Speaker 1: All right, thanks so much for joining us with a
Speaker 1: special edition of Bloomberg Daybreak, the US stock market close
Speaker 1: for the good Friday holiday. I'm John Tucker, and coming
Speaker 1: up this hour a look at where the anti trust
Speaker 1: investigations against big tech stand under the Trump administration. We're
Speaker 1: going to speak with Jenniferree, senior litigation analysts with Bloomberg Intelligence.
Speaker 1: Plus we have seen our share of market volatility so
Speaker 1: far this year. We'll go inside the markets with Eric Balchunis,
Speaker 1: the senior ETF strategist at Bloomberg Intelligence, and Jess Metton
Speaker 1: of the Bloomberg Stocks team. But first we're going to
Speaker 1: focus on the future of FED, Shair J. Powell and
Speaker 1: what's in store for the economy amid the trade wars.
Speaker 1: We're pleased to welcome Bloomberg International Economics and Policy course.
Speaker 1: But Michael McKee and Stuart Paul us economists with Bloomberg Economics.
Speaker 1: So the posting from President Trump said it all. Trump
Speaker 1: says Powell's termination can't happen fast enough. Well, it's so
Speaker 1: much for FED independence, is it really? If he's threatening
Speaker 1: it sounds like a thread against Powell. Is he threatening
Speaker 1: Powell or threatening FED independence? Or both.
Speaker 2: Nice, Fed, you got there too bad if something happened
Speaker 2: to it. Right, in theory, he's threatening Powell, but does
Speaker 2: he really mean termination in the sense of I'm going
Speaker 2: to fire him. That's an open question because there are
Speaker 2: court cases right now about what power the president has
Speaker 2: to fire the heads of independent agencies, And while they
Speaker 2: don't exactly correlate to the FED, there is a feeling
Speaker 2: that if the Supreme Court were to rule that the
Speaker 2: president has unfettered power to fire the heads of agencies,
Speaker 2: that he could try to fire Powell. It all may
Speaker 2: be moot because Powell's term as chair is up in
Speaker 2: May of next year, so Trump could be just talking
Speaker 2: about him leaving as the FED chairman.
Speaker 1: And it's still so the independence of the FED. We
Speaker 1: can go back to the Knicks administration when the President
Speaker 1: had one of his economic people become the Federal Reserve chair.
Speaker 1: That was Arthur Burns. We know what happened there.
Speaker 3: That's right. So there's no such thing famously as a
Speaker 3: free lunch in economics, But if there is one thing
Speaker 3: that comes close, it's central bank independence. Countries that have
Speaker 3: independent central banks have lower, more stable inflation. Countries that
Speaker 3: are more heavily influenced by the political process their central banks,
Speaker 3: when they're determined by by political actors, when there are
Speaker 3: political appointees, when they have less independence, you tend to
Speaker 3: get higher, less stable inflation. I think that Mike is right.
Speaker 3: This might end up just being a moot point, and
Speaker 3: folks in the administration could encourage Trump to just wait
Speaker 3: out Powell's term. And the real question is, then, who
Speaker 3: would we end up seeing filling the.
Speaker 1: FED chair role.
Speaker 3: Would it be someone like Trump had rolled out as
Speaker 3: potential appoint point ease in his first term, people like
Speaker 3: Judy Shelton, who would be a bit more hawkish, or
Speaker 3: would it be somebody a bit more dubbish than so
Speaker 3: much of his proposed policies would require someone quite a
Speaker 3: bit more dubbish.
Speaker 2: If you'd like a great conspiracy theory though John that way,
Speaker 2: Oh sure, that would really fascinate the markets. Suppose that
Speaker 2: Donald Trump does try to fire Powell, and to a
Speaker 2: certain extent is successful. Obviously, the FED would fight that
Speaker 2: there is no opening on the FED to fill a
Speaker 2: governor's job. Powell would still be a governor of the
Speaker 2: Federal Reserve and until January. In January, there's an opening,
Speaker 2: so he could appoint somebody who's the FED chair and waiting.
Speaker 2: It is also possible that if Powell were gone, he
Speaker 2: could as chairman, he could appoint that person. But the
Speaker 2: Open Market Committee that makes interest rate decisions is a
Speaker 2: separate body from the FED itself, So the Open Market
Speaker 2: com could just rename Powell as chair, and you could
Speaker 2: have a chair designate for the Fed who is not
Speaker 2: the chair making decisions on interest rate policy.
Speaker 3: That's a really important and interesting point. We've had a
Speaker 3: little bit of an experience, a little bit of an
Speaker 3: experiment with Michael Barr, the former Vice Chair for Supervision.
Speaker 3: Of course, the administration as it was coming into office
Speaker 3: was eyeing who could take the Vice Chair for Supervision role,
Speaker 3: someone perhaps a little bit more lenient on banks than
Speaker 3: Barr was. Barr preempted that by resigning his role as
Speaker 3: Vice Chair for Supervision but retain the title of governor.
Speaker 3: To your point, and what that sort of did was
Speaker 3: that it created an opening for the Trump administration to
Speaker 3: offer somebody up who's already a governor in this case
Speaker 3: Mickey Bowman, and in theory, the Trump administration if Powell
Speaker 3: were to take that route, lose his chairman's role, but
Speaker 3: stay on as a governor, totally departing from convention.
Speaker 1: But if that were to be.
Speaker 3: The case, it would be somebody like Chris Waller, currently
Speaker 3: a governor, who could step in and fill that share role.
Speaker 1: Well. On Wednesday, speaking in Chicago was the FED Shair
Speaker 1: Jerome Powell, and here's part of what he had to say.
