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Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm pim Fox.

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Speaker 1: Along with my co host Lisa Bramowitz. Each day we

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Speaker 1: bring you the most important, noteworthy, and useful interviews for

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Speaker 1: you and your money, whether you're at the grocery store

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Speaker 1: or the trading floor. Find the Bloomberg p m L

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Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Legendary

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Speaker 1: Vanguard founder Jack Bogel sat down with us to discuss

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Speaker 1: his thoughts on the geop plan, Bitcoin and his outlook

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Speaker 1: for the bondom market. We kick things off by discussing

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Speaker 1: Jack's thoughts on the e t F business. Where I

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Speaker 1: began was asking him about the freight train that is

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Speaker 1: destined to be a ten trillion dollar firm within the

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Speaker 1: next few years Vanguard, and whether he was worried at

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Speaker 1: all about how quickly the E t F industry was

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Speaker 1: amassing assets. Take a listen, Well, those two things don't

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Speaker 1: go to two together very well. Our strength at Vanguard

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Speaker 1: has been the traditional index fund, the S and P

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Speaker 1: five hundered total stock market, which I started way back

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Speaker 1: in in and that has been our strength. Were that

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Speaker 1: market and that traditional index fund market. I'll buy an

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Speaker 1: old market broad market is about half of the index

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Speaker 1: business and the E t F business is the other

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Speaker 1: half of the business, and they are totally different. They

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Speaker 1: both have passive investment policies, but the traditional index funds

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Speaker 1: have passive investors, and that the e t f s

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Speaker 1: have active investors. So e t fs have heavy trading

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Speaker 1: and they have a lot more speculation. They have a

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Speaker 1: product line so called that that has very speculative funds.

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Speaker 1: So I'm I wouldn't I wouldn't. I wouldn't predict that

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Speaker 1: that that would continue to flourish. You know, we have

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Speaker 1: data here that shows that e t f have had

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Speaker 1: as ten years is a four point seven annual return

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Speaker 1: and the traditional index fund about a seven point one

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Speaker 1: percent annual return. There was the e t f s

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Speaker 1: have not worked out well for investors. I don't know

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Speaker 1: why nobody knows this. So in a decade, the traditional

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Speaker 1: index funds up about cumulatively and the E t F

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Speaker 1: I mean, that's not that's not a strong record. This

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Speaker 1: is this is a really compelling point you're making. E

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Speaker 1: t f s have not worked out well for investors.

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Speaker 1: Are you concerned that they're going to taint the record

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Speaker 1: of indexed funds because they are being treated, uh, synonymously. Well,

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Speaker 1: I think there's a different, for the want of a

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Speaker 1: better word, a different ethic and e t s. It's

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Speaker 1: by the factors. It's leverage. It's finding narrow niches in

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Speaker 1: the market very quickly to see if you can bring

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Speaker 1: a lot of the sheep in to share them. One

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Speaker 1: of the most recent e t F was long electronic marketing,

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Speaker 1: actually your retail marketing. I mean, that's an interesting idea,

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Speaker 1: it might even work, but some entrepreneur jumps on that

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Speaker 1: bandwagon and says, now he can package it for you.

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Speaker 1: It's a very entrepreneurial business, or, to use a phrase

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Speaker 1: that the great Henry Kaufman once used, is populated in

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Speaker 1: many respects by financial buccaneers. So it's a different business.

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Speaker 1: It's finding product to sell and because there's a great

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Speaker 1: market among brokers and investment advisers who want to sell it.

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Speaker 1: When they want something to sell every day, they have

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Speaker 1: to sell something every day. And that seeks the sort

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Speaker 1: of the rationale for the business trading, trading, trading, and

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Speaker 1: you see it most clearly, and it's a little bit

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Speaker 1: of an off beat et F to say the least.

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Speaker 1: The spider, but it trades. They brag about it fifteen

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Speaker 1: billion dollars an hour or something, and yeah, it turns

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Speaker 1: over at about two or three thousand percent a year.

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Speaker 1: And it's banks trading with one And that's that's a

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Speaker 1: very different implication for the future of the E T

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Speaker 1: F business than the than the more or less retail

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Speaker 1: business that people are buying speculatives E T S. Mr Bogel,

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Speaker 1: you talk about financial buccaneers. I'm gonna throw a couple

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Speaker 1: of topics that you want your thoughts. Bitcoin and cryptocurrencies. Well,

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Speaker 1: I'm not so good as crypto, but let's talk about bitcoin.

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Speaker 1: Bitcoin is a speculation. Why is this speculation because there's

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Speaker 1: no underlying rate of return. Just like gold, stocks have

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Speaker 1: earnings and dividends, bonds have have interest coupons to hold

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Speaker 1: their value up. But the bitcoin has nothing in its

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Speaker 1: value except that you want to sell it to somebody

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Speaker 1: more than you paid for it. Well, that's about as

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Speaker 1: good a definition as you can get. It may be

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Speaker 1: a great speculation, that's the funny part of it. But

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Speaker 1: as I said the other day, um, and the bitcoin

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Speaker 1: was then only about ten thousand, and you know, there's

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Speaker 1: a speculation that I would have liked to plague, And

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Speaker 1: I said, if it gets to twenty thousand, don't talk

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Speaker 1: to me. Waitfil it gets back to a hundred, all right,

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Speaker 1: they may not be buccaneers. Much of thoughts on the

