Hello and welcome back to Dry Powder. 

Thanks as always for being a part of Puck, our new media company covering the intersection of Wall Street, Washington, Silicon Valley, and Hollywood. And thanks for reading Dry Powder.

Today I'm opening my notebook and responding to inquiries about Bob Iger's legacy, Katie Haun's new crypto funds, Jane Fraser's Covid crackdown, and last week's bond market turbulence. As always, if you're enjoying these previews of my private email, consider sharing the subscription link with a friend.

Best,

Bill

Iger’s Aftermath, a Crypto Genius, and Zoom M&A

Notes on Wall Street's post post-Covid deal frenzy, the legacy of Bob Iger, and Silicon Valley's new digital gold rush.

Each week, I receive feedback from readers and sources about Wall Street’s biggest characters and concerns. I’ll be engaging with some of those questions here—in addition to a few observations of my own.

Bill, what’s the future of in-office work going to look like for Wall Street? Goldman is delaying it again, and Citi is threatening people's jobs if they don't get vaccinated. Meanwhile, New York City’s new mayor has said repeatedly that workers need to get back to the office to preserve the rest of the economy. What are top bankers saying privately?

Well, as I wrote in a New York Times guest essay last August, making an M&A deal on Zoom is just not the same as making an M&A deal in a room with your colleagues, your client, your lawyers and your accountants and having those on the other side of the deal lurking around. That doesn’t mean, of course, that deals can’t get done. If 2021 proved anything, it’s that plenty of deals can get done over Zoom. In fact, more deals got done in 2021 than any other year, ever, some $5.8 trillion worth of deals, up 64 percent from 2020, according to Refinitv, the data collection company. 

The problem is that being isolated, working from home, and just being another face in a Zoom box is not the best way to learn the deal business, which is like a Florentine guild. It’s an apprenticeship business and Zoom is not the place to learn a complex craft. That’s why all of Jamie Dimon, James Gorman, David Solomon and Jane Fraser are doing everything in their power to get employees back to the office, by insisting on vaccinations and threatening job security for those who don’t. 

I totally get that argument. It makes a lot of sense, especially given how much capital and expense is tied up in a large number of office towers around the world. The top bankers on Wall Street want their employees working from the office, and there is little dissension on Wall Street from that thinking. But Omicron gonna Omicron, so what are you going to do, until the wave passes, if it passes? The good news for Wall Street is that in the short-term, it’ll find a way to keep making money in this latest wave, whether people work from home or from the office. The bad news is that, long-term, working from home will not work for a Florentine guild. 

Katie Haun, who recently left a16z, is raising nearly a billion for two new crypto funds. As you know, she is also a former federal prosecutor who focused on cyber and crypto. Grass greener on this side of the fence?

I have gotten to know Katie pretty well over the last few months. I’ve been interviewing her for a soon-to-come profile of her in Puck and I also interviewed her for the documentary film I’ve been working on, Finding Satoshi, about cryptocurrency. She is the real deal. After graduating from Stanford Law School, she clerked for Supreme Court justice Anthony Kennedy and then went on to a distinguished career as a federal prosecutor, ending up in the Northern District of California, where she and others prosecuted the Mt. Gox hack and the corrupt FBI agents on the Silk Road task force. 

She knows her stuff. Before deciding to go out on her own by starting her own crypto funds, she distinguished herself in short order at a16z by making some of the most successful investments the firm has ever made. She led a16z’s investments in OpenSea, the NFT exchange that will soon go public, markets willing, and she is on the board of Coinbase, the crypto exchange. I’m no expert on the ins and outs of the politics at a16z—it looked for a while that Marc Andreesen and/or Ben Horowitz might step aside, although they seem to have recommitted to the firm after raising new funds—so I am not sure if it was internal politics that led Katie to want to go out on her own or, more likely, just a overriding desire to show the world what she can do, while becoming one of the best venture capital investors. 

She loved being a prosecutor and I think she loves investing in crypto-adjacent companies, as this particular financial frontier continues to expand. She’s also a devoted mother and wife, so it’s likely that running her own show will give her a better work/life balance once the dust has settled on the fundraising and organizing the new firm. As for the grass being greener in venture-capital land, as opposed to prosecution land, that’s a pretty obvious yes—at least financially. But who among us would not like to have subpoena power?

You've been wary of the bond market for some time. Now yields are reaching new heights, triggering instability elsewhere. What's your view?