Speaker 4: The level of tariff increases announced so far is significantly
Speaker 4: larger than anticipated, and the same is likely to be
Speaker 4: true of the economic effects, which will include higher inflation
Speaker 4: and slower growth.
Speaker 1: So it doesn't sound like there's going to be a
Speaker 1: FED put.
Speaker 2: No, And he addressed that specifically. He was asked would
Speaker 2: you step in? And he said no, because.
Speaker 1: I should explain to everybody listening what a FED put is. Basically,
Speaker 1: you get to backstop the market if things really could
Speaker 1: start to go haywire.
Speaker 2: The FED, and this has long been in their position
Speaker 2: that the FED doesn't interfere when there is money being
Speaker 2: lost in the markets because the markets are going down,
Speaker 2: that's not their job. But if trading is interrupted, if
Speaker 2: there is a systemic problem, if there are all sellers
Speaker 2: and no buyers as we saw.
Speaker 5: If there's problem with the plumbing right, he's going to
Speaker 5: whether FED would do something to open open the pipes,
Speaker 5: But no, they're not going to rescue the markets.
Speaker 2: And his suggestion that inflation is going to be worse
Speaker 2: because the tariffs are worse just tells the markets that
Speaker 2: the Fed's going to be very slow to think about
Speaker 2: cutting rates in the future, which is why we saw
Speaker 2: an additional reaction after the markets were already down on Wednesday.
Speaker 1: So still you want to weigh in on that, pal says,
Speaker 1: you know, maybe inflation, maybe employment, they're going to be
Speaker 1: impacted by the tariffs, And I got to wonder also
Speaker 1: if that's kind of what set President Trump off.
Speaker 3: It's it's interesting to see the market in the context
Speaker 3: of the FED put right now, markets are pricing at
Speaker 3: about ninety bases points of cuts this year. We think
Speaker 3: that's so that's so off from reality. As you heard,
Speaker 3: it's sounding which direction, that's way too many cuts that
Speaker 3: are pre thin in our view. It's as we heard
Speaker 3: from Chairman Pally, Yes, we're likely to see slower growth,
Speaker 3: We're likely to see some inflation pressures.
Speaker 1: The question would be which does the FED.
Speaker 3: Care more about. In the same breath, we're also hearing
Speaker 3: from the chairman that we're very close to the full
Speaker 3: employment that the FED is a maximum employment that the
Speaker 3: FED is charged with trying to achieve as part of
Speaker 3: its dual mandate. And if you have upward inflation pressures,
Speaker 3: then it's likely to be the case that the Fed's
Speaker 3: going to maintain it's higher for a longer position. So
Speaker 3: we don't see a FED pull looming. We see ninety
Speaker 3: basis points of rate cut price, then it looks a
Speaker 3: little bit crazy to buy eye.
Speaker 1: What's the data been telling us, the hard data and
Speaker 1: even the soft data which measures I guess sentiment.
Speaker 2: It's really hard for the FED right now because the
Speaker 2: soft data is awful and the hard data is so
Speaker 2: far so good. Pyle said Wednesday, labor market's in good shape. Thursday,
Speaker 2: we got a decline in initial jobless claims that sort
Speaker 2: of suggests that that is the case. But we also
Speaker 2: saw the Philadelphia FED report a collapse in business confidence
Speaker 2: in their district during the month of April that portends
Speaker 2: bad things for the economy. But also they reported that
Speaker 2: inflation expectations went up among manufacturers in the Philadelphia region,
Speaker 2: So they're kind of caught in between. The question is
Speaker 2: does all this negative sentiment actually change business and consumer decisions,
Speaker 2: and that'll take us a couple of months to see.
Speaker 2: So we've fed. Even if they were going to have
Speaker 2: to move one way or another, they're not going to
Speaker 2: have evidence until we get to maybe July that would
Speaker 2: tell them one way or another what's going on?
Speaker 1: Just tangentially, since you mentioned the Philly FED, who's Anna Paulson.
Speaker 2: Anna Paulson is the new incoming president of the Philadelphia FED.
Speaker 1: She's currently and this is somebody who's not picked by
Speaker 1: the president.
Speaker 2: Of the board of directors of each bank picked there on.
Speaker 2: The FED Board of Governors has veto power, but they
Speaker 2: can't other than that influence it. She's the research director
Speaker 2: at the Chicago Fed. Patrick Harker. The current president has
Speaker 2: to retire under FED rules in at the end of June,
Speaker 2: so she'll take over July first.
Speaker 1: All right, Stull, I'm going to ask you to sort
Speaker 1: of school us on tariffs. The President has said so
Speaker 1: far it's brought in billions the tariffs bill. Who pays tariffs?
Speaker 1: I mean, remind everybody when the stuff comes in from
Speaker 1: I don't know wherever China comes into Port Nork, Elizabeth
Speaker 1: not far from here. The guy who picks it up
Speaker 1: is the guy who pays the tariffs.
Speaker 3: Essentially, essentially yes, when the real question is.
Speaker 1: The tariffs aren't charged in China as they leave the
Speaker 1: port by some you know, anonymous US official. It's you
Speaker 1: pay it here.
Speaker 3: Sure, But just like all taxes, the real question is
Speaker 3: who bears the incidents of the tax or who bears
Speaker 3: the burden of the tax. Does the imposition of attacks
Speaker 3: take more out of margins or can companies then pass
Speaker 3: along higher prices to consumers. Separate from who has the
Speaker 3: legal obligation to cut the check for the tariff, what
Speaker 3: really matters is the incidence of the tariff and how
Speaker 3: much firms can pass along higher input costs to consumers.
