Finance

U.S. Commerce Secretary Gina Raimondo told CNBC’s Morgan Brennan in an exclusive interview that more controls on tech exports to China will be coming, despite business concerns.
“The truth of it is though, technology changes, China changes and we have to keep up with it,” Raimondo said.

BEIJING — More controls on tech exports to China will be coming as needed, despite business concerns, U.S. Commerce Secretary Gina Raimondo told CNBC in an exclusive interview.
“We have to change constantly,” Raimondo told CNBC’s Morgan Brennan over the weekend on the sidelines of the Reagan National Defense Forum.

“I know that’s hard for industry. They want a clear line in the sand,” the commerce secretary said. “The truth of it is though, technology changes, China changes and we have to keep up with it.”
In October 2022, the U.S. Department of Commerce’s Bureau of Industry and Security announced sweeping export controls that restrict the ability of companies to sell certain advanced computing semiconductors or related manufacturing equipment to China.
“It was a bold move, but we thought it was necessary because these semiconductors are unbelievably powerful, and we can’t afford to let them get into the wrong hands,” Raimondo said, acknowledging that “the threat from China is large and growing.”
The U.S. has said it’s focused on restricting China’s military, but the controls also come as both countries seek to develop their artificial intelligence capabilities in the wake of OpenAI’s launch of ChatGPT.

During a defense forum panel Brennan moderated on Saturday, Raimondo also said she is working on a new way to restrict China’s access to certain technologies by setting up “a continuous dialogue” between business and government engineers.

“If you redesign a chip around a particular cut line that enables [China] to do AI I’m going to control it the very next day,” Raimondo said.
U.S. chipmaking giant Nvidia last month reportedly delayed the launch of a new AI chip for China that had been designed to technically comply with U.S. export controls.

What I cannot have industry do is in any way violate the intention of our export controls.

Gina Raimondo
U.S. Commerce Secretary

“We’re in touch with Nvidia,” Raimondo said in the interview with CNBC. “They are crystal clear. They don’t want to violate our export controls. And you know, we want them to sell chips to China. That’s fine. They just can’t sell the most sophisticated AI chips to China.”
When asked about Raimondo’s comments on blocking certain China chip sales, Nvidia said in a statement to CNBC: “We are engaged with the U.S. government and, following the government’s clear guidelines, are working to offer compliant data center solutions to customers worldwide.”
Nvidia has been one of the most high-profile companies affected by U.S. export controls since its advanced semiconductors are widely used for training artificial intelligence models. The company warned in August last year it could lose $400 million in potential sales in China due to U.S. restrictions.
Raimondo told CNBC she is considering similar controls on the “most sophisticated AI and all the products that flow from that,” as well as biotechnology and quantum computing.
“What I cannot have industry do is in any way violate the intention of our export controls,” she said. “They have to follow the rule and the spirit of the law. And as long as they, or any company, does that, it’s fine.”

‘Always be ahead’

U.S. President Joe Biden, who is up for reelection next year, signed a bill last year aimed at supporting U.S. semiconductor development with tens of billions of dollars.
The Chinese government has meanwhile doubled down efforts to build up its own semiconductor and tech industry.
Raimondo told CNBC “it’s not realistic” to think the U.S. can stop China’s technological development, but rather that the goal was “slowing them down.”
“We still sell billions of dollars a year in semiconductors to China,” she said. “We just cannot let them access the most sophisticated, cutting edge artificial intelligence chips.”
“Ultimately, we just have to run faster. Do more, run faster, so we can always be ahead.”
— CNBC’s Kristina Partsinevelos contributed to this report. More

The Fed is behind the curve when it comes to cutting rates, said Paul Gambles, managing partner at MBMG Group.
Traders are now pricing in a 25-basis-point cut as early as March 2024.
Veteran investor David Roche says “almost certain that the Fed is done raising rates,” and inflation will not go down to 2% anymore.

Chris Wattie | Reuters

The Federal Reserve needs to cut interest rates at least five times next year to avoid tipping the U.S. economy into a recession, according to portfolio manager Paul Gambles.
Gambles, co-founder and managing partner at MBMG Group, told CNBC’s “Squawk Box Asia” the Fed was behind the curve on cutting rates, and in order to avoid an extreme and protracted monetary tightening cycle it will have to deliver at least five cuts in 2024 alone.

“I think Fed policy is now so disconnected from economic factors and from reality that you can’t make any assumptions about when the Fed is going to wake up and and start smelling the amount of damage that they’re actually causing to the economy,” Gambles warned.
The current U.S. policy rate stands at 5.25%-5.50%, the highest in 22 years. Traders are now pricing in a 25-basis-point cut as early as March 2024, according to the CME FedWatch Tool.