Finally the bond market is getting some good news. Not for bond investors, mind you, or those bond investors who thought it was a good idea to buy, say, junk-bonds when they were yielding 4 percent, or just below, as they were a few months ago. Now that junk-bonds are yielding 4.6 percent, those investors who bought when bond prices were higher, and yields were lower, are now starting to get singed. And there is more pain coming for them, as there should be. How crazy do you have to be as an investor to buy a junk-bond when it is yielding 3.9 percent, when it should be yielding 10 percent? Pretty crazy. And that’s why there is more pain to come in the bond market, much more pain before this ship finally gets righted. 

But the good news, as I started off writing above, is that at least yields are starting to correct, a correction that is long, long overdue and is still far from over. There’s a lot of pain to be had for bond investors who are buying bonds yielding 4.6 percent, when they should be yielding 10 percent. It will take time but the bond market will correct, and risk will again be properly priced in the market. Sure, there will be plenty of pain for those foolish investors thinking somehow that the Fed’s QE program would last forever. “2021 was a down year for bond investors,” BusinessWeek tweeted. “They’re bracing for even more disappointment in 2022.” But at least the bond market is starting to correct, and that is good news for the overall health of the bond market. So here’s to hoping the Fed curtails QE in 2022 and raises interest rates two or three times and that at some point in the next few years, junk-bond yields return to where they should be at 10 percent. Then I will start buying them.

A recent survey suggests that a staggering 72 percent of C.E.O.s fear losing their job amid this economic disruption—a stunning 20 point jump from last year. Were you surprised, given the bull market and widespread generosity of C.E.O. compensation packages?

Leading a public company is not quite as precarious as being the head coach of a football or basketball team, but it’s close, especially if the company’s stock price is falling when the broader stock indices go from one all-time high to another. That doesn’t mean it’s easy to get rid of a C.E.O. who has lost the plot. On the contrary, C.E.O.s have long-term employment agreements with their companies and unless they are being removed “for cause,” parting ways with an existing executive is going to be expensive, in the sense that the full amount he or she is due will have to be paid, regardless of whether he or she is still employed. I also suspect that many C.E.O.s are nervous about their future prospects because they know, deep down, that exogenous factors (see the question above) are largely responsible for the increase in their company’s stock prices. In other words, they probably recognize—Elon Musk aside—that the dramatic rise in stock prices since March 2020 has more to do with the Fed’s actions than anything they did, or are doing, as the C.E.O. of their company. 

That’s a broad generalization of course. But after 12 years of a bull market that seems to know few boundaries, I’d be nervous too that my company’s stock price is more likely to go down at this point rather than to keep going up. C.E.O.s rarely lose their job when shareholders are happy. But when they are unhappy—and nothing makes investors less happy than a falling stock price—the fireworks begin and C.E.O.s get fired. I’d be nervous too: they know in their guts that the party will be ending soon and that their economic prospects are at risk, along with their jobs.

Bob Iger is finally sailing off into the sunset. How will Wall Street remember him?

In a word, he’ll be remembered well. When he took over as C.E.O. in March 2005, Disney stock was around $28 a share. Today it is $155 a share. That’s an increase of 454 percent in 16 years—pretty good, especially for an established company, such as Disney. He’s also paved the way for his successor, Bob Chapek, to succeed after Iger engineered a plethora of important acquisitions—among them, Pixar, LucasFilm, Marvel and Fox—that pretty much makes Disney the King of Hollywood these days, with a market value of close to $300 billion. So few are going to complain about that. 

Did Iger grow more imperial over time? Did he become more sensitive about what was written and said about him? Did it often seem like he would never give up the job unless he was appointed President of the United States? Yes, to all three. But he’s certainly not unique among successful C.E.O.s of big companies who often get carried away with their own wonderfulness. They are rich, famous and surrounded by sycophants and yesmen and yeswomen. It would be a bit of a minor miracle if they managed to keep their heads from swelling, to paraphrase Kipling, in the midst of such a whirlwind, especially after nearly two decades at the helm. 

To his credit, Iger got out on top and when the getting was good. In interviews, he’s said he has no intention of retiring and binge watching television all day. Iger is nearly a billionaire, thanks to Disney, so he has plenty of money to make a reality of whatever dream he has at the moment. (According to my colleague Matt Belloni, Iger has told at least a couple friends that he’d love to front a bid for the Phoenix Suns.) It’ll be interesting to see what he does next. 

FOUR STORIES WE'RE TALKING ABOUT