Fed Rate Cuts, Wall Street Booms & Silver Goes Wild

With a rate cut from the US central bank now almost guaranteed, we break down what it actually means and why the Fed is also quietly ending its multi-billion-dollar balance sheet tightening.

Meanwhile, Wall Street's heavyweights, J.P. Morgan, Morgan Stanley, Goldman Sachs and BlackRock just posted monster earnings. We unpack why deal-making is back, what Jamie Dimon's "cockroach" comment means for private credit, and how Morgan Stanley reclaimed its equity throne.

Finally, silver? It just hit a 45-year high, driven by a short squeeze that’s forcing traders to fly silver bars across the Atlantic. Literally.

From central bank policy to commodity chaos this is your one-stop weekly debrief to make sure you're on top of all things markets.

(00:00) Intro & Themes in Focus

(04:25) Fed Cut Locked & Loaded

(09:12) Understanding QE & QT

(21:12) Wall Street's big comeback

(23:09) J.P. Morgan Credit Problem

(27:56) Private Credit Warning

(32:26) Morgan Stanley's Stellar Performance

(37:01) Goldman's Huge Quarter

(40:06) GS Job Cuts Amid AI Adoption

(43:27) BlackRock's £13.5trl Boom

(47:12) Silver Gets Short Squeezed

*****

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Want to train with Anthony and the team in London this December? Check out the Finance Bootcamp

Episode Transcript

(00:00):
Hello and welcome back to the Market Maker podcast.
It is the end of the week, Friday the 17th of October.
So we've got three real areas we're going to focus on #1 bit
of a macro update because JeromePowell has signalled another
rate cut. I think last time I checked,
it's baked in for about 98% or something like that for a rate
cut in 12 days time from when we're recording.

(00:22):
Citing weak hiring pressures, unemployment has said that the
Fed may stop shrinking the balance sheet in the months
ahead. There's probably a few people
listening going, OK, I get interest rates might be
dropping, but what's a, what is the balance sheet?
Why is it shrinking? Is this expected?
What does that mean? So we'll to explain.
The second thing is Wall Street has had its best quarter in

(00:44):
years. This is to do with quarterly
earnings season underway for thebig mega banks.
Deal making is back, trading is booming.
Even BlackRock is breaking records.
So we'll have a look at that as well.
And then you love this headlinesas ever, Piers, I know you love
sensationalism. The Business Insider wrote this
week how an epic short squeeze drove silver's first record in

(01:07):
45 years. So yeah, I mean, it's true.
It is a 45 year high for the price of silver.
So what exactly is a short squeeze and why is silver in the
crosshairs? And you know, I'm very mindful
of short squeeze was a big talking point with GameStop, but
GameStop is a number of years ago now, so it feels like it's

(01:29):
fairly historical rather than recent.
So we'll probably have to get people up to speed as well about
short squeeze. But before I we dive into these
topics, quick shout out, forgiveme if I don't nail the surname,
but Stephen Faggi Malusi. So there was a guy basically, I
was in, I was in Victoria earlier this week.

(01:51):
I was on an escalator and this guy's looking at me.
And I'm like, OK, where's this guy looking at me?
And then he shouts out, are you Anthony chum?
And I was like, I could say yes,I could.
I could say, no, Who's asking? I'm not.
Yeah, I'm not exactly sure what the purpose of that question is.
And I was like, yes. And he's like, oh, cool, cool.

(02:13):
So I actually got off the escalator, actually had a chat,
chat with him, actually. And he said he's been an avid
listener for many years. He was a Cambridge student.
He said that listening to the podcast helped immensely with
him getting a city internship, of which then we actually
trained him in the internship, of course.

(02:33):
And then now he's a quant analyst, a major energy trading
firm. Now he's graduated.
So yeah, really cool. And then?
Good work, Stephen. Yeah.
So you're good, Stephen. You've just got that segment so
you can flex about your, your, your kind of Z list fame, right?
Getting spotted on an escalator.Do you know where I'm?

(02:54):
Do you know what country I'm thebiggest in?
I'm going to go for Bangladesh. OK, Bangladesh.
Yeah, it was, you know, Philippines, they used to be
quite a hip. But Joel Agaba, who I met
earlier this week, as well as running a session at UCL, and
he's been listening for a numberof years from Uganda.

(03:15):
Why yes, there you go. Oh, good.
But the other thing I was going to say was that over the last
three episodes, this will be my last time, I'll say is we were
trying to gun for 1000 star ratings on Spotify because
that's the predominant platform that the community listens on.
The first time I said it, we went from 8:20 to 847, so we

(03:38):
moved to dial 27. The next episode we've gone from
847 to 9:20. Oh, all right, that's what, 3X?
The size of increase here. This is exponential growth.
This is it. Still NVIDIA hockey stick.
Here we go. So hang on, let me just do the

(03:59):
math to do it. To continue this exponentiality,
we need another 225 ratings thisweek.
Just say. No, I mean we, we, we should hit
it. I mean if we continue we should
go smash through. But look.
Momentum is in the hands of the community here, so if you
haven't done so, please drop us a star rating on Spotify really

(04:20):
helps get the show out. So enough chatter, let's dive in
and let's get into Jerome Powell.
And he gave a speech earlier this week and obviously, as I
said, we're running into the final two week now runway to the
Fed decision. So what did he say?
And why are markets so now solidin their belief that the Fed are

(04:40):
going to cut rates in two weeks?Well, he said we're going to
cut, I mean, in, in, in kind of,well, actually it's worth
probably noting that the Fed's meetings in two weeks, so they
go into a blackout period from asort of comms point of view.
So two weeks out they go dark and they're not allowed to talk

(05:03):
to the Fed, which just means that just before that two week
kind of blackout curtain comes down, you're always going to get
a load of Fed speakers wheeled out just to kind of give their
final little tit bits of information ahead of the
meeting. But you know, central bankers,
they're normally quite vague. They normally sort of flip flop

(05:26):
and they're quite non committal.But I, you know, you come off
the back of what he was saying earlier in the week and
basically he said translated, weare cutting rates in two weeks.
Basically he's just saying we'vetalked about this in the past,
that dual mandate is price stability and full employment.
We've been talking about the problem they've had because on

(05:48):
the price stability side, that'sabout keeping inflation low and
stable around their target 2%. But it's been rising, kind of
rising back up towards 3%, right.
And so some people are going, yeah, that's awkward.
How can they cut when inflation is, is rising?
The other mandate is full employment.
And there we've seen a real weakening in the job market.