Federal Reserve Chairman Jerome Powell said on Friday that it was too early to declare victory over inflation, watering down market expectations for interest rate cuts next year. 
“It would be premature to conclude with confidence that we have achieved a sufficiently restrictive stance, or to speculate on when policy might ease,” Powell said in prepared remarks.
Recent data from the U.S. has signaled easing price pressures, but Powell emphasized that policymakers plan on “keeping policy restrictive” until they are convinced that inflation is heading solidly back to the central bank’s target of 2%.

Financial markets, however, perceived his comments as dovish, sending Wall Street’s main indexes to new highs and Treasury yields sharply lower on Friday. The perception now being that the U.S. central bank is effectively done raising interest rates.

Is the inflation battle over?

U.S. consumer prices were unchanged in October from the previous month, lifting hopes that the Fed’s aggressive rate-hiking cycle was starting to bring down inflation.
The Labor Department’s consumer price index, which measures a broad basket of commonly used goods and services, climbed 3.2% in October from a year earlier but remained flat compared with the previous month.
Veteran investor David Roche told CNBC’s “Squawk Box Asia” that unless there were big external shocks to U.S. inflation in the form of energy or food, it was “almost certain” that the Fed was done raising rates, which also means the next rate move will be down.
“I will stick to 3%, which I think is already reflected in many asset prices. I don’t think we’re going to push inflation down to 2% anymore. It’s too embedded in the economy by all sorts of things,” said Roche, president and global strategist at Independent Strategy.

“Central banks don’t have to fight as fiercely as they did before. And therefore, the embedded rate of inflation will be higher than before it will be 3% instead of 2%,” said Roche, who correctly predicted the Asian crisis in 1997 and the 2008 global financial crisis.
It is now left to be seen what the Fed’s interest-rate plans are at its next and final meeting of the year on Dec. 13. Most market players expect the central bank to leave rates unchanged. More

The INEOS Group founder and CEO has long been linked with a takeover of the storied club, and Sky News reports that Ratcliffe will pay £1.25 billion ($1.58 billion) to acquire a 25% stake.

A statue of George Best, Denis Law and Bobby Charlton standing outside Old Trafford, home of Manchester United in Manchester, England.
Mike Hewitt | Getty Images Sport | Getty Images

LONDON — Manchester United will next week announce that British petrochemicals billionaire Jim Ratcliffe will take a 25% stake in the soccer club, Sky News reported Monday.
The Ineos Group founder and CEO has long been linked with a takeover of the storied club, and Sky News reports that the agreement will see Ratcliffe pay £1.25 billion ($1.58 billion) to acquire 25% of the club’s listed A-shares in a $33-a-share deal.

He will also acquire 25% of current majority owners the Glazer family’s B-shares which carry greater voting rights, according to the report. Manchester United shares rose 1.5% on Monday.
Ratcliffe is expected to commit around £245 million of his personal fortune to upgrade the club’s aging infrastructure as part of the deal.
Both Ineos and Manchester United have been contacted for comment.

Having controlled the club since 2005, the Glazer family began formally exploring a sale in November 2022 after years of underperformance on the pitch relative to the club’s glittering history, and mass protests from fans.
Manchester United is currently seventh in the English Premier League and is on the verge of exiting the European Champions League in the group stages.
Though the most successful club in English soccer history, the Red Devils have been eclipsed over the last decade by bitter crosstown rivals Manchester City, winners of last season’s Premier League, Champions League and domestic cup competition. More

