Finance

FA Playbook

Inflation risk is most acute for retirees and near-retirees who live on fixed incomes, according to financial experts speaking at CNBC’s Financial Advisor Summit.
They may have a tougher time adjusting to higher consumer prices than workers, who continue to get paychecks.
Seniors largely live off income from investments and guaranteed sources such as Social Security or pensions. Stocks and bonds are down this year, inflation is eroding cash, and some income streams may get paltry cost-of-living adjustments.

MoMo Productions | Stone | Getty Images

Retirees and those planning to retire soon are the people most threatened by high inflation, investment managers and financial experts said at CNBC’s Financial Advisor Summit.
Inflation means a dollar today can buy fewer groceries and other household staples than it did a year ago, on average.

Some inflation is expected in a healthy economy. But prices for consumer goods and services are rising at their fastest pace in 40 years. The torrid pace over the last several months has eroded household purchasing power more quickly than usual, which has been especially challenging for those living on fixed incomes.

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Here’s a look at other stories impacting the financial advisor business.

“The biggest risk is actually for those that are retired,” Nancy Davis, founder and managing partner of asset manager Quadratic Capital Management, said of inflation.
People who are working are still getting paychecks from their employer. Their wages grew 6.1% over the past year — the fastest annual pace in at least 25 years, according to the Federal Reserve Bank of Atlanta. (Their data dates to 1997.)
The job market has been hot, pushing businesses to raise pay. Though the average worker’s wages haven’t kept pace with inflation (which was 8.6% in the year through May), some have come out ahead.

But many retirees are no longer getting a paycheck — they’re living on income from their investments (in 401(k) plans and individual retirement accounts, for example) and regular checks from sources such as Social Security, pensions and annuities.  

Relative to investments, retirees with ample cash are seeing the value of that stockpile decline faster than usual due to inflation and paltry interest rates — which means they must withdraw more cash to fund their usual expenses.
Meanwhile, stocks and bonds are both down significantly this year. The S&P 500 Index entered a “bear market” this week for the first time since March 2020. The dynamic makes it challenging for retirees (especially new retirees) to fund their lifestyle using their investment portfolio without risking a financial shortfall later.

Relative to guaranteed income, Social Security offers an annual cost of living adjustment. Recipients got a 5.9% boost to benefits this year, which was the largest in about 40 years but still lags May’s inflation reading; next year’s adjustment may be even higher.  
But most pensions don’t adjust beneficiaries’ income upwards. Those that do generally raise benefits by 2% to 3% each year — less than half the current pace of inflation.

Longer lives

Further, Americans are generally living longer lives, which means their money must stretch over more time in retirement.
Therefore, many retirees should have at least some stock exposure in their investment portfolios, since stocks have more long-term growth potential than assets such as bonds and cash, according to financial advisors.
But the recent market plunge (and the one back in early 2020) spooked many clients, who sold stocks in favor of cash and haven’t bought back in yet, according to Louis Barajas, president and partner at MGO Wealth Advisors in Newport Beach, California.

We are financial therapists right now. We are holding our clients’ hands.

Louis Barajas
president and partner at MGO Wealth Advisors

“So we have to get money invested back in equities,” said Barajas, a certified financial planner.
For clients of all ages, inflation is having the biggest impact on their cash flow, which is in a “tight squeeze,” he said. His conversations with worried clients have largely focused on the basics: understanding their financial goals and knowing how much money they need.
“We are financial therapists right now,” Barajas added. “We are holding our clients’ hands.” More

TD Bank incentivized workers to open customer accounts and opt into overdraft protection, even if consumers declined, Sen. Elizabeth Warren wrote to acting Comptroller of the Currency Michael Hsu.
Warren’s allegations were based on reporting by investigative news outfit Capitol Forum. TD said the report’s claims were “unfounded.”
“The OCC should closely examine any ongoing wrongdoing and block any merger until TD Bank is held responsible for its abusive practices,” Warren wrote.
Capitol Forum also alleged that the Office of the Comptroller of the Currency, under previous leadership, had uncovered the misconduct in 2017 but declined to publicly reprimand the bank.