(06:10):
The, the data, well, this is theproblem.
The data we have had is continuing to show that's
getting worse. But the, the, the only data
we've had is the private sort ofsector data.
That's because the government isstill shut.
So there was no non farm payrolls data this month.

(06:30):
We we were supposed to get inflation data out of the US
yesterday. We're supposed to get USCPI big
number, except we didn't. So we're in the dark a little
bit. So I think the stance is whilst
we're in the dark, let's assume an extrapolate forward and
think, right, this job market isthe the weaker of our two
mandates here. And so he's basically saying the

(06:52):
bigger risk is there. So we're going to.
Cut. And just to go over the
specifics of language, he said the labor market is softening
and the defense job is to balance, as you said, the
mandate, inflation, employment. And right now the bigger risk is
rising unemployment. So you don't get more.
The vocabulary, if you like, doesn't get more clear than

(07:12):
that, right? No.
And there is now, I mean, I don't know why it's not 100%
chance of a rate cut. I mean, it's basically as close
as you're going to get to 100%. I guess you never know what
might happen in the next two weeks.
You can never get it bang on, 100% probability, but it's as
close as you're going to see it.So yeah, the meeting is on the

(07:32):
well, the decision will be on the 29th of October and they
will cut people, That's a fact. Oh, I did actually have a group
of students I was asking him to like.
What could be a scenario that could stop them?
I don't like in OK, let me just think about that right now.

(07:54):
I can't think of anything because if if something comes
out of left field, it's normallysomething bad, right?
I guess something that could stop them is the earnings season
that we've only got 2 weeks left.
But if the big tech giants, I don't know, came out and their
earnings were just sensationallyspectacular again, I mean, all

(08:17):
right. But even that is quite, that's
quite narrow to that one sector.Of course, I don't think it's
necessarily going to have that super broad positive impact for
growth across the entire nation.Therefore, you know, suddenly we
revise up our sort of expectations about the labor
market. I can't.
And so whilst the government shut, there's no data, right.

(08:40):
So yeah, I I really can't think of a scenario to be honest.
What happens if the the the Bureau of Labor Statistics
reopens and actually, actually no, this unemployment situation
wasn't correct and the private data was incorrect by a wide
margin and if. That's true.
That's. A good one.
That's a good one, but will the government reopen before?

(09:02):
No. The next meeting, I, I very much
doubt it, Right. So, but that's a good point.
Yeah, that's maybe the only thing that that could kind of
prevent this. OK.
So with we are with policy then just you know what I really
wanted to probe you on in your experience and knowledge is that
we talk about these kind of the blunt instrument which is

(09:22):
pulling the interest rate lever.But the advent obviously of
quantitative easing through initially the financial crisis
many years ago and in the unwinding of that.
And so this concept of quantitative easing,
quantitative tightening, QEQT and it's connection now to this
terminology around the balance sheet roll off or run off which

(09:44):
the Fed be talking about. So what are they talking about?
Well, yeah, I mean, this is the kind of less unknown part, I
would say, of the investment bank's role in the economy.
So unless you've studied this atuniversity or, you know, unless
you're working on the desks already and you're an avid
reader of the press and whatever, you're probably not

(10:04):
going to know about this. So this is where they control
the money supply. And so they actually, this is a
kind of the other than interest rates, it's another lever they
can use to just try and engineer, you know, the economic
conditions that they're trying to aim for, right?
And so here they control the money supply and they do this

(10:25):
through what's called quantitative easing and
quantitative tightening. Easing is increasing the money
supply. Tightening is reducing the money
supply. The idea is this is a mechanism
in a way to actually control interest rates via a different
route because like during the financial crisis in O 8, during
COVID in 2020, they let loose ona monster QE program.

(10:52):
So that just means they print money, right?
They're printing new money. So that's how the money supply
is increasing. But the way they get it into the
system because fine, you print it, that's one thing, but how do
you shove it into the economic system is the other.
And so given the volumes of money we're talking about and
their balance sheet, which peaked in 2022 was north of 8.7

(11:13):
trillion, that's how much money we're talking about, right?
This is a lot. So you need a vehicle to get it
into the system that's super large.
And really the largest is the USgovernment bond market.
So really they, what they do is they print money and then they
buy government bonds. That is taking government bonds
out of the system and onto what's called their balance

(11:35):
sheet. So their balance sheet is the
value of the assets that they own, the assets they've bought
through their QE program. OK.
So they're buying bonds, taking them out of the system, and
replacing those bonds with cash into the system right Now, this
you might think, great. That cash then just disperses

(11:56):
evenly across the country, whichit does not because who's
holding the big volumes of thesebonds?
Well, it's the banks. So they've really, it's a QE is,
is a really a kind of process utilizing the banking system.
So they'll buy bonds off the banks.
The cash then sits on the bank'sbalance sheet.

(12:17):
Now what do the banks do with itis the bit that's a little bit
out of the Fed's control. And it's not a perfect system
because the banks don't just lend all that money out into the
system. It gets funneled off for other
funky stuff. They might go and buy some
stocks, they might go and buy NVIDIA or maybe they don't want
to lend. We'll talk a little bit about

(12:37):
later in this episode. The private credit markets are
getting a little bit spicy. We're starting to see some
defaults. Are we seeing some cracks in
that system, meaning that lending appetite is maybe
raining in a little bit. So anyway, the point is that
they go via the banking system. So QE and, and the other
function of this, you know, why does it lower rates, which I

(12:58):
mentioned? Well, they're buying bonds,
right? So if you buy, if the demand for
bonds goes up, it drives up the price, which drives down the
yield. And so that function basically
makes borrowing cheaper for corporate America.
It also makes borrowing cheaper for the government.
By the way, separately, QE does devalue the dollar.

