The Unhedged Awards

0:00Hey, one quick note, this show you're about to hear was recorded in mid-December.

0:09Pushkin.

0:33finance and markets. I'm reporter Ethan Wu here in New York, joining me today to crown our favorites and least favorites in the world of finance and markets today. It's financial commentator Robert Armstrong here in New York and from London, markets editor Katie Martin. We're about to nominate some winners and maybe some losers. I hope you're wearing black tie for the occasion. Yes, I'm sitting here in my evening dress. Full evening wear. I'm wearing a full white suit. Well, let's get right into it. We've got a lot of unhedgies to get through. And beginning most sensationally with the unhedgie for scam of the year.

1:15I have to nominate FTX, which, yes, I know did blow up last year. But I think this year, 2023, really revealed the true scammy nature of the machine that was FTX for transferring money from your sorry, sorry bank account to Sam Bakeman-Fried's very large bank account. Great job, Sam. I nominate you for scammy of the year. For this one, Hedgie. First of all, I think it's a category error on your part because FTX blew up in 2022. The trial was in 2023. But even aside from that, I think it's very hard to beat Binance, right? Similar jam, crypto shop. When it got fined for no fewer than$4.3 billion of your Earth dollars, that includes the largest US Treasury fine of all time, the rap sheet for Binance covered a lot of ground.

2:07And I mean a lot of ground like trades with North Korea, trades with Iran, trading with Al-Qaeda, trading with ISIS. involvement in the narcotics trade and organized crime. I mean, it goes on and on and on. Go big or go home. I say go Binance. It's the thoroughness for me of Binance, the breadth of the indictment against them. I think FTX may have reached higher heights, but literally Binance checked every conceivable box for things to do wrong with money. And for this reason, I have to vote with Katie. Bravo. All right. Two to one. The unhedgy for scam of the year goes to Binance. And if anyone from Binance, especially CZ, if you're listening, we are very happy to send you your unhedgy in the mail.

2:55You'll just have to reveal where your headquarters is so we know where to send it to. Moving swiftly on, the next category is deal of the year, which is a tough call. And I think it's going to involve a lot of cheating because there were just not very many deals this year. This was another year of a dud IPO market once again, but I hope we've all either done our research or cheated on the category to be able to come up with a nominee for deal of the year. I got a nominee. Michael Dell, who took his own company private some years ago, used that as a platform to buy VMware, sold VMware to Broadcom this year.

3:34And in those combined deals, he contributed about$6 billion of equity. And those stakes in the deal and the current value of Dell,$60 billion or so. Nice. So he did a 10 bagger. And so now we can stop teasing him for saying like 15 years ago that Apple should just close up shop and move as 20 years ago. He was the guy who said Apple is a hopeless case. So it should just close up shop and move on. Now that he has 10 bagged his fortune, I think we can forgive him for saying that. And I think the award for deal of the year should go for Michael Dell's contribution to the Broadcom VMware deal. That's a strong nominee.

4:20I'm going to cheat in this category. Once again, I am nominating the Microsoft Blizzard deal, which yes, I know was inked last year, but it was finalized in October this year. It was unclear, very unclear I would say, if it would pass antitrust scrutiny and it did this year. One of the biggest deals in gaming history, not necessarily in a good way. I think there have been a lot of concerns that there's going to be a deprecation of service in the long run, but Microsoft has promised very earnestly. Satya Nadella has pleaded with regulators, we'll do a good job with Blizzard. Come on, let us have this deal.

4:52It's okay. What game are they famous for? What is Blizzard's big game? World of Warcraft is probably their biggest title and Microsoft owns stuff like the Xbox franchise, Call of Duty. You know, there are hopes that there can be a grand gaming package between these two giant gaming companies. We will have to see. I hope Satya Nadella keeps his promise and is very nice about this whole tie-up. All right, Katie, what's your nominee for deal of the year? Slim pickings, isn't it? I gave one of our M &A reporters on the newsroom a mince pie earlier and asked him to tell me about M &A and he said there really hasn't been any.

