Speaker 1: Ye, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane
Speaker 1: Jai Ley. We bring you insight from the best in economics, finance,
Speaker 1: investment and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
Speaker 1: Bloomberg dot Com and of course on the Bloomberg with
Speaker 1: the Steen Jacobson, who has a number of titles at
Speaker 1: Sexo Bank of Copenhagen. He's out of economics Copenhagen universe
Speaker 1: versus university. But Steen, what is so important with your
Speaker 1: August position chief economist and all that? If you have
Speaker 1: a trading experience to die for? And this was of
Speaker 1: course the Chase men. This is folks, when it was
Speaker 1: Chase Manhattan, Proprietary Trading Group, Swiss Bank or Swiss Bank Corps.
Speaker 1: These are names from the past, Steen, But you have
Speaker 1: been on a desk. How does a trading experience, grizzled
Speaker 1: guy like you look at bitcoin? Do you trust the
Speaker 1: bid and trust the ask? Given the years and years
Speaker 1: you've had of enjoying losing money? Absolutely not. I must say.
Speaker 1: I'm just back from pretty much a world tour and
Speaker 1: as sooner my presentation over the first question is about cryptocurrency.
Speaker 1: The second, the third, the fourth, and the the fifth is
Speaker 1: also about cryptocurrency. So you know, you made me sound
Speaker 1: very old, which of course I had, but now I'm
Speaker 1: actually uh my most recent highs of twenty two year
Speaker 1: old crypti analysts. So it's very much become part of
Speaker 1: my my every day. And I have to say the
Speaker 1: crypto analyst the high it which twenty two and me
Speaker 1: we sit and exactly obviously the ends of the spectrum
Speaker 1: in terms of how exciting old this is for me.
Speaker 1: This is a very sophisticated computer game that is running
Speaker 1: out of steam at as soon as we see as
Speaker 1: we saw today the confirmation of c M E, c
Speaker 1: B O E and other exchanges going to make it
Speaker 1: live because we know in history, when we actually have
Speaker 1: a proper and that is the essence of your question,
Speaker 1: when we have a proper bit and a proper offer,
Speaker 1: when we have the ability to trade both side off
Speaker 1: the trade, then the market becomes a totally different animal.
Speaker 1: In other words, I think the US to salization of
Speaker 1: the c M E, c B OH we actually become
Speaker 1: a transparent market, will make this market grow, whether they've
Speaker 1: been continues to go either to twenty five thousand or
Speaker 1: five thousand or one thousand. Of course we will be
Speaker 1: depending on how good they are becoming a real currency
Speaker 1: with the heritage of the Baltic Sea and the mathematics
Speaker 1: of Louvin. And I don't know where the first trade
Speaker 1: was made in Copenhagen. Maybe it was out in the
Speaker 1: harbor with a mermaid. And there's the buttonwood tree and
Speaker 1: the rest of it. Where do the markets meet on bitcoin?
Speaker 1: Do you have any belief in the bid ask process
Speaker 1: of bitcoin being a market transparent process? Not at all.
Speaker 1: And we see dating stories that that circulated, certainly on
Speaker 1: Twitter and other social media platfhones that are people have
Speaker 1: been trying to hit the bid then they've gone from
Speaker 1: being up hundred stuves to being down miners thirty. Because
Speaker 1: as sex as you say, what we what we're dealing
Speaker 1: with mathematically, which Switchpane O'Connor told me a long time
Speaker 1: ago is the fat tail and in the fat tel.
Speaker 1: The central problem is that we have what we call
Speaker 1: this continuity discontinuity, and this continus you means basically you
Speaker 1: cannot expect the price we want you once to free
Speaker 1: fall free fall. What you have is you have to
Speaker 1: price this hundred is hundred, and then it's fifty, and
Speaker 1: then it's sixty, and then it's hundred and twenty. So
Speaker 1: you have a pricing model that looks very very different.
Speaker 1: It doesn't mean the market doesn't have liquidity, but it
Speaker 1: only has pockets of liquidity. So you absolutely writing saying that.