Sen. Elizabeth Warren, D-Mass., speaks during the Senate Armed Services Committee hearing on security in Afghanistan and in the regions of South and Central Asia, in Dirksen Building on Tuesday, October 26, 2021.
Tom Williams | CQ-Roll Call, Inc. | Getty Images

Lawmakers led by Sen. Elizabeth Warren asked a key regulator to block Toronto-Dominion Bank’s $13.4 billion acquisition of a regional U.S. bank because of allegations of customer abuse.
In a letter sent Tuesday to the Office of the Comptroller of the Currency obtained exclusively by CNBC, Warren cited a May 4 report by Capitol Forum, a Washington-based investigative news outfit, that alleged that TD used tactics similar to those in the Wells Fargo fake accounts scandal.

TD, a Toronto-based bank with 1,100 branches in the U.S., is seeking regulatory approval for the acquisition of Tennessee-based First Horizon. The massive deal, announced in February, is part of TD CEO Bharat Masrani’s push to expand in the U.S. Southeast. Banks have been swept up in a wave of consolidation in recent years as lenders seek to gain scale, cut costs and invest in fintech to compete with megabanks such as JPMorgan Chase and Bank of America.
“As TD Bank seeks approval from your agency to increase their market share and become the sixth-largest bank in the U.S., the OCC should closely examine any ongoing wrongdoing and block any merger until TD Bank is held responsible for its abusive practices,” said Warren, D-Mass.
TD employed a point system and bonuses to incentivize workers to open customer accounts and opt into overdraft protection, and workers could lose their jobs if they didn’t meet goals, Warren said in a letter to acting Comptroller of the Currency Michael Hsu.
Workers were instructed to create four new accounts for each customer — checking, savings, online and a debit card — and opened accounts even if a consumer declined one of the options, according to the Capitol Forum report.
That was one of several strategies cited by the news organization, including fabricating reasons such as fraud alerts to call consumers in the hope of convincing them to open more accounts, opening new accounts rather than simply replacing missing debit cards, and misstating key aspects of overdraft programs to encourage their adoption. Problems existed in branches all along TD’s U.S. footprint, from Florida to Maine, the report stated.

CNBC couldn’t independently confirm the details of the Capitol Forum report, which cited current and former TD Bank employees as well as other sources.
The bank also faces a class-action lawsuit in Canada related to the pressure employees were allegedly under to make sales, according to a 2021 CBC news report, which stated that hundreds of employees had contacted the news outlet with similar anecdotes.

‘Unfounded’ allegations

In a four-paragraph response provided to CNBC by a bank spokesman, TD said the allegations in the Capitol Forum piece were “unfounded.”
“Our business is built on a foundation of ethics, integrity and trust,” the bank said. “At TD Bank, we put our customers first and are proud of our culture of delivering legendary experiences to customers. As part of routine and ongoing monitoring, TD Bank has not identified systemic sales practice issues at any time.”
The bank said it carefully manages compensation practices and “vehemently” objects to accusations of “systemic sales practice issues, or any other claims alleged in the article.”
“Finally, we strongly disagree with the article’s characterization of information presented as facts regarding TD Bank’s fraud procedures,” the bank said. “At TD Bank, protecting the security of our customers’ accounts and personal information is a top priority.”

Swept under the rug?

The Capitol Forum report also alleged that the OCC, under previous leadership, had uncovered TD’s misconduct in 2017 as part of an industry sweep after the Wells Fargo scandal came to light the year before.
The report alleged that former acting Comptroller Keith Noreika — a Trump administration appointee whose law firm later represented TD in multibillion-dollar transactions — opted to privately reprimand TD, rather than fining the company or publicly releasing its findings.
Noreika declined to comment to the Capitol Forum, but his employer, the white-shoe law firm Simpson Thacher & Bartlett, told the news outfit that Noreika was recused from all matters related to TD while heading the regulator.

