Speaker 1: This is Bloomberg Business Week Inside from the reporters and
Speaker 1: editors who bring you America's most trusted business magazine, plus
Speaker 1: global business, finance and tech news. The Bloomberg Business Week
Speaker 1: Podcast with Carol Messer and Tim Stenebec from Bloomberg Radio.
Speaker 1: All Right, everybody, you know, there's a lot going on,
Speaker 1: certainly today again this week the last couple of weeks.
Speaker 1: When it comes to bank story, a bank under pressure.
Speaker 1: We've seen it down the most in three years and
Speaker 1: the cost of ensuring its debt against default rising in
Speaker 1: a sell off. Though that city grow battalists describe as
Speaker 1: irrational Clock two ticking up bids for Silicon Valley, Bridge Bank, APM,
Speaker 1: Wall Street Time tonight meantime shares a First Republic. We
Speaker 1: continue to wonder about what's next for this one. It's
Speaker 1: down about ninety percent year to date. So our next
Speaker 1: guest has been following and covering the bank sector for decades.
Speaker 1: He was a go to for many of us here
Speaker 1: at Bloomberg during the Great Financial Crisis, still is a
Speaker 1: go to when it comes to things in the banking world.
Speaker 1: Chris Whalen is institutional risk analyst at Whalen Global advisors,
Speaker 1: an investment banker who focuses on the banking, mortgage, finance,
Speaker 1: and fintech sect sectors. He's authors, let's try that again,
Speaker 1: author of several books. Chris, you have quite a resume.
Speaker 1: He's worked at the New York Fed, up on Capitol Hill,
Speaker 1: a bear Stearns at crawbonn Rating, at Institutional Risk Analytics.
Speaker 1: This is why we have him here on this Friday.
Speaker 1: He joins us on the phone in New York City. Chris,
Speaker 1: really grateful for you for joining us on what's been
Speaker 1: a busy, busy week. We all learned and leaned on
Speaker 1: you during the two thousand and eight bank and mortgage crisis.
Speaker 1: Are there any similarities to today and to then? No,
Speaker 1: it's actually quite different, Carol, and hello Hello. For decade,
Speaker 1: the FED made it so the credit credit didn't matter,
Speaker 1: so you didn't have to call me. Right, Yes, on
Speaker 1: market didn't matter. The Fed took it off the table, right,
Speaker 1: and now it's back on the table in a huge way.
Speaker 1: Would compare this more to December twenty eighteen, which was
Speaker 1: a crisis in the money markets, except this time the
Speaker 1: crisis is really measured by the ten year treasury. So
Speaker 1: if you go back to the third quarter when the
Speaker 1: banks reported that really ugly number for unrealized losses on
Speaker 1: their securities, and people finally started paying attention to that,
Speaker 1: and they said, oh, you know, eight hundred billion dollars,
Speaker 1: that's a lot of money. Right, It got better than
Speaker 1: a fourth quarter because we had a bond rally. This
Speaker 1: quarter is going to look a little better too. But
Speaker 1: the problem hasn't gone away because during twenty twenty twenty one,
Speaker 1: we packed three quarters of the mortgage market into a
Speaker 1: range of about two and a half three percent in
Speaker 1: terms of coupons. So if you know you own a
Speaker 1: Jenny May three and the fed rais has fed funds
Speaker 1: six points, what happens to that security? It trades in
Speaker 1: the seventies. And this is why pranks are having a problem. Now.
Speaker 1: Forget about the securities, which we can see. It's called
Speaker 1: accumulated other comprehensive income, and it's a number that's negative
Speaker 1: right now, a big number. Well, everybody's worried about the
Speaker 1: loan book too, because they have the same problem. The
Speaker 1: loans from that period when we were fighting COVID are
Speaker 1: now deep underwater. Twenty points underwater. You write, you have
Speaker 1: a note doubt that you put. I believe it was
Speaker 1: yesterday and you. By doubling the fed's balance sheet between
Speaker 1: twenty twenty and twenty twenty one from over four trillion
Speaker 1: to now nine trillion to nominal dollars, the FOMC has
Speaker 1: injected vast amounts of market risk into the US banking system. Okay,
Speaker 1: that's a lot of risk. So do we yet know
Speaker 1: how this ends? Well, the FED is going to have
Speaker 1: to drop rates, Carol, very simply. And I'll tell you why.
Speaker 1: The small banks out there, who are trying to hold
Speaker 1: the most important customers they have, which is their business customers,
Speaker 1: are fighting a losing battle because let's say I'm paying
Speaker 1: them two percent now on their balances, and I'm even
Speaker 1: arranging ways to give them yield on their ESK grows,
Speaker 1: the payroll balances, stuff that normally we don't pay interest on, right,
Speaker 1: But they can get four percent on a tea bill.
Speaker 1: And so they come into the office, they sit down
Speaker 1: with you, and they say, Carol, I can get four
Speaker 1: percent on a tea bill, why should I keep my
Speaker 1: money with you? Powell and the FED have been insensitive
Speaker 1: to the fact that they execute monetary policy through the
Speaker 1: bond market. And when they did QWE in twenty twenty
Speaker 1: and twenty one, not only did they cause a problem
Speaker 1: for the banks, but they tied their own hands. And
Speaker 1: yet they want to pretend that they didn't. You see,
Speaker 1: right now, if you look at the ten year, it's
Speaker 1: headed back to three percent. What should the FED be
Speaker 1: doing right now, Carol? They should be selling mortgage backed securities.
