Speaker 1: We've got a great guest. I want to get right
Speaker 1: to her. Delighted to have back with us to talk
Speaker 1: about so many of the things that really preoccupied us
Speaker 1: over the last couple of weeks. Kathy Would is back
Speaker 1: with us. She's the founder, CEO, and chief investment officer
Speaker 1: of our invest joining us via zoom. Kathy, it is
Speaker 1: so great to have you here with Tim and myself
Speaker 1: alive on radio, TV, across all the Bloomberg platforms. How
Speaker 1: are you doing very well? It's been a very challenging
Speaker 1: few uh while I should say twenty months, but uh,
Speaker 1: you know, we're looking at our portfolios right now and um,
Speaker 1: we are back to where we were in terms of
Speaker 1: calling them deep value portfolios if you give us a
Speaker 1: five year investment time horizon, I mean, we're seeing incredible
Speaker 1: values for the kinds of growth, kind of growth that
Speaker 1: our portfolios are going to deliver. You know where I
Speaker 1: want to go. I gotta talk to you about the
Speaker 1: crypto space. You Um, you know, it's it's a world
Speaker 1: you know really well. We think about the ft X collapse,
Speaker 1: the bankruptcy proceedings today, the coming undone of Sam Makeman Free.
Speaker 1: You know you have been buying into some of the
Speaker 1: different names in the cryptos based coin Base, gray scale
Speaker 1: bitcoin trust. Why should investors trust crypto? Why do you
Speaker 1: trust crypto at this point? Yes, if you look at
Speaker 1: the block chains, let's let's use UH the Bitcoin blockchain
Speaker 1: and Ethereum, what you'll find is they have the infrastructure.
Speaker 1: The technology has not skipped a beat throughout this entire crisis.
Speaker 1: In fact, the hash rate, Bitcoin's hash rate is at
Speaker 1: an all time high, and that is a real indication
Speaker 1: of the security of the network. On Ethereum, we're seeing
Speaker 1: the total value uh staked at twenty four billion, that
Speaker 1: is an all time high. So we think the infrastructure
Speaker 1: is working beautifully. UM. As far as coin Base, this
Speaker 1: is an onshore regulated UH company and wanting to help
Speaker 1: shape regulations. Brian Armstrong, the CEO, and Alicia uh CFO
Speaker 1: have been leaning in into what's going on right now
Speaker 1: and saying, okay, regulators, we need more clarity in order
Speaker 1: to protect to protect investors, those who wanted to get
Speaker 1: involved with a certain types of crypto were forced off
Speaker 1: shore and look at what's happened. So UM, I I
Speaker 1: think that coin Base is going to come out here
Speaker 1: looking very very strong. It just lost a very big
Speaker 1: competitor in f t X. Well what is the market
Speaker 1: missing though, because you know, that could be one narrative, Cathy.
Speaker 1: But at the same time, we haven't exactly seen shares
Speaker 1: of coin based rallies since FTX is collapsed. Do you
Speaker 1: think to you that represents potentially broader concern about just
Speaker 1: people's interest in crypto following f x's collapse. No, I
Speaker 1: think it's more fear. I think uh many people say,
Speaker 1: we don't know what we don't know? Uh and uh
Speaker 1: so what we do is we step back, you know,
Speaker 1: put a little perspective into the situation here and what
Speaker 1: do we have. So the entire crypto asset ecosystem is
Speaker 1: an eight hundred billion dollar ecosystem. Apple is three times
Speaker 1: larger in terms of market cap. So that's some perspective.
Speaker 1: Many people are saying, well, okay, is this another lehman?
Speaker 1: Could this be uh? You know, could could we see
Speaker 1: the domino effect here? I've just given you one reason
Speaker 1: why the banking system back in oh eight oh nine
Speaker 1: trillions and trillions of dollars and it was the global
Speaker 1: banking system. Right now we have it seems from f
Speaker 1: d X five to ten billion dollars in creditors. If
Speaker 1: as uh as f t X has filed bankruptcy, they
Speaker 1: will be making claims. If you look at Lehman, that
Speaker 1: was one point to trillion dollars in claims. So again
Speaker 1: just trying to put perspective, this is fraud. This is
Speaker 1: made off, made off with sixty four billion dollars in claims.