Keith Noreika, acting Comptroller of the Currency, speaks during a Senate Banking Committee hearing in Washington, D.C., U.S., on Thursday, June 22, 2017.
Andrew Harrer | Bloomberg | Getty Images

“The OCC’s decision under Mr. Noreika to allow TD Bank’s rampant fraud and abuse to go unpunished, even after the agency’s troubling findings in its own investigation of the bank, has the potential to undermine the OCC’s authority and put consumer finances at risk,” Warren said. She added that the Biden administration has stated it would scrutinize bank mergers more closely.
An OCC spokeswoman said that the agency doesn’t comment on congressional letters or specific banks. She also noted that a public meeting on the First Horizon deal will be held August 18.
Apart from requesting that the First Horizon acquisition be blocked, the lawmakers asked the OCC to release the findings of its 2017 investigation into TD and reconsider whether penalties should be levied on the company. The letter was signed by Warren and Reps. Katie Porter, D-Calif., Al Green, D-Texas, and Jesus Garcia, D-Ill.
TD said in February that it expected the First Horizon acquisition to close by the first fiscal quarter of 2023, subject to approval from U.S. and Canadian regulators. The deal will be scrapped if it doesn’t close by Feb. 27, 2023, according to the bank.

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“I don’t expect moves of this size to be common ”, said Jerome Powell, chairman of the Federal Reserve, speaking just after the central bank had raised its benchmark interest rate by 75 basis points (0.75 percentage points) to 1.5%-1.75%. It was the third increase in as many Fed meetings and the biggest jump in short-term rates since 1994. The move was both expected and surprising. Mr Powell had warmed up financial markets weeks ago to the prospect of a half-point increase at this monetary-policy meeting. But in the days leading up to it, investors had quickly and fully priced in a larger increase—with more to come.Mr Powell’s comment about uncommonly large rises was enough to spark a partial reversal of the sharp rise in bond yields over the preceding days and a relief rally in share prices. But however hard he tried to sugarcoat the message, rates are going up by a lot more and the chances of a hard landing for the economy have surely increased as a result. Recession is now widely expected, if not (yet) by the Fed. And the rapid changes in the market mood shows just how much the Fed and other rich-world central banks have lost control of events.The Fed’s interest-rate decision came at the end of an extraordinary few days in financial markets, in which bond yields shot up at an unprecedented rate, share prices plunged and the riskier assets, notably bitcoin but also Italian government bonds, were trashed. The story begins not in Washington or New York but in Sydney where, on June 7th, the Reserve Bank of Australia (rba) raised its benchmark interest rate by 50 basis points, citing growing worries about inflation. It continued in Amsterdam, where in the following days the European Central Bank (ecb) held its monetary-policy meeting, in a break from its usual setting in Frankfurt. Christine Lagarde, the central bank’s boss, confirmed that a 25 basis point interest-rate increase was on the cards in July. But she went much further. The ecb, she said, expects to raise interest rates by at least 50 basis points in September and anticipates “sustained” increases thereafter. The catalyst for this more hawkish stance was a sharp upward revision in the central bank’s forecasts for inflation.This set the stage for a dramatic shift in bond markets, which events elsewhere would add impetus to. The yield on ten-year German government bonds, known as bunds, rose quickly to above 1.75% over the following days. The yield on riskier sorts of euro-zone government bonds, notably Italian btps, rose by even more. The spread on btps over bunds widened sharply, taking Italy’s ten-year yield above 4%. Indeed spreads had risen so swiftly that the ecb held an emergency meeting on June 15th to address the matter. But it was news from America that really moved markets. Figures released on Friday June 10th showed that inflation rose to 8.6% in May, the highest rate since 1981. Underlying (“core”) price pressures were unexpectedly strong. To make matters worse, a survey by the University of Michigan showed that consumers’ expectations of medium-term inflation had risen markedly. Inflation seemed harder to bring down. Treasury yields rose sharply as the bond market began to price in more and faster interest-rate increases by the Fed. The biggest moves were at the short end of the yield curve, which is most sensitive to shifts in monetary policy (see chart 1) . Yields on two-year Treasuries rose by 57 basis points in the space of just two trading days. But longer-term rates shifted, too. Stocks could hardly escape. The s&p 500 index of leading shares fell by 3% on June 10th and by 4% the following Monday. The cumulative losses took the stockmarket firmly into bear-market territory, defined as a fall of more than 20% from its recent peak. At its worse point, the tech-heavy nasdaq index had fallen by more than 30%. Rising Treasury yields may have crushed share prices, but were a fillip to the dollar. The dxy, an index of the greenback against half a dozen other rich-world currencies, is up by 10% so far this year. The strength is particularly marked against the yen, which has fallen to a new 24-year low. While the Fed is tightening policy to bring down inflation, Japan’s central bank is furiously buying bonds in order to raise it. The recent volatility, particularly in the bond market, seems rather extreme. What might explain the violence? As bad as the inflation backdrop had seemed before last week, investors had consoled themselves with the idea that the worst of it was now in the past. The Bank of America’s global fund-manager survey suggests that in recent weeks, investors had increased their allocation to bonds—perhaps judging that bond prices had stopped falling. (Bond prices move inversely to bond yields.) If so, the poor inflation figures caught them out. A market that leans heavily in one direction often snaps back when the wind changes. And poor liquidity amplifies the effect. Changes in regulation have made it costlier for banks to hold large inventories of bonds to facilitate client trading. The Fed, once a reliable buyer of Treasuries, is winding down its purchases. When investors want to sell, there are too few willing to take the other side of the trade. The extreme market moves in the days leading up to the Fed meeting have exaggerated the sense of panic. Yet it is hard to argue that investors are bullish. The Bank of America survey shows that optimism among fund managers about the economic outlook is at an all-time low. Can a hard landing be avoided? Even Mr Powell sounded rather unconvinced. Prepare for more trouble ahead. ■ More