Speaker 1: They should peg that ten year to about three and
Speaker 1: a half and say to the desk in New York
Speaker 1: if it goes below three and a half cell. When
Speaker 1: I worked at the FED, we could do things like that.
Speaker 1: But the FED today is so bureaucratic and so assified
Speaker 1: that not only do they not know what's going on
Speaker 1: in the markets, but they model liquidity. You know how
Speaker 1: they model it versus GDP. Okay, the GDP model is
Speaker 1: not going to give you the answer you want. Right right,
Speaker 1: I'm going to get you into just come on in. Yeah, Chris,
Speaker 1: I was eager to hear from you about this because
Speaker 1: when I've been speaking with portfolio managers looking more longer out,
Speaker 1: some of them are thinking. When they're looking and seeing
Speaker 1: where certain banks are trading at even brokerages, they're kind
Speaker 1: of eager to potentially step in and start buying. But
Speaker 1: what concerns them, and you brought it up, is that
Speaker 1: yield curve. How much more pain do you think even
Speaker 1: though we've seen some steepening happening there, do you think
Speaker 1: that really forebodes for banks right now? Well, like I say,
Speaker 1: until the Fed relents and has a discussion not only
Speaker 1: with us in the market, but with Congress. And I
Speaker 1: think they have avoided doing this because they don't want
Speaker 1: to talk to Congress. They think they can make decisions
Speaker 1: on their own. They're wrong. The biggest problem with the
Speaker 1: today is hubris. They have to realize that they are
Speaker 1: not allowed to make certain decisions, and when they don't
Speaker 1: have any answer, or if policy is tied their hands
Speaker 1: in some ways, they need to go back to Capitol
Speaker 1: Hill and get some guidance. You know, what they've done
Speaker 1: to the bond market, frankly, is almost bordering on the
Speaker 1: criminal because it'll take generations to fix this. I'll give
Speaker 1: you an example from my own world. I have a
Speaker 1: three percent mortgage to sitting in a Fanning may Pool. Right.
Speaker 1: That mortgage will not be in the money again in
Speaker 1: my lifetime unless we drive rates down to nothing. We'd
Speaker 1: have to drive rates back down to two percent for
Speaker 1: that three to be refinanciable. But Chris helped me out
Speaker 1: because part of the conversations in the narrative that we've
Speaker 1: certainly been having is that the low rate environment that
Speaker 1: we had was the abnormal environment that that's not typical.
Speaker 1: So how was the fad supposed to kind of come
Speaker 1: out of that and get back to a more normal
Speaker 1: rate environment. You can't. I mean, Ben Bernankey in the
Speaker 1: early conversations with the FOMC about quantitative easing, basically told
Speaker 1: them this. He said, once you put down this road,
Speaker 1: you can't come back. And it doesn't matter whether you
Speaker 1: talked about the balance sheet and reducing the size of
Speaker 1: the balance sheet. If you take too much liquidity out,
Speaker 1: the market seizes up because they got used to it.
Speaker 1: You know, you gave them five six trillion dollars that
Speaker 1: they didn't have before. Also, the price aspect of this,
Speaker 1: as we've discussed earlier, is very difficult to deal with
Speaker 1: because if three quarters of the mortgage market is locked
Speaker 1: up in these low coupons, not only is it impossible
Speaker 1: to fundness paper, you know, SOFA is at four and
Speaker 1: a half percent today. That means, you know, figure reposit
Speaker 1: at the point above it. How do you finance a
Speaker 1: Jinny May two? You don't. And the volatility of these
Speaker 1: low coupon securities because so much of the repayment is
Speaker 1: back ended. Right. You guys know this at Bloomberg better
Speaker 1: than everybody at low coupon securities. We're of all little
Speaker 1: bit of high coupon security. So nobody wants to own
Speaker 1: this paper, honestly. You want you want a solution, We'll
Speaker 1: fix us next week. The Fed should buy all that
Speaker 1: paper back wow wow, Okay, yeah, par, they should buy
Speaker 1: it all back at par. And then they have to
Speaker 1: go up to Capitol Hill and say, we were trying
Speaker 1: to deal with a Dickey situation. We had people on
Speaker 1: the hill scream and do something, do something, save the economy, right,
Speaker 1: and we did, But now we have a mess. Well,
Speaker 1: what do you think Janet Yellen and Jay Powell and
Speaker 1: other regulators who are now meeting in an unscheduled meeting
Speaker 1: and we expect something out from them, do you any
Speaker 1: indications of what they're talking about? Because it does feel
Speaker 1: like there's been some shoring up in the markets for
Speaker 1: whatever reason. Yeah, they keep trying to throw solutions, but
Speaker 1: every time the FED takes a step, they create another problem.
