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Speaker 2: podcast with Carol Messer and Tim Stenebek from Bloomberg Radio.
Speaker 3: Well.
Speaker 4: Tomorrow will mark the beginning of the third year of
Speaker 4: the Russian invasion in war with Ukraine. On this cusp
Speaker 4: of another year of war potentially between the two. Likely
Speaker 4: between the two, the US unveiling its biggest one day
Speaker 4: sanctions paction package excuse me against Russia since the invasion
Speaker 4: of Ukraine. They targeted more than five hundred people in entities.
Speaker 4: It's a fresh bid to squeeze the country's economy, the
Speaker 4: Russian economy, and send a message over the death of
Speaker 4: dissident Alexei Navalni.
Speaker 5: Here's US Treasury's Deputy Secretary Wally Idayamo addressing the new
Speaker 5: sanctions earlier on Bloomberg Survey.
Speaker 3: Important to remember that our objective remains the same, going
Speaker 3: after Russia's military and Dutch sized complex and their ability
Speaker 3: to earn money to prop up their economy and buy
Speaker 3: the goods they need to fight the war they want.
Speaker 3: What we're doing today is we are furthering those actions
Speaker 3: by going after companies in Russia that are helping to
Speaker 3: build military equipment.
Speaker 5: That's US Treasury Deputy Secretary Waliadiyamo earlier on Bloomberg to
Speaker 5: understand the strategy and endgame of Russia and for President
Speaker 5: and President Putin, Carol, let's get to the interview.
Speaker 4: YEP back with us a favorite informed voice on Russia
Speaker 4: and President Putin. Angela Stent, Senior Fellow at Brookings Institution,
Speaker 4: author of Putin's World, Russia Against the West and With
Speaker 4: the Rest. A former National Intelligence officer for Russia and
Speaker 4: Eurasia at the National Intelligence Council. Also served in the
Speaker 4: Office of Policy Planning at the US State Department. This
Speaker 4: is why she's a favorite voice to go to. She's
Speaker 4: in Washington, d C. Angela, welcome back. I have loved
Speaker 4: our conversations over the past two years, but I have
Speaker 4: been sad that we've had to keep having them because
Speaker 4: the war continues on. Here we are about tomorrow the
Speaker 4: third year of war. Are the sanctions These latest sanctions
Speaker 4: by the United States, and your view largely symbolic and
Speaker 4: unlikely to impact Russia and its crusade against Ukraine.
Speaker 6: Well, we'll have to see. So far, all of the
Speaker 6: sanctions that were imposed by the US and its allies,
Speaker 6: they've certainly dented the Russian economy to some extent, but
Speaker 6: they haven't changed Putin's course. And right now Putin thinks
Speaker 6: that Russia is winning. He appears to be very self confident.
Speaker 6: So we have sanctioned and you know, industries that are
Speaker 6: feeding the military industrial complex. We've sanctioned individuals. We're still
Speaker 6: trying to go out after energy companies in Russia's energy
Speaker 6: exports and trying to persuade those who are helping Russia
Speaker 6: to evade those energy sanctions in fact to implement them.
Speaker 6: But a lot of this, I fear is symbolic. I mean,
Speaker 6: we've sanctioned the people who are involved in Navani's death
Speaker 6: in the prison camp where he was, but they're not
Speaker 6: likely to want to come to the United States, nor
Speaker 6: do I think that they have any bank accounts here.
Speaker 6: So I think there could be more of what we
Speaker 6: would be doing and that we haven't done, and that
Speaker 6: is taking the frozen Russian assets, or at least the
Speaker 6: interest on them, and using that to help support Ukraine,
Speaker 6: and we could do more in the energy realm. It's
Speaker 6: unfortunate that the Biden administration now says that USLNG exports
Speaker 6: going should cease after a few years, when we should
Speaker 6: be exporting more LNG, say to Europe, so that they
Speaker 6: don't keep importing Russian LLERG.
Speaker 5: Why do you think the sanctions have been so ineffective
Speaker 5: at crippling Russia's economy, Because over the last two years,
Speaker 5: doctor Sten, we have a lot of people on their
Speaker 5: program who said, you know, especially at the beginning of
Speaker 5: the war, given the sanctions that the US and a
Speaker 5: lot of the West is putting on the country, the
Speaker 5: economy is going to be taken to its knees, and
Speaker 5: that absolutely has not happened over the last two years.
Speaker 6: It hasn't happened because what Russia has done is it's
Speaker 6: taken its economy to a wharf footing, so it's now
Speaker 6: really a war economy and the defense industries working over time.
Speaker 6: Russia had a GDP growth rate last year of zero
Speaker 6: point three percent, which was higher than any one thought
Speaker 6: and higher than a lot of European countries given the
Speaker 6: situation that we're in, So I think we have miscalculated
Speaker 6: the Russian's ability to deal with these sanctions, and then
Speaker 6: I have to say, you know, there's a lot of sanctions,
Speaker 6: invasion evasion. A number of countries are helping Russia these sanctions,
Speaker 6: including some of its neighbors in Central Asia. We know
Speaker 6: the Chinese are to some extent. So it's very hard
Speaker 6: for these kind of sanctions to succeed if you don't
Speaker 6: have really global agreement on them. And it's really only
Speaker 6: the US and its European and Asian allies that have
Speaker 6: been implementing these sanctions.
