Finance

“I think the SEC, in my opinion, has lost sight of their mission to protect investors,” Ripple CEO Brad Garlinghouse told CNBC’s Dan Murphy at the Ripple Swell event in Dubai.
Ripple was handed a pivotal victory in July as a judge ruled that XRP was not in and of itself a security; the next key step in the case is a remedies discovery process.
Garlinghouse hopes that the U.S. will move beyond a situation where crypto regulation is dictated by litigation to a point where federal laws governing digital currencies are introduced by Congress.

Brad Garlinghouse, chief executive officer of Ripple Labs Inc., speaks during the Token2049 conference in Singapore, on Wednesday, Sept. 13, 2023.
Joseph Nair | Bloomberg | Getty Images

The CEO of blockchain company Ripple has some strong words for the U.S. Securities and Exchange Commission.
Brad Garlinghouse told CNBC’s Dan Murphy at the company’s Ripple Swell conference in Dubai that he thinks the agency has lost sight of one of its key tasks as a regulator.

“I think the SEC, in my opinion, has lost sight of their mission to protect investors. And the question is, who are they protecting in this journey?” Garlinghouse said Thursday. The SEC was not immediately available for comment when contacted by CNBC.
The SEC in 2020 accused Ripple and its executives of conducting a $1.3 billion securities fraud via sales of XRP to retail investors. Ripple, the regulator alleged, failed to register an ongoing offer and sale of billions of XRP tokens to investors, depriving them of adequate disclosures about XRP and Ripple’s business.
In July, Ripple was handed a pivotal victory as a judge ruled that XRP is not in and of itself a security. Following this, the SEC was denied a request for an interlocutory appeal. Then, in October, the SEC dropped its securities law violation charges against Garlinghouse and Ripple executive Chris Larsen.
The next key step in the case is the remedies discovery process. The SEC has 90 days from Nov. 9 to conduct remedies-related discovery, according to a proposed schedule submitted by the SEC.
“I think it is a positive step for the industry, not just for Ripple, not just for Chris and Brad, but for the whole industry, that the SEC has been put in check in the United States. And I’m hopeful this will be a thawing of the permafrost in the United States for really seeing an amazing industry that has immense potential thrive in the largest economy in the world,” Garlinghouse told CNBC.

Garlinghouse hopes that the U.S. will move beyond a situation where crypto regulation is dictated by a constant stream of litigation to a point where federal laws governing digital currencies are introduced by Congress.
“One of the things that people talk about is, one of the definitions of insanity is doing the same thing over and over again, and thinking you’ll get a different outcome, the SEC is doing the same thing over and over again. And they think, I guess, they’re gonna get a different outcome at some point,” Garlinghouse continued.
“[Digital asset manager] Grayscale also had, I think, an important victory in the United States about the bitcoin ETF, where the judge had to get, a federal judge talking about a federal agency, the SEC, saying the SEC is being arbitrary and capricious,” he added, referencing an appeals court ruling that said the SEC was wrong to reject an application from Grayscale to create a bitcoin ETF.
“Generally, judges tend to be pretty down the middle and try to not be dramatic — those are damning words. So I think at some point, the SEC has to step back and realize that their approach of regulation through enforcement, let’s just bring lawsuits, that has to break.”

What is Ripple?

Ripple is a payments company that specializes in cross-border money transfers through the blockchain, a distributed database that records transactions across multiple computers. The company’s RippleNet network is used by financial institutions to send funds from one country to another.
Ripple also leverages XRP, a cryptocurrency, to make cross-border payments. The XRP token, which has become commonly associated with Ripple the company, is meant to act as a kind of “bridge” currency between one fiat currency and another as those transactions flow across countries.
So, say you want to send some money from the U.S. to Mexico. Ripple’s technology lets you do that by converting the U.S. dollars into XRP, transferring the XRP over to Mexico, and then converting it into Mexican pesos on the other side.
By doing so, Ripple says, you don’t need to have pre-funded accounts on the other side of a cross-border transaction in order to get that money.
That’s the business case for XRP from Ripple’s point of view. But XRP in its most common usage is ultimately a token that investors speculate on. And when its price dropped like a stone — like other cryptocurrencies — in the 2018 crypto bear market, regulators got concerned about the impact of these digital currencies on retail investors.
In Ripple’s case, unlike bitcoin, the cryptocurrency is predominantly owned by Ripple, which holds a huge amount of XRP in an escrow account and releases tokens on a quarterly basis to a mix of institutional investors and retail investors via sales on cryptocurrency exchanges. This is a big part of how Ripple makes money.
That has been a big point of contention for the SEC as it pursues its case against Ripple. Ripple, for its part, maintains that XRP shouldn’t be considered a security and is more akin to a currency or commodity. Being designated a security would mean Ripple having to file lots of paperwork and disclosures with regulators, a process that could prove costly. More