Speaker 1: You see, they have a very blunt instrument. And honestly,
Speaker 1: you know, I deal with a lot of federal agencies
Speaker 1: in Washington. The Biden administration has the weakest team in
Speaker 1: terms of financial market knowledge and experience that I can
Speaker 1: remember in my lifetime. You know, the people I worked
Speaker 1: with at the FED in New York, like Paul Vulker
Speaker 1: and Jered Corrigan, they knew markets, okay, they knew how
Speaker 1: to clean up masses, and they also understood the limits
Speaker 1: of monetary policy. And again, remember the FED executes monetary
Speaker 1: policy in the bond market. So if you go big,
Speaker 1: which is what they did after twenty eighteen because they
Speaker 1: didn't want another liquidity crisis, right, their inventions were good,
Speaker 1: But by doing that today that three trillion dollars of
Speaker 1: mortgage backed securities that they own is really bigger than
Speaker 1: their treasury portfolio. If you measure the duration, it's more
Speaker 1: like twelve to fifteen trillion dollars. And that's one reason
Speaker 1: why that ten year note doesn't want to go above
Speaker 1: four percent. The FED owns all the duration and they
Speaker 1: don't hedge that book. It's entirely passive. So they've done
Speaker 1: structural things to our marketplace that will literally take generations
Speaker 1: to facts. And I'm very concerned about this. I think
Speaker 1: that we need to put some limitations on what the
Speaker 1: FED does. When the FED gets to those limits, they've
Speaker 1: got to go back up the Capitol Hill and have
Speaker 1: a public conversation. They can't do this behind closed doors.
Speaker 1: Because I want to bring jessin because we're talking in
Speaker 1: the break about what we're hearing from some of the
Speaker 1: FED speakers are former, if you will, and what they
Speaker 1: are talking about where the FED is going. Looking at
Speaker 1: Jim Bullard earlier this morning talking about a peak potential
Speaker 1: ternal rate a on five point six percent, it's interesting
Speaker 1: because you were talking about how you think the FED
Speaker 1: should cut rates. What sort of implications could there be
Speaker 1: if we don't actually see that from the Fed and
Speaker 1: what that means for equities. Well, if the FED takes
Speaker 1: rates up to where Jim Bullard has just said, then
Speaker 1: look out, I think we're going to have a meltdown
Speaker 1: in the banking industry. See what's happening right now is
Speaker 1: even if you ignore the price action in these securities,
Speaker 1: a lot of banks are underwater on some of those
Speaker 1: paper and so the treasurer of the bank's going to
Speaker 1: walk into a room at some point screaming and saying,
Speaker 1: you got to sell this paper. Now, I have to
Speaker 1: reinvest at a higher rate or we're going to go
Speaker 1: out of business. And then when you have instability on
Speaker 1: the funding side, that makes life even more complicated. So
Speaker 1: the clock is ticking, and the Fed can provide all
Speaker 1: sorts of liquidity measures and everything else, but they're going
Speaker 1: to expand their balance sheet, as we've already seen. I think, honestly,
Speaker 1: there's a kind of a false conversation, a false narrative
Speaker 1: in the US that's somehow we can keep inflation low.
Speaker 1: The society loves inflation. Come on, you know, we have
Speaker 1: to get to the point where we can actually get
Speaker 1: Congress to fix Humphrey Hawkins. Drop the full employment part
Speaker 1: of the mandate. And let's remember the third manddate. But
Speaker 1: we never talk about, which was stable long term interest rates. Okay,
Speaker 1: in the old days when inflation was a problem, when
Speaker 1: I was a kid, were worried about such things. We
Speaker 1: don't do that now because everybody just assumes we could
Speaker 1: do whatever we one. You know, the dollar one after
Speaker 1: two thousand and eight. You can see this on the
Speaker 1: Bloomberg what happened to swaps dollar fixed floating swaps that
Speaker 1: went into a discount. There's no other country in the
Speaker 1: world that has that gift, Okay, but we have it.
Speaker 1: So we keep pushing the limits on spending, on deficits
Speaker 1: and everything else, we're going to lose that. We're going
Speaker 1: to be like everyone else. So I think that this
Speaker 1: conversation about inflation versus growth has got to come back
Speaker 1: to Washington, go back up the Capitol Hill and say,
Speaker 1: how can we give the Fed a mandate that they
Speaker 1: can actually accomplish, Because let's be fair, the two percent
Speaker 1: target for inflation is a joke, which is we're not
Speaker 1: going to get back there. Yeah, and we've had a
Speaker 1: lot of conversations about that that that doesn't make sense.
Speaker 1: We've also talked about, you know, Chris, and I don't
Speaker 1: know how you think about what this means for the
Speaker 1: US dollars specifically. We've got a great Simon White did
Speaker 1: a great column on Bloomberg and he just talked about
Speaker 1: the dollar being the liability of the central Bank, and
Speaker 1: if we continue to see what we're seeing in terms
Speaker 1: of what feels like, you know, certainly moral hazard for
Speaker 1: banks that he talks about further erosion of the dollar's value,
Speaker 1: and that how that would really kill the purchasing power
Speaker 1: that we've seen of the US currency over the last century.
Speaker 1: I mean, there's so many implications, so I don't know
Speaker 1: the complicated message. There is not one answer here, and
Speaker 1: it's very important to state that. And we got to
Speaker 1: realize that folks at the FED are trying very honestly
Speaker 1: and I think in a very genuine way to do
Speaker 1: their jobs. But imagine sitting behind those closed doors dealing
Speaker 1: with what they're looking at today. So what don't we
Speaker 1: hear from What would you like to hear from Janet Yellen?
