Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm term Keene Jelie.
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Speaker 1: the effects market, the dollar weaker pretty much across the
Speaker 1: board in G ten even against the pound just a
Speaker 1: little bit sterling on the front foot by a tenth
Speaker 1: of one percent at one thirty three fifty as inflation
Speaker 1: in the UK comes in higher than expected, north of
Speaker 1: three percent, which means that Governor Khney has to write
Speaker 1: a letter to the Chancellor about why he's missing his
Speaker 1: inflation target by so much. Howard Ward joins us in
Speaker 1: a studio in New York of Gabelly Funds, the c
Speaker 1: i O of Growth Equities. Can you imagine that, Howard,
Speaker 1: that you missed your target and you've got to write
Speaker 1: a letty your boss that is disclosed publicly as to
Speaker 1: why you haven't met it. Yeah, I'm sure that's uh
Speaker 1: not a lot of fun, But I think it's a
Speaker 1: bit of a wake up call regarding the universal complacency
Speaker 1: regarding inflation amongst the central bankers. Yeah, that inflation can
Speaker 1: come upon us sooner than expected. And uh, and then
Speaker 1: what because it's it's in nobody's expectations here in the
Speaker 1: US that we're going to have an inflation problem anytime soon.
Speaker 1: Lots of headlines about how inflation is still missing in action,
Speaker 1: but it can resurface unexpectedly. So there are some really
Speaker 1: specific issues in the UK, Brexit driven issues, a real
Speaker 1: collapse in Sterling after the Brexit vote. Here in the
Speaker 1: United States, we sit down and prepare for the two
Speaker 1: day meaning of the f WEMC, which concludes tomorrow. Most
Speaker 1: economists expect the rate hike. Everyone expects it to be
Speaker 1: Yelling's last press and we go into next year and
Speaker 1: it's just this unbelievable comfort Howard with how this is
Speaker 1: going to play out of the next couple of years
Speaker 1: and yet on two points and things are going to
Speaker 1: remain us They offer a while, do you believe that? Yeah, Well, actually,
Speaker 1: let me just go back from it and try to
Speaker 1: connect some dots here. Because of the because of the
Speaker 1: lag in monetary policy and in the lag impact that
Speaker 1: low rates have on economic growth, you can uh connect
Speaker 1: the surge that we've had in global economic growth in
Speaker 1: recent months to the breaks it period of June of
Speaker 1: sixteen when we had record low interest rates that's when
Speaker 1: the tenure had one point three percent and uh that
Speaker 1: and so because of the lag, we've had a surge. Well,
Speaker 1: now that lag is ending and we're gonna be going
Speaker 1: into a period where we we we haven't benefited from
Speaker 1: the ultra low rate period that we had then. Now
Speaker 1: rates are still very low. In fact, I still think
Speaker 1: there's eleven countries in the world with negative sovereign yields.
Speaker 1: So you know that is still a bit of an
Speaker 1: artificial situation. But what I do think we are we
Speaker 1: are at a point where growth is not it's not accelerating,
Speaker 1: it's actually beginning to slow, and it's going to begin
Speaker 1: to slow in Europe as as the months unwind h
Speaker 1: immediately ahead. Now that's going to be interesting because we
Speaker 1: approached the side of the equity market where a lot
Speaker 1: of people are saying this is late cycle stuff. Now
Speaker 1: position for the late cycle. Themes Bank of America said
Speaker 1: to me just yesterday, position for euphoria? Is it time
Speaker 1: to position for euphoria? Well, I think it's time to
Speaker 1: be prepared for uh. Turbulence because we've had far too
Speaker 1: long a period has passed without having any real turbulence
Speaker 1: in the equity market, and so I think that, uh,
Speaker 1: are things euphoric? No, uh, well, the bitcoin being a side,
Speaker 1: uh you know, something different. But as far as the
Speaker 1: stock market concerns, we don't have euphoria. But we have
Speaker 1: had a three hundred and seventy one total return on
Speaker 1: the SMP five hundred since March of oh nine, and folks,
Speaker 1: that doesn't get much better than that? Can we just
Speaker 1: site Tom Kane that bitcoin was brought up by Howard
Speaker 1: Ward and not me. I didn't mention it. Yeah, he
Speaker 1: did have this morning on television. He just just randomly
Speaker 1: brings up bitcoin. I like to talk about my mistakes
Speaker 1: because I haven't gotten bitcoin right. But let me just
Speaker 1: say this with respect to how bitcoin's price behavior in
Speaker 1: the last couple of weeks, I don't care what you're
Speaker 1: talking about. When anything rises the way bitcoin has risen
Speaker 1: in the last few weeks, to me, that is a
Speaker 1: definition of a mania, and it's smacks of greater greater
Speaker 1: fuel theory. I don't think most of the people that
Speaker 1: are buying bitcoin actually have any idea of what they're
Speaker 1: buying now, we will we will see you. We'll do
Speaker 1: some more on this as well today. Good morning everyone,
Speaker 1: John Pharaoh and Tom Keane in New York, a day
Speaker 1: before a FED meeting. I guess two day meeting, but
Speaker 1: we'll do a lot of FED coverage tomorrow as well.
