Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm pim Fox.
Speaker 1: Along with my co host Lisa Bramowitz. Each day we
Speaker 1: bring you the most important, noteworthy, and useful interviews for
Speaker 1: you and your money, whether you're at the grocery store
Speaker 1: or the trading floor. Find the Bloomberg p m L
Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Legendary
Speaker 1: Vanguard founder Jack Bogel sat down with us to discuss
Speaker 1: his thoughts on the geop plan, Bitcoin and his outlook
Speaker 1: for the bondom market. We kick things off by discussing
Speaker 1: Jack's thoughts on the e t F business. Where I
Speaker 1: began was asking him about the freight train that is
Speaker 1: destined to be a ten trillion dollar firm within the
Speaker 1: next few years Vanguard, and whether he was worried at
Speaker 1: all about how quickly the E t F industry was
Speaker 1: amassing assets. Take a listen, Well, those two things don't
Speaker 1: go to two together very well. Our strength at Vanguard
Speaker 1: has been the traditional index fund, the S and P
Speaker 1: five hundered total stock market, which I started way back
Speaker 1: in in and that has been our strength. Were that
Speaker 1: market and that traditional index fund market. I'll buy an
Speaker 1: old market broad market is about half of the index
Speaker 1: business and the E t F business is the other
Speaker 1: half of the business, and they are totally different. They
Speaker 1: both have passive investment policies, but the traditional index funds
Speaker 1: have passive investors, and that the e t f s
Speaker 1: have active investors. So e t fs have heavy trading
Speaker 1: and they have a lot more speculation. They have a
Speaker 1: product line so called that that has very speculative funds.
Speaker 1: So I'm I wouldn't I wouldn't. I wouldn't predict that
Speaker 1: that that would continue to flourish. You know, we have
Speaker 1: data here that shows that e t f have had
Speaker 1: as ten years is a four point seven annual return
Speaker 1: and the traditional index fund about a seven point one
Speaker 1: percent annual return. There was the e t f s
Speaker 1: have not worked out well for investors. I don't know
Speaker 1: why nobody knows this. So in a decade, the traditional
Speaker 1: index funds up about cumulatively and the E t F
Speaker 1: I mean, that's not that's not a strong record. This
Speaker 1: is this is a really compelling point you're making. E
Speaker 1: t f s have not worked out well for investors.
Speaker 1: Are you concerned that they're going to taint the record
Speaker 1: of indexed funds because they are being treated, uh, synonymously. Well,
Speaker 1: I think there's a different, for the want of a
Speaker 1: better word, a different ethic and e t s. It's
Speaker 1: by the factors. It's leverage. It's finding narrow niches in
Speaker 1: the market very quickly to see if you can bring
Speaker 1: a lot of the sheep in to share them. One
Speaker 1: of the most recent e t F was long electronic marketing,
Speaker 1: actually your retail marketing. I mean, that's an interesting idea,
Speaker 1: it might even work, but some entrepreneur jumps on that
Speaker 1: bandwagon and says, now he can package it for you.
Speaker 1: It's a very entrepreneurial business, or, to use a phrase
Speaker 1: that the great Henry Kaufman once used, is populated in
Speaker 1: many respects by financial buccaneers. So it's a different business.
Speaker 1: It's finding product to sell and because there's a great
Speaker 1: market among brokers and investment advisers who want to sell it.
Speaker 1: When they want something to sell every day, they have
Speaker 1: to sell something every day. And that seeks the sort
Speaker 1: of the rationale for the business trading, trading, trading, and
Speaker 1: you see it most clearly, and it's a little bit
Speaker 1: of an off beat et F to say the least.
Speaker 1: The spider, but it trades. They brag about it fifteen
Speaker 1: billion dollars an hour or something, and yeah, it turns
Speaker 1: over at about two or three thousand percent a year.
Speaker 1: And it's banks trading with one And that's that's a
Speaker 1: very different implication for the future of the E T
Speaker 1: F business than the than the more or less retail
Speaker 1: business that people are buying speculatives E T S. Mr Bogel,
Speaker 1: you talk about financial buccaneers. I'm gonna throw a couple
Speaker 1: of topics that you want your thoughts. Bitcoin and cryptocurrencies. Well,
Speaker 1: I'm not so good as crypto, but let's talk about bitcoin.