(13:20):
So what? And that's an interesting point
to make because after COVID, this QE thing just got out of
control. Like, to the point we got above
8, Yeah, as I said, 8.7 trillion, right?
And it was like, whoa, this is just insane.
When's this thing ever going to stop?
There's never going to be a roadback here.
And so actually, since spring of2022, the Fed have been trying

(13:45):
to reverse this QE process by going through quantitative
tightening. And actually, they've done
quietly and steadily, they've actually done a pretty good job
because they've unwound now overthe last three and a bit years.
They've been doing solid QT throughout, pretty much apart
from the Silicon Valley Bank incident in which was spring of

(14:09):
2023, which saw another little uptick in QE very briefly
because there was a bit of a mini crisis.
But outside of that, the balancesheet's been dropping.
I'll talk about how they do thatin a second.
But my main point is here, they've actually unwound almost
all of the COVID QE now over thelast three and a bit years,

(14:29):
which is pretty impressive. But they're still SAT above 6
1/2 trillion. So the, you know, the monster
wave of QE from the financial crisis back, you know, 17 years
ago is still on their balance sheet.
So they've been quietly getting on with this.
Now QT, the problem with it, it's the reverse of QE.

(14:49):
The QE is stimulative. It lowers borrowing costs.
OK. So therefore, obviously QT does
the opposite. So they're doing it very slowly
and very gradually. And the way they do it is they
call they, they, they, they talkabout the balance sheet run off.
Now they're buying bonds, right?Well, all bonds have a maturity
date. You might buy five year
government bonds, 2 year government bonds, 10 year

(15:11):
government bonds. They're also buying
mortgage-backed securities as well, I should say.
But all these fixed income products have maturity dates.
So when, when let's say they bought a whatever A2 year
government bond in 2023 and it'snow reaching maturity.
Well, what happens when a bond reaches reaches maturity?

(15:32):
The borrower pays the lender back, the money on the loan
ends. OK.
So what the Fed have been, if they want to maintain the money
supply, when you get to these maturities, what the Fed do is
they take the money that's coming in from the borrower and
they just buy more bonds, maintaining the money supply,
right? But what they've been doing in

(15:53):
the last few years is they have not been reinvesting.
So all the maturing or some of the maturing bonds, they're
saying, all right, we're not that money coming back in from
the borrower. We're not going to release that
back into the system. We're going to basically scratch
it, burn it, take it out of the supply.
So the money supply has been dropping very gradually through

(16:15):
this runoff process. And the, the other point to say
is probably that this, this, this, this sort of QT that, as I
said, began summer 2022, the, the rate at which they're doing
this. So when they first launched it
back in the summer of 2022, theysaid, right, we're going to
allow $30 billion a month for Treasuries to mature each month

(16:39):
and 17 1/2 billion of agency debt and mortgage-backed
securities, right? So the rate was 47.5 billion per
month, which feels like a monster amount of money that's
just getting sucked out of the system.
But when they pumped in eight trillion, you know, 47.5 billion
isn't so much they, they actually accelerated it.

(17:00):
Then after three months, they thought, actually this is going
quite well. No one's freaking out here.
All right, let's just quietly raised the pace.
So they raised it to 60 billion of government debt and 35 of
mortgage-backed securities. So they went up to 95 billion a
month and they stayed there until May 24.

(17:20):
Then they started to slow. They're like, OK, we're actually
doing a really good job here. But then they started to slow in
May 24. And currently they're on that
same slower rate, which is basically 60 billion a month.
OK, that's, so that's where we're at.
The, the analysts out there havebeen seeing this COVID finish

(17:43):
line approaching, IE let's unwind all of that COVID QE.
And the thought has always been that the Fed will probably hit
that point and then they'll justgo, let's just pause.
And that's what's now going to happen.
We think. So the Powell will probably talk
about this at the next meeting. So we're expecting probably the
end of that QT program for now. So in summary then for this

(18:10):
segment, things are kind of going to plan in a sense of cut
to rates. Trump's going to be satisfied at
least I know Mirren's gagging for another 50, but it'll be 25
stop to QT, maintain liquidity, which makes sense.
Probably also if Trump can understand the mechanics of it,

(18:33):
it it's probably another thing that you could say to pacify him
a little bit if you're if you'repal.
So keeping inflation in check while operating with this
limited information that we haveto hand during the government
shutdown. That doesn't seem a great deal
of surprise here then, is what you're saying?
No, and I think it's probably also Pat.
Look, we'll talk a bit about credit markets in a minute, but

(18:58):
there's a little hint and a whiff of a bad smell coming out
of the credit markets. There's a few situations of
bankruptcies that are like, oh God, all right, that shouldn't
really have happened. And with that's coming, maybe
the hint of a sign of a lack of liquidity in the in the credit

(19:22):
market on. So yesterday we had a couple of
banks tapping something called the Fed's standing repo
facility. This is like for the second day
in a row, this doesn't normally happen.
It's quite a rare event. But basically when banks run out
of liquidity, there's something,you know, there's a, there's an
emergency window. They can borrow money overnight
from the Fed, right? So a couple of banks tapped that

(19:44):
yesterday. And all this kind of stuff is
saying, OK, hang on, let's just let's stop sucking money out
because that money is liquidity,right?
And we know, you know, in the end, if there's not enough
liquidity in the banking system,you get a credit crunch.
That's what happened in O eight.I'm not saying at all that we're
anywhere near an O eight credit crunch, by the way.