Speaker 3: We see from surveys like the pmis that firms are
Speaker 3: facing higher input costs. They report that they are trying
Speaker 3: to pass along higher prices. We see that in the
Speaker 3: regional FED indices like we saw from Philly earlier last week.
Speaker 3: But the main question is just how demand destructive are tariffs?
Speaker 3: How demand destructive is uncertainty and how much can tariffs
Speaker 3: get passed through to consumers. Basic FED models would suggest
Speaker 3: that the level of the average effect of tariff rate
Speaker 3: would create an additional two percentage points of corelation. Personally,
Speaker 3: I think that that's probably a little bit high, because
Speaker 3: I do think that the degree of demand destruction that
Speaker 3: comes from effect that from the average effect of ta
Speaker 3: RAID being above twenty percent is going to limit the
Speaker 3: extent to how much firms can pass along those higher
Speaker 3: input costs.
Speaker 1: And Mike, one of the stated purposes is to re
Speaker 1: sure bring employment back to the US to make all
Speaker 1: this stuff that's being made over It seems to forget
Speaker 1: the idea that it's basically labor arbitrage. Why stuff moved
Speaker 1: overseas to be produced in the first place, because it's
Speaker 1: cheaper to do so overseas, not to mention the fact
Speaker 1: that with productivity gains, it takes fewer people here in
Speaker 1: the country to make the stuff that we used to make.
Speaker 2: Yeah, and there's also the cost of shipping you have
Speaker 2: to put into this as well. The cost advantage in
Speaker 2: terms of labor is starting to fade as other countries
Speaker 2: raise their living standards, but it's still an important input.
Speaker 2: But the problem that you have here is that nobody
Speaker 2: knows what Donald Trump is actually doing. We don't know
Speaker 2: what tariffs are going to be put on, and we
Speaker 2: don't know how long they'll last, and we don't know
Speaker 2: how he'll change his mind. So if you're a company
Speaker 2: planning a major expansion and investment in some sort of factory,
Speaker 2: you don't know whether it's going to be worthwhile or not.
Speaker 2: So it's going to really be hard to justify moving
Speaker 2: in and that is going to hold the president back.
Speaker 2: Now he's talking about making deals with trade deals with countries.
Speaker 2: That's not going to bring any factories back.
Speaker 6: All right.
Speaker 1: Thanks to Bloomberg International Economics and Policy correspondent Michael McKee
Speaker 1: and Stuart paul Us economists with Bloomberg Economics and just
Speaker 1: a hand to look at how the market politicity is
Speaker 1: impacting the retail investor in the world of exchange traded funds.
Speaker 1: It is twenty minutes past the hour is Bloomberg. Welcome
Speaker 1: back to the special edition of Bloomberg Day Greek. I'm
Speaker 1: John Tucker. The US stock market closed for the Good
Speaker 1: Friday holiday. The ongoing tariff saga has made for historic
Speaker 1: moves in the stock market, and for a look at
Speaker 1: how it's impacting the retail market the exchange traded fund industry,
Speaker 1: let's bring in Eric bellcunis, the senior ETF Strategies at
Speaker 1: Bloomberg Intelligence, and just met in Deputy team leader of
Speaker 1: Equities at Bloomberg News. Hi, guys, thanks for being here. Hey,
Speaker 1: where is money flowing these days?
Speaker 6: Believe it or not, it's in the US. A lot
Speaker 6: of investors who are using ets putting that money into
Speaker 6: US stocks, so risk assets.
Speaker 1: I would have guessed just the opposite. Everybody's hiding under
Speaker 1: a rock.
Speaker 6: Well cash like ets and gold have done better than normal,
Speaker 6: but they haven't interrupted to sort of flow us on
Speaker 6: as we call it, into US stock ets. So if
Speaker 6: you were to look at the stocks on I don't know,
Speaker 6: any period this year, you're going to see stock of
Speaker 6: ETFs like VU, which is the Vanguard, SMP five hundred,
Speaker 6: IVV which is the black Rock SMP five hundred, the
Speaker 6: QUES are in the top ten. It got some little
Speaker 6: bit of value and growth in there.
Speaker 1: Ces for everybody because you have to explain it to made.
Speaker 6: So yeah, So SMP five hundred is like the five
Speaker 6: hundred biggest stocks. The QUES is the NASTAC one hundred.
Speaker 6: The stocks that list on NAZAC and they tend to
Speaker 6: be like more tech and innovative, so it's a little
Speaker 6: more high volatile, and the Nastak one hundred over time
Speaker 6: has done way better than the SMP, but it can
Speaker 6: go down further in his selloff, and it has it's
Speaker 6: draught out and has been rougher than the SMP, but
Speaker 6: people still buying it. We got about ten billion into
Speaker 6: both the QUES ETF So I think what's going on
Speaker 6: is this, over the last fifteen years, the trail crowd
Speaker 6: has been rewarded for buying the dip, and so they
Speaker 6: are buying the dip still. And there's been a couple
Speaker 6: of days in this tariff tantrum where the dip has worked.
Speaker 6: You know, there's like a huge run up, and so
Speaker 6: those you know, quick boosts up inter of these down
Speaker 6: weeks or days are going to keep them coming back.
Speaker 6: And then the retail crowd, the sort of buying holders,
Speaker 6: I think a lot of them over the years have
Speaker 6: just thrown up their hands in terms of market timing.
Speaker 6: I think they're just like, I can't time this stuff.
Speaker 6: I mean, after COVID, like who could have timed the
Speaker 6: FED buying ets and the market rallied and had a
Speaker 6: good year. So I think a lot of them are like,
Speaker 6: I'm not even I'm tuning out. I got a good
Speaker 6: cheap ets. I'm just got a dollar cost average until
Speaker 6: the sun goes down and I retire, and that's that.