Speaker 1: What does she need to say? Maybe today? I think
Speaker 1: she needs to announce she's going back to the private life.
Speaker 1: Meet another Secretary of the Treasury. And I got the candidate,
Speaker 1: Sheila Bear, a nice you know, progressive Republican from Kansas
Speaker 1: who could easily be confirmed by the Senate tomorrow, who
Speaker 1: understands finance. There's only two people at senior agency levels
Speaker 1: in Washington today that know what's going on. What is
Speaker 1: Marty Grumberg at the FDIC who's most senior regulator in
Speaker 1: the system. And the other is Sandra Thompson over at
Speaker 1: the FHFA, who's a veteran at the FDIC, worked at
Speaker 1: Resolution Trust, worked at Goldman Sachs. These people know what's
Speaker 1: going on. The rest of this cast of characters are politicians. Well,
Speaker 1: they really don't have the shoes for this. During the crisis,
Speaker 1: we know Jamie Diamondt Well, first of all, has gone
Speaker 1: up and talked with the Treasury Sector Secretary this time around.
Speaker 1: During the crisis, I think there was a lot of conversations,
Speaker 1: as you well know, between government and the banks and
Speaker 1: the private sector, if you will. Is any of that
Speaker 1: happening now that you're aware of, Not as much as
Speaker 1: it needs to happen. You know, when I worked at
Speaker 1: the FED, we always talked to the people in bank supervision.
Speaker 1: They don't do that now. FED governors never talked to
Speaker 1: the people down the hallway at soup and reag and
Speaker 1: say how is our policy impacting the financial markets? How
Speaker 1: is our policy impacting banks? They never asked that question.
Speaker 1: So I think there's a level of isolation and a
Speaker 1: lack of information in this data dependent central bank of
Speaker 1: ours that's really something we need to work on. They
Speaker 1: need to know how their policies are going to affect
Speaker 1: the bond market. You know what happens if this ten
Speaker 1: year goes below three percent and we're sitting here talking
Speaker 1: about low Yeah, now you're right and looking at the
Speaker 1: two year as well, where that's treating. When you're talking
Speaker 1: about the potential pain that could be on the way, Chris,
Speaker 1: what other cracks are you seeing beginning to emerge under
Speaker 1: the hood when it comes to financial institutions right now, Well,
Speaker 1: anyone who owns bonds would leverage has a problem, so
Speaker 1: reads other types of investment vehicles, private funds. Anyone who
Speaker 1: applies leverage to these here to four risk free securities,
Speaker 1: right Treasury is the mortgage bacts is really in a
Speaker 1: tough spot because they have to make a decision to way.
Speaker 1: You know, let's say we have this rally. Now the
Speaker 1: ten year is your benchmark, by the way, for pain
Speaker 1: on all of these securities. If we get down to
Speaker 1: three percent, that may be a big zelly opportunity the cleanhouse,
Speaker 1: not that rid of all of this stuff and go
Speaker 1: buy higher coupon securities. That may be an opportunity. But
Speaker 1: I think for a lot of little banks. For example,
Speaker 1: they don't have the capital to take the losses. And
Speaker 1: there are some agencies like the federal homelan banks who
Speaker 1: own this collateral. Two we don't talk about that. So
Speaker 1: the Fed has put stress on the system as they
Speaker 1: have pursued monetary policy. But they forgot that if they
Speaker 1: moved things too quickly and too much, you know, six points, really,
Speaker 1: then everybody's insolvent. Is there an investment play for you
Speaker 1: right now? Oh, I've been buying bank stocks. I bought
Speaker 1: some cs which was clearly a mistake, but I'll keep
Speaker 1: it and buy some more ubs. They are the last
Speaker 1: man standing in Europe. What abouts of these regional banks?
Speaker 1: I bought Western Alliance. That was one of my favorites.
Speaker 1: I wrote about them two years ago. They went up
Speaker 1: two hundred percent during the motgage boom thanks to J. Powell.
Speaker 1: They had bought a portfolio company from Apollo called a Marahome,
Speaker 1: which is one of the most efficient conventional lenders in
Speaker 1: the country. Really good team, by the way, And I'm
Speaker 1: looking at New York Community Bank. I've been following them
Speaker 1: for years. They just bought some of my friends at
Speaker 1: Flagstar Bank, which is a large mortgage player, second largest
Speaker 1: warehouse lender in the country after Chase. So there's a
Speaker 1: lot of deals out there, you know, but you know what,
Speaker 1: it teams me and I have to wait for deals
Speaker 1: to result. The policy mistakes. Which banks are you staying
Speaker 1: away from? Don't want anything to do with? Well, look
Speaker 1: in twenty I sold all my common and I went
Speaker 1: and put my financial allocation into bank preferreds so my
Speaker 1: feet wouldn't get wet, I would higher up to capital structure.
Speaker 1: I'm starting to nibble on some of these common situations.