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Speaker 1: GOP's tax overhaul plan, as you know it. I think

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Speaker 1: it's very unfortunate. I think it has a grave moral

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Speaker 1: issues in favoring the wealthiest people in the country that

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Speaker 1: compared to the people who are doing all the hard

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Speaker 1: work just seems crazy. Uh. I think it's really bad

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Speaker 1: some little pieces of policy. You know, this is a

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Speaker 1: country that's supposed to be helping education, and they put

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Speaker 1: some new some taxes on young men and women who

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Speaker 1: are teachers and get fringe benefits. And then they've they've

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Speaker 1: stopped the deductibility of interest on college loans, and those

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Speaker 1: two things hurt education. Well. And what to what, avail

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Speaker 1: I asked? The fusion of wealth, the gap in wealth

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Speaker 1: between the rich and the poor is very upsetting to

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Speaker 1: a good nation, a good society, and they made it worse.

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Speaker 1: Rubs other than not, I love it real quick. Last question,

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Speaker 1: I'm just wondering. You said in recent comments that stock

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Speaker 1: returns are likely to be about four percent over the

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Speaker 1: next decade. What about bonds and where do you think

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Speaker 1: are the most promising assets at this point? Well, stock returns.

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Speaker 1: I've been doing this for twenty five years and ten

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Speaker 1: years in ten year in ten year intervals, and my

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Speaker 1: prognostications for stocks have been about correlation with what happened,

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Speaker 1: and my view bond views are about of what happened. Correlation.

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Speaker 1: But the reason bonds are really easy. It should be

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Speaker 1: a number of around three percent per year over the

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Speaker 1: next decade because the only return you get on a

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Speaker 1: bond is from the interest coupon. And so you have

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Speaker 1: a portfolio half of corporate bonds and half of the

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Speaker 1: ten year the ten year treasury, very conservative with a

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Speaker 1: with a corporate half, and that gives you about three

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Speaker 1: percent today and so that that's that's what you will

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Speaker 1: get in the next ten years. Of interest rates go down,

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Speaker 1: the prices will go up, but over ten years that's

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Speaker 1: up to even out. That's a huge problem for pensions

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Speaker 1: with an eight a huge problem. It's totally defeating. The

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Speaker 1: pension funds are not going to be able to meet

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Speaker 1: their seven and a half or eight percent obligation. And

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Speaker 1: the curious thing is that back in the guess late eighties,

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Speaker 1: don't hold me the exact date when then, when treasuries

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Speaker 1: were yielding eight and the pension plans had about a

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Speaker 1: five percent return projection eight percent for bonds, five percent

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Speaker 1: projection for pensions. And now treasurers are yielding two and

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Speaker 1: a half or three depending on whatever you take, and

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Speaker 1: engines are yielding seven. And I think it is almost

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Speaker 1: a given that it will end badly, Mr Boggle, Do

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Speaker 1: you believe that artificial intelligence and robo advisors will do

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Speaker 1: away with the human touch when it comes to investment advice, Well,

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Speaker 1: they will do away with some of it. Uh but

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Speaker 1: but but what's what's happening mostly in then the robo

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Speaker 1: area is they're using conventional index funds like the S

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Speaker 1: and P five hundred Bangardis and P five hundered. I

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Speaker 1: think that's the largest investment at the betterment m or

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Speaker 1: and maybe maybe some of the others. So they're they're

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Speaker 1: just it's that they've been doing so far mostly asset allocation,

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Speaker 1: and there's no harm done in that. Their asset allocation

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Speaker 1: looks very much like you know, sort of a sixt

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Speaker 1: thing generally up or down, maybe with a age or

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Speaker 1: or aggressiveness of the investor. So maybe it's I think

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Speaker 1: it's less art Artificial intelligence than asset allocation is a

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Speaker 1: simple matter. You don't have to beat it to death

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Speaker 1: with data. As for artificial intelligence out there, I read

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Speaker 1: somewhere that people that are trained in artificial intelligence in college,

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Speaker 1: after a couple of years gonna make a half million

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Speaker 1: dollars a year, And I think that's wonderful. But I

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Speaker 1: keep wondering how much people that have real intelligence will make.

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Speaker 1: Now was Jack Bogel. He is the founder and retired

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Speaker 1: chief executive of the Vanguard Group and the author of

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Speaker 1: Common Sense on Mutual Funds, New Imperatives for the Intelligent Investor.

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Speaker 1: I'm pim Fox along with Lisa Bramo wits This is Bloomberg.

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Speaker 1: Protests are breaking out in Gaza, Turkey, Germany over President

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Speaker 1: Trump's decision to move the US embassy in Israel to Jerusalem,

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Speaker 1: recognizing that as the capital. This, of course the subject

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Speaker 1: of a longstanding debate and controversy in the region, given

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Speaker 1: the tensions between the Israelis and the Palestinians. Here to

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Speaker 1: talk about it is Daniel Gordis. He is a Bloomberg

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Speaker 1: View columnist as well as a senior vice president and

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Speaker 1: court Distinguished Fellow at shell M College in Jerusalem, and

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Speaker 1: he joins us now, Daniel, thank you so much. What

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Speaker 1: is it? Just to start with, what's the mood like?

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Speaker 1: There is there an increased kind of tension and expectation

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Speaker 1: of violence around UH President Trump's decision. It's an interesting question.

