WEBVTT - GDP, Housing, Grayscale CEO, and VR Headsets (Podcast) 0:00:00.840 --> 0:00:04.000 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside 0:00:04.040 --> 0:00:05.280 my co host Matt Miller. 0:00:05.640 --> 0:00:09.600 Every business day we bring you interviews from CEOs, market pros, 0:00:09.720 --> 0:00:13.600 and Bloomberg experts, along with essential market moving news. 0:00:14.160 --> 0:00:17.279 Find the Bloomberg Markets Podcast called Apple Podcasts or wherever 0:00:17.400 --> 0:00:20.520 you listen to podcasts, and at Bloomberg dot com slash podcast. 0:00:21.160 --> 0:00:22.680 I want to get to our next guest, Jennifer Lee. 0:00:22.800 --> 0:00:26.960 She's a senior economist managing director at BIMO Capital Markets. Jennifer, 0:00:27.080 --> 0:00:30.880 lots of economic data this week, and likely we'll have 0:00:31.160 --> 0:00:33.000 you know an effect on what we hear from our 0:00:33.000 --> 0:00:35.400 photo reserve in the coming months. What are you looking 0:00:35.400 --> 0:00:37.760 at this week in terms of the eco data? 0:00:39.400 --> 0:00:41.239 Good morning everyone, Thanks for having me on. Sorry I'm 0:00:41.240 --> 0:00:43.159 still laughing about the bike to nowhere. That's how I 0:00:43.159 --> 0:00:48.159 feel sometimes with so for this this week, I think 0:00:48.200 --> 0:00:50.559 all the key numbers are coming out tomorrow, although this 0:00:50.640 --> 0:00:53.559 morning is a reports on GDP was a little bit 0:00:53.640 --> 0:00:56.320 kind of interesting. Even though we saw that downward revision, 0:00:56.960 --> 0:00:59.880 it was all due to inventories and net trade, but 0:01:00.000 --> 0:01:02.680 I noticed that the consumer spending portion was still a 0:01:02.720 --> 0:01:05.440 little bit, just a smidge higher, which is kind of interesting, 0:01:06.160 --> 0:01:08.560 but tomorrow's PC numbers, so it will be will be 0:01:08.600 --> 0:01:10.680 definitely the key because it's going to show you how 0:01:10.880 --> 0:01:11.760 Q three is beginning. 0:01:11.800 --> 0:01:14.399 So that's interesting too because this is a revision to 0:01:14.440 --> 0:01:18.080 that and you are seeing consumer spending revised higher there 0:01:18.160 --> 0:01:21.240 and those expectations. When I look at the ECFC function 0:01:21.280 --> 0:01:23.959 in the Bloomberg terminal that takes sort of the estimates 0:01:24.000 --> 0:01:26.520 for the average what economists are expecting, you don't see 0:01:26.760 --> 0:01:29.400 even a quarterly contraction anymore coming up for the next 0:01:29.480 --> 0:01:32.160 few quarters. So when you do have so many economists 0:01:32.160 --> 0:01:35.039 expecting that potentially we could see a recession in the 0:01:35.040 --> 0:01:37.280 next few quarters, how do you square that away? When 0:01:37.280 --> 0:01:39.959 you have data like this, it's being revised to the upside, 0:01:41.200 --> 0:01:42.600 so we are well. 0:01:42.600 --> 0:01:44.640 Actually, it was interesting because when you look at the components, 0:01:44.680 --> 0:01:47.319 it was all durables that actually was revised lower, but 0:01:47.560 --> 0:01:50.120 again it was upward divisions to services and that's where 0:01:50.160 --> 0:01:52.280 all the demand has been. But we actually have a 0:01:52.320 --> 0:01:54.680 contraction for the first quarter. I had to look at 0:01:54.720 --> 0:01:57.240 my in my notes here for the first quarter actually 0:01:57.440 --> 0:01:59.760 in around the turn of the year, because we are 0:01:59.800 --> 0:02:02.080 still looking for the for growth to slow overall We're 0:02:02.120 --> 0:02:05.200 not looking for that hard landing that many were calling for, 0:02:05.240 --> 0:02:07.320 you know, just a number of months ago. We're still 0:02:07.320 --> 0:02:08.919 looking for that soft landing. And so for all the 0:02:08.960 --> 0:02:11.920 data are putting in that direction, things are slowing, which 0:02:11.960 --> 0:02:13.560 is not a bad thing. Is what the Fed wants. 0:02:13.560 --> 0:02:17.919 This is what they really really want, and I think 0:02:18.000 --> 0:02:20.720 in terms of the consumer just to have them pulling 0:02:20.760 --> 0:02:23.520 back a little bit and eventually just taking all the 0:02:23.520 --> 0:02:25.280 spending off the table at some point in the early 0:02:25.360 --> 0:02:28.680 in the new year will help again growth slow even further, 0:02:28.840 --> 0:02:30.840 but not have that hard landing. 0:02:32.080 --> 0:02:34.560 So if there is not a hard landing here, how 0:02:34.600 --> 0:02:37.400 do you think the Federal Reserve will kind of interpret 0:02:37.440 --> 0:02:38.040 some of this data? 0:02:38.080 --> 0:02:38.400 Will they? 0:02:38.639 --> 0:02:41.240 I mean, they could very well pat themselves on the back, 0:02:41.280 --> 0:02:42.760 take a little bit of a victory lap, and just 0:02:42.840 --> 0:02:45.200 kind of stand pat for a while. Is that something 0:02:45.320 --> 0:02:48.400 you foresee or did they do? You feel like they 0:02:48.440 --> 0:02:50.040 may feel like they have more work to do in 0:02:50.080 --> 0:02:51.440 terms of pushing rates up a little bit. 0:02:53.480 --> 0:02:55.440 It's a it's all going to dependent. I mean, it 0:02:55.480 --> 0:02:57.840 sounds wishy washy, but that's you know, unfortunately, that is 0:02:57.880 --> 0:02:59.960 the case. Is everything is data dependent. I don't know 0:03:00.040 --> 0:03:02.480 they're gonna be doing victory laps. Just judging from what 0:03:02.800 --> 0:03:05.920 Fetcher Powell said last week in Wyoming, I don't think 0:03:05.960 --> 0:03:08.600 they're doing any victory lapse. You're still watching everything very carefully. 0:03:08.600 --> 0:03:10.360 He did get, by the way, give a nod to 0:03:10.440 --> 0:03:13.040 the more to the better inflation data of late, but 0:03:13.040 --> 0:03:14.800 he said it's just far too soon, and we already 0:03:14.880 --> 0:03:16.760 knew that. I mean, a couple of months of better 0:03:16.760 --> 0:03:21.240 inflation data is are definitely not enough to uh to 0:03:21.240 --> 0:03:23.760 to have them be very very comfortable. I think they 0:03:23.800 --> 0:03:26.600 need a lot more than that. But for sure, our 0:03:26.639 --> 0:03:29.320 official call is still that they are going to stay 0:03:29.320 --> 0:03:31.960 the course and keep watching the data and not do anything. 0:03:32.240 --> 0:03:34.200 And of course there is a risk. I still think 0:03:34.200 --> 0:03:37.520 that the risk is to is to raise race if 0:03:37.520 --> 0:03:41.640 things do not cool or or cool more than they 0:03:41.720 --> 0:03:43.520 want or less than they want. You know, I'm trying 0:03:43.560 --> 0:03:46.560 to say, of course, all the latest jobs data have 0:03:46.600 --> 0:03:48.720 been very interesting as well. With the ADP this morning, 0:03:49.160 --> 0:03:51.560 I don't take too much stock in it because it's 0:03:51.600 --> 0:03:54.000 sometimes quite locky compared to what the official data say. 0:03:54.040 --> 0:03:56.920 But you know, overall we have seen that slowly in 0:03:57.280 --> 0:04:02.000 growth in job growth, in job demanded, lower job openings, 0:04:02.000 --> 0:04:04.640 though there are fewer job openings out there, still far 0:04:04.720 --> 0:04:06.720 more than the number of unput Americans out there, So 0:04:06.760 --> 0:04:09.080 it's still tight, but at least we're all heading in 0:04:09.120 --> 0:04:09.800 that right direction. 0:04:10.040 --> 0:04:12.280 We talk so much about whether or not we'll see 0:04:12.280 --> 0:04:14.800 the Fed potentially raise at least one more time here, 0:04:15.040 --> 0:04:17.960 but what about just how long that they keep rates 0:04:18.000 --> 0:04:20.240 at an elevated level there, and how long are you 0:04:20.320 --> 0:04:22.080 expecting that to potentially happen. 0:04:23.640 --> 0:04:27.120 So we are looking officially for the first rate cut 0:04:27.160 --> 0:04:29.679 to come probably sometime in the mid middle of twenty 0:04:29.720 --> 0:04:33.640 twenty four, mid year, so another year from now. We've 0:04:33.640 --> 0:04:35.560 actually been pushing that out a little bit more just 0:04:35.600 --> 0:04:37.480 because the data have shown that the US economy is 0:04:37.480 --> 0:04:39.840 a lot more resilient than anyone I would have hoped 0:04:39.839 --> 0:04:42.839 for at this point we're expected so if anything, they're 0:04:42.880 --> 0:04:46.560 going to keep rates for higher for longer. 0:04:46.920 --> 0:04:47.520 So a lot. 0:04:47.600 --> 0:04:49.080 So I don't think again, we're not going to see 0:04:49.120 --> 0:04:51.560 another rate cut or a rate cut coming until at 0:04:51.600 --> 0:04:53.560 the earliest middle of next year. 0:04:54.640 --> 0:04:58.200 We're going to get obviously, on Friday, the change in 0:04:58.240 --> 0:05:00.840 non form payrolls consensus it is for a gain of 0:05:00.839 --> 0:05:02.840 one hundred and seventy thousand. That would be down from 0:05:02.920 --> 0:05:05.280 prior period of one hundred and eighty seven thousand. 0:05:05.279 --> 0:05:05.440 But. 0:05:06.920 --> 0:05:09.440 Unemployment rate kind of sticking around three and a half percent. 0:05:09.680 --> 0:05:12.320 Where do you think that unemployment rate goes I have 0:05:12.440 --> 0:05:15.160 no idea how this labor economy is working. We got 0:05:15.160 --> 0:05:17.839 the jolt s Nummer come down yesterday. But where do 0:05:17.839 --> 0:05:21.360 you think the unemployment rate ultimately goes higher? 0:05:21.680 --> 0:05:23.359 If you have to pick a direction, it will be higher, 0:05:23.360 --> 0:05:25.960 but not too much higher. Probably something in the in 0:05:26.000 --> 0:05:29.279 the mid four I believe we have This is all 0:05:29.960 --> 0:05:31.599 to be expected at some point, like when you have 0:05:31.720 --> 0:05:34.320 over five hundred basis points of rate hikes coming from 0:05:34.320 --> 0:05:36.320 the Federal Reserve in such a short amount of time. 0:05:36.560 --> 0:05:38.599 At some point, you know, again, we're already seeing that 0:05:38.680 --> 0:05:42.200 job growth slowing. The demand for jobs are also starting 0:05:42.240 --> 0:05:44.760 to wane a little bit, So we're going to start 0:05:44.760 --> 0:05:47.200 seeing that unemployment rate inch a little bit higher, but 0:05:47.240 --> 0:05:49.800 it's not going to be ratcheting higher. And at the 0:05:49.800 --> 0:05:52.560 same time, they're still demand out there for certain categories 0:05:52.560 --> 0:05:54.880 of workers. Maybe not you know, on a broader scale, 0:05:54.880 --> 0:05:57.800 but certain areas like construction, we're still lacking even on 0:05:57.839 --> 0:06:00.359 the technology side. You know, I hearing stories about you know, 0:06:00.600 --> 0:06:03.000 shortage of engineers, for example, and not enough even though 0:06:03.000 --> 0:06:04.960 we've got all this money coming in on the fiscal 0:06:05.040 --> 0:06:09.000 side to build all these facilities to create semiconductors, we 0:06:09.040 --> 0:06:11.919 don't have enough people who are trained to build for 0:06:11.960 --> 0:06:15.880 that certain particular technologies. So certain pockets are still going 0:06:15.920 --> 0:06:18.080 to be a lot more demand. But broadly speaking, just 0:06:18.160 --> 0:06:20.760 because of slower growth, because of higher interest rates, we're 0:06:20.760 --> 0:06:22.719 going to start seeing that jobles rate into a little 0:06:22.760 --> 0:06:23.240 bit higher. 