Speaker 4: Angela, Will we be having a different conversation if China
Speaker 4: was more on the side of Europe and the United
Speaker 4: States in.
Speaker 6: This, I think we might because even though so that
Speaker 6: you know, the president Jijinping warned Putin about the use
Speaker 6: of nuclear weapons, and we haven't heard Putin talk about
Speaker 6: that for a long time, although some of his colleagues have.
Speaker 6: The Chinese they're not really neutral in this. I mean
Speaker 6: they are exporting components to the Russians that are being
Speaker 6: used in weapons and for other industrial uses. They haven't
Speaker 6: really put any pressure on the Russians to wind down
Speaker 6: this war, and even though they attended a couple of
Speaker 6: the first meetings with a number of different countries about
Speaker 6: the Ukrainian peace plan. They did not attend the meeting
Speaker 6: in Davos or the one that was held in December.
Speaker 6: So I would say that they have neutrality but leaning
Speaker 6: toward Russia. And Jijinping just said again, you know how
Speaker 6: great the relationship was. So I think if the Chinese
Speaker 6: had acted differently, it wouldn't have been as easy for
Speaker 6: the Russians to be at the point where they are now.
Speaker 5: Angela, we saw Senate my majority leader Chuck Schumer make
Speaker 5: us a prize visit to Ukraine in part well in
Speaker 5: a big part to try to reassure Volodimir Zelenski that
Speaker 5: the US will make good on its next round of
Speaker 5: aid even though it faces obstacles in Congress. What would
Speaker 5: your message be to lawmakers right now who oppose an
Speaker 5: aid package to Ukraine.
Speaker 6: I think the message to them is if you do not,
Speaker 6: if we do not send the sixty billion dollars to
Speaker 6: Ukraine and more weapons, the kind of sophisticated weapons they need,
Speaker 6: it's going to be very hard for them to prevail
Speaker 6: against Russia. And I think these people have to think,
Speaker 6: do you really want Russia to win this war. Do
Speaker 6: you know what it might mean going forward? It will
Speaker 6: then reinforce the aggressive tendencies of the Russian regime, and
Speaker 6: that does not make the US any safer. It certainly
Speaker 6: makes our allies a lot less safe. And do we
Speaker 6: want to be drawn back into a broader European conflict
Speaker 6: as we were twice in the twentieth century. I think
Speaker 6: those are the kinds of things they should think about.
Speaker 6: And also that a lot of this money that we
Speaker 6: would be allocating to Ukraine goes to US defense companies,
Speaker 6: so it's money that's being earned and staying in America.
Speaker 4: Ukrainian President Zelenski is pressing for NATO membership. Many say
Speaker 4: that that's unlikely before this war ends. But I do
Speaker 4: think about the risk in this now third year whether
Speaker 4: or not Ukraine gets just enough support to continue fighting
Speaker 4: and resisting, but not sufficient enough to defeat Russia. And
Speaker 4: ultimately that's how it plays out. Do you have any
Speaker 4: idea or I don't know how you see maybe what
Speaker 4: happens here in this third year.
Speaker 6: So I think in this third year the war will continue.
Speaker 6: Putin is waiting to see what happens in our elections.
Speaker 6: In November, and he's hoping that if President Trump is
Speaker 6: reelected that that then the US will cease supporting Ukraine
Speaker 6: and so it'll be over and Russia will win. And
Speaker 6: you know, I think that we, you know, we really
Speaker 6: need to think very carefully about what we're doing going
Speaker 6: forward in terms of supporting Ukraine. And as it is,
Speaker 6: even if that sixty billion dollars does go to Ukraine,
Speaker 6: as you said, it will be enough for the Ukrainians
Speaker 6: to continue to push back, but not to win.
Speaker 4: Ultimately. And I think about the nuclear ambitions we talked
Speaker 4: about a little bit earlier this week. I believe President
Speaker 4: Putin he denied it, that that was in his intentions.
Speaker 4: Do you think that that's potentially, in terms of Russia's
Speaker 4: nuclear ambitions, a real threat of something being put up
Speaker 4: in space against the United States and others.
Speaker 6: I mean, it's possible. It's of course against the treaties
Speaker 6: that we have signed with the Visions and other countries too.
Speaker 6: I wouldn't put it past him. I think at the
Speaker 6: moment he wants us to believe that he might do
Speaker 6: it and to deter us from doing certain things. I mean,
Speaker 6: the main aim at the moment is just to spread
Speaker 6: fear both in Russia's neighbors and in the West about
Speaker 6: what Russia might do. But I think we have to
Speaker 6: watch this very carefully, and obviously our intelligence agencies are
Speaker 6: doing that.
Speaker 5: Do you think that's working, that he's successively spreading fear
Speaker 5: about what Russia is doing and what Russia could do.
