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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.

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Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along

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Speaker 2: with Lisa Bromwitz and Amrie Hortenn. Join us each day

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Speaker 2: for insight from the best in markets, economics, and geopolitics

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Speaker 2: from our global headquarters in New York City. We are

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Speaker 2: live on Bloomberg Television weekday mornings from six to nine

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Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or

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Speaker 2: anywhere else you listen, and as always on the Bloomberg

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Speaker 2: Terminal and the Bloomberg Business app.

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Speaker 3: We begin this hour with Michael Green. He is the

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Speaker 3: chief strategist at Simplify Asset Management. Michael, thanks for joining

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Speaker 3: us here on this Black Friday. We'll let you get

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Speaker 3: to shopping in just a second, but I do want

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Speaker 3: to start before we get to the broader market. I

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Speaker 3: do want to start with cryptocurrency for a big here,

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Speaker 3: because this really has been one of the big barometers

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Speaker 3: of the risk on sentiment that we've seen over the

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Speaker 3: past few weeks. Kind of started even before the election,

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Speaker 3: but of course picked up a lot of steam once

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Speaker 3: people got a look at what is going to be

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Speaker 3: a new Trump administration. In January. You see this momentum continuing, well, I.

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Speaker 4: Think the real question is does the buying continue right.

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Speaker 5: So, we've seen extraordinary inflows into products like black Rocks,

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Speaker 5: Spittwein ETF. We've seen an incredible innovation in Quote's right,

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Speaker 5: the classic financial innovation with the single stock ETFs that

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Speaker 5: have powered entities like micro Strategy. Over the past month

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Speaker 5: or so, those seem to be running out of gas

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Speaker 5: and the financing costs associated with them, I think kind

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Speaker 5: of give lie to this idea that financial conditions are

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Speaker 5: affected in any way, shape or form by what the

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Speaker 5: Federal Reserve is doing right now.

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Speaker 4: But this is clearly one of these things that is

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Speaker 4: indicative of both.

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Speaker 5: People's expectations that the craziness is only kind of going

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Speaker 5: to accelerate as it relates to government spending or inflation

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Speaker 5: or the risks associated with a Trump administration.

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Speaker 3: And as people sort of take a look at that,

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Speaker 3: Michael and they try to sort of make bets in

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Speaker 3: the cryptos, We've seen a lot of people looking for

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Speaker 3: proxies to do that. MicroStrategy, of course, was the proxy

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Speaker 3: for quite some time. We started to see ETFs come

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Speaker 3: into this space, and we started to see more of

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Speaker 3: an embrace not only by retail investors, but by the

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Speaker 3: institutional set as well. Do you expect that to continue?

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Speaker 3: Do you expect the embrace of crypto to be much

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Speaker 3: more through these proxy vehicles rather than through the actual

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Speaker 3: crypto asset itself.

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Speaker 5: Well, I think this actually tells you something about the

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Speaker 5: space right which is that there's still is very little

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Speaker 5: utility associated with the actual tokens themselves. Ultimately, this idea

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Speaker 5: of digitally native securities is incredibly important. It really is

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Speaker 5: an incredible innovation to think about changing away from our

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Speaker 5: still paper based financial system to one that's really built

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Speaker 5: around digitization and securities that are capable of having complex

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Speaker 5: instruction sets embedded inside them.

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Speaker 4: But right now, we're basically just.

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Speaker 5: Trying to build enthusiasm for the space, and that is

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Speaker 5: clearly being driven by promotional activity. We see that across

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Speaker 5: space everywhere, from Blackrock on down to the extremes of

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Speaker 5: the Michael Sailors.

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Speaker 6: Well, let's talk a little bit about these micro strategies

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Speaker 6: single stock leverage, ETF. So I want to jump right

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Speaker 6: into the weeds here, because, as reported by Bloomberg's Wildna Hirich,

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Speaker 6: you're seeing this really interesting dynamic where they can't get

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Speaker 6: their exposure through swaps anymore. They have to basically tap

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Speaker 6: the options market and buy these call options, and there's

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Speaker 6: been a lot of concern about that. But I want

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Speaker 6: to ask why, what is the end effect on the

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Speaker 6: end client or is this more a problem for the issuers?