(20:06):
But look, it's just some little signs that says for that reason
alone, I think it's right to pause.
But you know, it's also a milestone.
We've unwind the COVID stuff. Cool.
Obviously, there's always risks and uncertainties on the
horizon. We're worried about that labor
market being primary one. So the federal light, Look,
let's just call this. Let's stop, let's wait.

(20:29):
Before then making another move.That's interesting then
connecting the dots because we're going to talk about some
of these bankruptcies and why and their connection to the
banks. And as you were describing, that
makes sense then why Powell usedthe speech on Tuesday, even
though the event is not for two weeks.
Granted, there is a blackout period.
Just to get ahead of any more skeletons in the closet, we are

(20:53):
going to provide the necessary liquidity via stopping the
runoff. It was well played, I would say,
from Powell. Yeah.
All right. Well, let's, let's move on to
some of these banks because thiswill be a continuation sort of
of this general thing. And we had JPGSMS, Bank of

(21:13):
America, BlackRock, I mean, these guys are crushing earnings
on the quarter, deal making, trading, everything's back
comparative to the last relatively slow two years.
So kind of got a bit of a summary of all.
But as we were discussing, let'sfocus on JP because I think they
have an interesting angle. So on a top line, their

(21:36):
investment banking revenues up 16%, one six to around 2.6
billion. A couple of other things, while
not as dramatic as its rivals, we'll talk about Ms. in
particular. JP's had pretty steady growth
across across those divisions, So MNA equity, debt underwriting
and so on. But it was really not so much

(21:59):
those numbers, which were kind of fine.
It's what Jamie Dimon. Jamie Dimon loves to have a
little, little comment, doesn't he?
And what more than most CEOs, I would say when it comes to
corporate season, but people often because of that nature and
because of I think his influence, I mean his influence
is certainly growing. I would say both as a size and

(22:23):
magnitude of his organization isbecoming more dominant almost it
feels. And also the influence he
carries with potentially some other political ambitions that
he might carry. He tends to be fairly vocal in
his opinions of things. He's saying he's going to be the
the next Democrat president. Is that what you're saying?

(22:44):
Well, we'll see. But there, what did he say?
Because he always does like to add a little extra insight that
gives us almost like a heads up or a pulse on the economy of
what he's seeing. Because obviously JP is so big
that it does get to see consumertrends, borrowing and these
sorts of things, not just M and a deal making and so forth.

(23:05):
So what were those? Yeah, I mean, you're right.
He is the boss, right? He's the, he's the boss of JP
Morgan, but he is the boss of Wall Street.
You know, he's the longest serving, you know, bulge bracket
bank CEO. I mean, I tell you what, what?
It's over 20 years now, isn't it, that he's been CEO.
He was CEO in the crisis. So it's definitely, I think it's

(23:27):
over 20 years he's been on that.It's quite remarkable actually,
the length of his tenure. And obviously during that time
he's taken JP to be the biggest bank on the planet.
So, yeah, in terms of his influence over the US economy,
you know, he's right up there. You'd put you'd say like Trump,
Powell, maybe Yellen, then Diamond maybe right in the kind

(23:51):
of hierarchy of people and individuals that could perhaps
have an influence. But yeah, it was interesting.
Then obviously smash out quarter, blow out numbers.
Amazing, amazing. But what interesting point he
made was because JP Morgan in the little finer detail, they
took a $170 million charge off stemming from the bankruptcy of

(24:14):
a subprime auto lender Tricolour.
So actually you might have read in the press there's been a
couple of quite high profile bankruptcies.
First brand was probably the bigger one, but then Tricolour
was the other one. And JP have owned up and have
gone. We've had our fingers burnt
here. And what Jamie Dimon said about

(24:35):
that event, because ultimately JP Morgan didn't do enough due
diligence. They didn't do enough digging,
right? They're lending a business money
and they just did not do enough analysis And and in the end,
it's turned out to be pretty fraudulent activity that's going
on. And basically they've lent a
load of cash anyway and oops, that cash is now vanished.

(24:59):
And so diamonds going, look, we make mistakes, hands up.
And then he went on to say, and this is the most important
comment. He said my antenna goes up when
things like that happen. I'm directly quoting here.
And he said I am probably, and Iprobably shouldn't say this, but
when you see one cockroach, there are probably more.

(25:19):
So he said everyone should be forewarned on this one right
now. He said that on, I think it was
true Wednesday morning. OK, then what happened on
Wednesday afternoon? 2 mid sized U.S. banks also came
out and said hands up, we've hadour fingers burnt on different

(25:40):
deals here. So Zion Bancorp, they disclosed
in a regulatory finding that it had recently become aware of
apparent misrepresentations and contractual defaults with two of
their corporate borrowers and they did a 50 million write
down. You have mid sized bank, Western
Alliance. They also just disclosed that
basically in August it initiateda fraud lawsuit against one of

(26:03):
its commercial real estate borrowers.
Point is right that you're starting to get some defaults
Zion Bank share price down 13% yesterday, Western Alliance down
10%. These aren't small moves, right?
It's it's got a whiff of for different reasons, but it's
you've got a whiff of kind of Silicon Valley Bank share price

(26:23):
action on the downside here. But I think the broader thing is
if you've been reading about theexplosion in private credit
markets, you know, whilst, and couple that with the fact that
interest rates have stayed high for probably a lot longer than
people imagined. And so businesses that have got
a lot of debt and it's stayed really expensive are starting to

(26:45):
get into trouble. And The thing is, when you get
into trouble, you either just own up and roll over and die or
you start to get creative as in lying and fraudulent desperate
activity to try and maintain thecredit line with these banks.
And that's what's obviously happened.
And Jamie Dimon's point is that this is starting to come out of

(27:07):
the woodwork here. And he's basically saying
there's definitely going to be more to come on this front.
Now, does the the big question is how many of these are there?
Are they small enough that it's interesting to write an article
about? But, you know, JP Morgan can
afford 170 million, no big deal.Or is it a much bigger kind of

