the fashion world.

S4: But I read in the Times that high fashion is dead now.

S3: Well, it is everywhere. It is dead everywhere except for China. One of the reasons is that high fashion in Europe and America has always gone through what’s known as the wholesale channel, that people would buy that fashion at department stores. And we all know what’s happened to department stores recently in China is not it doesn’t go through wholesalers. It’s basically direct from the brands to the consumers. And that has held up much better, huh?

S4: Well, I have a number. What’s your number? One hundred and five years old. That is the age of the lead plaintiff in a lawsuit that was filed in Oklahoma this week from one of the only or perhaps the only survivor of the Tulsa massacre from nineteen twenty one, which. Yeah, so the Tulsa massacre. For those of us, those of you who don’t know, in Oklahoma and Tulsa, there used to be what was known as Black Wall Street. It was like this thriving commercial area where black people had businesses and commercial life and was thriving, blah, blah, blah. Then there were some dumb incidents where some black kid like stepped on a white lady’s foot. And the next thing you know, white people, the National Guard, the police burned down a thirty five square. This whole neighborhood, Greenwood. Three hundred people died and nothing really thirty people died. I mean, disgusting. And then it was kind of like covered up for a really long time. And now it’s like a hundred years later. And they’re they’re trying to essentially get reparations for this woman. Her name is Lesley Bedingfield, Randall and other descendants of survivors. And they’re using some kind of novel legal strategy called Public Nuisance, that the burning and the riot created a public nuisance. And I think this has been used in other lawsuits recently to I hope this works out. There is usually reparations isn’t really a thing you hear about in the United States very often. So this seems like kind of a unique kind of test of something.

S3: And the idea and this is interesting because it’s reparations through the lower courts rather than through the legislature. And often this is the way that if you look at things like gay marriage, this is how big important changes in society happen is that they get. Signed into law, first few by judges, and then the legislature kind of wakes up and says, oh, we ought to sort of formalize this.

S4: Yeah, and one of their arguments was interesting to me that in the lawsuit they’re saying Tulsa actually the city profits off of the massacre because it’s considered tourists come to see the history. So they’re making money off of it. Meanwhile, black people in Tulsa, the unemployment rate is double what it is for white people. I mean, it’s all bad stuff.

S3: I’m sure Tulsa would be making more money if there was like a thriving black Wall Street, but still.

S1: Yes. Yes, I think that’s it for us this week.

S2: Thank you so much for Jessamine Molly for producing this film Seaplane Omada in Brooklyn. Thank you all for listening and writing in to sleep money and sleep dotcom. I hope you will have an amazing Labor Day weekend and we will talk to you next week on sleep money.

S3: So there was this amazing piece in The Wall Street Journal this week which actually put some numbers on how much stock trading is done by retail investors. And I was really surprised about this. I always thought that no matter how many retail investors there were like swarming Robinhood or whatever, they trade small lots that they’d never really make a difference. But apparently the like not only a decade highs, but they’re up to sort of 20 percent of market volume is retail now. Twenty five percent on some days. And that’s actually low by global standards. In places like Korea, it can be like 80 percent. So now I’m beginning to rethink this. I basically ignored retail for a long time and thought they were just a bunch of dumb money and you should not do it and shouldn’t care about them and they don’t make any difference. But Anna was wrong about that, or am I now wrong about that? Should I really be thinking about retail and Robin Hood and all of that as a genuine force in markets?

S5: And it depends on what you’re looking at. I think if you’re looking at more thinly traded stocks, especially thinly traded stocks that have to be very popular and platforms like Robin Hood, then yeah, I think you can clearly see. Yeah, exactly. You can clearly see that they’re having a significant impact. Now, if you’re looking at larger positions, those stocks and companies, Apple, Google, whatever, I still don’t think there’s a significant amount of evidence that even in that article, they were showing a lower correlation in relation to the movements of of those larger positions, which makes sense now. However, if you have a lot of retail investing going into positions, that then incentivizes the larger institutional investors to also go into additional positions like it could be part of this kind of larger feedback loop. But I would still say it’s primarily in the more thinly traded names.

S3: The the thing that jumped out at me this week was that on Wednesday when the stock market was going up rather than down, we had a huge home page takeover on Yahoo! Finance, which is the probably the sort of biggest nerve center for retail investors. You know, it’s this amazing, like the traffic that Yahoo! Finance gets is it’s almost impossible to overstate. And the whole home page was dominated by this massive ad for micro mini options from the CME, the Chicago Mercantile Exchange, that basically if you want to trade options on the S&P, five hundred use this thing called the Mini and it’s called the Mini because it’s a mini option. You can you can trade a small amount, but it’s still a lot of money for any retail investor. So now CME has come out with this thing called micro mini options, just like a thousandth of a mini option or something. And the fact that they have launched this, the they are advertising it all over Yahoo! Finance just says to me that retail is something that even the really big derivatives exchanges like CME can’t ignore anymore.

S5: Well, yeah, it’s something that you can make money off of. So, yes, I do think that as the price it’s fairly simple economics as the price of trading has gone down. People are trading more. And it makes perfect sense to me that people are going to try to create newer, better, more exciting products that they can then sell to these people who often have no idea what they’re doing. I don’t necessarily think that’s the worst thing in the world. If all if the worst that can happen is some people who don’t know what they’re doing lose money. Yeah, I don’t know, I don’t feel, but it’s not that bad.

S3: I think there’s a lot of hand-wringing about Robin Hood, though. It’s all going to end in tears and it’s going to be a disaster. And these are like a bunch of kids who are playing a game on their phones. And if they win, they make money. And if they lose, they lose money. But it’s not going to. This is not like, you know, necessarily retirement funds that we’re talking about here.

S4: It seems bad. I don’t know. I mean, I’m comforted that you said it’s just a bunch of kids that can lose money and it’s it’s totally chill. But like didn’t when everyone during the bubble, the the dotcom bubble, individual investors were investing in the market, didn’t that cause a little bit of, like, bad juju? Like, didn’t bad things happen?

S5: Juju that? I think I think it’s actually really interesting because bubbles are different, especially you’re talking about bubble equity markets. How bad they are for the economy really depends on how broad the number of people involved are and also whether they’re using leverage in order to trade and then also how connected what they’re trading in is connected with the banking system and the wider economy. On the one hand, what happened in the tech boom was not the worst thing in the world. It actually got a lot of money to go into technology and a lot of that was crap. Obviously, it also ended up with a lot of companies that are very successful right now and the immediate economic impact was actually pretty limited. Now, however, I would probably argue, though, that as a result of that, you then had a lot of really loose monetary policy that that helped create the financial crisis. But point is that not every equity bubble is a huge problem. However, if that equity bubble is indicative of larger problems in the economy and larger problems in the financial system, I think that that’s a problem. And that’s actually what I would say about what’s happening right now that concerns me the most. It’s not the actual retail trading. It’s not actually Robinhood. It’s the reason that people are doing it. And it’s because of this sense that markets can never go down. And and to me, that is a larger problem.

S4: My other question for you guys, what’s up with the dark trading? Why is every finance story I read in the journal come back to the dark, this dark banking, dark trading like what that we’ll do the next week?

S3: Exactly right. Next week, we will enter the dark pools.

S4: Don’t.