Speaker 1: I will say for the business we do mainly in
Speaker 1: exchange traded products on this uh, this is exchange traded notes,
Speaker 1: which we facilitate a lot of people are treading it,
Speaker 1: but it's really with the one person of the capital
Speaker 1: trying it out. How do we do this? How does
Speaker 1: it work? So far? And all the last couple of days,
Speaker 1: a few people got burned, but overall, of course, as
Speaker 1: long as we have this trajectory higher today ten thousand,
Speaker 1: four and fifty five, as we talked, of course people
Speaker 1: think this is a money machine. But I have noticed
Speaker 1: my email box is starting to fill up with people
Speaker 1: saying I can make in a week the stein. You know,
Speaker 1: I want to just follow up on this idea of
Speaker 1: what's real and what's not because Tesla comes to mind
Speaker 1: when I think of a company that's not making any
Speaker 1: money but has evaluation that's greater than many of its
Speaker 1: peers like Ford for example, and one if you could
Speaker 1: just dive a little bit deeper into this whole world
Speaker 1: of electric vehicles and what it takes to power them
Speaker 1: and an investment opportunity. This is all about lithium batteries,
Speaker 1: at least at the moment, as certainly, if not list
Speaker 1: in the future, then certainly batteries. What I've been arguing
Speaker 1: and saying is that when you have one single political
Speaker 1: power like China wanting to deal with this number one
Speaker 1: social easy pollution through electrification of costs and in the
Speaker 1: process saying by twenty thirty all costs has to be electrified,
Speaker 1: do you have a magnitude of new release k bix
Speaker 1: and and and research and development We've never seen false
Speaker 1: Wargen of Germany has committed over twenty billion. That took
Speaker 1: committed twenty five billions to drive all this carts in
Speaker 1: the space of last six months. We see across the
Speaker 1: board the money has been front at it at a
Speaker 1: rate we have not seen. I mean, if there's one
Speaker 1: thing lagging from this beautiful stock market we've seen over
Speaker 1: the last ten years, it is exactly that the companies
Speaker 1: to some extent has stopped doing K bix and taking
Speaker 1: the kpick expendure down to the bottom life improving margins.
Speaker 1: What we see now, in my opinion, and the next
Speaker 1: ten years, and even most dominantly in US next two years,
Speaker 1: is that everybody's going to move to electric cars. Seeing
Speaker 1: this has been brilliant. We've got to get you on
Speaker 1: again soon, particularly in our London offices. Mr Jacobson, this
Speaker 1: was Sexo Bank, this is Bloomberg. We're back with Joseph
Speaker 1: Stiglitz of Columbia University in January. Professor Stiglitz said this,
Speaker 1: so let's bring in that quote board. I believe very
Speaker 1: strongly that countries like the United States could and should
Speaker 1: move to a digital currency. Professor, were you talking about
Speaker 1: bitcoin then, No, I was not. I was talking to
Speaker 1: about actually extending the systems that we already have, like uh,
Speaker 1: master card, visa. Let's make the whole system, uh into
Speaker 1: to one in which we we use digital currency. Uh.
Speaker 1: It's not bitcoin, it's a basically US dollar based uh
Speaker 1: in the United States and Europe, uh, euro and the pound. Uh.
Speaker 1: But it's using electronics rather than paper. You know, paper
Speaker 1: is so uh first century? Why are we using paper?
Speaker 1: That was the question that was professor. If bitcoin were
Speaker 1: to be regulated, could it be viable? I look look
Speaker 1: at uh one of the main functions of government is
Speaker 1: to create currency. Uh. And bitcoin is successful only because
Speaker 1: of its potential for circumvention, uh, lack of oversight. So
Speaker 1: it seems to me it ought to be outlawed. It
Speaker 1: doesn't serve any socially useful function. Uh. It's uh. We
Speaker 1: ought to just go back to what we always have had.
Speaker 1: And and this is just a bubbles. Several of your
Speaker 1: commentators have already pointed out it's a bubble. That's uh. Uh.
Speaker 1: I'm going to give a lot of people a lot
Speaker 1: of exciting times as it rigs up and then goes down.
Speaker 1: But what I was talking about is the medium of
Speaker 1: exchange that we use for transaction. Uh. And what I
Speaker 1: was trying to say is, let's move away from paper
Speaker 1: into the century of a digital economy. This is a
Speaker 1: way from your Nobel prize, and it's away from your
Speaker 1: acclaim and economics, but I'm gonna go there anyways. Charles
Speaker 1: mcka eighteen forty one talks about our peculiar follies in
Speaker 1: the behavioral component that makes for these bubbles. Whether it's
Speaker 1: sixteen thirty seven and Tulip Bubs eighteen forty rows. Bring
Speaker 1: up the chart here, here's the bubble into making. This
Speaker 1: is log bitcoin. I can't stand the arithmetic charts and
Speaker 1: this is all you need to know. This is massive convexity.
Speaker 1: I haven't seen that charts since the Tulip bulbs. When
Speaker 1: we're doing surveillance by Semaphore Professor Stiglets, they're relying on
Speaker 1: a Marxist theory of value. They're going back to middle
Speaker 1: marks and looking at the value of exchange. It's smoking mirrors,
Speaker 1: isn't it. Uh precisely, thank you? Why well, the value
Speaker 1: of a bitcoin today is expectations of what the bitcoin
Speaker 1: is going to be tomorrow. Uh. If the government says,
Speaker 1: look at the reason bitcoin is being used as the circumvention,
Speaker 1: they could compt down in any moment and then uh
Speaker 1: it collapses. We got to get you back here. I
Speaker 1: would love to have you join our London set with
Speaker 1: Francine to talk about Brexit, some of that politics, and
Speaker 1: also talk to you about the underlying value of exchange
Speaker 1: of bitcoin. He is a lord from Colombia. Two books,
Speaker 1: two books and one there they are the classic globalization
Speaker 1: is discontent and the Euro as well from Joe Stiglets
Speaker 1: as well. You're gonna get to another important conversation ripping
Speaker 1: up the script on this truly historic announcement on bitcoin
Speaker 1: where CME and cbo E have chosen to set up
Speaker 1: markets on a bitcoin that is a big bitcoin higher.