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Speaker 4: So those two separate components associated with it.

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Speaker 5: One is it is clearly an issue for the issuers

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Speaker 5: themselves in that their prospectuses do not disclose the use

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Speaker 5: of options, and so by attempting to maintain their investment

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Speaker 5: mandate moving away from swaps into options, they are incurring

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Speaker 5: costs and pursuing their investment strategies that are not fully

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Speaker 5: disclosed to their investors that potentially creates liability at some

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Speaker 5: point in the future or should these.

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Speaker 4: Begin to underperform.

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Speaker 5: By my calculations, the financing costs are somewhere in the

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Speaker 5: range of five to ten percent per month at this point.

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Speaker 5: So while we sit here debating the idea should the

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Speaker 5: FED cut by twenty five basis points, we're seeing areas

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Speaker 5: of the market they're being propelled by speculation with interest

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Speaker 5: rates closer to one hundred percent, So it really is

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Speaker 5: not anything to do with the FED at this point,

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Speaker 5: I would would argue the second issue that you have

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Speaker 5: is that financing costs, because it ultimately means that these

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Speaker 5: vehicles are facing a bleed associated with a failure of

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Speaker 5: those options to go further into the money or deliver

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Speaker 5: against their volatility. That means that the carrying costs of

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Speaker 5: these products are also in that kind of five percent

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Speaker 5: plus ten percent area, meaning that the bitcoin market and

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Speaker 5: the micro strategy market has to continue to rise it

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Speaker 5: nearly one hundred percent a year in order for these

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Speaker 5: products to break even. That's a very you know, that

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Speaker 5: is an incredible headwind, and a lot of the behavior

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Speaker 5: that we're seeing in these in these single stock levered ETFs,

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Speaker 5: I think ultimately we're going to find out we'll be

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Speaker 5: treated as various forms of manipulation, and in all likelihood

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Speaker 5: we'll see this stuff pulled off the market at some

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Speaker 5: point in the future.

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Speaker 1: Well, we'll see that would certainly be dramatic.

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Speaker 6: But to put it simply, of course, these are not

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Speaker 6: meant to be buy and hold investments.

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Speaker 1: The issuers themselves would tell you that.

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Speaker 6: But I want to talk to about the relationship between

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Speaker 6: these leveraged single stock micro strategy ets and what it

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Speaker 6: means for the actual micro Strategy underlying stock because you

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Speaker 6: see micro Strategy treating at a record premium I believe

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Speaker 6: to bitcoin itself, and there are some theories out there

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Speaker 6: that it's actually these leverage single stock vehicles that are

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Speaker 6: driving that.

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Speaker 5: Yeah, I don't think there's any question about that. If

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Speaker 5: you look at the increasing premium that occurred. It happened

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Speaker 5: almost simultaneously with the launch of the largest of these

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Speaker 5: levered ETFs, MSTU being the ticker there. That actually very

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Speaker 5: clearly power or the separation. There's very little to actually

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Speaker 5: debate around that. That's allowed it to push itself beyond Bitcoin. Now,

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Speaker 5: what that's created is something similar to what happened with

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Speaker 5: gray scale bitcoin trusts a year ago, in which are

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Speaker 5: two years ago, in which a premium that it developed

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Speaker 5: for grey scale bitcoin trust created demand for bitcoin.

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Speaker 4: This is working almost in reverse.

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Speaker 5: The premium for micro Strategy is leading to micro Strategy

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Speaker 5: being able to issue shares and in turn by bitcoin.

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Speaker 5: It's a far less direct route, but it's the same

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Speaker 5: underlying effect that continues to power both both the stock

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Speaker 5: and the coin.

