Even Lloyd Blankfein Is Getting Worried: "Things Have Been Going Up For Too Long"

Earlier today, we reported that Deutsche Bank CEO John Cryan called for an end to Europe’s cheap-money policies and asked that the European Central Bank not use the strengthening euro as an excuse to keep printing money.

According to Bloomberg, Cryan said that the bank is “seeing signs of bubbles” across capital markets while low interest pummel European banks’ earnings.

“We are now seeing signs of bubbles in more and more parts of the capital market where we wouldn’t have expected them," Cryan said, adding that the interest-rate policy has been partly responsible for the decline in earnings at European banks.

“I welcome the recent announcement by the Federal Reserve and now also from the ECB that they intend to gradually bring their loose monetary policy to an end.”

Now, barely a day later, Goldman Sachs CEO Lloyd Blankfein has joined his fellow bulge bracket bank chief in expressing his uneasiness with contemporary valuations and the central-bank money printing that has helped pump up asset prices around the world.

Blankfein said that “things have been going up for too long” and that “when yields on corporate bonds are lower than dividends on stocks, that unnerves me.”

Here’s more from the Wall Street Journal:

“Goldman Sachs Group Chairman Lloyd Blankfein on Wednesday sounded a warning about the markets, saying that some of what he sees “unnerves” him.

Mr. Blankfein said the current market environment “doesn’t feel like tulip-bulb-mania,” a reference to the famous speculative bubble in the Netherlands in 1637, but was nonetheless concerning.

‘Things have been going up for too long,’ he told attendees at a Handelsblatt business conference in Frankfurt.

‘When yields on corporate bonds are lower than dividends on stocks? That unnerves me.’”

Here’s a breakdown of Blankfein’s other remarks, courtesy of WSJ. The CEO was speaking via a video link from Goldman’s headquarters in New York:

…On speculation that Goldman alum Gary Cohn could become the next chairman of the Federal Reserve, Blankfein said Cohn would do a “different job but a great job.”

“I think Gary is very very capable. He would be a different kind of person. Not an academic. I don’t know that he reads a lot of policy papers, let alone writes then, but there’s nobody who understands markets better?.”

Relative to current chair Janet Yellen, Mr. Cohn is ‘much less theoretical.’”

‘Who’s to say what’s better or not??’ he said, noting that past Fed chairs have had more of a markets bent. ‘I’d be willing to give that a try. I think he would do a different job, but a great job.’”

…On Trump:

“Things could have gone better but I’m not without hope. A lot of what [President Trump"s] trying to accomplish I’m friendly to. There are a lot of layers of protectionism and regulation that have been built up that impede progress. I think his good intentions are to take a lot of that away.? ?I have some disappointment but also some hope.?”?

…Asked about the bank’s “Government Sachs” moniker, Blankfein said the bank happens to have a lot of employees who are “civically minded.”

“We have a lot of people who are civically minded…I’m proud of it. Their qualities are recognized. ?T?hey make a sacrifice and we feel the cost of that sacrifice, because they’re very capable people.”

…On the Volcker rule:

“"You have people sitting on desks who are paralyzed out of fear… It has had chilling effect in people’s willingness" to make markets."

...On declining revenue at the bank’s trading division:

“’We have always had periods of time where we haven’t done well. I’m not terribly aggrieved by it. It’s a level playing field for everyone. I think we can do well in this environment, and we can do well if they relax the rules.’

‘We’re running in a horse race against our competitors. If it rains, it rains for everyone and we’ll run in the mud. If it’s sunny, we’ll all run in the sunshine.’”

Could Blankfein’s and Cryan’s remarks portend a selloff in the coming months? Certainly, their publicly voiced concerns about asset bubbles probably represent the most bearish comments made by the leaders of systemically important banks since July, when J.P. Morgan Chase & Co. CEO Jamie Dimon warned investors that the Federal Reserve’s unwinding of its balance sheet wouldn’t be like watching paint dry, but instead that it could be “a little more disruptive than people think.”

The Lost Goldman Sachs 1985 Fixed Income Recruiting Video

Authord by Sarah Butcher via eFinancialCareers.com,

In 1985, Goldman Sachs was still a partnership. The current partners owned around 80% of the firm, retired partners held the remainder. Lloyd Blankfein was a 31 year-old trader at J. Aron, the commodities house Goldman had purchased four years earlier. Run by John Weinberg, a former M&A banker, Goldman in 1985 was mostly a U.S. operation. There were a handful of overseas offices, including one in London, but in the words of Lisa Endlich, Goldman’s London few hundred staff were sitting in an, “unair-conditioned setting on one floor of an office building.”

Nonetheless, Goldman wanted expansion. In 1986, it decided to go for growth. Over the next 12 years, the firm doubled in size and its capital increased five times.

This is the world depicted by a fixed income recruiting video made by GS in 1985 which has just surfaced on Youtube. Despite being posted to the video sharing network in March 2015, it’s only just been unearthed.

We’ve posted the 10 minute video below (3 mins on YouTube are blank). Goldman used it to make a pitch for, “exceptionally talented and motivated individuals,” to work in the fixed securities markets which it said were experiencing, “rapid growth.”

Highlights of 1985 Goldman Sachs included smoking at the desk, endless coffee in paper cups, pagers in belts, big hair, big computers, a lot of telephones, a lot of paper and a lot of human beings. The video supplements this with an encouraging ’80s musical accompaniment.

“The pace is fast, and the atmosphere is intense,” Goldman’s former self warns: “Emotions change from minute to minute.” Prerequisites for getting a job there included, “intelligence, independence, a strong desire to succeed, creativity and the ability the quickly translate ideas into action…”

If anyone knows who the people in the video are, please enlighten us (future GS CEO Jon Corzine can be seen shouting into the phone at 7 minutes 30 seconds).