(27:30):
cesspit that's kind of lurking underneath the surface that
might become an issue that's bigenough to kind of really change
the narrative? So a question then, where do you
look? Because there's, let's call it
the smart money that's saying the fixed income space where you
might have some exposure to these sorts of things where like

(27:51):
where can, what assets or what parts of the market, what
corners could you look at to sort of see or hang about this
has happened and these people are starting to show some signs
of repositioning, so to speak. Like not that they're, like you
said, this isn't a 2008 credit crunch situation.
However, we've had a period of strong growth in a certain area,

(28:16):
private credit. And now actually maybe we just
need to sort of reposition slightly that this could be
something that could, yeah, unearth a few more.
It's a good question, and the answer is credit spreads.
So when we think about bond markets, you know, one health
check of the system is, well, all right, what's the difference

(28:41):
in the cost of the government borrowing?
The government in theory being the biggest, safest entity in
the system, right? The government should be able to
borrow at a cheaper rate than anything else in the system,
right? So what's that cost of borrowing
versus the cost of companies borrowing?
So companies are smaller and therefore more risky from a kind

(29:05):
of lender's perspective. So you, you should be seeing
borrowing rates from corporations being higher than
the government, right? And we think about the
difference between the two. That's the credit spread.
Now the credit spread has narrowed and narrowed and
narrowed and tightened and tightened over the last few
years. So basically the tightest it's

(29:25):
kind of be ever gets I would say, right and it's actually at
nought .8 percentage points. That's the difference right now
between investment grade credit and and basically government
debt, all right, less than 1% spread.
That's the tightest since beforethe financial crisis in 2008 by
the way. So we're a a 28 year tightness

(29:49):
in the credit spreads and a lot of some of these big asset
managers like BlackRock, like M&G, Fidelity, they're basically
they're flagging in some of their research reports that hang
on a SEC there, there's no more room to go here.
You can't get any tighter. They're basically saying these
markets are pricing the absoluteperfect golden ox scenario

(30:10):
where, you know, the Fed keeps cutting, the economy stays
solid, you know, the AI secular revolution carries on booming,
Everything's going to be amazing.
That's basically what this credit spread is saying.
And so these asset managers are like, they're saying, well,
there's not really much more upside in trading, a continued
tightening. So they're actually starting to

(30:31):
flip and they're starting to say, look, there's enough risk
on the table. You know, if you're thinking
about Trump tariffs, obviously there was a bit of a flare up
last weekend when he threatened China again, All right, it
backed off it. But there's that labor market
deterioration. We've got government debt that's
way out of control around the planet, right?

(30:51):
There's plenty of stuff there toto be worried about.
So these asset management firms are saying, well, look, really
the trade should be there's there's no more juice in the
tank for tightening. Let's now flip this and expect
this to read to widen. And these stories, first brand
tricolor and so on, are just feeding into that same narrative

(31:12):
that maybe we've got a little bit too tight here.
Conditions aren't as good as that and so maybe the trades now
to see this widen back out. Yeah, this is this is getting
really interesting now. This is almost, it's still as
though it's like a a Netflix script is coming together here.

(31:32):
I can I just had when you were describing.
So there's there's it is kind ofcutting to scenes and there's
the different types of market participants.
So basically Sammy Diamond gets the call and he's this really
grumpy character and he goes into, he gets called to like
2:00 AM DE. Niro, Robert.
De Niro. Robert De Niro.
There we go. Shoe in What for that role?

(31:52):
Oh, yeah, And he's just grumpy. And he comes in and there's a
few other old faces. It's the heat reconnection.
Al Pacino's there. And then there's Leonardo
DiCaprio and Brad Pitt. We've got them all there and
they're on this table at 2:00 AMand they're like, And then the
regulator goes like, guys, we'vegot the tricolour's going to go

(32:13):
bankrupt. We're going to announce it on
Wednesday. And they're like, he's like,
what? And then then all of a sudden
it's like, and then the regulator guy goes, there's
going to be more. And then Jamie Dimon, Jamie
Dimon's there at 2:00 AM going right, 6:00 AM.
He's going to deliver a speech with the earnings.
He's going to say the comment atthe same time over the other
side of Wall Street, all that all the fund managers are

(32:35):
together going the the the the the the the geek in the corner
doing the models. This random numbers have gone
this credit spreads going to flip guys.
This is just perfect. Let's.
Get it commissioned serial. Let's go.
So yeah, anyone's got deep pockets, you know, I can write a
script for you. But so that was JP.

(32:56):
So, yeah, the the interesting take away here is there's,
there's some definite things to be monitoring here.
Certainly from a student's perspective.
I know this is a lot to comprehend, but if you can start
to at least synthesize this level of information, I think
you would be country miles aheadof all of your peers applying

(33:17):
for roles at the moment. If you was talking to people on
on on desks in related to markets roles.
But let's talk about Ms. and quickly run through a few of the
others. I mean, Ms. arguably was seemed
like one of the standouts. I mean, I mean their net income
was up almost 50% year on year 4.6 billion.
Their investment banking revenues were up 44%, went north

(33:41):
of 2 billion. So matching the Goldman rebound.
Obviously they have this tremendous asset that that
Goldman's doesn't, which is their Welsh management business.
And whilst management inflows were huge, 81 billion well over
and above forecasts. But what I, what I was going to
mention was really the breakdownmaybe on the equity capital

(34:05):
markets because I think the ECM division doesn't really get a
lot of light. This being the team where you
know, going through IPOs and we've seen a bit of return of
that. We've had some really big ones
starting to to come back to life.
Not in London, US, but Morgan Stanley LED its peers with an
80% third quarter increase in the category versus year on

(34:28):
year. The actual amounts here are
quite small because I think a lot of people are drawn to many
advisory fees, ECM, but it's actually DCM where you get like
big chunks of volume. So they're pulling in 652
million, which is, you know, a solid figure actually for this
type of business. And to give you an idea, they