Speaker 1: So because I love Western Alliance or one of the
Speaker 1: great mortgage shops in the country, Wholesale Bank New York
Speaker 1: Community Bank, I think is very interesting because they just
Speaker 1: bought all those assets from Signature. When you buy assets
Speaker 1: from the FDIC, they have no cost basis. Okay, yeah,
Speaker 1: so why not I'm yum, So that's going to be
Speaker 1: very creative for them. I believe Chris just got about
Speaker 1: forty five seconds JP Morgan City, Goldman be of ay,
Speaker 1: they're fine. Well, Goldman doesn't have to mark the market
Speaker 1: problem because they're a broker dealer, but they have a
Speaker 1: funding problem. As I've written for my subscribers, because they
Speaker 1: have to go out and compete with Ally in American
Speaker 1: Express and everybody else for broker deposits. They don't really
Speaker 1: have a strong core deposit base. And I've always argued
Speaker 1: that David and the boys should go buy a bank,
Speaker 1: go buy key. They love commercial real estate, love commercial
Speaker 1: real estate, you know. But the other guy, the other
Speaker 1: big guys. Twenty seconds left, they're not worried about. The
Speaker 1: US Bank is the strongest of the top five. You know.
Speaker 1: They're the little money center, but very well run. I
Speaker 1: don't I don't bother with the others except to bother
Speaker 1: preferred Raincome listen, so appreciate it. You took me back,
Speaker 1: and it was so good to reconnect. No, we're got
Speaker 1: to do this to getting Carol. We can't wait another decade.
Speaker 1: Deal deal, deal, not another crisis. All right, Chris, well
Speaker 1: and be well. Have a great weekend. Chris is, of
Speaker 1: course institutional risk analyst at Whale and Global Advisors, as
Speaker 1: I said earlier, worked for the New York Fed, work
Speaker 1: for Bear Stearns, worked in up on Capitol Hill. But
Speaker 1: a great voice for us to check into on. Certainly
Speaker 1: this Friday with a lot going on, this is Bloomberg
Speaker 1: you're listening to the Bloomberg Business Week podcast. Catch us
Speaker 1: live weekday afternoons from three to six Eastern Listen on
Speaker 1: Bloomberg dot com, the Ion Radio app, and the Bloomberg
Speaker 1: Business App, or watch us Live on YouTube. I was
Speaker 1: just bringing up a Bitcoin clothes today. Yeah, we're just
Speaker 1: below twenty eight thousand, although we did see it pop
Speaker 1: above that like it was I think early on Monday.
Speaker 1: For the first time since June. We have also seen
Speaker 1: jess I feel like the largest digital coin, Bitcoin and
Speaker 1: some crypto stalks come back to life this week a
Speaker 1: little bit. We definitely have because there was a particular
Speaker 1: point when you were looking at the span over the
Speaker 1: past couple of weeks, we're going to surge more than
Speaker 1: thirty percent. So now the past couple of days seeing
Speaker 1: it come back to reality, like you were talking about,
Speaker 1: still below thirty thousand, now close to twenty eight thousand,
Speaker 1: but still it was on a tear despite what was
Speaker 1: going on a lot of these banks. The past feet
Speaker 1: was kind of interesting, right with the volatility. All right,
Speaker 1: So let's get to our weekly crypto segment. We reach
Speaker 1: out to Thomas Kralow. He is Carlow. Excuse me, an investor,
Speaker 1: influencer and trader, founder and CEO of Carlo Enterprises. He
Speaker 1: joins us via zoom from Dubai. Thomas, good to have
Speaker 1: you here on this Friday. Tell us what you make
Speaker 1: of some of the trade this week when it comes
Speaker 1: to cryptocurrencies and bitcoin in particular, and even some of
Speaker 1: the equity plays. Yes, hello everyone, Thank you very much
Speaker 1: for having me. Very happy to be here, and quite frankly,
Speaker 1: this has been one of probably best weeks so far
Speaker 1: in a very long time when it comes to bitcoin,
Speaker 1: and that is because of you know, bitcoin following global liquidity,
Speaker 1: and we were saying Japan injecting liquidity, so with China
Speaker 1: and US was taking the liquidity out of the system.
Speaker 1: But now in light of the collapse of the banking system,
Speaker 1: we're actually seeing it come back. So those of us
Speaker 1: who are actually into crypto, this is just a fantastic time.
Speaker 1: So let's take a step back because not all of
Speaker 1: our audience may be familiar with who you are, So
Speaker 1: tell us about how you came to invest in the
Speaker 1: crypto space and how long you've been doing it, and
Speaker 1: talked to us a little bit about the trades that
Speaker 1: have been of interest or productive for you specifically. Sure, Well,
Speaker 1: I've been into crypto space for a couple of years now.
Speaker 1: I have a about ten year background in retail trading,
Speaker 1: but then recently I've transitioned intesset management as well and
Speaker 1: founded my own hedge fund and a venture fund and
Speaker 1: one of the best. I mean, venture fund is probably
Speaker 1: not that relevant to the current market conditions, but when
Speaker 1: it comes to the recent place we're once we actually
Speaker 1: figured out that the banks are collapsing and that people
Speaker 1: are going to be losing faith just like in two
Speaker 1: thousand and eight in the banking system, and just the
Speaker 1: only difference that this time they're going to have an alternative,
Speaker 1: which is bitcoin. And this has given us an incredible
Speaker 1: opportunity to go all long on bitcoin. So and so
Speaker 1: far it's played out really well. Actually are still longer,
Speaker 1: and many would argue it's still early in the game.