If you like the genre you can always go on to sample the 1987 documentary about Paul Tudor Jones. 

Gary Cohn's Parting Gift From Goldman: An Accelerated $124 Million

Leaving Goldman Sachs to work for the government has always been a lucrative career move: eight years ago, it allowed former Treasury Secretary Hank Paulson to sell $500 million in Goldman stock tax free, and now its the turn of Gary Cohn, Goldman"s former COO and president, who is leaving to join Trump"s cabinet, who is departing with an "accelerated" gift.

According to Bloomberg, Goldman Sachs lifted restrictions or accelerated delivery on about $123.7 million in stock and cash awards previously awarded to Gary Cohn, 56, who left last month to become President Donald Trump’s top economic adviser. Cohn was given $20 million in pay for 2016, including $18.15 million in variable compensation and a $1.85 million salary, the New York-based bank said in a regulatory filing Tuesday.

That wasn"t all: also on Monday, the bank handed over 96,572 restricted shares that were outstanding from earlier stock awards scheduled to be delivered over time. It also lifted selling restrictions on 99,909 shares that Cohn had already earned but was unable to sell. Combined, they were worth $45.9 million based on Tuesday’s closing price of $233.68 a share. About $12.8 million in additional restricted stock was included in his 2016 compensation. Cohn didn’t receive all of the restricted stock because Goldman Sachs withheld an unspecified portion of it for taxes, according to the filing.

That"s not all:

He also got $47 million to settle outstanding awards he received each year since 2011 under the bank’s long-term incentive program. He also received an $18 million cash payment in exchange for outstanding performance shares, according to the filing.

Cohn left Goldman Sachs last month after agreeing to join the Trump administration as head of the National Economic Council. He started at Goldman Sachs in 1990, becoming co-president in 2006, and then sole president. He was long seen as the heir apparent to Chief Executive Officer Lloyd Blankfein.

And since Cohn will likely vacate the post within a year or two, it means that the former COO gets to liquidate his stock holdings at a price near all time highs, without having to wait for it to vest like any other mere mortal Goldmanites. It is still unclear if he will have to pay any tax on the proceeds.

Jamie Dimon: "The Euro Zone May Not Survive"

According to some, it all started with Mario Draghi, who back in 2012 said that the ECB would prevent the collapse of the Eurozone "whatever it takes." By saying that, he effectively took the impetus away from Europe"s politicians to engage in any real structural reform and promote difficult policy changes, and well, here we are five years later with a "populist" wave sweeping across Europe which is now ex the UK.

And while few are willing to discuss the topic of Europe"s viability in the current regime, JPM"s Jamie Dimon broke the tranquil setting of Davis where all remains well, to wanr that Europe needs to address disagreements spurring the rise of nationalist leaders or the region’s strong economic ties will break, warning that politicians must get to grips with the discontent that’s spurring support for populist leaders across the continent.

Dimon said he hoped European Union leaders would examine what caused the U.K. to vote to leave and then make changes. That hasn’t happened, and if nationalist politicians including France’s Marine Le Pen rise to power in elections across the region “the euro zone may not survive,” Dimon, 60, said in a Bloomberg Television interview with John Micklethwait.

Not mincing his words, Dimon warned that "what went wrong is going wrong for everybody, not just going wrong for Britain, but in some ways it looks like they’re kind of doubling down,” the JPM CEO said in the interview in Davos. He continued that unless leaders address underlying concerns, “you’re going to have the same political things about immigration, the laws of the country, how much power goes to Brussels.”

This reminds us of what Jeff Gundlach said during this weekend"s Barron"s roundtable: when asked "what will we be talking about this time next year" his answer was simple: "Trouble in the euro zone."

As Bloomberg notes, "Dimon’s remarks on Europe were unusually pessimistic, coming in a wide-ranging interview in which he also criticized regulations that he said stunt economic growth. But he reiterated optimism for President-elect Donald Trump. Minutes later, Goldman Sachs Group Inc. Chief Executive Officer Lloyd Blankfein also expressed concern about Europe, telling CNBC that leaders are facing a backlash in the midst of a long, complicated process to create an economic bloc."

“That’s complicated, that’s very hard to do,” said Blankfein, 62. “It’s not done, and it’s not accomplished. We’re finding the pain of that.”

The bottom line is the region must become more competitive, Dimon said, which in simple economic terms means accept even lower wages. It also means major political overhauls: “I say this out of respect for the European people, but they’re going to have to change,” he said. “They may be forced by politics, they may be forced by new leadership.”

It is unclear how Europeans will adopt these major "changes" without anger at the establishment growing even more.

Yet while he was clearly concerned about Europe, Dimon said he isn’t as concerned about the future of the U.S. under Trump, whose own rise drew on a populist movement. The reason for that: Trump"s decision to surround himself with a "who"s who" list of former Wal Streeeters. 

The real estate mogul and reality TV star is enlisting “very serious people” for his administration, such as former Goldman Sachs alumni Steven Mnuchin and Gary Cohn, who’ve been tapped to lead the Treasury Department and help oversee White House economic policy.

“The side that people are worried about a little bit, and I think is may be blown out of proportion, is trade,” Dimon said. “They’re listening to tweets and one-liners and statements” from Trump. But in his book, “The Art of the Deal,” the president-elect “will tell you he does that” as a tactic, Dimon said.

Asked about a concerns Trump may start a trade war with China, Dimon said he’s not worried. “I think these very rational people will be very thoughtful when they go about the actual policy,” he said.

Translated: Trump"s ex-Goldman advisers will never let him do anything that could hurt Goldman"s interests in the US or around the globe.