WEBVTT - Trade Policy and the Fed Decision 0:00:02.520 --> 0:00:13.760 Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg 0:00:13.840 --> 0:00:17.920 Surveillance Podcast. Catch us live weekdays at seven am Eastern 0:00:18.200 --> 0:00:22.000 on Apple CarPlay or Android Auto with the Bloomberg Business App. 0:00:22.360 --> 0:00:25.680 Listen on demand wherever you get your podcasts, or watch 0:00:25.760 --> 0:00:27.160 us live on YouTube. 0:00:27.440 --> 0:00:30.120 This is a joy. She is a Columbia university in 0:00:30.720 --> 0:00:34.479 for years with golden sas Abbie Joseph Cohen joins us 0:00:34.520 --> 0:00:37.479 now in an important time for the nation. Abby, let 0:00:37.520 --> 0:00:41.800 me go out to sixty thousand feet with this administration, 0:00:42.479 --> 0:00:46.879 with the ying and yang almost of this old administration 0:00:47.000 --> 0:00:52.479 to new and all, do we risk giving up American productivity? 0:00:52.600 --> 0:00:56.480 For whatever reason? Are we close to where we upset 0:00:56.560 --> 0:01:02.040 the long term glow in a f of America? 0:01:03.920 --> 0:01:07.520 Tom, I know that you've always had this focus on productivity, 0:01:07.680 --> 0:01:11.040 and I'm glad that you do because, as you and 0:01:11.080 --> 0:01:14.800 I both know, long term economic growth and long term 0:01:14.840 --> 0:01:19.800 wealth creation. And I'm talking about national wealth, personal wealth 0:01:19.880 --> 0:01:24.320 rather than stock market erratic wealth is very much related 0:01:24.319 --> 0:01:28.039 to productivity. And I do think that some decisions that 0:01:28.400 --> 0:01:31.080 have been made and continue to be made right now 0:01:31.400 --> 0:01:35.759 will be damaging the nation's long term productivity growth. I'll 0:01:35.760 --> 0:01:39.720 give you a few examples. First of all, even during 0:01:40.000 --> 0:01:44.880 prior administrations, we were seeing that our national investment in 0:01:44.920 --> 0:01:49.560 science and technology as a percentage of GDP had gone down, 0:01:50.320 --> 0:01:53.800 and it has gone down even further during the last 0:01:53.800 --> 0:01:59.120 few months. Cancelation just yesterday for example, or excuse me, 0:01:59.200 --> 0:02:05.200 postponement rather of all NIH grants announced yesterday is an 0:02:05.200 --> 0:02:10.520 indication of loss of productivity future productivity in the bio 0:02:11.360 --> 0:02:16.440 BioResearch area. We've also seen enormous cutbacks in grants from 0:02:16.440 --> 0:02:19.680 the National Science Foundation, NASA and so on, and these 0:02:19.720 --> 0:02:22.119 are the things that really gave us a leg up 0:02:22.440 --> 0:02:26.400 in terms of our technology, especially with regard to things 0:02:26.440 --> 0:02:30.400 like computer science and a number of other categories that 0:02:30.440 --> 0:02:32.440 are going to be so critical for the future. 0:02:33.360 --> 0:02:35.720 Happy we're going to hear from the Federal Reserve Bank today, 0:02:35.760 --> 0:02:39.440 and as you know, so much cross currents out there 0:02:39.639 --> 0:02:42.840 and probably some political pressures that this is a this 0:02:42.919 --> 0:02:44.799 FED has not had to deal with for a very 0:02:44.919 --> 0:02:48.960 very long time. What do you expect to hear today? 0:02:49.960 --> 0:02:53.120 I think, like everyone else, I will be on tender hooks, 0:02:53.680 --> 0:02:56.960 but I think the consensus probably has it right that 0:02:57.000 --> 0:03:00.000 the FED for the time being would like to hold 0:03:00.120 --> 0:03:03.799 tight on interest rate policy. Keep in mind that even 0:03:03.880 --> 0:03:07.400 the GDP report this morning had those cross currents in it. 0:03:07.680 --> 0:03:10.600 The top line might have looked good, but things like 0:03:10.639 --> 0:03:17.440 real final sales are showing signs of deceleration, consumer spending decelerating, 0:03:17.560 --> 0:03:22.639 and very importantly, back to Tom's question about productivity, we 0:03:22.720 --> 0:03:28.560 see that business investment capex, for example, is also slowing. 