Ep.90: FTX Fiasco Rocks The Crypto Market

Hello and welcome to episode 90 of the Market Maker podcast. Gonna have to start thinking about the 100th anniversary here. Yeah, some sort of competition or something. But look, we'll park that for now, but we're getting close. Um, 3 things just quickly before we, we kick off, Piers. One, um, if you are a subscriber to this podcast channel, you would have seen that there was an episode I put out midweek a chat with a certain Bilal Hafeez, who, if you haven't heard of him before, um, he gave up some of his time to chat to me about an article he's put out about 25 lessons he's learned in 25 years in finance. And it's fascinating because he literally came from working-class background, did well at school, managed to get a scholarship into Cambridge, then went to JP Morgan, worked his way up. He was then at the top table reporting into the CEO of Deutsche Bank as an MD before he was 30. So pretty incredible story. So check that out. He puts out some really great advice, and that's advice not just for students, it's advice for entrepreneurs because he now runs his own research company. It's advice for people in leadership positions within their organization. Big and small. So yeah, check, check that out. But the other two things were, after last week's episode, I said to myself, never again will I allow Piers to have me record a podcast session at the end of the day, because I'm pretty frazzled by the end of the day. And yeah, and here we are again, um, because of your packed schedule. I've got to squeeze you in at the end of Thursday instead of our normal Friday morning slot. So if I slur my words again, I apologize in advance.

Yeah, but something— so much has happened already. I mean, there's just no point waiting till Friday. Let's just go.

So then my third point, before we talk about, you know, Fed pivot, US inflation, Elon, um, Liverpool up for sale, Binance, crypto, and everything in between. The other thing is I was just catching up with the team and pretty crazy week for Amplify really. So just a quick, um, mission status update. So we have delivered to over 1,000 students with the finance accelerator, uh, that we do. It was our partners Morgan Stanley. Been at universities of Nottingham, Birmingham, Loughborough, LSE, been out in Vienna at their business school. One for you, Piers, I know you weren't there in person, but we were in Monaco.

Yeah.

And then Stephen, our Head of Schools, who joined us on an episode a few, few episodes ago, he's been out running his Finance for Good sessions. He's done 11 schools this week talking to super keen 16, 17-year-olds. And then working directly with business schools. Asade in Spain, back to Newcastle, down to London at Imperial, and then back over to Dubai for an energy trading company. So it's been a pretty crazy week, not just in markets.

Yeah, you know, just an average week here at Amplify, you know. Let's see what's happening next week. Yeah, step up again actually. So, uh, yeah, busy times.

Well, yeah, gotta earn, earn that pay. So here we go into the, the main stories of this week then. And first one we'll kick off with is the one that just happened. I mean, I've got the charts up in front of me at the moment and everything has catapulted higher. Yeah, I'm talking US stocks, US T-notes, gold, Uh, so if you're thinking about what's just happened there and you're thinking about correlations, the dollar is sharply lower. So, so cable's back in business. Not, not a Rishi rally again, but by fact of the dollar weakening. And all of this has come off the back of US CPI has just come out for the month of October, and it came in at 7.7% year on year. And in fact, that's the lowest year-on-year pace since January. It was below expectations. The core reading, ex-food and energy, also below expectations, 6.3% against 6.5%. I think also compounding perhaps the knee-jerk intraday reaction was just last week we were saying, oh, Powell's hawkish, and the markets reacted accordingly. And yet here we are, like a week down the track and the opposite data to probably where the market was leaning in its positioning has kind of exacerbated some of the moves. Last I saw, which the pricing from probability for the— I think it's the 14th of Dec, next meeting— is 80% for 50, and it was 50/50 between 50 and 75 basis points. That's a lot of things with me. Well, yeah, a lot of 50s going on, but 50 is the new call now as far as the markets are concerned after those figures. But yeah, your initial take. I know it's just come out, but thoughts?

Yeah, well, yeah, I mean, uh, it's a very good news, uh, inflation report, which, um, has been a long time coming. Uh, I guess we kind of had one— wow, did we have one back in June? Oh, sorry, July, was it? We had inflation prints that were lower than expected. Anyway, then the core reading's just been ramping up and that. Yeah, I guess we reached— well, it's early days, obviously. This is one month data for just one month. But right now you could sit here and say maybe the peak of the inflation crisis is behind us. Maybe we'll have to see for the, obviously for the months to come. But I think there's a stronger case than we've had all year to put that point forward, that the inflation peak is behind us. And given that this whole, the whole year has been about inflation, it's dominated everything and it's controlled everything. It's controlled what what central banks have been doing. It's controlled what governments have been doing. It's controlled therefore what markets have been doing. And so markets have generally been lower all year. So yeah, it's, um, I, I think quite a significant moment, uh, in, in the, the story of 2022.