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Speaker 1: I think that yesterday, in the advance of the declaration

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Speaker 1: and immediately after, there was a pretty widespread sense here

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Speaker 1: that if there was any violence, it was going to

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Speaker 1: be pretty sporadic and it would pretty much peter out

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Speaker 1: relatively quickly. I think people are a little bit less

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Speaker 1: confident about that right now. I don't think that anybody

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Speaker 1: is quite panicking yet. But there have been there have

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Speaker 1: been conflicts all along the border between Israel and the

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Speaker 1: West Bank UM. According to the his reports, several dozen

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Speaker 1: Palestinians have been injured. I haven't read of any deaths,

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Speaker 1: and I haven't read of any injuries on the side

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Speaker 1: of the israelis UM. But colleague of mine who was

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Speaker 1: working from home today, who works in Maldumim, which is

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Speaker 1: UH inside the West Bank. It's a city that's very

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Speaker 1: much controversial because it's gone on an extension of Jerusalem

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Speaker 1: into the West Bank. She told me that the city

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Speaker 1: was ringed with security people, that they were just making

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Speaker 1: sure that people did not get into the city. So

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Speaker 1: I thought my senses and we heard, by the way,

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Speaker 1: helicopter is all in the sky this afternoon. So it

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Speaker 1: may be materializing into a little bit more violence than

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Speaker 1: some people had expected. But there's certainly no panic on

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Speaker 1: the streets and no panic. And as people are talking,

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Speaker 1: Daniel Gordis, you know in your good book Israel, a

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Speaker 1: Concise History of a Nation Reborn, you talk about the

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Speaker 1: role that Jerusalem plays in the history of the region

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Speaker 1: and specifically in the founding of the state of Israel.

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Speaker 1: I'm wondering if you could just provide us with some

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Speaker 1: context for Jerusalem, not only as a geographic location, but

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Speaker 1: as a political location. Right. So, Jerusalem was not included

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Speaker 1: actually in the borders that the United Nations gave to Israel,

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Speaker 1: and that very famous photo of November nineteen seven, when

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Speaker 1: the UN General Assembly created a Jewish state and an

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Speaker 1: Arab state, Jerusalem is going to be a kind of

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Speaker 1: an internationally monitored area. The Israelis were very unhappy with

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Speaker 1: that because they wanted Jerusalem to be their capital, but

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Speaker 1: they accepted the UN deal. Uh. The Arabs, of course

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Speaker 1: did not accept the deal, launched the war, and in

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Speaker 1: the course of that war, Israel captured West Jerusalem. It

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Speaker 1: did not capture East Jerusalem, which it did not get

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Speaker 1: until the nineteen sixty seven war when Jordan's despite pleas

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Speaker 1: from the Israeli government, decided to enter that war as well.

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Speaker 1: So Israel has always since nineteen forty nine recognized West

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Speaker 1: Jerusalem as its capital and as one of the rest

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Speaker 1: of the world to recognize it. It's the only country

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Speaker 1: in the world that other countries don't recognize its capital

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Speaker 1: as its capital. When Israelis are always scratching their heads

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Speaker 1: saying West Jerusalem is clearly not going back. So why

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Speaker 1: can't the west of the role just acknowledge West Jerusalem

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Speaker 1: as the capital of Israel and Easter Rusalaman will get

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Speaker 1: resolved when the result, when the situation where the Palestinians

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Speaker 1: gets resolved. Um. And so I think that you know,

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Speaker 1: from a from a religious standpoint, it's very important to Jews,

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Speaker 1: it's very important to Moslims, it's very important to Christians.

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Speaker 1: But this is what you correctly plant on there's nothing

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Speaker 1: to do with the religious issus. It's all about politics.

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Speaker 1: And I think what the President did yesterday was basically

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Speaker 1: to say, and he said it himself, you just a

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Speaker 1: matter of recognizing reality. I mean, as he pointed out,

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Speaker 1: the Supreme Court is here, the Parliament is here, the

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Speaker 1: President lives here, the Prime Minister lives here, the vast

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Speaker 1: majority of government offices are here. Always basically saying is

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Speaker 1: that what we're gonna do is stop capitulating to the

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Speaker 1: fear of violence, and we're gonna call reality what it is,

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Speaker 1: which is that West Jerusalem is the capital of Israel.

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Speaker 1: Well here, here's just just to push back on that.

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Speaker 1: I mean, a lot of people are saying that this

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Speaker 1: move by President Trump has undermined a US role in

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Speaker 1: the peace prod, says has inflamed tensions. Uh Hamas has

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Speaker 1: called for an antifata against Israel this morning, and you

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Speaker 1: have to wonder, at what point is it worth it,

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Speaker 1: I mean, just for to make a political statement. Well,

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Speaker 1: that's a great question. So first of all, obviously if

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Speaker 1: this blows up into a major conflagration, uh, then one

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Speaker 1: could very reasonably ask whether it was worth it or not.

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Speaker 1: I think most people who are still banking on the

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Speaker 1: idea because it doesn't actually change any reality on the ground.

