Speaker 1: This is Masters in Business with Barry Ridholts on Bloomberg Radio.
Speaker 1: This week on the podcast, I have a special guest.
Speaker 1: Matt Hogan is a friend who I know through his
Speaker 1: work at inside e t F S as well as
Speaker 1: the inside et F H Big Conference. I also know
Speaker 1: him from his days running e t F dot com
Speaker 1: and he more recently joined a crypto fund where they
Speaker 1: are producing the very first index of crypto coins, which
Speaker 1: is quite fascinating. If you're at all interested in anything
Speaker 1: from the gamut of e t f S to Bitcoin
Speaker 1: and quite bluntly bitcoins held in e t f S
Speaker 1: and everything in between, then this is the conversation that's
Speaker 1: gonna be for you. There are few people who are
Speaker 1: more knowledgeable about the entire process of creating, managing, mark
Speaker 1: ing UH, and administrating e t fs UH than Matt.
Speaker 1: And taking that skill set and bringing it to a
Speaker 1: crypto firm where he's basically going to try and do
Speaker 1: for various crypto coins and crypto assets what he helped
Speaker 1: do with E t F S UH is really quite
Speaker 1: a fascinating conversation. I think those folks who are interested
Speaker 1: in this space will find it endlessly informative and entertaining,
Speaker 1: So with no further ado, my conversation with Matt Hogan.
Speaker 1: My special guest this week is Matt Hogan. He is
Speaker 1: the global head of research at bit Wise Asset Management.
Speaker 1: Prior to that, he was the chairman and pretty much
Speaker 1: chief cook and bottle washer at u e t F
Speaker 1: dot Com that was purchased by Informa and the Inside
Speaker 1: et F conference is the biggest ETF conference in the world.
Speaker 1: You're you're still chairman of that event. I'm still chairman
Speaker 1: of that event. Yeah, I love it very much. Bit
Speaker 1: Wise Asset Management is the creator of the world's first
Speaker 1: cryptocurrency index fund. Matt Hogan, Welcome to Bloomberg. Thanks for
Speaker 1: having me, Barry. I've been looking forward to this. I
Speaker 1: am a little bit of a bitcoin skeptic, but I'm
Speaker 1: open minded because I'm somewhat fascinated by the underlying blockchain technology,
Speaker 1: and you know, I'm interested in anything related to either
Speaker 1: E t F or indexes. So let's let's jump right
Speaker 1: into this. And why don't we start with your work
Speaker 1: at et F dot com right? What did you do there? So?
Speaker 1: I I started as a freelance reporter for its predecessor,
Speaker 1: which was index universe and over that we left the
Speaker 1: worst u r O in the world with Index Universe
Speaker 1: and not a winner. No. E t F dot Com
Speaker 1: is just marginally better. Oh really, I would think that's
Speaker 1: a no brainer. I think it was a no brain.
Speaker 1: So we switched to et F dot Com. I eventually
Speaker 1: became the CEO of the business. Some of the things
Speaker 1: I'm most proud of that we did there. We built
Speaker 1: the largest et F conference in the world. Inside e
Speaker 1: t F s we built the first e t F
Speaker 1: classification and ratings system. It's hard to imagine an e
Speaker 1: t F land that eight or nine years ago, things
Speaker 1: like tracking error were not available to most. That's just
Speaker 1: that's just entry level stuff. Is entry level stuff, but
Speaker 1: it didn't exist. No one had even gone through the
Speaker 1: perspectus is to make sure that they were actually tracking
Speaker 1: total return indexes. Uh. It was a mess. So we
Speaker 1: built the first classification and rating system, which we subsequently sold.
Speaker 1: The fact sets now powers And that's how our mutual
Speaker 1: friend David Neated previously ended up at a fact set
Speaker 1: and then didn't they get bought by was it c Bolt?
Speaker 1: So so we sold our business in three separate sales.
Speaker 1: We sold our data business to fact Set, our events
Speaker 1: business to inform A, and our media business. E t
Speaker 1: F dot Com the property to CBOE which is now
Speaker 1: BATS where we sold it to BATS which is now
Speaker 1: cbo E. To confuse matters more, we sold Dave with
Speaker 1: the data business to facts Set, and then he left
Speaker 1: facts Set to go to e t F dot Com
Speaker 1: at cbo E BATS. So it's it's virtually impossible to
Speaker 1: keep straight here. Now, Well, that explains my my lack
Speaker 1: of understanding. So so your CEO of e t F
Speaker 1: dot Com at the start of the I guess, for
Speaker 1: lack of a better word, the e t F era,
Speaker 1: what was the industry like you mentioned some of the
Speaker 1: real basic metrics that everybody takes for granted with mutual
Speaker 1: funds that didn't exist. For people have to remember that
Speaker 1: early in the days of e TF no one believed
Speaker 1: in them, no one trusted them, and no one understood them.
Speaker 1: There were huge myths about e t F liquidity. People
Speaker 1: didn't know what a creation redemption was, and people have
Speaker 1: no way to even answer basic questions like what are
Speaker 1: all the emerging market ETFs that didn't exist? Uh, no
Speaker 1: way to answer how well does this et F track
Speaker 1: it's index. So we spend a huge amount of time.
Speaker 1: I must have explained creation redemption. That's the thing that
Speaker 1: I think most of the investing public understands. The least Yes,
Speaker 1: give us a thirty second version. What is creation and
Speaker 1: redemption of the underlying in an et sure? So let
Speaker 1: me start with mutual funds, because people understand them better.
Speaker 1: When you invest money in a mutual fund, you send
Speaker 1: them cash, and then the mutual fund managers sits on
Speaker 1: that cash overnight. Then they come into work and they
Speaker 1: pick which stocks to buy, and they buy stocks with
Speaker 1: that cash, and usually they're buying their existing model. Here's
Speaker 1: what our core holdings look like. Oh we've gotten this
Speaker 1: much inflow. Great, go out and buy pro rata everything
Speaker 1: we already own in proportion. And then when you want
Speaker 1: your money back, the exact same thing happens in reverse.
Speaker 1: You say I want my hundred thousand dollars back, They
Speaker 1: sell a hundred thousand dollars of whatever stocks are out
Speaker 1: of favor, and they send you your ash. And that's
Speaker 1: that's a creation and a redemption in the mutual fund.
Speaker 1: But you're doing it in an e t F. When
Speaker 1: you buy an e t F, you just buy it
Speaker 1: like you buy shares of IBM. I buy my shares
Speaker 1: like a closed funds, just on the exchange, right. I
Speaker 1: might buy a hundred shares of SPY and you might
Speaker 1: be selling it, and we'll get matched at the exchange level.
Speaker 1: What happens with an e t F is instead of
Speaker 1: the e t F going out and buying the securities,
Speaker 1: it publishes a list of what securities it wants to buy,
Speaker 1: and a big institutional investor called an authorized participant goes
Speaker 1: out and acquires that list of securities. Say it's the
Speaker 1: SMP five hundred. They buy all five hundred securities, and
Speaker 1: then they send all five hundred securities to the e
Speaker 1: t F company in exchange for the same value of
Speaker 1: shares in the e t F, which they can just
Speaker 1: send sell on the broke on the on the markets.
Speaker 1: Same thing happens in reverse. When these aps want to
Speaker 1: redeem shares, they say, we want to we have fifty
Speaker 1: thousand shares of the e t F. They send the
Speaker 1: fifty thou shares to the e t F company, and
Speaker 1: the e t F company sends them the equivalent dollar
Speaker 1: amount in stocks, which they can then out that You
Speaker 1: may wonder why does that matter? And it matters for
Speaker 1: a bunch of different reasons. I'll give you two. So first,
Speaker 1: think about when you send money to a mutual fund company.
Speaker 1: They have to hire people who go into the market,
Speaker 1: decide what to buy, trade. It costs money that raises
Speaker 1: the fees. Uh. The other reason it matters is when
Speaker 1: you redeem from a mutual fund, they have to sell
Speaker 1: actual stocks. If those stocks have appreciated in value, they
Speaker 1: realize capital gains and the fund. The horrible thing about
Speaker 1: the mutual fund industry is at the end of the year,
Speaker 1: everyone who still owns those funds has to pay taxes
Speaker 1: based on the fact that you left. Someone else sold
Speaker 1: generated a capital gain tax event, and the people who
Speaker 1: didn't sell are on the hook are left holding the bag.
Speaker 1: So I always look at ETFs as having to really
Speaker 1: um attractive qualities. One is there if you decide to
Speaker 1: sell your ETF and I don't, I don't get stuck
Speaker 1: with your capital gains. And second that whole um create
Speaker 1: and redemption process means as long as the underlying holdings
Speaker 1: have liquidly there's never a liquidly problem with the broader
Speaker 1: SMP like E t F or Am I wrong? No,
Speaker 1: you are absolutely right. I actually think if the e
Speaker 1: t F came first, the SEC would never approved a
Speaker 1: mutual fund structure. Right, you're gonna make people share in
Speaker 1: the tax event. That's insane socialism for the tax for investors. Yeah,
Speaker 1: it's totally It's totally right. And you're absolutely right about
Speaker 1: the liquidity as long as the underlying as liquid. The
Speaker 1: e t F is liquid, which is why and people
Speaker 1: get this wrong. Uh, the only bond funds that have
Speaker 1: blown up have been bond mutual funds because they have
Speaker 1: to redeem out and so liquid. Very often it's only
Speaker 1: the top third or top half of the bonds, and
Speaker 1: a lot of big indexes trade regularly. Are are deep
Speaker 1: and wide and have a lot, but by the time
Speaker 1: you get to the thousandth holding, it trades every Tuesday
Speaker 1: by appointment. Not a lot of liquid. Good luck. People
Speaker 1: worry about bond e t f s blowing up. What
Speaker 1: they should be worried about is in a bond market crisis,
Speaker 1: corporate bond mutual funds blowing up and having real issues.