Yeah, looking at the, the monthly movers on the breakdown, food rose 0.6%, smallest gain this year. Apparel fell 0.7%, biggest decline since April. Household furnishings fell 0.2%, the most since the beginning of 2021. Health insurance decreased a record 4%. Overall medical care services fell by 0.6%, most since 1971. Used cars decreased 2.4%, the most since March. and airfares were down just over a percent as well. The one that did stick out, shelter costs. Yeah, now you've spoken about this a number of times before. It's the biggest services component, makes up around a third of the overall CPI index. That actually increased 0.8% last month, the most since 1990. Um, yeah, however, the acceleration was— looking at it was fueled by the biggest jump in cost of hotel stays. In more than a year. Though private sector data points to a stabilisation or even decline in rents in a range of cities across the country, there is a lag between real-time changes and when those are reflected in this report, the Labour Department's report.

Yeah, and I spoke about exactly that point when we had the inflation data, um, a month ago. So the key thing about— so pretty much the only thing that's driving inflation up is that shelter costs. And the problem with the way that's computed, it's lagging. So it's taking the rental costs over the last 12 months. But if you look at— there's way more sort of current measures that's looking at new rental deals that are getting signed off like now. And they are beginning to show signs of weakness. So the one big component of the inflation basket that's continued to drive things up is very lagging. And if you look at the near-term stuff, it's, it's turned over. So that's why I'm saying I'm pretty confident that inflation has peaked. And it's now going to start to decline and probably faster than— well, I was going to say faster than markets were expecting, but markets have just exploded to the upside. So markets are repricing their inflation expectations right now as I speak.

So the big question then, have you been picking bottoms again?

Well, I mean, uh, yes is the answer to that. Well, I said it last week. I said the bottom's in. Oh, you know, the signal.

If you missed last episode, that's what— that's why, if you don't already do so, you need to hit that subscribe and turn on notification button, because you just missed the call. You know, you could, you could have been up here. I mean, I was looking at the Google shares, I mean, they got down to what, 80, something like that, up at 93 already. So, right, yeah, thanks, Piers, um, uh, thanks for that.

But look, the NASDAQ, I'm looking now, the NASDAQ's up, wow, it's getting towards 6% on the day here. I mean, we'll have to, we'll have to see where we end up at the end of the session, maybe the heat might come out of it a little bit. But we're looking at— this will be the best day for, for many a long time. So yeah, uh, markets are loving the US inflation report.

Okay, so if the, if the bottom's in and the Fed pivot is back on, what about what's happening in China right now? Could that disrupt this one-dimensional US focus where new COVID cases in Beijing jumped to their highest level in more than 5 months. The Chinese government have come out and now being crystal. We're definitely not moving away from, uh, zero tolerance approach to COVID lockdown.

Yeah, it just feels, uh, this, this year just feels like one— like, as soon as it looks like you're getting over one thing, you just get smashed in the face by something else. So, um, Yeah, obviously we'll have to monitor it. You know, China had— well, I guess April was the last sort of really significant kind of lockdown period where, you know, it wasn't just Beijing, but actually it was more so Shanghai. And Shanghai is a big hub for shipping. So a lot of the exports coming out of China, Shanghai is critical, Beijing less so. From that kind of exports point of view. But yeah, it's definitely a risk. But I think, I think right now the positive force from the idea that inflation has peaked is a larger positive force than the negative risks of what might happen in China with regards to restriction of movement and lockdowns. That, that's the feeling right now. Obviously that could change. I mean, you might have to wait a few weeks, but it could be that China locked down more aggressively. Who knows? It could be that the inflation report that we get for November, which will be in the middle of December, maybe that shows inflation going back up and all of what I've said is entirely incorrect. Um, then you've got to kind of just change your opinion again. But right now, yeah, that's the, that's the feeling.

So while we're picking bottoms, how about Bitcoin? Because Bitcoin has got slammed in the last 48 hours. And yeah, one of the latest major headlines that has captured attention is that Binance has abandoned a deal to rescue FTX cryptocurrency exchange cited concerns about its business practices and investigations by U.S. financial regulators. Bitcoin was trading up, what, 22s? It's now— it dropped to nearly 15,000 at one point, has bounced to 17,500 at last print. So yeah, um, well, perhaps you could explain a little bit about what's going on. Why has there been a shakeup in the crypto space? Because it's not just Bitcoin, it's everything's moved significantly. So why first, and then we'll talk about levels.

All right, this is quite a big story, obviously. Not only what I mean, you know, front page news big, but also quite, quite, quite big, like complex. Um, so FTX then, which is a crypto exchange, and One of the great things about this story is the name of the guy who founded FTX. His name is Bankman-Fried. So—

You're making that up.