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Speaker 1: Most people are banking on the idea that it's not

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Speaker 1: going to become a major conflagration. But you're right, if

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Speaker 1: this gets out of hand, then the question of whether

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Speaker 1: it's worth it is certainly a very good question. I

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Speaker 1: think that in terms of, you know, the question of

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Speaker 1: whether or not the president has really kind of moved

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Speaker 1: the United States out of being a legitimate arbiter in

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Speaker 1: the in the process. I mean, first, well, let's remember that,

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Speaker 1: you know, countless presidents, Republicans and Democrats alike, have seen

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Speaker 1: the United States as an important arbiter and has gotten

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Speaker 1: us nowhere. And I'm speaking as someone who was in

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Speaker 1: favor of the creation of a Palestinian state, as someone

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Speaker 1: who's not a huge fan of the current president. But

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Speaker 1: I think that what he said was, uh, you know,

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Speaker 1: basically true. We haven't we have we as America have

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Speaker 1: not been able to move this process forward and and

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Speaker 1: sort of capitulating to this Palestinian demand that we not

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Speaker 1: acknowledge West Jerusalem as the capital of Israel has gotten

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Speaker 1: us nowhere. So since it has gotten us nowhere, let's

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Speaker 1: at least call reality on the ground where it is.

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Speaker 1: That's my sense, but obviously reasonable minds cannon do differ,

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Speaker 1: and there are both Disraeli leaders and as well as

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Speaker 1: American Jewige leaders on both sides of this divide. Daniel,

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Speaker 1: what has been the reaction, if any, in Arab capitals

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Speaker 1: around the region, and is the status of Jerusalem as

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Speaker 1: important to them now as it once was. Perhaps the

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Speaker 1: reaction is exactly what you'd expect. They're all decrying it

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Speaker 1: and saying it's a terrible idea, and so farth that's

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Speaker 1: part of the sort of the ritual that has to

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Speaker 1: get played here. I think the much deeper issue, and

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Speaker 1: it's a sad one for the Palestinians, quite frankly, is

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Speaker 1: that the Palestinian issue was simply not nearly as important

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Speaker 1: to the Arab world as the palest Indians wish it

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Speaker 1: would be, and it's not as important to the Arab

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Speaker 1: world as it once was. I mean, take Saudi Arabia

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Speaker 1: for example, which did speak out because that's what it

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Speaker 1: has to do, but Suni Arabia doesn't care one little bit.

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Speaker 1: Sni Arab was worried about Iran and it needs American

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Speaker 1: and Israeli cooperation on the Iranian on the Irmanian issues.

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Speaker 1: So they'll speak out today, they make sure that they can,

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Speaker 1: you know, sort of make a check mark next do

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Speaker 1: we spoke out against it. But Saudi Arabia couldn't care less.

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Speaker 1: Egypt has completely suppressed Palestinian protests in the streets over

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Speaker 1: the last few years under LCC. So Egypt's not a

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Speaker 1: big help over the course of the years. Even when

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Speaker 1: Saidat and Manacha began negotiated the return of the Sinai,

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Speaker 1: said Dot insisted that if he was going to get

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Speaker 1: the sign I back and sign a deal with Israel,

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Speaker 1: Israel also not to create a Palestinian state, and began

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Speaker 1: said no, And so that's where we are. Daniel gordis

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Speaker 1: Bloomberg View, Colamus, thank you very much. He's also the

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Speaker 1: author of Israel, A Concise History of a Nation. Reborn

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Speaker 1: the founder, one of the co founders and the head

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Speaker 1: of a Carlisle Group, the private equity firm. David Rubinstein

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Speaker 1: was talking about infrastructure yesterday. He said that he hoped

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Speaker 1: Congress would have passed an infrastructure bill by now. Well,

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Speaker 1: let's find out about why that hasn't happened. Perhaps and

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Speaker 1: what could be done to move this along. We have

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Speaker 1: an expert when it comes to infrastructure. Bill Sandbrook is

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Speaker 1: the chief executive of the US Concrete and he joins

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Speaker 1: us here in our leven three oh studios. Bill, thank

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Speaker 1: you very much for it coming in. So what would

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Speaker 1: you say to someone like David Rubinstein? He says, Look,

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Speaker 1: he says, you've got low rates, But most of the

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Speaker 1: US infrastructure is state and local, it is not federal.

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Speaker 1: Why can't we get infrastructure done? No, it's a very

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Speaker 1: good question. We were very hopeful people in our industry,

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Speaker 1: and obviously both parties had platforms that advocated a trillion

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Speaker 1: dollar spend before either winner was announced, and in fact,

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Speaker 1: at President Trump's inauguration, the second thing he mentioned was

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Speaker 1: one of his top was his top priority was infrastructure spent.

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Speaker 1: And we have been disappointed that it hasn't been more forthcoming. However,

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Speaker 1: having said that, there were priorities that need to be chosen,

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Speaker 1: and the priorities were health regulatory reform, healthcare reform, taxes,

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Speaker 1: and then infrastructure came forth, and there were fourth because

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Speaker 1: and there were reasons for that sequence. So I'm patient

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Speaker 1: this problem has not developed overnight. This problem is not

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Speaker 1: going to be fixed overnight. So if it's pushed a

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Speaker 1: year or a number of months, as it looks like

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Speaker 1: it's going to be pushed into next year, I'm not

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Speaker 1: despondent about that. The needs continue to grow and I

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Speaker 1: think the federal government's going to have to address it

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Speaker 1: one way or another. And there is by parts and

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Speaker 1: support for it bill. Do you have a sense of

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Speaker 1: how it would take place, how big it would be,

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Speaker 1: as well as where the money would go. Would it

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Speaker 1: go to projects that would apply uh for funding? Would

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Speaker 1: it go to public private kind of partnerships that we