Speaker 1: Bitcoin is a speculation. Why is this speculation because there's
Speaker 1: no underlying rate of return. Just like gold, stocks have
Speaker 1: earnings and dividends, bonds have have interest coupons to hold
Speaker 1: their value up. But the bitcoin has nothing in its
Speaker 1: value except that you want to sell it to somebody
Speaker 1: more than you paid for it. Well, that's about as
Speaker 1: good a definition as you can get. It may be
Speaker 1: a great speculation, that's the funny part of it. But
Speaker 1: as I said the other day, um, and the bitcoin
Speaker 1: was then only about ten thousand, and you know, there's
Speaker 1: a speculation that I would have liked to plague, And
Speaker 1: I said, if it gets to twenty thousand, don't talk
Speaker 1: to me. Waitfil it gets back to a hundred, all right,
Speaker 1: they may not be buccaneers. Much of thoughts on the
Speaker 1: GOP's tax overhaul plan, as you know it. I think
Speaker 1: it's very unfortunate. I think it has a grave moral
Speaker 1: issues in favoring the wealthiest people in the country that
Speaker 1: compared to the people who are doing all the hard
Speaker 1: work just seems crazy. Uh. I think it's really bad
Speaker 1: some little pieces of policy. You know, this is a
Speaker 1: country that's supposed to be helping education, and they put
Speaker 1: some new some taxes on young men and women who
Speaker 1: are teachers and get fringe benefits. And then they've they've
Speaker 1: stopped the deductibility of interest on college loans, and those
Speaker 1: two things hurt education. Well. And what to what, avail
Speaker 1: I asked? The fusion of wealth, the gap in wealth
Speaker 1: between the rich and the poor is very upsetting to
Speaker 1: a good nation, a good society, and they made it worse.
Speaker 1: Rubs other than not, I love it real quick. Last question,
Speaker 1: I'm just wondering. You said in recent comments that stock
Speaker 1: returns are likely to be about four percent over the
Speaker 1: next decade. What about bonds and where do you think
Speaker 1: are the most promising assets at this point? Well, stock returns.
Speaker 1: I've been doing this for twenty five years and ten
Speaker 1: years in ten year in ten year intervals, and my
Speaker 1: prognostications for stocks have been about correlation with what happened,
Speaker 1: and my view bond views are about of what happened. Correlation.
Speaker 1: But the reason bonds are really easy. It should be
Speaker 1: a number of around three percent per year over the
Speaker 1: next decade because the only return you get on a
Speaker 1: bond is from the interest coupon. And so you have
Speaker 1: a portfolio half of corporate bonds and half of the
Speaker 1: ten year the ten year treasury, very conservative with a
Speaker 1: with a corporate half, and that gives you about three
Speaker 1: percent today and so that that's that's what you will
Speaker 1: get in the next ten years. Of interest rates go down,
Speaker 1: the prices will go up, but over ten years that's
Speaker 1: up to even out. That's a huge problem for pensions
Speaker 1: with an eight a huge problem. It's totally defeating. The
Speaker 1: pension funds are not going to be able to meet
Speaker 1: their seven and a half or eight percent obligation. And
Speaker 1: the curious thing is that back in the guess late eighties,
Speaker 1: don't hold me the exact date when then, when treasuries
Speaker 1: were yielding eight and the pension plans had about a
Speaker 1: five percent return projection eight percent for bonds, five percent
Speaker 1: projection for pensions. And now treasurers are yielding two and
Speaker 1: a half or three depending on whatever you take, and
Speaker 1: engines are yielding seven. And I think it is almost
Speaker 1: a given that it will end badly, Mr Boggle, Do
Speaker 1: you believe that artificial intelligence and robo advisors will do
Speaker 1: away with the human touch when it comes to investment advice, Well,
Speaker 1: they will do away with some of it. Uh but
Speaker 1: but but what's what's happening mostly in then the robo
Speaker 1: area is they're using conventional index funds like the S
Speaker 1: and P five hundred Bangardis and P five hundered. I
Speaker 1: think that's the largest investment at the betterment m or
Speaker 1: and maybe maybe some of the others. So they're they're
Speaker 1: just it's that they've been doing so far mostly asset allocation,
Speaker 1: and there's no harm done in that. Their asset allocation
Speaker 1: looks very much like you know, sort of a sixt
Speaker 1: thing generally up or down, maybe with a age or
Speaker 1: or aggressiveness of the investor. So maybe it's I think
Speaker 1: it's less art Artificial intelligence than asset allocation is a
Speaker 1: simple matter. You don't have to beat it to death
Speaker 1: with data. As for artificial intelligence out there, I read
Speaker 1: somewhere that people that are trained in artificial intelligence in college,
Speaker 1: after a couple of years gonna make a half million
Speaker 1: dollars a year, And I think that's wonderful. But I
Speaker 1: keep wondering how much people that have real intelligence will make.