5:29deals like that i think like we're at something like a 10-year low for the sort of deal flow on this there's been some really biggies in big oil big oil becoming even bigger oil but it's been so slow that it is very difficult to pick a favorite so i thought i would cheat and uh go for this hunter brooks thing this plan for a startup that melds together a newsroom and a hedge fund in a definitely not complicated compliance scenario. The news bit of it, apparently Watchdog is a working title, due to launch early next year. Just, I mean, for its sheer weirdness as a news story this year, I think it's got to be right up there, but it's not like a big stonking ten-bagger yet of the Michael Dell variety.

6:18Just for its sheer success in making journalists freak out. And of course, the reason this idea made journalists freak out is it raised the possibility, however remote, that someone would do journalism and make money doing it. I mean, what sort of voodoo is this? This causes so much confusion, excitement and jealousy among journalists that it just blew up as a story. But can we call this deal of the year? I feel like I've only seen this in news articles. I have yet to be convinced these are real people at a real company doing a real thing. That never means to be seen. Michael Dell. Let's give it to Michael Dell.

6:56Guy made a lot of money. I'll give it to Michael Dell. Okay, Michael Dell. Four least attractive computers of all time and possibly the greatest deal of 2023, Michael Dell. Yeah. Big money from a mediocre product. That's what this show is all about. Well, speaking of big money, the next category is Central Banker of the Year for the Unhedgy Awards. This is a tough category. There have been a lot of accomplished central bankers doing a really tough job all around the world. Come on. The default answer here, and I'm not necessarily voting for him here, but it's got to be Big J, right? We got the soft landing.

7:33Jay Powell. He's the man, right? Rob, I think your Ameri-centrism is showing right now. It is. I will have to nominate Pan Gongcheng, the head of the People's Bank of China, for a truly, truly difficult job that he has had this year of stabilizing the incredibly volatile Chinese economy. Is it stabilized? Not necessarily, but he's been trying. He's been trying. He's got the biggest job. He's got the biggest job. He's got the hardest job. Yeah. He's got the hardest job. Is it stabilized? And by the same token, is the soft landing really down to Jay Powell? It's definitely an arguable point. Let's hear your nominee, Katie.

8:11My nomination is Hafizeh Geyer Erkan, who, as I'm sure you're aware, is the new head of the Turkish Central Bank. There was a big election in Turkey this year. President Erdogan won again. And the whole lead up to it was if Erdogan wins again, then he's going to keep doing really weird stuff with monetary policy. Erdogan is the guy who says that tight policy causes inflation. High rates cause inflation. The high interest rate lobby. Yes. Now, the polite term for that is unorthodox. Yes. Unorthodox policy under Erdogan so far. He's appointed to a bunch of people through the years who kind of do what he wants.

8:55He won re-election and appointed this Hafiz Agaia Erkan, who is Princeton educated, ex-Goldman Sachs. Let's brush over the bit where she was First Republic, one of the banks that went pop this year. And she is absolutely straight down the line. She's like, we've got an inflation problem. We need to raise rates. We need to do it hard and fast. And she's been jacking up interest rates. She appears to be doing this with the blessing of the president. And somewhat miraculously, foreign investors are starting to tiptoe back in. Now, if you'd have said to me at the start of this year, Erdogan's going to win again.

9:32He's going to appoint a whole new central bank chief. and actually investors are going to start sniffing around Turkey after the disaster that they've had with this thing over the years. I'd have told you to have a lie down. But this particular central banker has got market trust. It's a miracle. Okay, I'm going to support this nomination for the following reason. Obviously, this story is going to end really badly. And watching your nominee, Katie, for central banker of the year explode into flames next year is going to be fantastic. So I think she gets my vote for the unhedgedy for sure. I got to push back on the Turkish Central Bank.

10:09I think this is just a function of Erdogan's blessing. Imagine the same woman if Erdogan did not like what she was doing. She'd be useless. She'd be powerless. It's just an extension of Erdogan's personal decision on whether interest rates are good or bad. That may be true, Ethan, but it's two to one. And I think we describe that kind of a situation as tough movies here at Unhedged. Central Banker of the Year goes to the Turkish Central Banker, whose name I cannot pronounce. Katie, would you like to try? Hafiz Egya Erkan. Excellent. Thank you. She's the one. All right. Next up, it's IPO of the Year initial public offering.