With the meme-stock rally in the review mirror, individual investors are rediscovering a philosophy made famous by Vanguard’s founder, Jack Bogle.
Fans call themselves “Bogleheads,” and espouse the virtues of “lazy” investing — a strategy that’s working well amid higher interest rates.
“Income-seeking retail investors are taking advantage of the new high-rate regime — some are calling it ‘T-Bill and chill,”‘ said Marco Iachini, senior vice president of Vanda Research.

Jack Bogle
Mark Lennihan | AP

Boring investing is making a comeback.
With the meme-stock rally in the rearview mirror and interest rates surging, individual investors are rediscovering the philosophy made famous by Vanguard’s founder, Jack Bogle. The father of market indexes preached low-cost, passive investments that compound over years. Fans call themselves “Bogleheads,” and the strategy “lazy” investing.

They’re well positioned for the current market. Timing has proved difficult this year, with eight days accounting for all of the S&P 500’s gains, according to DataTrek. Higher rates have slammed tech and growth stocks, which dominated retail traders’ portfolios during the pandemic. GameStop, the original meme trade, is down roughly 85% from its all-time high.
Dan Griffin, a self-proclaimed Boglehead based in Florida, said he watched the meme stock rally in amusement. The current market condition is proof that his “tortoise” investing approach is the right one to building long-term wealth, he said.
“It’s a little bit of vindication,” Griffin told CNBC. “I’m happy to be the boring investor, I’m happy to be the tortoise. While the hare does win sometimes, the tortoise more often than not, is going come out ahead.”
Christine Benz, a director of personal finance and retirement planning for Morningstar, said investors are gravitating towards higher yields right now to capture value — another core principle of the Bogleheads.
“Bogleheads are investing for the very long haul — the idea is that you’re putting money into your account and just adding to it, maybe not touching it or looking at it for another 30 years,” she said. “The meme stock phenomenon seemed so focused on being incredibly plugged into your portfolio and monitoring your investments — I see the Bogleheads’ philosophy as being antithetical to all of that.”

Wall Street Bets to Bogleheads

Brokerage firm Robinhood, once synonymous with day trading, is seeing a similar pivot to higher yields and longer-term thinking.
The company launched retirement accounts this year, and offers 3% back on cash as it tries to diversify away from slumping trading fees. Robinhood’s co-founder and CEO Vlad Tenev told CNBC that investors have been moving into cash, money market funds and bond ETFs. He noted more chatter in Bogleheads’ Reddit group, versus the infamous Wall Street Bets.
“One of the really interesting things that we’ve seen over the past couple of months is Robinhood being mentioned, and discussed in these traditional passive investing forums, like Bogleheads on Reddit,” Tenev said. “People are building long-term portfolios on Robinhood, taking advantage of the better economics and the tools to do that.”
Bond ETFs are one way retail investors have tried to capture rising interest rates. The SPDR Bloomberg Barclays 1-3 Month T-Bill ETF (BIL) was the third most-bought name last week after the Invesco QQQ Trust (QQQ) and SPDR S&P 500 ETF (SPY), according to Vanda Research. It saw the largest single-day of net inflows to the ETF since the firm began measuring it almost a decade ago.
“Clearly, income-seeking retail investors are taking advantage of the new high-rate regime, which had been missing from the investment landscape since the pre-GFC [Great Financial Crisis] years,” Marco Iachini, senior vice president of Vanda Research, said in a note to clients. “Some are calling it ‘T-Bill and chill.'”
Younger investors are even more exposed to fixed income compared to their older counterparts. In its annual study, Schwab Asset Management shows millennial ETF investors have 45% of their portfolios in fixed income — compared to 37% for Generation X. The survey showed 51% of millennials plan to invest in bond ETFs next year, compared to 40% of baby boomers.
While far from a meme stock, the move to fixed income could still be risky.
The iShares 20+ Year Treasury Bond ETF (TLT), has seen $19.8 billion in assets flood in this year, according to BlackRock. If yields go up, funds like TLT will suffer — since bond yields move inversely to prices. That’s been the case this year, with TLT down about 50% from its record high. On the other hand, if yields fall, bond funds should outperform.

