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You know things are bad when the most upbeat CEO starts sounding gloomy.

Morning Coffee: Bank CEO tells employees to prepare for harsh reality. Winter arrives at the “Goldman Sachs of Crypto”

Richard Handler has gone from Tigger to Eeyore

There’s only really one personality test that matters in financial markets – which Winnie-the-Pooh character are you?  When the naturally Tiggerish types on the trading floor start talking like Eeyores, it’s time to pay attention.  The latest Jefferies “Leadership Letter”, for example, has Rich Handler, notoriously one of the bounciest people in banking, taking a significantly more sad-donkey tone in discussing the outlook.

It's titled “As Things Change In The World”, and it seems that most of them aren’t changing for the better.  Handler tells his troops that the era when “money was essentially free … most mistakes were not that harmful” and when “Every dip might as well be bought” is decisively over. Also, “the inflation we all hoped to bring back in a controllable manner has escaped the barn and wow, it is angry”.

We can compare this letter to the February edition.  At the start of the year, the macro outlook and subject was similar, but the tone was brighter.  The “Boomer’s Guide to Dealing with an Increasing Interest Rate Environment” made many of the same points with respect to the effects of the turn of the cycle and end of cheap money, but it was basically upbeat, emphasizing the opportunities and the value to be created by “quality research and advice”.   Nine months later, the letter is just asking “When money starts to have a cost, then what?”.

The answer is apparently to “accept reality” and “honestly talk about” the “monumental and worrisome shifts”.  If you do this, you’ll be able to “make smart pivots in every aspect of your life”. In context, and given a specific mention of “manag[ing] your household better” in the same passage as advising clients, it sounds as if Rich is gently hinting to those Jeffries staff who have expensive lifestyles that it might be time to pay down debts and rein in spending.

Of course, it wouldn’t be a Rich Handler letter if it didn’t contain somewhere a phrase equivalent to “If you cannot tell, we are hugely optimistic in the face of a very complicated moment in time” in the concluding paragraph.  But this has something of a plaintive quality, coming at the end of 1200 words of worry about potential world wars, the social fabric of America and people’s seeming inability to “even agree on the facts, let alone the interpretation of them”.

The really harsh reality, it seems, is that the usual bankers’ maxims of knuckling down, working hard, not letting yourself get distracted by politics or world events and concentrating on adding value for clients … might not be enough this time.  As the saying goes, you might find it comfortable to ignore history, but history won’t necessarily ignore you.  The Jefferies management team’s advice to their bankers is still to believe in the “American Experiment” and the “positive nature of people”, but it’s easy to see that the overall bullish recommendation might have dropped off the “high conviction” list.

Elsewhere, it seems that the wolf is at the door at Galaxy Digital, the crypto financial services firm founded by former Goldman Sachs partner Mike Novogratz.  The official line from the company is that “we are always considering optimal team structure and strategy and will share future plans when finalised”, but the rumours from “people familiar with the matter” are that headcount reductions of 15-20% are likely, meaning up to 75 job losses.

Novogratz is still committed to building a full service banking business for the institutional take-up of crypto investment, when it happens, but it seems that Galaxy has had to face up to harsh reality too in terms of the macroeconomic headwinds and decline in value of most cryptocurrencies.  When the Luna stablecoin collapsed shortly after Mike got a tattoo of its logo, he told the market that he would regard this as a permanent reminder of the reality of risk and the need for humility.  Perhaps a few more months of crypto winter will make hubris less of a day-to-day problem and allow him to start looking into removal services.

Meanwhile …

James Vorley, a former precious metals futures trader for Deutsche, is the latest to challenge the US authorities’ decision to stretch the definitions of the fraud statutes to cover everything that they wanted to prosecute.  After the Tom Hayes case, it seems like he might have a chance of getting his own case (for spoofing orders) quashed too. (FT)

“Bossware”, which captures screenshots or monitors faces to ensure that homeworkers aren’t slacking off, is probably illegal in the USA and there’s about to be a crackdown by the National Labour Relations Board.  In the banking industry, it might be interesting to see how this prohibition interacts with compliance requirements for mobile phones and storing communications. (NY Post)

The Sculptor litigation gets even more bitter, as the hedge fund founder Daniel Och has dragged up a “personal issue” with respect to his former protégé Jimmy Levin, which apparently made him have last minute buyers’ remorse about appointing Levin as CEO. (Bloomberg)

With sessions titled things like “From Illegal to Legal” and people saying “we’re kind of setting the tone in terms of what ‘compliant’ means”, what else could it be except a cannabis/fintech conference?  Reading between the lines, it looks like most of the startups present are marking time and building customer lists to get ready to be acquired as soon as bigger players think the industry is safe to enter. (WIRED)

Did you miss me?  Six months after leaving the Chair of Deutsche Bank’s supervisory board, Paul Achleitner is back as chair of its Global Advisory Board.  Other advisors include Henry Kissinger and former Google chairman Eric Schmidt. (Deutsche Bank)

If you like crypto, and you like former British Prime Minister Boris Johnson, then the Singapore International Symposium on Blockchain Advancements next month is the place to go. If you don’t like Boris Johnson, they’ve got former US vice-president Dick Cheney too. (Guardian)

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