0:03:28.880 --> 0:03:31.400 And these are things that we need to be watching carefully. 0:03:31.600 --> 0:03:35.480 But let's remember that the FED is under pressure not 0:03:35.640 --> 0:03:38.960 just on interest rate policy, but on some other things, 0:03:39.080 --> 0:03:45.559 including its very important supervisory and regulatory function within financial services. 0:03:46.000 --> 0:03:48.280 And then, of course there are the questions about the building. 0:03:48.760 --> 0:03:51.400 I would say that I worked in two of those 0:03:51.400 --> 0:03:55.960 buildings and they were in desperate need of renovation, experate renovation. 0:03:56.920 --> 0:04:00.240 So again, so abby. When you think about, you know, 0:04:00.360 --> 0:04:04.640 these markets here today and some of the trade policies 0:04:04.640 --> 0:04:07.320 that maybe the market's trying to discount here, the political issues, 0:04:07.320 --> 0:04:10.920 the geopolitical issues for topics around the world. Are you 0:04:10.960 --> 0:04:14.720 surprised that the equity market snapped back as well as 0:04:14.760 --> 0:04:17.680 it did, and we're talking about new all time highs 0:04:17.680 --> 0:04:18.760 on a daily basis. 0:04:19.800 --> 0:04:22.760 Well, As you point out, the equity market did snap 0:04:22.800 --> 0:04:27.120 back especially after those announcements in April, and I think 0:04:27.200 --> 0:04:30.640 the key reason for it has been that economic data 0:04:31.000 --> 0:04:34.600 has been okay. As I mentioned before, there are now 0:04:34.640 --> 0:04:40.240 some signs of deceleration, but certainly procession and corporate profits 0:04:40.279 --> 0:04:44.040 have been quite robust. Particularly it's in sectors that have 0:04:44.160 --> 0:04:47.320 been favored. I think that the real question will be 0:04:47.480 --> 0:04:50.520 in the second half of this year once we see 0:04:50.560 --> 0:04:54.760 what happens as companies are now beginning to adjust for 0:04:54.880 --> 0:04:58.440 the tariff policies they see, for example, the announcements just 0:04:58.480 --> 0:05:02.200 over the last yeays Procter and Gamble and Hershey and 0:05:02.279 --> 0:05:04.720 of course some of these pharmacy companies. 0:05:04.279 --> 0:05:07.320 Abby Joseph Cohen with US of Columbia and of course 0:05:07.800 --> 0:05:11.320 decades of Goldman Sex. Abby, Are you a bull in 0:05:11.360 --> 0:05:14.800 this oddest of markets where people you and I know 0:05:14.920 --> 0:05:19.279 in respect have ten holdings that are forty even fifty 0:05:19.320 --> 0:05:24.640 percent of their portfolio. Is this a legitimate bull market 0:05:24.760 --> 0:05:25.920 that you can believe in? 0:05:27.720 --> 0:05:31.640 This is a legitimate bull market. The question is how 0:05:31.720 --> 0:05:35.400 much further can it go? The concentration that we've seen 0:05:35.600 --> 0:05:39.960 in a small number of extremely well performing shares, and 0:05:40.040 --> 0:05:45.360 of course the valuation valuations are just not all that appealing. 0:05:45.720 --> 0:05:48.440 If we look at the S and P five hundred overall, 0:05:49.200 --> 0:05:54.160 it is, you know, sort of at record deciles visa 0:05:54.600 --> 0:05:58.240 pe price to sales, price to book, and so on. 0:05:58.720 --> 0:06:03.040 Doesn't mean that there are some value opportunities, but I 0:06:03.080 --> 0:06:06.120 think that investors really need to be very careful. And 0:06:06.160 --> 0:06:08.040 one of the things that I always go back to 0:06:08.640 --> 0:06:12.240 is that when the market is undervalued, when the market 0:06:12.320 --> 0:06:16.760 is too cheap and there are disappointments perhaps on economics 0:06:16.880 --> 0:06:21.920 or geopolitics, the market has shock absorbers. But when things 0:06:21.960 --> 0:06:25.600 are already priced for perfection, then you really