Speaker 1: We'll get to that quote in a moment. First, our
Speaker 1: economic indicators and they are always always brought you by
Speaker 1: Commonwealth Financial Network to broker dealer. Are I a that's
Speaker 1: been putting relationships first since found out why the industry
Speaker 1: is most satisfied advisors. They are head over heels about
Speaker 1: Commonwealth Financial Network. Visit Commonwealth dot com. So we've had
Speaker 1: a Jimmer con Cambridge Mathematics principal group. He was brilliant
Speaker 1: on the gyrations, if you will, as the news broke.
Speaker 1: And then we got lucky with Steen Jacobson Uh exceptionally
Speaker 1: experienced trader UH and now chief economist with Saxo Bank
Speaker 1: so much. And now we go to the gentleman who
Speaker 1: fractured mathematics like I did when he was at California
Speaker 1: Santa Barbara. Chris Alman joins us UH right now with
Speaker 1: the California State Teachers Retirement System you're on a whole
Speaker 1: another spectrum from some of our other Matthew guests is bitcoin,
Speaker 1: I'm sure is tangential for you. But nevertheless, you gotta
Speaker 1: think about it. How does how many assets do you have?
Speaker 1: Are you wonder like seventeen trillion? Uh? Okay, that's a
Speaker 1: little smaller than trillion. But you're you're running this aircraft
Speaker 1: carrier through the water. Do you care about the little
Speaker 1: pt boat? We do well a bitcoin because it is
Speaker 1: a market, it's interesting. I actually don't believe it's institutional yet.
Speaker 1: The news today is another step along that way. But
Speaker 1: I've said, uh, Tom, you know there's tangible and intangible investments,
Speaker 1: and bitcoin is the ultimate intangible investment. It represents nothing
Speaker 1: other than what somebody else will pay for it. It's air,
Speaker 1: it's invisible. Um. The fact that it has a market
Speaker 1: that's good. If anything in our world, Um, it's gonna
Speaker 1: probably represent an alternative currency. It's not a yen, it's
Speaker 1: not a pound, it's not a dollar. I'm going to
Speaker 1: get upset here. I did this with mail Pass yesterday
Speaker 1: at the Counts on Foreign Relations. David wants dependable currencies.
Speaker 1: It's not a come on Chris with that vall up
Speaker 1: or down. It's not a currency. It what I said
Speaker 1: was an alternative. In other words, if you're managing your
Speaker 1: currency portfolio and hedging it and you don't like pounds
Speaker 1: or dollars or yen or euros, it then becomes another
Speaker 1: alternative of almost being out. It's the cash equivalent maybe
Speaker 1: of of the asset allocation. We're not going to be
Speaker 1: using it. I'm gonna be studying it, but I bet
Speaker 1: it's going to be five to ten years before it
Speaker 1: becomes institutional. Do you ever feel that the it's a
Speaker 1: generational experiment that people under the age at thirty. I mean,
Speaker 1: we were just hearing from Steen Jacobson saying that he's
Speaker 1: got a twenty two year old analyst who's following bitcoin
Speaker 1: form and that they are at opposite ends when they
Speaker 1: look at the efficacy and the legitimacy of bitcoin. Oh, absolutely,
Speaker 1: you can cut it. Basically, I'll divide our audience five
Speaker 1: and before don't really get bitcoin. Very few of them
Speaker 1: trade it. After that, gen x a little bit, and
Speaker 1: the millennials absolutely just think it's the coolest thing. But
Speaker 1: they also put their entire lives out on the web
Speaker 1: and trust trust things implicitly. Uh. And again, this is
Speaker 1: a digital entity that has no underlying value underneath it.
Speaker 1: It is an invisible product. Um. And I think there's
Speaker 1: a generational divide people who want things that have underlying
Speaker 1: Even a stock which is digital, has an underlying ownership
Speaker 1: slice of a of a company. Right. But I'm glad
Speaker 1: you mentioned stocks because this also makes me think of Amazon, right,
Speaker 1: and I think of the Amazon Alexa echos that are
Speaker 1: appearing in people's homes. And how if I had described
Speaker 1: to you five ten years ago that this would be
Speaker 1: the way that you would interact with your uh, your retailer.
Speaker 1: I don't think many people would say, oh yeah, I'll
Speaker 1: just say what I want and it will just magically
Speaker 1: appear at my door. There's gonna be disruption, um. There's
Speaker 1: no regulations on bitcoins. So just like with Amazon, UM
Speaker 1: and Echo and all the different products, you're gonna see proliferations,
Speaker 1: You're gonna see growth, um. But I think you're also
Speaker 1: going to have some ups and downs of disruptions. As
Speaker 1: Tom said, volatility is going to be the code word
Speaker 1: because there's no rules and regulations to follow these things.
