Crypto News: Wall Street's big money rolls in

One bank after another over the past week reported some eye-popping earnings. Bloomberg Television's global finance correspondent Sonali Basak today writes about the good times on Wall Street. Plus: Businessweek's latest cover story is out, and it's on the Chinese car company BYD and its quest for dominance. If this email was forwarded to you, click here to sign up.

The big banks usually kick off earnings season, and they tend to set the tone: How strong is the economy? And how strong are corporate America's profits? Over the past week we got the answer: Strong. Very, very strong.

The word came up more than 20 times in Morgan Stanley's earnings report on Wednesday. The company's stock hit a record this week, as did Goldman Sachs' and JPMorgan Chase's. Those banks, along with Citigroup and Bank of America, surpassed expectations for almost every major business line.

Had the banks tempered those expectations too much? Or is life really this good on Wall Street?

Morgan Stanley expects the good times to keep rolling. Photographer: Michael Nagle/Bloomberg

I'd go with the latter. When I spoke this week with Ted Pick, Morgan Stanley's chief executive officer, he hinted that there's a lot more where all of this has come from. Capital markets have been on the verge of coming back for a number of years, he said, and big ticket initial public offerings are just around the corner. The firm now manages a whopping $7.5 trillion in assets, and retail investors are buying stocks at a magnificent clip.

Big hedge funds are also ready to keep trading into volatile markets. When I asked if those clients are taking on too much risk through leverage or borrowing funds to deploy in the markets, Pick said:

Traditional long-short investors—as you say—are operating at fully invested basis in many cases. But if you look at other segments like the multi-strats or the quants, they're actually operating at leverage roughly close to the long-term average. ... But I do take your point that it is very important for us to continue to pay attention to where there is leverage in the system.

That's a very wonky way of saying that a number of investors are essentially maxed out on how much they've borrowed, but the biggest hedge funds are just fine. And Morgan Stanley runs one of the largest prime brokerages in the banking system, meaning they lend to hedge funds more than most other banks.

Goldman Sachs said this week that financing was a big part of what propelled trading results as well, particularly at its fixed income businesses. The bank came in with $3.5 billion worth of equity trading revenue, more than any other bank. But it's not just the dealmaking rebound and capital markets return that are driving Goldman forward.

Its asset manager surged to a record $3.1 trillion under management, with private banking and lending revenue also hitting new highs. Goldman expects to raise more than $60 billion to invest in private assets, which is more than its earlier projections and forges for the bank a new path into one of the fastest growing areas of the market.

Elsewhere on Wall Street, Blackstone—the biggest manager of private assets—said its assets reached an all-time high of $1.1 trillion, and the firm's market value surpassed those of Morgan Stanley, Goldman Sachs, Citigroup and even BlackRock, which hit a record $11.5 trillion in assets recently. Some of Wall Street's most stunning riches are in the private markets, an area that JPMorgan is looking at more closely, too.

Here's the thing about all this exuberance: When you have markets near all-time highs, and JPMorgan is trading almost like it's a technology stock (the words of Wells Fargo analyst Mike Mayo, not mine)—can this all be sustained?

A consumer sentiment survey last week by the University of Michigan said that Americans are feeling stretched from inflation and still somewhat worried about the road ahead. Ally Financial, a lender that deals with consumers who are perhaps less wealthy than Morgan Stanley's or JPMorgan's base, has been warning that borrowers have been pulling back from some types of loans.

Do those worries spill over to Wall Street? JPMorgan last week gave investors a healthy dose of caution—basically saying that the road ahead might not be strewn with roses. And Marc Rowan, the CEO of Apollo Global Management, went so far as to tell me that he wouldn't be taking on more risk with markets at these levels. He said he would wait simply for prices to come down.

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Malta, a tiny archipelago in the Mediterranean Sea, might not seem worth the attention of a disruptive new car brand. The nation of just under 564,000 is known as a sunny tourist destination with limestone sea cliffs, ancient temples and lax regulation. About 7,200 new cars were registered in the country last year, approximately one-seventeenth the volume sold in a single day in the US. Yet the Maltese market isn't too small for BYD Co., the Chinese electric-vehicle giant.

Last fall in Malta, BYD began selling the Atto 3, an all-electric compact crossover. Strip away the company's futuristic logo, and it looks almost indistinguishable from other small, sporty SUVs. But inside it's full of treats, including heated seats in vegan leather and a 360-degree rotating touchscreen. The 60-kilowatt-hour battery gives it a range of 260 miles, enough to circle Malta's main island twice. And by European standards, it's inexpensive, at about $28,000. It's a novelty in Malta. But the real reason BYD is entering the European Union's tiniest member state? The company's happy place is emerging markets and countries with no domestic auto industry to defend: "You can basically describe them as a 'chicken rib market,'" says Yu Zhang, the managing director of consulting firm AutoForesight in Shanghai. "All the chicken ribs added up together, it's more than 10 million cars."

Photographer: Tony Law for Bloomberg Businessweek

After increasing its annual sales in China 15 times over, to 3 million cars in only three years, BYD is now exporting to roughly 95 markets, including 20 new ones this year. The company is building, has recently opened or has announced plans for assembly plants outside China in 10 countries on three continents. The speed and scope of this expansion have caught the global auto industry off guard and triggered protectionist tariffs in the US and EU, where policymakers fear Chinese players such as BYD will, in the words of Elon Musk, "demolish" their domestic automakers.

It's a playbook reminiscent of those of Toyota Motor Corp. and Hyundai Motor Co., which grew out of Japan and Korea's postwar industrialization; they exported for years before eventually setting up factories overseas. Like them, BYD started out with cheap cars but moved up the scale, leveraging muscular industrial policy, lower costs and more efficient manufacturing. As BYD makes its global push, it's facing bipartisan anti-China sentiment in Washington that has echoes of the Japan Inc. hysteria of the 1980s, when the US feared being eclipsed as an economic superpower. The concern is that, as with solar panels and steel, electric cars are part of China's larger economic strategy to amass political power through industrial and technological supremacy.

BYD executives say the company is just trying to sell cars and fight climate change. But it also wants to do what no Chinese carmaker has ever done: become a globally recognized consumer brand.

Read on in Businessweek's latest cover story, by Gabrielle Coppola and Danny Lee, here: BYD Is Winning the Global Race to Make Cheaper EVs

4.6%

That's how much China's gross domestic product rose in the July-to-September period, the slowest pace in six quarters. China's central bank moved to support markets based on the data, signaling the government's intent to continue its stimulus.

"I am very nervous that I would get this far and run into another AI accusation. I have so much to lose."

Moira Olmsted

Student at Central Methodist University

Olmsted was given a zero on an assignment she wrote after an AI detection tool falsely determined it was likely generated by artificial intelligence. About two-thirds of teachers report regularly using such tools, and at that scale, even tiny error rates can add up quickly.

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