need to 0:06:25.640 --> 0:06:29.320 be careful because that's when the volatility picks up. And 0:06:29.360 --> 0:06:32.440 we have seen, for example, that when there are those 0:06:32.480 --> 0:06:36.520 periods in which it's not clear what economic policy will 0:06:36.560 --> 0:06:39.200 be or what's happening in the rest of the world, 0:06:39.480 --> 0:06:42.839 we do see that volatility picking up, and volatility works 0:06:42.839 --> 0:06:45.480 in both directions, not just up but also down. 0:06:47.000 --> 0:06:48.640 Abby what have you seen so far and what do 0:06:48.680 --> 0:06:51.640 you expect to see in the second quarter earnings that 0:06:51.680 --> 0:06:52.960 we're dealing with at the moment. 0:06:54.279 --> 0:06:58.120 The second quarter earnings have actually been quite good, and 0:06:58.200 --> 0:07:01.919 that I'm sure is a relief to many people. My focus, however, 0:07:02.000 --> 0:07:05.640 has on guidance. What are these companies telling us about 0:07:05.680 --> 0:07:09.080 the future. And we are hearing more and more companies 0:07:09.120 --> 0:07:13.679 saying they are concerned about tariffs. They've not been forced, 0:07:13.680 --> 0:07:17.040 if you will, to focus in detail on it, because 0:07:17.080 --> 0:07:20.360 nobody really knows what the tariff structure is going to be. 0:07:21.840 --> 0:07:24.520 There's been a sigh of relief that the tariff of 0:07:24.800 --> 0:07:28.400 focus will not be as high as it might have 0:07:28.480 --> 0:07:33.600 been in April. But where we are right now fifteen 0:07:33.640 --> 0:07:38.000 to eighteen percent on average expectation for tariff rates, that's 0:07:38.040 --> 0:07:42.880 extremely high, that smooth Hawley level. And the comments that 0:07:42.920 --> 0:07:45.320 have been made by some saying, oh, look how much 0:07:45.360 --> 0:07:48.520 money we're collecting from tariffs, that's great, it's going to 0:07:48.560 --> 0:07:51.119 help us on the deficit. Well, I would say, hold 0:07:51.160 --> 0:07:54.880 on a second. Those tariffs are being collected in large 0:07:54.920 --> 0:07:59.800 part from American businesses and American consumers. It's a sales tax, 0:08:00.560 --> 0:08:03.480 and it's something that is not helpful for economic growth. 0:08:03.840 --> 0:08:07.080 Thus far, what we have seen in corporate reports is 0:08:07.120 --> 0:08:12.760 that companies willing to absorb to this point, but as 0:08:12.800 --> 0:08:15.200 they have a better sense of what the tarips will 0:08:15.240 --> 0:08:17.880 really be, they may adjust their policies. 0:08:18.000 --> 0:08:20.960 Having I got twenty seconds it's one hundred degrees out 0:08:21.560 --> 0:08:23.760 Ken olvetch can do it one more year for the 0:08:23.880 --> 0:08:26.800 Washington Capitals. 0:08:25.960 --> 0:08:29.200 I certainly hope. So I've got my jersey ready. 0:08:29.920 --> 0:08:33.319 Very good Abby, and thank you so much. With Columbia 0:08:33.400 --> 0:08:38.560 University sitting right behind the bench in Washington Capitals opening 0:08:38.600 --> 0:08:41.440 that it'll be in October. I believe first week of 0:08:41.480 --> 0:08:42.640 October is the tradition. 0:08:48.960 --> 0:08:52.520 You're listening to the Bloomberg Surveillance Podcast. Catch us live 0:08:52.600 --> 0:08:55.600 weekday afternoons from seven to ten am. E's durn Listen 0:08:55.679 --> 0:08:59.240 on Applecarplay and Android Otto with the Bloomberg Business app, 0:08:59.400 --> 0:09:01.040 or watch us live on YouTube. 0:09:01.400 --> 0:09:02.959 Studying me, I an't who was silber member with this 0:09:03.080 --> 0:09:07.240 now our RBC Capital Markets into the great fundamental analysis 0:09:07.320 --> 0:09:12.960 the mathematics of Abby Joseph Cohen at Columbia University when 0:09:13.000 --> 0:09:16.480 you were coming up and I was the same way. 0:09:16.679 --> 0:09:21.160 How did you study Abby Joseph Cohen? She was asconsdin 0:09:21.240 --> 0:09:26.040 gold and Sacks, hugely active within the CFA Institute. How 0:09:26.040 --> 0:09:31.480 did you study the applied mathematics of Abby Joseph Cohen? 