0:06:23.320 --> 0:06:25.800 Well across this pond. We do have the ECB having 0:06:25.839 --> 0:06:28.240 a meeting on September fourteenth, that is ahead of the 0:06:28.240 --> 0:06:31.160 Federal Reserves decision on September twentieth, but we are going 0:06:31.200 --> 0:06:34.320 to get some Eurozone inflation numbers on Thursday. How do 0:06:34.360 --> 0:06:36.400 you square away the issues when it comes to the 0:06:36.400 --> 0:06:39.599 inflation that Christine Leguard is clearly trying to fight and 0:06:39.680 --> 0:06:42.560 indicated that at Jackson Hole last week, versus what fetchair 0:06:42.640 --> 0:06:44.720 Jerome pal is trying to do in the United States. 0:06:46.279 --> 0:06:48.880 It's funny they're mentioning the ECB, because I for the ECB, 0:06:48.960 --> 0:06:51.440 it's almost like a coin toss right now. If anything, 0:06:51.480 --> 0:06:54.400 I would right now our official review, my official view 0:06:54.440 --> 0:06:56.279 is still that they're going to stay the course, just 0:06:56.320 --> 0:06:59.800 given that inflation has come down from those highs, given 0:06:59.839 --> 0:07:01.599 that all the hawks or most of the hawks have 0:07:01.680 --> 0:07:04.400 started to tone down their hawkishness, and the fact that 0:07:04.480 --> 0:07:06.960 China is slowing considerably as well. So I think that 0:07:07.080 --> 0:07:10.120 might be enough to put the lot of the ECB 0:07:10.240 --> 0:07:11.720 to sort of step aside a little bit. And she 0:07:11.800 --> 0:07:14.800 sort of hinted at that at that July meeting. However, 0:07:15.440 --> 0:07:17.400 the flat fact that inflation is still sticky. We got 0:07:17.440 --> 0:07:20.360 three new pieces of data overnight. Belgium, for example, it 0:07:20.400 --> 0:07:23.240 was like all over the map, Belgium CPI was relatively steady. 0:07:23.760 --> 0:07:27.120 German CPI edged a little bit lower, which is key, 0:07:27.160 --> 0:07:29.720 but it's just it wasn't as low as consensus had expected. 0:07:30.000 --> 0:07:33.200 And in Spain inflation rose for the second month in 0:07:33.200 --> 0:07:34.960 a row. So it's going to show that. I don't 0:07:34.960 --> 0:07:37.240 think we're going to go in to get a very 0:07:37.240 --> 0:07:40.360 clear signal from tomorrow's inflation report, and I think that 0:07:40.400 --> 0:07:43.640 will be put the ECB still at play for September. 0:07:44.360 --> 0:07:46.640 Well, most importantly, how are things in Canada. 0:07:48.640 --> 0:07:51.440 Things are slowing. It is actually slowing a little bit 0:07:51.480 --> 0:07:54.240 more than we had a little bit more actually than 0:07:54.240 --> 0:07:55.600 what's happening in the US. We're going to get some 0:07:55.680 --> 0:07:58.000 key data this week. On Friday, we're going to get 0:07:58.000 --> 0:07:59.480 our We're going to Foly going to release our real 0:07:59.520 --> 0:08:02.520 GDP for the second quarter, and we're looking for growth 0:08:02.560 --> 0:08:05.200 to slow to about a one point two percent a wicepace, 0:08:05.560 --> 0:08:07.440 which is about half of what we saw in Q one. 0:08:07.600 --> 0:08:09.440 We had a strong start to the year that we've 0:08:09.440 --> 0:08:12.600 been doing, dealing with a lot of wildfires almost see 0:08:12.680 --> 0:08:15.240 the coast to coast, labor strikes and all that's going 0:08:15.280 --> 0:08:17.000 to weigh on the second court. Of course, higher interest 0:08:17.040 --> 0:08:20.880 rates and consumers here are a lot more susceptible I 0:08:20.880 --> 0:08:23.680 guess two rates than they are in the US, So 0:08:23.760 --> 0:08:25.440 I think we are going to see slower growth. It's 0:08:25.440 --> 0:08:26.800 just something by the way, that the Bag of Canada 0:08:26.840 --> 0:08:29.239 is going to very much welcome because inflation is still 0:08:29.600 --> 0:08:32.720 too sticky. So as long as inflation or the economy 0:08:32.760 --> 0:08:35.439 continues to slow, which we're expecting in the second quarter, 0:08:35.720 --> 0:08:38.160 that will allow the Bag of Canada to stay also 0:08:38.200 --> 0:08:39.400 on hold for the rest of the year. 0:08:39.600 --> 0:08:42.400 Hi, Jennifer, thanks so much. We appreciate getting the global view, 0:08:42.400 --> 0:08:45.200 including our good friends to Northern Canada. Jennifer Lee, Senior 0:08:45.200 --> 0:08:48.600 Economists and Managing director at BMO Capital Markets, that is 0:08:48.720 --> 0:08:50.040 Bank of Montreal. 0:08:51.240 --> 0:08:55.120 You're listening to the Team Can't Live program Bloomberg Markets 0:08:55.160 --> 0:08:58.240 weekdays at ten am Eastern on Bloomberg dot Com, the 0:08:58.320 --> 0:09:01.319 iHeartRadio app and the Blow our Business app, or listen 0:09:01.360 --> 0:09:05.000 on demand wherever you get your podcast. 0:09:05.040 --> 0:09:05.240 All. 0:09:05.440 --> 0:09:08.360 We did get a few different data points on the 0:09:08.440 --> 0:09:10.959 housing side today, so we were just talking about earlier 0:09:11.240 --> 0:09:14.400 the pending home sales unexpectedly rising for a second month, 0:09:14.440 --> 0:09:17.480 but also we did see that mortgage applications also rose 0:09:17.720 --> 0:09:19.200 in the latest week. So I want to get straight 0:09:19.200 --> 0:09:22.800 to our next guest, Odetta Cushy, Deputy chief Economists at 0:09:22.800 --> 0:09:25.760 First American, who's joining us on zoom to discuss the 0:09:25.840 --> 0:09:28.080 latest data in the housing market. Thanks so much for 0:09:28.200 --> 0:09:31.200 joining us. Walk us through these latest data points and 0:09:31.200 --> 0:09:33.440 what this really tells us about the housing market at 0:09:33.440 --> 0:09:35.800 this point, because we do know that mortgage rates are 0:09:35.880 --> 0:09:40.000 at about a two decade high at this point, that's right. 0:09:40.080 --> 0:09:42.199 So the recent increase in pending home sales, this is 0:09:42.200 --> 0:09:44.040 a second month in a row that there's been a 0:09:44.320 --> 0:09:47.679 modest increase in pending home sales, which is a leading 0:09:47.679 --> 0:09:50.920 indicator of a future sales. That's really a testament to 0:09:50.960 --> 0:09:53.600 the strength of the demand side of the equation. There's 0:09:53.679 --> 0:09:57.400 still quite a bit of pent up demand for homes, 0:09:57.679 --> 0:10:01.520 but insufficient supply to meet that demand. So some cautious 0:10:01.600 --> 0:10:04.400 optimism in the latest numbers. We saw this morning a 0:10:04.440 --> 0:10:08.760 weekly increase in purchase mortgage applications, although again a very 0:10:08.840 --> 0:10:11.960 modest increase on a year over year basis. We're still 0:10:12.200 --> 0:10:15.880 quite low both for mortgage applications and pending home sales. 0:10:16.120 --> 0:10:18.960 But you really see the strength of demand even in 0:10:19.000 --> 0:10:21.240 such a high interest rate environment and such a low 0:10:21.280 --> 0:10:22.360 inventory environment. 0:10:22.600 --> 0:10:25.880 What is the catalyst because typically the springtime is more 0:10:25.880 --> 0:10:27.719 of the boom there when you do see that when 0:10:27.720 --> 0:10:29.840 it comes to home sales, but this is a little 0:10:29.840 --> 0:10:32.959 bit later than that. Why is that, Well, the. 0:10:32.880 --> 0:10:36.559 Pent up demand there's been a lot of multiple offer situations, 0:10:36.600 --> 0:10:38.520 and so you know, the folks that are losing out 0:10:38.559 --> 0:10:41.400 on those multiple offer situations are on the sidelines, ready 0:10:41.440 --> 0:10:43.640 to jump in when there is sort of a house 0:10:43.679 --> 0:10:47.280 out there that meets their needs and what they're looking for. 0:10:47.400 --> 0:10:50.200 And so maybe a little break from seasonality there. 0:10:51.000 --> 0:10:54.840 So odetta is I'm going at the bank rate thirty 0:10:55.160 --> 0:10:59.760 year fixed mortgage seven point five three percent. Is there 0:10:59.760 --> 0:11:02.760 a level where that needs to decline, where that might 0:11:02.960 --> 0:11:06.440 free up sellers to maybe say, all right, I can 0:11:06.520 --> 0:11:09.559 in fact part with my lower rate mortgage and maybe 0:11:09.600 --> 0:11:11.480 put my home on the market. Is there a break 0:11:11.520 --> 0:11:13.680 given number out there that you think might be the 0:11:13.679 --> 0:11:14.440 magic number? 0:11:15.920 --> 0:11:18.480 Well, that's the big question right now. More than ninety 0:11:18.520 --> 0:11:22.520 percent of existing homeowners are locked into rates below six percent, 0:11:22.640 --> 0:11:25.920 So certainly we need to see something below seven percent 0:11:26.000 --> 0:11:28.640 to even see some movement there. There's not a lot 0:11:28.679 --> 0:11:32.320 of financial incentive for existing home owners to drop those 0:11:32.480 --> 0:11:35.400 record low mortgage rates that they locked into at this point. 0:11:35.720 --> 0:11:39.000 So I think, you know, well under seven percent, probably 0:11:39.000 --> 0:11:41.880 below six percent to unlock some of that inventory. 0:11:42.720 --> 0:11:45.120 We did see July opending sales rise the most in 0:11:45.160 --> 0:11:47.800 the West and also actually increase in the South, but 0:11:48.080 --> 0:11:51.200 probably not surprisingly, they did fall in the Northeast. What 0:11:51.280 --> 0:11:53.960 kind of dynamics are you seeing from a regional perspective 0:11:54.000 --> 0:11:55.040 at this point? 0:11:55.880 --> 0:11:59.400 So the West is that's your traditionally more expensive markets, 0:11:59.440 --> 0:12:01.760 and those are all the markets where we've seen the 0:12:01.800 --> 0:12:04.840 most severe price declines from the peak, and so in 0:12:04.840 --> 0:12:07.680 a higher mortgage rate environment, something needs to give, and 0:12:07.720 --> 0:12:10.680 in this instance it has to be price. So the 0:12:10.720 --> 0:12:13.520 areas where we're seeing price adjust to the reality of 0:12:13.559 --> 0:12:16.320 higher mortgage rates, they're seeing a little bit more activity. 0:12:16.360 --> 0:12:18.200 So in this instance, it would be the West Coast, 0:12:18.240 --> 0:12:19.920 those traditionally more expensive markets. 0:12:20.600 --> 0:12:24.120 So if there really aren't a lot of existing home 0:12:24.200 --> 0:12:27.720 sales in the market or available on the market, are 0:12:27.920 --> 0:12:30.480 are the builders making up any of that kind of 0:12:30.640 --> 0:12:33.480 shortfall by just building more houses new houses? 0:12:34.440 --> 0:12:38.440 That's right, builders are picking up market share. Traditionally, existing 0:12:38.440 --> 0:12:41.760 home inventory makes up about ninety percent of total inventory. 