◼ FINANCE Bloomberg Businessweek August 12, 201926
THE BOTTOM LINE Investors are reacting not only to earnings
and economic growth, but also to unpredictable moves by
influential policymakers.Help Wanted Busting
Dirty Money
account for about 3% of the average bank’s head
count in the U.S. and Europe, more than double the
level in 2013, according to Boston Consulting Group.
With most lenders now thoroughly evaluating busi-
ness clients annually instead of every three to five
years, as they did a few years ago, big banks typi-
cally spend more than $300 million annually staff-
ing their anti-money-laundering operations, BCG
says. Investment bank Mediobanca SpA estimates
European financial houses will have to hire 10,000
people in the next two years, but there aren’t nearly
enough qualified candidates. “There’s an ongoing
labor crunch,” says BCG partner Norbert Gittfried.
“The day-to-day need is still going up.”
With low interest rates and a weak regional● European banks need
more people to comb
through data in the fight
against ill-gotten fundsthemselves—have had trouble keeping share
prices afloat. Shares of Google parent Alphabet
Inc. surged almost 10 percent after the company
announced a $25 billion share buyback plan on
July 25. The stock proceeded to lose almost all of
that gain in the following week.
Before the latest swoon, there were signs that
some investors were getting nervous about the
balance of risk and reward offered in the market.
Some measures of valuation look high. Warren
Buffett’s preferred metric, the ratio of the total mar-
ket value of U.S. stocks to gross domestic product,
is at about 1.49, higher than it was just prior to the
financial crisis. The cyclically adjusted price-to-
earnings ratio, based on the last 10 years of earn-
ings, is about 30, well above the 50-year average of- Both measures capture roughly the same thing:
how much it costs to buy a piece of the wealth that
businesses are generating. Neither number can tell
you when the market is about to turn, but they both
suggest prices are high.
For Buffett, there doesn’t seem to be much worth
buying at current valuations. The latest earnings
report from his Berkshire Hathaway Inc. showed the
holding company sold more stocks than it bought
in the second quarter, and its pile of cash rose to a
record $122 billion. He’s not the only one sitting on
the sidelines: assets in money-market mutual funds—
the mattresses investors tuck money under when
For decades, increasing reliance on technology
and automation has meant one thing for workers:
fewer jobs. In a fast-growing corner of the finance
industry, it’s doing the opposite as banks across
Europe struggle to fill positions in units employ-
ing tech to combat money laundering.
Reeling from a litany of scandals and more than
$20 billion in fines since 2012, lenders are using
artificial intelligence and machine learning to fer-
ret out miscreants seeking to obscure the origin of
ill-gotten cash. But that technology coughs up so
much data that banks must hire legions of work-
ers to sort through it all and separate the scoun-
drels from the scrupulous.
Compliance and financial crime personnel todayother choices look too risky—have climbed to an
almost 10-year high of $3.3 trillion.
The recent rush into safe havens sent gold to a
five-year high and triggered a rally in Treasuries that
pushed 10-year yields to their lowest since Trump
was elected in 2016. (Yields drop when prices rise.)
At the same time, rates on three-month Treasury
bills were higher than those on 10-year bonds—a
phenomenon known as a yield-curve inversion
that’s widely considered a reliable warning of an
impending recession. The lower long-term yields sig-
nal that markets expect interest rates to come down
in response to weak economic growth.
“We may well be at the most dangerous finan-
cial moment since the 2009 Financial Crisis with
current developments between the U.S. and
China,” tweeted Larry Summers, Treasury secre-
tary under Bill Clinton and economic adviser to
Barack Obama. One might detect a partisan edge
in that comment, but there’s no doubt markets
are trying to see their way through a lot of poten-
tial chaos. Bulls may hope that Trump will tweet
about a breakthrough with “his good friend Xi,”
and stocks will be off to the races again. But for
now the cacophony in the mosh pit just seems to
get louder and louder. �Michael Regan● Cash held by
Berkshire Hathaway$122b