Speaker 1: But don't people counter that would saying that g You know,
Speaker 1: I lived through the two thousand eight two thousand seven
Speaker 1: to house and eight decline in stock prices and I'm
Speaker 1: still recovering from that. So I don't have a lot
Speaker 1: of faith in the stock market. Uh, what's the difference
Speaker 1: between that and bitcoin? It's just about what someone else
Speaker 1: is willing to pay me. Well, I'd argue that if
Speaker 1: you invested in no way, if you stayed invested like
Speaker 1: we have, you've already recovered and you own something that
Speaker 1: actually has some underlying asset value. There's a book value
Speaker 1: to those equities that you hold. There's no book value
Speaker 1: underlying of of a bitcoin. Doesn't mean it needs to
Speaker 1: go away, but you know who wants to trade a
Speaker 1: product that is primarily used by North Korea and unknown people.
Speaker 1: It's underlying value is it's the only value it has
Speaker 1: that it's anonymous, and obviously that's being proven to be wrong.
Speaker 1: When you were at Santa Barbara, did you get to
Speaker 1: see dish wall before they became famous? I did not, Tom,
Speaker 1: But you're right there. A lot of good things have
Speaker 1: come out of Santa Barbara and continue to to this day.
Speaker 1: This is the popular place. Counting blue cars came out
Speaker 1: of nowhere, and everyone's like, who are these people? I mean,
Speaker 1: it was magical bitcoin has come out of nowhere. I
Speaker 1: haven't had a constructive interview this week, pim with somebody
Speaker 1: under over. Is there anybody you know of our vintage
Speaker 1: that knows who dishwallet is that actually thinks bitcoins for real?
Speaker 1: That hurts at hurts And no, no constructive interviews? Uh? Sis,
Speaker 1: I know, seriously, I'm not sure that that there are.
Speaker 1: I think you've heard from very knowledgeable people, Jamie Diamond,
Speaker 1: quite a few others that have spoken out very strongly
Speaker 1: about bitcoin. Um, it could be it will be around
Speaker 1: for a long time. A number of the cryptocurrencies. Well,
Speaker 1: I'm gonna well, let me do this. Christie Allman. Uh,
Speaker 1: Christie Alman with Kelster California, say, teachers retirement system and
Speaker 1: the headline there's this, This is like in a million
Speaker 1: I've been here for like a hundred and twelve years, Michael, right,
Speaker 1: this headline. US regulators to allow bitcoin futures at c
Speaker 1: in the CBO, get hold out my wallet. Well to
Speaker 1: get back to and Richard's CEO of MMG Investments who
Speaker 1: manages over two eight billion pounds and assets, and Robert Niblett.
Speaker 1: He's director of Chatham House. So and first of all,
Speaker 1: what is bitcoin? I mean, can you afford to to
Speaker 1: sit it out or you need to be in but
Speaker 1: stay skeptical. Look, there are people that use bitcoin for
Speaker 1: all sorts of different reasons. Um. I mean I tend
Speaker 1: to agree, as you've just seen from the price moves
Speaker 1: that you can't say this is a store of value
Speaker 1: when the volume moves around as much as it does.
Speaker 1: It's clear that there are reasons why some people may
Speaker 1: choose to use appeer to peer currency or exchange, which
Speaker 1: is effectively what you're talking about in bitcoin. There might
Speaker 1: be legitimate reasons for that because you want to transactions
Speaker 1: away from prying government eyes. There might be illegitimate reasons
Speaker 1: why you might want to do that to keep transactions
Speaker 1: away from prying tax authorities. Um. But what it is
Speaker 1: not is something that you can use in replace of
Speaker 1: a dollar or sterling or euro. Because it is it
Speaker 1: does not have the underpinning and the backing of government
Speaker 1: oversighter issuance. And I think some of that, certainly on
Speaker 1: the oversight will come because it has to come, But
Speaker 1: that shouldn't take away from the fact that the underlying technology.
Speaker 1: The distributed ledger technology is a blot chain that sits underneath.
Speaker 1: It is a really powerful technology, and people have in
Speaker 1: the last two or three years have been starting to
Speaker 1: develop that distributed ledger technology for other purposes and other applications,
Speaker 1: and that is immensely powerful. But what's going on in
Speaker 1: the pricing of bitcoin is definitely mainlya in my mind
Speaker 1: right now, do you think it'll be regulated? And if
Speaker 1: it does get regulated, can then actually come back as
Speaker 1: an asset that you would look at? Well, I think
Speaker 1: it's possible that if you go way down the line
Speaker 1: that it's possible that might be some thing that you trade,
Speaker 1: But it's not a it's an instrument. It's not an asset.