Speaker 6: And so we call that the vanguard put in that
Speaker 6: in a market that's going down, there's the FED put
Speaker 6: that they might step in. Now there's the Trump put
Speaker 6: that he might reverse, but we also the vanguard put.
Speaker 6: There's a just a bunch of retail investors who are
Speaker 6: just gonna buy them matter what, and it does help
Speaker 6: buffer these downturns a little bit.
Speaker 1: Jess. So you've seeing kind of the same thing. What's
Speaker 1: your perspective sitting at the equities desk?
Speaker 7: That's right. We like to look at the individual stocks
Speaker 7: as well. That I'm sure Eric looks at two and
Speaker 7: Emma Woo over at GP Morgan, she heads up their
Speaker 7: derivative strategy and she always collects a lot of great
Speaker 7: data for individuals shares, especially when it comes to retail
Speaker 7: specifically and what they're buying. And we've begun to see
Speaker 7: more of a divergence here in two particular popular names
Speaker 7: that we constantly talk about. So if you look at
Speaker 7: the inflows recently into Tesla, those are still going into records,
Speaker 7: whereas the outflows from Nvidia those are breaching record levels too,
Speaker 7: so you're seeing those going in opposite direction. What's the
Speaker 7: reason it's important is because typically when I'm talking to
Speaker 7: fund managers, they're keeping a close eye on their clients
Speaker 7: and what, especially on the retail side, what they're willing
Speaker 7: to let go of and what they're not willing to
Speaker 7: let go of, because you can use that as contrarian indicators.
Speaker 7: Because for a while, especially the last two years of
Speaker 7: the AI boom, of course, people were going to continue
Speaker 7: to pile into shares like in Vidia, and it's still,
Speaker 7: of course well off of its record reach just earlier
Speaker 7: this year, because it's been on up and up the
Speaker 7: last few years. But now you're starting to see that
Speaker 7: shift a bit with retail versus Tesla, though people are
Speaker 7: still piling in despite that stock being well off of
Speaker 7: its all time high back in December, So that's what
Speaker 7: you're seeing a divergence there. So it's going to be
Speaker 7: interesting to see how that impacts its stock price because
Speaker 7: typically people's and air can talk more about this. People
Speaker 7: like to talk about when retail sort of throws in
Speaker 7: the towel if that can be contraired, and that's kind
Speaker 7: of the bottom overall of the market. But of course
Speaker 7: I'm sure he remembers like in the depths of COVID
Speaker 7: in twenty twenty, everything happened so fast where retail investors
Speaker 7: didn't have time to make a lot of changes and
Speaker 7: then they ended up not necessarily throwing in the talent
Speaker 7: getting that call right.
Speaker 1: You also look at who's investing in their own company,
Speaker 1: corporate to inside, yes, what are they doing in these
Speaker 1: troubled times?
Speaker 7: And the reason we look at corporate insiders because there's
Speaker 7: a variety of reasons that they could still buy. But
Speaker 7: if you have a situation like this, especially with the
Speaker 7: broader market in a correction and even the NAZAC one
Speaker 7: hundred obviously in a bear market, you want to see
Speaker 7: what are corporate insiders doing. Are they still continuing to
Speaker 7: buy more of their stock, because that can give you
Speaker 7: confidence of what they see for their businesses as well
Speaker 7: as the economy, And you're actually seeing that happen right now.
Speaker 7: So corporate insiders still scooping up shares of their own
Speaker 7: companies at the fastest pace in about sixteen months, So
Speaker 7: that would have been when the S and P was
Speaker 7: last in a correction in the fall of twenty twenty three,
Speaker 7: so that is something in the nearer term that's giving
Speaker 7: investors and portfolio managers more confidence that corporate insiders are
Speaker 7: doing that.
Speaker 1: Hey, guys, active versus passive investment management, that's been a
Speaker 1: debate going back and forth for years and years In
Speaker 1: times like this, Eric, let me start with you, do
Speaker 1: the active managers perform better than you know if I
Speaker 1: stuck my money into it just an index fund.
Speaker 6: Yeah, So what's interesting is it depends on what fast
Speaker 6: the class you're talking about. David Cohen, who covers active
Speaker 6: and mutual funds for US, did a study. He just
Speaker 6: looked at the crazy week, you know, the week where
Speaker 6: everything just was wild and the market was down a lot,
Speaker 6: and he just wondered how actas did And what we
Speaker 6: found was interesting. On the stock side, that beat rates,
Speaker 6: the outperformance of the index rates doubled the average. So
Speaker 6: stock pickers over the last couple of years they've not
Speaker 6: been able to sort of buy the MAG seven at
Speaker 6: the same rate as the benchmarks, so they've been lagging
Speaker 6: because the MAG seven has done so well. But that
Speaker 6: actually pays off in the selloff when the MAG seven
Speaker 6: goes down worst to the benchmark. And I think it's
Speaker 6: because stock pickers tend to be looking at fundamentals and
Speaker 6: some of the evaluations of the MAG seven were getting
Speaker 6: high and they were like, I need to buy more value,
Speaker 6: and that allowed them to outperform during this rough patch.