Speaker 1: We've had three banks collapse. You know, we're watching so
Speaker 1: I think, and many that we've talked to say, it's
Speaker 1: not like oh eight. I was curious, Thomas, how much
Speaker 1: money have you actually made in the crypto space, and
Speaker 1: how specifically have you made that money in crypto what
Speaker 1: kind of corners of the marketing crypto. Well, in krypto space,
Speaker 1: really there is different ways of making money. Certainly one
Speaker 1: of the best, the biggest income that I've had was
Speaker 1: by simply building a regular portfolio over the assets I
Speaker 1: believed in back in two and nineteen and writing this
Speaker 1: cyclical wave of crypto. And how much money did that
Speaker 1: portfolio make? Well, in percentage terms, it was two thousand percent,
Speaker 1: but money wise, sadly at an entry with a million dollars,
Speaker 1: so the profit was just a little north of a
Speaker 1: million dollars. So but for me it was still quite
Speaker 1: substantial considering that I didn't expect this kind of a
Speaker 1: return and now was definitely in the early phases of bitcoins.
Speaker 1: So how has that evolved to these other coins where
Speaker 1: you think of maybe some of these more riskier wines
Speaker 1: like doge coin, but then also there's ethereum. But are
Speaker 1: those coins that you're treating as well for sure? Yeah,
Speaker 1: this is something that you know. As part of my
Speaker 1: hedge fund strategy, our main objective is to reduce the risks,
Speaker 1: which is very strange to say about crypto, and also
Speaker 1: to outperform bitcoin returns. So certainly there are when it
Speaker 1: used to be all about you know, crap coins so
Speaker 1: to speak right now. Actually, there are quite a few
Speaker 1: projects older that offer quite incredible utility and purpose behind them,
Speaker 1: Like Ethereum. You don't have to go forward to find
Speaker 1: one that actually has it's as a lot of people say,
Speaker 1: it's ultrasound money, and it's by far more technologically advanced
Speaker 1: than bitcoin. But every project, I would say, as it's
Speaker 1: pros and cons. It's all just depends on what kind
Speaker 1: of thing you enjoy most. I suppose last year, when
Speaker 1: cryptocurrencies came under a ton of pressure, how much money
Speaker 1: did you lose? Well, quite frankly, since I'm not just
Speaker 1: an investor, I am also a traitor. So for one,
Speaker 1: I know how to hedge my risk and how to
Speaker 1: actually play the market to the downside. That's for one.
Speaker 1: And number two, my portfolio that I've put together in
Speaker 1: two and nineteen, I sold it about a couple of
Speaker 1: weeks before the Chinese fought, before China actually buying band mining,
Speaker 1: which took bitcoin down to thirty thousand from sixty thousand.
Speaker 1: So for I didn't really lose that much. I'd say
Speaker 1: I started buying back into bitcoin when it was going
Speaker 1: back down forty k thirty K, so I started dcaing,
Speaker 1: So it's not really about losing money. It's more off
Speaker 1: I feel like it is though, is it you don't
Speaker 1: want to lose money? Yeah, it's it's very difficult to
Speaker 1: time the bottom. Who is trying to time the bottom
Speaker 1: usually doesn't really enter at all. So I guess it
Speaker 1: look like to your point, what's the time horizon you're
Speaker 1: looking at here? Right? Like? Are we talking a few
Speaker 1: five years, ten years, a couple? Like? What is the
Speaker 1: trade for you? Because when you think about portfolio managers,
Speaker 1: they obviously have a particular time horizon. And what's the
Speaker 1: top right right? Is there another near term top? Yeah?
Speaker 1: For sure, yes. So when it comes to our for
Speaker 1: Cralo Capital as an example, or time horizon is a
Speaker 1: minimum of three years. So everything else is just market
Speaker 1: frequencies that I certainly enjoy as a retail trader for
Speaker 1: my personal interest and sports interests so to speak. But
Speaker 1: for our hedge fund, we certainly have We don't use
Speaker 1: any leverage, and we just DCA into the s as
Speaker 1: we believe in. So usually it's a three year time
Speaker 1: horizon for sure. Well, so in the last couple of weeks,
Speaker 1: how have you been trading the crypto space for our fund,
Speaker 1: not very because the last time we actually bought into
Speaker 1: bitcoin was at seventeen thousand dollars. That was the last
Speaker 1: point when we were actually buying into it. For now,
Speaker 1: I'm holding my horses, so to speak. I want to
Speaker 1: see as to how the whole situation with the banks
Speaker 1: is going to play out and subsequently also regulation. So
Speaker 1: for now we are happy with our positions. But when
Speaker 1: it comes to my personal retail trading, then I certainly
Speaker 1: am enjoying my long trade, but I'm not looking forward
Speaker 1: to flipping it short just as off yet despite the
Speaker 1: actual finance suspending withdrolls right now, which is still a
Speaker 1: big fear. But for now, I'm still long for my
Speaker 1: personal retail trading side of things. What specific level for
Speaker 1: bitcoin are you watching for a threshold to see when
Speaker 1: it's reached its near term inflection point versus stocks? Yeah,
Speaker 1: I think that's the most important point. Well, we have
Speaker 1: to consider also all the regular indicators which actually point
Speaker 1: to the fact that bitcoin is probably has decoupled from
Speaker 1: SMP five hundred and NASTAC and any high risk as
Speaker 1: set all there, and is outperforming those assets for obvious
Speaker 1: reasons in gause of the banking collapse and stuff. But
Speaker 1: I think that the most important point in the price
Speaker 1: for bitcoin for us to actually, you know, kind of
Speaker 1: start celebrating is thirty thousand dollars and we are fighting
Speaker 1: fiercely for it right now. We're well close to it.