0:09:32.120 --> 0:09:35.200 Well, first I was at Goldman and you know, Abby 0:09:35.240 --> 0:09:38.400 Joseph Cohen was the star. So it's very cool. 0:09:38.440 --> 0:09:39.480 Did you ever speak to her? 0:09:39.800 --> 0:09:42.960 I was too afraid that was like a lowly associate 0:09:43.120 --> 0:09:46.000 in the Derivas research department. I just you know, I 0:09:46.080 --> 0:09:49.720 looked from afar. But you know one thing I appreciated 0:09:49.840 --> 0:09:52.360 and that became part of the background is like a 0:09:52.360 --> 0:09:55.760 lot of the white paper analysis is kind of the fundamentals. 0:09:55.760 --> 0:09:58.800 It creates the background for a lot of our analysis 0:09:58.840 --> 0:10:01.800 going forward, looking at back test, looking at systematic factors, 0:10:01.840 --> 0:10:05.080 and that's our framework now at rbcun Derivetives. 0:10:06.200 --> 0:10:08.480 We look at the VIX here. Tom makes us look 0:10:08.520 --> 0:10:10.400 at the VIXI beats us over the head every day. 0:10:10.400 --> 0:10:11.160 You looking at the vix. 0:10:11.720 --> 0:10:16.440 What it's here at below sixteen? It just feels like 0:10:16.440 --> 0:10:18.360 it should be higher than that. I don't know, it's 0:10:18.440 --> 0:10:20.680 crazy out there, but we have a vix. It seems 0:10:20.679 --> 0:10:21.440 pretty benign here. 0:10:21.440 --> 0:10:23.480 How do you think about that's? 0:10:23.840 --> 0:10:26.560 It looks completely benign. You know, I've been joking that 0:10:26.600 --> 0:10:29.240 I've got to bring back my paddling duck market analogy 0:10:29.240 --> 0:10:31.160 because I think it still suits the market here. 0:10:31.600 --> 0:10:31.800 Look. 0:10:31.840 --> 0:10:35.120 The one fact I would add though, is that realize 0:10:35.200 --> 0:10:39.040 volatilely so thirty day SMP realize volatility is eight. So 0:10:39.200 --> 0:10:42.240 if you look at that volatility risk premium, it's actually 0:10:42.400 --> 0:10:44.880 fairly fat. But you know, our joke on the team 0:10:44.920 --> 0:10:46.920 has been it's a good time to rent Gamma, it's 0:10:46.920 --> 0:10:51.240 a good time to Essentially, it just means it's a 0:10:51.240 --> 0:10:53.560 good time to own a little bit of the idea 0:10:53.640 --> 0:10:56.679 that volatility could increase from here, because just given what 0:10:56.720 --> 0:10:59.360 you guys just said, think about the heavy weights reporting today, 0:10:59.360 --> 0:11:02.320 think about what Al could say today. And yet we're 0:11:02.440 --> 0:11:05.480 implying an S and P straddle that suggests nothing's going 0:11:05.559 --> 0:11:06.640 to happen today. 0:11:06.440 --> 0:11:10.240 Within the idea of betting on more volatility, betting on 0:11:10.320 --> 0:11:14.920 more acceleration, if you will, in price change. Is there 0:11:14.960 --> 0:11:18.280 a bet in this summer? Is there a bet on 0:11:18.400 --> 0:11:20.360 Wall Street? Are people exposed? 0:11:21.200 --> 0:11:23.000 So there is not a bet? Now there is a bet. 0:11:23.040 --> 0:11:25.720 We've talked about this before Tom longer term, so more 0:11:25.720 --> 0:11:29.560 in those October through December buckets, you're starting to see 0:11:29.559 --> 0:11:32.840 more hedging activity. But my one fun fact is when 0:11:32.840 --> 0:11:36.480 you look at August over the last decade, VIX typically 0:11:36.559 --> 0:11:40.280 rises about eighteen percent. August is a volatilely potthole month. 0:11:40.360 --> 0:11:43.640 It's a month where folks go one vacation. Investors maybe 0:11:43.640 --> 0:11:46.680 not as much at their desk, you get those liquidity vacuums, 0:11:46.679 --> 0:11:49.199 and maybe you get an August fifth where VIC spikes 0:11:49.240 --> 0:11:52.040 to you know, the sixties that's happened before. We're not 0:11:52.040 --> 0:11:54.240 prepared for that where we're still in July and we're 0:11:54.240 --> 0:11:54.920 happy as a clam. 0:11:55.360 --> 0:11:58.000 So, I mean, I've been in this market game since 0:11:58.000 --> 0:11:58.720 eighty six. 0:12:00.160 --> 0:12:00.520 October. 