Speaker 6: He certainly had succeeded in some European countries, in some
Speaker 6: of Russia's neighbors, and I think that people in the
Speaker 6: United States as well, who think, you know, we're so
Speaker 6: concerned about what Russia will do. We have to be careful.
Speaker 6: And I think the White House has been deterred from
Speaker 6: sending some weapons to Ukraine which could hit really into
Speaker 6: the heart of Russia, because they do fear escalation, not
Speaker 6: necessarily the space escalation, but certainly escalation that could go
Speaker 6: to the potential use of a tactical nuclear weapon.
Speaker 4: Angela thirty seconds left here. If President Putin and Russia
Speaker 4: succeed for a second time here in Ukraine, what's the
Speaker 4: next target? Because I would assume there will be another one,
Speaker 4: or is that wrong? And just quickly?
Speaker 6: I think ultimately there's another one, but I think not
Speaker 6: immediately because clearly the Russian armed forces would have to,
Speaker 6: you know, regrow and refurbish themselves. It could be the
Speaker 6: Baltic States, one of the Baltic States which did used
Speaker 6: to be part of the Soviet Union, and that's what
Speaker 6: you know, who has lamented the collapse of the Soviet Union,
Speaker 6: or potentially Poland that's certainly what the polls think.
Speaker 4: All right, kind of leave it there as always so
Speaker 4: much appreciation. Angela doctor Angela Stent joining us there in Washington,
Speaker 4: as we said, author of Putin's World, Russia against the
Speaker 4: West and with the Rest. She's a senior fellow at
Speaker 4: Brookings Institution, former National Intelligence officer for Russia and Eurasia
Speaker 4: at the National Intelligence Council. Just a great voice when
Speaker 4: it comes to what's going on and trying to figure
Speaker 4: out what's next.
Speaker 5: It's just hard to believe that we're already going to
Speaker 5: be in your three So manytime.
Speaker 4: We said, do you think it's another six months? Do
Speaker 4: we think it's another year? And here we are start
Speaker 4: the third year.
Speaker 2: You're listening to the Bloomberg Business Week podcast. Catch us
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Speaker 4: Well, one of my most read stories on the Bloomberg
Speaker 4: today is about a Fidelity International money manager that dumped
Speaker 4: nearly all of his positions in US treasuries from friends
Speaker 4: he oversees. His expectations are that the world's biggest economy,
Speaker 4: the US economy, still has room to expand. Check it out.
Speaker 4: It's a great read on the Bloomberg terminal on at
Speaker 4: Bloomberg dot Com. It's just kind of one of the
Speaker 4: resets we continue to see.
Speaker 5: Tim Yeah, on that reset. I want to bring in
Speaker 5: Maddi Destner, head of Global Asset Class Services at Capital Group.
Speaker 5: It's global investment and management organization manages more than two
Speaker 5: point five trillion dollars. Maddie joining us from Los Angeles
Speaker 5: right now. Maddie, good to have you with us. The
Speaker 5: reason you're on is because Capital Group is out with
Speaker 5: its twenty year Capital Markets Assumptions Report. It sets out
Speaker 5: some pretty clear expectations about where you all at Capitol
Speaker 5: Group think the market is going. And when we say market,
Speaker 5: we're talking macroeconomics, equities, fixed income, and FX market performance
Speaker 5: over the next twenty years. Carol and I were talking
Speaker 5: about this. You do this, yeah, I mean, how clear
Speaker 5: is your crystal ball to be able to help us
Speaker 5: understand what US equity markets are going to do over
Speaker 5: the next twenty years and what emerging market equities are
Speaker 5: going to do over the next twenty years.
Speaker 7: Well, it's a great question, Tim and Caryl, and thanks
Speaker 7: so much for having me on. When we think about
Speaker 7: the long term, you have to consider what is directional,
Speaker 7: what you know is about to occur, and then what
Speaker 7: you can assume for the long term. So, really, what
Speaker 7: our expectations are our inputs to ensure that our clients
Speaker 7: are set up for success for the long term, and
Speaker 7: our expectation as we look forward is that they are.
Speaker 7: Actually our broad expectation for a sixty to forty portfolio
Speaker 7: is about six percent annualized over twenty years. And when
Speaker 7: we look through the asset classes, we've changed things a
Speaker 7: bit as we've seen action in the markets over the
Speaker 7: last couple of years. Actually brought down our equity assumptions
Speaker 7: just by a bit, about six point nine percent for
Speaker 7: US equities given the evaluation.
Speaker 8: Change that we saw over the last year.
Speaker 7: Not extreme, but our expectations are that valuations are a
Speaker 7: little less attractive, and then for a fixed income we've
Speaker 7: actually brought up our expectations. You're seeing some equity like
Speaker 7: returns out of fixed income sectors, particularly some of those
Speaker 7: extended sectors. So we really feel good about the puts
Speaker 7: in takes of the long term expectations and the fact
Speaker 7: that investors will be set up for success as long
Speaker 7: as they stay invested.