Speaker 1: I think that's the way to look at it. So
Speaker 1: it's an instrument in the way that we've we've now
Speaker 1: trade in other non underpinned assets and sorts of derivatives
Speaker 1: that you have, but volatility would be one example. You
Speaker 1: can trade volatility. There's not an underlying asset to volatility itself.
Speaker 1: So I think yes, as a traded instrument, it is
Speaker 1: possible it will mature enough to be something that we
Speaker 1: can use, but we're away away from that We're years
Speaker 1: away from that. What is clear though, is that regulation
Speaker 1: I think at some stage must come to this market
Speaker 1: because people need to be protected. It's lots of people
Speaker 1: playing in this space who don't know what they're doing.
Speaker 1: Let's zoom in on the chart here. If we have bitcoin,
Speaker 1: we showed it yesterday. This is the interday chart. It's
Speaker 1: really you know, there's like eight ways to look at
Speaker 1: this chart on a log basis. Up we go with
Speaker 1: the surgery. You really don't get the moonshad feel a bitcoin,
Speaker 1: but you do get is this huge volatility yesterday and
Speaker 1: then the churn and this recent little move here. What
Speaker 1: I would suggest is you got a vector like this
Speaker 1: and we'll really have to see if bitcoin can find
Speaker 1: a bidder. I love what Dennis gar And said, taking
Speaker 1: a direct shot at Bloomberg surveillance, Bitcoin this and Bitcoin that. Dennis,
Speaker 1: if you're watching, yes, we're doing more bitcoin this in
Speaker 1: Bitcoin that, and Richards if bitcoin's out there, and Robin Nibblet,
Speaker 1: let me go to you on this. The focus seems
Speaker 1: to be on the excesses of bitcoin in China. Can
Speaker 1: that be a set of financial instability for the Chinese leadership? Um, well,
Speaker 1: you're getting a little bit beyond my Ken here. I mean,
Speaker 1: my instinct would be to say that part of this
Speaker 1: rise of bitcoin is to do with the fact that
Speaker 1: we have some large anti corruption drives in place in
Speaker 1: key markets across the world. China has been going on
Speaker 1: for a while, but you've got Saudi Arabia as well.
Speaker 1: Now who knows what might come in some of these
Speaker 1: other as we discussed earlier, kind of very tightly controlled governments.
Speaker 1: So people are looking, as Anne was saying, for a
Speaker 1: place to hide money, to be frank more than anything else.
Speaker 1: So I'm just wondering how much of this in my world,
Speaker 1: how much of my world is spilling over into the
Speaker 1: bitcoin space. If it is from a Chinese government standpoint,
Speaker 1: having pretty much impost some control on the the shadow
Speaker 1: banking side that had really got a little bit out
Speaker 1: of control, it'll worry them that a new risk has
Speaker 1: come along that they're now also going to have to tame.
Speaker 1: This goes to my book of the Year last year,
Speaker 1: Kenneragos the cursor cash Robin and the idea of of
Speaker 1: Sweden leading the way and maybe India or their courage
Speaker 1: dealing with it as well. Is there going to be
Speaker 1: a cursive bitcoin. Do you just assume that if it's
Speaker 1: the new cash alternative, at some point bitcoin collapses? Is
Speaker 1: it almost barter medium? For my taste, it feels more
Speaker 1: like Barto medium. I'm still a big believer, however, weak
Speaker 1: governments are around the world that the best thing you've
Speaker 1: got in terms of preserving order, and whether that order
Speaker 1: is applied to international alliances or to markets or the money.
Speaker 1: People are still looking for some ultimate authority and the
Speaker 1: only one that's just right now national governments very good. Well,
Speaker 1: the cursive bitcoin, maybe that's what we'll call it. Robbin
Speaker 1: Nibblet where a sitting in Richards him. I want to
Speaker 1: get to this because there's so much to talk about
Speaker 1: with Jim McCahon this morning, Jim, John cry and Deutsche Bank,
Speaker 1: James Gorman, Morgan Stanley and Richards we spoke to earlier
Speaker 1: this morning at MG. You you're all mathematically based. Do
Speaker 1: you have a confidence that are fixed income markets can
Speaker 1: unwind in the cute with mathematical stability over the next
Speaker 1: two to five years, Tom, I have confidence, but not certainty.
