Transcript: The Unhedged Awards

This is an audio transcript of the Unhedged podcast episode: ‘The Unhedged Awards’

Ethan Wu
Hey, one quick note. This show you’re about to hear was recorded in mid-December.

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Live from New York and London, the global financial capitals of the world. And of course, by live, I mean not live. This is the Unhedgies, the awards show from Unhedged, where we celebrate the winners and the stinkers in this year’s world of finance and markets. I’m reporter Ethan Wu here in New York. Joining me today to crown our favourites and least favourites 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.

Katie Martin
I hope you’re wearing black tie for the occasion.

Robert Armstrong
Yes, I’m sitting here in my evening dress.

Katie Martin
Full eveningwear.

Ethan Wu
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. I 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 Bankman-Fried’s very large bank account. Great job, Sam. I nominate you for Scam of the Year for this Unhedgie.

Katie Martin
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 $4.3bn of your Earth dollars, that includes the largest US Treasury fine of all time. The rap sheet for Binance covered a lot of ground, and 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 organised crime. I mean, it goes on and on and on. Go big or go home. I say, go Binance.

Robert Armstrong
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.

Katie Martin
Brother.

Ethan Wu
All right. Two to one, the Unhedgie 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 Unhedgie in the mail. You’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.

Robert Armstrong
I got a nominee.

Ethan Wu
OK.

Robert Armstrong
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. And in those combined deals, he contributed about $6bn of equity. And those stakes in the deal and the current value of Dell, $60bn or so.

Katie Martin
Nice.

Robert Armstrong
So he did a tenbagger and so now we can stop teasing him for saying like 15 years ago that Apple should just close up shop and move. It was 20 years ago, he was the guy who said Apple is a hopeless case. It should just close up shop and move on. Now that he has tenbagged 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.

Ethan Wu
That’s a strong nominee. I’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 finalised 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 at Blizzard. Come on, let us have this deal. It’s OK.

Robert Armstrong
What game are they famous for? What is Blizzard’s big game?

Ethan Wu
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?

Katie Martin
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. (Laughter) Deals like that, I think, like, we’re at something like a 10-year low for the sort of deal flow on this. There’ve 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 favourite. So I thought I would cheat and go for this Hunterbrook thing, this plan for a start-up that melds together a newsroom and a hedge fund . . . 

Robert Armstrong
Oh, good one.

Katie Martin
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 gonna be right up there. But it’s not like a, you know, a big stonking tenbagger yet of the Michael Dell variety, so . . . 

Robert Armstrong
Just 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.

Katie Martin
I mean, what sort of voodoo is this?

Robert Armstrong
This causes so much confusion, excitement and jealousy . . . 

Katie Martin
It’s not Bloomberg, for heaven’s sake. I mean, honestly.

Robert Armstrong
. . . Among journalists that it just blew up as a story.

Ethan Wu
But can we really 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 remains to be seen.

Robert Armstrong
All right. Michael Dell, let’s give it to Michael Dell. Guy made a lot of money.

Katie Martin
Fine.

Ethan Wu
I’ll give it to Michael Dell.

Robert Armstrong
OK. Michael Dell.

Ethan Wu
For least attractive computers of all time and possibly the greatest deal of 2023, Michael Dell.

Robert Armstrong
Yeah. Big money from a mediocre product. (Ethan laughs) That’s what this show is all about.

Ethan Wu
Well, speaking of big money, the next category is Central Banker of the Year for the Unhedgie Awards. This is a tough category. There have been a lot of accomplished central bankers doing a really tough job all around the world.

Robert Armstrong
Though do come on, the default answer here, and I’m not necessarily voting for him here, but it’s gotta be Big Jay, right? We got the soft landing. Jay Powell. He’s the man, right?

Ethan Wu
Rob, I think your Americentrism is showing right now.

Robert Armstrong
It is.

Ethan Wu
I will have to nominate Pan Gongsheng, the head of the People’s Bank of China, for a truly, truly difficult job that he has had this year of stabilising the incredibly volatile Chinese economy.

Robert Armstrong
Is it stabilised?

Ethan Wu
Not necessarily. But he’s been trying. He’s been trying. (Robert laughs)

Robert Armstrong
He’s got the biggest job.