Speaker 1: So I say, once we clear thirty k with large
Speaker 1: amount of volume, that would be something to consider as
Speaker 1: true reversal my opinion. So we have seen bitcoin outperform
Speaker 1: not just stocks, but also when you're looking at the
Speaker 1: commodity space, what specific risks are you looking at to
Speaker 1: see if it could up in that particular trade in
Speaker 1: the near term, right So I would say that there
Speaker 1: are a few systemic risks when it comes to bitcoin,
Speaker 1: a certainly with the current just the narrative itself. There
Speaker 1: was also the narrative risk, which actually has been brought
Speaker 1: down to close to zero right now because of the
Speaker 1: again fall of the banks. But one of the biggest
Speaker 1: risk scrollingly as we stand is number one regulatory So
Speaker 1: that could translate into for example, band of binance and
Speaker 1: subsequent potential crash of binance, which will just be acuciy
Speaker 1: stomach risk. But besides this, the most biggest one I
Speaker 1: think is tether. So if Tether the issue or of
Speaker 1: you is DT were to be receiving a well's notice
Speaker 1: and subsequently cease to exist at some point, this could
Speaker 1: definitely set us back five or even ten years, something
Speaker 1: as crazy as that. So these are two biggest things.
Speaker 1: All right? Can I leave it there? Hey, Thomas, thank you, Tamas.
Speaker 1: Thomas Carlo, He's chief executive officer of Carlo Enterprises. Joining
Speaker 1: us via zoom from Dubai. You're listening to the Bloomberg
Speaker 1: Business Week podcast. Catch us live weekday afternoons from three
Speaker 1: to six Eastern on Bloomberg Radio, the Bloomberg Business app,
Speaker 1: and YouTube. You can also listen live on Amazon Alexa
Speaker 1: from our flagship New York station. Just say Alexa, play
Speaker 1: Bloomberg eleven thirty a journal. Yeah but you let me drive?
Speaker 1: Oh no, no, no no, no home honey, please, I'll do
Speaker 1: the riding gravels. I want to drive. It's good question.
Speaker 1: This is the drive to the globe. Concimmulate thing. Well,
Speaker 1: Brier up, shove it on on Bloomberg Radio. All right, everybody,
Speaker 1: Just about seventeen and a half minutes left in today's
Speaker 1: trading session. Kal Masser along with Bloomberg's Jess Met and
Speaker 1: we are live in our Bloomberg Interactor Broker studio, streaming
Speaker 1: on YouTube and Bloomberg originals and stocks holding onto their
Speaker 1: gains of the session. It's not gangbusters, but mind you, everybody,
Speaker 1: we are well off our loads of the session. And Jess,
Speaker 1: we've got continuing to see that to year note well
Speaker 1: below four percent, right, and that has again been the
Speaker 1: key indicator. And clearly also when we're talking about under
Speaker 1: the hood for the SMP five hundred, the search for
Speaker 1: income continues again today when you're looking at the leaders,
Speaker 1: you alies in real estate once again at the top,
Speaker 1: both of those sectors up more than two percent in
Speaker 1: the SP five at telling trade. All right, so let's
Speaker 1: get to it and let's get to our drive to
Speaker 1: the closed. Guest Dantadoria is back with us Cocio of
Speaker 1: the Independent investment advisor investnet PMC, joining u s VA
Speaker 1: Zoom from Pennsylvania. Dana, nice to have you back with
Speaker 1: justin myself. How do you see the trade right now?
Speaker 1: Thanks for having me. Yeah, it's really interesting to me.
Speaker 1: You know, what's the sort of the dichotomy right now
Speaker 1: going on in markets, the fact that we're seeing such
Speaker 1: resilience and at the same time, you know, banks are
Speaker 1: really under a lot of pressure. Every new day brings
Speaker 1: another bank to kind of get the focus and be
Speaker 1: looked at. And you know, on the one hand, you
Speaker 1: could say, well, regulators are successfully you know, calming markets
Speaker 1: at at a higher level. I think it's hard to
Speaker 1: it's hard to kind of listen to comments that, hey,
Speaker 1: the banking sector is resilient, all will be well, um,
Speaker 1: when you're talking about a business that kind of relies
Speaker 1: on confidence, right, and you know it just even even
Speaker 1: banks that don't have the troubles that in general were
Speaker 1: brought on by the rate increases, um, you know, are
Speaker 1: going to get looked at sequentially. I think. So interesting
Speaker 1: dichotomy and markets, for sure, Dana. What I'm really curious
Speaker 1: about is whether or not most of the pain has
Speaker 1: already been priced in when we're looking at US equities
Speaker 1: holding up last week as well as this week. Yeah,
Speaker 1: you know, it's it's a great question. And obviously the
Speaker 1: market is or it would appear anyway that the market
Speaker 1: is expecting, given given fixed income rates, expecting that the
Speaker 1: FED will have to pivot and therefore, um, you know,
Speaker 1: the markets will get their their FED put put back
Speaker 1: into place. Um. You know, it's hard to to square
Speaker 1: that with the fact that you have more jobless claims down.