In 1790 America’s finances were in a precarious state: debt-servicing costs were higher than revenues and government bonds traded at 20 cents on the dollar. Alexander Hamilton, the country’s first treasury secretary, wanted a deep and liquid market for safe government debt. He understood the importance of investor confidence, so proposed honouring all debts, including those of states, and offering to swap old debt, at par, for new bonds with a lower interest rate. This was controversial. Shouldn’t speculators who picked up cheap debt in secondary markets be paid less? Yet Hamilton could not be swayed: “When the credit of a country is in any degree questionable, it never fails to give an extravagant premium, in one shape or another, upon all the loans it has occasion to make.”More than two centuries later American politicians are busy undermining Hamilton’s principles. Debt-ceiling brinkmanship has pushed America towards a technical default. Rising interest rates and incontinent spending have seen debt balloon: the country’s total stock of it now amounts to $26.6trn (96% of gdp), up from $12.2trn (71% gdp) in 2013. Servicing costs come to a fifth of government spending. As the Federal Reserve reduces its holdings of Treasuries under quantitative tightening and issuance grows, investors must swallow ever greater quantities of the bonds.All this is straining a market that has malfunctioned frighteningly in the past. American government bonds are the bedrock of global finance: their yields are the “risk-free” rates upon which all asset pricing is based. Yet such yields have become extremely volatile, and measures of market liquidity look thin. Against this backdrop, regulators worry about the increasing activity in the Treasury market carried out by leveraged hedge funds, rather than less risky players, such as foreign central banks. A “flash crash” in 2014 and a spike in rates in the “repo” market, where Treasuries can be swapped for cash, in 2019, first raised alarms. The Treasury market was then overwhelmed by fire sales in 2020, as long-term holders dashed for cash, before the Fed stepped in. In November a cyberattack on ICBC, a Chinese bank, disrupted settlement in Treasuries for days.Regulators and politicians want to find a way to minimise the potential for further mishaps. New facilities for repo markets, through which the Fed can transact directly with the private sector, were put in place in 2021. Weekly reports for market participants on secondary trading have been replaced with more detailed daily updates, and the Treasury is mulling releasing more data to the public. But these fiddles pale in comparison to reforms proposed by the Securities and Exchange Commission (SEC), America’s main financial regulator, which were outlined in late 2022. The SEC has invited comment on these plans; it may begin to implement them from early next year.The result has been fierce disputes about the extent and causes of problems in the Treasury market—and the lengths regulators should go to repair them. A radical overhaul of Treasury trading comes with its own risks. Critics say that the proposed changes will needlessly push up costs for the Treasury. Do they have a point?
Repo repairThe modern Treasury market is a network of mind-bending complexity. It touches almost every financial institution. Short-term bills and long-term bonds, some of which pay coupons or are linked to inflation, are issued by the Treasury. They are sold to “primary dealers” (banks and broker dealers) in auctions. Dealers then sell them to customers: foreign investors, hedge funds, pension funds, firms and purveyors of money-market funds. Many buyers raise money to buy Treasuries using the overnight repo market, where bonds can be swapped for cash. In secondary markets high-frequency traders often match buyers and sellers using algorithms. Participants, in particular large asset managers, often prefer to buy Treasury futures—contracts that pay the holder the value of a specific Treasury on an agreed date—since it requires less cash up front than buying a bond outright. Each link in the chain is a potential vulnerability.
The most important of the SEC’s proposals is to mandate central clearing, under which trading in the Treasury and repo markets would pass through a central counterparty, rather than occur on a bilateral basis. The counterparty would be a buyer to every seller and a seller to every buyer. This would make market positions more transparent, eliminate bilateral counterparty risk and usher in an “all to all” market structure, easing pressure on dealers to intermediate trades. Nate Wuerffel of BNY Mellon, an investment bank, has written that central-clearing rules will be put in place relatively soon.Yet the SEC’s most controversial proposal concerns the so-called basis trade that links the market for Treasuries to the futures market. When buying a futures contract investors need only post “initial margin”, which represents a fraction of the face value of the Treasury. This is often easier for asset managers than financing a bond purchase through the repo market, which is more tightly regulated. As such, there can be an arbitrage between cash and futures markets for Treasuries. Hedge funds will go short, selling a contract to deliver a Treasury, in the futures market and then buy that Treasury in the cash market. They often then repo the Treasury for cash, which they use as capital to put on more and more basis trades. In some cases funds apparently rinse and repeat this to the extent that they end up levered 50 to one against their initial capital.At most times, this trade is pretty low risk. But in times of market stress, such as in 2020, when Treasury prices swung wildly, futures exchanges will send out calls to hedge funds for more margin. If funds cannot access cash quickly they sometimes must close their positions, prompting fire sales. The unwinding of basis trades in 2020 may have exacerbated market volatility. Therefore the SEC has proposed that hedge funds which are particularly active in the Treasury market should be designated as broker-dealers and forced to comply with stricter regulations, instead of the simple disclosure requirements that they currently face. It is also considering new rules that would limit the total leverage hedge funds can access from banks.This has infuriated those who make money from the manoeuvre. In October Ken Griffin, boss of Citadel, the world’s most profitable hedge fund, argued that the regulator was simply “searching for a problem”. He pointed out that the basis trade reduces financing costs for the Treasury by enabling demand in the futures market to drive down prices in the cash market.
Will policymakers hold firm? In a sign of diverging opinions between the SEC and the Treasury, Nellie Liang, an undersecretary at the finance ministry, recently suggested that the market may not be functioning as badly as is commonly believed, and that its flaws may reflect difficult circumstances rather than structural problems. After all, market liquidity and rate volatility feed into each other. Thin liquidity often fosters greater rate volatility, because even a small trade can move prices—and high volatility also causes liquidity to drop, as it becomes riskier to make markets.Moreover, high volatility can be caused by wider events, as has been the case in recent years, which have been unusually lively. It is far from certain that periods of extreme stress, like March 2020 or the chaos caused in the British gilt market when derivative bets made by pension funds blew up, could be avoided with an alternative market structure.
In addition to the proposals from the SEC, the Treasury is working on its own measures to improve how the market functions. These include data gathering and transparency, and beginning buybacks. Buybacks would involve the Treasury buying up older, less liquid issuance—say, ten-year bonds issued six months ago—in exchange for new and more liquid ten-years, which it is expected to start doing from 2024. The Treasury has acknowledged that leverage practices, which make the basis trade possible, warrant investigation, but Ms Liang has also said that there are upsides to the basis trade, such as increased liquidity.Hamilton, the father of the Treasury market, could not have envisaged the vast network of institutions that make up its modern version. Yet he did have a keen appreciation for the role of speculators, who stepped in to buy Treasuries when bondholders lost faith or needed cash. He would have been far more concerned with politicians rolling the dice on defaulting and the growing debt stock than he would have been by enthusiastic intermediators. Although plenty of his successors’ suggestions have widespread support—such as buybacks and central clearing—they would do well to remember his aversion to snubbing those keen to trade. ■ More