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San Francisco Federal Reserve President Mary Daly said tighter monetary policy is helping to bring down the pace of inflation.
Daly did not commit to a position on the future of rates, instead saying the Fed is in a place where it can evaluate the incoming data and move accordingly.

Mary Daly, president of the Federal Reserve Bank of San Francisco, poses after giving a speech on the U.S. economic outlook, in Idaho Falls, Idaho, on Nov. 12, 2018.
Ann Saphir | Reuters

Tighter monetary policy is helping bring down the pace of inflation but not to a level where policymakers should feel too comfortable, San Francisco Federal Reserve President Mary Daly said Friday.
“The news on inflation has been fairly good, and we shouldn’t dismiss that,” the central bank official said during an interview on CNBC’s “The Exchange.” “All of that said, it is far too early to declare victory.”

Those comments come a day after Fed Chair Jerome Powell helped spook financial markets when he said he and his fellow officials are “not confident” that policy has reached a point of being tight enough to get inflation down to their 2% target.
Daly compared the Fed’s job to get policy to the “sufficiently restrictive” benchmark to someone riding a horse and trying to know whether the bridle has been pulled back far enough to stop.
“You don’t know if the horse is feeling that bridle enough to be sufficiently restrictive to stop,” she said. “So much like the horse, we’re in a position now where we know we’re significantly restrictive. But to really be truly confident that we have a sufficient level of restriction in the economy to bring inflation down, we’re going to have to watch the data and see if the economy is slowing.”
For the second meeting in a row, the Federal Open Market Committee last week decided to hold rates in place, with the Fed’s benchmark borrowing level targeted in a range between 5.25% and 5.5%, its highest in 22 years.
Daly, who will be an FOMC voter in 2024, did not commit to a position on the future of rates, instead saying the Fed is in a place where it can evaluate the incoming data and move accordingly.

“We’re going to be very forward-looking here, and so that’s why it’s too early to declare victory. But I don’t want to discount the fact that we’re in a good place because we can be able to move easily and agilely, depending on what the data brings,” she said.Don’t miss these stories from CNBC PRO: More

U.S. chipmaking giant Nvidia has reportedly found a way to sell high-end chips to Chinese companies — while remaining compliant with U.S. restrictions.
Nvidia is set to deliver in coming days three new chips to domestic manufacturers, Chinese financial media Cailian Press said Thursday, citing sources.
Nvidia, the U.S. Department of Commerce and the Bureau of Industry and Security did not immediately respond to a CNBC request for comment.

The logo of Nvidia Corporation is seen during the annual Computex computer exhibition in Taipei, Taiwan, May 30, 2017.
Tyrone Siu | Reuters

BEIJING — U.S. chipmaking giant Nvidia has reportedly found a way to sell high-end chips to Chinese companies — while remaining compliant with U.S. rules aimed at curbing China’s access to the tech.
China accounts for 20% to 25% of Nvidia’s revenue in its data center business, its biggest unit.

Nvidia is set to deliver three new chips to domestic manufacturers in the coming days, Chinese financial media Cailian Press said Thursday, citing sources.
The chips — called HGX H20, L20 PCle and L2 PCle — are based on Nvidia’s H100 chip, the report said.
The H100 and A100 artificial intelligence chips were the first to be hit by new U.S. restrictions last year that aimed to curb sales to China. Nvidia said in a September 2022 filing the U.S. government would still allow it to develop the H100 in China.

In the near term, Chinese manufacturers have no better option and they will continue to buy Nvidia’s chips, while searching for replacements.

managing director, WestSummit Capital Management

Companies in China had then switched to Nvidia’s H800 and A800 chips, but the U.S. subsequently clamped down on those sales last month with new restrictions.
The H20’s computing power is only about 50% of that of the A100, said Bo Du, managing director at WestSummit Capital Management and a former engineer in the chip industry.

That’s “basically saying goodbye to physical simulation,” he said in Mandarin, translated by CNBC. While it’s possible to use clusters of lower-power chips to support large model calculations, he said there’s no ideal solution given the costs.