Speaker 1: Again f t X five to ten billion. Now, I
Speaker 1: know that crypto assets are you know, they attract a
Speaker 1: lot of attention. This is um you know, the three
Speaker 1: revolutions we talk about all the time. You know, a
Speaker 1: new monetary system in terms of the first global private
Speaker 1: meaning not government controlled, digital rules based monetary system. That's Bitcoin.
Speaker 1: A very big idea. Defy is a very big idea.
Speaker 1: And uh, while that has been thrown into question in
Speaker 1: terms of you know, shifting from one exchange to another,
Speaker 1: we've had a lot of shifting around. But I think, uh,
Speaker 1: I think Defy in terms of taking the middlemen out
Speaker 1: of financial services and and making the ecosystem much more
Speaker 1: transparent with much less counterparty risk, is going to take off.
Speaker 1: It will continue to move forward. We believe they think
Speaker 1: one of the things we're trying to figure out is
Speaker 1: how long that we think the industry will be feeling
Speaker 1: the ramifications of f t X. I mean, one thing
Speaker 1: we've learned right with SPF and f t X is
Speaker 1: what we didn't know. So how long do you think
Speaker 1: this goes on? Because you obviously have faith in it,
Speaker 1: You've been buying into it, and you think this is
Speaker 1: a good entry point at this point, whether it's gray Scale,
Speaker 1: whether it's coin base, But um, how long do you
Speaker 1: think we continue to feel the effect? And do you
Speaker 1: think there's more contagion to be felt? Um? Well, we
Speaker 1: always look for the whale, uh in in a situation
Speaker 1: like this, and if if there was a whale out there,
Speaker 1: it was f t X and and Sam Bankman freed,
Speaker 1: you know, King of the hill. Uh So I think
Speaker 1: we found the whale and uh you know, I'm sure
Speaker 1: they are going there's going to be more fallout, but
Speaker 1: we see how big the whale is. And yes, a
Speaker 1: lot of people have lost a lot of money around
Speaker 1: the crypto acid ecosystem, uh losing value here. But if
Speaker 1: we're right on the underlying technology and the underlying roles
Speaker 1: that bitcoin and ether ethereum are going to play in
Speaker 1: this new world. Uh. Then I think we're going to
Speaker 1: recover pretty quickly. You mentioned that f t X was
Speaker 1: a quote fraud. It's no lehman or no made off.
Speaker 1: Give us an understanding of what your interactions more like
Speaker 1: made off. Oh my gosh, so we'll give us. Give
Speaker 1: us an understanding of what your interactions were with Sam
Speaker 1: Bankman Freed before this followed. And have you spoken to him,
Speaker 1: because I know you were at Crypto Bahamas along with
Speaker 1: many other people earlier this year, the f t X
Speaker 1: Salt conference. Yes, I had a zoom my team and
Speaker 1: I had a zoom with Sam before that conference. I
Speaker 1: think they wanted to have us represented at the conference. Uh,
Speaker 1: and so I did. I did give a presentation there
Speaker 1: or I was on a panel. Um. But other than
Speaker 1: that one phone call just to set up, I have
Speaker 1: never talked to him. Um. And you know, he by
Speaker 1: the end of the phone call seemed to be distracted
Speaker 1: by whatever else he was doing. So that was my
Speaker 1: one exposure to him. Um. And you know, I think
Speaker 1: the thing that is shocking is how many people were
Speaker 1: very close to him, and one would have presumed looked
Speaker 1: at all of the documents and got a sense of
Speaker 1: the books Uh, the fact that so many people were
Speaker 1: completely fooled um is quite shocking. And you know, I
Speaker 1: think he had this aura around him or something that
Speaker 1: caused people to to to ask fewer questions than might
Speaker 1: otherwise have been the case. It's very hard to understand.