The author behind the best-selling book “The Psychology of Money” is trying to relieve investor anxiety over market downturns.
“Realizing how inevitable it is makes it more palatable to deal with when you go through it,” author and behavioral finance expert Morgan Housel told CNBC’s “ETF Edge” recently.

It’s one of the major themes in his new book: “Same as Ever,” which was published in November.
Housel, a partner at the venture capital firm the Collaborative Fund, contends a recession is not an “if” but a “when,” and that knowing this can make it easier to manage expectations. 
“The bear market plants the seeds for the recovery because people get scared into action,” he said. “All the new technologies come about because people are motivated by fear.”
He also advises investors to always have a plan for surprise events because they can catch the market off guard.
“[The financial system is] very good at predicting what the economy and the stock market are going to do next — except for the surprises,” Housel said.

Housel added these surprise events, such as natural disasters and pandemics, tend to be all that matter in market shakeups. But just as the market eventually stabilizes, even times of calm can also “plant the seeds for crazy.”
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The record gold rush may intensify into year-end.
According to NewEdge Wealth’s Ben Emons, the final month of the year typically creates a bigger appetite for the yellow metal.

“It’s been very consistent every December. It’s been a pretty strong performance for gold — especially when there is a rally in the stock market in November,” the firm’s head of fixed income told CNBC’s “Fast Money” on Tuesday.
Gold settled at a new record high Friday. It closed the day up almost 2%, at $2,089.70 an ounce.
Emons listed the economic backdrop and geopolitical backdrop as additional positive catalysts for gold.
“There’s uncertainty next year. We have an election. We don’t know what’s going to happen. We get a recession maybe, maybe not,” said Emons. “At the same time, gold rallies when there’s this risk-on feel in the markets, and that’s really when real rates and interest rates are declining. This gives the gold a really good push for the breakout.”
In a note to clients this week, Emons wrote that months for both gold and stocks are a “rare combo.” Gold gained 3% while the Dow and S&P 500 were both up almost 9% in November.

“[It] tends to occur when markets price in major easing cycles,” he wrote. “Currently, that is going on in a mild manner, which puts the spotlight on the seasonals of gold.”
Emons suggests the strength will continue into next year.
“Central banks are again outbidding gold against dwindling supply, likely setting up the metal for a major breakthrough towards 2100 … lifting boats for laggards like utilities have a shot to claim market leadership by early 2024,” Emons also wrote.
“Fast Money” trader Guy Adami also sees gold shining due to the dollar’s recent performance.
“If rates continue to go lower, the dollar will go lower. That will be a tailwind for gold,” he said. “Gold is within a whisper of having a huge breakout to the upside.”
As of Friday’s close, gold is up more than 14% so far this year.