Speaker 1: Bloomberg Surveillance this morning with Futures Up one brought you
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Speaker 1: am v E s c O investco dot com slash
Speaker 1: more out of Life. When de FED rate increases, Howard
Speaker 1: Ward click in and begin to impinge in a normal
Speaker 1: traditional way that we have forgotten ages ago. Well, Tom Um,
Speaker 1: I think that, uh, we're at a point where ordinarily
Speaker 1: you would start to see some impact very shortly. Um.
Speaker 1: The reason that it really hasn't happened is that we've
Speaker 1: had no uh increase in longer yields during the last
Speaker 1: two years while the FED has been tightening, and that
Speaker 1: I think is largely because of the lack of yields
Speaker 1: abroad in Europe and Japan has created tremendous demand for treasuries.
Speaker 1: You're getting about twenty nine basis points on a five
Speaker 1: year German bond. You're getting really nothing on a five
Speaker 1: ten year Japanese bond. So the US looks like Mount
Speaker 1: Rushmore in terms of yields right now. So, so you've
Speaker 1: had a flat end of the of the yield curve,
Speaker 1: and as the FED continues to tighten, I don't think
Speaker 1: that yield curve is gonna Stephen. I think it's going
Speaker 1: to remain flat. It's going to get even flatter, And
Speaker 1: so I think that the pe ratios can sustain themselves. Uh,
Speaker 1: as long as that's the case, it's time to get
Speaker 1: out of growth and get into value. That's really the
Speaker 1: heart John, you've nailed. Do you know how many times
Speaker 1: I had that? Howard, all my radars up because of that.
Speaker 1: That's it is. It time to get out of growth
Speaker 1: and get into value. So you know, full confession, you
Speaker 1: know I am. I'm on the growth side of the ledger.
Speaker 1: That's why. Yes, So growth has outperformed value every month
Speaker 1: this year except for June and September. September was a
Speaker 1: violent rotation in the direction of value and smaller caps,
Speaker 1: but I would say this. Historically, we know that growth
Speaker 1: typically outperforms value during periods of of moderate to slowing
Speaker 1: economic growth. So as we look at two thousand and eighteen,
Speaker 1: you can go on the Bloomberg Economic Survey and you
Speaker 1: will see that the consensus for economic growth next year
Speaker 1: is slower growth, not faster growth. So if we're going
Speaker 1: to have slower growth next year and the old curve
Speaker 1: is flat and getting flatter as the Fed titans, I
Speaker 1: don't think I'd be wanting to rush into value stocks.
Speaker 1: So I talked to me about what this means at
Speaker 1: a sector level, because the sector level story that goes
Speaker 1: with that get out of growth and get into value
Speaker 1: story is get out of tech and get into financials.
Speaker 1: What do you say back to that? So, Uh, there's
Speaker 1: a wide variety of stocks that fall under the heading
Speaker 1: of financials, and some of them are not your traditional
Speaker 1: banks or insurance companies. So let me just talk about
Speaker 1: the more traditional financials. For the banks, um flat or
Speaker 1: yield curve is not good for them. Uh, loan demand
Speaker 1: is falling. That's strange. Again, it speaks to the lack
Speaker 1: of acceleration in economic growth. To see commercial industrial loan
Speaker 1: growth slowing, not not increasing, and so the banks are
Speaker 1: gonna have a more difficult time making profits on loans
Speaker 1: and loan demand is falling. Will they benefit from higher
Speaker 1: rates at the short end, yes, they will on their
Speaker 1: deposit base, But nevertheless, uh, you know, the banks have
Speaker 1: had a bit of a run. I don't think it's
Speaker 1: going to be anything surprisingly good for them in the
Speaker 1: near future. Hard word, thank you so much. With Jam
Speaker 1: greatly appreciate the briefing this morning, and of course John,
Speaker 1: I guess really this week we're at the time John,
Speaker 1: where every conversation is a next year coming and it
Speaker 1: has a year and feel. And what's interested about that, Tom,
Speaker 1: is that the year it really hasn't finished. I don't
Speaker 1: mean just by the day. We've got a FED hike
Speaker 1: coming up. We're still waiting for the tax bill to
Speaker 1: go through, and you need to get your Christmas shopping done,
Speaker 1: you know, to the point, and we really haven't discussed
Speaker 1: it yet this morning. You really wonder where is the
Speaker 1: tax bill? Late last night I saw one legit analysis
Speaker 1: that that suggested that they've only got four to five
Speaker 1: billion of the one point five trillion covered. They've got
Speaker 1: to work it out, which which I think is why
Speaker 1: we've we've kind of got this move away from twenty
Speaker 1: and talk at twenty two on the corporate rate to
Speaker 1: which might open up things a little bit. And we've
Speaker 1: got an Alabama special election or Kevin surreally in Alabama
Speaker 1: with some terrific perspective really turn out focused. I know
Speaker 1: Michael bar will be touching that in New York and
Speaker 1: with our news around the nation and world as well.