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Speaker 4: The token higher at.

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Speaker 3: This point and just real quickly Michael I am curious

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Speaker 3: that when we start, we're talking about this in the

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Speaker 3: context specifically within the cryptosphere to some of that optimism mode.

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Speaker 3: Does that bleed out into the broader market? I mean,

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Speaker 3: can we take cues from what's going on in the

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Speaker 3: cryptosphere for the rest of the market.

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Speaker 5: I think it's hard not to assume that there are

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Speaker 5: going to be implications associated with this, right, So you

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Speaker 5: have individuals who are investors in bitcoin who are feeling

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Speaker 5: flush in the environment that will lead to them increasing

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Speaker 5: their purchasing activity, et cetera.

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Speaker 4: So there are real world feedbacks to this.

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Speaker 5: There's also very real world feedbacks and the kind of

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Speaker 5: the classic George Soros reflexivity component. This type of price

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Speaker 5: activity facilitates micro strategy going out and raising real cash

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Speaker 5: in the form of convertible debt, which is more issuance

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Speaker 5: of shares, which in turn is used to purchase that bitcoin.

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Speaker 5: They could theoretically hold on to that cash and use

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Speaker 5: it for alternative corporate purchases, as we saw with stocks

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Speaker 5: like GameStop or with MC Entertainment. So far, Sailor seems

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Speaker 5: to be much more aggressive in this process.

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Speaker 3: All right, Michael, great stuff, going to leave it. There

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Speaker 3: have a wonderful rest of your week and weekend. Michael

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Speaker 3: Green over at Simplify Asset Management.

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Speaker 1: Let's keep the conversation going with Jill Sanders.

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Speaker 6: She is head of retail over at it Center Global,

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Speaker 6: joining us now and Jill, I want to go to

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Speaker 6: this line in your notes. You're right that retailers have

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Speaker 6: good reason to be cautiously optimistic, which is interesting because

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Speaker 6: we talk about all of these headwinds potentially coming at

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Speaker 6: retailers next year.

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Speaker 1: What is the case for optimism right now?

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Speaker 7: Well, in our survey, which we did right before a holiday,

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Speaker 7: basically people said they're going to spend upwards of four

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Speaker 7: percent more this year compared to last year. So that's

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Speaker 7: the optimism. The causes is about the fact that everyone's

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Speaker 7: looking for a deal. I mean, you heard any other

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Speaker 7: correspondence point everyone's out there for Black Friday because they

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Speaker 7: know that there's sales.

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Speaker 1: On today, sales on today.

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Speaker 6: But we were joking earlier that Black Friday it's really

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Speaker 6: a state of mind.

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Speaker 1: It never ends.

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Speaker 6: I was actually out and about on Tuesday getting great

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Speaker 6: deals as well. I mean this bleeding out of the

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Speaker 6: bounds of Black Friday. What does that ultimately mean for

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Speaker 6: retailers because it seems like it's just persistent discounting.

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Speaker 7: Well, Listen, agility is being put to the test this

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Speaker 7: year because shoppers have only one less week compared to

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Speaker 7: last year because it's where Thanksgiving fell. So retailers are

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Speaker 7: really smart. They said, listen, I'm going to start doing

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Speaker 7: my discounting early so I can get people to start

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Speaker 7: shopping early.

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Speaker 4: And listen.

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Speaker 7: AI has been on the pitch for a long time

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Speaker 7: in retail where retailers were planning out when to put

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Speaker 7: things on sale so that hopefully will help them make

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Speaker 7: sure that they don't lose margin over this period. It's

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Speaker 7: all being worked out through advanced technology, which is great

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Speaker 7: to see.

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Speaker 3: I'm curious just about how much some of these retailers

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Speaker 3: can sort of prod the consumer into buying certain things.