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Speaker 1: then invest in. What's your sense it's gonna be a

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Speaker 1: combination of of all the above. The public private partnerships

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Speaker 1: are one piece of it. And if you remember is

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Speaker 1: this has transpired, the administration was really hanging the hat

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Speaker 1: on that that would be the lynchpin of any further

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Speaker 1: any additional spend or increased spending. That has moderated to

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Speaker 1: some extent, there is talk about gas tax increases. At

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Speaker 1: least the administration doesn't have them dead on arrival. It

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Speaker 1: does come down to funding eventually, funding and priorities. There

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Speaker 1: is a list of fifty top priority infrastructure projects in

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Speaker 1: the country that the governors developed and has been put

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Speaker 1: to the Secretary of Transportation. One critical one. It's the

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Speaker 1: Gateway project that links new work in New York City

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Speaker 1: with a new tunnel, a new rail tunnel and whatnot. UM.

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Speaker 1: I think over time these things are going to happen.

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Speaker 1: The devil's in the details of funding. And it's been

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Speaker 1: like that since, so no change there. You know, you've

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Speaker 1: been on a little bit of an acquisition trail, and

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Speaker 1: I'm wondering if you could describe what you've done, particularly

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Speaker 1: in California, but also why why acquire rather than building?

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Speaker 1: That kind of highlights this idea of trying to get

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Speaker 1: the permits and trying to deal with local and you know,

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Speaker 1: state municipalace on in order to make you business. You know,

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Speaker 1: it's a very insightful question. Both coasts California particularly, it's

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Speaker 1: very difficult to get through any environmental permitting process for

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Speaker 1: whether it be an infrastructure project like a road, an airport,

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Speaker 1: or an industrial manufacturing facility. We operate in heavily urbanized

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Speaker 1: environments where permitting is extremely difficult UM. And to that end,

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Speaker 1: we just made an acquisition on November seventeenth, Polaris Material

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Speaker 1: is a big quarry in Canada. Because California arrogates are

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Speaker 1: being depleted rapidly and there are no new quarries coming online. Therefore,

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Speaker 1: the cost of arrogates are becoming ever expensive. We had

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Speaker 1: an opportunity to buy this quarry and ship arrogates down

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Speaker 1: into our facilities in San Francisco so we can be

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Speaker 1: self sufficient. It helps our profitability. Uh and and as well,

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Speaker 1: we got a terminal in in Los Angeles because we

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Speaker 1: are growing through acquisition and expansion, which now gives us

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Speaker 1: a beachhead into consolidate in the Los Angeles market. Considering

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Speaker 1: that you made a purchase in Canada, it's important to

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Speaker 1: look at what the trade relationship will be with the

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Speaker 1: US and Canada and elsewhere. And I'm just wondering, have

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Speaker 1: the increased tensions around trade affected you at all? Do

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Speaker 1: you expect them to affect you? Do you think that

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Speaker 1: they have been overblown? Now? I think they're they're valid.

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Speaker 1: I don't expect them to impact arrogance. Arrogates have been

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Speaker 1: shipped on both coasts from Canada because of the the

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Speaker 1: inability to get new permits in the New York area,

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Speaker 1: for instance, or in California. The arrogates have to come

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Speaker 1: from somewhere. Um, they're very expensive to travel by truck,

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Speaker 1: long distances from inland, so that sheer economics of it

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Speaker 1: will underpin the ability of it long term. I'm not

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Speaker 1: overly word about free trade, the Canadian Trade Pact as

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Speaker 1: it relates to arrogance. Talk about the raising money, whether

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Speaker 1: it's in the debt markets, you don't have a lot

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Speaker 1: of that. I think about six million in total. Uh,

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Speaker 1: easy to access money right now, I mean people throwing

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Speaker 1: money at you to say, g you know, we're looking

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Speaker 1: for yields, so why don't you borrow someone go out

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Speaker 1: and buy a bunch of Yeah, that's that's very interesting. Uh.

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Speaker 1: We've been very successful over the last six years with

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Speaker 1: our strategy. With success comes the the benefits of having

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Speaker 1: people want to loan your money so you can continue

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Speaker 1: to be successful. So I think it would be easy

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Speaker 1: to access at this time. Whether we would take that

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Speaker 1: on as debt or equity would depend on the amount

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Speaker 1: of money we need. And we are a cyclical business though,

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Speaker 1: so we have to be very cognizant that the good

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Speaker 1: times that we have now, you know, they won't last forever.

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Speaker 1: Despite any governmental policy. Despite our hope, construction is a

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Speaker 1: cyclical business and we have to be mindful that real quick.

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Speaker 1: When do you think that the cycle will start turning

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Speaker 1: well with the tax reform? I continue to move that,

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Speaker 1: I continue to move this out. You have to remember

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Speaker 1: this has been a historically slow recovery at very low rates,

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Speaker 1: which is act think good because we're preventing new new

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Speaker 1: peaks and new bubbles, and the extent it continues at

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Speaker 1: this gradual pace. I think the tax reform is going

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Speaker 1: to extend in another two years. I'm looking into two.