0:12:42.000 --> 0:12:44.760 These days it's more like seventy, so builders have really 0:12:44.760 --> 0:12:48.440 stepped up to build more homes. They're also offering incentives 0:12:48.600 --> 0:12:54.000 rate buydowns, price declines to sort of help button entice 0:12:54.080 --> 0:12:55.680 buyers into the new home market. 0:12:55.920 --> 0:12:59.400 Which builders have been kind of setting themselves apart the 0:12:59.400 --> 0:13:01.640 most in and which ones do you think are struggling 0:13:01.720 --> 0:13:03.840 more depending on I guess which type of demographic and 0:13:03.880 --> 0:13:04.760 you're trying to cater to. 0:13:06.000 --> 0:13:08.880 It's really the bigger builders that have had a little 0:13:08.920 --> 0:13:12.120 bit more power to be able to do these rate buydowns. 0:13:12.120 --> 0:13:14.360 So I think in this market it's more advantageous to 0:13:14.360 --> 0:13:16.959 be one of the big builders rather than the small 0:13:17.000 --> 0:13:20.440 builders that maybe don't have the ability to offer some 0:13:20.520 --> 0:13:21.520 of these incentives. 0:13:22.120 --> 0:13:22.559 Oh data. 0:13:22.559 --> 0:13:24.120 One of the things that I hear from the home 0:13:24.160 --> 0:13:26.960 builders is, you know when they talk about their costs, 0:13:26.960 --> 0:13:28.559 and I don't even think about it, but that's the 0:13:28.559 --> 0:13:31.800 biggest cost. I guess it's just land and some of 0:13:31.840 --> 0:13:35.160 these markets everybody's flocking to Texas and Florida and places 0:13:35.200 --> 0:13:37.440 like that, Where do they get land and can they 0:13:37.480 --> 0:13:40.120 get it on an affordable basis. 0:13:41.200 --> 0:13:45.360 Lands it's really multiple supply side headwinds and higher costs 0:13:45.400 --> 0:13:48.840 for builders. The cost of land certainly is higher, but 0:13:48.920 --> 0:13:52.120 of course they also are are grappling with ongoing supply 0:13:52.240 --> 0:13:55.400 chain headwinds right those those aren't totally gone. And of 0:13:55.400 --> 0:13:58.840 course the price of labor has gone up. Wages in 0:13:58.880 --> 0:14:01.680 the construction industry have gone up as well, and so 0:14:02.000 --> 0:14:06.160 costs all around for builders have gone up, and that's 0:14:06.200 --> 0:14:08.640 made it very difficult for them to build at that 0:14:08.679 --> 0:14:12.040 sort of starter starter home priced here, that entry level 0:14:12.040 --> 0:14:16.000 priced here, and that's the level that we need at 0:14:16.000 --> 0:14:17.800 this point because it's a lot of first time home 0:14:17.840 --> 0:14:19.560 buyers out there that have been priced out of this 0:14:19.680 --> 0:14:22.520 market and they're looking for that starter home price here 0:14:22.560 --> 0:14:25.800 and builders just aren't able to build at that price 0:14:25.880 --> 0:14:27.760 point because of higher costs. 0:14:28.160 --> 0:14:31.440 So how do we end up fixing the inventory issue 0:14:31.480 --> 0:14:35.120 That clearly got exacerbated during the pendit pandemic, but that 0:14:35.240 --> 0:14:37.440 was already an issue even coming out of the housing crisis. 0:14:38.960 --> 0:14:43.000 There is some mitigating factors here on the existing home side. 0:14:43.080 --> 0:14:46.160 Of course, if rates fall, that will help to boost 0:14:46.160 --> 0:14:48.560 the market a bit. But we also have forty two 0:14:48.600 --> 0:14:51.840 percent of existing homeowners who don't have a mortgage on 0:14:51.880 --> 0:14:55.640 their home. They're free and clear on their home, and 0:14:55.680 --> 0:14:58.080 so those are and they're sitting on a ton of equity, 0:14:58.120 --> 0:15:00.640 and so a lot of those homeowners can sort of 0:15:00.640 --> 0:15:04.720 be a mitigating factor amidst this rate lock in period. 0:15:04.800 --> 0:15:08.960 They aren't financially disincentivized by higher mortgage rates because they 0:15:08.960 --> 0:15:11.960 don't have a mortgage, and so there's that aspect on 0:15:12.000 --> 0:15:14.400 the existing home side. On the new home side, we 0:15:14.520 --> 0:15:18.480 just need builders to continue to build more homes, and 0:15:18.680 --> 0:15:21.440 they do have quite a few challenges, whether it be 0:15:21.480 --> 0:15:24.880 regulatory challenges, and so anything that can be done to 0:15:24.920 --> 0:15:26.920 sort of ease some of those challenges for builders to 0:15:26.920 --> 0:15:29.520 allow them to build more homes where people are looking 0:15:29.520 --> 0:15:29.880 to buy. 0:15:30.040 --> 0:15:31.920 How much of a concern is it for you when 0:15:32.160 --> 0:15:34.920 they can't potentially offer some of those price points to 0:15:34.960 --> 0:15:38.760 maybe younger buyers at this point, then. 0:15:38.920 --> 0:15:41.200 We see that happening quite a bit. There's a lot 0:15:41.200 --> 0:15:43.840 of buyers that are now priced out of the existing 0:15:43.880 --> 0:15:46.080 home market, and of course the new home market is 0:15:46.440 --> 0:15:49.520 traditionally been more expensive. It's been more expensive to buy 0:15:49.560 --> 0:15:52.760 a new home rather than an existing home on average, 0:15:53.040 --> 0:15:55.040 So a lot of those buyers are still on the 0:15:55.120 --> 0:15:59.760 sidelines and waiting for rates to come down, or their 0:15:59.760 --> 0:16:01.760 looking at a lower price point home if they can 0:16:01.760 --> 0:16:02.480 find it in their work. 0:16:02.600 --> 0:16:05.040 So what if people aren't willing to move out of 0:16:05.080 --> 0:16:07.040 their house if they already locked in stay like a 0:16:07.080 --> 0:16:11.360 two percent mortgage rador? Obviously we had rates at historic 0:16:11.400 --> 0:16:13.680 loans which translated into mortgage rates. But what do you 0:16:13.720 --> 0:16:15.800 do with that dynamic if people aren't willing to move, 0:16:16.240 --> 0:16:18.680 and then obviously you would have homebuilders that need to 0:16:18.680 --> 0:16:19.400 build homes. 0:16:20.440 --> 0:16:23.040 That's exactly the issue that we're facing in today's market. 0:16:23.040 --> 0:16:26.840 Existing home sales have been so depressed mostly because you know, 0:16:26.920 --> 0:16:30.000 an existing homeowner doesn't want to let go of that home, 0:16:30.800 --> 0:16:32.920 and that's likely a dynamic that will continue to see 0:16:32.960 --> 0:16:35.960 play out in the housing market over the next several years. 0:16:36.040 --> 0:16:39.640 I don't anticipate rates to go below three percent again, 0:16:40.040 --> 0:16:42.800 and so I think that that will be constraining on 0:16:42.840 --> 0:16:44.120 the housing market for some time. 0:16:44.320 --> 0:16:46.480 All Right, So let's say I do the Mathodeta and 0:16:46.520 --> 0:16:49.359 I can afford to pay a seven handle on my mortgage. 0:16:49.480 --> 0:16:51.840 I go into a mortgage lender. Am I going to 0:16:51.840 --> 0:16:54.320 get that loan? So? 0:16:54.440 --> 0:16:57.760 Credit standards have eased a bit since earlier this year. 0:16:58.320 --> 0:17:03.480 Certainly credit availability has been generally low, but it will 0:17:03.560 --> 0:17:07.000 really depend on your borrower characteristics, right on what kind 0:17:07.000 --> 0:17:09.919 of a borrower that you are from the perspective of 0:17:09.920 --> 0:17:11.640 the lender. But they have eased a bit. 0:17:12.080 --> 0:17:14.080 I think I'm a good credit Would you loan to me? 0:17:14.440 --> 0:17:14.840 I would? 0:17:14.960 --> 0:17:17.600 Yeah, I figured I wouldn't like certain people in this room. 0:17:17.640 --> 0:17:20.640 I might not, but glad to see Adeta Cushy, thank 0:17:20.680 --> 0:17:23.000 you so much for joining us. Adeta Cushy is the 0:17:23.080 --> 0:17:27.480 deputy chief economist for First American. First American is a 0:17:27.480 --> 0:17:31.080 financial company. They provide title settlement and risk solutions for 0:17:31.119 --> 0:17:33.720 the real estate transactions, so they kind of get to 0:17:33.720 --> 0:17:34.760 see the whole space there. 0:17:35.040 --> 0:17:38.159 You're listening to the tape. Cans are live program Bloomberg 0:17:38.200 --> 0:17:41.800 Markets weekdays at ten am Eastern on Bloomberg Radio, the 0:17:41.840 --> 0:17:45.080 tune in app, Bloomberg dot Com, and the Bloomberg Business App. 0:17:45.119 --> 0:17:47.919 You can also listen live on Amazon Alexa from our 0:17:47.960 --> 0:17:52.359 flagship New York station, Just say Alexa play Bloomberg eleven thirty. 0:17:52.760 --> 0:17:56.600 The welcome now our Bloomberg TV and Radio audience. We 0:17:56.640 --> 0:17:59.960 are joined now by Michael Sunensheine, a great scale CEO 0:18:00.119 --> 0:18:02.680 and Bloomber Externally Basic also joining us as well. 0:18:02.760 --> 0:18:03.080 Michael. 0:18:03.119 --> 0:18:04.720 It's a real pleasure. This was a big day for 0:18:04.760 --> 0:18:09.320 you yesterday. What happens now? After the US Court sort 0:18:09.320 --> 0:18:11.439 of gave you some runway to be able to launch 0:18:11.960 --> 0:18:14.320 a spot bitcoin ETF? What do you do now? 0:18:14.640 --> 0:18:16.480 Yeah, so thank you so much for having me. Let's 0:18:16.480 --> 0:18:19.800 be clear about yesterday. So, yesterday was the culmination of 0:18:19.840 --> 0:18:23.600 more than a year worth of litigation. The SEC denied 0:18:23.680 --> 0:18:27.360 gbtc's conversion to an ETF. We immediately filed the lawsuit. 0:18:27.720 --> 0:18:30.440 Fourteen months later, now we finally got a decision from 0:18:30.520 --> 0:18:34.280 the DC Circuit and a panel of three judges unanimously 0:18:34.359 --> 0:18:37.560 voted and agreed with gray Scale, and that actually vacates 0:18:37.600 --> 0:18:41.240 the SEC denial order. Huge win for Gray Scale, huge 0:18:41.280 --> 0:18:44.120 win for our investors, and really the crypto and investment 0:18:44.119 --> 0:18:45.119 community is as a whole. 0:18:45.160 --> 0:18:47.280 But there's a process here to the point that you're making, 0:18:47.400 --> 0:18:50.000 and there is a chance that the SEC looks to 0:18:50.359 --> 0:18:54.320 broaden this out, potentially fight the decision, bringing this in 0:18:54.320 --> 0:18:58.080 front of a larger array of judges. And so if 0:18:58.119 --> 0:19:01.040 you're thinking about that potential ahead, do you have any 0:19:01.080 --> 0:19:04.800 concerns that the race to bring an ATF to the 0:19:04.840 --> 0:19:07.280 market will leave you behind. 0:19:07.760 --> 0:19:10.600 Well, So today is day one of a forty five 0:19:10.680 --> 0:19:13.919 day period during which the SEC has the ability to 0:19:13.960 --> 0:19:17.680 request a rehearing. Ultimately, at the end of that forty 0:19:17.680 --> 0:19:20.560 five day process, you could expect a final mandate from 0:19:20.600 --> 0:19:23.639 the court with operational next steps. Now, of course, in 0:19:23.680 --> 0:19:26.640 the interim, our attorneys are going to be working proactively 0:19:26.720 --> 0:19:29.359 with the SEC to try and make this conversion as 0:19:29.440 --> 0:19:32.960 expeditious as possible. But we really do need to ensure 0:19:33.040 --> 0:19:36.040 during this period we're adhering to the federal rules of 0:19:36.080 --> 0:19:37.000 the appellate court. 