Speaker 1: Futures up one jeoff, Futures Up thirty. This is Bloomberg.
Speaker 1: And now with the news in New York City and
Speaker 1: sadness in San Francisco. Here's Michael Barr, Tom Jonathan, thank
Speaker 1: you very much, and as you mentioned out of San
Speaker 1: Francisco this morning news Mayor ad Lee has suddenly died.
Speaker 1: Lee when was the first Asian American mayor of San Francisco.
Speaker 1: Lee was sixty. It is election day in Alabama and
Speaker 1: highly it watched in at race. Voters will choose between
Speaker 1: Republican Roy Moore and Democrat Doug Jones. Multiple women have
Speaker 1: accused More of sexual misconduct when they were in their
Speaker 1: teens and he was in his thirties. More now seventy
Speaker 1: denies the charges. Top world officials have opened the Climate
Speaker 1: summon in Paris by saying investors and the entire global
Speaker 1: financial system need to shift faster toward energy and businesses
Speaker 1: that don't worsen climate change. The Prime Minister of the
Speaker 1: Island of Fiji said, we're all in the same canoe.
Speaker 1: Rich countries and poor Global news twenty four hours a day,
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Speaker 1: Michael Barr, this is Bloomberg. Jonathan tomp Michael, thanks so much.
Speaker 1: Curve flattening this morning, not down to new record flat,
Speaker 1: but nevertheless a flatter yield curve fed day tomorrow. This
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Speaker 1: Phenom and Smith Incorporated member Spike PC to be direct.
Speaker 1: It was the interview of the day given the huge
Speaker 1: tragedy we saw a number of months ago and Alexandria, Virginia,
Speaker 1: you remember the um, the shootings, the terror of a
Speaker 1: baseball field with a congressman struck down grievously, and many
Speaker 1: others dead. Nobody gave us better coverage than Terry Haines
Speaker 1: on that horrific morning. He used with ever Corps, I
Speaker 1: s I a citizen of Alexandria, Virginia and someone who,
Speaker 1: among other things, out of Oberlin provides political strategy to
Speaker 1: Ed Hyman and the team over at Evercrep I side.
Speaker 1: He's in her studios, which is a good thing, which
Speaker 1: wonderful to have you here, to be here, thank you
Speaker 1: very much. How do you get a turnout out? I mean,
Speaker 1: you are so steeped in the Washington game that if
Speaker 1: it's Alabama and everybody knows it's about to turn out
Speaker 1: real clear politics as Mr more I believe it had
Speaker 1: by two point two percent. How do you get the
Speaker 1: turnout out? Is that guys like you in Washington who
Speaker 1: fly into a place to get the turnout out? Or
Speaker 1: is that locally derived that The answer is it's a
Speaker 1: mix of both. Actually the what they and I I
Speaker 1: saw a lot of this with the Georgia sixth special
Speaker 1: earlier in the year. You get a lot of you
Speaker 1: get a lot of state party officials and UH and
Speaker 1: technology and the like. To get people out. And then
Speaker 1: you have a lot of money and expertise coming in
Speaker 1: from Washington as well as an overlay, and they hope
Speaker 1: that will help as well. Let's let's just do the
Speaker 1: bipolar outcome here. If Mr Moore wins the Republican hugely contentious,
Speaker 1: what happens next for your Washington? Uh? In my Washington,
Speaker 1: the tax bill still goes forward. Whoever wins this election
Speaker 1: won't be seated until the two of December at the earliest.
Speaker 1: So what the you know, the that goes forward? Uh,
Speaker 1: the more more spending bill negotiations go forward. I expect
Speaker 1: there to be a continue another short term bill to
Speaker 1: tide people into the new year. Uh. Not much changes.
Speaker 1: And there is a decision by the Republican leadership in
Speaker 1: the Senate as to whether they started investigating or all that.
Speaker 1: What about Mr Jones a Democrat? If he, I guess
Speaker 1: it's an upset, I'll use that word. If he wins,
Speaker 1: it's a it's a huge deal for next year, isn't it. Yeah?
Speaker 1: I think it's a huge deal anyway either way. The
Speaker 1: what you have is a situation where, uh, in a
Speaker 1: in a short term sense, Democrats can't lose because either
Speaker 1: More wins, in which case they decry that and uh,
Speaker 1: you put Republicans into a bit of a box. But
Speaker 1: if Jones wins, Uh, then they think they've got more
Speaker 1: wind in their sales for eighteen and uh, and they
Speaker 1: think they've got the last chance to knock off some
Speaker 1: of this stuff they get. They they think they have
Speaker 1: marginally more strength on spending bills. Uh. They probably don't
Speaker 1: think they have an opportunity to knock off the tax bill,
Speaker 1: but they think it might make Republicans think twice. It's
Speaker 1: the Trump miracle versus the nullification project. The words of
Speaker 1: Steve Bannon, The words of Steve Bannon on what is
Speaker 1: happening in Alabama? What's his what's his role? What's his
Speaker 1: role here? Terry? Uh? In other than uh, let's see
Speaker 1: sort of Adrian provocateur h slash uh informal strategist. Although
Speaker 1: I think that that that's probably a little overblown uh slash.