I'm not. Literally not making that up. Bankman, bankman, one word, hyphen, Fried. Um, so he has been fried. Well, you were telling me his, um, his net worth, um, like last week, right?

So Bloomberg have a— Bloomberg have a billionaire tracker, as you do.

Okay. Yeah.

And basically it's the biggest one-day loss for a billionaire in history. And I believe this— the percentage that they had was that he lost— and you thought, you know, Zuckerberg's had a tough year But your man Bankman-Fried— Fried— Fried— Fried has, um, apparently lost 94% of his wealth in one day on that, that drop that happened midweek.

Yeah. Um, like, broadly, first of all, uh, it's another episode in the crypto journey. Looking back over the years, you know, it's definitely another massive, massive episode undermines, um, the whole house. Um, and that's why crypto across the— absolutely across the piece collapsed sharply yesterday. I'm talking about Bitcoin and all of the others. So this is off the back of FTX basically imploding. FTX being one of the biggest crypto exchanges, uh, in the world, uh, founded by your man Sam Bankman-Fried, or SBF as they call him. You know, you're, you know, you've hit the big time if you, you're, you're just known as your, your initials. Um, anyway, here's the story and I'm going to talk through it. Uh, the FT did a good, good effort on this. This is so complicated, this kind of stuff, but the FT did a good, good effort at it. I'm just going to kind of list off some of the bullets in terms of the step-by-step kind of what happened. So last Wednesday, right, this is where it kind of all kind of started. CoinDesk published an article and it had information about Alameda. Now, your man, bank— Sam Bankman-Fried, uh, not only is he the founder of FTX, but Alameda is his kind of hedge fund, right? So CoinDesk did an article and they said the crypto hedge fund and market maker basically had $14.6 billion of assets on its balance sheet, but that $5.8 billion of that was made up of a crypto token called FTT. Now, FTT is the in-house currency for trading on FTX, the exchange. So Sam Bankman-Fried owns both, right? He owns the exchange, he owns the hedge fund. Its hedge fund in terms of capital on its balance sheet, like 40% of it is FTT tokens. It's not— okay, right, well, what's that worth? Because whilst it was printing and marked to market at $5.8 billion, it turns out that maybe it's not worth that. And actually, it's a phenomenally illiquid asset. Um, so basically, customers who use FTT They kind of— that's the token. They use it as a medium of trade, right, on the exchange. And for using it, they get discounts on exchange fees and other goodies, if you like. Right. And so basically using FTT, it kind of encourages trading. And obviously the more trading, the more fees are generated by the exchange and so on. But essentially, in kind of the real world, What are these tokens? It's like the best analogy the FT came up with, and I really liked it, is that they're carnival tickets. You know when you go to the carnival, and instead of paying pound coins to get on a ride, at the kiosk, at the gate, you hand over £10 and you get a load of tickets, pink tickets. And then you go into the carnival, and to get onto a ride, it's a certain number of tickets. It's the same thing with these tokens and this exchange. If you want to trade on the exchange, you've got to trade in the medium of FTT tokens, and you've got to buy these tokens before you're allowed into the exchange. Okay, the only difference being that the FTT token value— so your carnival ticket, I guess, is at a fixed value. You've paid £10 for 10 tickets, fine, they're £1 each. The difference here with these tokens, you pay £10 for 10 tokens, but then the value of those tokens, it's not fixed. It can fluctuate. It's a tradable asset, right? And it can go up and down. Now, the problem here was that Alameda, the hedge fund, holding so much FTT token on its balance sheet, there's basically 3 problems with that. First of all, the hedge fund's solvency should not depend on essentially a carnival ticket, right? Because it's not a tier 1 asset, it's incredibly illiquid, and what's the value of it anyway? And so for them, a huge portion of its balance sheet to be made up of this is incredibly— it was just not sustainable, right? And also secondly, the FTT token derives its value from trade on an exchange that's owned by the same person who owns the hedge fund. So it's incredibly incestuous and dodgy. And this is why all of this is being questioned by the regulators now. And there's a lot of— and I was just saying to you before, it's like, this is one of the biggest crypto exchanges on the planet. This, this guy Sam Bankman-Fried is some kind of celebrity. He's this amazing guy apparently who's done amazing things, and yet there's just schoolboy dodginess going on in the background. How is it? How is it that this isn't known about before now? And, you know, I think your point was kind of correct, very, very correct. And that is that people were making so much money so quickly. 2021 was the bubble. Yeah. And in a bubble, everyone's making a fortune, I want to pile my cash in because I want a fortune. Do I want to do any due diligence on what it is I'm getting myself into? Well, no, I haven't got time because if I wait to do my due diligence, well, I'm going to miss the gravy train and I won't make the fortune that everyone else is making. That's the bubble mindset, right? And when it all bursts, this is where it kind of all comes out in the wash. When the tide goes out, you see who's not wearing any swimming trunks. Wasn't it Warren Buffett who once said that?