0:19:37.200 --> 0:19:40.120 Do you need to refile for an ETF and if 0:19:40.119 --> 0:19:42.840 you do need to refile or amend, are there certain 0:19:42.920 --> 0:19:46.080 things that you would add, such as a surveillance sharing agreement. 0:19:46.119 --> 0:19:48.400 Do you worry that the ones that already have one 0:19:48.760 --> 0:19:50.880 have a competitive advantage to your filing. 0:19:51.359 --> 0:19:54.800 Well, so the operational next steps on anything that Grayscale 0:19:54.800 --> 0:19:56.520 Willer won't have to do will be contained in that 0:19:56.560 --> 0:19:58.959 final mandate that comes out of the court. But one 0:19:59.000 --> 0:20:01.000 of the interesting things that we actually got from the 0:20:01.000 --> 0:20:04.199 Court in yesterday's decision was that the Court agreed with 0:20:04.280 --> 0:20:07.119 us that the arguments we've been putting forward all along 0:20:07.119 --> 0:20:11.160 throughout this process or such that the SEC already has 0:20:11.240 --> 0:20:15.320 the tools it needs to approve spot bitcoin products like GBTC, 0:20:15.600 --> 0:20:18.840 that there is sufficient surveillance between the CME where Bitcoin 0:20:18.920 --> 0:20:21.960 Future is trade in national securities exchanges like the New 0:20:22.000 --> 0:20:24.920 York Stock Exchange where we intend to list GBTC as 0:20:24.960 --> 0:20:28.280 an ETF. So there really shouldn't be any further grounds 0:20:28.400 --> 0:20:31.280 like the SEC has been relying on to continue denying 0:20:31.280 --> 0:20:32.919 these types of products from coming to market. 0:20:33.800 --> 0:20:36.280 Michael, you're very optimistic. Danny here by the way, and London, 0:20:36.320 --> 0:20:38.440 great to speak with you. It makes complete sense that 0:20:38.480 --> 0:20:42.040 you're optimistic and in a good mood. But do you 0:20:42.080 --> 0:20:44.200 have a nagging voice at the back of your head? 0:20:44.280 --> 0:20:47.440 That something might go wrong. What are you most afraid 0:20:47.480 --> 0:20:50.160 of that could kind of undo some of the progress 0:20:50.200 --> 0:20:51.760 that we saw in yesterday's decision. 0:20:52.359 --> 0:20:54.800 Well, I think we're really at a pivotal moment here 0:20:54.840 --> 0:20:58.000 for crypto. Certainly a lot of investors have been voicing 0:20:58.000 --> 0:21:02.640 to us increased optimism the recent Ripple victory, now obviously 0:21:02.760 --> 0:21:05.399 the Greyscale victory in court yesterday, as well as what 0:21:05.440 --> 0:21:08.000 they're seeing taking place in Washington. Right you now have 0:21:08.440 --> 0:21:12.560 draft legislation that's passing through Congress, and we're really optimistic 0:21:12.640 --> 0:21:16.960 that there will be greater regulatory clarity for investors through 0:21:17.000 --> 0:21:19.120 some of these types of actions. And I think if 0:21:19.119 --> 0:21:20.960 we take an even larger step back and look at 0:21:20.960 --> 0:21:23.440 the broader landscape, crypto has been one of the best 0:21:23.520 --> 0:21:26.320 performing assets year to date, and coming out of this 0:21:26.400 --> 0:21:28.960 most recent crypto winter, what we're hearing and what we're 0:21:28.960 --> 0:21:31.600 experiencing is that investors know that crypto as an asset 0:21:31.640 --> 0:21:33.400 class is most certainly here to stay. 0:21:33.760 --> 0:21:35.359 Can we just come back to refiling for a second. 0:21:35.520 --> 0:21:37.960 Sure, So, do you have to refile? We will have 0:21:38.040 --> 0:21:41.840 to see upon the final operational procedures that come through 0:21:42.200 --> 0:21:44.000 that final mandate that the court will issue. 0:21:44.160 --> 0:21:45.680 So you don't know, but you may. 0:21:46.080 --> 0:21:48.600 We don't know what the final opinion will say until 0:21:48.600 --> 0:21:51.200 we reach the end of that period, correct, is there. 0:21:51.200 --> 0:21:53.680 I've been reading us stuff from yesterday too that you know, 0:21:53.800 --> 0:21:55.679 you may have won this battle but then lose the 0:21:55.720 --> 0:21:57.800 war and that there's a bunch of other competitors now, 0:21:57.840 --> 0:21:59.400 so now you're not gonna be the only horse in town. 0:21:59.680 --> 0:22:02.679 Yes. So this is a topic we've talked about before, ladies. 0:22:02.840 --> 0:22:06.640 It's really a world in which there are multiple spot products. 0:22:06.680 --> 0:22:08.679 Is a world that Greyscale has long been ready for. 0:22:08.760 --> 0:22:11.399 There are multiple bitcoin futures products. We believe that there 0:22:11.400 --> 0:22:13.080 will be a world in which there are multiple spot 0:22:13.080 --> 0:22:17.000 bitcoin products. That being said, we want investors to have choice, 0:22:17.240 --> 0:22:19.160 and some of the things that we do think investors 0:22:19.200 --> 0:22:21.800 will look to when they are making those allocation decisions 0:22:21.840 --> 0:22:24.280 are the size of the fund, the liquidity of the fund, 0:22:24.359 --> 0:22:26.560 the track record of the fund. Right, let's not forget 0:22:26.560 --> 0:22:29.320 that GBTC is the largest bitcoin fund in the world. 0:22:29.520 --> 0:22:33.600 It's owned by millions and millions of investors, it has 0:22:33.760 --> 0:22:37.000 three plus percent of the outstanding bitcoin supply, and really 0:22:37.040 --> 0:22:41.600 now has almost a ten year track record of operational success. Right, 0:22:41.640 --> 0:22:43.680 whereas a lot of the other products coming to market 0:22:43.800 --> 0:22:48.240 are really making use of gbtc's operations, disclosures, reporting, and 0:22:48.320 --> 0:22:51.320 GBTC is really paving the way to broaden out that market. 0:22:51.359 --> 0:22:54.119 There's another massive market question here, and it's not just 0:22:54.160 --> 0:22:57.320 about the pace and time. It's about the structure and 0:22:57.359 --> 0:23:01.000 the fees. Because if you look at Blackrock Invesco Fidelity, 0:23:01.040 --> 0:23:03.800 these are asset managers with a history of coming in 0:23:03.880 --> 0:23:05.959 low and if you look at the fees that you 0:23:05.960 --> 0:23:09.560 have offered and really has made a very profitable entity 0:23:09.640 --> 0:23:13.600 for Digital Currency Group and gray Scale, how much lower 0:23:13.760 --> 0:23:17.439 exactly can fees get for the grayscale product in the 0:23:17.440 --> 0:23:18.440 form of an ETF. 0:23:18.760 --> 0:23:21.359 Well, what I've committed to historically, and we'll say again 0:23:21.400 --> 0:23:24.119 to you today, is we are committed to lowering fees 0:23:24.320 --> 0:23:27.800 when GBTC converts to an ETF. We'll obviously have to 0:23:27.800 --> 0:23:29.919 come back on and talk to you about what the 0:23:29.960 --> 0:23:31.880 fees are when that conversion actually happens. 0:23:32.840 --> 0:23:36.640 So the other strangeness here is the discount that the 0:23:36.720 --> 0:23:39.679 GBTC is currently trading at. You had gone from twenty 0:23:39.680 --> 0:23:42.760 four yesterday to fifteen below neat asset value back to 0:23:42.840 --> 0:23:46.359 twenty can you answer to this market volatility here and 0:23:46.440 --> 0:23:49.320 the uncertainty that investors are grappling with as you head 0:23:49.359 --> 0:23:50.680 towards this process. 0:23:50.600 --> 0:23:53.040 Well, there's a couple of things in that dynamic. So 0:23:53.200 --> 0:23:57.200 number one, there certainly was increased trading volume yesterday in GBTC, 0:23:57.520 --> 0:24:00.640 a lot of excitement and enthusiasm based on the victory 0:24:00.800 --> 0:24:04.880 that GBTC shareholders had in the court yesterday. Now, as 0:24:04.920 --> 0:24:08.800 we eventually approach an ETF, if you'd expect that eventually 0:24:08.840 --> 0:24:11.919 there will be an arbitrage mechanism through the ETF that 0:24:11.960 --> 0:24:15.240 will allow for any premiums or discounts to be eliminated. 0:24:15.880 --> 0:24:19.720 That's a really really important function of why ETFs serve 0:24:19.800 --> 0:24:22.000 in the capacity that they do, and it's really the 0:24:22.040 --> 0:24:25.440 core of what we've been fighting for throughout this entire lawsuit, 0:24:25.520 --> 0:24:28.480 right is to ensure that the optimal investment structure is 0:24:28.520 --> 0:24:31.960 there for investors and we do eliminate any premiums or discounts. 0:24:32.520 --> 0:24:34.720 Michael, have you heard anything from the SEC over the 0:24:34.720 --> 0:24:37.920 past twenty four hours, any updated communications or questions. 0:24:38.359 --> 0:24:41.520 We have not heard anything from the SEC. Only just 0:24:41.520 --> 0:24:45.960 from public reporting. We've seen certainly that the SEC is 0:24:46.040 --> 0:24:48.560 reviewing the decision much the same way. My team and 0:24:48.640 --> 0:24:51.480 my legal team is reviewing the decision as well, and 0:24:51.520 --> 0:24:53.520 again it is our intention to continue to have a 0:24:53.560 --> 0:24:56.920 proactive and constructive dialogue with the SEC during this forty 0:24:56.920 --> 0:24:57.719 five day period. 0:24:59.400 --> 0:25:04.480 I guess the question becomes, why here versus if crypto 0:25:04.520 --> 0:25:07.640 and bitcoin is going to become a hotter topic overseas, right, 0:25:08.280 --> 0:25:10.840 why launch here? Why not go somewhere else and launch. 0:25:10.760 --> 0:25:13.520 Well, this is the center of the financial markets and 0:25:13.640 --> 0:25:14.840 capital formation. 0:25:14.560 --> 0:25:16.840 But clearly the US government does not like crypto. 0:25:17.200 --> 0:25:20.959 Well, you know, from my standpoint, Greyscale now coming up 0:25:20.960 --> 0:25:25.440 on ten years of operational history, you know, we purposely 0:25:25.480 --> 0:25:28.120 decided to set up shop in the US, make use 0:25:28.160 --> 0:25:31.439 of existing rules and regulations, and it's our intention to 0:25:31.480 --> 0:25:34.879 continue to do so right enabling investors to access this 0:25:34.960 --> 0:25:38.520 innovative asset class, but in a way that feels traditional, familiar, 0:25:38.560 --> 0:25:41.720 and again within those regulatory you know, constraints to say 0:25:41.760 --> 0:25:42.760 that they're often used to. 0:25:43.160 --> 0:25:46.280 We were talking about the potential to either refile or amend. 0:25:46.280 --> 0:25:48.919 We were talking about the SEC's frustrations with crypto and 0:25:48.960 --> 0:25:51.400 fight against a lot of the parts of the crypto industry. 