Speaker 1: You know, bringing some money into the campaign. Is he
Speaker 1: splitting the Republican Party? I don't think so. I don't.
Speaker 1: I really don't think so at all. I think I
Speaker 1: think a lot of that's overblown. Frankly, why do you
Speaker 1: think that because a lot of people think that he
Speaker 1: could possibly do what Nigel Farach did in the United Kingdom,
Speaker 1: which is drive a wedge between the between the center
Speaker 1: right party in this case, drive a wedge into the
Speaker 1: Republican Party. Why can Steve Bannon not do what Nigel
Speaker 1: Farage did in the UK? Um Well, and then I
Speaker 1: think that's a smart question. The I think the answer
Speaker 1: to that is what you've got is you've got a
Speaker 1: few races, and I mean a few, the Alabama Race,
Speaker 1: the race uh, couple, a couple of others where the
Speaker 1: Arizona Race where there was a situation where the incumbent
Speaker 1: was already getting way out of step with the state party.
Speaker 1: Bannon is taking that those races, and I think trying
Speaker 1: to project more into that. But as far as the
Speaker 1: fundamental rift in the party, I don't see it. Okay.
Speaker 1: Can I just say the tweet of the days this
Speaker 1: early in the morning, just Scarborough kills it over at MSNBC, say, hey, Bannon,
Speaker 1: you only went to Harvard because you couldn't get into
Speaker 1: Alabama rolled damn tide. You know this this back and
Speaker 1: forth they've had the last forty eight hours, that's just
Speaker 1: you know, I just that's the spirit of this, you know, John,
Speaker 1: that's the trenches debate, the cultural debate that we're seeing
Speaker 1: within this election. In this trenches debate, there is a
Speaker 1: serious discussion about the morals of the goop at this point,
Speaker 1: given the accusations around more in alabamatary, how does the
Speaker 1: president tread this really delicate line between the moral issues
Speaker 1: that are dominating this particular election and the idea that
Speaker 1: actually just got a really slim majority in the Senate.
Speaker 1: Againethan done. Well, there's two There's there's two ways that
Speaker 1: gets addressed. One is that the Republicans and the Senate,
Speaker 1: should More win, have to have to engage and uh
Speaker 1: and investigate more on their own and figure out what
Speaker 1: they want to do. They've got an awful lot of
Speaker 1: of leeway to do that. Number one. Number two, Uh,
Speaker 1: you know, Democrats have frankly helped here. This is not
Speaker 1: a republican problem. This is a political problem. It's a
Speaker 1: it's a political ruling class problem, and of course it
Speaker 1: goes far beyond politics. Uh So, what will end up
Speaker 1: happening is is that as the Democrats seek to make
Speaker 1: this a republican problem, what will end up happening is
Speaker 1: that Republicans will remind everybody that this is a problem. Uh,
Speaker 1: regardless of political affiliate. Your your claim, Terry Haynes with
Speaker 1: this ever corps I s I your your a claim
Speaker 1: is just a very calm Washington. The pragmatic. It's like,
Speaker 1: we're pragmatic. This is the legislation. We've got to get
Speaker 1: it through. What is the pragmatic view in this conference
Speaker 1: now on tax cuts on salt, on state and local taxes?
Speaker 1: What's the pragmatic discussion going on right now? The pragmatic
Speaker 1: discussion is really this the uh that that you have
Speaker 1: what I call the bones of the bill, corporate tax rate,
Speaker 1: keeping it under the trillion and a half dollar deficit cap, uh,
Speaker 1: tweaking the individual rates, that sort of thing. Uh. Every
Speaker 1: you know, you've got to keep that. Everything else is
Speaker 1: to pay for every other discussion about every other pay
Speaker 1: for means you gotta pay for it, You gotta you
Speaker 1: gotta pay for it. Do you see evidence of that?
Speaker 1: Because I don't see evidence of that as a ten
Speaker 1: pm last night, that it's not being paid for it.
Speaker 1: How are we gonna pay? How are we going to
Speaker 1: pay for it? To close a nut to one point
Speaker 1: five trillion. Well, both both bills have pay for us
Speaker 1: that get you within that. So it's a question of
Speaker 1: whether it's it's really a question of which one you
Speaker 1: pick from a from a fairly long laundry list. But
Speaker 1: nobody should be surprised to find that vast majority of
Speaker 1: the ending the salt deduction states in all that sort
Speaker 1: of stuff, because my conversation with Trump administration officials is simple.