Speaker 1: I think that that could happen. So I have to
Speaker 1: ask the obvious question. E t f s were the
Speaker 1: hottest area in the markets what made you decide to
Speaker 1: say I'm gonna I'm gonna leave this behind and make
Speaker 1: a leap into the craziness that is crypto because you
Speaker 1: jumped into it right in the middle of the Mayhem. Yeah. Yeah,
Speaker 1: although although it was the plan to jump into it
Speaker 1: started earlier than that, But that's absolutely true. I would
Speaker 1: say there are three things, Um, you know, when I
Speaker 1: got into E t F s UH, they weren't well
Speaker 1: understood UH. And they weren't widely adopted, and they were
Speaker 1: still a new and emerging industry. And the only skill
Speaker 1: I have, to the extent I have a skill, is
Speaker 1: the ability to explain complex things in a simple way. UH.
Speaker 1: And I felt like a lot of what I wanted
Speaker 1: to do in E t F S had been accomplished. Right,
Speaker 1: I had helped create the first e t F rating system,
Speaker 1: I'd have to create the first et F classification system. UH.
Speaker 1: I had done some small part to move ETFs into
Speaker 1: the mainstream, and now they are the dominant UH way
Speaker 1: people get exposure to the markets. So I felt most
Speaker 1: of what I had done, what I wanted to do,
Speaker 1: had been achieved, and I went looking for the next
Speaker 1: area of UH disruptive opportunity where I thought the quality
Speaker 1: of information was poor, I actually ended up with two.
Speaker 1: I ended up with with crypto and with options strategies,
Speaker 1: both of which I think are potentially very important, and
Speaker 1: both of which are really poorly understood by most investors.
Speaker 1: But this unique crypto opportunity to be involved in the
Speaker 1: first crypto index fund appealed to my inner indexing nerd.
Speaker 1: So is there are there are you seeing parallels between
Speaker 1: how crypto is being perceived by the investing public and
Speaker 1: e T F And said, do you remember when people
Speaker 1: talked about e t f s as weapons of mass destruction? Sure?
Speaker 1: Do you remember when people uh wouldn't didn't think e
Speaker 1: t s would ever? I'm out too much. I think
Speaker 1: they were the I Shares franchise was sold for a
Speaker 1: dollar from Morgan Stanley to b G. I right, it's
Speaker 1: it's um Uh, it's nice, Yeah exactly. I think someone
Speaker 1: called the Louisiana purchase of Yeah. I hope someone still
Speaker 1: has that dollar the wall somewhere. And but these were
Speaker 1: not uh people didn't think e t s would amount
Speaker 1: too much? Right, They were a last ditch effort to
Speaker 1: save the AMMAX and create trading volume. There people didn't
Speaker 1: realize how good they were. And the same thing as
Speaker 1: crypto people are reflexively dismissive of crypto. H most people
Speaker 1: have given it about two and a half minutes of thought.
Speaker 1: If you give it two and a half minutes of thought,
Speaker 1: you think it's fairy unicorn money on the internet. And
Speaker 1: it takes it takes hours and days of really analyzing
Speaker 1: it to see where it might and may have value.
Speaker 1: So I see a lot of parallels so to me,
Speaker 1: and I know this is almost a cliche at this point.
Speaker 1: Blockchain is so obviously useful in so many applications that
Speaker 1: we've only begun to think about. It's that the bitcoins
Speaker 1: and the ethereums and go down. There's hundreds of coins.
Speaker 1: It seems to be that there's a lot of speculative
Speaker 1: excess in the space. And I think that's what makes
Speaker 1: it so easy for people to you know, just yeah, okay, bitcoin, bitcoin,
Speaker 1: Bitcoin is the next you know, dot com. Uh, And
Speaker 1: it's the parallels of they're also I think those parallels
Speaker 1: are accurate. Uh. I think it is the next dot com.
Speaker 1: But remember, um, the dot com bubble created uh pets
Speaker 1: dot com. But it also created Amazon. So I think
Speaker 1: there are two thousand cryptocurrencies out there of them are
Speaker 1: useless and we'll die a painful death. The sooner that happens,
Speaker 1: the better. There's also a lot of bad activity, bubble
Speaker 1: related activity that's getting cleared up. But from those ashes,
Speaker 1: if you call them ashes, I mean cryptos up over
Speaker 1: the last two years, that's ashes. They're nice ashes. But
Speaker 1: from those ashes, I think will emerge import and things,
Speaker 1: just like from the dot com ashes emerge Amazon, Google, Facebook,
Speaker 1: et cetera. No no doubt about that. I'm gonna throw
Speaker 1: a quote at you, and I want you to explain it.
Speaker 1: You you said, you think, um, we need crypto to
Speaker 1: cut out the rent seeking middleman that creates attacks on society.
Speaker 1: Now we're all familiar with rentiers, or at least we
Speaker 1: should be, but give us a little a little details.
Speaker 1: So crypto is the first time we've been able to
Speaker 1: engage in financial transactions between people who don't know each
Speaker 1: other without someone in the middle to verify those transactions.
Speaker 1: That's all that blockchain technology does. It allows you to
Speaker 1: replace someone in the middle verifying transactions like visa or
Speaker 1: like your bank and your friends bank with software that
Speaker 1: does it automatically. And for free UH and so so
Speaker 1: much of the financial industry UH is at some level
Speaker 1: a middleman, like an escrow agent that verifies trust acrosses
Speaker 1: transact and crypto has shown that you don't need that,
Speaker 1: and that's a big deal. There's a huge deal. There's
Speaker 1: a huge deal. Now we're miles away, we're years away.
Speaker 1: It's an early stage technology. We're years away. But already
Speaker 1: you can go to IBM and you can wire money
Speaker 1: using a crypto asset internationally for much cheaper than you
Speaker 1: can send it through a traditional banking system. So it
Speaker 1: is going to get here, but it is early, quite
Speaker 1: quite fascinating. So let's talk about some real world applications
Speaker 1: for UM. I think we want to separate the coins
Speaker 1: from the underlying software from blockchain and that technology. But
Speaker 1: you're focusing on the entire value chain from start to finish.
Speaker 1: So so let's start with blockchain a little bit. Sure, UM,
Speaker 1: what are some of the near future, not fifty years
Speaker 1: future applications of blockchains? Yeah, for what's worth, I'm way
Speaker 1: more bullish on crypto assets than I am on blockchain. Really,
Speaker 1: that's the opposite of what so many people. It's almost
Speaker 1: a cliche to say, yeah, I'm skeptical about bitcoin, but
Speaker 1: this blockchain is is if you remember the early days
Speaker 1: of the Internet, the really early days when there were
Speaker 1: books and you look up a website and type it in,
Speaker 1: everyone was really excited about corporate intranets. They're like, oh,
Speaker 1: it would be great to send files to Joe and
Speaker 1: accounting without having to walk over people thought exactly no,
Speaker 1: but people thought corporate internets were the thing, the thing.
Speaker 1: The The analogy between an open internet, which people are like,
Speaker 1: no one will trust that. Uh, it's the same between
Speaker 1: private block chains and public blockchains. Public block chains that
Speaker 1: are open and accessible by anyone need a crypto asset
Speaker 1: to function, and I think over the long term, public, open,
Speaker 1: accessible UH technologies tend to win. Now, private block chains
Speaker 1: are important. I think they could revolutionized settlement. One of
Speaker 1: the things black chain does really well is settled transactions
Speaker 1: much faster. I think they could. Uh. They can memorials,
Speaker 1: morales data. I think they let you trace back transactions.
Speaker 1: But I think they are actually modest improvements uh. And
Speaker 1: I think the massive improvement is this displacement of a
Speaker 1: trusted mentalman that public box chains allow. Huh. So one
Speaker 1: of one of my favorite examples is during the financial crisis,
Speaker 1: when we were securitizing mortgages by the millions, slicing and
Speaker 1: dicing them and then resecuritizing them and then selling them.
Speaker 1: That undoing that Gordian not became almost impossible, and banks
Speaker 1: ended up losing track of which bank owned which mortgage
Speaker 1: that went to which house. And there were actual stories
Speaker 1: of something that should be illegal impossibility, people without a
Speaker 1: mortgage going on vacation and coming home to find that
Speaker 1: they were foreclosed on. All their stuff is out in
Speaker 1: the street, there's an armed sign on their door. How
Speaker 1: has I foreclosed on? I bought this house for cash
Speaker 1: that that should be impossible, and then banks foreclosing that
Speaker 1: didn't own the mortgage, foreclosing on somebody. And the example
Speaker 1: I like to use is if blockchain was used as
Speaker 1: a methodology to track where each of those mortgages went,
Speaker 1: it wouldn't have been that same impossible to untangle mess.