Speaker 1: Now was Jack Bogel. He is the founder and retired
Speaker 1: chief executive of the Vanguard Group and the author of
Speaker 1: Common Sense on Mutual Funds, New Imperatives for the Intelligent Investor.
Speaker 1: I'm pim Fox along with Lisa Bramo wits This is Bloomberg.
Speaker 1: Protests are breaking out in Gaza, Turkey, Germany over President
Speaker 1: Trump's decision to move the US embassy in Israel to Jerusalem,
Speaker 1: recognizing that as the capital. This, of course the subject
Speaker 1: of a longstanding debate and controversy in the region, given
Speaker 1: the tensions between the Israelis and the Palestinians. Here to
Speaker 1: talk about it is Daniel Gordis. He is a Bloomberg
Speaker 1: View columnist as well as a senior vice president and
Speaker 1: court Distinguished Fellow at shell M College in Jerusalem, and
Speaker 1: he joins us now, Daniel, thank you so much. What
Speaker 1: is it? Just to start with, what's the mood like?
Speaker 1: There is there an increased kind of tension and expectation
Speaker 1: of violence around UH President Trump's decision. It's an interesting question.
Speaker 1: I think that yesterday, in the advance of the declaration
Speaker 1: and immediately after, there was a pretty widespread sense here
Speaker 1: that if there was any violence, it was going to
Speaker 1: be pretty sporadic and it would pretty much peter out
Speaker 1: relatively quickly. I think people are a little bit less
Speaker 1: confident about that right now. I don't think that anybody
Speaker 1: is quite panicking yet. But there have been there have
Speaker 1: been conflicts all along the border between Israel and the
Speaker 1: West Bank UM. According to the his reports, several dozen
Speaker 1: Palestinians have been injured. I haven't read of any deaths,
Speaker 1: and I haven't read of any injuries on the side
Speaker 1: of the israelis UM. But colleague of mine who was
Speaker 1: working from home today, who works in Maldumim, which is
Speaker 1: UH inside the West Bank. It's a city that's very
Speaker 1: much controversial because it's gone on an extension of Jerusalem
Speaker 1: into the West Bank. She told me that the city
Speaker 1: was ringed with security people, that they were just making
Speaker 1: sure that people did not get into the city. So
Speaker 1: I thought my senses and we heard, by the way,
Speaker 1: helicopter is all in the sky this afternoon. So it
Speaker 1: may be materializing into a little bit more violence than
Speaker 1: some people had expected. But there's certainly no panic on
Speaker 1: the streets and no panic. And as people are talking,
Speaker 1: Daniel Gordis, you know in your good book Israel, a
Speaker 1: Concise History of a Nation Reborn, you talk about the
Speaker 1: role that Jerusalem plays in the history of the region
Speaker 1: and specifically in the founding of the state of Israel.
Speaker 1: I'm wondering if you could just provide us with some
Speaker 1: context for Jerusalem, not only as a geographic location, but
Speaker 1: as a political location. Right. So, Jerusalem was not included
Speaker 1: actually in the borders that the United Nations gave to Israel,
Speaker 1: and that very famous photo of November nineteen seven, when
Speaker 1: the UN General Assembly created a Jewish state and an
Speaker 1: Arab state, Jerusalem is going to be a kind of
Speaker 1: an internationally monitored area. The Israelis were very unhappy with
Speaker 1: that because they wanted Jerusalem to be their capital, but
Speaker 1: they accepted the UN deal. Uh. The Arabs, of course
Speaker 1: did not accept the deal, launched the war, and in
Speaker 1: the course of that war, Israel captured West Jerusalem. It
Speaker 1: did not capture East Jerusalem, which it did not get
Speaker 1: until the nineteen sixty seven war when Jordan's despite pleas
Speaker 1: from the Israeli government, decided to enter that war as well.