I think it was.

Anyway, uh, right, the second reason. So $2.2 billion of Alameda's FTT, um, $2.2 billion worth of Alameda's FTT tokens was pledged as collateral against loans. So not only is it on their balance sheet, incredibly illiquid, hard to value, Anyway, it's kind of incestuous with his exchange. He's then used these tokens, um, as collateral against loans, and some of these loans are to bail out other exchanges who are in trouble, by the way. And then thirdly, um, here's the great one: the market value of FTT tokens that are actually used for trading is $3 billion, roughly. Right, so Almeida's holdings were much bigger than the entire traded market. So basically it's all a bit of a Ponzi scheme, in short. And this, uh, CoinDesk issued this report, right? And after the report, we now bring in Binance And, um, your man Changpeng Zhao, or CZ. Yeah, another guy's been abbreviated. So he's the Binance King, right? So he tweeted, um, over the weekend, due to recent revelations, we, as in Binance, have decided to liquidate any remaining FTT on our books. And by the way, they hold a lot, um. He said that they would try and do it in a way that would minimize market impact. But basically, when you've got one of the biggest holders of FTT going, right, I'm out, um, and it's incredibly illiquid anyway— well, then we spoke about this when Luna went through this. When you've got an illiquid market, which just means there aren't many buyers or sellers at any moment, moment in time, and suddenly you have a massive player that comes in with a single direction trade, as in a seller in this case, if you have a massive seller come in and there just aren't many buyers, well then the market's price collapses. Then panic ensues. So when it all— when it's collapsing and unraveling, everyone else, just other people who have got deposits in this exchange, they want out. And now you have a run, right? You're a run on the bank, if you like. If you smell smoke, right, we're out. And so this is what's happened. And all of a sudden, the FTX exchange has been left now with an $8 billion hole in terms of cash they owe to their customers versus cash they've got available. They're $8 billion short. Now Binance were going to rescue the deal here and ride to the rescue and buy out FTX, which would have made the biggest exchange on the planet, by the way. But CZ, that's the Binance guy, basically has pulled out, basically saying after 48 hours of due diligence— so he was doing some due diligence— We've concluded the scale of the financial problems and the potential wrongdoing at FTX make the deal impossible.

There's a great, great marketing opportunity for Binance. Like the way he's played that. He's like, yeah, I'll come in, I'll rescue it. Oh, actually, you're a pile of shit. I'm going to dump it and I get— I'm going to consume all power.

Yeah, in the marketplace, right? So it's one way to get rid of your rivals because not only is he not bailing them out, you could argue he forced the run on them anyway by saying, you know what, I'm selling all my FTT, guys. Yeah, everyone, I'm out, forcing the collapse. Then goes, don't worry, I'll buy you. And then, oh no, it's so shit, I'm not going anywhere near it. Yeah, you could— that's the kind of I guess the contrarian view, which—

so while part of me is thinking, well, as you said, this is one of the milestones in the history of crypto, so part of me thinks, well, this is a, this is a good thing, not for, not for Sam, but this is a good thing because it's like another lesson learned, another thing comes to the forefront to adapt and change and try and work out the process better. The other part of me thinks then that your man CZ is now like a single dominant player in the market, and how can that— that's just, you know, if there's any monopoly type rule, then what? And he's just dominant, he's just dominating that space, making every decision. A new— the barrier now to market gets even harder.

But doesn't that counteract the whole point of crypto in the first place, where it's decentralized, right?

So now he is your, like, Lord Savior, crypto king.

Yeah.

And anyone who comes in, I will crush them.

Yeah. So now it's centralized. Yeah. Uh, but there's a lot— I mean, when I say people didn't do their due diligence, I'm not talking about just retail traders who perhaps don't have access to the information to do proper due diligence, or aren't educated or skilled enough to be able to do it or whatever, right? I'm not just talking about people like that, and of course there are many of those, but the FTX is backed by some of the biggest institutions in the world, such as BlackRock, such as SoftBank, such as Sequoia. You know, these are some of the most sophisticated investors on the planet, and yet they've been hoodwinked. I mean, Sequoia Capital, one of the biggest kind of venture capital firms in the world, today they have marked down their investment in FTX. They invested $214 million. They've just marked down that investment to a big fat zero today.

Um, they're, they're, you know, such is life, right? You meet a sophisticated person, we're still wooed by a good-looking opportunity. That's it. They wanted a piece of that action as well, like you were saying earlier, and they've just taken that right down. That's just the— that was, that was the, the cost of doing business, I guess.