Speaker 1: You could have traced exactly who owned which laggage and
Speaker 1: who own which property. As a fail safe, there would
Speaker 1: be no headaches at all. It's it's it's it's amazing,
Speaker 1: and it's amazing that it exists. We all buy something
Speaker 1: called title insurance UH to guard against the risk that somehow,
Speaker 1: this this most important asset we've ever bought, it is
Speaker 1: not actually ours. UM. It is incredible that that still
Speaker 1: exists in today's society. I think that example is a
Speaker 1: great one UH, and there are many like that. So
Speaker 1: let's talk about you're still chairman of inside ETFs. Why
Speaker 1: did you decide to keep that role. I still love ETFs,
Speaker 1: and I still think the E t F industry is
Speaker 1: evolving rapidly, and I still think there are a lot
Speaker 1: of things that people need to learn, particularly as we
Speaker 1: enter a different cycle in the market. So the ability
Speaker 1: to still influence that conference was really appealing. I like
Speaker 1: to keep my hand in. I'm also on the board
Speaker 1: of a small et F issuer UM, so I like
Speaker 1: to stay involved in the E t F space because
Speaker 1: I still think we have miles to go there. So
Speaker 1: I speak at a lot of events and conferences, and
Speaker 1: every now and then there's a couple of you know,
Speaker 1: there's a good name or two that speak your conference
Speaker 1: held in Florida in February year. It's mind blowing the
Speaker 1: list of names that show up. So last year I
Speaker 1: got to interview Serena Williams as a as a favor
Speaker 1: to you, so I'll call I'll be calling back, uh
Speaker 1: that favor. But before I interviewed Serena Williams, I'm in
Speaker 1: the audience watching Quincy Jones. And then after I'm done
Speaker 1: with that interview, I went back into the audience and
Speaker 1: watched was it a General McCrystal. So, I mean it
Speaker 1: was just like, and this year you have Michael Lewis,
Speaker 1: while'll be interviewing in February, Paul Tutor, Jones, Joe Montana.
Speaker 1: I mean you got s. Don't mess around, Bob Schiller.
Speaker 1: Uh yeah, we don't mess around. Well we you know,
Speaker 1: one of the great things about running a conference company
Speaker 1: is that you get to indulge all your intellectual interests.
Speaker 1: So I love Michael Lewis, So why don't we want
Speaker 1: to have him there? Right? We love I love sports,
Speaker 1: so you can get football giants there. You had Alex
Speaker 1: Rodriguez the year I was one of the keynote presenters,
Speaker 1: and I wish I would have hung around. He was great,
Speaker 1: like I heard and I and how you find him?
Speaker 1: I read a great article where he reflected on sort
Speaker 1: of the challenges that he had faced. I thought he
Speaker 1: would be an interesting person to listen to. It's four days,
Speaker 1: and so you can't do four days of creation, redemption
Speaker 1: and emerging market debt. You need to give people a
Speaker 1: chance to to reflect and think about other things. And Uh, yeah,
Speaker 1: we're really excited. I think having Schiller there this year,
Speaker 1: at this time in the market is really timely. Uh
Speaker 1: and looking forward to that. Yeah, he's terrific. The anybody
Speaker 1: wants to look up the agenda, you just google inside
Speaker 1: et F Conference Florida and feb worry and it will
Speaker 1: show up. Um. It's always a great time. So the
Speaker 1: next question I have to ask is what do you
Speaker 1: hope to accomplish with this giant event? And and I
Speaker 1: don't know if I've I've tied this up correctly for people.
Speaker 1: I'm not just promoting an event. I don't want people
Speaker 1: to think that I go to a ton of events.
Speaker 1: This and SALT. I mean, these are the two biggest
Speaker 1: conferences of the year. These are giant, two thousand, three
Speaker 1: thousand people events. So SALT in Vegas, the last time
Speaker 1: I went there was an amazing that had hedge fund
Speaker 1: managers there and I got to run around and say
Speaker 1: under perform I got around, I wasn't the most popular
Speaker 1: there guy there, although that was yeah, that's true and
Speaker 1: um And then the first time I I went to
Speaker 1: this event, I was kind of blown away by how
Speaker 1: giant it actually was, and not just big for the
Speaker 1: sake of big big with really big names and really
Speaker 1: interesting things. What do you hope to accomplish with this event? Yeah? So,
Speaker 1: so the event is focused primarily on financial advisors. Into
Speaker 1: my mind, it's a success if the people who come
Speaker 1: and take three days out of their lives to attend
Speaker 1: that away from their families, find a way to sustain
Speaker 1: or grow their business. And so to do that, I
Speaker 1: want them to learn at this particular year's event a
Speaker 1: few things. I want them to think deeply about where
Speaker 1: we are in the economic cycle and what that means
Speaker 1: for clients and what that means for their bond holdings, etcetera.
Speaker 1: I want them to uh to think deeply about these
Speaker 1: new areas of the market that are opening up, not
Speaker 1: just crypto, which we talked about UM, but some of
Speaker 1: the thematic ETFs and whether those are performance chasing or
Speaker 1: valuable and interesting. And then one thing we try to
Speaker 1: do a little bit is asked them to think five
Speaker 1: years ahead. I think the financial advisory business is going
Speaker 1: to be fundamentally transformed in the next five years. I
Speaker 1: think we're on the cusp of an era of mass
Speaker 1: customization for client exposures. Uh. And just like we talked
Speaker 1: about robo advisors five years ago when no one cared,
Speaker 1: I think getting people to think about mass customization, personalized indexing,
Speaker 1: E s G overlays now will be helpful to their
Speaker 1: business in the years ahead. So uh, that's those are
Speaker 1: some of the things I want them to take away.
Speaker 1: So who attends these events? Is it just our I
Speaker 1: a s Is it? Because when I was there last year,
Speaker 1: I saw a lot of et F managers. I saw
Speaker 1: a lot of active managers. I saw a bunch of
Speaker 1: economists and strategists. Who's primarily in the audience? Yeah, I think.
Speaker 1: I think everyone from the traditional asset management industry is there.
Speaker 1: So every e t F issuhe or every index provider,
Speaker 1: all the aps and market makers, also all the mutual
Speaker 1: fund managers who must be thinking about the E t
Speaker 1: F space are there to see and learn. And on
Speaker 1: the flip side, there are really two classes of investors. Uh,
Speaker 1: So they're they're a large number of financial advisors, and
Speaker 1: there's a rising number of institutional investors because they're increasingly
Speaker 1: using e t F s at the core or of
Speaker 1: their portfolio and not just on the edges, so that
Speaker 1: that mix comes together. So I recall last year you
Speaker 1: had Tim Buckley the new CEO of Vanguard. There were
Speaker 1: a number of other you know, black Rock, State Street,
Speaker 1: Wisdom Tree. It was hard to walk around and not
Speaker 1: run into some pretty substantial entities. Have you ever sat
Speaker 1: back and calculated the total assets under management in that room?
Speaker 1: I have not. That's a good question. I'm gonna I'm
Speaker 1: gonna guess it somewhere, and there'll be a lot of
Speaker 1: overlap because when you have the head of black Rock
Speaker 1: in the head of Vanguard up front, and then two
Speaker 1: thirds of the audience owns black Rock and Vanguard, there's
Speaker 1: a little bit of double counting. But I gotta think
Speaker 1: there's like ten trillion dollars in that board room. There's
Speaker 1: a huge amount of volume. There's a thing called the
Speaker 1: inside et effect, which E t F volumes tend to
Speaker 1: be down for the three days. Is that is that
Speaker 1: a fact that used at least used to be a fact.
Speaker 1: I don't know. If it continues to be a fact,
Speaker 1: so many people from the E t F industry are
Speaker 1: in Florida for this event, that trading volume falls, Yes
Speaker 1: it's modest, but yes that is at That's hilarious and
Speaker 1: I just have to I just have to give my
Speaker 1: disclosures about this UM because we're all about transparency and
Speaker 1: full disclosure. So I have been a paid speaker at
Speaker 1: the Inside e t F conference and the Inside E
Speaker 1: t F firm is co sponsoring a conference in T
Speaker 1: nineteen in in September in Arizona with my firm UM
Speaker 1: r W M or Heals Wealth Management UM called wealth Stack.
Speaker 1: And I would rather disclose that than have somebody after
Speaker 1: the facts say hey, why don't you tell us about
Speaker 1: that UM. Two years ago I interviewed Serena Williams, which
Speaker 1: was the highlight of of my interview career as a
Speaker 1: tennis player, and we we played a couple of sets.
Speaker 1: She won six two, six four. It was closer than
Speaker 1: she was six months pregnant. Um. Actually this was right
Speaker 1: after she had a baby. And what was really interesting
Speaker 1: is what I'm fascinated by the non finance people that
Speaker 1: speak at events like this, and you guys do a
Speaker 1: really good job programming. This is how many parallel learning
Speaker 1: experiences there are between non finance related businesses and whether
Speaker 1: it's the military or sports music. Uh, there's some really
Speaker 1: fascinating things to learn about process over outcome, about our
Speaker 1: own errors and biases, and how we can do better
Speaker 1: even when we make mistakes, how we can learn from them. Um,
Speaker 1: that sort of that sort of stuff is always really
Speaker 1: really fascinating. Who are you really looking forward to seeing
Speaker 1: speak this year? Yeah, I'm really looking for I mentioned
Speaker 1: this earlier. I'm really looking forward to chill Or speaking.
Speaker 1: He's you've seen him before, I've seen him before. He's fantastic.
