Finance

The 167-year-old Credit Suisse was rescued by rival UBS in March in a deal brokered by Swiss authorities, after a string of risk management failures and scandals triggered a client and investor exodus.
In the 2018-2022 period, Swiss regulator FINMA conducted 108 on-site supervisory reviews at Credit Suisse and recorded 382 points requiring action, 113 of which were classed as high or critical risks.
The regulator therefore called for “extended options that would enable it to have more influence on the governance of supervised institutions.”

Axel Lehmann, chairman of Credit Suisse Group AG, Colm Kelleher, chairman of UBS Group AG, Karin Keller-Sutter, Switzerland’s finance minister, Alain Berset, Switzerland’s president, Thomas Jordan, president of the Swiss National Bank (SNB), Marlene Amstad, chairperson of the Swiss Financial Market Supervisory Authority (FINMA), left to right, during a news conference in Bern, Switzerland, on Sunday, March 19, 2023.
Pascal Mora | Bloomberg | Getty Images

Switzerland’s financial regulator on Tuesday called for greater legal powers and vowed to adapts its approach in the wake of the Credit Suisse collapse.
The 167-year-old bank was rescued by domestic rival UBS in March in a deal brokered by Swiss authorities, after a string of risk management failures and scandals triggered a client and investor exodus that forced it to the brink of insolvency.

The Swiss Financial Market Supervisory Authority (FINMA) said in a Tuesday report that, alongside the government and the Swiss National Bank, it had achieved the aim of safeguarding Credit Suisse’s solvency and ensuring financial stability.
It also drew attention to the “far-reaching and invasive measures” taken over the preceding years to supervise the bank and to “rectify the deficiencies, particularly in the bank’s corporate governance and in its risk management and risk culture.”
From summer 2022 onwards, FINMA also told the bank to take “various measures to prepare for an emergency” — a warning it suggests went unheeded.

“FINMA draws a number of lessons in its report. On the one hand, it calls for a stronger legal basis, specifically instruments such as the Senior Managers Regime, the power to impose fines, and more stringent rules regarding corporate governance,” the regulator said.
“On the other hand, FINMA will also adapt its supervisory approach in certain areas, and will step up its review of whether stabilisation measures are ready to implement.”

FINMA said that strategic changes announced to de-risk Credit Suisse, such as downsizing its investment bank, focusing on its asset management business and reducing its earnings volatility, were “not implemented consistently,” while “recurrent scandals undermined the bank’s reputation.”
It also noted that, even in years when the bank posted heavy financial losses, the variable remuneration remained high, with shareholders making little use of opportunities to influence pay packets.
Between 2012 and the bank’s emergency rescue, the regulator says it conducted 43 preliminary investigations of Credit Suisse for potential enforcement proceedings. Nine reprimands were issued, 16 criminal charges filed, and 11 enforcement proceedings were taken against the bank and three against individuals.
FINMA said it repeatedly informed Credit Suisse of risks, recommended improvements and imposed “far reaching measures.” These included “extensive capital and liquidity measures, interventions in the bank’s governance and remuneration, and restrictions on business activities.”

“In the period from 2018 to 2022 it also conducted 108 on-site supervisory reviews at Credit Suisse and recorded 382 points requiring action,” FINMA said.
“In 113 of these points the risk was classed as high or critical. These figures and measures illustrate that FINMA exhausted its options and legal powers.”
At the time of its collapse, Credit Suisse bosses attributed the loss of confidence to the market panic triggered by the collapse of Silicon Valley Bank in the U.S.
Credit Suisse was asked over the summer to put in place crisis preparation measures, such as partial business sales and the possible sale of the entire bank in an existential emergency.
The regulator therefore called for “extended options that would enable it to have more influence on the governance of supervised institutions.”
These include the implementation of a Senior Managers Regime, powers to impose fines and option of regularly publishing enforcement proceedings.
“To enable FINMA to effectively intervene in remuneration systems, a more solid legal mandate is required,” it concluded. More