Speaker 1: They seem to be modestly aware of how unpopular this
Speaker 1: legislation is. How do how does your Washington respond to
Speaker 1: the polling of this text cut bill. What they think
Speaker 1: is that six months, nine months from now, when the
Speaker 1: rubber starts meeting the road with the mid terms, Uh,
Speaker 1: they get credit for revivifying the economy. And the opinion
Speaker 1: that what's your opinion of that opinion? Well, what we
Speaker 1: see economically, and we wrote about this yesterday, is that
Speaker 1: we see a thirty BIPs increase so that you get
Speaker 1: our median growth is to seven to eight something like
Speaker 1: that for next year. That's a modest uptick, but it's uh,
Speaker 1: but it will help and and and politically, you also
Speaker 1: get to take your Republicans. You also get to take
Speaker 1: credit for every good thing that's happened between now and
Speaker 1: when the effects of the bill start uh start bringing Tom.
Speaker 1: We spent much of the last two years talking about
Speaker 1: the two Americas and the headline GDP number might increase,
Speaker 1: But I wonder whether this really helps the Second America.
Speaker 1: And whilst they might be able to go around next
Speaker 1: year saying that GDP is up, we promised you three
Speaker 1: pc and GDP has a three handle, I wonder what
Speaker 1: wage growth looks like in the Midwest and whether they've
Speaker 1: really moved the dial there, because that's going to be
Speaker 1: the real test of this administration, the promise to address
Speaker 1: the economic issues of the Second America outside of the
Speaker 1: metropolitan and leader New York City, etcetera, to help them.
Speaker 1: UM and I wonder whether this tax plan what he
Speaker 1: does that Terry's thrilled that he's with us right now.
Speaker 1: Brian Reynolds can of court Jenuity, you know Tony Dwyer
Speaker 1: giving wisdom there. Brian has done terrific research and something
Speaker 1: very important and that is shared by back Dynamics. Brian,
Speaker 1: give us the quick summary here what you've learned in
Speaker 1: your year in study of share by backs. Well, buy
Speaker 1: backs have been the main engine for this bull market
Speaker 1: since two thousand nine, and they're continuing to grow when
Speaker 1: they're actually accelerating a little bit. In fact, just yesterday
Speaker 1: Bowling announced an eighteen billions dollars buyback that comes on
Speaker 1: the heels of home depots fifteen billions dollars buy back
Speaker 1: last week. It is stunning the disparity. You've got a chart, folks,
Speaker 1: is too complicated even the discuss, but it's got like
Speaker 1: eight lines and then there's buy backs. I mean, are
Speaker 1: you willing to say we're getting these big double digit
Speaker 1: returns just because of buybacks? Yes? And well, letrot you
Speaker 1: refer to was really complex because it looks at every
Speaker 1: major participant in the stock market. I have another chart
Speaker 1: that's really simple towards the end of that column, which
Speaker 1: just compares buy backs to all investors combined. And what
Speaker 1: that shows is that investors have done very little point
Speaker 1: to point during this bull market. What do they say,
Speaker 1: What does this say about tax cuts though? And what's
Speaker 1: going to happen with the money once they fall to
Speaker 1: the bottom line? Well, these buy backs are fueled by debt.
Speaker 1: The debt is fueled by our nation's public pensions, who
Speaker 1: have become the dominant global investor, tax performer is going
Speaker 1: to do nothing in terms of changing the demand for debt,
Speaker 1: and so what it may do is that if it
Speaker 1: makes companies issue less death then there's two outcomes. One
Speaker 1: is that bond fields decline or two there's more shadow
Speaker 1: banking to fill that void. Either way, that results in
Speaker 1: more money for share buybacks going forward for the next
Speaker 1: few years. So the bullmarket rolls on. Is that basically
Speaker 1: the conclusion then, Brian, Yes, and there's a chance that
Speaker 1: may accelerate. So you've expected to mount up. Is that
Speaker 1: what you're looking for, the classic top, that's just a
Speaker 1: mount up to infinity and then not quite beyond rollover aggressively. Well,
Speaker 1: the amount of money going into public pension is increasing,
Speaker 1: so the melt up may come after two. But don't
Speaker 1: forget this is just a credit cycle. Credit cycles always end,
Speaker 1: and they always end badly. I don't think it's going
Speaker 1: to end for a while, but when it does end,
Speaker 1: we're likely going to have another financial disaster on our hands.
Speaker 1: But in the meantime, all this financial engineering results in
Speaker 1: higher stock prices. Brian, what's going to lead to a
Speaker 1: financial disaster? Though? The banks, the CEOs would say we're
Speaker 1: really well capitalized. In fact, what we'd like to see
Speaker 1: is less regulation, not more. Please stop. The banks really
Speaker 1: well capitalized. Can they handle any kind of big time
Speaker 1: correction in the ext market because the stress tests would
Speaker 1: say yes, Well, the banks are going to be fine
Speaker 1: because they don't own any of this stuff. In the
Speaker 1: last two cycles, in the nineteen nineties and in the
Speaker 1: subprime cycle, the banks owned a lot of it. Now
Speaker 1: we're having the most intense creditable woever without the banks participating.