Speaker 1: So Israel has always since nineteen forty nine recognized West
Speaker 1: Jerusalem as its capital and as one of the rest
Speaker 1: of the world to recognize it. It's the only country
Speaker 1: in the world that other countries don't recognize its capital
Speaker 1: as its capital. When Israelis are always scratching their heads
Speaker 1: saying West Jerusalem is clearly not going back. So why
Speaker 1: can't the west of the role just acknowledge West Jerusalem
Speaker 1: as the capital of Israel and Easter Rusalaman will get
Speaker 1: resolved when the result, when the situation where the Palestinians
Speaker 1: gets resolved. Um. And so I think that you know,
Speaker 1: from a from a religious standpoint, it's very important to Jews,
Speaker 1: it's very important to Moslims, it's very important to Christians.
Speaker 1: But this is what you correctly plant on there's nothing
Speaker 1: to do with the religious issus. It's all about politics.
Speaker 1: And I think what the President did yesterday was basically
Speaker 1: to say, and he said it himself, you just a
Speaker 1: matter of recognizing reality. I mean, as he pointed out,
Speaker 1: the Supreme Court is here, the Parliament is here, the
Speaker 1: President lives here, the Prime Minister lives here, the vast
Speaker 1: majority of government offices are here. Always basically saying is
Speaker 1: that what we're gonna do is stop capitulating to the
Speaker 1: fear of violence, and we're gonna call reality what it is,
Speaker 1: which is that West Jerusalem is the capital of Israel.
Speaker 1: Well here, here's just just to push back on that.
Speaker 1: I mean, a lot of people are saying that this
Speaker 1: move by President Trump has undermined a US role in
Speaker 1: the peace prod, says has inflamed tensions. Uh Hamas has
Speaker 1: called for an antifata against Israel this morning, and you
Speaker 1: have to wonder, at what point is it worth it,
Speaker 1: I mean, just for to make a political statement. Well,
Speaker 1: that's a great question. So first of all, obviously if
Speaker 1: this blows up into a major conflagration, uh, then one
Speaker 1: could very reasonably ask whether it was worth it or not.
Speaker 1: I think most people who are still banking on the
Speaker 1: idea because it doesn't actually change any reality on the ground.
Speaker 1: Most people are banking on the idea that it's not
Speaker 1: going to become a major conflagration. But you're right, if
Speaker 1: this gets out of hand, then the question of whether
Speaker 1: it's worth it is certainly a very good question. I
Speaker 1: think that in terms of, you know, the question of
Speaker 1: whether or not the president has really kind of moved
Speaker 1: the United States out of being a legitimate arbiter in
Speaker 1: the in the process. I mean, first, well, let's remember that,
Speaker 1: you know, countless presidents, Republicans and Democrats alike, have seen
Speaker 1: the United States as an important arbiter and has gotten
Speaker 1: us nowhere. And I'm speaking as someone who was in
Speaker 1: favor of the creation of a Palestinian state, as someone
Speaker 1: who's not a huge fan of the current president. But
Speaker 1: I think that what he said was, uh, you know,
Speaker 1: basically true. We haven't we have we as America have
Speaker 1: not been able to move this process forward and and
Speaker 1: sort of capitulating to this Palestinian demand that we not
Speaker 1: acknowledge West Jerusalem as the capital of Israel has gotten
Speaker 1: us nowhere. So since it has gotten us nowhere, let's
Speaker 1: at least call reality on the ground where it is.
Speaker 1: That's my sense, but obviously reasonable minds cannon do differ,
Speaker 1: and there are both Disraeli leaders and as well as
Speaker 1: American Jewige leaders on both sides of this divide. Daniel,
Speaker 1: what has been the reaction, if any, in Arab capitals
Speaker 1: around the region, and is the status of Jerusalem as
Speaker 1: important to them now as it once was. Perhaps the
Speaker 1: reaction is exactly what you'd expect. They're all decrying it
Speaker 1: and saying it's a terrible idea, and so farth that's
Speaker 1: part of the sort of the ritual that has to
Speaker 1: get played here. I think the much deeper issue, and
Speaker 1: it's a sad one for the Palestinians, quite frankly, is
Speaker 1: that the Palestinian issue was simply not nearly as important
Speaker 1: to the Arab world as the palest Indians wish it
Speaker 1: would be, and it's not as important to the Arab
Speaker 1: world as it once was. I mean, take Saudi Arabia
Speaker 1: for example, which did speak out because that's what it
Speaker 1: has to do, but Suni Arabia doesn't care one little bit.