(34:49):
they were up 80%. Goldman's, meanwhile, was 5253
percent or JP was 53%, Goldman'swas 21%.
So, yeah, great business. That year on year growth for
them 80%, I mean that obviously that's just off the scale.
Good. So this is yeah, equity capital

(35:09):
markets. This is where they're
underwriting these IPOs and and just to be very simplistic about
it, they're basically as as thatone of their clients is going
public. So they're selling share,
issuing shares and selling shares to the public where you
need a bank to kind of facilitate that.
So, and this is where the company's raising capital to
then whatever drive growth, but the bank gets in the middle by,

(35:32):
I'll simplify it, basically buying all these shares off
their client that's been issued and then selling them out to
their network. And they often take a bit of a
spread on that. They're obviously earning a lot
of fees in in that process as well.
So they are the ECM desk at J Morgan Stanley has had a stellar
move. And actually what's probably the

(35:53):
most important thing for Morgan Stanley that that epic growth
there has actually seen their equities trading revenues now go
back up above Goldman's and they're above JP as well.
So they've basically retaken topspot on the street for equity
trading revenues, a spot that they occupied for many, many

(36:17):
years, right? Basically pre COVID, Morgan
Stanley, they're the equity guys.
COVID kind of messed things up alittle bit.
And during COVID and the preceding few years, you saw
Goldman's and JP Morgan move above Morgan Stanley on the
equity trading revenue side. But yeah, this is this is
finally Morgan Stanley kind of getting back up into their

(36:39):
rightful seat, you might say, interms of being top dog when it
comes to the equity division. So equity division firing,
investment banking revenues up, wealth management inflows huge
good time at Ms. at the moment. Yeah, absolutely.
OK. Yeah, Well, I mean literally
across the board. Yeah, very positive.

(37:00):
Well, let's move to the kind of art for rival Goldman's.
So here by the numbers you had again investment banking
revenues up 43%. So this is all sprung to life in
the in the last quarter for sure.
And in fact that pace beat rivals and helped the company as
a whole report revenues of 15.1 billion.

(37:23):
It's the largest hole for that quarter in its history and the
third highest overall for all quarters.
It's kind of hard to fathom. I think if you're just Main
Street person and you all you hear is such negatives,
unemployment rates going up or labour markets not looking
great, economy slowing, hang about, these banks are making

(37:47):
the most money they've made in their entire history.
Yeah, like it's quite a weird scenario and how this is playing
out. Yeah.
And I mean, it's a good point. I mean, maybe it's another sort
of measure of the growing division perhaps between those
who have and those who do not. The division between maybe Main

(38:10):
Street and Wall Street, perhaps.But yeah, look, they, they're
running a business, right? And what they do just so happens
to be firing on all cylinders. You know, you, you base, you've
got Donald Trump to thank for this.
The banks should be going cap inhand to Donald Trump going thank

(38:31):
you very much because market volatility is awesome for their
trading businesses. And look, it took a while to
come through, but finally through Donald Trump's kind of
more deregulatory kind of stance, getting rid of people
like Lena Khan and so on. The antitrust office is kind of
right. Actually.
Deals are starting to come. Deal flow is coming.

(38:53):
And of course, that's great for their investment banking
division. So look, the the swap in
presidency there has now is now coming through in the numbers
for these big monster banks. Yeah, for sure.
Yeah. And talking of deal flow, a
milestone is global deal values of topped 1 trillion in the
third quarter. It's only the second time on
record that's happened. So yeah, definitely we're back

(39:15):
in business. What I would say is though
you're what there is a little bit of.
So that one trillion, right, what you're seeing is really
some really large deals come through.
If you look, I don't have the numbers to hand, but if you look
at the number of deals rather than the value of deal, the
number of deals is actually quite a lot lower than the

(39:37):
normal. So you're getting some mega
deal. I think the Meg, obviously this
is great mega deals find more fees, but I think it's painting
a slightly disingenuous picture perhaps.
It's not like we've got the bestdeal flow conditions, like the
third best deal flow conditions in the history of mankind.
So I don't think we have, but interms of volume of deals, but

(40:00):
but anyway, obviously there's deals and they're making money
and they're very happy. But one thing that might have
stroked some people is a bit strange was in the same week
that Goldman's come out with these numbers, they also come
out and say we're going to cut jobs.
And so they they told their staff to expect an additional

(40:21):
round of job cuts this year as the bank seeks further savings
across its businesses to take advantage of opportunities
presented by artificial intelligence.
So, yeah, I mean, it's it's interesting.
And I think a lot of just to kind of make it crystal clear
that, that what they've got is this thing called one GS 3 point

(40:42):
O strategy. That's what what they're calling
it. I think that's their marketing
attempt at trying to sound AII. Think they failed there.
That's that's that's that's terrible one GS3 dot O.
OK. But, but I think it's just the
clarity of, because I've been, I've been with students all week
all around the country. And obviously it's a challenging

(41:06):
time of year. It's application season,
competition is high. And they're sort of reading
headlines like the economy's a bit bit fragile, cutting rates
and you know, all these different sort of things.
And then they see job cuts at one of these target firms and,
and they just go, right, 1 + 1 equals like 4.