0:25:51.920 --> 0:25:55.160 Are you specifically addressing some of the SEC's concerns when 0:25:55.200 --> 0:25:58.399 it comes to their concerns around market manipulation, investor protection 0:25:58.480 --> 0:26:02.080 around retail investors, and are there any changes that need 0:26:02.119 --> 0:26:06.480 to be made before you head into a new relationship 0:26:06.480 --> 0:26:06.800 with them. 0:26:07.119 --> 0:26:09.440 Well, I think we always have and will continue to 0:26:09.480 --> 0:26:12.639 serve in a capacity that's educational with the SEC. This 0:26:12.680 --> 0:26:15.240 is an asset class that continues to evolve very rapidly, 0:26:15.280 --> 0:26:18.320 and we feel a tremendous responsibility to be serving in 0:26:18.359 --> 0:26:23.000 that capacity. Specifically though Shanali to manipulation, fraud, things of 0:26:23.040 --> 0:26:25.720 that nature. If you look closely at yesterday's opinion that 0:26:25.760 --> 0:26:28.360 the court issued, the court agreed with us that the 0:26:28.400 --> 0:26:31.879 SEC did not come up with substantive reasoning as to 0:26:31.920 --> 0:26:35.040 how to explain the difference between futures and spot and 0:26:35.080 --> 0:26:37.680 the fact that these mechanisms that we believe are already 0:26:37.720 --> 0:26:40.480 in place to detect things like fraud and manipulation in 0:26:40.520 --> 0:26:42.439 the bitcoin market are already present. 0:26:43.800 --> 0:26:46.679 Michael, you mentioned earlier in this conversation that you had 0:26:46.720 --> 0:26:49.480 some hope that Congress would take action when it comes 0:26:49.480 --> 0:26:50.040 to regulation. 0:26:50.119 --> 0:26:50.920 Perhaps there's more. 0:26:50.840 --> 0:26:54.240 Appetite for them to approve and to welcome such products. 0:26:54.320 --> 0:26:56.119 You said you haven't heard from the SEC. Have you 0:26:56.240 --> 0:26:58.920 heard from Congress? What sort of noise are you hearing 0:26:59.000 --> 0:26:59.960 around Capitol Hill? 0:27:00.400 --> 0:27:03.399 So we are certainly very engaged with both sides of 0:27:03.440 --> 0:27:06.680 the aisle in DC. There is no question now that 0:27:07.040 --> 0:27:11.760 crypto has become actually a nonpartisan issue, right We're realizing 0:27:11.920 --> 0:27:16.120 that so many of our legislators recognize that their underlying 0:27:16.119 --> 0:27:19.240 constituents are involved in crypto, are increasingly going to be 0:27:19.240 --> 0:27:21.760 involved in crypto, and they want to ensure that they're 0:27:22.080 --> 0:27:27.119 approaching legislation in an appropriate way that protects their underlying constituents. 0:27:27.760 --> 0:27:31.240 I am optimistic that this upcoming you know, Congress can 0:27:31.320 --> 0:27:34.760 actually move some legislation forward. And again, I do think 0:27:34.800 --> 0:27:38.840 it's really a pivotal time for US and other stalwarts 0:27:38.880 --> 0:27:41.920 within the crypto space to be educating our politicians about 0:27:41.920 --> 0:27:45.280 crypto so that they actually are looking at legislation through 0:27:45.320 --> 0:27:47.080 a very you know, knowledgeable lens. 0:27:47.440 --> 0:27:49.040 I'm going to push you just one more time on 0:27:49.080 --> 0:27:49.880 the fees here. 0:27:49.680 --> 0:27:52.000 Michael, of course you are Sonality Well. 0:27:52.000 --> 0:27:54.520 The reason being is this is a matter of competitiveness 0:27:54.600 --> 0:27:56.560 when we come to this market. It is also going 0:27:56.640 --> 0:27:59.120 to determine how much retail investors are going to really 0:27:59.160 --> 0:28:01.680 pay a product that has been more expensive than other 0:28:01.680 --> 0:28:04.159 ETFs in the past. Give us a roadmap here on 0:28:04.200 --> 0:28:06.200 how you're thinking about it, because you've had years to 0:28:06.240 --> 0:28:06.800 think about it. 0:28:07.560 --> 0:28:11.399 We have, and when GBTC converts to an ETF, we 0:28:11.520 --> 0:28:14.520 will lower the fee. You said that it's been more 0:28:14.560 --> 0:28:18.800 expensive than other ETFs. Notably, GBTC is not an ETF today, right, 0:28:18.880 --> 0:28:21.720 And so when GBTC converts to an ETF and it 0:28:21.760 --> 0:28:24.800 becomes in that product structure, and it perhaps is in 0:28:24.840 --> 0:28:27.880 an environment with other competing products, there will be other 0:28:27.920 --> 0:28:30.040 factors for us to consider there as well. 0:28:30.080 --> 0:28:30.240 Right. 0:28:30.320 --> 0:28:33.360 That was Grey Scale CEO Michael Sinstein, sitting down with 0:28:33.440 --> 0:28:37.639 our own Donnie Berger, Shanalie Bassic, and Alex Steele here 0:28:37.680 --> 0:28:40.640 at Bloomberg's HQ after the court. US Court ruled in 0:28:40.720 --> 0:28:44.040 favor of the Digital Currency Asset Manager. And let's get 0:28:44.080 --> 0:28:46.240 some more color on this because it is being held 0:28:46.240 --> 0:28:49.640 as a very important day in the world of crypto. 0:28:49.680 --> 0:28:52.680 Here James Seffert, he does his stuff for Living ETF 0:28:52.760 --> 0:28:56.880 research channels at Bloomberg Intelligence. James summarize for our listeners 0:28:56.880 --> 0:29:00.280 and our viewers here what the court ruled yesterday and 0:29:00.280 --> 0:29:04.320 why it's important to our good friends in the crypto space. 0:29:05.800 --> 0:29:09.080 Yeah, so Sunshine just did a good did a pretty 0:29:09.080 --> 0:29:11.800 good job of explaining what happened there. But at the 0:29:11.880 --> 0:29:13.480 end of the day, it was a complete and utter 0:29:13.520 --> 0:29:16.720 rebuke of all of the SEC's arguments for denying spot 0:29:16.720 --> 0:29:20.360 bitcoin ETFs in the past. Now specifically it was it 0:29:20.400 --> 0:29:24.040 was in favor of Gray Scales arguments. Basically, they went 0:29:24.120 --> 0:29:26.400 and they filed this lawsuit against the SEC and the 0:29:26.440 --> 0:29:29.600 DC Court of Appeals, and they were saying that this 0:29:29.720 --> 0:29:32.080 is a violation of the Administrative Procedures Act, which, to 0:29:32.120 --> 0:29:34.640 get wonky, just means you have to treat like situations alike. 0:29:34.920 --> 0:29:37.720 Regulator can't like look at one thing that's extremely similar 0:29:37.920 --> 0:29:40.000 and come up with a different answer. And what this 0:29:40.160 --> 0:29:44.480 ruling said is bitcoin futures ETFs are not substantially different 0:29:44.480 --> 0:29:47.440 from spot bitcoin etf which anyone who's been in financial 0:29:47.480 --> 0:29:50.600 markets knows that like futures markets are completely intertwined with 0:29:50.600 --> 0:29:51.760 the underlying spot. 0:29:51.480 --> 0:29:52.960 Markets of whatever they track. 0:29:53.000 --> 0:29:56.880 There's a ninety nine point nine percent correlation here. Basically, 0:29:56.920 --> 0:30:00.760 what the judges in this instant said is the SEC 0:30:00.800 --> 0:30:03.360 did not do any a good job at all of 0:30:03.520 --> 0:30:07.440 arguing why they approved futures ETFs and still denied spot 0:30:07.480 --> 0:30:08.400 bitcoin ETFs. 0:30:08.720 --> 0:30:11.320 So really, it doesn't mean that grey Scales Bitcoin trust 0:30:11.360 --> 0:30:13.760 would immediately be converting to an ETF. It's like you said, 0:30:13.800 --> 0:30:16.200 it means that the SEC did fail to explain why 0:30:16.240 --> 0:30:20.160 it approved bitcoin futures exchange treated products, but just not 0:30:20.360 --> 0:30:24.120 grace scals proposed products. So what does that mean next? 0:30:25.240 --> 0:30:28.480 Yeah, so, I mean it's a complicated question because one 0:30:28.720 --> 0:30:30.200 don't we don't fully know what it means. 0:30:30.200 --> 0:30:30.440 Next. 0:30:30.440 --> 0:30:32.480 I've read a bunch of these court case, these court 0:30:32.520 --> 0:30:34.840 decisions and opinions in the past to kind of understand, 0:30:35.000 --> 0:30:38.680 and in many cases the court will give like some 0:30:38.720 --> 0:30:41.280 sort of deadline before X y Z happens or they 0:30:41.280 --> 0:30:42.920 need to do this and what have you. 0:30:42.960 --> 0:30:45.760 And they kind of didn't do that here. So they 0:30:45.760 --> 0:30:46.440 have forty. 0:30:46.160 --> 0:30:49.040 Five days to The SEC has forty five days to 0:30:49.080 --> 0:30:51.640 go with an unbond hearing, which basically just means this 0:30:51.720 --> 0:30:54.320 is a panel of three judges decided this case and 0:30:54.400 --> 0:30:56.560 on bonk hearing you request to get one of those 0:30:56.600 --> 0:30:58.360 would be like with all the judges on the case, 0:30:58.520 --> 0:31:00.200 the on the court in this case, I think it's 0:31:00.200 --> 0:31:02.840 like seventeen judges. So basically rather than just three would 0:31:02.840 --> 0:31:06.080 be seventeen. But this was unanimous decision, right, So three 0:31:06.200 --> 0:31:09.680 judges all agreed and the language was very strong, rebuking 0:31:09.720 --> 0:31:10.280 everything that. 0:31:10.240 --> 0:31:11.120 The SEC said. 0:31:11.200 --> 0:31:13.920 So what next is I'm not really sure? Right, So 0:31:13.960 --> 0:31:16.240 the SEC they basically what they did is they vacated 0:31:16.280 --> 0:31:20.840 the SEC's order denying Greyscale's application to convert GBDC into 0:31:20.840 --> 0:31:23.920 an ETF. This isn't an approval letter that GBDC can 0:31:23.960 --> 0:31:26.560 now be an ETF. It's just your reasoning and your 0:31:26.640 --> 0:31:28.800 why you denied. This just isn't good enough, and you 0:31:28.840 --> 0:31:30.959 didn't do at all what you were supposed to do 0:31:31.520 --> 0:31:34.960 in issuing this order. So what comes next is basically 0:31:34.960 --> 0:31:37.160 trying to figure out what's the SEC gonna do. Are 0:31:37.160 --> 0:31:39.400 they going to come back and issue another denial order 0:31:39.440 --> 0:31:42.600 and basically say like come up with different reasons, or 0:31:42.640 --> 0:31:44.440 are they just going to come back and approve it. 0:31:44.680 --> 0:31:46.080 We also don't have timelines. 0:31:46.160 --> 0:31:47.840 Is the is Greyscale going to have to just go 0:31:47.920 --> 0:31:49.960 through this whole two hundred and forty day process again 0:31:50.000 --> 0:31:52.400 and refile. Is there going to be some other forty 0:31:52.400 --> 0:31:54.640 five sixty day deadline where the SEC is going to 0:31:54.680 --> 0:31:57.360 review this and then issue a statement we really don't know. 0:31:58.520 --> 0:32:02.120 Explain to me at least why and ETF on spot 0:32:02.680 --> 0:32:06.640 bitcoin is better than one that's based or based on futures. 0:32:07.160 --> 0:32:08.360 Why suspect works better? 0:32:09.320 --> 0:32:12.440 Yeah, so Spot Bitcoin, Spot ETFs in general are just 0:32:12.520 --> 0:32:15.240 the Holy Grail, right, I mean, the etf rapper It's 0:32:15.600 --> 0:32:18.640 technologies makes everything very easy. You can look at gold 0:32:18.640 --> 0:32:21.680 ETFs as a perfect example. But the reason that Spot 0:32:21.720 --> 0:32:24.080 is better is because in futures contracts, one. 0:32:24.000 --> 0:32:24.880 They're derivatives. 0:32:25.040 --> 0:32:27.760 So a lot of people don't like understand exactly what 0:32:27.800 --> 0:32:31.000 futures contracts are. And futures contracts they expire every month, 0:32:31.040 --> 0:32:33.160 so you need to roll these contracts. So basically what 0:32:33.200 --> 0:32:35.440 you're doing is you're buying this thing. Say you buy 0:32:35.560 --> 0:32:38.440 the September contract, then at the end of September you 0:32:38.440 --> 0:32:40.560 have to sell that contract and buy the October contract. 