Speaker 4: All right, what's how do you figure it out? Like
Speaker 4: we said, your crystal ball, But what are these assumptions
Speaker 4: based on. I'm always interesting in how do you make
Speaker 4: the sausage here in terms of investing? So what is
Speaker 4: it that these are based on in terms of kind
Speaker 4: of reducing your equity assumptions over the next twenty years,
Speaker 4: but maybe raising your fixed income assumptions.
Speaker 7: Yeah, So we actually decompose the returns into building blocks.
Speaker 7: So as you start to pick apart the pieces, you
Speaker 7: can think about what will change in those building box.
Speaker 8: So we think about economic.
Speaker 7: Growth, what does that look like over the next twenty years, productivity,
Speaker 7: what happens to the labor force, inputs into demographics, how
Speaker 7: that picture will change over the next twenty years.
Speaker 8: These are knowable things.
Speaker 7: Our expectation of changing technology and the productivity of the workforce.
Speaker 7: We think that has a big impact on the expectations.
Speaker 7: And then of course currency, certainly for US based investors
Speaker 7: of international assets, both developed as well as emerging, our
Speaker 7: expectations for the dollar and other currencies, how that impact
Speaker 7: the supply demand dynamics and the balance of trade. And
Speaker 7: then of course the expectation of the change in share count.
Speaker 7: There's been quite a lot of buybacks and that has
Speaker 7: changed the expectation for earnings for companies for individual shareholders.
Speaker 7: And then the last thing is yield, both on the
Speaker 7: fixed income and the equity side. Are expectation is that
Speaker 7: you're going to start to see healthier dividend yields, particularly
Speaker 7: in the international space, less so in the US, and that,
Speaker 7: as I said before, starting yield and fixed income are
Speaker 7: much higher.
Speaker 8: So as we look at each of these building blocks,
Speaker 8: we sort of.
Speaker 7: Build up the elements from the bottoms up perspective and
Speaker 7: then look top down and ask ourselves how realistic are
Speaker 7: these numbers?
Speaker 5: Hey, Madie, I want to dig into the equities research
Speaker 5: that you and the team over a Capitol Group have done,
Speaker 5: because I was pretty surprised to see that over the
Speaker 5: next twenty years, you expect emerging market equities to outperform
Speaker 5: US equities pretty significantly given and that surprised me given
Speaker 5: the out performance we've seen from US equities over the
Speaker 5: last ten to fifteen years.
Speaker 7: At this point, Yeah, our expectation is that there are
Speaker 7: both cyclical and secular changes going on in emerging markets.
Speaker 7: So if we just frankly look at the inflation picture
Speaker 7: within emerging markets, inflation accelerated early on. Central banks start
Speaker 7: to ease or tighten pretty quickly, and now they're in
Speaker 7: the path of easing policy, so they're a bit ahead
Speaker 7: of us in that cycle.
Speaker 8: We expect to see an upturn. From that perspective.
Speaker 7: There's certainly a benefit from a continued weakness of the dollar, which.
Speaker 8: We expect to see over the long term.
Speaker 7: And then one of the most important things about emerging
Speaker 7: markets is the change in supply chains that we expect
Speaker 7: to see over the long term. So we know that
Speaker 7: Chinese growth is slowing due to demographic impacts as well
Speaker 7: as less than friendly market reforms. But what's happening is
Speaker 7: companies are starting to remove their supply chain exposure to
Speaker 7: China and going to places like India, like Mexico, like
Speaker 7: Southeast Asia, so we really do expect a resumption of
Speaker 7: manufacturing centers in those areas.
Speaker 8: And then the last thing I'll point to is.
Speaker 7: That from an emerging markets perspective, the demographic picture, the
Speaker 7: age of the workforce looks a lot healthier than in
Speaker 7: some other areas of the world.
Speaker 4: That makes a lot of sense. I'm also curious, you know,
Speaker 4: here we are coming off a week where we were
Speaker 4: all agog over Nvidia, right, its result, its outlook, its
Speaker 4: impact on the trade continues to play out today. You
Speaker 4: guys did look at as one of your key criteria
Speaker 4: the changing technology on workforce. Talk to us a little
Speaker 4: bit about what's the changing technology that you focused on
Speaker 4: and its impact.
Speaker 7: Yeah, it's a number of things, Carol, It's not just one.
Speaker 7: If we think about the impact of you know, how
Speaker 7: productive is every single worker, if everybody was doing the
Speaker 7: same jobs that they did in nineteen fifty versus today,
Speaker 7: how much more can they build, how many more patients
Speaker 7: can they see, How long is the expectations for life
Speaker 7: expectancy and how that's changing. So things like artificial intelligence
Speaker 7: and how that's helping us do our jobs, cloud computing
Speaker 7: and how that's helping us be more efficient, and even
Speaker 7: some of the innovations in healthcare, whether it's gene therapies
Speaker 7: or immunizations, these will impact our longevity and frankly, our
Speaker 7: health as a nation and as a world society. So
Speaker 7: all of these things are incorporated together, from our perspective,
Speaker 7: significantly increase the productivity of each hour work from individuals.
Speaker 7: So it's a bit of a give back to the
Speaker 7: giveaway that we have from demographics, because we know that
Speaker 7: this is an aging nation for aging all over the world,
Speaker 7: and that will impact.