0:12:00.600 --> 0:12:02.840 I don't like those periods. I mean I was on 0:12:02.840 --> 0:12:04.280 the stock exchange floor in eighty seven. 0:12:04.480 --> 0:12:05.240 Not good. 0:12:06.960 --> 0:12:09.720 How do you think about that? Do you see clients 0:12:10.200 --> 0:12:13.480 positioning for volatility and the follow when people maybe. 0:12:13.240 --> 0:12:14.520 Do get back to their desks. 0:12:14.760 --> 0:12:20.840 Yeah, I think essentially clients are planning on positioning, but 0:12:20.920 --> 0:12:24.480 they have not yet because it's a little too early 0:12:24.559 --> 0:12:26.080 and the name of the game and options is not 0:12:26.120 --> 0:12:29.040 to have to burn premium. But what I'll tell you 0:12:29.120 --> 0:12:31.800 is there's been kind of too divergent narratives. Right, So 0:12:31.840 --> 0:12:35.440 the retail population has all has been about by the dip. 0:12:35.520 --> 0:12:37.440 It has worked for them, but there's always been this 0:12:37.559 --> 0:12:42.080 institutional angst. It really hasn't gone away. It's gone away, 0:12:42.120 --> 0:12:45.880 it has not. I think it's just being very tactical 0:12:45.920 --> 0:12:46.800 about one to deploy it. 0:12:46.880 --> 0:12:50.240 And this is so critical. If they are behind if 0:12:50.240 --> 0:12:55.320 their angst has not gone away. What's the emotion of 0:12:55.360 --> 0:12:58.720 institutions when they're oops, it's August or behind? 0:12:59.800 --> 0:13:00.000 Yeah? 0:13:00.280 --> 0:13:02.480 Are they like retail where they're like, let's get on board, 0:13:02.640 --> 0:13:04.800 hold your nose, let's buy apple or whatever. 0:13:05.280 --> 0:13:05.520 You know. 0:13:06.040 --> 0:13:09.400 The one thing we've seen in financial history since COVID 0:13:09.600 --> 0:13:12.240 is it's not just a left tail risk. There's also 0:13:12.360 --> 0:13:14.800 this right tail risk. And it's very real, Like you 0:13:14.840 --> 0:13:18.560 can no longer think of it as something that occasionally happens, 0:13:18.600 --> 0:13:21.240 like you've you've now gotten a May twenty twenty one. 0:13:21.320 --> 0:13:24.400 These meme crazes, right, these are very real risks that you, 0:13:24.440 --> 0:13:27.600 as a portfolio manager are just as exposed to. If 0:13:27.600 --> 0:13:31.719 your benchmark runs away from you, You're you're hedging on 0:13:31.760 --> 0:13:33.480 the upside as much as you're hedding on the downside. 0:13:33.520 --> 0:13:36.920 Tom Amy was silveran with US RBC Capital Markt's thrilled 0:13:36.960 --> 0:13:39.120 to have her with US. Ebby Joseph Cohen joining us 0:13:39.480 --> 0:13:42.480 in about twenty minute here ready green on the screen 0:13:42.600 --> 0:13:45.480 the vics fifteen six. 0:13:45.880 --> 0:13:49.440 So you mentioned meme stocks and Amy. Whenever I see that, 0:13:49.800 --> 0:13:52.200 and we see it from time to time, that to 0:13:52.240 --> 0:13:54.480 me is a red flag that all right, this market's 0:13:54.520 --> 0:13:58.920 getting a little silly here, and how do you pros 0:13:59.000 --> 0:14:01.240 think about it? Because just from a lay person, when 0:14:01.280 --> 0:14:02.680 I see that stuff, I get nervous. 