Yeah, I mean, look, I mean, even this year they were raising money, right? In January they raised $32 billion.

Well, like you said, he did, um, he did put out a good piece around himself, I think. So I think that's part of the attraction, right? For any startup, it's got to have a frontman.

Absolutely.

And so, you know, that, that, that, and his, he, he had pedigree, didn't he? He was a Jane Street. Yeah, one guy. So yeah, like I said to you before, before this call, he's, what is he, 30 years old? There will be another SBF Mark II, um, FTX come in a few years from now. So, you know, I would— he's had a rough week. He'll be back, I have no doubt, in some shape or form. So look, tell me about Bitcoin. I put a poll out, okay? So I'll tell you the result of this poll.

I haven't seen the results, so I'm interested.

Yeah, I put a poll out on our LinkedIn— Amplify Me on LinkedIn— and there's not too many votes, 300. It's only been up for an hour or so. Um, but I put there, has Bitcoin already bottomed? I, I think we hit like just below 16 last night.

Yeah.

And then the options were the bottom's already in.

Yeah.

15,000, 12,500, $10,000. So the bottom for this recent dip. And the order— so the least popular choice was that we've already bottomed. And so anyone who took that, if they were talking about a short-term little intraday pop, they're feeling some pain right now because we're trading back nearly at $18,000 right now as we speak. The next popular choice was $15,000 at 14% of the choices from the community, then 32% for $12,500, but almost 50%, so by far the largest choice, was that $10K was the call.

Hmm. Um, can I go contrarian?

Yep.

The bottom's in. Uh, two reasons.

So I'll tell you the first one already. I was monitoring some of the order flow and I saw a big clip come in and I thought, that is the crypto whale, Pierce Current, hoovering up 15,800 last night. I saw you on the tape.

Um, I know that, um, everyone, like, the hysteria around FTX is obviously very live, it's very raw, it's super current, right? But let's just step back out of this kind of super current situation. And what's been going on with crypto in 2022? Well, it's been trending lower all year, and the reasons are the kind of macro reasons about inflation. So back to my earlier point, If inflation has peaked, if the Fed's peak hawkishness is behind us, then that's a very powerful force to say all assets have bottomed, including crypto. Now, I know unfortunately for the crypto community, it's just coincided. This FTX thing has coincided with this inflation report. And so like Luna a few months ago or whenever it was now, we get over— or the markets tend to get over these things relatively quickly. So I think the bigger force on Bitcoin is the inflation story, not the FTX storm that's currently raging. So it's for that reason that I think 15 was the low.

Also as well, I do feel like the crypto market's a little, um, it's been desensitized because of the Terra Luna situation.

Yeah.

And if that hadn't happened, this would, must, would have been a bigger event.

Yeah.

Um, all right, well, look, let's move on because I'm— there's a couple of other things I want to do a quick take from Piers Curran on what's happening at Meta, where Mark Zuckerberg fired 11,000 employees from the Facebook parent Meta. To give some context, that's about 13% of their workforce. However, I've got a friend at Salesforce. She called me earlier today, was a little bit nervous on the phone, and I was like, why are you so nervous? And, um, Salesforce's job cuts are far bigger So these big tech companies, I mean, yeah, it's brutal right now. I'd say job cuts in the range of 10 to 25% of companies that employ tens of thousands of people. Yeah, um, you know, this is pretty large, but not a surprise. I mean, Facebook shares down 70-plus percent on the year. This is necessary.