Speaker 1: He's fantastic again. And he seems honest and organic. He's
Speaker 1: totally organic, which is which is unique. Not everyone is
Speaker 1: a lot of people speak their book. Uh, and that's
Speaker 1: not true. I'm really excited about Michael Lewis. We've tried
Speaker 1: to get him many years and the schedule has not
Speaker 1: worked out. He's one of my favorite authors. I see
Speaker 1: him around town in Berkeley and always want to like
Speaker 1: stalk him and ask him to come. Now you have
Speaker 1: an excuse. Now he's there, So I'm assuming you read
Speaker 1: The Undoing Project which is his previous book. The Fifth
Speaker 1: Column is the new one. I haven't read the new one,
Speaker 1: so I read it. We went down to Florida over
Speaker 1: the holidays. I read it on the plane and it's
Speaker 1: it's great, but it's infuriated, yea, because it's just why
Speaker 1: are they making this mistake? You know what it is?
Speaker 1: The big short is infuriating, but you feel like the
Speaker 1: people who deserve to some of the people who deserves
Speaker 1: get punished. In the Fifth Column. There is no justice.
Speaker 1: It's like, wait, people are doing what No, that's wrong.
Speaker 1: It's just bad. Yeah, it's it's uh, it's quite fascinating.
Speaker 1: And I read that in anticipation of this interview were
Speaker 1: I'm looking forward to hearing you chat with him. Normally
Speaker 1: I would have held that book for my like February
Speaker 1: March vacation. That's speech reading to me, um, But I'm like, no, no,
Speaker 1: I got a prep and I like to I like
Speaker 1: to read like a month in advance and then kind
Speaker 1: of go through my notes a week beforehand and it
Speaker 1: all comes back, but it's had time to percolate it.
Speaker 1: So Schiller. By the way, Schiller a prior guest, Michael
Speaker 1: Lewis prior guest. Schiller is amazing. You're gonna have a
Speaker 1: great I think he's not doing an interview, he's just presenting.
Speaker 1: He's just presenting his outlook. He's you know, professors at Yale,
Speaker 1: for some reason, have a way to demand a stage
Speaker 1: and an audience. I think people will will love him.
Speaker 1: And he doesn't go too far out into the weeds,
Speaker 1: even though he could at any time he wants to. Definitely,
Speaker 1: you're you're certainly. I assume you're familiar with his friendship
Speaker 1: with Jeremy c which is hilarious. It is Larry and
Speaker 1: Jeremy Siegel is magic on stage. Yeah. I love seeing
Speaker 1: Jeremy Siegel before he goes on stage, where there was
Speaker 1: the old professor sort of me into him, and then
Speaker 1: he goes on stage and he's just supernova. It's amazing
Speaker 1: to watch him. Fantastic. So when he was on the show,
Speaker 1: he was sitting where you were sitting. And for whatever,
Speaker 1: he's in the University of Pennsylvania, so they take the
Speaker 1: train in. They must have him teed up for a
Speaker 1: dozen things. I'm interviewing him towards the end of the day,
Speaker 1: it's like five o'clock and so It's a long day
Speaker 1: for anybody, and for someone who's his age run around,
Speaker 1: it's a long day. And he's sitting there and I
Speaker 1: want to say, in like the last thirty minutes of
Speaker 1: two hours, he just starts swiveling with the chair and
Speaker 1: then before you know it, he just starts doing this.
Speaker 1: And I'm sitting there watching this, and you could literally
Speaker 1: he or him. You could hear the Doppler effected he
Speaker 1: as he says of a long run. It was absolutely
Speaker 1: one of the things that and I just had like
Speaker 1: a grin on my face that you it must have
Speaker 1: taken a week for me to stop laughing. And then
Speaker 1: the amazing thing is he is consistently picked as um
Speaker 1: everybody's favorite professor, of course, and I always I always
Speaker 1: wondered why, and then you realize he's like this impish child,
Speaker 1: this delightful, this delightful leprechaun discussing um long term expected
Speaker 1: returns of equities. Oh, of course, the Wharton students love him.
Speaker 1: He's just like endlessly entertained and the two of them
Speaker 1: couldn't be more different personalities. It's so great. Yeah, no,
Speaker 1: it really is great. I have to mention a quote
Speaker 1: of yours that I'm tickled by and get get a response.
Speaker 1: So for a long time I been saying that all
Speaker 1: the crypto heads are the new gold bugs. But but
Speaker 1: you phrased it a little differently. You said bitcoin was
Speaker 1: the new millennial gold discussed. Yeah, well, it's definitely true.
Speaker 1: Every generation has an asset that they love or a
Speaker 1: way of getting exposure that they love. The greatest generation
Speaker 1: loved gold. Then people loved active mutual funds, gen X
Speaker 1: loved hedge funds. Millennials love crypto. If you ask millennials
Speaker 1: which would they rather hold gold or or bitcoin, it's
Speaker 1: bitcoined by a mile. Which would they rather hold equities
Speaker 1: or bitcoin? It's bitcoin by a mile. And I would
Speaker 1: say there are a lot of analogies between bitcoin and gold.
Speaker 1: They're both non sovereign stores of value. Uh, but bitcoin
Speaker 1: is much more useful in gold. It's it's much more
Speaker 1: easily divisible. It can be spent, it can be stored,
Speaker 1: it's it's it can be transferred easily. Um. So it
Speaker 1: is it's like an upgraded version of gold. I think
Speaker 1: I get liquid with gold faster than I could get
Speaker 1: liquid with bitcoin in size, and I certainly could trade
Speaker 1: gold for more things than I could for bitcoin right now.
Speaker 1: That's definitely true. That is definitely true any early stage technology. Uh,
Speaker 1: it takes a while to get up the spectrum. I'm
Speaker 1: not sure you're right about the liquidity in size. It
Speaker 1: depends on You can get liquid and bitcoin at very
Speaker 1: reasonable sizes very quickly. Certainly golds are deeper million in bitcoin.
Speaker 1: I I didn't know you were that well off, But
Speaker 1: that's that's what this is for a friend friend, so
Speaker 1: he wants to know how he can get the hell
Speaker 1: out of this, and uh, there are there are some
Speaker 1: dollar limitations on the coin. That is true. It is
Speaker 1: an early stage technology. Uh, and I'm not I'm not
Speaker 1: claiming it's more established than gold. You know, if you
Speaker 1: look back at gold when it came off the US
Speaker 1: gold standard, it went through a period of rapidly rising
Speaker 1: prices and massive volatility and a years when it went up,
Speaker 1: a percent years when it went down. We just don't
Speaker 1: remember that. Uh, this is a new sovereign store of value.
Speaker 1: Would expect sort of an asymptotic rise in price, and
Speaker 1: you would expect massive volatility. And if I'm right about bitcoin,
Speaker 1: ten years from now, it will be boring like gold
Speaker 1: to uh, and that's what we're waiting for. That's not
Speaker 1: the first word that comes to mind when I think
Speaker 1: about bitcoin. It's boring. But by the way, people forget
Speaker 1: how many draw downs has Amazon had, Apple had, gees
Speaker 1: in the middle of a major Successful companies go through
Speaker 1: that on a regular basis. We tend not to want
Speaker 1: to think about. That's right. And bitcoin has gone through
Speaker 1: seven six or seven plus draw downs in the past,
Speaker 1: and each of those that set the stage for a
Speaker 1: new rally. Now I'm not saying that will necessarily happen here, um,
Speaker 1: but you know it's down, it's up over the last
Speaker 1: two years. So it depends on your perspective. So let's
Speaker 1: talk a little bit about the index that you guys
Speaker 1: are putting together. You created the index, you're using it
Speaker 1: as a basis for an e t F. You've already
Speaker 1: filed with the SEC. So let's talk a little bit
Speaker 1: about that filing. What you're what do you disclosing that filing,
Speaker 1: and what should someone who's interested in buying an e
Speaker 1: t F that will hold coins an index of coins
Speaker 1: actually look like. Yeah, so, uh, we have filed two
Speaker 1: applications for cryptocurrency e t F S one is a
Speaker 1: index basket that holds the top ten crypto assets and
Speaker 1: one is bitcoin only. So wait a second, I could
Speaker 1: buy bitcoin when this is finally approved through an ETF.
Speaker 1: That would be the hope that if the SEC approves
Speaker 1: the ct F, you will be able to buy it
Speaker 1: through an e t F the same way you buy
Speaker 1: gold through g l D or silver for through SLV. Uh.
Speaker 1: You know, it's the same idea. It's easy exposure in
Speaker 1: a familiar brokerage window to something you otherwise have to
Speaker 1: buy in a different way. And so there have been
Speaker 1: multiple bitcoin ETFs filed. For what it's worth. Uh, we're
Speaker 1: moving forward more aggressively on our end with the bitcoin
Speaker 1: filing than the index filing um. But uh yeah, we're
Speaker 1: we're we're hopeful, uh and optimistic that we can work
Speaker 1: with SEC. They've raised legitimate issues, but we hope we
Speaker 1: can work through it and we'll see. And this isn't
Speaker 1: an i c oh so a lot of these initial
Speaker 1: coin offerings have been played with. Now this is an
Speaker 1: e t F equity trading vehicle that will hold bitcoin.
Speaker 1: That's that's the hope. So now there's been a lot
Speaker 1: of scams not on that, but some of these wallets
Speaker 1: and various coin offerings, and people have been hyping it
Speaker 1: up some A number of celebrities got associated with this
Speaker 1: and got into trouble with your sec You're trying to
Speaker 1: do the most plane vanilla offering you can with bitcoin
Speaker 1: as the underlying asset. That is right. So so a
Speaker 1: lot of those I c O s were scams. I
Speaker 1: think we're illegal, uh, and we'll be will be prosecuted.