Surging inflation and a weakening economy are not the only worries preoccupying the European Central Bank (ecb). As inflation rose higher still, the bank promised on June 9th to raise interest rates over the coming months and to end its asset purchases. Then, in subsequent days, financial markets decided to remind the central bank that the new policy could mean Italy’s public debt, at 150% of the country’s gdp, could look wobbly as rates start to rise. Italian government-borrowing costs started to climb. As the yield on Italy’s ten-year sovereign bonds surpassed 4%, the central bank called an emergency meeting on June 15th. Its governing council tasked the staff with coming up with an “anti-fragmentation” tool, a government-bond-buying scheme that would help prop up sovereigns in distress. The announcement marks a fundamental change in how the ecb sees its role in bond markets.Being a central banker in a monetary union is hard. The euro’s members differ according to their growth prospects and debt levels, leading to gaps (“spreads”) between their bond yields and the German bund yield, which is regarded as the risk-free rate. Investors routinely debate the threat of a country defaulting, or exiting the euro. By contrast, there is little doubt that the Bank of England stands behind gilts; no one worries that Britain might leave sterling. Differences in liquidity and the extent to which a government’s bonds are seen as benchmark assets matter too. In a recent paper, Hanno Lustig of Stanford University and colleagues estimate that this “convenience yield”, the yield that investors are willing to forgo for safety and liquidity, explained more than half the variation in spreads between euro countries between 2008 and 2020. In times of stress—as when the pandemic struck in March 2020—investors seeking safety drive up the spread between, say, Italian and German bonds (see chart).These spreads between government bonds then translate into differing borrowing costs for firms and households. Despite sharing a currency (and the Alps), borrowers in Tyrol, Austria, and South Tyrol in Italy could face quite different interest rates, because their respective national governments are charged different rates by investors. And too big a divergence can be a problem for the ecb, because it sets short-term interest rates for the euro area as a whole. The wider the spreads, the less likely it is that their desired interest rate is reflected in conditions on the ground. But precisely at what point spreads become wider than economic differences warrant is controversial. In a speech on June 14th Isabel Schnabel, a member of the ecb’s executive board, explained the bank’s thinking. She argued that safe interest rates were rising across the globe at a time when threats to growth were becoming more prominent. Widening spreads meant that financial conditions had tightened more in some parts of the euro zone than in others. The ecb would seek to avoid any “disorderly repricing of risk” that threatens to impair the functioning of monetary policy, and so pose a threat to ensuring stable inflation. The question is what counts as “disorderly”. Shortly before the emergency meeting, Italian ten-year spreads on bunds rose to 2.3 percentage points. Not everyone agrees that was a problem. Volker Wieland, a former member of the German council of economic experts, argues that Italy’s debt is not unsustainable and that spreads did not warrant action by the ecb. In addition, he points out, the ecb already has the means to contain panicky rises in spreads. Yet the existing tool, outright monetary transactions (omt), announced in 2012 when Mario Draghi, the ecb’s former governor said he would do “whatever it takes” to preserve the euro, has become politically toxic. It comes with tough conditions—namely that the countries in need of ecb support subject themselves to an imf-style reform programme. Luis Garicano, a Spanish member of the European Parliament, argues that the ecb will seek to recreate omt without the toxicity. The central bank itself has been at pains to emphasise that new tools to contain spreads would “remain within its mandate”: in other words, that any bond purchases would be either limited, or tied to conditions. Unless the euro zone comes closer to being a federal entity, with a common finance ministry and shared taxes and benefits, spreads will be a fact of life. Further banking or fiscal integration could help lower spreads without the central bank acting. But progress on those cannot be counted upon. With its announcement, the ecb has made clear that it sees managing spreads as part of its responsibility. ■ More