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Speaker 3: I mean, some of us, Jill, we have a hard

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Speaker 3: time figuring out what to buy people, what the buy

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Speaker 3: for our loved ones, you know, what gifts do they

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Speaker 3: really want? And I know some retailers have taken a

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Speaker 3: more creative approach kind of to really put out these

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Speaker 3: gifts guys and create other experiences whether they're in their store,

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Speaker 3: to sort of plant those seeds in your head, probably

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Speaker 3: for the more expensive stuff, but still, what are they doing?

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Speaker 7: Yeah, listen, this year is the year of curation and recommendation.

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Speaker 7: Retailers know that people are getting inspiration from all different sources.

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Speaker 7: Whether that's Instagram or Meta or Facebook, you name it.

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Speaker 7: There's a bunch of places where people are getting suggestion.

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Speaker 7: Some of the curation is happening not just in the

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Speaker 7: store with really smart people working the store saying here's

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Speaker 7: what you should buy. It's also happening with technology. So

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Speaker 7: think about if you're online and all of a sudden,

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Speaker 7: this little pop up comes that says, hey, do you

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Speaker 7: need any help? Who are you buying for? What are

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Speaker 7: you looking for? What's your budget? Those types of recommendations

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Speaker 7: is going to be what the future looks like in retail.

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Speaker 7: So instead of you trying to search, people are trying

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Speaker 7: to help you, trying to make.

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Speaker 4: It easier on you.

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Speaker 3: I am curious too with regards to physical stores and

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Speaker 3: the idea of a lot of these physical stores trying

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Speaker 3: to find ways to get people back in. We were

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Speaker 3: just checking in with Macy's in Harold Square here in

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Speaker 3: New York, which of course just really decks out a store.

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Speaker 3: I mean, you go to that store just to see

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Speaker 3: the displays and hopefully you buy something along the way.

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Speaker 3: I know Bloomingdale's right across from Bloomberg headquarters here also

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Speaker 3: has these pretty expansive displays. Are we seeing these stores

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Speaker 3: embrace that more because there have been some stores that

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Speaker 3: said they're actually pulling back. Sach said they're not doing

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Speaker 3: their normal light show this year.

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Speaker 7: Yeah, you know, stores are back this year, which is fantastic.

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Speaker 7: You heard that stat that said there's a bunch of

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Speaker 7: folks that are going to be shopping in stores this year,

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Speaker 7: and so there is that retail shopping fund where you

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Speaker 7: get together with your friends and you go to the stores.

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Speaker 7: It's not so much about the decorations as much as

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Speaker 7: it is about that feeling on Black Friday over Cyber Monday,

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Speaker 7: going in and going shopping. I think the key for

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Speaker 7: retailers this year is going to be all about again curation, recommendation,

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Speaker 7: and then let's not forget the store staff. Frontline workers

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Speaker 7: have been really part of the equation. I always say,

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Speaker 7: you can have the best discount, the best promotions, the

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Speaker 7: best curation, the best assortment, but if that person behind

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Speaker 7: the till is not in a good mood, it could

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Speaker 7: really really change your opinion of that retailer. So frontline

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Speaker 7: work is is also something that retailers are taking care

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Speaker 7: of this year.

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Speaker 1: Yeah, it's a great point that service matters.

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Speaker 6: I want to go to another line in your note

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Speaker 6: because I thought this was interesting that retailers are focusing

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Speaker 6: on inspirational content, which actually can improve sales according to

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Speaker 6: your data.

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Speaker 1: What is inspirational content though?

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Speaker 7: Well, listen, I talked a little bit about AI, and

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Speaker 7: AI has been used a lot of times with figuring

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Speaker 7: out again your assortment, figuring out how that's to make

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Speaker 7: sure that the supply is right, also how to get

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Speaker 7: it to the store.

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Speaker 4: And then of.

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Speaker 7: Course you're using all sorts of AI for doing curation

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Speaker 7: around your ads and your promotions. But now because of

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Speaker 7: advanced technology, now the way that you advertise is also

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Speaker 7: being inspirational, so you can have more tailored advertising to

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Speaker 7: consumers now, which is fantastic a lot because of gen AI.