0:32:40.560 --> 0:32:41.960 And it's called rolling your futures. 0:32:42.360 --> 0:32:45.240 And if the futures market is in contango, which basically 0:32:45.320 --> 0:32:47.720 means if when you're selling your ETF if it goes 0:32:47.760 --> 0:32:49.680 from if when you're selling your futures, if you have 0:32:49.720 --> 0:32:52.040 to sell that that September futures contract and when you 0:32:52.040 --> 0:32:55.680 buy October the October contract is more expensive. You're losing 0:32:55.680 --> 0:32:57.920 out at a cost because you're selling, you're selling low 0:32:57.960 --> 0:33:00.960 and buying high, So there's additional call and constantly rolling 0:33:01.000 --> 0:33:03.280 these futures. Now those costs can go in reverse. But 0:33:03.320 --> 0:33:05.240 all it really means is it's not necessarily going to 0:33:05.320 --> 0:33:07.960 track the exact price of spot bitcoin over a really 0:33:08.000 --> 0:33:11.120 long term period. So over short term, for traders who 0:33:11.160 --> 0:33:13.840 want a couple days exposure, maybe even a couple weeks exposure, 0:33:13.960 --> 0:33:16.560 these futures ETFs are very good at giving exposure to bitcoin. 0:33:16.640 --> 0:33:18.239 But for buy and hold investors who want to hold 0:33:18.280 --> 0:33:20.280 this for a long term, or hold this for years, 0:33:20.320 --> 0:33:23.280 or what have you, like, the spot market is just 0:33:23.280 --> 0:33:26.000 so much better. And this is exemplified in twenty twenty three. 0:33:26.080 --> 0:33:29.400 So right now, futures ets like biddoh, the largest one 0:33:29.400 --> 0:33:32.160 in the US, is trailing spot bitcoin by eight percent 0:33:32.240 --> 0:33:32.840 this year. 0:33:33.360 --> 0:33:34.640 Going back to twenty twenty one. 0:33:34.720 --> 0:33:38.360 If before spop, before bitcoin futures ETFs were even approved, 0:33:38.680 --> 0:33:41.080 I mean those numbers go up to fifty sixty percent 0:33:41.200 --> 0:33:43.480 over a one year time period. Now, the future's market 0:33:43.480 --> 0:33:45.760 has gotten more efficient and that's unlikely to happen again. 0:33:45.800 --> 0:33:47.680 But you're still, like I said, the other date, you're 0:33:47.720 --> 0:33:50.160 trailing spot by eight percent, which that's a cost. 0:33:50.240 --> 0:33:51.560 That's a big cost that. 0:33:51.720 --> 0:33:54.560 You're taking on if you're investing in these bitcoin futures ets. 0:33:54.680 --> 0:33:56.680 We only have about a minute left, but the SEC 0:33:56.920 --> 0:33:59.600 is set to issue initial orders Friday on at least 0:33:59.640 --> 0:34:05.400 six spockcoin, spit bitcoin ETF applications. What are you expecting 0:34:05.440 --> 0:34:05.920 to happen? 0:34:06.920 --> 0:34:08.919 Yeah, so we actually just published a note this morning 0:34:09.040 --> 0:34:13.040 talking about this case and those applications. My base case 0:34:13.080 --> 0:34:14.480 is that those are going to be delayed. So the 0:34:14.480 --> 0:34:16.759 way this process works is there's a whole bunch of 0:34:16.840 --> 0:34:20.239 deadlines forty five days, forty five days, ninety days, sixty days, 0:34:20.239 --> 0:34:22.480 and until the last one they can just choose to 0:34:22.560 --> 0:34:24.400 delay rather than approve or deny. When they get to 0:34:24.440 --> 0:34:26.120 the last one, you have to approve, he deny. All 0:34:26.160 --> 0:34:30.280 these deadlines coming up on Friday, they can opt to delay, 0:34:30.320 --> 0:34:32.560 and it's very easy to do. I just think the SEC, 0:34:32.960 --> 0:34:34.640 I mean, it's not out of the complete realm of 0:34:34.640 --> 0:34:36.879 possibility that they just go ahead and approve these things. 0:34:36.920 --> 0:34:40.400 It might be a nice little pushback against gray Scale 0:34:40.719 --> 0:34:43.000 for winning this court case, but theoretically grey Scale would 0:34:43.000 --> 0:34:45.480 then be able to launch GBDC as an ETF very 0:34:45.520 --> 0:34:48.759 quickly after, but we're expecting delay on those orders. So 0:34:49.040 --> 0:34:51.359 we don't expect anything because the SEC is likely trying 0:34:51.400 --> 0:34:53.040 to get things in order. As Sun and Shine said 0:34:53.040 --> 0:34:55.160 in his interview, they haven't heard anything from the SEC. 0:34:55.200 --> 0:34:57.040 There's been a public statement that they are viewing the 0:34:57.080 --> 0:35:00.200 opinion from the DC circuit. So I think the the 0:35:00.280 --> 0:35:02.200 SEC is basically just getting their ducks in a row 0:35:02.239 --> 0:35:05.440 and they're just gonna basically punt on this connect to deadline, 0:35:05.560 --> 0:35:08.160 which is what they've done historically with these deadlines. 0:35:08.239 --> 0:35:10.840 All right, James, excellent stuff. As always, you kind of 0:35:10.920 --> 0:35:13.640 laid it out there, force a big, big day for 0:35:13.719 --> 0:35:17.759 the crypto space. James c for ETF Research analyst for 0:35:17.840 --> 0:35:21.600 Bloomberg Intelligence. Down there in our Princeton campus. 0:35:22.600 --> 0:35:26.040 You're listening to the team. Ken's are live program Bloomberg 0:35:26.080 --> 0:35:29.440 Markets weekdays at ten am Eastern on Bloomberg dot com, 0:35:29.520 --> 0:35:32.680 the iHeartRadio app and the Bloomberg Business app, or listen 0:35:32.719 --> 0:35:35.000 on demand wherever you get your podcasts. 0:35:36.520 --> 0:35:38.480 Let's talk about these markets. Let's do it for with 0:35:38.520 --> 0:35:40.960 someone who does this stuff for a living, Ron Sanchez. 0:35:40.960 --> 0:35:44.399 He's EVP and CIO at Fiduciary Trust inter National joining 0:35:44.440 --> 0:35:46.600 us live in our Bloomberg Interactive Brokers studio. Thanks for 0:35:46.640 --> 0:35:49.680 making it and run. What do you make of this market? Again, 0:35:49.760 --> 0:35:53.480 some folks on the street Scockprone City says some people 0:35:53.520 --> 0:35:55.440 may be playing catch up for the remainder of the 0:35:55.520 --> 0:35:57.280 year and that might push markets a little bit higher. 0:35:57.800 --> 0:35:59.680 How are you guys thinking about these markets? 0:36:00.120 --> 0:36:04.759 So, markets have been tricky this year, and I think 0:36:04.760 --> 0:36:07.839 there has been some catch up. Our view has been 0:36:07.920 --> 0:36:10.440 the entire year is that we do believe in the 0:36:10.480 --> 0:36:13.400 soft landing. I think those that have been looking for 0:36:13.440 --> 0:36:14.960 a recession have. 0:36:15.000 --> 0:36:17.200 Been will continue to wait. 0:36:18.040 --> 0:36:21.719 One has not materialized in our expectations, is one will 0:36:21.800 --> 0:36:25.160 not for the balance of the year into twenty four. 0:36:25.560 --> 0:36:28.840 So we think from a market perspective, we saw a 0:36:28.880 --> 0:36:31.759 lot of people jump into this market embrace the soft 0:36:31.840 --> 0:36:36.879 landing in July and again market returns for the year 0:36:36.920 --> 0:36:40.600 to date have been obviously quite surprising and quite favorable. 0:36:40.600 --> 0:36:43.759 But I do think they reflect a well entrenched or 0:36:43.800 --> 0:36:46.480 embedded soft landing that is now consensus. 0:36:46.640 --> 0:36:49.200 So how do you advise clients to position in this 0:36:49.280 --> 0:36:50.320 type of environment? 0:36:51.480 --> 0:36:54.080 So, again, after the sort of the market return here, 0:36:54.120 --> 0:36:57.160 it gets a little tricky, And as I said earlier, 0:36:57.200 --> 0:36:59.920 I do believe that our expectations are that it's a 0:37:00.080 --> 0:37:02.600 soft landing, and I think that is in price, and 0:37:02.680 --> 0:37:06.400 so I think from an expectation standpoint, you want to 0:37:06.440 --> 0:37:08.759 sort of be patient here. I do expect sort of 0:37:08.840 --> 0:37:09.839 choppy markets. 0:37:09.600 --> 0:37:10.360 Or range bound. 0:37:10.800 --> 0:37:13.960 I think that range bound not only relates to the 0:37:14.040 --> 0:37:16.520 S and P five hundred, but also fixed income as well. 0:37:17.239 --> 0:37:20.080 And I think we're looking at sort of an incremental 0:37:20.440 --> 0:37:21.480 return profile for. 0:37:21.440 --> 0:37:23.680 The balance of the year, but we should hold our. 0:37:23.560 --> 0:37:28.239 Gains and so again sort of a reasonably neutral view. 0:37:28.360 --> 0:37:31.160 Are your clients typically more longer term investors? 0:37:31.320 --> 0:37:33.319 They are indeed really long time so. 0:37:33.360 --> 0:37:34.560 Right, so you're not going to be making changes. 0:37:34.719 --> 0:37:37.200 We would not be a sort of uber tactical here 0:37:37.280 --> 0:37:41.520 and sort of outguess ourselves. Markets are reasonably priced here, 0:37:41.719 --> 0:37:46.279 and again, in the absence of a sharp contraction and 0:37:46.360 --> 0:37:48.600 economic activity, we would stay invested. 0:37:48.840 --> 0:37:50.960 So where are you in terms of your allocation? I 0:37:51.000 --> 0:37:53.080 don't know the equities fixing coming, I know what else 0:37:53.120 --> 0:37:55.280 you throw in our alternatives? Kind of where's your allocation today? 0:37:55.440 --> 0:37:59.040 Maybe how's that different from normal times or other times? 0:38:00.040 --> 0:38:03.960 So from a global perspective, we are neutral the US 0:38:04.000 --> 0:38:08.120 and underweight international. Again, I think from sort of the 0:38:08.239 --> 0:38:11.280 US is the outlier here with the strongest growth pattern 0:38:11.600 --> 0:38:15.200 by far. There are challenges, as we all know, in 0:38:15.440 --> 0:38:19.759 in emerging markets as specifically the largest one in China 0:38:20.440 --> 0:38:23.520 and Europe is going to be sort of challenged as well. 0:38:23.520 --> 0:38:26.000 They've had a great return profile sort of in earlier 0:38:26.040 --> 0:38:29.200 in the year here, but our expectations that's pretty slow 0:38:29.239 --> 0:38:32.600 growth in that government. So again we're neutral US slide 0:38:32.640 --> 0:38:36.839 underweight outside of the US, and within fixed income we 0:38:36.920 --> 0:38:40.680 are neutral and with sort of an eye towards some 0:38:41.080 --> 0:38:45.520 finding fixed income here reasonably attractive and looking to potentially 0:38:45.840 --> 0:38:46.600 extend duration. 0:38:46.760 --> 0:38:48.319 Well, so, okay, so I can go to the two 0:38:48.360 --> 0:38:49.880 year and a couple of days aore, I get at 0:38:49.920 --> 0:38:52.120 five percent in a two year treasury, Why don't you 0:38:52.239 --> 0:38:54.920 just go there and then go head out to the beach. 0:38:54.840 --> 0:38:55.719 Or money market funds? 