Speaker 1: So far, the Fed has judged it very well. They
Speaker 1: went through a lengthy period of not replacing of placing
Speaker 1: the bones now they're not replacing them. The running down
Speaker 1: the balance sheet, I think that's eminently possible within the
Speaker 1: market structure, within the flow of funds. Essentially, what the
Speaker 1: Fed has done is moved from a very accommodative monetary
Speaker 1: policy with que through a neutral one to now a
Speaker 1: slight tightening by reducing the balance sheet. And I think
Speaker 1: that goes with a modest interest rate increase. Now they've
Speaker 1: got to keep it stable. But then Mr Powell as
Speaker 1: chair is a continuity candidate, so I'm fairly confident they'll
Speaker 1: keep it stable. Without certainty they will sounded like the
Speaker 1: gentleman from Cambridge using their the calculus of through the
Speaker 1: calculus of the words slight. These are all gentle gradual,
Speaker 1: vector driven ideas. You and I know there can be
Speaker 1: exoggerous shocks. What's the exaggerous shock that could upset the
Speaker 1: apple cart for Governor Carney, Chairman Powell and all those
Speaker 1: remaining including Mr drag Well, for for for Governor Karney
Speaker 1: and for Mr drag you, it would be the impact
Speaker 1: of a hard Brexit. And I think the news on
Speaker 1: Bloomberg today about banks having to repay per contracts is
Speaker 1: a very good example of the sort of disruption that
Speaker 1: could inhibit credit creation in Europe. That would be a
Speaker 1: nasty shock coming from within the monetary system, and one
Speaker 1: that hasn't been focused on yet. There are lots of
Speaker 1: these events that could with a fairly low probability of
Speaker 1: a serious adverse effect. So far we're managing to shimmy
Speaker 1: around them and not to have any of them really
Speaker 1: hit the economy. But that's what I'm concerned about. I
Speaker 1: think it's basically a good environment, but I am more
Speaker 1: worried about negative tail risk than usual. Jim, maybe you
Speaker 1: could just focus a little bit on small and mid
Speaker 1: cap stocks because they have lagged the overall market, whether
Speaker 1: you're talking about the S and P five and I'd
Speaker 1: like to get your thoughts on whether you think that
Speaker 1: that is an opportunity for investors. Yeah. I think that
Speaker 1: the US private sector has prospered and will continue to
Speaker 1: pross Spur and Spider Washington. I think there's a lot
Speaker 1: of innovation. I think there's some derregulation. If tax changes
Speaker 1: go through, it will be good for the US private sector.
Speaker 1: So I would be a supporter of buying small and
Speaker 1: MidCap stocks in the US. Not so much because they're small,
Speaker 1: but because they're largely domestic, and I think that is
Speaker 1: a good place to be relative to other markets. Well,
Speaker 1: that also indicated your view on the US dollar. I mean,
Speaker 1: if they're domestically oriented, that means they're insulated from many
Speaker 1: swings and currency. Yeah. I think that's right. The dollar,
Speaker 1: I suspect is going a little bit stronger over the
Speaker 1: next year or two. If one of these negative tail
Speaker 1: risks happened, the dollar would go a lot stronger. But
Speaker 1: I think most likely the dollar will have a fairly
Speaker 1: firm undertone. That's not necessarily great for global companies. It's
Speaker 1: probably better for the domestics. Well, let me just ask
Speaker 1: you a little bit more about this call the dollar
Speaker 1: getting stronger. You really believe it. For example, I would
Speaker 1: imagin and President Donald Trump, real estate expert as he is,
Speaker 1: would be in favor of either stable or lower interest rates.
Speaker 1: A my missing something. Yeah he is. But you know,
Speaker 1: you're at a point where FED policy points to higher
Speaker 1: short term rates and that will affect the dollar. I
Speaker 1: think it mean, it's the nearest thing to a certainty
Speaker 1: on the markets that they're going to do a basis
Speaker 1: point increase at their December meeting. I think the consensus
Speaker 1: is sort of ninety plus percent that they'll do that. Well,
Speaker 1: I just cause, what what's your thought then on if
Speaker 1: you what's the percentage of sort of your analysis of
Speaker 1: an inverted yield curve? Do you think? Yeah, I think
Speaker 1: an inverted yield curve could eventually happen. But I think
Speaker 1: what's going to happen in the next twelve months is
Speaker 1: that the short rates will go up, but not as
Speaker 1: much as the Fed's dot plot, and that you'll see
Speaker 1: some yield curve of flattening. I think that's where it
Speaker 1: goes over the next year or two. Him all Jim
Speaker 1: mccoon's hand with his Jim mccon mathematician, chief executive, all
Speaker 1: a certain force of principal group. Here's the headline. It's
Speaker 1: seven am. Would you hold his hand please, He's gonna
Speaker 1: need to be medicated him. US regulators to allow bitcoin
Speaker 1: futures to trade on CME and cbo E. We now
Speaker 1: rip up the show here to talk to Jim about
Speaker 1: auction theory. Okay, it's it's a bloody class your junior
Speaker 1: year on auction theory. You've got a bid in an ask,
Speaker 1: You've got no depth in the market. You've got a
Speaker 1: mystery to who's who, You've got massive ill liquidity, you've
Speaker 1: got no data stability tick to tick, and these guys
Speaker 1: are going to do futures on that auction process. Can
Speaker 1: you tell us? Can you tell what Tom's view on this?
Speaker 1: I think I've got a good guess. How can we
Speaker 1: set up a regulatory structure around a mystery of bidass process.