Speaker 5: We talked about that a lot here on the program,
Speaker 5: Matt It We only have thirty seconds left, but we
Speaker 5: got to talk politics and how you factor politics into
Speaker 5: your analysis here, not just here in the US, but
Speaker 5: around the world. Just thirty seconds left.
Speaker 7: Yeah, exogynous factors hard to incorporate into the actual analysis,
Speaker 7: so we really do try to look through that and
Speaker 7: think long term.
Speaker 8: From our perspective.
Speaker 7: Though, as we look at the last twenty three election cycles,
Speaker 7: what we notice is that markets trend up on average
Speaker 7: every single time. There's lots of volatility around the primary environment.
Speaker 7: But once we have regardless of who sits in the
Speaker 7: administrative chairs, we tend to see upmarkets in that election
Speaker 7: cycle more so than a non election year.
Speaker 8: So we're pretty constructive.
Speaker 4: All right, Really appreciate this and look forward. Hopefully we
Speaker 4: can get you back real soon. Mattie Destner, she's head
Speaker 4: of Global Asset class Services over at Capital Group, a
Speaker 4: global investment management group managing more than two and a
Speaker 4: half Truly and Matty of course joining us from Los Angeles.
Speaker 2: You're listening to the Bloomberg Business Week podcast. Listen live
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Speaker 4: All right, Well, the US Bitcoin ETFs that debuted back
Speaker 4: on January eleventh and the Grayscale Bitcoin Trust that converted
Speaker 4: into an ETF that same day have as of Tuesday,
Speaker 4: brought in about a net five billion dollars of investment.
Speaker 4: Your inflows so far, so money coming in, tim.
Speaker 5: Yeah, that's real money. The anticipation and roll out of
Speaker 5: the products, by the way, stoking a doubling in bitcoin's
Speaker 5: price over the past twelve months. For more on the
Speaker 5: Space and the opportunities that he sees. Let's bring in
Speaker 5: Dave Donnelley, managing director at Spider Rock Advisors. It's a
Speaker 5: Chicago based asset management firm that specializes in, in their
Speaker 5: own words, providing customized option overlay strategies to investors. By
Speaker 5: the way, they've got about four point five billion dollars
Speaker 5: in assets under management. Dave, good to have you with
Speaker 5: us for a weekly crypto segment this afternoon. You don't
Speaker 5: have a spot bitcoin ETF. Rather, you were going to
Speaker 5: introduce an option's overlay strategy on the ETF. Explain what
Speaker 5: exactly this is for people who aren't familiar with the
Speaker 5: strategy and what that gives for clients.
Speaker 9: Sure, thanks for having me. Really a couple thoughts here.
Speaker 9: You know, you've got, as you just stated, billions of
Speaker 9: dollars in inflows into these ETFs. We're not an ETF manufacturer. Instead,
Speaker 9: we're an advisor who tries to help intermediaries and clients
Speaker 9: hedge the existing positions that they have. So, you know,
Speaker 9: while you've got five or so billion dollars in these
Speaker 9: ETFs already, you've got a trillion dollars worth of bitcoin
Speaker 9: out there owned in the more traditional way, you know,
Speaker 9: with hot wallets and cold storage. You know, we think
Speaker 9: these ETFs make it so much easier for normal investors
Speaker 9: to access these these products and get something to track
Speaker 9: the price of bitcoin. But here's the benefit. They can
Speaker 9: now hold it in a securities account, and at some
Speaker 9: point very soon, these ETFs are going to have listed
Speaker 9: options on them, which allows us to do our work.
Speaker 9: You know, whether it's single stock positions or indexes or
Speaker 9: now spot bitcoin ETFs. Our focus is helping folks hedge
Speaker 9: those existing positions in their brokerage account in an advisory account,
Speaker 9: helping to manage the risk in a customized way. Options
Speaker 9: on bitcoin ETFs are going to be the gateway to
Speaker 9: doing that. Interestingly, not only on the ETFs that people own,
Speaker 9: but there are ways to do it on the bitcoin
Speaker 9: they own elsewhere and do that from their securities account.
Speaker 4: Got to say, Dave, what are the things we love
Speaker 4: to ask? It's a simple question, why are you doing this?
Speaker 4: And we're just curious if your clients and the investors
Speaker 4: are the clients that you guys help have been asking
Speaker 4: for something like this.
Speaker 9: Everything we do is really driven by client demand. We
Speaker 9: hold ourselves out to be able to do our best
Speaker 9: to help clients hedge, you know, whatever they own in
Speaker 9: the public security space. So we've gotten a lot of
Speaker 9: asks about this over the years and haven't been able
Speaker 9: to do anything. Obviously, trading bitcoin or unlisted bitcoin options
Speaker 9: isn't something that's readily available in your brokerage or advisory account.
Speaker 9: So the proliferation of these spot ETFs, and you know,
Speaker 9: we've been in contact with CEBO who's working with regulators
Speaker 9: to get the options on those spot ETFs available, that
Speaker 9: is really that's new, and that is going to open
Speaker 9: the door to being able to help folks hedge. Obviously
Speaker 9: a highly volatile instrument. Some folks enjoy that for training.