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Speaker 7: So that's what I mean by inspirational and also gift ideas, suggestions, recommendations.

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Speaker 4: That's on the pitch this year. It's the year of curation.

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Speaker 7: You know. I always like to say where do people

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Speaker 7: get their inspiration. Do they get it from, you know,

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Speaker 7: looking at Instagram? Do they get it from going on

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Speaker 7: the website of the retailer. Most retailers are saying, listen,

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Speaker 7: I've got to play a big role of making sure

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Speaker 7: that eyeballs.

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Speaker 4: Come to my website. How do I get them there?

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Speaker 7: Maybe I do have some ads on Instagram to get

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Speaker 7: you to click through to come to my website.

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Speaker 3: Absolutely all about tantalizing folks. Jill Standish over at at

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Speaker 3: a Centric.

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Speaker 1: Let's keep the conversation going now with Judy Dempsey.

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Speaker 6: She is non Resident Senior Fellow for Carnegie Europe, joining

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Speaker 6: us now and it's great to.

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Speaker 1: Have you with us. Judy put us into the shoes.

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Speaker 6: Of European leadership right now, confronting the possibility of less

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Speaker 6: American support for Ukraine, the possibility of increased terriffs here.

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Speaker 1: How does one prepare for that?

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Speaker 8: It's very difficult. I mean, there's so many own predictabilities.

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Speaker 8: But clearly the present elect Trump wants to move very quickly.

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Speaker 8: He's actually chosen former general to be his envoid, General

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Speaker 8: Kellog to be the special envoy in Ukraine who will

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Speaker 8: try to conduct negotiations. But the Europeans they say they

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Speaker 8: want to say the table, will I'm not so sure

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Speaker 8: they're going to get one. And secondly, if the Trump

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Speaker 8: administration does actually reduce its military support for Ukraine, will

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Speaker 8: the Europeans be ready. There's a shortage of material already.

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Speaker 8: Some countries such as the Nordic countries are supplying as

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Speaker 8: much as they can, and some other countries are running short,

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Speaker 8: and some other countries of the EU are a little

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Speaker 8: bit reluctant, so they're not really prepared, but they have

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Speaker 8: been warned of the day after when Donald Trump enters

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Speaker 8: the White House, and maybe Ukraine is depending on the

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Speaker 8: Europeans for more military support. It's going to be very

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Speaker 8: difficult to muster this very quickly.

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Speaker 6: And we'll talk about the past stability of tariffs here

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Speaker 6: because you know, we make jokes about French wine and

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Speaker 6: German cars for example, but you think about the balance

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Speaker 6: of the European economy right now, and particularly the car

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Speaker 6: industry for example, which has been under some pressure here, I.

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Speaker 1: Mean, how much would tariffs hurt? How should we be

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Speaker 1: thinking about that?

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Speaker 8: Parents are an enormous worry for the outgoing German government

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Speaker 8: particularly and the incoming one whoever that will be The

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Speaker 8: real issue is that Donald Trump has a kind of

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Speaker 8: difficult relationship with Germany. He sort of resents its huge

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Speaker 8: expert circlus and the tariffs ten percent tariff is very

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Speaker 8: very high. At the moment, trade between the Eurozone and

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Speaker 8: the United States is about weakness. To got four hundred

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Speaker 8: and fifty billion a year, and this has actually increased

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Speaker 8: over the COVID times when trade with between Europe and

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Speaker 8: China sort of declined. The Europeans are increasingly relying on

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Speaker 8: the US market. So you slap tariffs on and you

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Speaker 8: still want to export, it's going to be very, very

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Speaker 8: difficult for them.

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Speaker 1: The other key.

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Speaker 8: Point is that how the German automobile industry will react.

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Speaker 8: We've seen announced closures in Volkswagen, We've seen the steel

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Speaker 8: industry going to lay off six or seven thousand workers.