Chopping off their heads does not work: cockroaches can live without one for as long as a week. Whacking them is no guarantee either: their flexible exoskeletons can bend to accommodate as much as 900 times their body weight. Nor is flushing them down the toilet a solution: some breeds can hold their breath for more than half an hour. To most, roaches are an unwelcome pest. Their presence is made all the worse because they are indestructible.An unwelcome pest is how many financiers and regulators would describe the crypto industry. Criminals use cryptocurrencies to launder money. Terrorists use them to make payments. Hackers demand ransoms in bitcoin. Many crypto coins are created simply so their makers can make off with the money.The industry also appears to be indestructible. Crypto prices were crushed by higher interest rates in 2022. The industry’s head has been chopped off: Changpeng Zhao and Sam Bankman-Fried, the founders of the world’s biggest and second-biggest crypto exchanges, now both await sentencing for financial crimes (breaking anti-money-laundering laws and fraud, respectively). Regulators are cracking down. Yet not only has crypto survived, it is once again soaring: bitcoin climbed to a two-year high of almost $45,000 on December 11th, up from just $16,600 at the start of the year.What is going on? For one thing, indestructibility is built into the technology. Bitcoin, ether and other coins are not companies—they cannot go bankrupt and be shut down. They employ blockchains, which maintain a database of transactions. Their lists are verified by a decentralised network of computers that are incentivised to keep maintaining them by the promise of new tokens. Only if the tokens fall to zero does the whole architecture collapse. And there continue to be lots of reasons to believe some crypto tokens are worth more than nothing.The first is that holding crypto is a bet on a future in which use of the technology is widespread. People in despotic countries already use bitcoin and stablecoins (tokens pegged to a hard currency, like the dollar) to store savings and sometimes to make payments. These could be used more widely. Artists and museums are still creating or collecting non-fungible tokens (nfts). As are those looking to flog an image. Donald Trump is selling his mugshot for $99 a piece. He plans to have the suit he was booked in cut into pieces, made into cards and given to punters who buy at least 47 nfts in a single transaction.During the boom times, the crypto industry raised a lot of money and hired plenty of smart developers. Those that remain are working on new uses, like social-media applications or play-to-earn games. Perhaps these will never be widely adopted. But even the small chance that they work out is worth something.The second reason is that, with each boom-and-bust cycle, it becomes clearer crypto is not a bubble like tulip mania in the 1630s or the craze for Beanie Babies in the 1990s. Although bitcoin is a volatile asset, its price history looks more like a mountain range than a single peak, and appears closely correlated with tech stocks. Yet it is only moderately correlated with the broader market. An asset that swings up and down, and not in parallel with other things people might have in a portfolio, can be a useful diversifier.That bitcoin has established itself as a serious asset seems to be the source of the latest surge. In August an American court ruled that the Securities and Exchange Commission, America’s main markets regulator, had been “arbitrary and capricious” when rejecting an effort by Grayscale, an investment firm, to convert a $17bn trust invested entirely in bitcoin into an exchange-traded fund (etf). Doing so would make investing in bitcoin easier for the average punter.In October the court upheld its ruling—in effect ordering the sec to give way. The biggest fund managers, including BlackRock and Fidelity, have also applied to launch etfs. Given the returns bitcoin has offered in the past, and its correlations with other assets, the result could be a rush of cash into bitcoin, as even sensible investors consider putting small slices of their pension pots or portfolios into crypto for diversification.Many feel instinctive revulsion when they spy a roach. But in spite of their flaws, the bugs have uses—they turn decaying matter into nutrients and eat other pests, such as mosquitoes. Crypto has its uses, too, such as portfolio diversification and keeping money safe under despotic regimes. And, as has been shown, it is just about impossible to kill. ■ More

Experts expect generative AI to transform the way wealth management firms do business.
Gen AI can have a powerful impact when combined with other AI technologies, according to PwC.
BlackRock and Morgan Stanley are among the big firms that have embraced AI.

Yuichiro Chino | Moment | Getty Images

Like it or not, generative artificial intelligence has arrived on Wall Street — and experts expect it to transform the way firms do business.
To be clear, artificial intelligence, like natural language processing and machine learning, has been used by wealth management and asset management firms for years. Yet with generative AI now on the scene, it can have a powerful impact when combined with other AI technologies, said Roland Kastoun, U.S. asset and wealth management consulting leader for PwC.

“We see this as a massive accelerator of productivity and revenue growth for the industry,” he said.
In fact, the banking sector is expected to have one of the largest opportunities in generative AI, according to McKinsey & Company. Gen AI could add the equivalent of $2.6 trillion to $4.4 trillion annually in value across the 63 use cases the McKinsey Global Institute analyzed. While not the largest beneficiaries within banking, asset management could see $59 billion in value and wealth management could see $45 billion.