0:38:55.800 --> 0:38:56.520 Right, money market for. 0:38:56.760 --> 0:39:00.600 Yeah, So that is one of the most interesting sort 0:39:00.600 --> 0:39:04.719 of dynamics for a strategist with clients saying, boy, for 0:39:04.760 --> 0:39:07.719 the first time, cash is king. I can get north 0:39:07.760 --> 0:39:10.520 of five percent on a two year note or a 0:39:10.560 --> 0:39:14.720 money market. But again from an equity standpoint, the SMP 0:39:14.960 --> 0:39:19.080 is up double digit returns and so need to be 0:39:19.120 --> 0:39:23.200 real careful about the allure of cash. It's nice to 0:39:23.239 --> 0:39:25.480 have reserves, it's nice to be in the front end 0:39:25.480 --> 0:39:28.320 of the curve. But again, at some point in time, 0:39:29.080 --> 0:39:32.960 as the economy does moderate here into twenty four, the 0:39:33.040 --> 0:39:36.799 return profile for sort of that short intermediate, meaning a 0:39:36.840 --> 0:39:39.080 four and five year is going to be more appealing 0:39:39.120 --> 0:39:41.680 from a total rate return standpoint. But right now five 0:39:41.800 --> 0:39:44.640 is certainly doesn't hurt. 0:39:44.800 --> 0:39:46.600 What do you think the catalyst would be to move 0:39:46.640 --> 0:39:49.920 that money from say money market funds back into stocks. 0:39:50.719 --> 0:39:52.120 So I think you saw a little bit of that 0:39:52.640 --> 0:39:55.680 in July. Again, the allure of a risk free rate 0:39:55.719 --> 0:39:58.479 of five, I think has pulled a lot of money 0:39:58.520 --> 0:40:04.000 to the sidelines, and I think sort of the sort 0:40:04.000 --> 0:40:06.440 of the soft landing has pulled people in. Those that 0:40:06.480 --> 0:40:10.520 have been forecasting a recession have sort of come in. 0:40:10.600 --> 0:40:12.880 I think that really was the the pop in July. 0:40:13.560 --> 0:40:16.239 But there's plenty of dry powder here, and that's why 0:40:16.280 --> 0:40:18.640 I think it's sort of difficult to become a sort 0:40:18.680 --> 0:40:22.000 of bearish in this environment, both for fixed income and equity. 0:40:22.120 --> 0:40:25.120 You said you were neutral on the US for equities correct, 0:40:25.360 --> 0:40:28.040 so what takes you to move it even higher? For 0:40:28.120 --> 0:40:28.879 another reading on. 0:40:28.880 --> 0:40:32.160 That, So valuations are are definitely on the upper end. 0:40:32.520 --> 0:40:36.359 The risk premia has compressed as equity markets have come 0:40:36.400 --> 0:40:39.000 down a little bit, and fixed income has has gone 0:40:39.000 --> 0:40:41.080 to four and a quarter on a ten year The 0:40:41.160 --> 0:40:44.680 compensation for equity is not overly compelling. 0:40:44.280 --> 0:40:45.600 From a historical standpoint. 0:40:45.960 --> 0:40:48.400 I think for us to be a little more confident 0:40:48.440 --> 0:40:51.759 about the return profile going forward is a little more 0:40:51.760 --> 0:40:57.439 confidence that the economy is in a soft landing more 0:40:57.440 --> 0:41:01.720 definitively and or high conviction, and that earnings are bottoming, 0:41:01.760 --> 0:41:05.239 so more of the micro Once earnings have bottomed, I 0:41:05.280 --> 0:41:06.000 think we'll look. 0:41:05.840 --> 0:41:06.760 A little more favorably. 0:41:07.000 --> 0:41:09.880 I'm looking at the Bloomberg Index browser, I n go 0:41:10.080 --> 0:41:12.880 on the Bloomberg terminal and boy in the US corporate 0:41:12.920 --> 0:41:15.600 hygyield space total return year to data six point eight 0:41:15.680 --> 0:41:18.680 percent doesn't seem like the hy old markets too concerned 0:41:18.680 --> 0:41:20.800 about a recession. How do you guys think about the 0:41:20.840 --> 0:41:21.520 hygyield space? 0:41:21.680 --> 0:41:25.040 So I think the hyold has been very, very compelling. 0:41:25.080 --> 0:41:26.800 Here for the first time in a number of years, 0:41:27.040 --> 0:41:29.600 you're still north of eight Three or four months ago, 0:41:29.719 --> 0:41:33.200 you were closer to a nine. And if you believe 0:41:33.239 --> 0:41:36.640 in the soft landing and that there wouldn't be real 0:41:36.680 --> 0:41:40.600 pressure on credits here, that is a great carry trade 0:41:41.120 --> 0:41:43.040 and I think it still does. And the total turn 0:41:43.160 --> 0:41:47.080 numbers are pretty impressive. But again from evaluation standpoint, you're 0:41:47.120 --> 0:41:50.880 talking about spreads inside of four hundred. So again, I 0:41:50.920 --> 0:41:54.480 think the soft landing is priced into a number of markets, 0:41:54.760 --> 0:41:56.840 but the income generation of eight and eight and a 0:41:56.880 --> 0:41:59.160 quarter is reasonably appealing. 0:41:59.400 --> 0:42:03.360 It's interesting because Gina Martin Adams at Bloomberg Intelligence, she 0:42:03.440 --> 0:42:05.799 takes a close look at when you're looking at S 0:42:05.840 --> 0:42:08.560 and P five hundred EPs growth but on a year 0:42:08.600 --> 0:42:10.799 of a year basis, but excluding energy, if you look 0:42:10.800 --> 0:42:13.600 at the most recent quarter, it actually was marginally higher, 0:42:13.840 --> 0:42:16.759 and then we see that growth back to return even 0:42:16.840 --> 0:42:20.080 close to double digits toward the end of this year 0:42:20.080 --> 0:42:22.240 in the fourth quarter. And I know you were saying 0:42:22.280 --> 0:42:24.880 you're waiting for earnings to bottom. Do you think that 0:42:24.960 --> 0:42:28.200 when you're looking at energy, is it masking some of 0:42:28.320 --> 0:42:30.920 the benefits that we're seeing in other industries as we 0:42:30.960 --> 0:42:34.200 see that sector particularly weakend obviously with that correlation with 0:42:34.239 --> 0:42:36.920 what we're seeing with inflation abbing and commodity prices. 0:42:37.120 --> 0:42:39.600 That's fair, and I do think we're probably in the 0:42:39.600 --> 0:42:43.880 process of troughing here and energy has sort of depressed 0:42:44.360 --> 0:42:47.680 the overall earnings. But the economy has been above trend 0:42:48.239 --> 0:42:50.680 for the last twelve months, and I do think it 0:42:50.719 --> 0:42:54.319 is going to be is going to moderate as we 0:42:54.360 --> 0:42:57.120 go into year end. So there is a slowing of 0:42:57.160 --> 0:43:01.520 economic activity from an elevated level. I do think that 0:43:01.520 --> 0:43:04.279 that evolves over the over the next two quarters where 0:43:04.320 --> 0:43:05.400 we sort of bottom on the. 0:43:05.440 --> 0:43:09.360 End right the once we see the repayments resumed for 0:43:09.480 --> 0:43:12.560 federal student loans, I know that the interest just started occurring, 0:43:12.600 --> 0:43:15.000 but those payments begin again in October. How much does 0:43:15.040 --> 0:43:18.120 that fit into the consumer spending dynamic as far as 0:43:18.160 --> 0:43:19.160 potentially weighing on that. 0:43:19.280 --> 0:43:22.640 So I do think that consumer spending most likely has peaked, 0:43:23.120 --> 0:43:25.600 and that we're our view is that we're starting to 0:43:25.640 --> 0:43:27.359 see normalization it again. 0:43:27.400 --> 0:43:29.560 It has above I think a couple of things. One, 0:43:30.080 --> 0:43:30.560 as you know. 0:43:30.560 --> 0:43:34.080 Excess savings has been very high, Labor markets have been strong, 0:43:34.320 --> 0:43:38.840 wage gains have been solid, and there has been a 0:43:38.880 --> 0:43:41.359 lot of pent up demands, especially for services coming out 0:43:41.400 --> 0:43:44.480 of the pandemic they called revenge travel and I think 0:43:44.600 --> 0:43:47.880 most of that has will remain solid but has been 0:43:47.920 --> 0:43:50.719 above and is going to moderate and we're looking at 0:43:51.120 --> 0:43:54.080 sort of those dynamics returning to sort of twenty nineteen 0:43:54.160 --> 0:43:56.200 or what we would refer to as normalized levels. 0:43:56.719 --> 0:43:59.040 What are you guys penciling in over futiary of trust 0:43:59.120 --> 0:44:00.480 about our federal What. 0:44:00.400 --> 0:44:00.960 Are they going to do? 0:44:01.000 --> 0:44:02.759 Are they done or are they going to keep? Are they 0:44:02.760 --> 0:44:03.759 going to hike one more time? 0:44:04.120 --> 0:44:06.480 I think they're done. And so markets, as you know, 0:44:06.560 --> 0:44:11.120 are sort of a coin toss. They're definitely pausing next 0:44:11.120 --> 0:44:14.759 month in September, and obviously November is live and sort 0:44:14.800 --> 0:44:17.799 of data dependent, but markets have it at a fifty 0:44:17.800 --> 0:44:19.239 to fifty I would take the under. 0:44:19.080 --> 0:44:21.600 What's the top question you actually hear from clients right 0:44:21.640 --> 0:44:23.439 now more? 0:44:23.520 --> 0:44:25.480 But the one that you referred to earlier. 0:44:25.480 --> 0:44:28.200 This is a confusing market and a risk free rate 0:44:28.239 --> 0:44:28.880 of five percent? 0:44:29.120 --> 0:44:32.040 Why would I? Why would I do anything? And again, 0:44:32.160 --> 0:44:33.160 sort of the near. 0:44:33.040 --> 0:44:37.440 Term appeal versus long term opportunity is always It's always 0:44:37.440 --> 0:44:40.680 the guidance and there's a persistent negativity. I guess the 0:44:40.680 --> 0:44:42.799 biggest question of the last six months to a year 0:44:43.360 --> 0:44:45.360 is the perpetual recession question. 0:44:45.440 --> 0:44:46.480 When, when, when when? 0:44:47.280 --> 0:44:50.239 And again we had a pushback pretty hard that we 0:44:50.280 --> 0:44:53.080 didn't see it as a twenty three development and we don't. 0:44:52.960 --> 0:44:56.560 See it in you CFC function. You don't see that obviously, 0:44:56.560 --> 0:44:58.680 not on an annual basis, but even on a quarterly basis. 0:44:58.719 --> 0:45:00.000 Either it's no longer there. 0:45:00.160 --> 0:45:02.760 Yeah, it's been the I guess most widely telegraph recession 0:45:02.800 --> 0:45:05.239 that has yet to occur. Hey, Ron, thanks for coming in. 0:45:05.320 --> 0:45:08.040 Really appreciate it. Ron Sanchez. He is the EVP and 0:45:08.160 --> 0:45:11.640 CIO at Fiduciary Trust Company International. 0:45:12.040 --> 0:45:15.160 You're listening to the tape Cat's are Live program Bloomberg 0:45:15.239 --> 0:45:18.840 Markets weekdays at ten am Eastern on Bloomberg Radio, the 0:45:18.880 --> 0:45:22.120 tune in app, Bloomberg dot Com, and the Bloomberg Business App. 0:45:22.160 --> 0:45:24.960 You can also listen live on Amazon Alexa from our 0:45:25.000 --> 0:45:29.359 flagship New York station, Just say Alexa, play Bloomberg eleven. 0:45:29.080 --> 0:45:33.320 Thirty, Jess Menton Paul Sweeney live here in our Bloomberg 0:45:33.400 --> 0:45:36.880 Interactive Brokers studio. Let's get a little techy here, little wonky. 0:45:36.920 --> 0:45:39.200 Maybe we'll talk a little VR. And that's a virtual 0:45:39.239 --> 0:45:41.520 reality for those like John Tucker that may not be 0:45:41.600 --> 0:45:43.359 up on all that type of stuff. We might talk 0:45:43.400 --> 0:45:45.200 a little metaverse, and if we're not careful, we might 0:45:45.200 --> 0:45:47.160 even throw them a little AI and we can do 0:45:47.239 --> 0:45:49.359 all of this with Dan and Brian. He's president of 0:45:49.520 --> 0:45:53.880 the Americas and general manager for HTC. Hey, Dan, first, 0:45:53.920 --> 0:45:56.200 just give us give us an overview kind of what 0:45:56.239 --> 0:45:58.360 you guys do at HTC. 0:46:00.080 --> 0:46:00.239 One. 0:46:00.280 --> 0:46:03.160 Thanks for having me on. I really appreciate it, Paul 0:46:03.239 --> 0:46:06.920 and Jess, and it's great to be here. What HCC 0:46:07.080 --> 0:46:11.040 does is we are a technology company that focuses on 0:46:11.080 --> 0:46:13.320 a lot of different areas of innovation. You know, a 0:46:13.360 --> 0:46:15.600 lot of people know this for smartphones for many years. 