Speaker 1: Sni Arab was worried about Iran and it needs American
Speaker 1: and Israeli cooperation on the Iranian on the Irmanian issues.
Speaker 1: So they'll speak out today, they make sure that they can,
Speaker 1: you know, sort of make a check mark next do
Speaker 1: we spoke out against it. But Saudi Arabia couldn't care less.
Speaker 1: Egypt has completely suppressed Palestinian protests in the streets over
Speaker 1: the last few years under LCC. So Egypt's not a
Speaker 1: big help over the course of the years. Even when
Speaker 1: Saidat and Manacha began negotiated the return of the Sinai,
Speaker 1: said Dot insisted that if he was going to get
Speaker 1: the sign I back and sign a deal with Israel,
Speaker 1: Israel also not to create a Palestinian state, and began
Speaker 1: said no, And so that's where we are. Daniel gordis
Speaker 1: Bloomberg View, Colamus, thank you very much. He's also the
Speaker 1: author of Israel, A Concise History of a Nation. Reborn
Speaker 1: the founder, one of the co founders and the head
Speaker 1: of a Carlisle Group, the private equity firm. David Rubinstein
Speaker 1: was talking about infrastructure yesterday. He said that he hoped
Speaker 1: Congress would have passed an infrastructure bill by now. Well,
Speaker 1: let's find out about why that hasn't happened. Perhaps and
Speaker 1: what could be done to move this along. We have
Speaker 1: an expert when it comes to infrastructure. Bill Sandbrook is
Speaker 1: the chief executive of the US Concrete and he joins
Speaker 1: us here in our leven three oh studios. Bill, thank
Speaker 1: you very much for it coming in. So what would
Speaker 1: you say to someone like David Rubinstein? He says, Look,
Speaker 1: he says, you've got low rates, But most of the
Speaker 1: US infrastructure is state and local, it is not federal.
Speaker 1: Why can't we get infrastructure done? No, it's a very
Speaker 1: good question. We were very hopeful people in our industry,
Speaker 1: and obviously both parties had platforms that advocated a trillion
Speaker 1: dollar spend before either winner was announced, and in fact,
Speaker 1: at President Trump's inauguration, the second thing he mentioned was
Speaker 1: one of his top was his top priority was infrastructure spent.
Speaker 1: And we have been disappointed that it hasn't been more forthcoming. However,
Speaker 1: having said that, there were priorities that need to be chosen,
Speaker 1: and the priorities were health regulatory reform, healthcare reform, taxes,
Speaker 1: and then infrastructure came forth, and there were fourth because
Speaker 1: and there were reasons for that sequence. So I'm patient
Speaker 1: this problem has not developed overnight. This problem is not
Speaker 1: going to be fixed overnight. So if it's pushed a
Speaker 1: year or a number of months, as it looks like
Speaker 1: it's going to be pushed into next year, I'm not
Speaker 1: despondent about that. The needs continue to grow and I
Speaker 1: think the federal government's going to have to address it
Speaker 1: one way or another. And there is by parts and
Speaker 1: support for it bill. Do you have a sense of
Speaker 1: how it would take place, how big it would be,
Speaker 1: as well as where the money would go. Would it
Speaker 1: go to projects that would apply uh for funding? Would
Speaker 1: it go to public private kind of partnerships that we
Speaker 1: then invest in. What's your sense it's gonna be a
Speaker 1: combination of of all the above. The public private partnerships
Speaker 1: are one piece of it. And if you remember is
Speaker 1: this has transpired, the administration was really hanging the hat
Speaker 1: on that that would be the lynchpin of any further
Speaker 1: any additional spend or increased spending. That has moderated to
Speaker 1: some extent, there is talk about gas tax increases. At
Speaker 1: least the administration doesn't have them dead on arrival. It
Speaker 1: does come down to funding eventually, funding and priorities. There
Speaker 1: is a list of fifty top priority infrastructure projects in
Speaker 1: the country that the governors developed and has been put
Speaker 1: to the Secretary of Transportation. One critical one. It's the
Speaker 1: Gateway project that links new work in New York City
Speaker 1: with a new tunnel, a new rail tunnel and whatnot. UM.
Speaker 1: I think over time these things are going to happen.