Speaker 9: A lot of people just made a lot of money
Speaker 9: in it, and just like you'd want to hedge anything
Speaker 9: where you had significant gains but don't necessarily want to
Speaker 9: sell and pay taxes on it. That's where our business
Speaker 9: comes in to help folks hedge and we're really excited
Speaker 9: to be able to do that with relation to bitcoin.
Speaker 5: Now, when do you think you'll be able to actually
Speaker 5: do that? Like, what's the ETA.
Speaker 9: Last night I heard is that there's some regulatory going
Speaker 9: on in mid March, so it could be by the
Speaker 9: end of Q one, but we're basically just waiting to
Speaker 9: get those options listed, make sure that there's enough liquidity available,
Speaker 9: and we'll be ready to go to work.
Speaker 5: I just want to say, when it comes to regulators
Speaker 5: and cryptocurrency, specifically bitcoin, it's been a waiting game, Dave,
Speaker 5: So are you real is that? Are you being realistic?
Speaker 5: Do you think in those expectations.
Speaker 9: Unequivocally it has been a waiting game. I think, you know,
Speaker 9: the decision that was made to allow the spot bitcoin
Speaker 9: ETF was sort of the biggest decision that had to
Speaker 9: be made. I have heard nothing from the exchanges we're
Speaker 9: speaking with that make it sound like it's going to
Speaker 9: be anywhere near as protracted the time period for the
Speaker 9: options as that was.
Speaker 4: So I am also curious how the strategy is actually
Speaker 4: going to work and in terms of mitigating the volatility
Speaker 4: that we have seen with the spot you know, spot
Speaker 4: bitcoin over the last couple of years. So how does
Speaker 4: it work specifically?
Speaker 9: Sure, I think the most sort of typical approach to
Speaker 9: reducing risk for a client is just simply a costless collar.
Speaker 9: In this strategy, pretty straightforward. We want to buy protection,
Speaker 9: buy insurance against the decline in the price. So we're
Speaker 9: buying a put option on that spot bitcoin ETF. That
Speaker 9: put is probably going to be reasonably expensive, especially given
Speaker 9: the ball in bitcoin, and therefore we need to pay
Speaker 9: for it somehow. We don't typically advise folks paying for
Speaker 9: it with cash. Rather, we'd rather pay for it with
Speaker 9: sort of foregone potential upside, and that's by selling a call.
Speaker 9: So your caller is buy a put, sell a call,
Speaker 9: and do that in a way that is sort of
Speaker 9: slightly net positive from a cash flow perspective. You can
Speaker 9: take up to seventy percent of your risk off the
Speaker 9: table without selling any and so that's that's a move
Speaker 9: we do for a lot of folks with concentrated stock
Speaker 9: positions today. We don't view bitcoin ETFs any differently.
Speaker 4: What would you anticipate in terms of kind of a
Speaker 4: typical return then off of this kind of investment, because obviously,
Speaker 4: for those who are looking to play the swings, they're
Speaker 4: not going to have that advantage to the upside, but
Speaker 4: they're also going to be immune from most of the
Speaker 4: downside as well in terms of the swing the swings
Speaker 4: that we see on spot bitcoin. So what kind of
Speaker 4: returns are you thinking about off of this strategy.
Speaker 9: I'd really redirect that to thinking about what kind of
Speaker 9: volatility reduction are we going to see? And again that's
Speaker 9: typically taken up to seventy percent off. For the tactical
Speaker 9: folks who enjoy trading it, it is a tool you
Speaker 9: can use to mitigate risk for a time period without selling,
Speaker 9: and then take it off to sort of re establish
Speaker 9: your overall position and participate in the upside. But for
Speaker 9: other folks where it's just it's been such a long
Speaker 9: term winner for them, this might just be a way
Speaker 9: to take chips off the table without having to pay taxes.
Speaker 4: All right, I get it, because when you said you've
Speaker 4: got kind of a high fee on it, I was
Speaker 4: just trying to kind of figure out in terms of
Speaker 4: what we could expect in terms of returns off of it.
Speaker 5: Hey, Dave, I want to take a step back and
Speaker 5: just talk a little bit about Spider Rock Advisors, because
Speaker 5: on your website you do say that derivatives have a
Speaker 5: place in almost all portfolios with volatility as an asset
Speaker 5: class serving as a core holding. I'll be honest, it's
Speaker 5: not something that we talk about a lot when it
Speaker 5: comes to an individual's portfolio, but talk and I don't
Speaker 5: think a lot of people have derivatives apart from you know,
Speaker 5: ETFs in their portfolios, So why do you think derivatives
Speaker 5: have a place in everyone's portfolio?