0:14:03.440 --> 0:14:06.040 I'd say two things. The first is, and I'll bring 0:14:06.080 --> 0:14:08.439 this back to game stop. So the reason game stop 0:14:08.520 --> 0:14:11.640 became an issue for the broader market was at one 0:14:11.679 --> 0:14:14.240 point was actually forty percent of all of the XRT. 0:14:14.440 --> 0:14:17.280 So the retail etf it started to become a benchmark 0:14:17.400 --> 0:14:19.520 risk for folks who didn't want to have anything to 0:14:19.520 --> 0:14:21.600 do with it. I'd have investors tell me I don't care, 0:14:21.720 --> 0:14:23.840 this is a side show. But then they're starting to 0:14:23.840 --> 0:14:27.000 get that concentration risk in the benchmark. We're not there yet. 0:14:27.360 --> 0:14:29.720 It's been a little bit of you know, a storm 0:14:29.760 --> 0:14:32.280 and a tea kettle. But if that starts to spread, 0:14:32.680 --> 0:14:35.160 you better believe again that right tail risk is going 0:14:35.200 --> 0:14:36.680 to spread and people have to catch it. 0:14:37.800 --> 0:14:40.320 I look at the math, the math, and let's go 0:14:40.360 --> 0:14:42.600 to the cross moments. Folks, we're not going to get 0:14:42.600 --> 0:14:45.760 into it. It's the summer. My head's hurting. But if 0:14:45.800 --> 0:14:49.040 you look at the variant study, the cortosis study, the 0:14:49.120 --> 0:14:52.880 rest of it is the math working right now. 0:14:52.720 --> 0:14:56.000 For pros, you know, I think one thing that all 0:14:56.080 --> 0:14:58.040 us folks who work in the rivers have to do, 0:14:58.240 --> 0:14:59.880 and you know this is a slugs You got to 0:15:00.080 --> 0:15:03.000 date these spreadsheets. Maybe AI can help, but that the 0:15:03.120 --> 0:15:06.480 rise of zero data xpre trading really just changes how 0:15:06.520 --> 0:15:09.240 we have to think about things. You know, we used 0:15:09.280 --> 0:15:11.400 to have the standard monitor that's one month, three months, 0:15:11.400 --> 0:15:14.640 six months, twelve month, that's your standard substructure. It kind 0:15:14.640 --> 0:15:17.280 of has to be right because everything's happening in such 0:15:17.360 --> 0:15:19.520 shorter duration. You know, I've kind of called it this 0:15:19.600 --> 0:15:22.400 theme of duration shrinkage, meaning we're getting just as much 0:15:22.440 --> 0:15:24.600 activity to. 0:15:24.640 --> 0:15:28.960 LEB is that then on theta the X axis is 0:15:29.000 --> 0:15:32.680 the advantage because of the focus short term to make 0:15:32.840 --> 0:15:36.320 your bets out longer term is now seen to LEB 0:15:36.400 --> 0:15:38.560 took small, longer term bets. 0:15:39.040 --> 0:15:41.440 Yeah, so you can get. What I will say is 0:15:41.680 --> 0:15:44.040 the reason I think zero data XPRA is a healing 0:15:44.160 --> 0:15:46.840 is because you get less of that problem with fatal, 0:15:47.000 --> 0:15:49.360 a less of that carry problem. But what it has 0:15:49.640 --> 0:15:53.760 also done is people are paying less attention I think 0:15:53.840 --> 0:15:56.520 to the longer tenors which have been telling us something 0:15:56.600 --> 0:15:59.880 this entire time. So I think it has sliced bow 0:16:00.160 --> 0:16:02.480 ways and what you know what you want to deploy. 0:16:02.600 --> 0:16:04.280 I think it really depends on your risk framework. 0:16:04.680 --> 0:16:07.000 We're going to hear from a couple of big stocks 0:16:07.160 --> 0:16:12.040 after the closed day, Microsoft and Meta Slash Facebook, and 0:16:12.080 --> 0:16:13.960 that kind of goes to the concern that some people 0:16:14.000 --> 0:16:16.720 have about concentration risk in this market? How has that 0:16:16.800 --> 0:16:19.640 expressed AAR is your market? The derivatives market? Is that 0:16:20.720 --> 0:16:23.880 concern about concentration risk? Is that there? And are people 0:16:23.960 --> 0:16:25.000 trying to hedge it? Somehow? 0:16:25.480 --> 0:16:27.400 It's one hundred percent there? And so one thing we 0:16:27.600 --> 0:16:29.720 like to look at is to think about, you know, 0:16:29.760 --> 0:16:32.040 one of our other themes is just how the meat 0:16:32.120 --> 0:16:35.400 is made really matters. You know, what's in that sausage 0:16:35.560 --> 0:16:38.000 and so you get I'll just give an example. I'll 0:16:38.040 --> 0:16:41.920 give a component like XLC. So the SMP Communications ETF. 0:16:42.320 --> 0:16:44.800 You go into your Bloomberg and you go to MMB 0:16:44.960 --> 0:16:47.560 and what do you find there? Two to three stocks 0:16:47.600 --> 