Speaker 1: We're not doing futures. I'm proctoring gamble and this is
Speaker 1: a derivative, which means that the regulatory structure isn't reaching
Speaker 1: into the cash market, which is probably just as well
Speaker 1: because they couldn't get into transparency into the cash market.
Speaker 1: I think the problem with bitcoin is, you know, even
Speaker 1: even precious metals have a have some sort of intrinsic
Speaker 1: value because they look good. Bitcoin has no intrinsic value,
Speaker 1: which means it could go down a p it could
Speaker 1: go up very easily. You and I know. Then let's
Speaker 1: take the gloom case. If something goes down, everybody looks
Speaker 1: at all my word, they're selling it, and you and
Speaker 1: I know the type two construct is not the ask
Speaker 1: when it goes down, if there's no one there in
Speaker 1: the bid and then these derivative regulatory bodies cm E,
Speaker 1: c B o E, they have to deal with that
Speaker 1: the vacuum. Yeah, so what the regulators need to do
Speaker 1: with any players that are actually trading this future is
Speaker 1: make sure they're not exposed either way on it because
Speaker 1: the volatility will remain very high. From a regulatory point
Speaker 1: of view, I think that's about all you can do,
Speaker 1: because this is I mean, this is no better than
Speaker 1: betting on the horses. It's a pure with that accent
Speaker 1: saying betting on the horses works great. But Jim mccoin,
Speaker 1: what is absolutely critical here is you and I know
Speaker 1: this can be a correct, responsible hedge vehicle. I get
Speaker 1: that by definition you need to have speculation. On the
Speaker 1: other side, you do what do you predictive speculation and
Speaker 1: that emotion of leverage as you're successful for a set
Speaker 1: number of units. I think the problem with this market
Speaker 1: will be that events will drive it. And remember it's
Speaker 1: not many years ago Mounts the exchange went under, bitcoins disappeared,
Speaker 1: investor value was was obliterated. That could happen again. You know,
Speaker 1: there are unregulated exchanges and all kinds of jurisdictions that
Speaker 1: are trading these bitcoins. There's all kinds of trading going
Speaker 1: on which is confidential and totally untransparent. That's what you're
Speaker 1: betting on. So I I think anyone who gets involved
Speaker 1: in this has to be prepared to lose all their money.
Speaker 1: But the the term, and this is a quote, the term,
Speaker 1: the term that it's being used to describe the process
Speaker 1: by which this is coming to market is called self certification.
Speaker 1: Have you ever heard of self certification? Not exactly No,
Speaker 1: I think I know what it sounds like. It sounds
Speaker 1: like canfattempt or doesn't it? Is this though? The kind
Speaker 1: of event, for example, if you go to coin based,
Speaker 1: you go to some of these sites and they lock
Speaker 1: up for whatever reason. Is that the kind of event
Speaker 1: that then gets everybody you know, saying, let's just get out,
Speaker 1: I want to go to cash. That could happen. That
Speaker 1: could happen, But I think I think it's likely to
Speaker 1: be something worse than a temporary lock up in a
Speaker 1: trading site. You know, we're doing Bloomberg Radio twenty five
Speaker 1: year anniversary. To me, Pim, this is a really important point.
Speaker 1: You and I remember when cbo E was who are
Speaker 1: those guys options? Really? I mean, if we're developing a
Speaker 1: new would you within derivative math very quickly, or Jim Macon,
Speaker 1: would you call this a synthetic instrument. There's no tangible.
Speaker 1: It's the tangible. It's a derivative ones synthetic instruments, it's
Speaker 1: there is nothing tangible. Here's I think the way that
Speaker 1: bitcoin could obtain an economic value if it was used
Speaker 1: as a medium of exchange. But it's not happening. It's
Speaker 1: actually going into reverse. Many of the bitcoins and circulation
Speaker 1: are actually going into fronts, so they're not being they're
Speaker 1: being used less. We are so fortunate you're with us
Speaker 1: today on this announcement, Jim mccoon with us from Principal
Speaker 1: Group and CME and cbo E looking at bitcoin. We
Speaker 1: are honored always at Bloomberg surveillance over the acuity and
Speaker 1: the distinctions and the differences of our guests. Today has
Speaker 1: been no difference. And now for another twisted look. She
Speaker 1: holds an electrical engineering degree from kel Tech and showed
Speaker 1: out a shingo at Harvard University in Stanford for a bit.
Speaker 1: Elaine Oh joins us. She writes for Bloomberg View, Elaine,
Speaker 1: what was it like the day you got your acceptance
Speaker 1: letter from kel Tech. Oh, that was a really long
Speaker 1: time ago, But I mean I always knew I wanted
Speaker 1: to go there because I I've been interested in tech
Speaker 1: and computers since that was the kid. You come from
Speaker 1: the tech side of this arch debate on bitcoin, as
Speaker 1: as someone of prodigious academics in engineering and operations systems,
Speaker 1: how do you respond to economists, for example, Joseph Stiglets
Speaker 1: Laureate saying bitcoin should be outlawed. Well, I mean it's
Speaker 1: a really silly thing to say that the coins should
Speaker 1: be outlawed because it can't be outlawed. It's it's not
Speaker 1: controlled by anyone. There's no command center. I mean, this
Speaker 1: is this is something that's being run in the countries
Speaker 1: all around the world on like tens of thousands of machines.