Some of the biggest names in the business are already on board.
Earlier this month, BlackRock sent a memo to employees that in January it will roll out to its clients generative AI tools for Aladdin and eFront to help users “solve simple how-to questions,” the memo said.
“GenAI will change how people interact with technology. It will improve our productivity and enhance the great work we are already doing. GenAI will also likely change our clients’ expectations around the frequency, timeliness, and simplicity of our interactions,” the memo said.

Meanwhile, Morgan Stanley unveiled its generative AI assistant for financial advisors, called AI @ Morgan Stanley Assistant, in September. The firm’s co-President Andy Saperstein said in a memo to staffers that generative AI will “revolutionize client interactions, bring new efficiencies to advisor practices, and ultimately help free up time to do what you do best: serve your clients.”
Earlier this year, both JPMorgan and Goldman Sachs said they were developing ChatGPT-style AI in house. JPMorgan’s IndexGPT will tap “cloud computing software using artificial intelligence” for “analyzing and selecting securities tailored to customer needs,” according to a filing in May. Goldman said its technology will help generate and test code.
Read more from CNBC Pro:How to invest in Wall Street’s artificial intelligence boom
Those who don’t embrace AI will be left behind, said Wells Fargo bank analyst Mike Mayo.
“If the bank across the street has financial advisors that are using AI, how can you not be using it too?” he said. “It certainly increases the stakes for competition, and you can keep up or fall behind.”
In fact, as the younger generation ages, those digitally native investors will seek greater digitization, more personalized solutions and lower fees, William Blair analyst Jeff Schmitt said in an Oct. 20 note.
“Given that these investors will control an increasing share of invested assets over time, wealth management firms and advisors are leveraging AI to enhance offerings and adjust service delivery models to win them over,” he wrote.
Cerulli Associates estimated some $72.6 trillion in wealth will be transferred to heirs through 2045.

Not just generative AI

The big appeal of generative AI — and a differentiator from other AI tech — is its ability to generate content, said PwC’s Kastoun.
It’s one thing for technology to analyze a large set of content, he pointed out. “It’s another thing for it to be able to generate new content based on the data that it has, and that’s what’s creating a lot of hype.”
Yet what he’s seeing in both the wealth management and asset management business is the use of multiple elements of AI, not just generative AI, he said.
“It’s the power of combining these different technologies and methodologies that is really creating an impact across the industry,” Kastoun said.
Firms are now figuring out how to incorporate generative AI into their businesses and existing AI technologies. At T. Rowe Price, its New York City Technology Development Center has been building AI capabilities for several years.
“We ultimately are looking to help our decision makers get the benefit of data and insights to do their job better,” said Jordan Vinarub, head of the center.
His team made a big pivot with the arrival of generative AI.
“We kind of saw this as an existential moment for the firm to say, we need to understand this and figure out how we can use it to support the business,” Vinarub said. “Over the past, I guess, six months … we’ve gone from just pure research and proofs of concept to then building our own internal application on top of the large language model to help assist our investors and research process.”

New entrants

It’s not only the big firms adapting to generative AI; smaller upstarts are looking for ways to disrupt the industry.
Wealth-tech firm Farther is one of those. Its co-founder, Brad Genser, said the company is a “new type of financial institution” that was built to combine expert advisors and AI.
“If you don’t build the technology, along with the human processes, and you don’t control both, you end up with something that’s incomplete,” he said. “If you do it together, you’re building people processes and technology together, then you get something that’s greater than the sum of its parts.”
Then there is Magnifi, an investing platform that uses ChatGPT and computer programs to give personal investing advice. Investors link the technology to their various accounts, and Magnifi can monitor their portfolios. About 45,000 subscribers have connected over $500 million in aggregate assets to the platform, Magnifi said in November.
“It’s a copilot alongside individual consumers that they’re interacting with over time,” said Tom Van Horn, Magnifi’s chief operating and product officer. “It’s not taking over control, it’s empowering those individuals to get to better wealth outcomes.”