0:16:50.640 max right, And so some of the opportunities that we 0:16:50.720 --> 0:16:53.720 think are interesting is to essentially own the options of 0:16:53.760 --> 0:16:56.880 the ETFs where it's essentially the same meat, but it's 0:16:56.960 --> 0:16:58.600 not pricing as. 0:16:58.440 --> 0:16:58.800 If it is. 0:16:59.280 --> 0:17:02.760 Certainly your famous line here how the meat is made 0:17:03.320 --> 0:17:06.280 is a general statement you could go in cash market, 0:17:06.359 --> 0:17:09.680 buy the ETF buy whatever by Nvidia, or you can 0:17:09.760 --> 0:17:12.879 buy the option, which is basically four to one leverage. 0:17:12.880 --> 0:17:16.400 You're using one quarter the cash as a simplistic statement. 0:17:16.800 --> 0:17:19.760 Or you could buy futures ages ago before you were born, 0:17:20.200 --> 0:17:22.040 or it would be ten to one. You'd put up 0:17:22.080 --> 0:17:25.840 one tenth the money. Is there an implied leverage there 0:17:26.359 --> 0:17:28.800 based on how the meat is being made today? 0:17:29.280 --> 0:17:29.560 Sure? 0:17:29.640 --> 0:17:32.520 And so one thing I'll say that's interesting about Nvidia, 0:17:32.560 --> 0:17:34.280 And this is why I think when people ask me 0:17:34.440 --> 0:17:37.320 are we at peak froth? I say no, because if 0:17:37.359 --> 0:17:40.240 we were, we'd start to see that call exuberance in 0:17:40.440 --> 0:17:43.040 Nvidia the same way we saw it in May twenty 0:17:43.040 --> 0:17:44.760 twenty one, which which is when you have to start 0:17:44.800 --> 0:17:47.800 worrying about that right tail risk. It's very clear right 0:17:47.840 --> 0:17:51.200 now we are not pricing that way. Why I think 0:17:51.240 --> 0:17:54.320 because you know, like this one, the meme crazes its 0:17:54.320 --> 0:17:57.160 own thing right now, it hasn't spread. But two, there 0:17:57.280 --> 0:18:01.119 still are these institutional concerns that have not gone away, 0:18:01.240 --> 0:18:06.080 about tariff transmission, about valuation, about a whole host of 0:18:06.080 --> 0:18:08.080 other things that again you don't see the near term, 0:18:08.160 --> 0:18:10.320 but have not changed from the longer terms. 0:18:10.880 --> 0:18:16.680 You've mentioned ETFs several times this morning here. How pervasive 0:18:16.680 --> 0:18:20.840 are atfs. It's part of just deris trading and hedging 0:18:20.840 --> 0:18:21.679 and that kind of stuff. 0:18:22.119 --> 0:18:25.320 I mean, ETFs kind of trade like water, so something 0:18:25.400 --> 0:18:28.240 like the cues or spy you you know, from an 0:18:28.240 --> 0:18:31.640 options perspective, these are just as active as your big 0:18:31.680 --> 0:18:34.600 mag seven names. And then in options it gets even 0:18:34.600 --> 0:18:36.800 more fun because there it's not triple lever at all 0:18:36.840 --> 0:18:40.000 cash time, it's actually just triple lever queues or in 0:18:40.119 --> 0:18:42.800 video or what have you. And it just amazed, It 0:18:42.840 --> 0:18:46.280 never sees to amaze me how much people pile into leverage. 0:18:46.400 --> 0:18:49.520 But is there almost like a hidden Is there a 0:18:49.640 --> 0:18:55.119 hidden leverage in the market given legit derivatives or crafted 0:18:55.240 --> 0:18:58.560 marketing derivatives if you will, Is it like eighty seven? 0:18:58.720 --> 0:19:01.560 I didn't know what Portfolio and Assurance was until a 0:19:01.640 --> 0:19:04.800 Thursday evening at six pm with a cocktail in my 0:19:04.920 --> 0:19:08.600 hand in October of eighty seven? Is there a leverage 0:19:08.640 --> 0:19:12.040 issue out there because of all this new fangled stuff? 