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Charlie Munger at Berkshire Hathaway’s annual meeting in Los Angeles California. May 1, 2021.
Gerard Miller

As Charlie Munger’s admirers around the globe mourn the loss of one of the most influential investors ever, a deep sense of gratitude and appreciation has spread — for his unparalleled business acumen as well as his uniquely sharp tongue.
Munger, Berkshire Hathaway’s vice chairman who died Tuesday one month shy of his 100th birthday, left a mark on generations of investors in a host of ways thanks to a long and fruitful life.

First and foremost, Munger’s investment philosophy rubbed off on none other than Warren Buffett, giving rise to the sprawling conglomerate worth almost $800 billion that Berkshire is today.
Early in their careers, Munger broadened Buffett’s investing approach, eventually turning away the younger Buffett from buying dirt cheap, “cigar-butt” companies that might still have a little smoke left in them, to instead focus on quality companies selling at fair prices.
“Certainly as Berkshire shareholders, we owe them a debt of gratitude because the earlier you get to a good decision, the better,” Bill Stone, chief investment officer at Glenview Trust, said in an interview. Such timing gives rise to “a compound” effect, he said.
Recognizing a good business
Matt McLennan, co-head of the global value team and portfolio manager at First Eagle Investments, a longtime investor in Berkshire, recalled a meeting with Munger more than 15 years ago, where he asked how he and Buffett spent their time, given their claim that they made investment decisions in only minutes.
“Charlie responded ‘reading,’ which struck me as quite apt given his uncanny ability to build mental models of how the world works and use these models as the advance groundwork for efficient decision-making,” McLennan told CNBC.

Munger long emphasized the importance of recognizing a good business before it’s widely seen as such, and he did so many times in his storied career.
He made a shrewd bet on Chinese electric automaker BYD that proved a big winner. Berkshire first bought BYD in 2008, and the stake has since grown into a multibillion-dollar position in the world’s largest electric vehicle manufacturer.
Munger was also a loyal supporter of Costco Wholesale Corp., calling it one of the best investments of his life. He invested in the retailer before it merged with Price Club in 1993.

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Never following the crowd
Unlike Buffett, who often wraps a piece of criticism in a folksy story, Munger tended to speak bluntly, sprinkling his remarks with unforgettable quips.
As a longtime cryptocurrency skeptic, he never minced words when it came to his critique, saying digital currencies are a malicious combination of fraud and delusion. He also called bitcoin a “turd,” “worthless, artificial gold” and that trading digital tokens is “just dementia.”
When SPACs — special purpose acquisition companies — enjoyed a short-lived boom in 2021, Munger said “it’s just the investment banking profession will sell s— as long as s— can be sold.”
“The thing I really appreciated was that he was so blunt,” Stone of Glenview Trust said. “It’s pretty refreshing because most people in the world are forced to be a little bit cautious in what they say or just want to be liked. He had a special something and I never took it as malicious.”
John Rogers, co-chief executive at Ariel Investments, respected Munger’s no nonsense “irreverence” to the end.
“He was a true contrarian. He didn’t care what others thought,” Rogers said this week at the CNBC CFO Council Summit. “I think to be a successful investor, that’s critical, that you don’t follow the crowd. You think independently, and he was someone who truly did that.” More

Investors can now trade commodities and a Treasury with a popular short-term options strategy.
The Nasdaq recently launched five zero-day options-based exchange-traded funds: United States Oil Fund (USO), United States Natural Gas Fund (UNG), SPDR Gold Shares (GLD), iShares Silver Trust (SLV) and iShares 20+ year Treasury Bond ETF (TLT).

“Zero-day to expiration” or “0DTE” refers to a trade which expires in less than a day. It has taken the options market by storm. The volume of S&P 500 zero-day contracts has increased at least 40%, versus 5% in 2016, according to data from the CBOE.
Not everyone is excited about the new ETF offerings, due to the complexity of the trade.
“I’m cautious about these products because I agree they’re problematic for undereducated retail investors that don’t know how to trade the options market,” Dave Nadig, VettaFi’s financial futurist, told CNBC’s “ETF Edge” on Monday.
The surge in activity surrounding zero-day options has some analysts worried about a negative impact on the market.
“I don’t think the tools themselves are inherently breaking the market,” Nadig said. “Like most market structure things, it’s not a problem until it is.”

Nadig also said he believes that most of the contracts are coming from hedge funds, not retail investors.
“This is largely institutions, hedge funds and day traders, using these as short-term leverage speculative vehicles with the extra added bonus that they never have to settle,” Nadig said. “I think most individual investors probably don’t have any business in here at all. They’re naturally very speculative because of the inherent leverage.” More