An AI coworker

The technology is so fast moving, it’s difficult to know what use cases could exist in the future. Yet certainly as productivity continues to increase, advisors can increase their time and level of engagement with their clients.
“It could change the way we think about a lot of the way we set up our business models,” PwC’s Kastoun said.
It’s also about people working with the technology and not the technology necessarily replacing humans, experts said.
“The dream state is that every employee will have an AI copilot or AI coworker and that each customer will have the equivalent of an AI agent,” Wells Fargo’s Mayo said. “I’m not talking about computers alone. I’m not talking about humans alone, but humans plus AI can compete better than either computers or humans alone.”
— CNBC’s Michael Bloom contributed reporting.
Correction: This article has been updated to reflect that Magnifi said in November that about 45,000 subscribers have connected over $500 million in aggregate assets to the platform. A previous version misstated the amount of assets. More

The Fed voted last week to hold rates steady once again, and its updated projections showed an expectation of three rate cuts in 2024.
That caused a rally in stocks and bonds, with the Dow Jones Industrial Average jumping to a record.
However, Chicago Fed President Austan Goolsbee suggested on CNBC’s “Squawk Box” on Monday that the reaction wasn’t totally rational given what the central bank actually said.

A Federal Reserve official said Monday that the market may have misunderstood the central bank’s intended message last week after stocks and bonds rallied sharply.
The Fed voted last week to hold rates steady once again, and its updated projections showed an expectation of three rate cuts in 2024. That caused a rally in stocks and bonds, with the Dow Jones Industrial Average jumping to a record high.

“It’s not what you say, or what the chair says. It’s what did they hear, and what did they want to hear,” said Chicago Fed President Austan Goolsbee said on CNBC’s “Squawk Box.” “I was confused a bit — was the market just imputing, here’s what we want them to be saying?”

Stock chart icon

The Dow hit a record high last week.

The Fed president also pushed back against the idea that the Fed is actively planning on a series of rate cuts.
“We don’t debate specific policies, speculatively, about the future. We vote on that meeting,” he said.
Trading in the options market implies that traders see 3.75% to 4.00% as the most likely range for the Fed’s benchmark rate at the end of 2024, according to the CME FedWatch Tool. That would be six quarter-point cuts below the current Fed funds rate, or double what was forecast in the central bank’s summary of economic projections.
Goolsbee did not explicitly say that the market pricing was wrong, but did highlight this difference.

“The market expectation of the number of rate cuts is greater than what the SEP projection is,” Goolsbee said.
Goolsbee is not the only Fed official who has downplayed the meeting in the wake of the market rally. New York Fed President John Williams said on CNBC’s “Squawk Box” on Friday that “we aren’t really talking about rate cuts right now.” More

Improbable has sold The Multiplayer Group, a multiplayer games services company it bought in 2019, to Keywords Studios for £76.5 million ($97.1 million).
Herman Narula, Improbable’s CEO, told CNBC the transaction is part of its “venture builder” strategy, through which it invests in or acquires teams with the option to expand them or spin them out.
The deal to sell MPG, one of Improbable’s many notable bets on gaming, arrives after a series of struggles at the firm.
Narula said he expects to see a “tale of two metaverses” emerge in 2024, where centralized experiences such as Roblox and Fortnite are eschewed in favor of decentralized, “Web3” versions.

Herman Narula, co-founder and CEO of Improbable, speaks during a session at the Web Summit in Lisbon.
Henrique Casinhas | Sopa Images | Lightrocket | Getty Images

Metaverse company Improbable has sold one of its key gaming ventures to London-listed video game developer Keywords Studios for £76.5 million ($97.1 million).
The company closed the deal to sell The Multiplayer Group (MPG), a multiplayer game services firm, to Keywords on Sunday, an Improbable spokesperson told CNBC.

Based in Ireland, Keywords owns more than 70 studios in locations including Los Angeles, France, Brazil, Mexico and Spain. The firm mainly develops games for third-party developers.
Keywords’ shares have fallen around 49% year-to-date. It has been on an acquisition spree lately, earmarking 91.9 million euros ($100 million) to new takeovers.
That led to a shift from a net cash position at the end of last year to a net debt position of €11.4 million as of June 30.
Keywords also reported earnings per share of 18.48 euro cents in its half-year results for the period to June 30, down 40% year over year.
Keywords said its acquisition of MPG was funded primarily through cash and its existing revolving credit facility, and would contribute double-digit revenue growth in 2024.

Keywords expects the transaction to be earnings per share accretive in its first full year post-acquisition.
MPG was founded in 2018 and is known for behind-the-scenes work on games such as Fallout 76 and Medal of Honor: Above and Beyond.
Herman Narula, Improbable’s co-founder and CEO, told CNBC the transaction was part of its “venture builder” strategy, through which it invests in or acquires gaming and metaverse-related teams with the option of expanding or spinning them off at a later point.
“The thought was, if we understand multiplayer well, and we understand metaverses, maybe we can spot opportunities where we can bring things in the den that we can do well with. And then, at the right time, if it makes sense, to either keep growing them or potentially spin them out,” Narula told CNBC in an exclusive interview.
“It became clear that working with MPG and bringing them in house would have let us learn a colossal amount and help them grow.”