U.S. Federal Reserve Chairman Jerome Powell testifies during the Senate Banking Committee hearing titled “The Semiannual Monetary Policy Report to the Congress”, in Washington, U.S., March 3, 2022.
Tom Williams | Reuters

The Federal Reserve said Wednesday it expects the fed funds rate to increase by another roughly 1.75 percentage points over the next four policy meetings to end the year above 3%.
To be exact, the midpoint of the target range for the fed funds rate would go to 3.4%, according to the so-called dot-plot forecast released by the Fed.

On Wednesday, the Fed raised rates by 75 basis points, or 0.75 percentage point, to a range of 1.5% to 1.75%. One basis point equals 0.01%.
Just five of the 18 Federal Open Market Committee members see the rate ending at a higher level than the midpoint 3.4% rate, while eight members see it about that level. The remaining five members expect the fed funds rate to end the year at roughly 3.2%.
Every quarter, members of the committee forecast where interest rates will go in the short, medium and long term. These projections are represented visually in charts below called a dot plot.  

Here are the Fed’s latest targets, released in Wednesday’s statement:

Arrows pointing outwards

Federal Reserve

This is what the Fed’s forecast looked like in March 2022:

Arrows pointing outwards

Federal Reserve

Despite these official forecasts, Fed Chairman Jerome Powell said Wednesday during a news conference that the central bank could take an even more aggressive stance to stave off inflation and raise rates by another 75 basis points next month.
The Fed also unveiled its latest inflation and economic growth projections Wednesday.

The central bank sees inflation, as gauged by the personal consumption expenditures price index, rising by 5.2% by year-end. That’s up from a March projection of 4.3%. The core PCE, which strips out volatile food and energy prices, is expected to rise by 4.3% — up from a previous estimate of 4.1%.