Speaker 6: On the flip side, the bond investors, who normally outperform,
Speaker 6: they actually got their beat rates cut in half because
Speaker 6: bond investors they actually benchmarked against the indexes that are
Speaker 6: weighted by debt, you know, whereas the SMP is an
Speaker 6: index weighted by market caps, so it has momentum in it,
Speaker 6: but benchmarks are not that good. They're waited by debt
Speaker 6: equate it to playing the Washington Generals, which is the
Speaker 6: scene the Globe Shutters play. It's just a poor, easy
Speaker 6: to beat up team. All you do is aut a
Speaker 6: little high yield or international and you're good. And so
Speaker 6: what happens though, in a crazy sell off where you
Speaker 6: have treasuries doing good, the ag actually or their benchmark
Speaker 6: beats them, so they actually have more risk typically, and
Speaker 6: then you hit a sell off, they underperform more. So
Speaker 6: it is really an interesting dichotomy between the two, but
Speaker 6: for both of them. The problem without performing in a
Speaker 6: rough market is people don't care as much. We've found
Speaker 6: that if you beat the market like the markets in
Speaker 6: the market's down twenty percent and you're down fifteen, it
Speaker 6: doesn't do a lot like it's unfortunate, like you should
Speaker 6: get rewarded for that. That said, if you can go
Speaker 6: down fifteen when the market's down twenty, that could help
Speaker 6: you when the market goes back up over a year
Speaker 6: or two. Now you've got some credits from beating it
Speaker 6: when it was down, and maybe you outperform. You're up
Speaker 6: ten the market's up eight, that's when it can pay off.
Speaker 6: But right now all the active stuff bonds and stocks
Speaker 6: on the mutual financyeing outflows. So this outperformance doesn't matter
Speaker 6: in the short term. It could matter long term. But
Speaker 6: it's interesting the way it's different depending on which as
Speaker 6: class you look at.
Speaker 1: You're listening to Bloomberg Daybreak. I'm John Tucker, and we're
Speaker 1: talking with Eric Valchunis, Senior ETF Strategies as Bloomberg Intelligence,
Speaker 1: and Jess Meant and Deputy team leader of Equities at
Speaker 1: Bloomberg News. Jess, you've been writing about the death cross.
Speaker 1: That's ominous. What is that?
Speaker 7: Okay, I know it sounds ominous, but I'll break down
Speaker 7: why it not necessarily always is and typically what you
Speaker 7: would happen in this and you can use this for
Speaker 7: indexes as well as individual stocks, so this particular exactly,
Speaker 7: so this is what happens when the S and P
Speaker 7: five hundreds fifty day moving average, so it's shorter term
Speaker 7: moving average, crosses below it's longer term two hundred day
Speaker 7: moving average. So when stocks are in an up trend,
Speaker 7: typically you wouldn't see that happen like the last two
Speaker 7: years of the AI run. But when you begin to
Speaker 7: see a correction like this happening, that's when you see
Speaker 7: the shorter term moving averages move below it's longer term
Speaker 7: moving averages. So typically people want to point that out
Speaker 7: because it sounds like doom and gloom, because that happens,
Speaker 7: say during the dot com era in nineteen ninety nine,
Speaker 7: also in October two thousand, right after the stock bubble
Speaker 7: burst earlier that year that march. You also saw it
Speaker 7: happen in December two thousand and seven, right ahead of
Speaker 7: the global financial crisis, and of course it happened in
Speaker 7: March of twenty twenty. But again I want to point
Speaker 7: out that that's.
Speaker 1: I mean, we're we're not calling it a good indicator.
Speaker 1: We're not well.
Speaker 7: It depends on how severe an economic downturn is, because
Speaker 7: if you go back since the fifties, this has happened
Speaker 7: over forty times, So people want to point to kind
Speaker 7: of the handful of times that it has happened. But
Speaker 7: even in COVID when it happened in March of that year,
Speaker 7: it happened on March thirtieth, whereas the stock market bottomed
Speaker 7: on March twenty third. So it doesn't always work. I mean,
Speaker 7: since nineteen fifty, the S and P five hundred had
Speaker 7: posted a meetiing loss about seven tents of a percent
Speaker 7: a month later, but if you look three months out,
Speaker 7: it was about a two sent game for an index
Speaker 7: in a year later ten percent on average. So really
Speaker 7: what hinges it on is is there a more severe
Speaker 7: economic downturn or not. We don't necessarily know that yet,
Speaker 7: but that's why people watch it, because it depends on
Speaker 7: how much further pain could be happening. So sometimes it's worked,
Speaker 7: other times it hasn't.
Speaker 1: All right, so if you want to preserve your money. Eric,
Speaker 1: it sounds like the death crosses here. Where in the
Speaker 1: ETF world do you put money to preserve your cash?
Speaker 6: Yeah, some of the names for the technicals are pretty clever.
Speaker 6: The golden cross, I think is what you want to see.
Speaker 6: I think that happens. Hopefully down the road we'll get
Speaker 6: a golden cross. But yeah, So what we found is
Speaker 6: even though there's a lot of buying of US docks
Speaker 6: like normal, what you do find is the cash like ets.
Speaker 6: So Eskov and Bill these are the second and third
Speaker 6: best selling ets this year after vu Escov and Bill
Speaker 6: did the same thing, which is they're probably the two
Speaker 6: most boring ets one to three or one to three
Speaker 6: month treasuries. So it's literally like a money market fund.
Speaker 6: So a lot of people are hiding out. That's probably
Speaker 6: the safest, most organic way to sort of hide out
Speaker 6: when things are rough. In my opinion, there's no catch there.
Speaker 6: There's some other things people do to kind of hedge,
Speaker 6: you know, one thing they do they might use a
Speaker 6: one time inverse ETF like SAH that we have seen
Speaker 6: people do. But there's a little bit of volatility drag
Speaker 6: that can corrode your investment long term so you kind
Speaker 6: of have to, like, you know, watch that thing. You know,
Speaker 6: it's not totally natural. Some other people are looking at
Speaker 6: treasuries long long data treasuries, but they kind of had
Speaker 6: a couple bays and periods there where they went down
Speaker 6: with stops. And this is something that's an interesting point
Speaker 6: is that bonds, you know, especially as you go along
Speaker 6: the curve to the mid and the long long data section.