Speaker 1: Do you worry it all about as you buy into
Speaker 1: Gray Scale, Kathy, Um, you know the whole world of
Speaker 1: the Digital Currency Group and Barry Silver's company, I mean
Speaker 1: the various connections that kind of go back to f
Speaker 1: t X. Are you at all worried about a liquidation
Speaker 1: or anything. Well, we know that the Gray Scale investment
Speaker 1: trusts are the most valuable part of that company right
Speaker 1: now and uh, and they are revery their cash cows,
Speaker 1: their revenue generating. Um. We we do not think we
Speaker 1: think they're going to try and hold on to that
Speaker 1: uh if nothing else, so UM we are. We're looking
Speaker 1: at a forty one discount of this first relative to
Speaker 1: bitcoin today and so we actually think there's a lot
Speaker 1: of upside. Now. One of the things that we know
Speaker 1: that Gray Scale and Michael Son and Cheim a great
Speaker 1: Scale wanted was to convert this this trust into an
Speaker 1: e t F. I think what's happened with the fallout
Speaker 1: here might increase the probability that a bitcoin e t
Speaker 1: F will will be approved. I'm not saying immediately, but um,
Speaker 1: we know that. And even the newest SEC commissioner him
Speaker 1: Lizarraga I think is his name, has come out and
Speaker 1: said we need more, We need as regulators to focus
Speaker 1: on decentralization and transparency. What is the most decentralized and
Speaker 1: transparent crypto asset in the world. It is bitcoin, and
Speaker 1: yet retail investors do not have easy access through a
Speaker 1: liquid asset like uh an e t F which which
Speaker 1: honestly I don't understand given that they approved a bitcoin
Speaker 1: futures and so you know, I think it might increase
Speaker 1: the odds we shall see. Well, and some of them
Speaker 1: been wondering whether or not you're playing the arbitrage um
Speaker 1: with GBTC right now? You know, is it that because
Speaker 1: of the trust deep discount at this point, is that
Speaker 1: the thinking for you to kind of be moving more
Speaker 1: money into this name, Well, it is one of the
Speaker 1: few securities we have to own securities in e t
Speaker 1: f s, so it is one of the few securities
Speaker 1: we can buy. And yes, it's at a very big discount.
Speaker 1: Uh so, so it is more attractive bitcoin um bitcoin
Speaker 1: if they were to even liquidate it. You know, we've
Speaker 1: got such a big discount relative to to bitcoin that um. Again,
Speaker 1: we don't think they're going to this is the most
Speaker 1: valuable property. I think they're going to hang onto it,
Speaker 1: and I think over time the discount will close. Don't
Speaker 1: know if it's because of a conversion to a bitcoin ETF.
Speaker 1: I'm sure the regulators will take a very close look
Speaker 1: at d c G and the Gray Scale Bitcoin Investment Trust.
Speaker 1: But we do know this is a grant or trust,
Speaker 1: highly regulated, highly regulated. I mean, we have to do
Speaker 1: our homework on it. And we know that all of
Speaker 1: the bitcoin behind g BTC is in cold storage at
Speaker 1: coin base, and coin base has confirmed this. Uh so uh,
Speaker 1: you know, we feel quite comfortable with it here, Kathy.
Speaker 1: We've talked coin Base, We've talked g BTC. Are there
Speaker 1: any other opportunities in crypto that you see right now
Speaker 1: in the wake of f t XS collapse as prices
Speaker 1: have been beaten up. Well again for our e t
Speaker 1: F s we uh we. As you mentioned on coin Base,
Speaker 1: we also owned Square and it is interesting that Jack
Speaker 1: Dorsey has chosen the most transparent, most decentralized crypto asset
Speaker 1: to center UH blocks crypto exposure too. And I realize
Speaker 1: he's trying to from a developer community point of view,
Speaker 1: leave them on their their own. But we do think
Speaker 1: bitcoin UH, and you can see through the behavior of
Speaker 1: the infrastructure hasn't skipped a beat, not one beat at
Speaker 1: more secure than it was yesterday, the day before, in
Speaker 1: the day before. So I have a feeling this is
Speaker 1: going to elevate Bitcoin in the eyes of not only
Speaker 1: the crypto world, but the investment world at large. And
Speaker 1: I have a feeling it's going to have more running
Speaker 1: room through the rest of the world. I think this
Speaker 1: is the way that this is blocked go to market UH,
Speaker 1: to get into the rest of the world. And we
Speaker 1: think they're going to be very successful. So then I'm
Speaker 1: assuming Kathy that you're going to hold to your bitcoin
Speaker 1: forecast for what is it, a million per coin by
Speaker 1: that still feels good to you, yes, and you can
Speaker 1: you know, sometimes you need to bow old test. You
Speaker 1: need to go through crises UH to see UH, to
Speaker 1: see who the real um to see the survivors first
Speaker 1: of all, but really to test battle test the infrastructure
Speaker 1: and the thesis. And again, we think Bitcoin is coming
Speaker 1: out of this smelling like a rose because of what
Speaker 1: I have mentioned previously. And I do think that the
Speaker 1: one thing that will be delayed is um perhaps institutions
Speaker 1: stepping back and just saying, Okay, do we really understand this?