(41:29):
They're not actually thinking where are these job cuts
actually materializing? And I think this is a really
interesting case about the division of how things like AI
machine learning is being used by cutting edge by side hedge
funds and large more historical legacy based technology firms,

(41:52):
which are big financial institutions Ala Goldman Sachs,
Bank of America, these other ones.
And so when you, I think when you hear about AI and when you
hear about job losses, yes, banking and markets can be boom
or bust to a certain degree, butthey're both booming right now.
So definitely you're in a good place there.
So here this 3 point O strategy that Goldman's have, it's a

(42:16):
multi year effort and it's implementing AI in areas like
client onboarding, lending processes, kind of similar, I
guess, to what you're talking about this credit.
A lot of that I'm sure could be automated.
And one of the most onerous things for any bank is the
regulatory conditions post the financial crisis over the last

(42:37):
10-15 years. Regulatory compliance is so much
tighter now. And what can you do to speed
that up to make your business more efficient to have more
transactions, more business, youknow, and vendor management, all
these sorts of not going to say they're boring because a lot of
people's jobs are to do these things.
But these are a lot of the type of mid back office functions

(42:59):
that sure, a lot of students will will be going to work in.
But this isn't front office so much in terms of how it's being
adopted on a lot of the sell side institutions, I'd say.
But yeah, I thought it was just yeah, I thought it was
interesting, but I know you're you're a bit of a Black Rock
fan. So maybe to finish on on this
side, how did how did Black Rocka little bit different area of

(43:22):
the industry? Of course not not an investment
bank, but an asset managers. So what?
What were we seeing with them? Well, we've seen again, so like
just amazing numbers and the CEOguy called Larry Fink, who I'm
sure most people have heard of basically begging, OK, this is
the biggest opportunity we've ever seen is a direct quote from
the earnings call. But look, they had, I mean, one

(43:45):
thing is obviously with asset management, you one measure is
assets under management, right? What is the value of the assets
you have on your books that you know you don't own directly, you
own on behalf of your clients, right, Your clients money
invested. So their assets under management
has gone to a new record high $13.5 trillion, which is

(44:08):
whenever I hear that figure, it's just anyway you just can't
even imagine what that is to be honest.
But 13.5 trillion, that's just afunction of what markets have
been going up, right? So the assets they already own
are going up in value, OK. So partly their assets under
management is a function of where markets are going.
But then actually that the, the other thing is that inflows.

(44:31):
So how much money, how much new money is coming in from new
clients or existing clients putting in more.
And that's what happened there is they had a record ever Q3
inflow. So 205 billion of new money came
in, 3/4 of that went into ETFs, exchange traded funds which are

(44:52):
just tracker funds, right. I want to track the NASDAQ or
whatever it might be. So yeah, that's, so I think
that's the most important numberhere is that kind of record
inflow. The other side was, and it's
kind of talking a little bit about circling back to our
earlier conversation, expanding fast into private credit is one
of their angles and as well as other alternatives like

(45:15):
infrastructure deals and stuff. And they did a $12 billion HBS
investment partners deal. So that's what they're kind of
diversifying, which is obviouslya good thing.
Lots of private, they wanted to get in on this private credit
boom. There is risk there as we've
just previously discussed. But that aside, yeah, look,

(45:37):
they're, they're, they're havinga great time of it and you know,
they're scaling out, they're diversifying that, you know,
it's it's tech as well, obviously is a big part of their
offering with their a lot of their tech products that are
getting licensed out to customers as well.
So yeah. Strong start and we talked

(45:58):
about, you mentioned there infrastructure and we've talked
about previous episodes was NVIDIA, the circular kind of AI
ecosystem. What was interesting last week
as well, there's been another deal with BlackRock heavily
involved that was the acquisition.
So there's something called Blackrock's Artificial
Intelligence Infrastructure Partnership shortened to AIP,

(46:23):
and the first investment has been made by AIP.
This is $100 billion AI Focus Consortium founded by, guess
who, BlackRock, Microsoft, NVIDIA, MGX and GIP.
So I'm. Just opening AI not in there.
No, so, but one, yeah, one of the things here is just that

(46:46):
that, you know, the the race to just gobble up these data
centres is just incredible. So this deal that they're doing,
they're acquiring aligned data centres is what they're called.
It's 40 billion this deal. So yeah, no wonder these fees
that these outside banks are making are astronomical.

(47:07):
Yeah, quite crazy. But final story to cover was
moving somewhere completely different, which is commodities.
And you know, some people have often joked that, you know, if
you want some serious market movement, go to commodities.
But if you really want to have some fun, look at silver, not

(47:27):
gold because we talk about gold online and this this rally it's
been on. But silver, you know, you've got
to have some thick skin if you're going to tackle, tackle
the silver market. But we what we had here was a,
yeah, massive spike in prices. I mean the type of spike which
as you are going to explain doesn't necessarily have all on

(47:48):
fundamental rationale. There's some market mechanics of
how markets work which is exacerbating this price
movement. But silver essentially hit a
record 53 bucks an ounce, that'sup 85% this year and it's this
principle around a short squeezehitting the London market.
So I wonder if you could just doas you're always so good at

(48:11):
doing and just simply explainingthe.
Short well, but gold, that's my God.
Silver was trading. It was trading 30 bucks
basically in May. Now it's 54, right?
Like any good, like epic market move, you need a combination of

(48:33):
really powerful, strong fundamental forces, which then
lead to lead and force price to places that then triggers a
whole new set of forces around market liquidity conditions, you

(48:53):
know, around traders getting stopped out, exacerbating kind
of buy side flows and all the rest of it and a lack of supply,
right. So basically this is a classic
story of all the possible positive factors, forces that
you can have on a they've all come together in this perfect
storm. And it smashed $50.
Why is $50 important? That was the 2010 high.