Arrows pointing outwards

Federal Reserve

As for the economy, the Fed slashed its GDP growth projection for 2022 to 1.7% from 2.8%. The central bank also lowered its growth expectations for 2023 and 2024 to less than 2%.
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Covid-induced lockdowns may have upended the world of work, but they have not killed the skyscraper. Even as workers stay home to avoid the commute, cities’ penchant for these concrete marvels of engineering continues unabated. In midtown Manhattan, JPMorgan Chase has knocked down its old headquarters in favour of a new glass tower that will rise 18 storeys higher. Across the city, more than a dozen supertall structures—which rise higher than 300m—are in the works. In London, where gleaming new landmarks are given irreverent nicknames such as “Walkie Talkie” or “The Gherkin”, more than 200 towers have transformed the skyline since 2009. The construction frenzy is not limited to big cities. By one estimate, the planet will add floor space the size of New York City every month until 2060. Some worry that this pace of construction could literally cost the Earth. Today, buildings are responsible for almost 40% of global energy-related carbon emissions, with homes alone accounting for nearly 20%. Property emissions are a combination of two things. The first is the day-to-day running of a building: energy used to light up, heat or cool homes, office blocks and shopping malls. The carbon produced in this way is “operational”, in the vernacular, and accounts for 27% of all annual carbon emissions globally. The other type is “embodied” carbon, which refers to emissions tied to the building process, maintenance and any demolition. Overall, embodied carbon is responsible for around 10% of annual emissions, though it will vary depending on the type of building.Worryingly, the carbon footprint of buildings is growing. On the current path, carbon emissions related to buildings are expected to double by 2050. It is true that in 2020 emissions from managing property fell, after hitting a record high in 2019, according to the Global Alliance for Buildings and Construction (Globalabc), an industry body. But that was mostly owing to lockdowns, which lowered emissions from all sorts of other activities too. Efforts to build greener played a minimal role. Worse still, advances in building energy efficiency are stalling. The global rate of annual improvement fell by half between 2016 and 2019, according to Globalabc’s tracker, which measures indicators such as incremental investment in the energy performance of buildings, along with the share of renewable-energy use. Policymakers are scrambling to find solutions. New energy-efficiency standards for buildings in England and Wales mean that one in ten offices in central London risks becoming obsolete in 2023. Nearly 60% could become unusable by 2027. Across the eu, where nearly two-thirds of the building stock relies on fossil fuels for heating and cooling, officials want nearly half of a building’s energy to come from renewable sources by 2030. Cities are setting lofty targets, too. New York is aiming for carbon-free electricity by 2040; Los Angeles, for zero-emissions buildings by 2050. Hot propertyHomeowners are also being urged to go green. In Britain energy-performance requirements for new homes will be dramatically tightened from 2025. In Italy the government has pledged to cover the full cost of green renovations, plus an extra 10% to incentivise those still unsure about switching, through tax deductions of up to €100,000 ($104,000) per home. More than €21bn has been paid out since the scheme was launched in July 2020.Even so, progress is slow. To meet the goals of the Paris climate agreement, global emissions must hit net zero between 2050 and 2070. Today, less than 1% of buildings are net-zero. Nudging homeowners is proving challenging. Total greenhouse-gas emissions for American houses have fallen by 2% since 2005, versus the 7% that would be consistent with the Paris agreement, according to Citigroup, a bank. This is mirrored in many big economies. In Britain the CO2-equivalent emissions of homes fell by around 1m tonnes between 2018 and 2019—less than half the cuts made by the transport sector. Three obstacles make it harder to build sustainably. First, the property industry has focused almost entirely on making buildings more efficient to run at the expense of embodied carbon emissions. As a result, little progress has been made on monitoring and restricting embodied carbon. Britain, for example, has passed legislation requiring new homes to produce at least 75% less carbon from 2025. Yet it places no limits on the upfront carbon emissions needed to build or dispose of them.There are exceptions. The Netherlands has required whole-life carbon assessments for some large buildings since 2013. California imposes carbon-intensity limits on certain construction materials. For now, embodied carbon accounts for a smaller share of global emissions than the operational sort. But that will change as buildings become more energy-efficient. In many modern buildings, embodied carbon already represents as much as half of total lifetime emissions. The second hurdle is the indestructible appeal of the wrecking ball. The building sector would sooner knock down a structure than reuse it, resulting in a carbon-intensive cycle of demolition and construction. This is partly because the costs of revamping properties often exceeds their value. Tax structures across the rich world incentivise demolition over reuse. For example, until March 2022 most new buildings in Britain were exempt from value-added tax, while most renovation and repairs were liable for vat at 20%. vat has since been scrapped on some energy-efficiency measures but will rise from 2027.This economic model is costly for the planet. Construction gobbles up nearly all of the world’s cement, half of all steel production and around a quarter of aluminium output and plastics, all of which spew vast amounts of emissions a year. In the process, construction generates around a third of the eu’s waste, measured by weight. In Britain construction, demolition and excavation amounts to nearly two-thirds of all waste produced. Pockets of the sector are innovating. Startups, venture capitalists and some cement-makers are all looking either to replace concrete or to make it greener. New methods such as modular construction, which reduces waste by assembling components in a factory before moving them on-site, are also gaining traction. Nearly half of new homes in Finland, Norway and Sweden are factory-built. Yet the overall pace of innovation is desultory, because of a third obstacle: the chronically underwhelming productivity of the construction sector as a whole. Global productivity growth in the industry has long lagged behind that of the wider economy. Building methods for new homes have barely evolved in over a century. At the same time, the pandemic has exacerbated long-standing labour shortages in construction. The sector was already struggling to produce enough tradespeople skilled in building sustainably. Meanwhile, calls to go green will only grow more urgent. Population growth and voracious demand for housing mean the size of the built environment is expanding at a faster rate than efforts to slash energy use. An explosion of new buildings in China, South-East Asia and Africa will continue to fuel construction. In these places, more than half of all buildings that will exist 30 years from now have not yet been built. If the world is to reach net-zero emissions, the construction sector will need to make enormous strides—and fast. ■For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter. More

Microsoft co-founder Bill Gates said he thinks cryptocurrencies and NFTs are “100% based on greater fool theory.”
“Expensive digital images of monkeys” will “improve the world immensely,” Gates joked, referring to Bored Ape NFTs.
The tech billionaire said he’s “not involved” in crypto: “I’m not long or short any of those things.”