10:46And for this one, I have - That's actually not the name of the award. The name of the award is IPO of the Year other than Birkenstock, I think. Were there any of those? I don't know. I have one that I am very confident neither of you heard about. I dove deep into the database to find this one. There is a company that went public this year called the NFT Gaming Company, trading under the ticker NFTG. They make an NFT-based game called Gaxos Brawl Bots, which has a whopping 15 reviews on the Apple App Store. The stock - Listed. Listed. Listed this year. They raised a few million dollars. They debuted at$14.15 a share and are We're now trading at 36 cents a share for a market cap of under$5 million.

11:30Got to give it to you guys for one of the worst games I've ever seen. And a truly brutal stock debut. I got to give it to the NFT gaming company. Sold. Can I just make a quick nomination for the UK's very own CAB Payments? It does sort of payment stuff around African currencies. it listed three months later, its stock tanked 72%. Really slashed and burned some revenue forecasts, all due to stuff they said was out of their control, involving moves in the Nigerian currency and in the various other kind of currency areas in Africa. And lots of investors are very unhappy about it. And it's one of these things that it's like, yeah, no, no, the UK can definitely do IPOs and they're great.

12:16And then this one comes along and it's like, oh God, let's just pretend this didn't happen. Listeners, you could really get a gestalt feeling for the IPO market, given our incredible gloom about it in these nominations. But I think the award for IPO of the year, except for Birkenstock, has to go to the NFT gaming company, giving them probably the most prestigious exposure they have ever gotten in the financial media. All right, moving on. The next category is prediction of the year made on unhedged. Prediction made on unhedged of the year. Okay. We've made a lot of bad predictions this year. So many.

12:50So many. We've been terrible. I won't go into the bad ones. We haven't got time. I mean, this is only a short podcast. Thank you, Katie. On October the 23rd, we did write a column saying, man, maybe now is the time to buy long bonds. that duration at almost 5 % on the 10-year treasury might be time. This might be about as good as it gets. We were hesitant, but that was our call. We just about top-ticked it. What was the date on that, did you say? In a year of terrible predictions and mistakes for unhedged, that is one we can look back on with some satisfaction. That was October the what-a-what?

13:3323rd. Nice. And I think the peak in the 10-year was like maybe the 16th or something like that, or the 20th. So it was right in there. And, you know, we've taken 100 basis points or so off the 10-year since then. So none of this is financial advice. But of the non-pieces of financial advice Unhedge has given, this was the least dangerous of all of them. Katie? I'm also going to pick one of my own predictions, which was that the Fed is not going to start cutting rates until the third quarter of next year. If you remember, we bet a pint of beer on this outcome, and I think you thought that I was being ridiculous and they were going to go much sooner than that.

14:15I think I'm still safe with it. Latest jobs report certainly supports your case. Yeah, absolutely. A couple more like that, and you'll be drinking a whole pint of beer. I'm going to be owing Katie a beer very soon on that bet. I've got to nominate my own prediction for worst prediction made on unhedged on the year, which was the bet I took on, rate cuts, which was the first quarter of next year. That does not look like it is going to be happening. Unless there is a recession suddenly in the next couple months, I don't think that's happening. So I was wrong, and Katie increasingly appears to be right.

14:48We'll have to see what happens next year. Katie, you're the winner of this one. I feel like I've won a lot today. I'm feeling like victory is mine. Yeah, Rob, why'd you give it to the Turkish after banker? Come on. Come on. Next award. Next award. We're taking a break and coming back. Okay, cool. We have one more unhedgy to give out, and this is the big one, the ultimate one. It's trade of the year. And we'll talk about that right after a short break.