Speaker 1: I mean, certainly the unemployment rate not ticking up um
Speaker 1: and we're not seeing you know, and these things take
Speaker 1: it back with a lag. So it's not to say
Speaker 1: that we won't, but we're not seeing yet the kind
Speaker 1: of movement in these numbers that would cause the FED
Speaker 1: to say, hey, mission accomplished, we need to stop. So
Speaker 1: my thought is that we may well not have another
Speaker 1: rate increase, particularly as we see how this banking crisis unfolds.
Speaker 1: But a pivot just you know, seems hard to expect
Speaker 1: where we stand today. We just had Chris Whalen, on
Speaker 1: institutional risk analyst over at Whale and Global Advisors. He's
Speaker 1: somebody who understands the banking sector, the financial sector. He
Speaker 1: we talked to him a lot during the O eight
Speaker 1: financial crisis. He's an investor looks for some opportunities within banking.
Speaker 1: What's interesting is he said the FED needs to cut
Speaker 1: rates right now, and he also said it's time for
Speaker 1: the FED to just accept that inflation is going to
Speaker 1: run hot. It's just the way it is, and we'll
Speaker 1: be okay. Do you agree in terms of the trade
Speaker 1: because right now, yeah, you know, take at the banking
Speaker 1: sector and we were starting to I feel like, do okay,
Speaker 1: even though you know inflation still ran hot. How do
Speaker 1: you see that. I see a pause as being in order.
Speaker 1: I was on with your colleagues a few days ago
Speaker 1: before the pen made its decision. I expected the twenty five.
Speaker 1: Sure enough, we got it. I think everybody kind of
Speaker 1: thought we're probably going to get it. I would say
Speaker 1: a pause might not have been the worst thing even
Speaker 1: before then. You know, the problem is that this type
Speaker 1: of policy, this monetary policy, it affects with a lag
Speaker 1: number one, number two, You're you're only impacting or your
Speaker 1: most strongly impacting interest rates sensitive parts of the economy.
Speaker 1: So you're trying to defeat inflation with you know, this
Speaker 1: one sort of it's a hammer kind of situation, and
Speaker 1: everything therefore has to become the nail. So I think
Speaker 1: a pause would absolutely be in order. I know the
Speaker 1: Fed is concerned about stopping bill policy, absolutely certain about
Speaker 1: inflation running too hot. We have to consider that inflation
Speaker 1: may not come out around two percent long term at
Speaker 1: least not for the for the near term. Now, the
Speaker 1: caveat to that is if we're running at you know,
Speaker 1: year over year inflation higher than three percent, four percent, etc.
Speaker 1: Of course we you know, we have to keep tackling that.
Speaker 1: But sort of waiting for the effects of what's already
Speaker 1: been done before we continue to raise seems like a
Speaker 1: good policy option for me. So Dina has this trade
Speaker 1: specifically on Wall Street shifted from, as we know, last
Speaker 1: year's trade of inflation to now the recession trade. So
Speaker 1: we had been there for sure. I think, you know,
Speaker 1: there was some indications for a long time of peak inflation,
Speaker 1: and absolutely the market turned its focus to Okay, you know,
Speaker 1: we're heading now towards the likelihood of recession, if not
Speaker 1: in twenty twenty three, in twenty twenty four. Obviously markets
Speaker 1: are leading indicators. You know, the impact has not yet
Speaker 1: hit the job market. That usually takes place though significantly
Speaker 1: after a tightening cycle begins. So the expectation is that
Speaker 1: we are going to feel the pain of this um
Speaker 1: you know. Interestingly, again, the interest rate sensitive sectors like banks, financials,
Speaker 1: you're seeing it happen pretty quick, and uh, you know not,
Speaker 1: I guess not surprising in hindsight, right, given such abrupt
Speaker 1: and strong increases over time or over the course of
Speaker 1: a year. But yes, I think the trade has to
Speaker 1: shift to recession and we're absolutely looking at that going forward.
Speaker 1: All right, So when do markets repriced for that recession?
Speaker 1: And then what's what's your what's your what's your strategy
Speaker 1: ahead of that or at this point? And we've got
Speaker 1: about a minute to go, so quickly, um, you know,
Speaker 1: margins coming in for companies right earning seasons that increasingly
Speaker 1: demonstrate the fragility you're seeing, for example, tech margins coming
Speaker 1: in and yet tech is going strong. My quick in
Speaker 1: the one minute is, um, I don't view tech as
Speaker 1: being the defensive sector that we've all converted it to. Mentally,
Speaker 1: traditional defensive sectors are a better place. You know, an
Speaker 1: environment like this, consumer staples a countercyclical, higher dividends, lower beta,
Speaker 1: healthcare you know, largely counter cyclical and more attractively priced
Speaker 1: standard you know, sort of fundamental quality indicators and even
Speaker 1: low volatility indicators more than tech. Would you might play?
Speaker 1: All right, really appreciate it, Dana, have a good weekend.
Speaker 1: Dana di Oria, she's co chief investment officer over at Investment,
Speaker 1: joining USBA Zoom from Pennsylvania. This is the Bloomberg Business
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