Improbable acquired MPG in 2019, and it has grown dramatically since. Employee numbers rose sixfold in the past four years to 360.
And MPG’s valuation has more than doubled to £76.5 million from Improbable’s original purchase price of £30 million.
While the move suggests a potential scaling back of Improbable’s gaming-related investments, Narula disputed the idea that a sale of MPG marks any sort of retrenchment from that space.
“We’re not in any way selling any technology, or in any way ceasing to operate with games companies,” Narula said. “MPG provide a very specific, specialised service.”
A series of games built on Improbable’s original SpatialOS technology have been canceled in recent years.
They include the open-world game Nostos, developed by NetEase, Worlds Adrift, made by Bossa Studios, and the console version of Scavengers, a game developed by Midwinter Entertainment.
Midwinter was sold by Improbable earlier this year to Behaviour Interactive.
Morpheus, a technology platform developed by Improbable, is now the company’s primary product. Morpheus is designed to host mass-scale multiplayer online games.
Improbable has hosted new experiences using its Morpheus tech, including virtual Major League Baseball games, and the “Otherside” metaverse developed in partnership with blockchain firm Yuga Labs.

Trying to sell investors on ‘metaverse’

Founded in 2012, Improbable is a British firm that aims to build what it calls a network of metaverses. In June, Improbable launched MSquared, a metaverse creation suite, and granted developers access to the platform.
MSquared includes its own network, tech stack, and open-source metaverse markup language.

The deal to sell MPG, one of Improbable’s many notable bets on gaming, arrives after a series of struggles at the firm.
Improbable has undergone substantial cost reductions.
The firm, which scored a $3.4 billion valuation in October 2022, laid off dozens of staffers late last year after raising substantial sums from SoftBank and Andreessen Horowitz.
But valuations of once buzzy metaverse and Web3-related startups have been knocked this year and last year by waning investor enthusiasm for the space.
Improbable has more recently touted itself as artificial intelligence-enabled, saying this has helped lower costs. The company slashed its losses by 85% in 2022 to £19 million.

‘Tale of two metaverses’

Improbable originally set out to build large-scale computer simulations that have applications in gaming and defense.
But its metaverse bets have now become its main focus.
Improbable sold its defense business to Noia Capital in September, marking an exit from a loss-making venture for the firm.
Narula says he expects to see a “tale of two metaverses” emerge next year. Centralized gaming experiences such as Roblox and Fortnite will be eschewed in favor of decentralized, “Web3” metaverses, Narula said.

Web3 refers to the idea of a more decentralized and open version of the web, outside the control of a handful of powerful tech companies like Amazon and Meta.
Blockchain is a key technology involved.
“Ultimately, they [Roblox and Fortnite] are games with different modes made by users and by brands. But people can’t build businesses that they have control over, or that can do commercial things that would be appropriate,” Narula said.
“The other branch of the metaverse, which is driven in some ways by Web3 and in other ways by companies like ours … is really about creating a network of sovereign metaverses.”
Analysts have expressed skepticism about the ability for Improbable to commercialize its technology, not least owing to the technical limitations and high costs involved.
“The jury is still out if they have a viable business model going forward, or whether the reality will ever match the ‘virtual’ hype,” Greg Martin, co-founder and managing director of Rainmaker Securities, a private market trading firm, told CNBC.
Narula said he is hoping to sign up many more partners for MSquared in the future.
Improbable, which is focusing on putting on large-scale metaverse events, ran 30 such gatherings in 2023, up from only three last year. The company plans to raise that number to 300 in 2024. More

U.S. consultancy Mercer issues a closely-watched annual report that analyzes 47 different retirement income systems around the world — with European nations often coming out on top.
Another list from wealth management firm Blacktower, released back in 2021, ranks a much higher number of European nations and placed Belarus last using several key factors.

Amsterdam, The Netherlands.
Alexander Spatari | Moment | Getty Images

Moving to another country to eventually retire requires a lot of careful research and planning, taking into account social security, health care, and finances.
U.S. consultancy Mercer issues a closely-watched annual report that analyzes 47 different retirement income systems around the world — with European nations often coming out on top.