Yeah, I mean, this is— why the hell didn't you do that 6 months ago? Kind of thing. Specifically talking about Meta, um, their costs are out of control. And, you know, their revenue model, heavily reliant on advertising, still is under threat because of the macro forces. It's under threat because of Apple's change on their security settings. And they're a bit of a dinosaur, um, with that old revenue model. Uh, sorry, advertising revenue kind of format. So yeah, I mean, why, why wait until now to do it? Um, I, I think is the bigger question for Meta. I think for the others like Salesforce, I mean, you could— I mean, tech is— well, this is the recession starting, let's put it like that. Another reason why inflation's peaked, if you've now got hundreds of thousands of people being laid off This is demand destruction engineered by the Fed that is now going to see inflation drop. And so again, this is a lead indicator, right? Because people get made redundant, but they'll get a redundancy payout, right? So they've still got some money. Now, that's not going to last for long. And of course, now they've lost their job, they're obviously going to be super prudent on how they spend that. But this is a lead indicator towards future demand and therefore a lead indicator towards what might happen with inflation. But I think that with these big giant companies like Salesforce, then yeah, these SaaS companies, let's say, when you're running a business and you've got to tighten the belt, then it's often these SaaS products. So it's your advertising budget and it's your SaaS products that you're starting to go, well, hang on a minute. I've been taking on all these SaaS products without really thinking about it because they sound cool and they make my business operate more efficiently. Oh yeah, we'll have that. Yeah, we'll have that. Oh, that one looks good. You know, a manager comes and goes, look, have you seen this? It's going to enable us to do this. Oh yeah, we'll take that on. And all of a sudden, before you know it, your monthly SaaS spend is like actually something quite significant. So when the downturn's coming you want to tighten your belt, you finally, you get out the list of the SaaS subscriptions you've got and you go, wow, what the hell, didn't realize we're paying that much. And then you go, right, well, we can lose that one, let's lose that, let's lose that. And so you start trimming them off. And so these SaaS businesses are going to start to lose customers and therefore they're going to need to tighten their belts on their side. So job losses are coming. Secondly, for the smaller or, well, not necessarily small, those tech businesses that aren't yet profitable, then they've got a massive problem. So if they're reliant on your Series A funding, Series B, Series C, Series D, Series E, Series Z, this is funding your way to profitability at some point in the distant future. But in the near term, and like, 2020, 2021, it's been all about, you know, I don't care how long that future is until we make any money. Let's pump this thing with cash because it's growing so fast. Interest rates were zero, cash was free. It's all changed. Yeah, interest rates are really high, cash is really expensive. We've got a recession, investors are having to write down their, um, the valuations of these holdings. Companies raising money in 2022 are having to raise money at valuations less than half of the valuations they were getting last year. And all of a sudden, the, the story shifted, and investors are now saying, I'm not going to give you money unless you reduce your cash burn. You know, forget about growth no matter what, at all costs. It's now actually, let's just tighten our belt. Let's just review what we're spending here. Let's just get that cash burn down. Let's tighten up. Let's run a tight ship. Let's not die in this recession. Let's see if we can get through it and raise money when the macro climate shifts. But if companies don't reduce their cash burn, they're going to get killed. In this recession. So it's now about survival rather than growth. And so job losses are coming. You could argue that Elon at Twitter, what he's just done, I mean, could be the playbook that others use, where he's just gone, you know what, I'm in, I'm a new guy, I'm looking at this business from an entirely new perspective. We don't need half of the people who work here. See ya. I mean, that's how you cut costs, right? I mean, I know that's super brutal, but it's not going to be the last person to cut his workforce in half in the tech industry in the coming months.

Do you think it's time for Zuckerberg to go? I read a piece and it was talking about a parallel universe, and it had like some suggested points about what if, what if Mark did the following. And one of the final points was he assumes a chairman position, so still acts as advisor. So when we shift, we— he, he does a complete shift away, obviously still long-term to Meta, but in a less aggressive fashion. So it just allows the company to breathe under a new perception of a new structure and order. Do you think that would be more, um, provide some more longevity to the belief of the pivot that's happening, or that Facebook's trying to engineer?

Yeah, maybe.

How important is someone like Zuckerberg? I mean, Bezos managed to step away.

Yeah.

Um, Gates, all the rest. Is it—

I think the difference is that The business model has failed. And so the new plan is let's spend more money than anybody's ever spent to try and win the market share of this virtual world that might exist in 10 years' time.

Okay, so let me rephrase the question. If this was a regular CEO which you brought in and not a founding member or the founder, Mark Zuckerberg, would he not be fired by now?

Uh, yeah, I, I would say so. I mean, but you know, again, isn't it time the shareholders moved him on? But, but then, yeah, I mean, then do what? I mean, I, I think they, they're just all in on this Meta thing. I, I do think they need to radically reduce the crazy spend that they've outlaid. Now, either he needs to finally take that point on board and act, or he needs to get out, because if he's not careful, this, this Facebook story, which was a phenomenal one, will turn into, you know, the biggest rise and fall of a giant in corporate history. Um, so yeah, I— well, he's just cut 11,000 staff, so maybe he's got the point now, and maybe he's going to start to reduce spend. Um, but what else are they going to do though, other than this long shot for Meta?

Yeah, it's interesting actually, the different personalities at these big tech firms, because you'll get someone like Zuckerberg and he'll apologize take it, take accountability for the fact he made the wrong call, which you would never get from a Bezos or from an Elon Musk. And then you've got, uh, Nadella, is it, the head of Microsoft? You never hear anything. Yeah, apart from the fact that Microsoft just kill it every single time. It's funny how like these different organizations are run from a leadership visibility perspective quite, quite differently. But that probably speaks a lot to the volatility as well, to a certain degree, I suppose. That could be wrong though. Tim Cook's quite visible, isn't he?