Bill Gates
Gerard Miller | CNBC

Bill Gates is not a fan of cryptocurrencies or non-fungible tokens.
Speaking at a TechCrunch talk on climate change Tuesday, the billionaire Microsoft co-founder described the phenomenon as something that’s “100% based on greater fool theory,” referring to the idea that overvalued assets will go up in price when there are enough investors willing to pay more for them.

Gates joked that “expensive digital images of monkeys” would “improve the world immensely,” referring to the much-hyped Bored Ape Yacht Club NFT collection.
NFTs are tokens that can’t be exchanged for one another. They’re often touted as a way to prove ownership of digital assets like art or sports collectibles. But critics see them as overhyped and potentially harmful to the environment given the power-hungry nature of cryptocurrencies. Many NFTs are built on the network behind ethereum, the second-biggest token.
“I’m used to asset classes … like a farm where they have output, or like a company where they make products,” Gates said.
As for crypto, “I’m not involved in that,” Gates added. “I’m not long or short any of those things.”

Cryptocurrencies tumbled sharply this week after Celsius, a crypto lending firm, paused all account withdrawals. The debacle has fueled fears of a looming insolvency event for Celsius — and possible knock-on effects for other parts of the crypto market. For its part, Celsius says it’s “working around the clock for our community.”

The battered crypto world was already licking its wounds following the collapse of UST — a so-called “stablecoin” that was meant to be worth $1 — and luna, its sister token. At their height, both cryptocurrencies were worth a combined $60 billion.
Bitcoin was last trading at $21,107 Wednesday, down 7% in the last 24 hours. The world’s biggest cryptocurrency has erased over half of its value since the start of 2022.
WATCH: What you should know before investing in crypto

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Check out the companies making headlines before the bell:
Baidu (BIDU) – Baidu shares jumped 4.1% in premarket trading after Reuters reported the China-based internet search giant is in talks to sell its controlling stake in the video streaming company iQIYI (IQ). iQIYI fell 3.4%.

MicroStrategy (MSTR) – MicroStrategy lost 2.2% in the premarket as the price of bitcoin touched an 18-month low. The business analytics company has extensive bitcoin holdings.
Moderna (MRNA) – Moderna won the recommendation of an FDA panel for use of its Covid-19 vaccine in children aged 6 to 17 years. A vote by the full FDA could come within a few days. Moderna rose 1% in premarket action.
Stellantis (STLA) – Stellantis will begin indefinite layoffs next week at its Sterling Heights, Michigan stamping plant. The world’s fourth-largest automaker did not specify how many workers would be impacted. Stellantis rallied 3.4% in the premarket.
Zendesk (ZEN) – Zendesk is in settlement talks with activist investor Jana Partners after ending an unsuccessful effort to sell the software company, according to people familiar with the matter who spoke to the Wall Street Journal. The paper said proposed changes could involve CEO Mikkel Svane stepping down as well as changes to the board of directors. Zendesk added 1% in premarket trading.
Robinhood Markets (HOOD) – The trading platform operator was downgraded to “underweight” from “neutral” at Atlantic Equities, which cited Robinhood’s revenue trends. Robinhood slid 4.2% in premarket action.

Snowflake (SNOW) – The cloud computing company was upgraded to “buy” from “hold” at Canaccord Genuity. Shares have fallen more than 65% in 2022, but Canaccord said the stock is now at an attractive entry point, given growing demand and promising new products. Snowflake gained 3.6% in the premarket.
Wheels Up (UP) – The private jet company’s stock rose 2.1% in premarket trading after Goldman began coverage with a “buy” rating, saying Wheels Up is a leading company in an established and growing end market.
Sonos (SONO) – The high-end speaker maker was downgraded to “equal-weight” from “overweight” at Morgan Stanley, which is concerned about the impact of more cautious consumer spending. Sonos fell 3.1% in the premarket.
— CNBC’s Peter Schacknow contributed reporting.

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