Speaker 1: The devil's in the details of funding. And it's been
Speaker 1: like that since, so no change there. You know, you've
Speaker 1: been on a little bit of an acquisition trail, and
Speaker 1: I'm wondering if you could describe what you've done, particularly
Speaker 1: in California, but also why why acquire rather than building?
Speaker 1: That kind of highlights this idea of trying to get
Speaker 1: the permits and trying to deal with local and you know,
Speaker 1: state municipalace on in order to make you business. You know,
Speaker 1: it's a very insightful question. Both coasts California particularly, it's
Speaker 1: very difficult to get through any environmental permitting process for
Speaker 1: whether it be an infrastructure project like a road, an airport,
Speaker 1: or an industrial manufacturing facility. We operate in heavily urbanized
Speaker 1: environments where permitting is extremely difficult UM. And to that end,
Speaker 1: we just made an acquisition on November seventeenth, Polaris Material
Speaker 1: is a big quarry in Canada. Because California arrogates are
Speaker 1: being depleted rapidly and there are no new quarries coming online. Therefore,
Speaker 1: the cost of arrogates are becoming ever expensive. We had
Speaker 1: an opportunity to buy this quarry and ship arrogates down
Speaker 1: into our facilities in San Francisco so we can be
Speaker 1: self sufficient. It helps our profitability. Uh and and as well,
Speaker 1: we got a terminal in in Los Angeles because we
Speaker 1: are growing through acquisition and expansion, which now gives us
Speaker 1: a beachhead into consolidate in the Los Angeles market. Considering
Speaker 1: that you made a purchase in Canada, it's important to
Speaker 1: look at what the trade relationship will be with the
Speaker 1: US and Canada and elsewhere. And I'm just wondering, have
Speaker 1: the increased tensions around trade affected you at all? Do
Speaker 1: you expect them to affect you? Do you think that
Speaker 1: they have been overblown? Now? I think they're they're valid.
Speaker 1: I don't expect them to impact arrogance. Arrogates have been
Speaker 1: shipped on both coasts from Canada because of the the
Speaker 1: inability to get new permits in the New York area,
Speaker 1: for instance, or in California. The arrogates have to come
Speaker 1: from somewhere. Um, they're very expensive to travel by truck,
Speaker 1: long distances from inland, so that sheer economics of it
Speaker 1: will underpin the ability of it long term. I'm not
Speaker 1: overly word about free trade, the Canadian Trade Pact as
Speaker 1: it relates to arrogance. Talk about the raising money, whether
Speaker 1: it's in the debt markets, you don't have a lot
Speaker 1: of that. I think about six million in total. Uh,
Speaker 1: easy to access money right now, I mean people throwing
Speaker 1: money at you to say, g you know, we're looking
Speaker 1: for yields, so why don't you borrow someone go out
Speaker 1: and buy a bunch of Yeah, that's that's very interesting. Uh.
Speaker 1: We've been very successful over the last six years with
Speaker 1: our strategy. With success comes the the benefits of having
Speaker 1: people want to loan your money so you can continue
Speaker 1: to be successful. So I think it would be easy
Speaker 1: to access at this time. Whether we would take that
Speaker 1: on as debt or equity would depend on the amount
Speaker 1: of money we need. And we are a cyclical business though,
Speaker 1: so we have to be very cognizant that the good
Speaker 1: times that we have now, you know, they won't last forever.
Speaker 1: Despite any governmental policy. Despite our hope, construction is a
Speaker 1: cyclical business and we have to be mindful that real quick.
Speaker 1: When do you think that the cycle will start turning
Speaker 1: well with the tax reform? I continue to move that,
Speaker 1: I continue to move this out. You have to remember
Speaker 1: this has been a historically slow recovery at very low rates,
Speaker 1: which is act think good because we're preventing new new
Speaker 1: peaks and new bubbles, and the extent it continues at
Speaker 1: this gradual pace. I think the tax reform is going
Speaker 1: to extend in another two years. I'm looking into two.
Speaker 1: But that's I'm not a I'm not a clairvoyant. Well
Speaker 1: you'll have to I'll pull out by Christo Ball and
Speaker 1: you can try your hand. Bill Sandbrook, thank you so
Speaker 1: much for joining us. Bill sandbrooks CEO of US Concrete
Speaker 1: here talking about the infrastructure plans that are evidently in
Speaker 1: the works. We just are going to have to wait
Speaker 1: to see them. A Lisa brom WIT's along with pim Fox,
Speaker 1: this is Bloomberg. Individual investors are plowing their money into
Speaker 1: US stocks at a record pace, at least by one measure,
Speaker 1: raising a big question are they coming in too late
Speaker 1: when the stocks are too valuable and are destined to
Speaker 1: cool off. Here to answer that question is Randy Frederick.