He is. But these bit like Apple, Amazon, Google, Microsoft, these are businesses that are behemoths with momentum. You just can't stop. And they've got business models that are bulletproof. And are future-proof. So the big difference with Facebook is that's not true. They, they kind of have peaked in with business idea number one, which was phenomenal. It's just now it's a bit outdated, and he's just decided to, A, go for the super long shot, but B, spend more than anyone's ever spent in history to try and get there, and it's just too much. It's too risky. The shareholders have spoken— wow, sorry, the market has spoken because the share price has collapsed.

But yeah, well, let's move on to the final two ones. I'm gonna, gonna swerve Elon, and I'm gonna, I'm gonna jump straight to, um, a quick take on the, the midterm elections, and then we'll talk a little bit of football. So Joe Biden says he wants to run for a second term.

Oh God.

In the White House and will make a final decision earlier next year about his political prospects.

If he's still alive.

Well, he was boosted by the Democrats who, it's a weird situation, effectively still lost but didn't lose as bad as people thought. The red wave never materialized. Essentially. Um, Democrats avoided sweeping defeats in Congress, um, but still risk losing control of both chambers essentially. There's still quite a few that are yet to come through that will be decisive, uh, for that matter. Did deal a big blow though to your man Donald, who was obviously counting on victories of Republican candidates he endorsed to kind of power his way back through into a run on the White House for for 2024. So, well, markets, you know, haven't even blinked at this event. Um, one thing I did read from some bank research was talking about beyond the short term, what was going to be interesting potentially is about the ability to deploy further fiscal policy. Yeah, the implication for the economy, and thus then influencing the Fed's rates path, essentially. Um, but yeah, I guess near term that hasn't been— I mean, definitely not in the midst of a week of a US inflation report like what we've just seen. Yeah, that's much more long-term thinking. But yeah, any thoughts on the midterms?

Again, it's deflationary. I mean, what— on the one hand, whilst the Republicans didn't have that massive win they were hoping for, it's still the case that The Democrats will lose control of the House of Representatives. What happens in Congress, we're not quite sure yet, but, but it doesn't matter because now the Democrats don't have the clean sweep. And so for Biden to get policy through Congress is now, it's basically blocked, meaning no more stimulus because the Republicans will block it in the House. So that's deflationary. Biden cannot pump in any more money. That's, that's number one. Was it a victory for the Democrats? I mean, they lost, but was it a victory? I would say it's more of a resounding— well, not resounding, but a fail, a fail by the Republicans. I think that— what was it, the Pennsylvania race with John Fetterman, who— the Democrat senator who won in Pittsburgh. He was the guy who had a stroke 6 months ago. And then it was all about, you know, is he fit in terms of health-wise to do the job? And then the Republican guy, I can't remember his name now, but he was he was going to ride in and win the seat, right? But he had anti-abortion, an anti-abortion mandate. And so actually, there was a massive female vote against the Republican candidate, which meant that the Democrat, Fetterman, who'd had a stroke with big health issues, still won. And I think that was the seat that said maybe Trump and the Republicans have gone too far right. And now actually voters are beginning to say, you know what, stop. And so actually, I think that's the most interesting takeaway from this. And it might mean that, yeah, Donald, we will not be seeing him back in the White House in 2 years' time.

Big call. 2 years, a long time in the world politics, Piers, I may remind you. Um, but look, I know it's going to be a painful conversation to finish because we're going to talk about the mighty Liverpool FC. But why are we talking about that? Well, to give it a bit of a corporate finance finish, Goldman Sachs and Morgan Stanley are working with Fenway Sports Group to sound out potential interest in the English Premiership football club Liverpool. To give it a bit of background, Fenway Sports took over Liverpool for about £344 million in 2010. Analysts are suggesting the club could fetch north of £5 billion, recent precedents being Chelsea. Just wanted to get your, your feelings about maybe the deal, and perhaps you could explain about the bank's involvement from a technicality point aside for education about the roles, but more so about how do you feel about the fact that high-profile takeovers of English Premiership clubs— I mean, you've got what, Newcastle with the Saudis?

Yeah.

Chelsea with the US, um, and private equity firm Clearlake Capital Group.

Yeah. Um, well Are you implying that the ownership of English football clubs are now moving into foreign hands?

Testament to the beautiful game of English football that creates such worldwide viewership and therefore money.

Yeah, except that— I mean, I, I agree with that, except that Chelsea was owned by a Russian dude. Yeah, and it was sold to some Americans. Liverpool's owned by Americans, and who's it going to get sold to? Almost certainly an international buyer. I can't see a UK buyer being able to afford £5 billion. Maybe I'm wrong. Newcastle's the only one that went from English ownership. Mike Ashley, who's JD Sports guy, flogged it. He's going to be kicking himself. October 2021, so 13 months ago, he sold Newcastle United $409 million. The Chelsea deal this summer has changed the game because that's why Liverpool are up for sale, because Chelsea went and got a price tag of £4.2 billion. And that was like, what? Insane valuation. So Liverpool, the owners who bought the club— what did you say, £300 million, wasn't it? £300 million in 2010. Then I like— then I like— ka-ching! We can flog this for north of £5 billion. We bought it for £300 million and And I guess there's two things here. Maybe they're thinking, has the Klopp— that's Jürgen Klopp, he's the manager of Liverpool. You, as a non-football man— oh geez, filling you in.