Speaker 9: Especially for the taxable investor. Listed options can help in
Speaker 9: a number of ways. It's really the only way to
Speaker 9: change your risk profile without having to sell your existing
Speaker 9: underlying holdings, which of course triggers a tax bill permanent
Speaker 9: drag on performance. So reshaping risk, whether it's through too
Speaker 9: much risk and single names that you've owned that have
Speaker 9: had great rallies a few stories on those even this week,
Speaker 9: to just lowering your overall beta exposure, to creating additional
Speaker 9: cash flows through call selling or put selling. There are
Speaker 9: all kinds of different tools you've got available with the
Speaker 9: listed option market with respect to a typical wealth management portfolio, stocks, bonds, funds,
Speaker 9: and through our technology and our business, you know, our
Speaker 9: goal is to bring a lot of customization to that
Speaker 9: and help folks achieve the changes they want to make
Speaker 9: in their portfolio using options, because they're the only way
Speaker 9: you can deliver some of these solutions. Maximizing after tax
Speaker 9: is the real goal.
Speaker 4: It's an important aspect certainly of this strategy. Hey, Dan, Dave,
Speaker 4: excuse me, thank you so much, really appreciate it, Dave Donnelly.
Speaker 4: He's managing director at Spider Rock Advisors, as we said,
Speaker 4: at Chicago based asset management firm, and they've got about
Speaker 4: four and a half billion dollars in assets under management.
Speaker 4: But this makes sense, like coming off of the spot
Speaker 4: bitcoin etf that we've seen approve, like everybody's trying to
Speaker 4: figure out the strategies off of it, and you know,
Speaker 4: minimizing volatility through options obviously makes a lot of sense. Yeah,
Speaker 4: or it's going to be, certainly something that we knew
Speaker 4: was coming.
Speaker 5: I have to wait for those regulators to give the
Speaker 5: nod of approval.
Speaker 4: Yeah, absolutely, not yet, but you would assume that, right,
Speaker 4: they're going to allow for kind of an expansion of
Speaker 4: some of these trading strategies.
Speaker 2: A brother mark a.
Speaker 3: Journal.
Speaker 8: How about you let me drive?
Speaker 9: No, no, no, no, honey, please, I'll do the driving gravels.
Speaker 9: Excuse mate, I want to drive.
Speaker 8: It's a good question time.
Speaker 9: This is the drive to the globe.
Speaker 4: Music well Don on Bloomberg Radio, TikTok, everybody eighteen well, yeah,
Speaker 4: eighteen minutes left trading session. Hell, I'm not a good rounder.
Speaker 4: We're definitely off our best levels of the session. As
Speaker 4: you heard Charlie break it downs like Gaines on the
Speaker 4: S and P and down Nazac lower. I feel like
Speaker 4: a little bit of a break a pause, if you will,
Speaker 4: from the n video rally that was yesterday. But S
Speaker 4: and P what we're still at a record right, doesn't
Speaker 4: matter what.
Speaker 5: I've just got to be in the green and Carol,
Speaker 5: we're in the green right now five points exactly. Hey,
Speaker 5: let's see what Katerina Simonetti has to say about this.
Speaker 5: She's senior vice president and private wealth advisor at Morgan
Speaker 5: Stanley Private Wealth Management. She joins us on Zoom from Philadelphia. Katerina,
Speaker 5: how are you?
Speaker 1: Thank you for having me on the show. It's good,
Speaker 1: good to be here on the Friday.
Speaker 5: It's good to have you back with us. What a
Speaker 5: week it was. Help us make sense of the game
Speaker 5: that we've seen in the S and P five hundred
Speaker 5: so far this year, in the now so far this year,
Speaker 5: when you know we're talking already up six point six
Speaker 5: percent in the Nasdaq, six point eight percent in the
Speaker 5: S and P five hundred. Uh, what's left for the year?
Speaker 1: Well, what an incredible start of the year, and when
Speaker 1: you kind of think about the transition that we finished
Speaker 1: twenty twenty three with this focus on what FED is
Speaker 1: going to do, and then we went into January with
Speaker 1: this wide expectation that we're going to have, you know,
Speaker 1: five raid cuts, and what we're seeing now are these
Speaker 1: earning surprises. And they're not just surprises across the board.
Speaker 1: There are surprises specifically in the names. The magnificent seven
Speaker 1: names that you know have done so well, you know,
Speaker 1: so now it's going to be progressively difficult for the
Speaker 1: FED to be very aggressive with rate cuts, and consensus
Speaker 1: now is that we're going to have about three of them,
Speaker 1: and the focus for investors is really on these fast
Speaker 1: moving stocks. And what we're seeing as the biggest trap
Speaker 1: to try to avoid is when investors are starting to
Speaker 1: doubt their diversified portfolios, starting to dow to acid allocation
Speaker 1: and are kind of saying like, should we stay with
Speaker 1: blue chip stocks, should we stay diversified, or should we
Speaker 1: switch direction into this highest growing stocks, And that's what
Speaker 1: you know, these are the type of conversations that we're having,
Speaker 1: you know, the beginning of this year.