Speaker 1: So I mean he can say that, but it's just silly. Well, Elaine,
Speaker 1: if it's silly, I mean, I'm wondering, for example, can
Speaker 1: you log on to Facebook in China? Uh? You Well,
Speaker 1: you'd have to go through a vp N. I mean,
Speaker 1: there are ways to log onto Facebook in China, but
Speaker 1: it's not accessible to But but I raised that that
Speaker 1: specific example just because you say that it can't be outlawed.
Speaker 1: What if, let's say the Chinese government were to see
Speaker 1: bitcoin as a threat to the stability of the financial
Speaker 1: system and they outlawed people's ability to invest in it.
Speaker 1: Um I think, I mean, that's actually a very real
Speaker 1: threat right now China has I guess the central banks
Speaker 1: or people think has um made insinuations that they plan
Speaker 1: to do some sort of deep packing inspection to filter
Speaker 1: out bitcoin related traffic. But I think that users will
Speaker 1: find a way around that if they truly want to
Speaker 1: use bitcoin. You are a blockchain engineer, do you care
Speaker 1: about the price of bitcoin? Um? Only in as far
Speaker 1: as uh, A lot of my clients pay me in bitcoin,
Speaker 1: But for the most part, I mean not really. But
Speaker 1: but I mean the technology is sound and it will
Speaker 1: continue to be for many years. Can we then partition
Speaker 1: all the price blah blah blah from your engineering work
Speaker 1: or on a ven diagram? Are they overlamping not? The
Speaker 1: price doesn't have a lot to do with the underlying technology, um,
Speaker 1: I mean right now, bitcoin's number one use case is speculation,
Speaker 1: which is not really what it was intended for you,
Speaker 1: But that's just a side effect. Is this number two
Speaker 1: use corruption? In black market crime. I wouldn't say that, uh.
Speaker 1: Um from my experience, the number two US is just
Speaker 1: to make UM international payments because it's not always easy
Speaker 1: to or the cost effective to go through UM a
Speaker 1: bank that needs to then go through a corresponding bank
Speaker 1: to making international transfer. Elaine, you wrote back in June
Speaker 1: and a really great piece for a Bloomberg And it
Speaker 1: has to do with the blockchain bubble. You said that
Speaker 1: it might be a desirable thing having to do with
Speaker 1: the sale of digital tokens, and what if you could
Speaker 1: explain that Yeah, uh, well, so this is sort of
Speaker 1: separate from bitcoin, but people have been trying for I
Speaker 1: guess a lot of startups and entrepreneurs are raising money
Speaker 1: by selling digital tokens, and most of the people who
Speaker 1: are buying these tokens will see their investment s paper rise.
Speaker 1: But at the same time, UM, it's always been really
Speaker 1: hard for people who are developing open source software to
Speaker 1: find sources of funding, and the bubble, I mean might
Speaker 1: not result in returns for the investors, but I think
Speaker 1: this is finally a good way for UM software developers
Speaker 1: to write independent sources of funding. What is your best outcome?
Speaker 1: I mean, you know, almost within an engineering standpoint, what
Speaker 1: is your best outcome for all the froth and uproar
Speaker 1: over the price ascent of bitcoin? What what? What would
Speaker 1: you like to have happen? If we see it in
Speaker 1: an arithmetic space, it's a hyperbola, it's not there yet
Speaker 1: in a log y axis where it's simply convex. Do
Speaker 1: you want it to go higher? Do you want stability?
Speaker 1: Or do you want it to retreat to some level
Speaker 1: that's optimal for you. I'd actually prefer to see the
Speaker 1: price go lower right now. Bitcoin transactions are every bitcoin
Speaker 1: transaction costs a certain amount of money that denominate in bitcoin,
Speaker 1: and the higher the price of bitcoin, the more expensive
Speaker 1: it is to make a payment using bitcoin. So I
Speaker 1: would prefer to see the price quite a bit lower
Speaker 1: just to make it so payments aren't as expensive as
Speaker 1: a team Eleno, thank you so much. She writes for
Speaker 1: Bloomberg View, and of course with her work within blockchain
Speaker 1: UH and with a more technological end of of bitcoin,
Speaker 1: she's with global financial access as well, but writing for Bloombergview.
Speaker 1: Thrilled to have a len On with us today. H
Speaker 1: thanks for listening to the Bloomberg Surveillance podcast subscribe and
Speaker 1: listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast
Speaker 1: platform you prefer. I'm on Twitter at Tom Keene before
Speaker 1: the podcast. You can always catch us worldwide. I'm Bloomberg
Speaker 1: Radio