In fact, three countries have dominated the Mercer CFA Institute’s global index since 2021. Namely, Iceland (a 84.6 average), the Netherlands (a 84.4 average) and Denmark (a 81.8 average) have been considered to have the best pension systems over these past three years.
“All three have large industry funds with defined contributions from workers and employers. They have mandatory or quasi-mandatory schemes. These countries benefit from good economies of scale versus more fragmented markets like the U.K. for occupational pensions,” Eimear Walsh, Mercer’s head of investments and wealth, told CNBC.
The Netherlands got the highest overall index value (85.0) this year thanks to good benefits, a strong asset base and sound regulation, while popular European destinations such as Spain, Italy and Croatia have faced some shortcomings.  
The Mercer index is made up of three sub-categories where it rates a pension system: adequacy, sustainability and integrity.

Adequacy of income

A key aim of any pension system should be to provide adequate income for retired people, essentially a safety net. The ability of governments to create incentives for average-income earners to save for retirement plays an important role for the health of any system.

The design of the payment plan is also key, according to Mercer’s ranking, and whether workers can continue to accrue benefits when they are temporarily out of the workforce, for childcare or illness.
Portugal took the top spot on this metric with a score of 86.7 in Mercer’s latest report, due to its earnings-based public pension system. Netherlands was a close second, with a score of 85.6. Both systems have a minimum pension rate, creating a net for even the lowest-income groups. The lowest rating in Europe was Poland which came 31st globally with a 59.8 score.
Portugal was also named the best European country for retirement by Moving to Spain, a relocation company. In a June report, it ranked European countries on several factors like visas, beaches, safety and home prices.
Another list from wealth management firm Blacktower, released back in 2021, ranks a much higher number of European nations and placed Belarus last using several key factors.

Integrity

Funded pension plans provided by the private sector also play an important role in the stability of a country’s retirement system. The Mercer index looks at whether private pension plans in countries generate enough value for members and if there’s enough confidence in the public for these programs.
Finland had the best score on integrity with a 90.9 rate in 2023. Belgium came in second with an 88.2 score and Netherlands ranked in third place with a score of 87.7. France was the worst performer in Europe, with a score of 54.4. Notably, the U.S. is also placed well below the global average with 59.5 points in this category.

Finland has a happiness score that is significantly ahead of all other countries, according to the report.
Westend61 | Westend61 | Getty Images

Finland is also classed as a “happy place” to retire by a Natixis Index. Despite not making it into Natixis’ top 10 in overall scores, Finland has led the investment bank’s “quality of life” category for five consecutive year. A high happiness score, high air quality, water and sanitation, and biodiversity are the main drivers of Finland’s number one position, it said.
Norway was the top performer in the Natixis index for 2023, retaining its place from last year and boasting an overall score of 83%. Switzerland ranks second in the overall index and tops the “finances in retirement category.”

Sustainability of the system

Mercer believes the economic growth of a country in the long term also plays a crucial role, as this directly affects the number of people in the workforce and the amount of money saved for retirement. Additionally, the amount of debt a country has and the amount of public money it spends on pensions, affect the sustainability of its retirement system.

Based on these factors, Iceland has the most sustainable system in Europe with a rating of 83.8. Denmark and Netherlands come right after, with 82.5 and 82.4 respectively. Italy has the lowest score in Europe with 23.7, followed by Spain with a score of 28.5.
However, Mercer’s Walsh noted that there are some soft factors that the index doesn’t take into account which could still make countries like Italy and Spain popular retirement destinations for many people.
“We focus a lot on the pensions system but that’s not the only thing to consider. It’s an important balance. A lot of it also depends on the tax system, the climate and culture of the country, and whether people can actually be happy there,” she said. More

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Market optimism over the potential for interest rate cuts next year is dangerously overdone, according to former FDIC Chair Sheila Bair.
Bair, who ran the FDIC during the 2008 financial crisis, suggested Federal Reserve Chair Jerome Powell was irresponsibly dovish at last week’s policy meeting by creating “irrational exuberance” among investors.