Speaker 1: People are going to jail. I think people will are
Speaker 1: going to jail and I think they should uh. And
Speaker 1: it brought out a lot of bad actors in the
Speaker 1: space because there's such massive wealth accumulation. But that doesn't
Speaker 1: mean that there aren't legitimate thing. So right now we
Speaker 1: have crypto index fund that's available for credited investors. We
Speaker 1: have a Bitcoin for one for credited investors. But the
Speaker 1: hope is we can launch an e t F that
Speaker 1: gives that exposure to everyone. It makes it safe, cheap
Speaker 1: and easy to gain exposure to the market. I hope
Speaker 1: you've picked out a nice um security symbols. Oh, the
Speaker 1: ticker ticker choice is a big deal. It really is.
Speaker 1: People don't appreciate Remember move that that exploded and you
Speaker 1: or hack for that matter, h A c K, which
Speaker 1: is now in the midst of litigation. I hope it
Speaker 1: gets resolved sooner rather than later. Um. But uh, having
Speaker 1: and it's been shown even with equities, if you have
Speaker 1: a good ticker symbol, Yeah, it's worth a couple of
Speaker 1: percents in performance over time, And it makes perfect sense.
Speaker 1: It makes behavioral sense. I think it matters a great deal.
Speaker 1: And I can't wait until the day that we get
Speaker 1: to pick and disclose the time. I'm assuming you have
Speaker 1: one reserved than you just can't disclose. You never know.
Speaker 1: So so let's talk a little bit about the methodology
Speaker 1: of the index. Is it simply just the ten biggest
Speaker 1: coins or the ten most liquid coins? How you putting
Speaker 1: that together? So at one level, the indexes for for
Speaker 1: our fund is the ten largest coins. But of course
Speaker 1: everything in crypto, which is why I got interested, is
Speaker 1: more complex than it is in equity. So like you
Speaker 1: and I could say what is the price of IBM,
Speaker 1: and we would say the exact same number. If you
Speaker 1: ask me what the price of bitcoin is, I'd have
Speaker 1: to look at different exchanges merge them together. Um. So
Speaker 1: everything is more difficult, but it is a market capuated
Speaker 1: index of crypto assets. And and let me say why,
Speaker 1: I think that's an interesting strategy. Um, we don't know
Speaker 1: for well, yeah, well we don't know what will happen
Speaker 1: in crypto, right, it's early. These are competing protocols, they're
Speaker 1: each optimized for a different use case. And I'm not
Speaker 1: smart enough to know five years from now whether Bitcoin
Speaker 1: or ethereum, or light coin or man narrow or these
Speaker 1: other assets will be the most important. I just don't know.
Speaker 1: And so the index gives you a simple way to
Speaker 1: make a simple bet, which is, I think crypto will
Speaker 1: be more important in the future than it is today. Uh.
Speaker 1: And if if that's the bet you want to make,
Speaker 1: you want to make a broadly diverse fig. So why
Speaker 1: the top ten and not the top Yeah, there's a
Speaker 1: very big power law on crypto. So the top ten
Speaker 1: captures about in the market, and after that liquidity falls out.
Speaker 1: If you think back to the equity market, in the
Speaker 1: early days of emerging markets, you would only buy large
Speaker 1: caps and then large mid and now you buy everything.
Speaker 1: I think the same thing is true with crypto. Makes sense.
Speaker 1: I know the venture capital world has been very interested
Speaker 1: in everything from um, crypto to blockchain, So what have you.
Speaker 1: Bitcoin has some pretty high profile backers. What do you
Speaker 1: see in the VC space when it comes to cryptocurrency. Yeah,
Speaker 1: a lot of interest and a lot of interest that's
Speaker 1: trickling into the endowment and pension space that's investing into
Speaker 1: crypto through funds like the injurycent Fund or some of
Speaker 1: the other funds. A lot of the firms are trying
Speaker 1: to solve one of two problems. Either they're part of
Speaker 1: a step publishing this institutional ecosystem. Because remember crypto emerged
Speaker 1: as a retail asset. It trades on lightly or non
Speaker 1: regulated exchanges, so you're seeing a lot of investment into
Speaker 1: regulated exchanges like backed, which is from Ice, which is
Speaker 1: launching in Q one. Uh. That's one thing, and then
Speaker 1: the other thing is companies that are improving on the
Speaker 1: underlying technology and the blockchain technology or building applications on
Speaker 1: top of that. UH. And like any VC boom, valuations
Speaker 1: are probably too high. They'll be a pullback, but but
Speaker 1: it's exciting and it means there's a big infusion of
Speaker 1: capital and big infusion of people working on the project.
Speaker 1: You mentioned the pensions and the endowments that have an
Speaker 1: interest in this um, what other institutions are looking at this?
Speaker 1: And and I would have to also bring up Fidelity.
Speaker 1: All companies made a big early UM jump towards crypto.
Speaker 1: Tell us what you know about that? Yeah, Fidelities hiring
Speaker 1: up to a hundred and fifty people to build a
Speaker 1: way for institutional investors to buy crypto and store it
Speaker 1: with a name they trust. Right, one of the greatest
Speaker 1: brand names in the future. You'll ask yourself why Fidelity
Speaker 1: and why haven't I seen black Rock, State Street other
Speaker 1: asset managers. The difference is the Fidelity is a family
Speaker 1: owned firm, privately held, not public, still reputational risk in crypto.
Speaker 1: The other big player in crypto is van Eck, also
Speaker 1: privately held, also a family owned firm. We know, we
Speaker 1: know John, and I don't think that's a surprise. I
Speaker 1: think they're free to do it. Fidelity saw that this
Speaker 1: is important. We know. We had conversations with two thousand
Speaker 1: institutional and financial advisors UH last year. There is dramatic
Speaker 1: interest in crypto. UH. They want good ways to get
Speaker 1: exposure right now. Most of the ways are retail oriented
Speaker 1: and non institutional grade. And so they say on an
Speaker 1: opportunity to be first and they're doing it quite fascinating.
Speaker 1: I read a statistic a couple of months ago that
Speaker 1: I was kind of shocked at. Approximately of all the
Speaker 1: coins ever created have been lost, either there um in
Speaker 1: crypted password access has been lost, or it's physically on
Speaker 1: a drive that was destroyed or some source that. How
Speaker 1: how accurate are those numbers? And if they are accurate,
Speaker 1: how can this ever really be a serious asset class
Speaker 1: If you know, think about all the VCR tapes and
Speaker 1: cassettes people have that essentially technology has orphaned totally. Well,
Speaker 1: you couldn't orphan this because all that's written on that
Speaker 1: is like a fifty letter code. So you could literally
Speaker 1: if you wanted to write it's a piece of paper
Speaker 1: and you would have it. It is true that it's
Speaker 1: a digital bearer instrument, like a bearer bond or like
Speaker 1: a bar of gold, and so if you lose it,
Speaker 1: and what you would lose is that it's lost. Um. Again,
Speaker 1: you gotta think this is an early stage technology right now.
Speaker 1: The UI for crypto is terrible. If you want to
Speaker 1: email me, you can email Matt at Hogan dot com.
Speaker 1: My first name and last name, easy memorable. If you
Speaker 1: want to send me bitcoin. It's like fifty two random letters.
Speaker 1: So I think the UI improvements will happen in and
Speaker 1: will become easy to save, store, and spend crypto. I
Speaker 1: think it's just a matter of software development. We have
Speaker 1: been speaking with Matt Hogan. He is the global head
Speaker 1: of Research. If you enjoy this conversation, be sure and
Speaker 1: come back and check out the podcast extras, where we
Speaker 1: keep the tape rolling and continue chatting about all things crypto.
Speaker 1: You can find that at iTunes, Overcast, Bloomberg, Stitcher, wherever
Speaker 1: your finer podcasts are sold. We love your comments, feedback
Speaker 1: and suggestions right to us at m IB podcast. At
Speaker 1: Bloomberg dot net. You can check out my daily column
Speaker 1: that's on Bloomberg dot com slash Opinion. Follow me on
Speaker 1: Twitter at Rid Halts. I'm Barry Hults. You're listening to
Speaker 1: Master's in Business on Bloomberg Radio. Welcome to the podcast, Matt.
Speaker 1: I'm I'm so glad we're having this conversation. I was
Speaker 1: looking forward uh to doing this with you towards the
Speaker 1: end of last year and things just got so crazy
Speaker 1: with everything. I'm glad we waited a little while to
Speaker 1: just let everything settle out. But I have to ask
Speaker 1: from a well, first, was was bitcoin of bubble last year? Yes?
Speaker 1: Total bubble, total bubble. I mean when we start the
Speaker 1: year like two thousand, did you started around a couple
Speaker 1: of thousand and then ended up at nineteen five something
Speaker 1: like that, and their speculative fervor, and there was every
Speaker 1: element of a bubble that you or I would recognize,
Speaker 1: including your bartender, your Cabby and your Pete was the top.
Speaker 1: And then was what is that retrenchment somewhere in there? Yeah, absolutely,
Speaker 1: that's a that's a big move down. It is significant. Yes,
Speaker 1: it is still up, you know scent from the start
Speaker 1: of seen until now. So from a longer term perspective,
Speaker 1: you know, people love to make fun of holdlers in
Speaker 1: crypto to hold on for dear life. That's the same
Speaker 1: thing as buy and hold in equity, so you just
Speaker 1: have to have a little bit more perspective. But yes,
Speaker 1: it was a massive run up and a massive pullback
Speaker 1: the cues and as one from two thousand, two thousand
Speaker 1: three down, So this is comparable. I think that's right.