0:46:16.960 --> 0:46:20.760 We now have over the last several years index towards 0:46:20.920 --> 0:46:24.040 virtual reality or extended reality, and we make products that 0:46:24.840 --> 0:46:28.520 create solutions for content creators to create content for the metaverse. 0:46:29.400 --> 0:46:32.920 We have also innovated and created solutions where you can 0:46:32.960 --> 0:46:37.239 actually stream content for the metaverse over say a five 0:46:37.280 --> 0:46:41.719 G network. And then we also create these headsets or 0:46:41.719 --> 0:46:45.560 wearables that you can interact with this data and this 0:46:45.719 --> 0:46:49.120 content in a very immersive way. So we are a 0:46:49.320 --> 0:46:54.080 you know, a holistic data, technology and innovation company that 0:46:54.120 --> 0:46:56.480 delivers all these different types of solutions for end users. 0:46:56.920 --> 0:46:59.960 Your firm did conduct a survey recently about how va 0:47:00.000 --> 0:47:03.880 our headsets are being used, particularly in healthcare and social 0:47:03.960 --> 0:47:07.879 assistance organizations. What did you find, You know. 0:47:07.880 --> 0:47:12.680 We found that over ninety percent of healthcare workers and 0:47:12.719 --> 0:47:16.279 healthcare providers expect to be using this technology in the 0:47:16.320 --> 0:47:21.959 future for training or for therapeutics. And so it really 0:47:22.000 --> 0:47:25.480 shows a resounding, you know, endorsement of hey, this is 0:47:25.719 --> 0:47:29.240 very effective. We know that can help with our healthcare 0:47:29.280 --> 0:47:32.600 professionals and training them. We can do reduce training costs, 0:47:33.239 --> 0:47:37.120 we can improve the actual training value. We can actually 0:47:37.239 --> 0:47:42.520 get better outcomes for our patients with better therapeutics and performance. 0:47:42.640 --> 0:47:45.160 So overall it becomes like a cost savings and an 0:47:45.160 --> 0:47:47.520 efficiency and a performance improvement in healthcare. 0:47:48.080 --> 0:47:50.480 So, Dan, one of the things you mentioned the met metaverse, 0:47:50.520 --> 0:47:54.920 and I don't think there is a concise definition of 0:47:54.960 --> 0:47:59.640 the metaverse, certainly not among shareholders of Meta formerly known 0:47:59.640 --> 0:48:01.080 as Fai Spoke, and that was a problem for the 0:48:01.080 --> 0:48:05.080 stock last year. To you, what is the metaverse. 0:48:05.560 --> 0:48:07.480 Well, it's really an extension of what we already do 0:48:07.560 --> 0:48:13.359 today in our internet today. It's really encompassing how you 0:48:13.400 --> 0:48:16.319 interact with the data. Think of yourself now as being 0:48:16.360 --> 0:48:18.880 able to as if you're wearing a wearable you know, 0:48:18.880 --> 0:48:20.960 it might be glasses, it might be VR glasses, it 0:48:21.040 --> 0:48:25.400 might be AR augmented reality glasses. You're simply interacting first 0:48:25.440 --> 0:48:28.680 party with that data and content. I gave an example 0:48:29.120 --> 0:48:33.160 a demo last year where we did a training for 0:48:33.280 --> 0:48:37.040 a knee operation and we had people that were on iPhones, iPads, 0:48:37.800 --> 0:48:41.440 a magical lea augmented reality glasses headset, a VR headset, 0:48:41.920 --> 0:48:46.040 and Android phones and we were all in this one 0:48:46.080 --> 0:48:50.080 space together doing this training together. But some people got 0:48:50.080 --> 0:48:52.760 to be in the space actually hands on doing the training, 0:48:53.080 --> 0:48:56.000 while other people were more of an observer. So the 0:48:56.040 --> 0:48:59.160 metaverse really becomes down to this very immersive, you know, 0:49:00.040 --> 0:49:03.360 vironment where you can interact, but it's not going to 0:49:03.400 --> 0:49:05.960 dismiss all the things that we use today in our 0:49:06.000 --> 0:49:07.000 everyday life. 0:49:08.000 --> 0:49:11.640 Whatever I hear metaverse, clearly, I think of Facebook, Parent 0:49:11.719 --> 0:49:14.640 Meta along with Apple, that are going along and spending 0:49:14.640 --> 0:49:17.680 a lot of money in this particular corner of the market. 0:49:17.760 --> 0:49:20.160 Where do you see this headed for these companies people 0:49:20.160 --> 0:49:23.319 are trying to kind of buy for different rivalship here 0:49:23.360 --> 0:49:25.080 As far as where it's headed and still a lot 0:49:25.080 --> 0:49:26.480 of uncertainty. 0:49:26.960 --> 0:49:29.080 Well, I think, you know, we're all approaching it at 0:49:29.080 --> 0:49:32.480 different angles. You know, Apple coming in, it's a great endorsement. 0:49:32.840 --> 0:49:36.719 They have great privacy policies, great data security policies that 0:49:36.800 --> 0:49:40.239 some of the other competitors do not have. We share 0:49:40.280 --> 0:49:44.600 those values as well, and that we protect our users data. 0:49:44.960 --> 0:49:49.520 We don't use that data to monetize it. So for us, 0:49:49.680 --> 0:49:52.280 you know, we're bringing solutions and value to the market 0:49:52.880 --> 0:49:56.600 to actually reduce costs, bring up efficiencies, bring in human 0:49:56.640 --> 0:50:00.080 performance improvements with training and things of that nature. Well 0:50:00.760 --> 0:50:04.400 clearly showing like how expensive this technology really is and 0:50:04.440 --> 0:50:07.319 if you're going to enter the market and not lose 0:50:07.360 --> 0:50:09.880 money on hardware, this is how much it really costs. 0:50:10.239 --> 0:50:12.520 So now you've got to see like a company like HCC, 0:50:12.719 --> 0:50:15.040 we come in right in the middle. People are getting 0:50:15.080 --> 0:50:19.040 great innovation for the price and the value. Meta they're 0:50:19.080 --> 0:50:22.680 really using a console you know model where they're subsidizing 0:50:22.719 --> 0:50:26.200 that hardware significantly and losing billions of dollars in order 0:50:26.239 --> 0:50:29.680 to you know, maintain that market share. But understand like 0:50:29.840 --> 0:50:31.960 that is all out of fear based, you know kind 0:50:32.040 --> 0:50:35.719 of management, and that they are very vulnerable in their 0:50:35.719 --> 0:50:38.799 current model to Apple and to you know, Google, an 0:50:38.800 --> 0:50:41.719 Android on the smartphone business to their revenue model, and 0:50:41.719 --> 0:50:45.200 they're trying to I think, you know, make themselves agnostic 0:50:45.480 --> 0:50:48.920 or you know, bolster against that vulnerability against those platforms 0:50:48.960 --> 0:50:52.200 and have more of a their own position. And so 0:50:52.320 --> 0:50:53.920 I think they're trying to buy their way out of 0:50:53.960 --> 0:50:55.359 that problem. 0:50:55.560 --> 0:50:55.759 Dan. 0:50:55.960 --> 0:50:57.960 When you think ahead over the next several years and 0:50:58.040 --> 0:51:02.359 you think about the VR business, the wearables business, how 0:51:02.400 --> 0:51:05.880 do you kind of think about it in a consumer 0:51:06.000 --> 0:51:09.359 use versus maybe business slash, you know, corporate use. 0:51:10.400 --> 0:51:12.400 Well, I think that you know, on the consumer side, 0:51:12.440 --> 0:51:14.520 you know, Meta is kind of settling the market at 0:51:14.520 --> 0:51:18.080 this very unnatural price point that doesn't really exist. And 0:51:18.120 --> 0:51:20.440 if you look at it, you know, the smartphone, comparing 0:51:20.440 --> 0:51:22.600 it to the early days of smartphone, you had probably 0:51:22.600 --> 0:51:26.400 about twelve to fifteen brands and companies you know, fighting, 0:51:26.560 --> 0:51:28.640 you know, in the market to grow the market, making 0:51:28.680 --> 0:51:33.440 a very healthy economy for you know, competition and supply 0:51:33.560 --> 0:51:37.919 chain and suppliers, which drove prices down. On the consumer side, 0:51:37.920 --> 0:51:42.960 it's really being strangled by that pricing tactic. So you're 0:51:43.000 --> 0:51:45.520 not seeing the competition come in because the other major 0:51:45.520 --> 0:51:47.400 players don't want to come in and lose their shirt 0:51:48.760 --> 0:51:51.840 on the enterprise and professional side, you can actually bring 0:51:51.880 --> 0:51:54.960 this technology for what it actually costs, and you can 0:51:55.000 --> 0:51:58.480 bring your companies and your partners and these types of 0:51:58.480 --> 0:52:02.479 customers massive value. Really see the savings right away within 0:52:02.560 --> 0:52:08.000 that year in terms of performance, higher retention rates with 0:52:08.080 --> 0:52:11.960 your training, more engagement, and if you have a diversified 0:52:12.120 --> 0:52:14.920 employee set that's spread out all over the world or 0:52:14.960 --> 0:52:17.919 all over the country, you can keep them connected right 0:52:17.960 --> 0:52:21.839 in these metaverse spaces. So this week I'm at the 0:52:21.920 --> 0:52:27.200 Industrial Immersive Conference down here in Houston, and companies like Exonmobile, 0:52:28.200 --> 0:52:32.880 Duke Energy, they've been using this technology since twenty sixteen, 0:52:33.000 --> 0:52:35.840 and they're now looking at all the different ways that 0:52:35.880 --> 0:52:39.520 they can be using this technology to improve site plans, 0:52:39.560 --> 0:52:43.840 site designs, working with their engineers in the field, and 0:52:43.880 --> 0:52:47.480 being able to actually see what they're working on, deconstructing 0:52:48.000 --> 0:52:51.040 existing platforms that are many, many years old that nobody 0:52:51.040 --> 0:52:53.440 knows how to work on anymore. So in terms of 0:52:53.640 --> 0:52:57.120 you know, growth and enterprise use and major corporations and 0:52:57.160 --> 0:52:59.920 brands being able to use it, we're seeing it grow 0:53:00.280 --> 0:53:02.440 very aggrastively on the enterprise side. 0:53:02.800 --> 0:53:05.359 Hey, Dan, really fascinating discussion. Thanks so much for joining 0:53:05.440 --> 0:53:08.759 us Dan O'Brien. He is the president of America's and 0:53:08.800 --> 0:53:12.240 a general manager for HTC, talking about the VR space, 0:53:12.320 --> 0:53:16.520 the wearable space, and then ultimately, presumably the metaverse. 0:53:18.120 --> 0:53:21.239 Thanks for listening to the Bloomberg Markets podcasts. You can 0:53:21.280 --> 0:53:25.040 subscribe and listen to interviews at Apple Podcasts or whatever 0:53:25.120 --> 0:53:28.840 podcast platform you prefer. I'm Matt Miller. I'm on Twitter 0:53:29.040 --> 0:53:31.160 at Matt Miller nineteen seventy three. 0:53:31.440 --> 0:53:34.200 And I'm fall Sweeney. I'm on Twitter at Ptsweeney. Before 0:53:34.239 --> 0:53:37.040 the podcast. You can always catch us worldwide at Bloomberg 0:53:37.120 --> 0:53:38.359 Radio