Ethan Wu
He’s got the biggest job.

Robert Armstrong
He’s got the hardest job.

Ethan Wu
Yeah, he’s got the hardest job.

Katie Martin
Yeah, is it stabilised? And by the same token, is the soft landing really down to Jay Powell? It’s definitely an arguable point.

Ethan Wu
Let’s hear your nominee, Katie.

Katie Martin
My nomination is Hafize Gaye 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 Erdoğan won again. And the whole lead-up to it was if Erdoğan wins again, then he’s gonna keep doing really weird stuff with monetary policy. And who do you know?

Robert Armstrong
Well, Erdoğan is the guy, right, who says that tight policy causes inflation?

Katie Martin
Yes. High rates cause inflation.

Ethan Wu
The high interest rate lobby.

Katie Martin
Yes. Now, the polite term for that is unorthodox. Unorthodox policy. And under Erdoğan so far, he’s appointed to a bunch of people through the years who kind of do what he wants. He won re-election and appointed this Hafize Gaye Erkan, who is Princeton-educated, ex-Goldman Sachs. Let’s brush over the bit where she was at First Republic, one of the banks that went pop this year. And she is absolutely straight down the line. She said, 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 this year, Erdoğan’s gonna win again, he’s gonna appoint a whole new central bank chief and actually, investors are gonna 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.

Robert Armstrong
OK, I’m gonna support this nomination for the following reason. Obviously, this story is gonna end really badly. And watching your nominee, Katie, for Central Banker of the Year explode into flames next year is gonna be fantastic. So I think that she gets my vote for the Unhedgie, for sure.

Ethan Wu
I gotta push back on the Turkish central bank. I think this is just a function of Erdoğan’s blessing. Imagine the same woman. If Erdoğan did not like what she was doing, she’d be useless, she’d be powerless. It’s just an extension of Erdoğan’s personal decision on whether interest rates are good or bad.

Robert Armstrong
That may be true, Ethan, but it’s two to one, and I think we’d describe that kind of a situation as tough noogies here at Unhedged.

Ethan Wu
All right. Central Banker of the Year goes to the Turkish central banker whose name I cannot pronounce. Katie, would you like to try?

Katie Martin
Hafize Gaye Erkan.

Ethan Wu
Excellent. Thank you.

Robert Armstrong
She’s the one.

Ethan Wu
All right. Next up, it’s IPO of the Year, initial public offering. And for this one, I have . . . 

Robert Armstrong
That’s actually not the name of the award. The name of the award is IPO of the Year Other Than Birkenstock, I think is . . . 

Ethan Wu
Were there any of those? I don’t know. I have one that I am very confident neither you have 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 a NFT-based game called Gaxos Brawl Bots, which has a whopping 15 reviews on the Apple App Store. The stock . . . 

Katie Martin
Listed?

Ethan Wu
Listed this year, they raised a few million dollars. They debuted at $14.15 a share and are now trading at $0.36 a share for a market cap of under $5mn. Gotta give it to you guys for one of the worst games I’ve ever seen and a truly brutal stock debut. I gotta give it to the NFT Gaming Company.

Robert Armstrong
Sold.

Katie Martin
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 per cent. 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. And then this one comes along and it’s like, oh God, let’s just pretend this didn’t happen.

Ethan Wu
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 prestige 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.

Robert Armstrong
OK. We’ve made a lot of bad predictions this year.

Ethan Wu
So many.

Robert Armstrong
So many, most of them terrible. I won’t go into the bad ones.

Katie Martin
We haven’t got time. I mean, this is only a short podcast.

Robert Armstrong
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 per cent 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 and we just about top-ticked it. So in a year of terrible predictions and mistakes for Unhedged, that is one we can look back on with some satisfaction.

Katie Martin
That was October the whaty-what?

Robert Armstrong
Twenty-third.

Katie Martin
Nice.

Robert Armstrong
And I think the peak in the 10-year was like maybe the 16th or something like that or the 20th. So it’s 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 Unhedged has given, this was the least dangerous of all of them.

Ethan Wu
Katie?