Speaker 4: Well, having said that we kicked off earlier with our
Speaker 4: Gina Martin Adams, our chief eculty strategist to here at
Speaker 4: Bloomberg Intelligence, and she said, you know, with all of
Speaker 4: the interest and mania surrounding Nvidia and our obsession with technology,
Speaker 4: that she said more stocks in industrials and financials made
Speaker 4: more highs than tech over I think she said the
Speaker 4: past week or so, which was kind of interesting, and
Speaker 4: that's why she said she was finding it constructive for
Speaker 4: investors to look specifically at those spaces. How are you
Speaker 4: seeing it? Could you drill down a little bit more
Speaker 4: specifically in terms of where you think not just a
Speaker 4: broadening out where investors should be maybe adding some more
Speaker 4: in terms of acid allocation.
Speaker 1: Absolutely, and I want to be clear that we are
Speaker 1: not advocating giving off on tech because tech is playing
Speaker 1: an absolutely instrumental role in the growth of the sectors
Speaker 1: like industrials and financials and healthcare. And we're seeing some
Speaker 1: of these companies all across the sectors, you know, making
Speaker 1: significant investments in AI, in increasing profitability, in cutting costs,
Speaker 1: and technology is going to play and absolutely essential role there.
Speaker 1: So technology should be in the portfolios, but we're seeing
Speaker 1: the other sectors, sectors like financials industrials with this huge
Speaker 1: government spending in that space. With health care, you know,
Speaker 1: we have agent population and the need for healthcare services
Speaker 1: is becoming more and more, and they are exciting developments
Speaker 1: with genomics and biotech. So we see the opportunities across
Speaker 1: the board. We're advocating looking at valuations. What we are
Speaker 1: cautioning investors not to do is when we are looking
Speaker 1: at earnings, and especially their earnings that are so exciting
Speaker 1: and are looking very good. You know, the question is
Speaker 1: how sustainable are there? Are they? And there's no such
Speaker 1: thing as growth and perpetuity right like, so the reason
Speaker 1: that we diversity.
Speaker 4: Yet and yet don't you feel like constantly there's a
Speaker 4: pushback against the Magnificent seven, those growth names, and yet
Speaker 4: here we are year after year focusing on them and
Speaker 4: talking about them, and they continue to lead the market gains.
Speaker 1: Absolutely, So I think the real question we should be
Speaker 1: asking is what should we do about it? And investors
Speaker 1: that don't own those names and really want to own them,
Speaker 1: there is no you know, we're not telling them don't
Speaker 1: own them. The question is how much what we are
Speaker 1: cautioning them from is abandoning healthcare and financials and industrial
Speaker 1: health instead of just going and focusing and concentrating in
Speaker 1: these individual names, but taking a reasonable position because you
Speaker 1: want to be part of that AI story and want
Speaker 1: to be part of that growth, and you don't want
Speaker 1: to feel like you're missing out. That's perfectly acceptable, that
Speaker 1: makes sense.
Speaker 5: So I guess the question I have is really about
Speaker 5: the macro environment and it does, you know, politics, notwithstanding
Speaker 5: here in the election, notwithstanding here in the US, what
Speaker 5: kind of derails the path that we're on right now,
Speaker 5: because it does seem like so many economic signs that
Speaker 5: we're getting, so much the data, it's seemed pretty good.
Speaker 1: Absolutely, and I think that tim the economic data that
Speaker 1: we need to look at more than any other area
Speaker 1: is labor market because the data that we're seeing from
Speaker 1: the labor market is extremely mixed. On one side, we
Speaker 1: have full employment, we're seeing high wages, but we're also
Speaker 1: seeing this waves of layoffs or you know, the cost
Speaker 1: cutting projections that include the possibility of the layoffs. And
Speaker 1: as of right now, you know, the consumer confidence and
Speaker 1: willingness of consumers to spend and their optimism about the
Speaker 1: market is something that is playing a very big role.
Speaker 1: It's this huge headwid I'm sorry the tailwind, you know,
Speaker 1: for the growth of the economy, but if we're going
Speaker 1: to start seeing this shift and the change in the
Speaker 1: labor market, that is something that is going to be
Speaker 1: pretty pivotal, you know, with the slow down of the economy,
Speaker 1: and something that FED is playing a very close attention
Speaker 1: to when it comes to the decision on the timing
Speaker 1: with amount of bread cuts.
Speaker 5: Carol, this is exactly what Gina Martin Adams said earlier today.
Speaker 5: Watch the labor market totally. It just doesn't seem like
Speaker 5: we're getting any signals that there's weakness there except for
Speaker 5: and this is kind of ironic, the tech industry layoffs
Speaker 5: that we've seen over the past six weeks.
Speaker 4: And she said, if we do start to see overall
Speaker 4: the labor markets start to roll over and that the
Speaker 4: FED does feel like it needs to cut rates sooner
Speaker 4: rather than later, I mean that could be problematic that
Speaker 4: the economy is slowing down and that ultimately will lead
Speaker 4: to slower earnings growth. Like it all relates back, and
Speaker 4: then you have to start rethinking about valueations on the
Speaker 4: equity side of things. Potentially, potentially, potentially, all right, Katerina Simonetti,
Speaker 4: She's Senior vice president and private wealth Advisor at Morgan
Speaker 4: Stanley Private Wealth Management, joining us from Philadelphia.
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