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Speaker 8: What will happen to avoid tariffs? German manufacturer who will

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Speaker 8: probably go over to the United States, which is exactly

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Speaker 8: what Johnald Trump would like. But if that happens, it

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Speaker 8: could have a negative spin off effect for the economies

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Speaker 8: of Europe because we've mean more job losses and probably

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Speaker 8: less competition.

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Speaker 3: Judy, I'm curious. I'm not unsympathetic to the challenges that

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Speaker 3: Europe faces in the face of a new Donald Trump administration.

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Speaker 3: But there are a lot of questions, at least from

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Speaker 3: the US lens as so why Europe wasn't better prepared

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Speaker 3: for this. They've had time, they knew this was a

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Speaker 3: big possibility, and now here we are talking about what,

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Speaker 3: at least on the contour, seems like a surprise to them.

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Speaker 8: You're talking in the sense of the Ukraine issue.

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Speaker 3: A Ukraine issue terrafs everything.

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Speaker 8: Yes, their cries. Yes, to use a terrible phrase, the

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Speaker 8: writing has been on the wall. But the Europeans, they

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Speaker 8: do talk an awful lot, and they talk about competitiveness

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Speaker 8: and diversification from China, but they are really not prepared

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Speaker 8: for the tariffs.

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Speaker 1: Firstly. Secondly, I think.

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Speaker 8: We really have to remember that the European economies are

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Speaker 8: not only going to be hit by the tariffs, they

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Speaker 8: are actually going through a period of d industrialization as

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Speaker 8: a lot of fast pace, largely because of the China influence.

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Speaker 8: Of course China has done to the electric cars, for instance,

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Speaker 8: but also the whole element of digitization AI and others use.

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Speaker 8: The Europeans have incredibly slow to embrace these and that's

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Speaker 8: another contributing factor for being unprepared for this new kind

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Speaker 8: of transatlantic relationship.

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Speaker 3: And it raises another question too about just how common,

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Speaker 3: if you will, the common Eurozone is. I mean, this

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Speaker 3: is a collection of countries that I don't think have

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Speaker 3: really acted in commonality for quite some time. I don't

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Speaker 3: think they ever did, but they at least managed to

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Speaker 3: put up a good facade for some time. But I

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Speaker 3: think we've seen with regards to the Russians in France,

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Speaker 3: Germany and of course what's going on in the Eastern Europe,

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Speaker 3: that there just isn't a lot of consensus. So how

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Speaker 3: do you get to a solution.

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Speaker 8: It's very difficult. And what we've seen over the last

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Speaker 8: say ten years is the increasing role of the member states.

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Speaker 8: This is the role of the Executive, the European Commission,

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Speaker 8: and now the member states for this, France, for this, Germany,

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Speaker 8: for the the Netherlands, where the Supportic countries. They're all

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Speaker 8: looking after the national interests. And if you look after

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Speaker 8: national interests, you actually downgrade or make the whole idea

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Speaker 8: of the European Union weaker. There's no talk any more

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Speaker 8: about integration, there's not even any discussion. But what's really

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Speaker 8: necessary is completing monetary unions such as a banking union,

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Speaker 8: and so in some ways the European Union as an

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Speaker 8: economic project and as a political project has really slowed down,

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Speaker 8: and there's no leadership either in Berlin or Paris and

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Speaker 8: other countries to say, let's put our national interest behind

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Speaker 8: us and try to integrate the European Union further so

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Speaker 8: that we can deal with the new challenges coming from Washington,

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Speaker 8: from China and of course Russia and India.

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Speaker 1: All right, Judy got to leave it there.

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Speaker 6: I really appreciate you taking the time great to get

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Speaker 6: your perspective.

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Speaker 1: That is Julie Densey of Carnegie Europe.

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Speaker 2: This is the Bloomberg Surveillance Podcast, bringing you the best

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