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Speaker 1: But that's I'm not a I'm not a clairvoyant. Well

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Speaker 1: you'll have to I'll pull out by Christo Ball and

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Speaker 1: you can try your hand. Bill Sandbrook, thank you so

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Speaker 1: much for joining us. Bill sandbrooks CEO of US Concrete

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Speaker 1: here talking about the infrastructure plans that are evidently in

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Speaker 1: the works. We just are going to have to wait

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Speaker 1: to see them. A Lisa brom WIT's along with pim Fox,

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Speaker 1: this is Bloomberg. Individual investors are plowing their money into

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Speaker 1: US stocks at a record pace, at least by one measure,

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Speaker 1: raising a big question are they coming in too late

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Speaker 1: when the stocks are too valuable and are destined to

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Speaker 1: cool off. Here to answer that question is Randy Frederick.

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Speaker 1: He is vice president of Trading Undervatives for the Schwab

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Speaker 1: Center for Financial Research, which is based in Austin, but

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Speaker 1: he joins us here in our eleven three oh studios. Randy, um,

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Speaker 1: are you concerned about the flood of retail cash and

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Speaker 1: just sort of the general increase and allocations to US equities?

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Speaker 1: Not yet? So the question is are they coming in

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Speaker 1: too late? I would say they're coming in late in

429
00:24:46,600 --> 00:24:49,440
Speaker 1: the game, but it's probably not too late. I would say.

430
00:24:49,440 --> 00:24:51,600
Speaker 1: For the first eight years of this bullmarket, the big

431
00:24:51,680 --> 00:24:53,960
Speaker 1: question that I got at all the client events I

432
00:24:54,000 --> 00:24:56,640
Speaker 1: got and my counterparts heard the same thing, was what's

433
00:24:56,680 --> 00:24:58,480
Speaker 1: the next shoe to drop? When is this all going

434
00:24:58,520 --> 00:25:01,040
Speaker 1: to in? What's going to cause the max ash. It's

435
00:25:01,160 --> 00:25:03,639
Speaker 1: only been within about the last quarter, last three or

436
00:25:03,640 --> 00:25:06,680
Speaker 1: four months that we've actually seen a shift and investor

437
00:25:06,720 --> 00:25:10,360
Speaker 1: sentiment to, oh, this rally is legitimate. This bullmarket does

438
00:25:10,400 --> 00:25:12,199
Speaker 1: have some legs, and part of that, I think is

439
00:25:12,200 --> 00:25:15,439
Speaker 1: that we've got an incredibly solid fundamental backdrop and we

440
00:25:15,520 --> 00:25:17,399
Speaker 1: frankly think that's going to continue at least into the

441
00:25:17,400 --> 00:25:19,760
Speaker 1: first half of next year. Doesn't worry you that now

442
00:25:19,800 --> 00:25:23,280
Speaker 1: you've got people who were bearished turning bullish to some extent.

443
00:25:23,320 --> 00:25:25,600
Speaker 1: It does what. It doesn't mean we're at the end.

444
00:25:25,680 --> 00:25:28,120
Speaker 1: It may mean that we're at the very beginning stages

445
00:25:28,119 --> 00:25:29,720
Speaker 1: of what could end up being the end, but the

446
00:25:29,800 --> 00:25:31,639
Speaker 1: end could well be a year into the future. And

447
00:25:31,640 --> 00:25:34,480
Speaker 1: in fact, historically, when you start to see all of

448
00:25:34,520 --> 00:25:37,479
Speaker 1: the even the most ardent skeptics come into the market,

449
00:25:38,000 --> 00:25:39,840
Speaker 1: it may be the sign of the beginning, but many

450
00:25:39,840 --> 00:25:42,160
Speaker 1: times that has lasted more than a year, maybe even

451
00:25:42,240 --> 00:25:43,760
Speaker 1: a year and a half to two years after that.

452
00:25:43,880 --> 00:25:46,600
Speaker 1: So it does have some sort of assignment. It does

453
00:25:46,760 --> 00:25:49,040
Speaker 1: definitely does not point to a top just yet. All right,

454
00:25:49,040 --> 00:25:50,720
Speaker 1: I want to ask you about something that we met

455
00:25:50,760 --> 00:25:53,560
Speaker 1: we report on on a regular basis, and this has

456
00:25:53,600 --> 00:25:57,520
Speaker 1: to do with the VIX, the volatility index. Does this

457
00:25:57,640 --> 00:26:02,240
Speaker 1: really matter anymore to people still use the options that

458
00:26:02,280 --> 00:26:05,960
Speaker 1: are linked to the VIX in order to speculate, or

459
00:26:06,040 --> 00:26:09,199
Speaker 1: has this become an indicator whose time is kind of

460
00:26:09,240 --> 00:26:11,640
Speaker 1: come and gone. Well, so, I've been studying the VIX

461
00:26:11,680 --> 00:26:13,800
Speaker 1: ever since first and came out in fact that it

462
00:26:13,840 --> 00:26:16,320
Speaker 1: was it was created the month before I started working

463
00:26:16,320 --> 00:26:19,479
Speaker 1: with Charles Schwaback in so I've been and being involved

464
00:26:19,480 --> 00:26:21,840
Speaker 1: in derivatives and and volatility and all these things. I've

465
00:26:21,880 --> 00:26:24,760
Speaker 1: sort of been studying it every day since then. So yes,

466
00:26:24,800 --> 00:26:27,040
Speaker 1: I think it still matters because what it really tells us,

467
00:26:27,080 --> 00:26:28,520
Speaker 1: and this is where the problem comes in, I think

468
00:26:28,520 --> 00:26:31,119
Speaker 1: with retail investors and some of these products that are