Speaker 1: Uh and once they actually do the homework and see
Speaker 1: what's happened here, I think they might be more comfortable
Speaker 1: moving into into bitcoin uh and and perhaps ether as
Speaker 1: a first stop, you know, as they'll understand it more.
Speaker 1: You mentioned Jack Dorsey. I want to switch gears if
Speaker 1: I can, And I was thinking about Twitter and Tesla.
Speaker 1: Like I said, there's so many things that are going
Speaker 1: on in our world right now that I feel like
Speaker 1: you are the person to comment on. How do you
Speaker 1: make sense of Elon Musk? So when you know you've
Speaker 1: talked to you've been investor in Tesla for a long time,
Speaker 1: are you comfortable with his actions around Twitter of firing
Speaker 1: people hiring them back? Um, you know the verified check
Speaker 1: talking about people paying for it and then taking that back.
Speaker 1: Do you feel comfortable with this name? And I should
Speaker 1: put out that right you own private shares of Twitter
Speaker 1: and have talked about wanting to own more yes, Um,
Speaker 1: yes we do. We we saw we owned Twitter for
Speaker 1: quite a while and we sold it into the rumors
Speaker 1: that Ellen was going to buy it because we knew
Speaker 1: there would be a lot of controversy around that. So
Speaker 1: it moved into the sixties. I think it got to
Speaker 1: seventy and we sold there and have been watching, Um,
Speaker 1: have been watching from the sidelines. But if you look
Speaker 1: at that model longer run, it has not delivered on
Speaker 1: the promise. And you know, I think opening uh the
Speaker 1: algorithms which we think he will do, and taking away
Speaker 1: the kind of human driven censorship and uh, and and
Speaker 1: allowing the transparency of the algorithms that they do put
Speaker 1: put out there, you know, allowing people to question them.
Speaker 1: I think it's going to be very healthy. If you
Speaker 1: look at the daily average users, I think the various
Speaker 1: metrics that you can count daily, they have been going
Speaker 1: up dramatically. So you know, if you I know a
Speaker 1: lot of people who you know, basically decided to quit
Speaker 1: Twitter because they didn't like the kind of censorship and
Speaker 1: so forth that was going on. So I actually like
Speaker 1: what he's doing. It seems interestingly enough, though, that a
Speaker 1: lot of brands don't like what he's doing Kathy, and
Speaker 1: we've seen some prominent companies pull back or at least
Speaker 1: pause advertising on the plant photo. Of course, I mean
Speaker 1: that makes sense if you know, you don't necessarily want
Speaker 1: to support the guy who owns Tesla, if you're making
Speaker 1: you know, competitive competitive competitive vehicles Tesla, but bigger brands
Speaker 1: that are worried about brand safety. And I'm wondering, you know,
Speaker 1: I don't know what you're seeing in your Twitter timeline,
Speaker 1: but I'm seeing ads that are what not relevant to
Speaker 1: me anymore not relevant to me now and aren't actually
Speaker 1: ads that are for companies. They're more like ads for
Speaker 1: influencers these days. It doesn't seem like it's necessarily moving
Speaker 1: in the direction of increasing revenue from an advertorial perspective
Speaker 1: right now. Well, I do think that this is not uh,
Speaker 1: this is not just an advertising vehicle. In fact, this
Speaker 1: is that probably might diminish quite significantly in terms of
Speaker 1: its important longer run. You'll you'll remember that Ellen started
Speaker 1: his entrepreneurial pursuits UM in UH with a precursor to PayPal.