“In the near term, Chinese manufacturers have no better option and they will continue to buy Nvidia’s chips, while searching for replacements,” Du said, noting that some large internet companies have started to buy domestically-made AI chips at scale.
Demand for artificial intelligence computing power has only gone up as companies in China rush to develop local versions of OpenAI’s ChatGPT.

Navigating a fine line

The Financial Times also reported the news of Nvidia’s new chips for the China market, citing a document the chipmaker distributed to potential customers.
Nvidia declined to comment. The U.S. Department of Commerce and the Bureau of Industry and Security did not immediately respond to a CNBC request for comment.
All three of Nvidia’s new chips have operating metrics outside the threshold of the U.S. restrictions, research firm SemiAnalysis said in an online post Thursday. The company operates a Substack tech newsletter that claims to have more than 64,000 subscribers.
“Nvidia is perfectly straddling the line on peak performance and performance density with these new chips to get them through the new US regulations,” SemiAnalysis said.
Nomura analysts previously found Nvidia’s Drive AGX Orin chip also did not meet all the criteria warranting a U.S. restriction on sales to China, allowing electric car companies in the country to still use the chip.

The U.S. has said its focus is on limiting China’s development of advanced tech for military use. President Joe Biden’s administration has also emphasized the country is in competition with China.
Domestic players are trying to develop workarounds to the U.S. restrictions.
In late August, Huawei released a smartphone that reviews indicated offers download speeds associated with 5G, thanks to an advanced semiconductor chip.
It’s not clear whether older equipment or alternative procurement processes were involved with the latest chip production.
— CNBC’s Arjun Kharpal contributed to this report. More

Chinese business database Qichacha said Friday it passed a data export security assessment that allows the company to resume overseas operations.
The news signals an easing in China’s increasingly stringent government controls over data sharing due to national security concerns.

Chinese business database Qichacha said it passed a data export security assessment that allows the company to resume overseas operations.
Vcg | Visual China Group | Getty Images

BEIJING — Chinese business database Qichacha said Friday it passed a data export security assessment that allows the company to resume overseas operations.
The news signals an easing in China’s increasingly stringent government controls over data sharing due to national security concerns.

Earlier this year, Reuters reported, citing sources, that Qichacha and similar databases had closed access to offshore users for months.
Qichacha said in a press release on Friday that it is the first company to pass the Cyberspace Administration of China‘s data export security assessment for a platform providing inquiries into data around corporate creditworthiness.

The administration did not immediately respond to a CNBC request for comment.
In October, the cybersecurity regulator issued draft rules that eased restrictions on sending data outside of mainland China — an issue that had become a major challenge for foreign businesses in the country.

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Chinese startup Li Auto sold more cars than Tesla’s China business did in October, according to the China Passenger Car Association.
Unlike Tesla’s battery-only models, Li Auto’s vehicles — all SUVs — come with a fuel tank for charging the battery.
Li Auto also forecast it would keep delivering cars at a similar pace in the fourth quarter: Between 41,700 to 42,600 vehicles a month.

Chinese startup Li Auto sold more cars in October than Tesla’s China business did in October, according to the China Passenger Car Association.
Nurphoto | Getty Images

BEIJING — Chinese startup Li Auto sold more cars than Tesla’s China business did in October, according to the China Passenger Car Association.
The startup sold a record 40,422 cars in October, far more than Tesla did at 28,626, association data showed Thursday.

Li Auto also forecast it would keep delivering cars at a similar pace in the fourth quarter: Between 41,700 to 42,600 vehicles a month.
Unlike Tesla’s battery-only models, Li Auto’s vehicles — all SUVs — come with a fuel tank for charging the battery. That helps ease consumers’ concerns about driving range.
Li Auto plans to begin delivering its first battery-only model in February 2024, the MEGA multi-purpose vehicle. The company said it’s planning three more battery-only vehicles for launch in the second half of next year.

Li Auto’s cars currently sell for between 319,800 yuan ($43,910) to 459,800 yuan. The Model 3 and Model Y start at lower prices, 259,900 yuan and 263,900 yuan, respectively.
It’s unclear whether Li Auto will continue to sell more cars than Tesla going forward. In September, Tesla sold 43,507 cars while Li Auto sold 36,060, China Passenger Car Association data showed.