Speaker 1: And it did the same thing that happened in the Internet,
Speaker 1: which is it attracted a huge amount of talent, attracted
Speaker 1: a huge amount of capital. Uh, and it's been very
Speaker 1: painful for investors. I think out of that for for investors,
Speaker 1: or for the people who just jumped on blindly when
Speaker 1: it had already begun to move aggressive the people who
Speaker 1: jumped on blindly when it already moved aggressively. And also, um,
Speaker 1: you know, volatile, highly moving assets encouraged bad behavioral responses.
Speaker 1: There was bad activity, um, But it did bring a
Speaker 1: lot of capital and interest in development to the ecosystem.
Speaker 1: So I do think interesting things will be born from that.
Speaker 1: But yeah, it was it was a difficult year. So
Speaker 1: let's talk a little bit about E t F s.
Speaker 1: You were the CEO of E t F dot com.
Speaker 1: We've already discussed how the industry has begun to mature
Speaker 1: and change since your involvement, and will will note that's
Speaker 1: a correlation, maybe not a precise causation. But I have
Speaker 1: to ask one of my favorite questions with anybody working
Speaker 1: in E t F. Are there e t fs that
Speaker 1: exist today that you think should not exist? Should not exist? Um? Yes, okay, yes,
Speaker 1: and I know exactly what you're gonna say, but go ahead,
Speaker 1: what is it? Volatility t F? Oh? Really, I'm wrong?
Speaker 1: I didn't. That was really what did you want? What
Speaker 1: I was expected? Like the three X inverse? Yeah, I don't.
Speaker 1: I don't have a particular problem. I had more of
Speaker 1: a problem with those when they first came out because
Speaker 1: people didn't understand them. I feel that people understand them
Speaker 1: now and the quality of disclosures and information around them
Speaker 1: are better. My issue with volatility E T f s
Speaker 1: is people still don't understand them. Uh, and they overwhelm
Speaker 1: the actual volume of volatility futures, and there's massive contango
Speaker 1: that just makes them. They're they're they're testing Zeno's paradox
Speaker 1: of whether they can actually get to zero, and I
Speaker 1: think they're doing so in harming and you can't just
Speaker 1: go halfway. You don't that I don't know. We'll find out.
Speaker 1: UM explain contango for people who don't understand sure. So
Speaker 1: contango is when you buy a future, you're buying the
Speaker 1: right to buy it at a future day. Let's say
Speaker 1: thirty days in the future. Let's say oil to take
Speaker 1: account example, is fifty dollars now the future maybe trading
Speaker 1: at If you buy it at fifty five and the
Speaker 1: spot price doesn't move from fifty over the next month,
Speaker 1: that future is going to converge down to fifty, and
Speaker 1: you're gonna lose five dollars. That's ten percent of your money.
Speaker 1: The problem with volatility futures is that they almost always
Speaker 1: trade in contango, and it is a very sharp contango,
Speaker 1: and so you're losing not just a couple percent, you
Speaker 1: maybe losing ten or of your money every month. And
Speaker 1: I think people bought those with the thought, hey, volatility
Speaker 1: is at record lows, it's going to go up. That
Speaker 1: thought was right eventually, eventually, um. But what they didn't
Speaker 1: realize is you're not buying VIX. You're buying VIX futures,
Speaker 1: and there's just a massive delta between the words VIX
Speaker 1: and VIX futures, and that delta is squashing investors. So
Speaker 1: as long as I'm testing you, let's do backwardization. Backwardation
Speaker 1: is the exact opposite. If oil is at fifty, you
Speaker 1: buy it at forty five. As long as the spot
Speaker 1: price stays at fifty, you make five dollars, which is whatever.
Speaker 1: Uh And and that's a more positive situation. My issue
Speaker 1: with e t f s and all these futures based
Speaker 1: ETFs is a lot of they're available to all retail investors,
Speaker 1: and retail investors may think I'm buying oil that's the
Speaker 1: spot number that I see on TV, and that's not
Speaker 1: you're buying oil futures. Now it's disclosed and disclaimed. Uh.
Speaker 1: And I'm generally in favor of ETFs existing in these markets,
Speaker 1: and and probably they should even exist in volatile but
Speaker 1: the educational burden required is massive, or else mom and
Speaker 1: Pop can buy them and get crushed. So now they
Speaker 1: are a different gold DTF. You mentioned g l D.
Speaker 1: Am I misunderstand that I'm on the impression g l
Speaker 1: D represents physical gold held in volts it owns. But
Speaker 1: there are other e t F and I don't remember
Speaker 1: which that are actually trading gold futures, not buying the gold.
Speaker 1: That's right. Uh. And some of these are leveraged and
Speaker 1: some of them are inverse, etcetera. That's that's exactly right.
Speaker 1: So when you get into leverage, you may well use
Speaker 1: futures to get those leverage. There may even be one
Speaker 1: x gold futures et s. I'm not sure. I don't
Speaker 1: know why anyone would buy gold always trades at a
Speaker 1: persistent entango that's about equal to the risk free rate.
Speaker 1: So you're just losing a little bit of money. Um.
Speaker 1: The one advantage it would give you is is their
Speaker 1: taxes futures, which if you hold them for short periods
Speaker 1: of time, is a beneficial tax treatment. So there may
Speaker 1: be a tax angle for short term traders of gold.
Speaker 1: That's kind of um. So, so that's one particular e
Speaker 1: t F um that you don't think I ort to exist.
Speaker 1: I was wanted to steer the conversation a slightly different directions.
Speaker 1: So let me throw this at you. How do you
Speaker 1: look at the Darwinian process of all these e t
Speaker 1: F s coming out each year, most of which don't survive. Yeah,
Speaker 1: I think that's great. I think that's great. If you
Speaker 1: didn't have that process, you wouldn't have a significant you
Speaker 1: wouldn't have the e t F industry for starters, right,
Speaker 1: the e t F industry really uh in real life
Speaker 1: was launched at b g I. When they launched a
Speaker 1: huge number of e t F s, it wiped out
Speaker 1: bonuses at b g I for three years. All the
Speaker 1: executives were angry, but they were like, let's give this
Speaker 1: a shot, and and all of the a lot of
Speaker 1: the e t F that we take for granted today,
Speaker 1: we're spaghetti on the wall like a lot of factory
Speaker 1: t f s low volatility e t F s um
Speaker 1: So you can't get innovation without some misses. And so
Speaker 1: I'm fine with them being launched and closed. So what
Speaker 1: what is Jeff Bezos's comment if if you're not failing,
Speaker 1: you're not taking any risks. If that's exactly right, you
Speaker 1: have to at least try and just recognize we don't
Speaker 1: know what's gonna work, but we won't know until it
Speaker 1: until we you know, put up the flag, pas, until
Speaker 1: we give it a shot. And you know, the first
Speaker 1: the first article about all the e t F s
Speaker 1: needing to exist, I think ran I'm gonna get this wrong.
Speaker 1: I think it ran in Investment News in two thousand
Speaker 1: and three. They're like, we've reached the end of e
Speaker 1: t F innovation and development. You can already buy stocks
Speaker 1: and bonds and that was like that was it? Uh?
Speaker 1: And those those have appeared over and over and over again,
Speaker 1: So never discount. I don't think we'll ever get to
Speaker 1: the end of ETF And so let me ask you
Speaker 1: a different version. It seems that and you'll your geek
Speaker 1: so you'll appreciate this. We don't have a Gaussian distribution
Speaker 1: of firms and assets. It's say, very much a fathead
Speaker 1: long tail where you have the big four, really the
Speaker 1: big three, Vanguard, black Rock, State Street. I'm trying to
Speaker 1: even think who is the next closest after them, and
Speaker 1: that's you get down the spectrum, I mean, your your
Speaker 1: power law distribution is it's three, and then it begins
Speaker 1: to fall off pretty rapidly. Why have only three companies
Speaker 1: captured so much of the investing public's mind share and
Speaker 1: assets and the actual dollars share? Black Rock is six
Speaker 1: trillion going on seven trillion, Vanguard is five on the
Speaker 1: way to six trillion with a T. Why is it
Speaker 1: just a handful of companies that seem to be the
Speaker 1: biggest winners in this space? Because ETFs are a natural
Speaker 1: monopoly system, unlike traditional active mutual funds. In active mutual funds,
Speaker 1: you need a Cambrian explosion, different guys trying different things.
Speaker 1: In e t F land, a large liquid ETF is
Speaker 1: better than a small, illiquid ETF. So if you already
Speaker 1: have good exposure to the SNP five, you don't really
Speaker 1: need other funds. Now other funds have popped up because
Speaker 1: you get distribution in different channels. There may be two
Speaker 1: or three e t f s offering broad based exposure,
Speaker 1: but you're going to see severe concentration in e t
Speaker 1: F assets as long as they're dominated by index exposure,
Speaker 1: because larger is better in e t f s, and
Speaker 1: that is a good thing for investors, and I think
Speaker 1: it will persist maybe indefinitely and certainly for the next
Speaker 1: ten years. So larger is better, and I'm going to
Speaker 1: guess that's the function of a combination of scale, quality
Speaker 1: and liquidity of those Yeah, scale it costs, right, It's
Speaker 1: it's cheaper to run a large et F than it
Speaker 1: is a small et F. There are just no advantages
Speaker 1: to a small ETF. Now, small ETFs can be liquid
Speaker 1: and they can do innovative things, but you can't launch
Speaker 1: a me too e t F without a unique distribution
Speaker 1: mechanism like trials Schwab has and expected to gain assets.