Katie Martin
I’m also going to pick one of my own predictions, which was that the Fed is not gonna 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 gonna go much sooner than that. I think I’m still safe with it.

Robert Armstrong
Latest jobs report certainly supports your case.

Ethan Wu
Yeah, absolutely.

Robert Armstrong
Couple more like that and you’ll be drinking a whole pint of beer.

Ethan Wu
I’m going to be owing Katie a beer very soon on that bet. I’ve gotta 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. We’ll have to see what happens next year.

Robert Armstrong
Katie, you’re the winner of this one.

Katie Martin
I feel like I’ve won a lot today. I’m feeling like victory is mine.

Robert Armstrong
You’re the leader.

Ethan Wu
Yeah. Rob, why did you give it to the Turkish central banker? Come on. Come on.

Robert Armstrong
Next award. Next award.

Ethan Wu
We’re taking a break and coming back.

Robert Armstrong
OK, cool.

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Ethan Wu
We have one more Unhedgie 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.

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Welcome back to the Unhedgie Awards for financial excellence and malfeasance. This is the final Unhedgie 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 gonna happen in the world. And for this category, I have to nominate the basis trade. This, as listeners will know in previous Unhedged 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. It’s got central bankers worried. It’s got financial regulators worried. And if a trade is so good that it freaks people at the Fed and the BIS out, it’s gotta be a damn good trade.

Robert Armstrong
Nice one. Katie?

Katie Martin
I’m gonna 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.

Robert Armstrong
It’s amazing. That’s the fact of the year.

Robert Armstrong
We had a banking crisis and nothing happened.

Katie Martin
Well, that’s the thing. So when SVB went down, the bet in the market was right, this is it, Armageddon. Treasuries went through the roof because there was this idea that the Fed was gonna 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.

Robert Armstrong
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 can probably guess. They’re our 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.

Ethan Wu
Is UBS one of them?

Robert Armstrong
(Makes buzzer sound) 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 . . . 

Katie Martin
It’s also not in the same category. And what are you talking about, Wu? I’m gonna say . . . 

Ethan Wu
It’s up 50 per cent this year.

Katie Martin
What did you . . .?

Robert Armstrong
This is number three and four on the performance list.

Katie Martin
Microsoft.

Robert Armstrong
Nope, they are not in the Magnificent Seven, these two companies.

Ethan Wu
Lennar Homebuilders?

Robert Armstrong
Close. Getting closer. I’m just gonna tell you because you two losers are never gonna figure it out.

Katie Martin
Cool.

Robert Armstrong
The number three and four best-performing stocks in the S&P 500 with total returns of 144 and 125 per cent, respectively, are Royal Caribbean Cruises and Carnival Cruise Lines.

Ethan Wu
Wow.

Robert Armstrong
You see what I’m saying? Somebody in the booth knew it.

Katie Martin
Someone is cruising for a bruising right there.

Robert Armstrong
OK, this trade, this basically, if you bought those stocks the beginning of this year, that is basically the hardest core bet against recession that a person could possibly make. Not only are these like extremely discretionary companies that serve the middle class rather than the rich who would be insulated from recession, but they are massively over-levered. They 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 Unhedged headquarters and we will send you your Unhedgie trophy.

Ethan Wu
I cannot support this trade because I went on a Royal Caribbean cruise in January and I got norovirus. On day one. (Robert laughs)

Robert Armstrong
And the stock still went up.

Ethan Wu
The fish poison be on Royal Caribbean. Katie, you’re the tiebreaker.

Katie Martin
I’m gonna go for the cruise ships. I’m very sorry about your dodgy tummy, but that is a run and a half.

Robert Armstrong
I think dodgy tummy is more evidence of how brilliant it is. You can make people sick and your stock can go up 150 per cent.

Ethan Wu
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.

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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.

Unhedged is produced by Jake Harper and edited by Bryant Urstadt. Our executive producer is Jacob Goldstein with additional help from Topher Forhecz. Cheryl Brumley is the FT’s global head of audio. Special thanks to Laura Clarke, Alastair Mackie, Jacob Weisberg and Jess Truglia. 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/unhedgedoffer. I’m Ethan Wu. Thanks for listening.

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