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Li Auto vs Tesla

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Li Auto on Thursday reported third-quarter earnings and revenue above FactSet estimates.
Unlike many local peers, the company has no immediate overseas expansion plans.
The startup, however, is looking at driver-assist tech as a way to compete in China’s hot electric car market.
The company plans to more than double the size of its research and development team for autonomous driving, from around 900 people to more than 2,500 by the end of 2025, President Donghui Ma said on an earnings call Thursday, according to a FactSet transcript. More

Fed Chair Jerome Powell said he and his colleagues remain steadfast in getting policy in line with their 2% inflation goal, but “we are not confident that we have achieved such a stance.”
He stressed the Fed nevertheless can be cautious as the risks between doing too much and too little have come into closer balance.

Federal Reserve Chairman Jerome Powell said Thursday that he and his fellow policymakers are encouraged by the slowing pace of inflation but are unsure whether they’ve done enough to keep the momentum going.
Speaking a little more than a week after the central bank voted to hold benchmark policy rates steady, Powell said in remarks for an International Monetary Fund audience in Washington, D.C., that more work could be ahead in the battle against high prices.

“The Federal Open Market Committee is committed to achieving a stance of monetary policy that is sufficiently restrictive to bring inflation down to 2 percent over time; we are not confident that we have achieved such a stance,” he said in his prepared speech.
For the second time in recent weeks, a public address from Powell was interrupted by climate protesters. He briefly left the stage before resuming.
The speech comes with inflation still well above the Fed’s long-standing goal but also considerably below its peak levels in the first half of 2022. In a series of 11 rate hikes that constituted the most aggressive policy tightening since the early 1980s, the committee took its benchmark rate from near zero to a target range of 5.25%-5.5%.
Those increases have coincided with the Fed’s preferred inflation gauge, the core personal consumption expenditures price index, to fall to an annual rate of 3.7%, from 5.3% in February 2022. The more widely followed consumer price index peaked above 9% in June of last year.
Powell said that inflation is “well above” where the Fed would like to see it while describing policy as “significantly restrictive.”

“My colleagues and I are gratified by this progress but expect that the process of getting inflation sustainably down to 2 percent has a long way to go,” he said. “We will keep at this until we succeed,” he later added, saying the Fed is focused on whether rates need to go higher and how long they need to stay elevated.
Stocks headed lower after the speech, with the Dow Jones Industrial Average down close to 200 points. Treasury yields lurched higher after declining for most of the past three weeks, propelled up in large part after a poorly received 30-year bond auction.
“Chairman Powell issued a warning to investors too giddy on the prospect of rate cuts next year,” said Jeffrey Roach, chief economist at LPL Financial. “The Fed will be true to its mandate and hike further should inflation reaccelerate.”
As he has in recent speeches, Powell stressed that the Fed nevertheless can be cautious as the risks between doing too much and too little have come into closer balance. He said the Fed is attuned to the rise in Treasury yields.
“If it becomes appropriate to tighten policy further, we will not hesitate to do so,” he said. “We will continue to move carefully, however, allowing us to address both the risk of being misled by a few good months of data, and the risk of overtightening.”
“Monetary policy is generally working the way we think it should work” Powell said during a discussion following his speech.
Markets are largely convinced the Fed is through hiking rates.
Futures pricing, according to the CME Group, indicates less than a 10% probability that the FOMC will approve a final rate hike at its Dec. 12-13 meeting, even though committee members in September penciled in an additional quarter percentage point rise before the end of the year.
Traders anticipate the Fed will start cutting next year, probably around June.
Powell noted the progress the economy has made. Gross domestic product accelerated at a “quite strong” 4.9% annualized pace in the third quarter, though Powell said the expectation is for growth to “moderate in coming quarters.” He described the economy as “just remarkable” in 2023 in the face of a broad consensus that a recession was inevitable.
Unemployment remains low, though the jobless rate has risen half a percentage point this year, a move commonly associated with recessions.
But Powell noted that the Fed is “attentive” that stronger-than-expected growth could undermine the fight against inflation and “warrant a response from monetary policy.”
He also pointed out that improvements in supply chains have helped ease inflation pressures, but “it is not clear how much more will be achieved by additional supply-side improvements. Going forward, it may be that a greater share of the progress in reducing inflation will have to come from tight monetary policy restraining the growth of aggregate demand.”
The remarks are part of a broader presentation he is giving to the Jacques Polak Annual Research Conference. One broad policy topic he addressed was the challenge posed by keeping rates anchored near zero, where they were before the inflation surge. Powell said it is “too soon” to say whether zero-rate challenges are “a thing of the past.”
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