Speaker 1: They will just all go mostly, not all, but mostly
Speaker 1: they'll go to the large players. And that's why it's
Speaker 1: a great business for for black Rock and Vanguarden and
Speaker 1: State Street. Quite fascinating. I know I only have you
Speaker 1: for a finite amount of time. Let's jump to my
Speaker 1: favorite questions. And I'm gonna throw a few curve bowls
Speaker 1: at you with this. Let's start. What's the most important
Speaker 1: thing people don't know about Matt Hoagland's which is an
Speaker 1: inside joe about Matt Hogan. Let's see, my career started
Speaker 1: as a minor league baseball mascot. Uh. Yeah, I was
Speaker 1: a nine ft seal for the double A Portland's Sea Dogs. Um. Now,
Speaker 1: I I say that in jest. My career path has
Speaker 1: been very unusual. I've been a speechwriter, I've worked in biotech,
Speaker 1: I've been a biotech portfolio manager. I ran et f
Speaker 1: dot com, now I'm in crypto. Um. All those are
Speaker 1: only united by the the how much I like to
Speaker 1: talk about things that seem complex. Um. But but that's
Speaker 1: the new unique thing about my career. It's been very
Speaker 1: varied over time. Well, well that's uh, that's certainly interesting enough.
Speaker 1: Why is this lighting up? Um? Tell us about your
Speaker 1: early mentors who helped shape this serpentine career of yours. Yeah.
Speaker 1: The number one person who comes to mind is a
Speaker 1: former guest of yours, which is Dave Nodding. Dave Nodding
Speaker 1: hired me when I was a minor league mascot to
Speaker 1: become a biotech analyst at the at the transparent mutual
Speaker 1: fund he was running at the time, Macro Meta Markets Market. Yeah,
Speaker 1: we ran open Fund, which was the first mutual fund
Speaker 1: to disclose its trades in real time, way ahead of
Speaker 1: the way ahead of it. We had live video where
Speaker 1: you could watch us trade. Um and and I learned
Speaker 1: a lot of things from Dave. Uh. He continues to
Speaker 1: be a good friend and we've worked together at three
Speaker 1: or four companies since. Um. He he taught me the
Speaker 1: core importance of being honest with your colleagues when you
Speaker 1: go to work. And I think the first company you
Speaker 1: work for in a serious way and the first sin
Speaker 1: you work for is really important in shaping how you
Speaker 1: view the world and how how your career progresses. Interesting
Speaker 1: and uh Dave is now with c BO when he
Speaker 1: runs E t F dot com. Yeah, he sits in
Speaker 1: my former seat. That's funny. So what in what let's
Speaker 1: talk about investors one investors influenced the way you think
Speaker 1: about things like E t F S or crypto. Yeah.
Speaker 1: Jack Bogel uh Is is the only investor who really
Speaker 1: matters to me. Maybe my grandfather a little bit, but
Speaker 1: I'm one of the so I work in crypto, I'm
Speaker 1: one of the most boring investors in the world. I
Speaker 1: don't think I have traded my portfolio other to rebalance
Speaker 1: in eight or nine years. Uh and sort of the
Speaker 1: um the overwhelming math that Bogel presented right. I started
Speaker 1: my career on the active side as an active biotech
Speaker 1: analyst and then an active biotech portfolio manager. I learned
Speaker 1: the hard way that active doesn't work, and so pivoting
Speaker 1: into indexing and learning from Bogel UH set the stage
Speaker 1: for my E T F career and set the stage
Speaker 1: even for my crypto career. Although that probably makes Jack
Speaker 1: Bogel want to throw his head against the wall and
Speaker 1: also a prior guest one of my heroes. That's fantastic
Speaker 1: to hear. So let's talk about books. What are some
Speaker 1: of your favorite books, be they investing, non investing, fiction, nonfiction, crypto,
Speaker 1: or other. I knew you would ask about books. I
Speaker 1: was thinking about the most important books I've read. The
Speaker 1: most important book to my life probably was a heartbreaking
Speaker 1: work of staggering genius by Dave Eggers, who both writes
Speaker 1: with unique clarity and also came at a time when
Speaker 1: I needed to rediscover my agency and ability to shape
Speaker 1: my life in the way that I wanted, and that
Speaker 1: was a very important book for me. Um after that, Uh,
Speaker 1: it's it's a weird amalgam of of a handful of
Speaker 1: poetry books and then whatever I've been reading most recently.
Speaker 1: So the book I've been reading most recent Lee is
Speaker 1: a History of California. I'm a transplant to California. I
Speaker 1: moved there ten years ago. Everybody a transplant, I basically it. Uh.
Speaker 1: And my kids are learning all about California history the
Speaker 1: same way I learned about Virginia history when I was
Speaker 1: a kid. At the time, I thought that was just history,
Speaker 1: But it turns out you learned different things depending where
Speaker 1: you grow up. What's the name of the book. It's
Speaker 1: named California. Uh. And I'll tell one little anecdote from
Speaker 1: it that that that empowered me. If you go to California,
Speaker 1: it looks like sort of the especially southern California, it
Speaker 1: looks like the Mediterranean. All the houses are in these
Speaker 1: Mediterranean styles. And I assume this was organic, but in
Speaker 1: fact it wasn't. It all started uh in in in
Speaker 1: Santa Barbara, when Santa Barbara burned to the ground. And
Speaker 1: at the time it was twenties, Okay, at the time,
Speaker 1: there was a lot of advertising to get people to
Speaker 1: move out there, and people were deliberately casting it as
Speaker 1: the Mediterranean of the Americas, and so they built it
Speaker 1: in its physical presence to look like that. And what
Speaker 1: that reminded me of was something that I had forgotten,
Speaker 1: which is the importance of narrative in the ability to
Speaker 1: shape reality and how how being able to define and
Speaker 1: see what it could be actually can lead to physical
Speaker 1: developments that that become entrenched and just become a part
Speaker 1: of society. And I thought that was an interesting life
Speaker 1: immenstating art there you go, exactly interesting. And as long
Speaker 1: as you mentioned poetry, Yeah, we're a very um hip
Speaker 1: audience of listeners. Give us, uh, what's your who's your
Speaker 1: favorite poet or their favorite Well, yeah, August Klein's Dollars,
Speaker 1: Red Sauce, Whiskey and Snow is one of my favorite
Speaker 1: books of poetry. I think Red Sauce, Whiskey and Snow. Yeah,
Speaker 1: I think about fifty of the poems and there are terrible,
Speaker 1: but the other fifty are seen with such clarity and
Speaker 1: with with the kind of emotional connections that really resonate
Speaker 1: with me. Uh that it's it's an important book to me,
Speaker 1: and I read it regularly. That is quite fascinating. Um,
Speaker 1: So I have to ask. This is a question I
Speaker 1: we were talking about earlier, and I'm actually debating making
Speaker 1: this a regular question because our conversation about it was
Speaker 1: so fascinating. But what was your first car? My first
Speaker 1: car was a terrible as I said earlier, a terrible choice.
Speaker 1: I bought a Volkswagen Jetta shortly after I got my
Speaker 1: first job, and that was the disaster in like nine
Speaker 1: different ways. Really because my experience with Volkswagens, and this
Speaker 1: might have been cars of a different year of the sixties, eighties, whatever,
Speaker 1: they were indestructible. I had a VW Bug with three
Speaker 1: hundred thousand miles. My roommates Volkswagen Golf. We would just
Speaker 1: take it apart and swap out parts. I need a
Speaker 1: new fender and just take the old one to the junkyard. Hey,
Speaker 1: I need one of these five dollars like, you can't
Speaker 1: do that anymore. But they were pretty indestructible. Why was
Speaker 1: the Jetta so so? For two reasons. One, it was
Speaker 1: utterly destructible it constantly broke down, and to like it
Speaker 1: was an aspirational purchase, right, it was a poor man's
Speaker 1: uh's BMW you you improved on that with a poor
Speaker 1: men company? Yeah? Uh so. So I bought it because
Speaker 1: I thought, I'm a biotech portfolio manager. I need this
Speaker 1: nice new car. I could have done so many better
Speaker 1: things with that money than by this terrible car with
Speaker 1: a poor historical track record of reliability, which I knew
Speaker 1: when I bought it. But I liked the way it looked,
Speaker 1: and it was the people I was around owned Volkswagen Jettas,
Speaker 1: and I bought it. Uh And it was just a
Speaker 1: yoke on my neck until I finally sold it. That's
Speaker 1: very that's very funny. So, um, tell us about a
Speaker 1: time you failed and what you learned from the experience. Yeah.
Speaker 1: Uh So. When I was a biotech portfolio manager at
Speaker 1: open Fund, I bought a company called Titan Pharmaceuticals, which
Speaker 1: had a drug in front of the f D A.
Speaker 1: This is this is two thousand was when I think
Speaker 1: I made this purchase. Biotechs obviously a binary I'll come
Speaker 1: at the f D A uh And it went against
Speaker 1: me and I lost a huge amount of money, uh
Speaker 1: for the company. And I learned two really important things
Speaker 1: from that. When it happened, I thought I was gonna
Speaker 1: get fired because I was new to the job. And
Speaker 1: I just lost like two million dollars for the for
Speaker 1: the fund, which to me at the time having been
Speaker 1: a more money than more money than God uh. And no.