Speaker 1: That tells you the other participants, the public pensions and
Speaker 1: the insurance companies, are pushing the accelerator harder than ever.
Speaker 1: So the next financial crisis likely won't impact the banks
Speaker 1: the way the last one did, but it will impact
Speaker 1: other sectors on the downside. So let's explore this, Brian,
Speaker 1: what's the response of the government to a financial crisis
Speaker 1: that we're not anticipating next year. It might not happen
Speaker 1: next year, the year after that, but eventually, what does
Speaker 1: the response look like. Well, the crisis may not happen
Speaker 1: until further out than that, and the crisis response will
Speaker 1: be pretty much the same. The Fed will ease and
Speaker 1: it will not have any impact. Remember, the FED eased
Speaker 1: all the way down from late two thousand seven through
Speaker 1: two thousand nine. They ease from two thousands to two
Speaker 1: thousand and three. In need occasion, get it stopped to decline,
Speaker 1: because once you get a snowball, a snowball decline and credit.
Speaker 1: It continues until the price of credit goes below its
Speaker 1: liquidation value. In other words, crom bonds going to twelve
Speaker 1: cents g GM and Chrysler bonds going to eighteen cents.
Speaker 1: Once you hit that point where a bankruptcy judge gives
Speaker 1: creditors more than the bonds are worth, that's what stops
Speaker 1: the crisis, not the FED grant to catch out the
Speaker 1: Brian Reynolds on some really interesting research on his bi
Speaker 1: exton where we might be in five to ten years
Speaker 1: and who know its kind of call genus asset class strategists.
Speaker 1: This is a joy, in an important joy. They're rowers
Speaker 1: out of Harvard, which I've thought has always been grossly
Speaker 1: unfair to their accomplishments at Greenwich Country Day and Brunswick
Speaker 1: in and onto Harvard where they actually took a Really
Speaker 1: I mean, can anybody, how can anybody take a light
Speaker 1: course at Harvard? Is their basket weaving at Harvard. There's
Speaker 1: actually a couple of rocks for Jacks was geology, of course,
Speaker 1: but yeah, most of them pretty hard, yeah, would be.
Speaker 1: You can know it's the Winkle Losses twins are with
Speaker 1: us right now, which barely describes again their success with bitcoin,
Speaker 1: which is the topic of the day. I can talk
Speaker 1: about all sorts of other things, but Cameron, we start
Speaker 1: with with where you are right now with Cebo And see,
Speaker 1: I mean you've picked one of the exchanges and what
Speaker 1: are you exactly going to do for them? So, uh,
Speaker 1: the cebos Bitcoin futures contract XPT futures is a cash
Speaker 1: shuttle contracts. So in order they need to price that contract,
Speaker 1: and so Gemini will be providing the price that contract
Speaker 1: will settle to Gemini's four pm daily auction. I'm gonna
Speaker 1: cut right to the chase. You guys have had a
Speaker 1: huge success with this. You've got to be the greatest
Speaker 1: sale candidate in investment. Right now are people knocking on
Speaker 1: the door major firms saying we'd love to take over Gemini.
Speaker 1: So we're seeing both interests obviously from the customer side. Um,
Speaker 1: we're seeing a lot of the largest market makers in
Speaker 1: the world start onboarding on our platform, and we're also
Speaker 1: seeing a lot of inbound investment interest. Um so absolutely yes.
Speaker 1: I mean the the the interest here is extraordinary to me.
Speaker 1: It goes back to you know, within your family and
Speaker 1: your father was one of the grandfather uh was it
Speaker 1: acclaimed actuary blah blah blah, But you're you grew up
Speaker 1: in a math household with a terrific rigor with your
Speaker 1: father being one of the leading actuaries in the nation.
Speaker 1: Give me the underlying mathematical architecture. Tyler, of the futures
Speaker 1: market to cash right now? Is it a normal futures
Speaker 1: market to cash? You know, I don't know. I'm not
Speaker 1: an expert on that type of structure, but the I
Speaker 1: can tell you that the futures have been off for
Speaker 1: thirty six hours right now, the first ever big point futures.
Speaker 1: And I remember other ones they start out slow. Just
Speaker 1: this completely normal. Actually this started out faster than the
Speaker 1: VIX which is a well traded contract on the CBO
Speaker 1: as well. Um so about seventy eighty million dollars notional
Speaker 1: traded in the first Asia US session. Um, but you know,
Speaker 1: the emails were getting from the huge prop trading firms
Speaker 1: in Chicago that are trading this are about to trade.