469
00:26:31,119 --> 00:26:34,160
Speaker 1: allegedly linked to the VIX, is that it really tells

470
00:26:34,200 --> 00:26:37,200
Speaker 1: you how much the institutional funds are hedging a large

471
00:26:37,440 --> 00:26:39,680
Speaker 1: market downturn, and the fact that we've had historically low

472
00:26:39,760 --> 00:26:42,080
Speaker 1: levels of the VIX forty five days I think it

473
00:26:42,200 --> 00:26:45,560
Speaker 1: is that we've closed below ten this year, where right

474
00:26:45,560 --> 00:26:48,280
Speaker 1: now just ten point one five roundheard of. It just

475
00:26:48,320 --> 00:26:51,400
Speaker 1: simply means that those who run the big institutional hedge

476
00:26:51,400 --> 00:26:53,960
Speaker 1: funds are not concerned of a major downturn. That doesn't

477
00:26:53,960 --> 00:26:55,919
Speaker 1: mean we couldn't get a five percent pullback, and frankly,

478
00:26:55,920 --> 00:26:58,000
Speaker 1: that might even be a healthy thing. But the problem

479
00:26:58,000 --> 00:27:01,160
Speaker 1: with investors who trade or spec layers who trade products

480
00:27:01,160 --> 00:27:04,080
Speaker 1: linked to the VIX, whether it's vixed futures, VIX options

481
00:27:04,160 --> 00:27:05,920
Speaker 1: or even a VIX ct F E t in is

482
00:27:05,960 --> 00:27:08,640
Speaker 1: that they think it's tied directly to the VIX index,

483
00:27:08,880 --> 00:27:10,920
Speaker 1: and they don't really understand in most cases that is

484
00:27:10,920 --> 00:27:13,399
Speaker 1: actually tied to vixed futures, which don't move nearly as

485
00:27:13,480 --> 00:27:16,440
Speaker 1: much as the VIX. So unfortunately, I when I often

486
00:27:16,440 --> 00:27:19,040
Speaker 1: caution investors about this when I speak at seminars, is

487
00:27:19,560 --> 00:27:21,760
Speaker 1: you shouldn't spend all of your time trying to predict

488
00:27:21,840 --> 00:27:24,440
Speaker 1: when the next big VIX spike will happen, because it's very,

489
00:27:24,520 --> 00:27:27,719
Speaker 1: very difficult to do. Instead, wait until the VIX happens

490
00:27:27,720 --> 00:27:29,680
Speaker 1: and then take a position that can benefit when the

491
00:27:29,760 --> 00:27:31,600
Speaker 1: VIX comes back down, because we see the VIX come

492
00:27:31,640 --> 00:27:34,760
Speaker 1: back down every time. It's bikes pretty much. So, given

493
00:27:34,760 --> 00:27:37,520
Speaker 1: your experience with derivatives, let's talk about one that's gotten

494
00:27:37,520 --> 00:27:40,640
Speaker 1: a lot of attention. It's gonna start trading on Sunday.

495
00:27:40,760 --> 00:27:44,880
Speaker 1: It's the Bitcoin futures contract. It's come under a lot

496
00:27:44,880 --> 00:27:48,080
Speaker 1: of criticism by a number of big firms. I worried,

497
00:27:48,119 --> 00:27:51,240
Speaker 1: are you about this? Well? I think it's again it's

498
00:27:51,280 --> 00:27:53,720
Speaker 1: definitely a speculative instrument. It's something that we're keeping an

499
00:27:53,760 --> 00:27:56,119
Speaker 1: eye on at Charles Schwab. We we don't aren't prepared

500
00:27:56,160 --> 00:27:59,360
Speaker 1: to make any changes at this point. Um. I think

501
00:27:59,400 --> 00:28:01,920
Speaker 1: what has been driving the bitcoin price, and the reason

502
00:28:01,920 --> 00:28:04,200
Speaker 1: it's we've seen such a dramatic rise, not just this

503
00:28:04,280 --> 00:28:07,200
Speaker 1: year it's but in just really the last few weeks

504
00:28:07,680 --> 00:28:09,680
Speaker 1: is the introduction of the VIX futures. I think those

505
00:28:09,720 --> 00:28:13,520
Speaker 1: who own I'm sorry, of bitcoin futures. Those who own bitcoin,

506
00:28:13,640 --> 00:28:17,600
Speaker 1: I believe think that that if futures are launched and

507
00:28:17,680 --> 00:28:20,840
Speaker 1: it provides the avenue for many more investors to get

508
00:28:20,880 --> 00:28:23,320
Speaker 1: into bitcoin than who are currently in it, that it

509
00:28:23,359 --> 00:28:25,080
Speaker 1: will likely drive the price higher. That may or may

510
00:28:25,080 --> 00:28:26,919
Speaker 1: not be the case, but I think that's what what

511
00:28:27,119 --> 00:28:29,879
Speaker 1: may be driving the price of bitcoin right now. All right,

512
00:28:29,960 --> 00:28:32,960
Speaker 1: as you are an expert in the world of trading

513
00:28:33,040 --> 00:28:38,280
Speaker 1: and derivatives, have you seen a convergence between futures and

514
00:28:38,440 --> 00:28:41,360
Speaker 1: options because they used to be pretty separate in terms

515
00:28:41,440 --> 00:28:44,680
Speaker 1: of the way you would position of portfolio and as

516
00:28:44,680 --> 00:28:48,880
Speaker 1: a manager, you wouldn't necessarily mix the two. But that

517
00:28:48,960 --> 00:28:52,040
Speaker 1: line seems to have been blurred completely. Well. Back in

518
00:28:52,080 --> 00:28:55,080
Speaker 1: the old days, futurest firms were separate and unique in

519
00:28:55,160 --> 00:28:58,120
Speaker 1: most cases from regular brokerage firms that would typically trade

520
00:28:58,120 --> 00:29:01,640
Speaker 1: stocks ETFs options, but the futures business was kind of separate.