0:19:12.520 --> 0:19:14.960 So I get asked this a lot. My short answer 0:19:15.000 --> 0:19:17.240 is I don't think so. I think again, the meet 0:19:17.359 --> 0:19:19.879 is made has changed. I don't think we're in a 0:19:19.920 --> 0:19:24.000 February twenty eighteen volmaged situation, which you did have with 0:19:24.040 --> 0:19:26.320 a lot of the inverse levered ATPs. So like your 0:19:26.440 --> 0:19:30.800 your t VIX, your sbx Y that imploded lots of fun. 0:19:31.280 --> 0:19:33.520 But you know what we have in the market that's 0:19:33.600 --> 0:19:36.919 grown a lot and notional are more your plain vanilla 0:19:36.960 --> 0:19:39.840 overwriting strategies, which just has a different sense of leverage. 0:19:40.440 --> 0:19:44.280 I mean velocity shares two times fixed. I mean you 0:19:44.320 --> 0:19:47.960 can have a lot of fun. Yes, I mean you 0:19:48.000 --> 0:19:50.200 got to stay on top of this. Amy, does your 0:19:50.240 --> 0:19:52.920 world care about two o'clock today with the Federal Reserve 0:19:53.080 --> 0:19:54.240 chairman and what we hear? 0:19:55.119 --> 0:19:57.120 I think very much so. And I think there's been 0:19:57.160 --> 0:19:59.480 this hotly contested do we get do we get a 0:19:59.560 --> 0:20:03.840 crack into September? Does he admit that maybe there possibly 0:20:03.880 --> 0:20:06.720 couldn't be an opening? I think that's gonna that's going 0:20:06.760 --> 0:20:08.760 to be again a reasoner rent Gamma. 0:20:08.680 --> 0:20:12.040 Right to see, Amy was silvervan with us with RBC 0:20:12.640 --> 0:20:17.159 Capital Markets this morning. Let me get one more in 0:20:17.200 --> 0:20:21.600 here quickly. The idea here of this bull market in 0:20:21.720 --> 0:20:25.240 MEGS seven. Can you play derivatives in mags seven? 0:20:26.040 --> 0:20:29.159 Absolutely? And look if you are bulled up Tom in 0:20:29.359 --> 0:20:32.160 Nvidia again that that collsk you that call exuberants where 0:20:32.200 --> 0:20:34.800 everyone's piling to those options not seeing that yet. For 0:20:34.800 --> 0:20:35.679 August twenty seven. 0:20:35.560 --> 0:20:39.080 Thirty, it was Silvervan Thank YOUBC at Capital Market. 0:20:39.440 --> 0:20:43.360 This is the Bloomberg Surveillance Podcast. Listen live each weekday 0:20:43.359 --> 0:20:46.400 starting at seven am Eastern on Apple Corplay and Android 0:20:46.400 --> 0:20:49.440 Auto with the Bloomberg Business app. You can also listen 0:20:49.520 --> 0:20:52.800 live on Amazon Alexa from our flagship New York station, 0:20:53.359 --> 0:20:55.960 Just say Alexa Play Bloomberg eleven thirty. 0:20:56.080 --> 0:21:01.199 My first intern at Bloomberg was a high achievement and 0:21:01.240 --> 0:21:04.080 got one of the great Covenant scholarships and jobs. He 0:21:04.200 --> 0:21:08.760 migrated to State Department years ago. Ryan Majaris was under 0:21:08.800 --> 0:21:13.640 Ramundo at Commerce and a very extinguished career in trade 0:21:13.960 --> 0:21:17.200 in law in Washington, and he joins US now. He's 0:21:17.280 --> 0:21:23.040 the former Assistant General Counsel for US Trade. Is a 0:21:23.040 --> 0:21:25.960 broad sense for President Biden. Ryan thrilled to have you 0:21:26.000 --> 0:21:28.680 with us. This is arguably our interview of the day. 0:21:28.960 --> 0:21:32.479 What was it like at Georgetown when you won a 0:21:32.640 --> 0:21:36.600 Harry S. Truman scholarship? That had to have been. 0:21:36.520 --> 0:21:39.679 Life changing, You know, it definitely set me on kind 0:21:39.680 --> 0:21:41.680 of a different trajectory for sure. 0:21:41.440 --> 0:21:42.720 And you'll get a kick out of this. 0:21:42.800 --> 0:21:45.879 But at Georgetown, my worst grade and undergrad was actually 0:21:45.960 --> 0:21:47.960 international trade. So I've always wanted to go back to 0:21:48.000 --> 0:21:49.679 and talk to that professor and say, you know, look 0:21:49.720 --> 0:21:50.560 what I've done since. 0:21:50.440 --> 0:21:53.600 Then they the quality see. 0:21:54.520 --> 0:21:55.119 Yeah. 0:21:55.200 --> 0:21:56.919 You know what's interesting is I think back on my 0:21:56.960 --> 0:22:00.159 college experience at the Hilltop, which was great, but you know, 0:22:00.200 --> 0:22:02.200 it was at a time when globalization was kind of 0:22:02.240 --> 0:22:04.760