Speaker 1: He is vice president of Trading Undervatives for the Schwab
Speaker 1: Center for Financial Research, which is based in Austin, but
Speaker 1: he joins us here in our eleven three oh studios. Randy, um,
Speaker 1: are you concerned about the flood of retail cash and
Speaker 1: just sort of the general increase and allocations to US equities?
Speaker 1: Not yet? So the question is are they coming in
Speaker 1: too late? I would say they're coming in late in
Speaker 1: the game, but it's probably not too late. I would say.
Speaker 1: For the first eight years of this bullmarket, the big
Speaker 1: question that I got at all the client events I
Speaker 1: got and my counterparts heard the same thing, was what's
Speaker 1: the next shoe to drop? When is this all going
Speaker 1: to in? What's going to cause the max ash. It's
Speaker 1: only been within about the last quarter, last three or
Speaker 1: four months that we've actually seen a shift and investor
Speaker 1: sentiment to, oh, this rally is legitimate. This bullmarket does
Speaker 1: have some legs, and part of that, I think is
Speaker 1: that we've got an incredibly solid fundamental backdrop and we
Speaker 1: frankly think that's going to continue at least into the
Speaker 1: first half of next year. Doesn't worry you that now
Speaker 1: you've got people who were bearished turning bullish to some extent.
Speaker 1: It does what. It doesn't mean we're at the end.
Speaker 1: It may mean that we're at the very beginning stages
Speaker 1: of what could end up being the end, but the
Speaker 1: end could well be a year into the future. And
Speaker 1: in fact, historically, when you start to see all of
Speaker 1: the even the most ardent skeptics come into the market,
Speaker 1: it may be the sign of the beginning, but many
Speaker 1: times that has lasted more than a year, maybe even
Speaker 1: a year and a half to two years after that.
Speaker 1: So it does have some sort of assignment. It does
Speaker 1: definitely does not point to a top just yet. All right,
Speaker 1: I want to ask you about something that we met
Speaker 1: we report on on a regular basis, and this has
Speaker 1: to do with the VIX, the volatility index. Does this
Speaker 1: really matter anymore to people still use the options that
Speaker 1: are linked to the VIX in order to speculate, or
Speaker 1: has this become an indicator whose time is kind of
Speaker 1: come and gone. Well, so, I've been studying the VIX
Speaker 1: ever since first and came out in fact that it
Speaker 1: was it was created the month before I started working
Speaker 1: with Charles Schwaback in so I've been and being involved
Speaker 1: in derivatives and and volatility and all these things. I've
Speaker 1: sort of been studying it every day since then. So yes,
Speaker 1: I think it still matters because what it really tells us,
Speaker 1: and this is where the problem comes in, I think
Speaker 1: with retail investors and some of these products that are
Speaker 1: allegedly linked to the VIX, is that it really tells
Speaker 1: you how much the institutional funds are hedging a large
Speaker 1: market downturn, and the fact that we've had historically low
Speaker 1: levels of the VIX forty five days I think it
Speaker 1: is that we've closed below ten this year, where right
Speaker 1: now just ten point one five roundheard of. It just
Speaker 1: simply means that those who run the big institutional hedge
Speaker 1: funds are not concerned of a major downturn. That doesn't
Speaker 1: mean we couldn't get a five percent pullback, and frankly,
Speaker 1: that might even be a healthy thing. But the problem
Speaker 1: with investors who trade or spec layers who trade products
Speaker 1: linked to the VIX, whether it's vixed futures, VIX options
Speaker 1: or even a VIX ct F E t in is
Speaker 1: that they think it's tied directly to the VIX index,
Speaker 1: and they don't really understand in most cases that is
Speaker 1: actually tied to vixed futures, which don't move nearly as
Speaker 1: much as the VIX. So unfortunately, I when I often
Speaker 1: caution investors about this when I speak at seminars, is
Speaker 1: you shouldn't spend all of your time trying to predict
Speaker 1: when the next big VIX spike will happen, because it's very,
Speaker 1: very difficult to do. Instead, wait until the VIX happens
Speaker 1: and then take a position that can benefit when the
Speaker 1: VIX comes back down, because we see the VIX come
Speaker 1: back down every time. It's bikes pretty much. So, given
Speaker 1: your experience with derivatives, let's talk about one that's gotten
Speaker 1: a lot of attention. It's gonna start trading on Sunday.