Speaker 1: So he very a very long time ago had this
Speaker 1: idea of a digital wallet, a super app like what's
Speaker 1: app um in mind and of course took a big
Speaker 1: detour into another passion of his. Um. We know he
Speaker 1: knows a lot about this world. And I think if
Speaker 1: anyone in the US can do this, I think I
Speaker 1: think he can. I think he'll surround himself by the
Speaker 1: right business leaders. He's not going to do this himself.
Speaker 1: If you look at Tesla, he's not. You know, if
Speaker 1: you look at many people say, aren't you worried about Tesla, No,
Speaker 1: we're not. Because of our work on electric vehicles. They are.
Speaker 1: They are are grabbing a disproportionate share and will continue
Speaker 1: to do so of a market that we think by
Speaker 1: will account for eighty five to of all cars sold
Speaker 1: in in the world. Uh So that's on automatic pilot.
Speaker 1: He's now working on autonomous, which we think is uh
Speaker 1: is going to work. In fact, I just have the
Speaker 1: pleasure of riding in a Cruise car in San Francisco,
Speaker 1: an autonomous car GM uh US wanted to see, wanted
Speaker 1: to check it out, and I have to tell you
Speaker 1: I love the ride. And uh, I know autonomous is
Speaker 1: possible because Cruz and WEIMO are doing it, and we
Speaker 1: think Tesla is going to do it in a much
Speaker 1: bigger way. So that's Tesla, but onto Twitter, it really
Speaker 1: needed to be shaken up. I think think he can
Speaker 1: make it be a great business and very profitable. And
Speaker 1: if so, how I do think about the amount of
Speaker 1: data that Twitter has UH and it's proprietary data, and
Speaker 1: think about the combination of that and artificial intelligence. Remember
Speaker 1: he has AI expertise and experts. I know he brought
Speaker 1: in some of his engineers UH and they are going
Speaker 1: to I think surprise and delight heading for a super
Speaker 1: app kind of product. And you know, by our estimates
Speaker 1: and you'll find this in our big ideas. I think
Speaker 1: it was um the vale all you of each customer
Speaker 1: in a digital wallet UH should be And when I
Speaker 1: say that the market cap associated UH should be in
Speaker 1: the twenty thousand plus range, because it's not just for
Speaker 1: financial services, it will ultimately be for for commerce and
Speaker 1: AI is the glue that's going to pull this all
Speaker 1: together and the data that they have, the data is
Speaker 1: the new oil. You've heard that this is absolutely true
Speaker 1: in the case of Twitter. Well, Kathy, I mean the
Speaker 1: currency Twitter as a currency has worked really well for you.
Speaker 1: You've got one point five million followers on the platform.
Speaker 1: A lot of people see what you tweet. We saw
Speaker 1: eulogies last week being written for Twitter. It didn't end
Speaker 1: up dying as many people thought it would. But what
Speaker 1: would happen if Twitter went away? And are you concerned
Speaker 1: about that? You know it's been and and yes, we
Speaker 1: speak from experience. This is an extremely productive social network
Speaker 1: for us, is our most productive and uh, you know
Speaker 1: it truly is the global public town square. You know
Speaker 1: I can write an open letter to the FED and
Speaker 1: put it out over Twitter. Now do I think the
Speaker 1: Fed's going to listen to me? No, I don't, but
Speaker 1: that they may listen, That the FED board members may
Speaker 1: listen to someone who might think that I have something
Speaker 1: to say, which is simply a question. Wait a minute,
Speaker 1: how can you be unanimous seventy five basis points at
Speaker 1: a time? How can you be unanimous when there is
Speaker 1: so much conflicting data out there, including an inverted yield curve?
Speaker 1: Now at seventy five basis points, that's crazy. I think
Speaker 1: we're going to look back in history and say, what
Speaker 1: were they thinking unanimous? Commodity prices are falling. You've got
Speaker 1: excess inventories all over the place. We're seeing massive discounting.
Speaker 1: I think we're gonna see deflation and then they'll make
Speaker 1: a move in the opposite direction. But we need, you know,
Speaker 1: we need a steadier hand than that. So when Kathy
Speaker 1: went to you, because you've argued this and you and
Speaker 1: you put this out there in terms of FED policy,
Speaker 1: in terms of deflation, when do you think it will come?