Speaker 6: You know, people buy those thinking that's the forty to
Speaker 6: hedge their sixty, but it's become less reliable. Seen twenty
Speaker 6: twenty two, bombs were down thirteen percent, stops are down
Speaker 6: eighteen percent. And so what we found is a lot
Speaker 6: of people use buffer ets now, which are ets and
Speaker 6: like structure products, they use options basically to target an outcome.
Speaker 6: So you buy one of these and it will tell
Speaker 6: you you're only going to get a five percent no more,
Speaker 6: or you take the first ten percent, or you know,
Speaker 6: we'll cover the first ten percent. Anything beyond that is
Speaker 6: on you or hey, no downside hedge, and every one
Speaker 6: of the sort of situations you have to give up
Speaker 6: some upside. So it's basically an option strategy package into
Speaker 6: an ETF. But people like these because unlike bonds which
Speaker 6: can be shaky, or these other hedging instruments for to
Speaker 6: have like technical things that corrode your money.
Speaker 1: Eric, thanks very much, appreciate it. Eric Balcunas, the senior
Speaker 1: ETF Strategies at Bloomberg Intelligence, and Jess Manton stopping by
Speaker 1: the studio today at Bloomberg News. Up next, the latest
Speaker 1: and the government's effort to break up Facebook owner meta platforms.
Speaker 1: Thirty eight minutes past the hour. This is Bloomberg and
Speaker 1: thanks for joining us for this special edition of Bloomberg Daybreak.
Speaker 1: The stock market closed for good Friday holiday. Hi there,
Speaker 1: I'm John Tucker. Well, big tech has been in the
Speaker 1: crosshairs of US anti trust agencies and so far it's
Speaker 1: continuing under the Trump administration. Let's get the update on
Speaker 1: where all these cases stand, and we bring in Jennifer Ree,
Speaker 1: senior litigation analyst with Bloomberg Intelligence, to go over it
Speaker 1: with us. Well, let's start with the courtroom drama. It's
Speaker 1: got it all. A billionaire witness on the stand, smoking
Speaker 1: gun emails, paranoia and even cutthroat competition. We're talking Mark
Speaker 1: Zuckerberg's Meta on trial. It's the Federal Trade Commission. Jen
Speaker 1: trying to break up Meta and force it to sell
Speaker 1: Instagram and WhatsApp. Why is the government going after Meta?
Speaker 1: I mean I thought they were kind of hands off
Speaker 1: in the Trump administration.
Speaker 8: Well, I think that's what people expected to happen, but
Speaker 8: we're not really seeing very much evidence of hands off
Speaker 8: approach when it comes to big tech yet. You know,
Speaker 8: Meta was first sued during the first Trump administration. And
Speaker 8: what the FTC is saying is that these acquisitions that
Speaker 8: men have made now back in twenty twelve, in twenty fourteen,
Speaker 8: have you of Instagram and WhatsApp, we're anti competitive. That
Speaker 8: the only purpose for buying the companies by Meta at
Speaker 8: that time, Facebook was to just take out a potential
Speaker 8: competitor that they were very concerned about both of these apps,
Speaker 8: that they would eventually grow to become something more like
Speaker 8: Facebook and then prop you know, possibly supplant them in
Speaker 8: the market, and that they had a strategy to either
Speaker 8: bury a competitor or buy a competitor in order to
Speaker 8: eliminate that rival. And that's what they did here.
Speaker 1: Well, I mean, there's no denying they bought up successful rifles.
Speaker 1: Sounds to me on the surface case closed.
Speaker 8: Well, the interesting thing is That's what makes this case
Speaker 8: so difficult because based on the documents you mentioned, these
Speaker 8: hot documents, we've been hearing about Zuckerberg's emails.
Speaker 1: Yeah, quote unquote smoking good, right, he was what are
Speaker 1: he's saying those?
Speaker 8: You know, he said it's better to buy than compete.
Speaker 8: I mean, you don't really get more straightforward than that
Speaker 8: in terms of supporting the FTC's case. But here's the thing.
Speaker 8: Even if the intent was bad back then you have
Speaker 8: to prove more elements than that to win a monopolization case.
Speaker 8: It's more than just that intent. You have to properly
Speaker 8: define the sphere of competition. You have to prove the
Speaker 8: company as a monopoly, and you have to show how
Speaker 8: consumers were harmed, and you have to show that that
Speaker 8: harm was not outweighed by the pro competitive benefits. And
Speaker 8: look at what Meta did after it acquired Instagram and WhatsApp.
Speaker 8: It put in a lot of resources to what we're
Speaker 8: really fledgling companies at the time that they were acquired.
Speaker 8: And they have a good argument here that it was
Speaker 8: pro competitive. We may have bought them, but we didn't
Speaker 8: bury them. We grew them.
Speaker 1: And the judge in this case has to consider also
Speaker 1: something called network effects. Basically, if you're on this platform
Speaker 1: they did all this, it's really hard to go anywhere else.
Speaker 1: I mean, what are you going to go to a
Speaker 1: smaller platform that doesn't have as.
Speaker 8: Many users you need the users you need to be
Speaker 8: on it. If you have a lot of your friends
Speaker 8: are on it, there is a network effect. But the judge,
Speaker 8: you know, some of the evidence that's come out is
Speaker 8: that things have changed over time with TikTok and with
Speaker 8: x and with YouTube, and that we're moving a little
Speaker 8: bit away from that network effect need because people are
Speaker 8: multi homing and moving around and sharing data and videos
Speaker 8: and information in a different way. And the judge even
Speaker 8: questioned whether network effects are as important today as they
Speaker 8: were ten years ago.