Speaker 1: It's the Bitcoin futures contract. It's come under a lot
Speaker 1: of criticism by a number of big firms. I worried,
Speaker 1: are you about this? Well? I think it's again it's
Speaker 1: definitely a speculative instrument. It's something that we're keeping an
Speaker 1: eye on at Charles Schwab. We we don't aren't prepared
Speaker 1: to make any changes at this point. Um. I think
Speaker 1: what has been driving the bitcoin price, and the reason
Speaker 1: it's we've seen such a dramatic rise, not just this
Speaker 1: year it's but in just really the last few weeks
Speaker 1: is the introduction of the VIX futures. I think those
Speaker 1: who own I'm sorry, of bitcoin futures. Those who own bitcoin,
Speaker 1: I believe think that that if futures are launched and
Speaker 1: it provides the avenue for many more investors to get
Speaker 1: into bitcoin than who are currently in it, that it
Speaker 1: will likely drive the price higher. That may or may
Speaker 1: not be the case, but I think that's what what
Speaker 1: may be driving the price of bitcoin right now. All right,
Speaker 1: as you are an expert in the world of trading
Speaker 1: and derivatives, have you seen a convergence between futures and
Speaker 1: options because they used to be pretty separate in terms
Speaker 1: of the way you would position of portfolio and as
Speaker 1: a manager, you wouldn't necessarily mix the two. But that
Speaker 1: line seems to have been blurred completely. Well. Back in
Speaker 1: the old days, futurest firms were separate and unique in
Speaker 1: most cases from regular brokerage firms that would typically trade
Speaker 1: stocks ETFs options, but the futures business was kind of separate.
Speaker 1: What happened in many cases and and Charles Schwab is
Speaker 1: a good example of that is that firms that were
Speaker 1: traditionally stock and option and mutual fund brokers have also
Speaker 1: acquired or gotten into the futures business. We acquired a
Speaker 1: company called Options Express, with most people know, we recently
Speaker 1: finished the final integration and so futures is a part
Speaker 1: of our product mix and it's become a much more
Speaker 1: broadly accepted product to mainstream investors, where in the old
Speaker 1: days it really wasn't in it. I think it was
Speaker 1: the introduction this probably goes back maybe almost ten to
Speaker 1: fifteen years, the introduction of the mini stized contracts, which
Speaker 1: really made futures um accessible to We didn't have to
Speaker 1: put a huge amounts of collateral and with the many
Speaker 1: size contracts that's no longer necessary. So that made it
Speaker 1: really much more acceptable and and really um attainable product.
Speaker 1: If you will, to a retail investor, do you watch
Speaker 1: the volume levels? Do you watch the interest level that
Speaker 1: customers expressed by using that that platform. At schwap, certainly
Speaker 1: we do um. We don't publish those numbers. We try
Speaker 1: to group them all together with our trading ball milliames.
Speaker 1: But I will say that one thing that has limited
Speaker 1: to some extent the growth and futures to retail investors.
Speaker 1: Is also the introduction of many, many E t f
Speaker 1: s and e t n s that have access to
Speaker 1: the futures market. So those who don't want to provide
Speaker 1: that ability to trade futures directly can get access to
Speaker 1: that through their regular equity positions using e t n
Speaker 1: s and e t f So I think to some
Speaker 1: extent that has cannibalized a bit of the futures business.
Speaker 1: All right, well, well done, Thank you very much for
Speaker 1: being with us. Randy Frederick, vice president of Trading and
Speaker 1: Derivatives for the Schwab Center for Financial Research based in Austin, Texas,
Speaker 1: and you can follow Randy on Twitter at Randy A.
Speaker 1: Frederick and that's F R E D E R I
Speaker 1: C K. Thank you very much for being here. Looking
Speaker 1: forward to, of course, so speaking with you in the future.
Speaker 1: Thanks for listening to the Bloomberg P and L podcast.
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Speaker 1: or whatever podcast platform you prefer. I'm pim Fox. I'm
Speaker 1: on Twitter at pim Fox. I'm on Twitter at Lisa Abramo.
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