(49:17):
That was like the financial crisis high.
We spiked to 50. Then it pulled back off.
So just this week we have brokenthat 2010 high to to make an all
time ever high in silver. So what are the fundamentals
that have kind of driven the at least the first part of this
trend? You probably say we got to 40
bucks because of fundamentals. And look, there's a whole set of

(49:41):
stuff in there. We know most of them it's
around, you know, there, there is some, you know, some signs of
economic risk with that labor market situation in the US
people are worried about tariffs.
I've already talked about this, right.
So there is, there are some people are looking for safe
havens. So precious metals always kind
of offer that. Also silver, unlike gold has a

(50:02):
lot of industrial kind of applications.
About 60% of silver supply goes into industrial usages such as
polar, solar panels, weaponry aswell actually.
So there is a lot of industrial use cases.
Then you've got the weakening dollar story which has been a
feature of 2025, which is in allthese factors of why gold is

(50:26):
moving up as well by the way. And then I'd say finally, maybe
not yet on the mainstream radar,the the rise of stable coins
generally has really brought in,I would say a new demand element
to this. So there are some silver, there
are some stable coins where silver is the kind of underlying

(50:48):
pinning physical asset. And so as people buy more stable
coins and as that asset class, if you want to call it is
increasing, then you these thesestable coin operators, they need
more of the physical underpinning asset to kind of
make sure that's all working, right.
It's the same for gold as well, by the way.
So this is another reason why you're getting a slightly new

(51:08):
demand side factor coming into the market on the supply.
Supply is low, so exacerbating those increases in demand,
right? So these are the fundamentals.
OK, fine. Now, when markets rise, people
start to think, oh, that looks expensive.
I'm going to go short because I think that's too high.

(51:30):
And I think that market's going to come back down and they might
use derivatives to do this. Maybe they'll sell some, some
some silver futures, for example.
OK, which is a derivative product.
Great, I'm going to go short at $40.
OK, Then what happens? Well, then the market starts to
go up and up and then it goes to414243 and I'm starting to sweat

(51:54):
because I'm losing money now andI'm short 444546.
Wow, this is super painful, super painful, right?
You know what, I've got 2 choices here and, and, and as
we're coming to and as a futurescontract, a few, I should just
say a futures contract has an expiry date.
Now, the thing about Commodity Futures, it's physically

(52:17):
delivered. That just means that.
So a futures contract means I don't, I'm not selling physical
gold at $40. I'm actually entering into a
contractual agreement with my counterparty to sell them gold
at $40 on a date in the future, that date being the expiry date

(52:38):
of the contract. Right?
So as I'm approaching, as this futures contract is approaching
expiry, I've got 2 choices. I either allow the contract to
expire, I'm still holding it, and then I'm legally obliged to
deliver physical gold to the counterparty.

(52:58):
They pay me $40 and eights. Silver.
Silver. I keep saying gold, Why?
You can use AI to kind of sort that out in the edit, right?
So I can either carry it to expiry and then deliver silver,
right? The problem is to deliver the

(53:19):
silver to my counterparty, I've got to buy the physical silver
first at whatever the price is $54, right?
I'm buying it at 54 and then I sell it at 40, making a huge
loss, but that's my legal obligation with these contracts.
The problem is there isn't any silver.
I can't get any. Right.

(53:40):
Also, there is a physical implication of this because one
thing I was reading is that traders are literally booking
cargo planes, right? Fly silver bars from New York to
London. And if you think about it and
the math that's almost never done because silver is it's just
bulkier and more expensive to dothat.

(54:01):
It's insane. Yeah.
So this is the desperate nature and the lack of supply and
supplies been dropping, like physical supply of silver's been
dropping for a few years in London, which is one of the key
trading hubs. So you're getting this
ridiculous extreme situation where people are starting to go
right, I'm going to have to fly in this stuff from the US.

(54:22):
There is a second option. Instead of carrying my futures
contract to expiry, I can just buy it back to I can buy some
futures, which basically Nets off and closes out my short
futures position. Then I don't have to touch the
physical stuff at all. The problem being that's me

(54:43):
buying futures. That's where this extra upside
price force is coming from. This is why we call it a short
squeeze, because those who are short are losing so much money,
they're being forced or squeezedout.
As we say that, the pain is so much, they're just having to get
out, meaning they're buying, meaning the upside spike just

(55:07):
gets even more momentum. Is there another force then
being the illiquidity of the market?
Because if you're going to call up a broker and say like I need
a price, two way price and silver and they're going to just
say no, no thanks. I can't.
I cannot quite you a price and there's no there's no orders in
the market. Volatility has obviously gone up

(55:29):
dramatically and so, and that's so there's two things actually.
So #1 the spread in the silver market is, is like, I can't, I
had the number somewhere. Maybe you can help me out with
how much the spreads have. Blown out.
It blown out from three cents toover $0.20.
Wow. And then the other thing is to

(55:53):
look at the price of silver in London versus New York.
And, and so actually the price of silver in London is now $3
higher than it is in New York because of this quite, you know,
that this, this, this chronic supply problem we have in the
London Metals Exchange, which iswhere a lot of the volume of

(56:14):
this stuff gets traded. And so it's trading at such a
premium now because of these supply issues that it's, it's
the highest it's ever been that the spread between the Two's the
highest it's ever been at $3 now.
So interesting arbitrage opportunity there for you if
you've got if you've got a jet plane.
Well, yeah, if you want to go for the right open.

(56:39):
All right, well, look, we'll, we'll wrap it up there a bit of
a longer episode, So thank you if you stuck with us, but lots
of good stuff there from what's happening with some of the banks
and their earnings. If you're going to be
interviewing with some of these firms, some insights into the
private credit market, what the Fed are doing on the macro and
interest rates and what we can expect from a rate cut and the
balance sheet. And then what is a short

(57:01):
squeeze. So one thing you can do is you
can always get transcripts and they get the AI tool to we are,
we are maybe cooking up a littleAI assistant here at Amplified
to facilitate this for you listeners.
But that is 1 tip because I knowthat if you listen to this
podcast or if you listen to I know Goldman Sachs, they share

(57:22):
the podcasts on their exchange episodes, which can be like an
hour long. A good hack is to just actually
use the transcripts to surmise and pick out key things if
you're doing interview prep. So if you're going to listen to
one podcast, it should be ours. If you're going to do the rest,
use the AI tools to accelerate your application processes.

(57:45):
But on that note, thank you everyone and do help us push to
that goal of 1000 Spotify ratings.
Hopefully we can get by the timewe do the next episode.
Thank you, Piers. Cool, have a great weekend.
You too.