Speaker 1: This was you know, massive congratulations, double exclamation points, you know,
Speaker 1: huge success. So for a launch, Um we you know,
Speaker 1: I said Gemini. Um, the folks at the CBO and
Speaker 1: also the other market participants, UM, we're all like, you know,
Speaker 1: jumping and excited for this to our global audience and
Speaker 1: across this nation and particularly in Chicago and serious sex.
Speaker 1: I'm Channel one nineteen Cameron entire wrinkle us with us
Speaker 1: right now with Gemini on this day, the second third day,
Speaker 1: almost third day of trading on uh A bitcoin camera.
Speaker 1: When I look at this market and I look at
Speaker 1: the doubt involved, you guys had a huge confidence of this.
Speaker 1: People made funny. Come on, people were laughing all these
Speaker 1: guys come last week, first day, laugh at you. When
Speaker 1: did you know it was for real? Don't give me
Speaker 1: this malark. You know it was real right away. When
Speaker 1: did it click in that bitcoin could be a tradeable,
Speaker 1: fungible product. Well, I think part of that was when
Speaker 1: we got a trust company license in New York. Um,
Speaker 1: Gemini is a New York trust company, so we have
Speaker 1: the same licensing structure that State Street in Bank of
Speaker 1: New York started with over two hundred years ago, so
Speaker 1: we literally have one of the oldest banking licenses in
Speaker 1: the world married with one of the newest technologies in
Speaker 1: the world. So I think that was really a watershed
Speaker 1: moment where we could say, hey, we're now building regulated
Speaker 1: infrastructure in this market with the same type of license
Speaker 1: structure that UM. Some of the largest financial institutions entrusted
Speaker 1: in the world have UM. And then, as like an
Speaker 1: operator of the business, you see the types of customers
Speaker 1: that are onboarded, and you see the type of customers
Speaker 1: that we're dealing with on a day to day basis.
Speaker 1: It definitely started out as more of a retail market
Speaker 1: or high net worth partners or you know, people who
Speaker 1: got excited about the technology but couldn't necessarily sell it
Speaker 1: to their LPs, and that has completely changed. The conversation
Speaker 1: is completely different. Just to be clear, if you saw
Speaker 1: a list of names of our client US and Gemini
Speaker 1: is a is the world's most regulated exchange custodian to
Speaker 1: buy and sell and store bitcoin and ether. In fact,
Speaker 1: Andrew Governor Governor Andrew Cuomo gave the press release when
Speaker 1: we got the approval to UM to support Ether which
Speaker 1: is another digital asset. But if you looked at the
Speaker 1: client list of companies individuals who are on Gemini and trading,
Speaker 1: the biggest names in the head fund industry, the biggest
Speaker 1: market makers, high frequency traders, proper checkers, down to the
Speaker 1: everyday person. Okay, let's compare to wheat is a tangible product.
Speaker 1: Bitcoin is clearly an intangible product. It has a value,
Speaker 1: there's no question about that. Is your future Tyler and
Speaker 1: Cameron Winklevoss, it's your future linked to the volatility of
Speaker 1: it of bitcoin? Is it linked to a price drop?
Speaker 1: I mean, do you care if the price goes from
Speaker 1: sixteen thousand down to eleven thousand right now? You still
Speaker 1: make money? Right well? As an issue, so the answer
Speaker 1: is um are we're tied to all of it. So
Speaker 1: we are long term UM owners and holders of bitcoin
Speaker 1: and ether um. But with Gemini UM we're tied to
Speaker 1: basically three lines of business exchange trading fees, market data
Speaker 1: fees and custodial. That tells me you don't care what
Speaker 1: the price does. Gemini doesn't. Gemini is agnostic and the
Speaker 1: futures price will follow the spot price. And and quite frankly,
Speaker 1: as you mentioned, earlier. There are a lot of naysayers. Um,
Speaker 1: there's plenty of people going on and saying, oh, bitcoins
Speaker 1: a bubble this or that, and hey, we've been working
Speaker 1: really hard to make this future's contract, um, to bring
Speaker 1: it live so that those people can cut their money
Speaker 1: where their mouth is. If you touch Ice just as
Speaker 1: one example of of one major major international player and
Speaker 1: exchanges and in volume and transactions, if you talk to
Speaker 1: Ice just as one example, No, I'm I'm referring more
Speaker 1: towards the investors and or people who are saying, oh bitcoin,
Speaker 1: you know, we don't agree or think there's long term
Speaker 1: value like Jamie there, Um, so we you know the
Speaker 1: Future's contract. The great thing about is you can now
Speaker 1: actually short bitcoin and so that will increase price discovery
Speaker 1: and long term probably reduced volatility because it has not
Speaker 1: been a two sided market. What would you say, Tyler
Speaker 1: to Jamie Diamond is he looks at JP Morgan, who
Speaker 1: have they have They have a bank responsibility to study
Speaker 1: this market, to study this speculation and hedging. What would
Speaker 1: you say to Mr Diamond this morning? Well, first said say, um,
Speaker 1: talk is cheap. You should put your money where your
Speaker 1: mouth is. Well, he is he's got some people at
Speaker 1: JP Morgan looking at this right well, he thinks that
Speaker 1: he personally thinks that, um, you know, bitcoins of fraud.