Speaker 1: So but wait a second here, I just remember the
Speaker 1: government approved these acquisitions in the first place.
Speaker 8: Very good point they did. So this would send a
Speaker 8: difficult signal to businesses. Now, legally, they have the right
Speaker 8: that the laws say, the Federal Trade Commission or Department
Speaker 8: of Justice can go after any deal any time. They
Speaker 8: can change their mind, and they've said, look, times have changed.
Speaker 8: The industry was different back then when we first looked
Speaker 8: at these deals, and they did it was about a
Speaker 8: six month investigation I think into the Instagram deal before
Speaker 8: they allowed it to close.
Speaker 1: There's no jury here, I mean, how does this work?
Speaker 8: Just a judge. It's called a bench trial. It is
Speaker 8: Judge Boseberg who's.
Speaker 1: This judge doesn't have enough honest plate.
Speaker 8: He doesn't catch a break. So it'll be his decision,
Speaker 8: and he'll first make a decision about liability, whether they're
Speaker 8: actually guilty, whether the FTC proved its case. If that's
Speaker 8: the case, he will move on to remedy and decide
Speaker 8: what is the right remedy.
Speaker 1: And jen we also have two lawsuits against Google parent Alphabet.
Speaker 1: On Monday, we're going to get a remedy on Search
Speaker 1: because there's there's been a ruling that were found guilty,
Speaker 1: so they're going to remedy that. Coming up Thursday, we
Speaker 1: actually got a decision on a liability. This comes in
Speaker 1: respect to the lawsuit that's focused on digital advertising at Google.
Speaker 1: Tell us about that.
Speaker 8: What happened right, Well, you know that one was unexpected.
Speaker 8: This decision on liability was expected to few months ago,
Speaker 8: and when it didn't come out, everyone was wondering, well,
Speaker 8: when will it came out? On Thursday? And it was
Speaker 8: a partial victory for the Department of Justice. These products
Speaker 8: that the Department of Justice head challenged are very complicated, right.
Speaker 8: There are a series of products that Google has that
Speaker 8: connect digital publishers and advertisers together, and so they're all
Speaker 8: software essentially, and a couple of them are on the
Speaker 8: publisher end and a couple of them are on the
Speaker 8: advertiser end. And what Google was basically alleged to have
Speaker 8: done is sort of manipulate the whole process because fees
Speaker 8: are taken out for each of these products that are used,
Speaker 8: so that it keeps publishers and advertisers within their whole
Speaker 8: supply chain right to place an ad on a website.
Speaker 7: So what this.
Speaker 8: Judge decided was that Google was found liable for monopolization
Speaker 8: of what's called the Publisher ad Server, So it's one
Speaker 8: of the products on the publisher side. Google actually bought
Speaker 8: this product. It was originally called double Click and Google.
Speaker 8: When Google bought double Click, it obtained this product also
Speaker 8: monopolization of the ad exchange market. That's one of the
Speaker 8: advertiser sides. It's in exchange where they can actually come
Speaker 8: together to buy and sell ads and for tying the
Speaker 8: two of them together. What that means in antitrust is
Speaker 8: conditioning access to one to conditioning the access of one
Speaker 8: to get the other, and that is illegal under the
Speaker 8: anti trust laws. So that came out on Thursday, and
Speaker 8: what the judges said is, Okay, here's my decision. The
Speaker 8: next step is to have a hearing to decide what
Speaker 8: the proper reality is going to do.
Speaker 1: What are we going to do? What do you suppose
Speaker 1: the proper remedy remedy with this?
Speaker 8: And of the lawsuit, well, you know, like several of
Speaker 8: the government lawsuits against the big tech companies, they will
Speaker 8: seek divestiture, forced asset sale, as they're doing FTC's doing
Speaker 8: with Meta, as the Department of Justice is doing with
Speaker 8: Google on the search case that you mentioned. They will
Speaker 8: seek that. I don't think that they'll get that here.
Speaker 8: And the reason I don't think so is because I
Speaker 8: believe judges are really looking for the most straightforward and
Speaker 8: kind of non intrusive way of remedying a problem. And
Speaker 8: so if the problem is this unlawful hying, let's say
Speaker 8: they're told you have to stop this, you have to
Speaker 8: make access unconditional. You can't say you must use one
Speaker 8: in order to get the other and again the decision
Speaker 8: only recently came out, so I haven't had a chance
Speaker 8: to digest it yet looking at hundreds of pages. But
Speaker 8: whatever it is, the judge found that Google is doing
Speaker 8: that monopolizes the publisher ad server. It's really she'll really
Speaker 8: just say you have to stop doing that. That's more
Speaker 8: likely than a divest chat.
Speaker 1: Okay, let's move to the other case in which they
Speaker 1: were found guilty with respect to the search engine. Right,
Speaker 1: are they going to have to get rid of search
Speaker 1: Google Search?
Speaker 8: I don't think so. So what's starting on April twenty
Speaker 8: first is a hearing also on what the proper remedy
Speaker 8: should be since a liability decision was made, and this
Speaker 8: was about Google paying other companies, say yeah, Chrome right.
Speaker 1: Just Google Search man.