15:29Welcome back to the Unhedgy Awards for Financial Excellence and Malfeasance. This is the final Unhedgy of 2023, and it is trade of the year. Trades should tell us about financial markets. That's where the rubber meets the road. That's where people have to commit real money to what they think is going to happen in the world. And for this category, I have to nominate the basis trade. This, as listeners will know in previous Unhetched episodes, is the great pricing exploitation between treasuries and treasury futures. You lever up, you put a lot of money to work in this tiny little pricing discrepancy, and you print dollars.

16:11It's got central bankers worried. It's got financial regulators worried. And if a trade is so good that it freaks people out, the Fed and the BIS out, it's got to be a damn good trade. Hmm. Nice one. Katie? I'm going to go for the heroes out there that looked at the chaos in the US government bond markets after SVB went down. Let's not forget, SVB and Credit Suisse both went pop this year and the earth is still turning. It's amazing. That's the fact of the year. We had a banking crisis and nothing happened. Well, that's the thing. So when SVB went down, the bet in the market was, right, this is it.

16:48So Armageddon treasuries went through the roof because there was this idea that the Fed was going to start cutting rates because everything was terrible. And there were a few investors who were like, nope, I'm not having it. This is a massive overreaction and took the other side and they were completely right. And yeah, well done to anyone who held their nerve through that. My nomination for this category takes the form of a quiz, which I will now give to my co-hosts. So I have before me a list of the best performing stocks in the S &P 500 by total return. The first two, you could probably guess.

17:21There are friends at NVIDIA and Meta. The next two, do you know what those might be? And I'll give you a hint. They're in the same industry. Is UBS one of them? Katie, got a guess? S &P 500. UBS isn't even in the S &P 500. That was as wrong an answer as it is possible for a person to give. It's also not in the same category. And what are you talking about, Wu? I'm going to say... It's up 50 % this year. What did you... This is number three and four on the performance list. Nope. Not in... They are not in the Magnificent Seven. Is it Leonard? These two companies. Leonard Home Builders? Close. Getting closer.

18:03I'm just going to tell you because you two losers are never going to figure it out. Cool. The number three and four best performing stocks in the S &P 500 with total returns of 144 and 125 % respectively are Royal Caribbean Cruises and Carnival Cruise Lines. Wow. You see what I'm saying? Somebody knew it. Somebody in the booth knew it. Someone is cruising for a prison right there. This trade, this basically, if you bought those stocks at the beginning of this year, that is basically the hardest core bet against recession that a person could possibly make. Not only are these extremely discretionary companies that serve the middle class rather than the rich who would be insulated from recession, but they're massively over-levered.

18:51They had to take on this huge amount of debt during the early part of COVID just to survive when no one could go on a cruise line. And here they are just kicking ass this year. So if you bought at the end of 22 Royal Caribbean or Carnival Corporation, write a letter to Unhedge headquarters and we will send you your Unhedgey trophy. I cannot support this trade because I went on a Royal Caribbean cruise in January and I got norovirus on day one. On day one. And the stock still went up. The fish poisoned me on Royal Caribbean. Katie, you're the tiebreaker. I'm going to go for the cruise ships. I'm very sorry about your dodgy tummy, but that is a run and a half.

19:35I think the dodgy tummy is more evidence of how brilliant it is. You can make people sick and your stock can go up 150%. All right. Trade of the year goes to the big cruise liners in the S &P 500, some of our best performers outside of the tech industry. Thus concludes the 2023 Unhedgies. We'll be sending you your prizes in the mail. Unfortunately, the budget for those prizes was very small. We spent it all on the Unhedged House Band, which will play me out. See you next year, guys.

20:12Unhedged is produced by Jake Harper and edited by Brian Erstad. Our executive producer is Jacob Goldstein. We had additional help from Topher Forhez. Cheryl Brumley is the FT's Global Head of Audio. Special thanks to Laura Clark, Alistair Mackey, Jacob Weisberg, and Jess Trulia. FT Premium subscribers can get the Unhedged newsletter for free. A 30-day free trial is available to everyone else. Just go to ft.com slash unhedged offer. I'm Ethan Wu. Thanks for listening.

20:53Thank you.