I mean, I feel offended. I mean, I'm not that bad.

Um, it's the Klopp era, has it peaked? I mean, they've obviously had phenomenal success in the last 5 years, but this year it's just all the wheels have come off a bit. They're kind of down, I don't even know, 7th, 8th in the league.

They're trying to, trying to call the top, sell the top.

Yeah, so maybe that— maybe there's something in that, but I think it's more the Chelsea deal that got done in the summer that Feng Wei Sports went, oh yeah, okay, well, if it's going to be worth that much, I'm interested. And so, yeah, so now they've taken the much more proactive step of going, look, not just I'm interested, let's instruct some banks to actually get this show on the road. Um, so Goldman's and Morgan Stanley. And the way this works is Fenway Sports will be— once they've made that decision, right, let's try and run a process, let's try and sell, right, right. And if you want to sell anything, well, obviously you want to sell for the highest price. Well, how do you get the highest price? Well, we need them— we need the most potential buyers we can find. The more bidders we have, well, the higher the price is going to be. How are we going to get more bidders, right? Well, let's speak to people who know how to do these processes and get the banks involved. So what will happen is then they'll, they'll either go directly to a bank or two that they know already, maybe they've dealt with them in the past. Fenway Sports have bought a load of, um, clubs, and they own, um, what is it, baseball, American football clubs out in the US, hockey clubs in Canada, whatever, right? So they've done a lot of deals. I'm not sure who worked on their previous deals, but I'm guessing probably Goldman's and Morgan Stanley. So it could be they're returning to their banking partners they've used in the past. It could be they're going, you know what, let's— who wants to win this mandate? And they get the banks to come and pitch to them, right? And so here—

so for these investment banks then, I mean, actually this is a bit of a saving grace surely, because I read this week at Barclays and Citi, I think their IBD fees were down something like 60% and 45% respectively. They've laid off a bunch of staff. Goldman's have already laid off a bunch of bankers. But then you've got a $5 billion plus deal that could be on the table here.

Yeah, it's huge. I mean, think about this year— Porsche IPO, it's pretty much it, right? On the sort of— well, on the IPO side, this would be an acquisition, right? But, um, Yeah, these— this is like, it's like hen's teeth in terms of big deals in 2022. So banks will be desperate for this kind of thing, desperate, desperate. So if though— I don't know if they said, right, let's get banks in to pitch and they've got to win the mandate, or whether they've used Goldman's and Morgan Stanley in the past. I'm not sure, but normally they'd run a process, right? They choose a bank or two. This is obviously going to be a monster deal, so you need more than one. And then these banks who will have teams that have worked on sports club kind of M&A deals in the past, you know, through those deals in the past, they'll have formed relationships with investors who are interested in this type of asset. And so they're straight— so basically they've got their black book of clients, and this is what Fenway Sports wants to tap into So Goldman Sachs and Morgan Stanley will now get out there and start raising a bit of informal awareness as to whether or not there's demand to snap up Liverpool, you know, along the kind of valuation lines that Chelsea saw back in the summer.

Yeah. So don't fancy it yourself then, just stepping in?

No.

And then you could just basically stop running the club. Just put them away.

Oh, that's not a bad change. A bit like your Binance, dude. You want to get rid of your challenge.

You're going to be the C— it's a great shot of the English Premiership. You're going to come in, you're going to buy the biggest historical club, and you're just gonna— just, you know what, I'm gonna buy them and then you're gonna pull the deal.

What would be hilarious, buy Liverpool and then the first 11 you field a team of Well, you feel the Amplify 5-a-side team.

Hang about, we might just go and win the Premiership.

That would be funny. If only I was a crypto exchange $10, $20 billion billionaire, and I'd probably go for it.

Well, yeah, I saw you at $15,000. Yeah. All right, well, look, we'll, we'll wrap it up there. Uh, thanks forever for listening. Um, if you don't already do so, because I did look at the stats the other day, I think a lot of people listen who are new who don't subscribe to the channel. I think you can do so on Spotify and Apple, so please do, because then you get notified as soon as the latest episode goes out. Check out the show notes for links for our daily newsletter and also our free free finance accelerator simulation. Everyone and anyone is always welcome. But Piers, thanks very much, and, um, yeah, I'll see you for the next episode.

Yep, thanks, Sam.