521
00:29:01,640 --> 00:29:03,800
Speaker 1: What happened in many cases and and Charles Schwab is

522
00:29:03,840 --> 00:29:06,840
Speaker 1: a good example of that is that firms that were

523
00:29:07,000 --> 00:29:09,840
Speaker 1: traditionally stock and option and mutual fund brokers have also

524
00:29:10,000 --> 00:29:12,360
Speaker 1: acquired or gotten into the futures business. We acquired a

525
00:29:12,400 --> 00:29:15,520
Speaker 1: company called Options Express, with most people know, we recently

526
00:29:15,760 --> 00:29:18,880
Speaker 1: finished the final integration and so futures is a part

527
00:29:18,880 --> 00:29:21,240
Speaker 1: of our product mix and it's become a much more

528
00:29:21,240 --> 00:29:24,600
Speaker 1: broadly accepted product to mainstream investors, where in the old

529
00:29:24,680 --> 00:29:26,560
Speaker 1: days it really wasn't in it. I think it was

530
00:29:26,600 --> 00:29:29,000
Speaker 1: the introduction this probably goes back maybe almost ten to

531
00:29:29,040 --> 00:29:32,080
Speaker 1: fifteen years, the introduction of the mini stized contracts, which

532
00:29:32,120 --> 00:29:35,680
Speaker 1: really made futures um accessible to We didn't have to

533
00:29:35,680 --> 00:29:38,040
Speaker 1: put a huge amounts of collateral and with the many

534
00:29:38,080 --> 00:29:40,520
Speaker 1: size contracts that's no longer necessary. So that made it

535
00:29:40,600 --> 00:29:45,080
Speaker 1: really much more acceptable and and really um attainable product.

536
00:29:45,120 --> 00:29:47,320
Speaker 1: If you will, to a retail investor, do you watch

537
00:29:47,440 --> 00:29:50,280
Speaker 1: the volume levels? Do you watch the interest level that

538
00:29:50,640 --> 00:29:55,920
Speaker 1: customers expressed by using that that platform. At schwap, certainly

539
00:29:55,960 --> 00:29:58,200
Speaker 1: we do um. We don't publish those numbers. We try

540
00:29:58,240 --> 00:30:00,280
Speaker 1: to group them all together with our trading ball milliames.

541
00:30:00,400 --> 00:30:04,440
Speaker 1: But I will say that one thing that has limited

542
00:30:04,440 --> 00:30:07,400
Speaker 1: to some extent the growth and futures to retail investors.

543
00:30:07,440 --> 00:30:09,600
Speaker 1: Is also the introduction of many, many E t f

544
00:30:09,680 --> 00:30:11,640
Speaker 1: s and e t n s that have access to

545
00:30:11,680 --> 00:30:15,080
Speaker 1: the futures market. So those who don't want to provide

546
00:30:15,120 --> 00:30:18,120
Speaker 1: that ability to trade futures directly can get access to

547
00:30:18,200 --> 00:30:21,000
Speaker 1: that through their regular equity positions using e t n

548
00:30:21,040 --> 00:30:22,040
Speaker 1: s and e t f So I think to some

549
00:30:22,120 --> 00:30:24,560
Speaker 1: extent that has cannibalized a bit of the futures business.

550
00:30:25,000 --> 00:30:26,840
Speaker 1: All right, well, well done, Thank you very much for

551
00:30:26,880 --> 00:30:30,120
Speaker 1: being with us. Randy Frederick, vice president of Trading and

552
00:30:30,120 --> 00:30:35,000
Speaker 1: Derivatives for the Schwab Center for Financial Research based in Austin, Texas,

553
00:30:35,000 --> 00:30:38,080
Speaker 1: and you can follow Randy on Twitter at Randy A.

554
00:30:38,600 --> 00:30:41,920
Speaker 1: Frederick and that's F R E D E R I

555
00:30:42,240 --> 00:30:44,000
Speaker 1: C K. Thank you very much for being here. Looking

556
00:30:44,000 --> 00:30:46,200
Speaker 1: forward to, of course, so speaking with you in the future.

557
00:30:52,560 --> 00:30:55,120
Speaker 1: Thanks for listening to the Bloomberg P and L podcast.

558
00:30:55,440 --> 00:30:59,360
Speaker 1: You can subscribe and listen to interviews at Apple Podcasts, SoundCloud,

559
00:30:59,480 --> 00:31:02,920
Speaker 1: or whatever podcast platform you prefer. I'm pim Fox. I'm

560
00:31:02,960 --> 00:31:06,960
Speaker 1: on Twitter at pim Fox. I'm on Twitter at Lisa Abramo.

561
00:31:07,080 --> 00:31:09,680
Speaker 1: It's one before the podcast. You can always catch us

562
00:31:09,720 --> 00:31:11,280
Speaker 1: worldwide on Bluebirg Radio