Speaker 1: One of the things I learned from my mentor Dave
Speaker 1: Nodding was all you have to do is own up
Speaker 1: to what went wrong and design a process so it
Speaker 1: doesn't happen again. And I did that and then just
Speaker 1: went on about my day. And I've used that with
Speaker 1: every subsequent failure in business, and it immediately clears the
Speaker 1: air and gets you on a better path. The other
Speaker 1: thing I learned, which was unique to investing in biotech
Speaker 1: but has application, was I had focused entirely on the
Speaker 1: wrong thing. So the sexy thing in biotech, the thing
Speaker 1: everyone talks about is does the drug work? And the
Speaker 1: the does drug work question for Titan was true, it
Speaker 1: seemed to work, but that is not what the FDA
Speaker 1: cares about. The FDA is a bunch of doctors, the
Speaker 1: hippocratic ghost says, first, do know, they care only about
Speaker 1: safety if it might work, but it's safe. They will
Speaker 1: prove it. This one there were risks, but there are
Speaker 1: also benefits, and they just shot it down and and
Speaker 1: it taught me that you have to frame things not
Speaker 1: from what you think is important, but what from the
Speaker 1: people who are in control of that I think is important.
Speaker 1: And in biotech that's safety. Efficacy is a distant second.
Speaker 1: And that's true like when I built the e t
Speaker 1: F conference. When you build an t F conference, you
Speaker 1: want to focus on what's going to go up the
Speaker 1: most the next year. Where should people invest? What financial
Speaker 1: advisors want to learn is how can I retain and
Speaker 1: grow up clients? Right? They want to know I want
Speaker 1: to make sure I don't get fired, and whether I
Speaker 1: can build a better portfolio is actually secondary to do
Speaker 1: I understand this, Can I talk about this? Will this
Speaker 1: help me win new clients? And sort of the ability
Speaker 1: to reframe what you think is important into what's actually
Speaker 1: important was an important lesson. So tell us what you
Speaker 1: do for fun? What do you do to relax or
Speaker 1: stay in ape outside of the office. Yeah, I'm a runner.
Speaker 1: I love to run, I love to hike, but I
Speaker 1: have uh, I have three kids, a wife who works,
Speaker 1: I work at a startup. I sit on boards. I
Speaker 1: have four chickens. Mostly I just try to keep all
Speaker 1: this plate spinning. But when I do get away, I
Speaker 1: like to I like to run or hike or be outside.
Speaker 1: So I'm gonna I'm gonna back you up a little
Speaker 1: bit because slipped into that whole running hiking family thing. Yeah,
Speaker 1: was something about chickens. Chickens. Yeah, yeah, So we went
Speaker 1: to the feed store with the kids to get some
Speaker 1: hay because we thought it'd be cute to have hay
Speaker 1: bales for a party for people to sit on. And
Speaker 1: in the feed store where two day old chicks, kids
Speaker 1: are very just sitting near near the They're adorable, so adorable,
Speaker 1: And so we brought home. I was convinced to bring
Speaker 1: home four chicks. Uh. They cost three dollars and seventy
Speaker 1: five cents each. If you want to know what chicks cost. Um, Yeah,
Speaker 1: I actually buy them by the dozen and it's a
Speaker 1: dollar rating nine. Well I should have learned. Um, Now
Speaker 1: they're two and a half months old. Uh. Now we've
Speaker 1: invested money in a chicken coop. The first egg that
Speaker 1: we get, which will be in like a month and
Speaker 1: a half, it's going to cost me about two thousand
Speaker 1: dollars and better. The chickens are great. The chickens are great.
Speaker 1: Can you interact with them as a pet or they
Speaker 1: just dumb a little dinosaurs running around. Actually they're very nice.
Speaker 1: They're very nice. I mean they feed them. They should
Speaker 1: be feed them. They like you. They each have their
Speaker 1: own personalities, Uh, distinct like you, noticeably different. You have
Speaker 1: the nice guys, you have sort of the sort of
Speaker 1: mean guys. They do different things. Um, they all look
Speaker 1: different because they're different breeds. Uh. They have a half
Speaker 1: life when you pick them up of about ninety seconds.
Speaker 1: If you hold them for more than ninety seconds, uh,
Speaker 1: they start to poop everywhere. And so you can pick
Speaker 1: them up and they're very cute, but the clock starts
Speaker 1: ticking them. You gotta like, you gotta put them down
Speaker 1: before disaster happens. That's hilarious. When when I lived in
Speaker 1: the city or next door neighbors had dozens of birds,
Speaker 1: and they had a cockatoo that was a baby. And
Speaker 1: when they would go away, you know, the one bird
Speaker 1: that needed attention was gonzo. So we would babysit this
Speaker 1: cockatoo and even at like a year old, I would
Speaker 1: hold him on my arm. He would put his wing
Speaker 1: around me and the two of us would watch TV.
Speaker 1: There you go, And he truly had a personality. He
Speaker 1: was very smart. I taught him to laugh. But they're
Speaker 1: known as really intelligent birds. Chickens aren't necessarily have that
Speaker 1: same reputation. So I was curious about the personality. And yeah,
Speaker 1: they still have some personality. We haven't watched much TV together,
Speaker 1: but but they do have personally. And all the kids, Okay,
Speaker 1: when mom makes chicken for dinner, that hasn't been Oh oh,
Speaker 1: so my kids are vegetarians are so this has not
Speaker 1: come up there, Yeah, hasn't come up, but they're ready
Speaker 1: to eat the eggs. Hold on a sec. You're not.
Speaker 1: I'm a vegetarian. You are. I've had meals with you.
Speaker 1: So I'm an opportunistic vegetarian. So so, so my rule is,
Speaker 1: I'm a vegetarian unless around there's gonna beat at the table, right,
Speaker 1: unless it's going to be really exceptional or different. You
Speaker 1: have to experience the world. So that's fair, opportunistic vegetarian,
Speaker 1: that's absolutely fair. Um, So, our last two questions. If
Speaker 1: you were giving some advice to a millennial who was
Speaker 1: interested in a career of either finance or crypto. What
Speaker 1: sort of advice would you give them? How do you
Speaker 1: think they should approach either of those fields? Interesting? And
Speaker 1: I'm not asking which would you steer them? I'm asking, Hey,
Speaker 1: what advice would you give them if they came asking
Speaker 1: about that? Yeah? So either I would advise them, as
Speaker 1: I do most young people, to take some time off
Speaker 1: and go travel and play around while they're young before
Speaker 1: they get serious about their career. If they didn't take
Speaker 1: that advice, which I think is good advice, um, I
Speaker 1: would encourage them to think most about their company, the
Speaker 1: company they choose, and their direct manager, and think the
Speaker 1: least about their intro salary, or their title or even
Speaker 1: what work they're going to be doing. It's vastly more
Speaker 1: important to engage yourself with a well run company, uh
Speaker 1: and with a good manager where you can learn good
Speaker 1: work habits than it is to make an extra four
Speaker 1: thousand dollars a year or to have a particular job
Speaker 1: that focuses on one skill set or another. So so
Speaker 1: pick your company careful, pick your manager really carefully, uh,
Speaker 1: and ignore all the rest. Sounds like it sounds like
Speaker 1: pretty good advice. And our final question, what is it
Speaker 1: that you know about the world of investing today that
Speaker 1: you wish you knew twenty something years ago when you
Speaker 1: first began? Uh, that's a good question obviously by apples
Speaker 1: the easy answer um, or by bitcoin you know when
Speaker 1: it first come? Uh don't know? Or bitcoin at four thousand?
Speaker 1: Or do you mean if you had a time machine
Speaker 1: and could go by time machine? So that's an easy question.
Speaker 1: I'm asking no time machine, no time machine. What do
Speaker 1: you know today that you wish you knew back then?
Speaker 1: That I get? Okay, great question. U. I learned every
Speaker 1: hard knock investing lesson there is to learn, uh, And
Speaker 1: so I could tell you not to do those things
Speaker 1: like uh like don't confuse. Uh your your lucky pick
Speaker 1: of a stock that went up with true skill. Uh,
Speaker 1: don't sell when you feel the painful feeling in your gut.
Speaker 1: Just buy and holding, never sell. But you wouldn't listen,
Speaker 1: So UM, I guess it would be just buy things.
Speaker 1: Selling things is where everything goes asunder. Just just buy
Speaker 1: things and hold them, uh and sit on it forever.
Speaker 1: Quite fascinating. We have been speaking with Matt Hogan. He
Speaker 1: is the global strategist at bit Wise Asset Management, Global
Speaker 1: head of Research. If you enjoy this conversation, well look
Speaker 1: up an intro down an Inch on Apple iTunes and
Speaker 1: you can see any of the other two hundred and
Speaker 1: fifties such conversations we've had over the past five or
Speaker 1: so years. Uh, you can find that at iTunes, Stitcher, overcast,
Speaker 1: Bloomberg dot com, wherever your final podcasts are sold. We
Speaker 1: love your comments, feedback and suggestions right to us at
Speaker 1: m IB podcast at Bloomberg dot net. I would be
Speaker 1: remiss if I did not thank the crack staff that
Speaker 1: helps put together this conversation each week. Carol and O'Brien
Speaker 1: is my audio engineer. Par Excellent Medina Parwana is our producer.
Speaker 1: Taylor Riggs is our booker slash producer. Atika vl Broun
Speaker 1: is our project manager. Michael bat Nick is my head
Speaker 1: of research. I'm Barry Retults. You've been listening to Masters
Speaker 1: in Business on Bloomberg Radio Thinks