Speaker 1: I think we're seeing it. I think if you look
Speaker 1: at a lot of commodity prices, not only are they
Speaker 1: down thirty two some of them from their peaks, they're
Speaker 1: down on a year over year basis. In fact, oil
Speaker 1: itself is almost down on a year over year basis.
Speaker 1: Now the big pushbacks on this call we get our
Speaker 1: wages and rents. We're seeing rent inflation reverse quite suddenly
Speaker 1: and dramatically. So what I think we will look back
Speaker 1: in history and say this inflation shock was the function
Speaker 1: of a supply shock caused by COVID, supply chain problems afterwards,
Speaker 1: and even more problems after Russia's invasion of Ukraine. Um,
Speaker 1: if I can just take one second, I would like
Speaker 1: to give uh an analogy to the late nineteen teens.
Speaker 1: We were in the middle of the massive, you know,
Speaker 1: most massive innovation the history of the world had seen. Telephone, electricity,
Speaker 1: and automobile all at the same time. But we had
Speaker 1: World War One and we had the Spanish flu sound
Speaker 1: familiar now, That was much worse than what we've gone through.
Speaker 1: We've gone through nothing like that, But there were massive
Speaker 1: supply chain problems back then, and inflation peaked at twenty
Speaker 1: four percent right in June. In June, and by June
Speaker 1: it was minus fifteen percent. So I think that our
Speaker 1: eight to ten percent inflation, which is where it was
Speaker 1: at the peak, is going to turn around and we're
Speaker 1: going to see some very big surprises on the inflation front.
Speaker 1: And you know who agrees with us, the bond market.
Speaker 1: Look at the bond market is doing now then three yeah,
Speaker 1: three sev inverted. That's telling us that the bond market
Speaker 1: is saying recession and or big surprises on the low
Speaker 1: side of inflation expectations. So and it's probably both. Kathy, unfortunately,
Speaker 1: have a couple of minutes left here. One thing we
Speaker 1: did want to squeeze in um. We've been talking about
Speaker 1: in the newsroom that Alliance Bernstein is getting ready to
Speaker 1: launch actively managed disrupted disruptor e t F. And from
Speaker 1: what I understand you pitched them. You know years ago. Um,
Speaker 1: how does that make you feel? And you know, to
Speaker 1: see a firm from that you worked at kind of
Speaker 1: doing a very similar thing or looking to do something similar. Yes, well, um,
Speaker 1: Alliance Bernstein I believe got the first fully active, fully
Speaker 1: transparent e t F in I think it was early.
Speaker 1: It got the approved in early two thousand thirteen. So
Speaker 1: that's when I put my hand up and said I'll
Speaker 1: do that. And um uh, there were there was a
Speaker 1: belief that e t f s were not safe or
Speaker 1: you know, there were a lot of arguments against it.
Speaker 1: Probably the biggest one was mutual funds, which are much
Speaker 1: more profitable. I would say the economics there are higher
Speaker 1: than e t f s. How does it make me feel?
Speaker 1: You know, I'm the more the merrier. I think this
Speaker 1: is a fantastic rapper for the end consumer. It's fully liquid,
Speaker 1: unlike mutual funds you have to wait till the end
Speaker 1: of the day. Transparent, fully transparent, that's what that's what
Speaker 1: investors want. Uh. It is more tax effective, much more
Speaker 1: tax effective. We're seeing mutual funds that are down thirty
Speaker 1: percent this year, but they're slapping their investors with thirty
Speaker 1: uh in capital tax gains uh and then finally, it's
Speaker 1: more cost of active when you because all of the
Speaker 1: what you see is what you get with these fees.
Speaker 1: There aren't a bunch of hidden fees, so it's a
Speaker 1: great rapper for the end consumer. I highly recommend it
Speaker 1: and we're happy that that they that they are seeing
Speaker 1: the light now. All right, Well, good to get you
Speaker 1: to weigh in on that and just so much more, Kathy,
Speaker 1: we always appreciate your time. Be well, have a great Thanksgiving.
Speaker 1: Kathy would uh CEO, c I O and of course
Speaker 1: founder of our invest joining us there via Zoom