Speaker 1: He would fire anybody in his firm that traded it. Um.
Speaker 1: So if he thinks it's a fraud, he should go
Speaker 1: on the c bow and in short bitcoin contracts, because
Speaker 1: that's what I would do, right if I if I
Speaker 1: thought a company was inflated or cooking their books or something,
Speaker 1: I wouldn't just go on and throw at hattums at it.
Speaker 1: I would actually go short it. And so now we've
Speaker 1: given him the opportunity to do it. I agree that, um,
Speaker 1: you know, his bank should look at it, and I
Speaker 1: imagine they are okay. But with Cameron, did you take
Speaker 1: exten With Martin Feldstine? I did? What was it like
Speaker 1: sitting in Necktien with Martin Feldstine? You're seventeen, eighteen years old.
Speaker 1: You're dumb as what I mean? You have your claim
Speaker 1: in high school and all that. How dumb did you
Speaker 1: feel in neck ten there's definitely points. Martin Feldstine was
Speaker 1: on the show the other day. He's a little bit
Speaker 1: skeptical about bigcoin. What would you say to your professor
Speaker 1: freshman year at Harvard about the value, the economic intrinsic
Speaker 1: value of this currency want to be, Yeah, it's a
Speaker 1: great question. I actually did talk to us, so we went.
Speaker 1: We did an NBA at Oxford, and I did talk
Speaker 1: to sent some emails to two of my professors years ago,
Speaker 1: and I should actually probably dig those up at this
Speaker 1: point and kind of see what will give some names
Speaker 1: we like some dirt man, I have to I had
Speaker 1: you didn't go? Did you go to his robof on
Speaker 1: your board? No? No, that would be very interesting with
Speaker 1: a cursor, I'm su which is my book. So I think,
Speaker 1: what what what? Most probably you know Mr Feld's Professor Feldstein,
Speaker 1: or or academics in the space would would look at
Speaker 1: bitcoin and say where's the intrinsic value? And most people say, well,
Speaker 1: gold has intrinsic value because you know, jewelry or this,
Speaker 1: it's shining in this, and it's a store of value.
Speaker 1: And and that is true to some extent um maybe
Speaker 1: ten to fifteen percent of gold value could be attributed
Speaker 1: to industrial purposes or jewelry and things like that UM,
Speaker 1: But in reality, gold is simply a network. We all
Speaker 1: agree that it has value UM, and it's been around
Speaker 1: for thousands of years. But if you look at the
Speaker 1: properties of gold that make gold gold, scarcity, fungibility, divisibility, portability,
Speaker 1: Bitcoin equals or surpasses it in each category. For example,
Speaker 1: gold is scarce. Bitcoin is actually fixed. In terms of portability,
Speaker 1: Bitcoin is like you can send bitcoin like you can
Speaker 1: send an email. It's pretty hard to to to send
Speaker 1: a bar of gold. And and going back to of
Speaker 1: the larger intrinsic value thing, gold has zero intrinsic value.
Speaker 1: To Robinson Crusoe when he's shipwrecked on an island, he'd
Speaker 1: much prefer to have a bottle of water or a sandwich.
Speaker 1: So I think the intrinsic value arguments of gold are
Speaker 1: way overstated. Um. And if you talk to any millennial
Speaker 1: or younger person, they don't want hardware, they want software.
Speaker 1: They do not want to do what you're saying. This
Speaker 1: is a generational thing. It's definitely, that's definitely part of
Speaker 1: It's how your worst nightmare has got to be the government's.
Speaker 1: China looked at this, Stereus said, enough Japan huge, South
Speaker 1: Korea huge? Can government be your friend or enemy as
Speaker 1: you build out Gemini? Oh we we I mean we
Speaker 1: definitely think it's our friend. UM in terms of you
Speaker 1: know that if we went out to build a bank
Speaker 1: that had nothing to do with bitcoin, we would never
Speaker 1: expect not to become licensed and have any money laundering
Speaker 1: and k y C type regulations. Um, we're actually in.
Speaker 1: We're a New York trust company regulated by the New
Speaker 1: York UM State Department of Finential Services, and it took
Speaker 1: us about two years to get that license. And that
Speaker 1: license allows us to get banking partners, that allows us
Speaker 1: to attract hedge funds and actually allows us to do
Speaker 1: this business relationship with the Sea Bows. So we think
Speaker 1: government thoughtful regulation is completely the path forward, and that's
Speaker 1: what we've done with Jemina. I believe it there. Cameron
Speaker 1: Tyler Winkles, congratulations. A lot of people doubted you been
Speaker 1: very very interesting, to say the least on bitcoin. Uh
Speaker 1: the Vinkal Bosses. Thanks for listening to the Bloomberg Surveillance podcast.
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Speaker 1: I'm Bloomberg Radio