Speaker 8: Google was paying other companies to install Google Search as
Speaker 8: the default behind other search engines at other Internet app
Speaker 8: access points in various devices, and basically it locked up
Speaker 8: all the distribution points for the use of a search
Speaker 8: and so rival search engines couldn't get in there. And
Speaker 8: the judge that these default agreements are illegal. So, as
Speaker 8: I said, if you're looking at judges that are going
Speaker 8: to do the most straightforward thing In my view, what
Speaker 8: the judge will say is you cannot force this exclusivity
Speaker 8: anymore on all these third parties, on Apple, Samsung making
Speaker 8: Android devices, and instead you have to you know, you
Speaker 8: can't pay them anymore to put your search engine exclusively
Speaker 8: in those positions.
Speaker 1: There are other cases too of what it's Apple, Apple, Amazon.
Speaker 8: Live Nation, Yes, and Visa.
Speaker 1: What are the O Visa? Okay?
Speaker 8: Yeah, Visa. You know, it's the most active that the
Speaker 8: government's been in thirty years in terms of going after
Speaker 8: big companies for monopolistic conducts. So it's really pretty remarkable.
Speaker 8: You know. The last one was to make Microsoft back
Speaker 8: in the late nineteen nineties, right, Yeah, and sort of
Speaker 8: a smaller case against qualcomby the FTC in around twenty seventeen.
Speaker 1: Right Apple, Now, I get, I mean, I get with
Speaker 1: the Trumpet administration, uh and social media, they say it's
Speaker 1: bias against the conservative conservatives. I kind of get that.
Speaker 1: I don't understand the whole climate though, why it hasn't
Speaker 1: changed under what we thought was going to be more
Speaker 1: of a laissez fair administration when it came to cases
Speaker 1: like this.
Speaker 8: Well, I think that there's always been this anti big
Speaker 8: tech sentiment amongst mostly the populist part of the Republican Party.
Speaker 8: You know, you have jd Vance who has who praised
Speaker 8: Biden's anti trust authorities saying he thought what they were,
Speaker 8: that they were doing a good job. And it's for
Speaker 8: a couple different reasons. I mean that the alleged censorship
Speaker 8: of conservative content is one of them. But I think
Speaker 8: in some respects Big Tech is also kind of considered
Speaker 8: leftist organization that push liberal ideas that this administration doesn't
Speaker 8: really agree with, and I think the intent is to
Speaker 8: continue to be aggressive.
Speaker 1: Are these other cases strong in your view?
Speaker 8: No, I actually don't think the case against Apple or
Speaker 8: Amazon that you mentioned, both very slow moving, are particularly
Speaker 8: strong cases. And for those reasons, as those litigations develop
Speaker 8: and move closer to trial, I do think there might
Speaker 8: be some possibility of settlements there.
Speaker 1: Explain everybody. This give us a sort of a primer
Speaker 1: when we're talking about anti trust cases anti monopolization cases.
Speaker 1: It is both the Federal Trade Commission and the Justice
Speaker 1: Departments that are in on this right. They bring separate cases,
Speaker 1: they work together. How does that work?
Speaker 8: They do? They both have authority to enforce the anti
Speaker 8: trust laws, and what happened we understand in this case
Speaker 8: is that several years ago, I think this was during
Speaker 8: Trump one point zero, the agencies did get together and
Speaker 8: they kind of divided up the big tech companies and
Speaker 8: FTC took Amazon and took Meta, and the Department of
Speaker 8: Justice took Google and took Apple. They started investigations of
Speaker 8: the companies which then culminated in these litigations. But that
Speaker 8: is how they work. They tend to talk to each
Speaker 8: other say who will take on responsibility. They do the
Speaker 8: same in the merger space.
Speaker 1: And who are the personalities at the FTC and well
Speaker 1: beyond the Justice Department, beyond Pambondi.
Speaker 8: Well, we have an interesting situation at the Federal Trade
Speaker 8: Commission now because it is technically supposed to have five commissioners,
Speaker 8: only three of which can be from one party. So normally,
Speaker 8: with the Republican president, you'd have three Republicans and two Democrats.
Speaker 8: But President Trump just fired the two Democrats. So at
Speaker 8: this point we have only three Republicans that are running
Speaker 8: the Commission, and it looks like it's going to be
Speaker 8: that way for some time. The two Democrats have filed
Speaker 8: a lawsuit saying that this firing was illegal but obviously
Speaker 8: those things take time to work their way through court.
Speaker 1: We know about all these cases that you just went over.
Speaker 1: What's next, Well, I think.
Speaker 8: At least in terms of new monopolization cases, I'm not
Speaker 8: so sure anything's going to come along quickly, because, first
Speaker 8: of all, you know, Trump's enforcers took over the FTC
Speaker 8: and DOJ with a lot of workload. They inherited a
Speaker 8: lot of cases. They are resources constrained. They've been resource
Speaker 8: constrained for many years. Actually, they can only bring so
Speaker 8: many cases. And if more mergers begin to be notified
Speaker 8: and filed, they're also going to have those that they're
Speaker 8: going to have to review, possibly negotiate settlements, possibly even
Speaker 8: challenge deals they find to be anti competitive. So I think,
Speaker 8: at least with respect to the monopolization space, these are
Speaker 8: all going to play out. I don't think we're going
Speaker 8: to see very many new cases, all right.
Speaker 1: Thanks to Jenniferree, senior Litigation analyst of Anti Trust with
Speaker 1: Bloomberg Intelligence. We would also like to thank Eric Baltoon Is,
Speaker 1: Senior ETF strategist at Bloomberg Intelligence and Just Meant and
Speaker 1: Deputy Team Leader Equities at Bloomberg News as well as
Speaker 1: Bloomberg International Economics and Policy Course meen with Michael McKee
Speaker 1: and Stuart Paul Us economists with Bloomberg Economics would also
Speaker 1: like to thank you for listening. I'm John Tucker. Stayed
Speaker 1: with US top stories, global business headlines coming up right
Speaker 1: now