“The focus still needs to be on inflation,” Bair told CNBC’s “Fast Money” on Thursday. “There’s a long way to go on this fight. I do worry they’re [the Fed] blinking a bit and now trying to pivot and worry about recession, when I don’t see any of that risk in the data so far.”
After holding rates steady Wednesday for the third time in a row, the Fed set an expectation for at least three rate cuts next year totaling 75 basis points. And the markets ran with it.
The Dow hit all-time highs in the final three days of last week. The blue-chip index is on its longest weekly win streak since 2019 while the S&P 500 is on its longest weekly win streak since 2017. It’s now 115% above its Covid-19 pandemic low.
Bair said she believes the market’s bullish reaction to the Fed is on borrowed time.
“This is a mistake. I think they need to keep their eye on the inflation ball and tame the market, not reinforce it with this … dovish dot plot,” Bair said. “My concern is the prospect of the significant lowering of rates in 2024.”

Bair still sees prices for services and rental housing as serious sticky spots. Plus, she worries that deficit spending, trade restrictions and an aging population will also create meaningful inflation pressures.
“[Rates] should stay put. We’ve got good trend lines. We need to be patient and watch and see how this plays out,” Bair said.
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Almost everyone expected a global recession in 2023, as central bankers fought high inflation. They were wrong. Global GDP has probably grown by 3%. Job markets have held up. Inflation is on the way down. Stockmarkets have risen by 20%.But this aggregate performance conceals wide variation. The Economist has compiled data on five economic and financial indicators—inflation, “inflation breadth”, GDP, jobs and stockmarket performance—for 35 mostly rich countries. We have ranked them according to how well they have done on these measures, creating an overall score for each. The table below shows the rankings, and some surprising results.Top of the charts, for the second year running, is Greece—a remarkable result for an economy that was until recently a byword for mismanagement. Aside from South Korea, many of the other standout performers are in the Americas. The United States comes third. Canada and Chile are not far behind. Meanwhile, lots of the sluggards are in northern Europe, including Britain, Germany, Sweden and, bringing up the rear, Finland.Tackling rising prices was the big challenge in 2023. Our first measure looks at “core” inflation, which excludes volatile components such as energy and food and is therefore a good indicator of underlying inflationary pressure. Japan and South Korea have kept a lid on prices. In Switzerland core prices rose by just 1.3% year on year. Elsewhere in Europe, though, many countries still face serious pressure. In Hungary core inflation is running at around 11% year on year. Finland is also struggling.In most countries inflation is becoming less entrenched—as measured by “inflation breadth”, which calculates the share of the items in the consumer-price basket where prices are rising by more than 2% year on year. Central banks in places like Chile and South Korea increased interest rates aggressively in 2022, sooner than many others in the rich world, and now seem to be reaping the benefits. In South Korea inflation breadth has fallen from 73% to 60%. Central bankers in America and Canada, where inflation breadth has dropped even more sharply, can take some credit, too.Our next two measures—growth in employment and GDP—hint at the extent to which economies are delivering for ordinary people. Nowhere fared spectacularly well in 2023. But only a small minority of countries saw GDP decline. Ireland was the worst performer, with a drop of 4.1% (take this with a pinch of salt: there are big problems with the measurement of Irish GDP). Britain and Germany also performed poorly. Germany is struggling with the fallout from an energy-price shock and rising competition from imported Chinese cars. Britain is still dealing with the consequences of Brexit.America did well on both GDP and employment. It has benefited from record-high energy production as well as the effects of a generous fiscal stimulus implemented in 2020 and 2021. The world’s largest economy may have pulled up other countries. Canada’s employment has risen smartly. Notwithstanding its war with Hamas, Israel, which counts America as its largest trading partner, comes fourth in the overall ranking.You might think that the American stockmarket, filled with firms poised to benefit from the revolution in artificial intelligence, would have done well. In fact, adjusted for inflation it is a middling performer. The Australian stockmarket, filled with commodities firms managing a comedown from high prices in 2022, underperformed. Share prices in Finland have slumped. Japan’s firms, by contrast, are experiencing something of a renaissance. The country’s stockmarket is one of the best performers this year, rising in real terms by nearly 20%.But for glorious equity returns, look thousands of miles west—to Greece. There the real value of the stockmarket has increased by over 40%. Investors have looked afresh at Greek companies as the government implements a series of pro-market reforms. Although the country is still a lot poorer than it was before its almighty bust in the early 2010s, in a recent statement the imf, once Greece’s nemesis, praised “the digital transformation of the economy” and “increasing market competition”. While underperforming Finns can console themselves this Christmas by drowning their sorrows in their underwear (or getting päntsdrunk, as it is known locally), the rest of the world should raise a glass of ouzo to this most unlikely of champions. ■ More