Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside
Speaker 1: my co host Matt Miller.
Speaker 2: Every business day we bring you interviews from CEOs, market pros,
Speaker 2: and Bloomberg experts, along with essential market moving news.
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Speaker 1: I want to get to our next guest, Jennifer Lee.
Speaker 1: She's a senior economist managing director at BIMO Capital Markets. Jennifer,
Speaker 1: lots of economic data this week, and likely we'll have
Speaker 1: you know an effect on what we hear from our
Speaker 1: photo reserve in the coming months. What are you looking
Speaker 1: at this week in terms of the eco data?
Speaker 3: Good morning everyone, Thanks for having me on. Sorry I'm
Speaker 3: still laughing about the bike to nowhere. That's how I
Speaker 3: feel sometimes with so for this this week, I think
Speaker 3: all the key numbers are coming out tomorrow, although this
Speaker 3: morning is a reports on GDP was a little bit
Speaker 3: kind of interesting. Even though we saw that downward revision,
Speaker 3: it was all due to inventories and net trade, but
Speaker 3: I noticed that the consumer spending portion was still a
Speaker 3: little bit, just a smidge higher, which is kind of interesting,
Speaker 3: but tomorrow's PC numbers, so it will be will be
Speaker 3: definitely the key because it's going to show you how
Speaker 3: Q three is beginning.
Speaker 4: So that's interesting too because this is a revision to
Speaker 4: that and you are seeing consumer spending revised higher there
Speaker 4: and those expectations. When I look at the ECFC function
Speaker 4: in the Bloomberg terminal that takes sort of the estimates
Speaker 4: for the average what economists are expecting, you don't see
Speaker 4: even a quarterly contraction anymore coming up for the next
Speaker 4: few quarters. So when you do have so many economists
Speaker 4: expecting that potentially we could see a recession in the
Speaker 4: next few quarters, how do you square that away? When
Speaker 4: you have data like this, it's being revised to the upside,
Speaker 4: so we are well.
Speaker 3: Actually, it was interesting because when you look at the components,
Speaker 3: it was all durables that actually was revised lower, but
Speaker 3: again it was upward divisions to services and that's where
Speaker 3: all the demand has been. But we actually have a
Speaker 3: contraction for the first quarter. I had to look at
Speaker 3: my in my notes here for the first quarter actually
Speaker 3: in around the turn of the year, because we are
Speaker 3: still looking for the for growth to slow overall We're
Speaker 3: not looking for that hard landing that many were calling for,
Speaker 3: you know, just a number of months ago. We're still
Speaker 3: looking for that soft landing. And so for all the
Speaker 3: data are putting in that direction, things are slowing, which
Speaker 3: is not a bad thing. Is what the Fed wants.
Speaker 3: This is what they really really want, and I think
Speaker 3: in terms of the consumer just to have them pulling
Speaker 3: back a little bit and eventually just taking all the
Speaker 3: spending off the table at some point in the early
Speaker 3: in the new year will help again growth slow even further,
Speaker 3: but not have that hard landing.
Speaker 1: So if there is not a hard landing here, how
Speaker 1: do you think the Federal Reserve will kind of interpret
Speaker 1: some of this data?
Speaker 5: Will they?
Speaker 1: I mean, they could very well pat themselves on the back,
Speaker 1: take a little bit of a victory lap, and just
Speaker 1: kind of stand pat for a while. Is that something
Speaker 1: you foresee or did they do? You feel like they
Speaker 1: may feel like they have more work to do in
Speaker 1: terms of pushing rates up a little bit.
Speaker 3: It's a it's all going to dependent. I mean, it
Speaker 3: sounds wishy washy, but that's you know, unfortunately, that is
Speaker 3: the case. Is everything is data dependent. I don't know
Speaker 3: they're gonna be doing victory laps. Just judging from what
Speaker 3: Fetcher Powell said last week in Wyoming, I don't think
Speaker 3: they're doing any victory lapse. You're still watching everything very carefully.
Speaker 3: He did get, by the way, give a nod to
Speaker 3: the more to the better inflation data of late, but
Speaker 3: he said it's just far too soon, and we already
Speaker 3: knew that. I mean, a couple of months of better
Speaker 3: inflation data is are definitely not enough to uh to
Speaker 3: to have them be very very comfortable. I think they
Speaker 3: need a lot more than that. But for sure, our
Speaker 3: official call is still that they are going to stay
Speaker 3: the course and keep watching the data and not do anything.
Speaker 3: And of course there is a risk. I still think
Speaker 3: that the risk is to is to raise race if
Speaker 3: things do not cool or or cool more than they
Speaker 3: want or less than they want. You know, I'm trying
Speaker 3: to say, of course, all the latest jobs data have
Speaker 3: been very interesting as well. With the ADP this morning,
Speaker 3: I don't take too much stock in it because it's
Speaker 3: sometimes quite locky compared to what the official data say.
Speaker 3: But you know, overall we have seen that slowly in
Speaker 3: growth in job growth, in job demanded, lower job openings,
Speaker 3: though there are fewer job openings out there, still far
Speaker 3: more than the number of unput Americans out there, So
Speaker 3: it's still tight, but at least we're all heading in
Speaker 3: that right direction.
Speaker 4: We talk so much about whether or not we'll see
Speaker 4: the Fed potentially raise at least one more time here,
Speaker 4: but what about just how long that they keep rates
Speaker 4: at an elevated level there, and how long are you
Speaker 4: expecting that to potentially happen.
Speaker 3: So we are looking officially for the first rate cut
Speaker 3: to come probably sometime in the mid middle of twenty
Speaker 3: twenty four, mid year, so another year from now. We've
Speaker 3: actually been pushing that out a little bit more just
Speaker 3: because the data have shown that the US economy is
Speaker 3: a lot more resilient than anyone I would have hoped
Speaker 3: for at this point we're expected so if anything, they're
Speaker 3: going to keep rates for higher for longer.
Speaker 5: So a lot.
Speaker 3: So I don't think again, we're not going to see
Speaker 3: another rate cut or a rate cut coming until at
Speaker 3: the earliest middle of next year.
Speaker 1: We're going to get obviously, on Friday, the change in
Speaker 1: non form payrolls consensus it is for a gain of
Speaker 1: one hundred and seventy thousand. That would be down from
Speaker 1: prior period of one hundred and eighty seven thousand.
Speaker 5: But.
Speaker 1: Unemployment rate kind of sticking around three and a half percent.
Speaker 1: Where do you think that unemployment rate goes I have
Speaker 1: no idea how this labor economy is working. We got
Speaker 1: the jolt s Nummer come down yesterday. But where do
Speaker 1: you think the unemployment rate ultimately goes higher?
Speaker 3: If you have to pick a direction, it will be higher,
Speaker 3: but not too much higher. Probably something in the in
Speaker 3: the mid four I believe we have This is all
Speaker 3: to be expected at some point, like when you have
Speaker 3: over five hundred basis points of rate hikes coming from
Speaker 3: the Federal Reserve in such a short amount of time.
Speaker 3: At some point, you know, again, we're already seeing that
Speaker 3: job growth slowing. The demand for jobs are also starting
Speaker 3: to wane a little bit, So we're going to start
Speaker 3: seeing that unemployment rate inch a little bit higher, but
Speaker 3: it's not going to be ratcheting higher. And at the
Speaker 3: same time, they're still demand out there for certain categories
Speaker 3: of workers. Maybe not you know, on a broader scale,
Speaker 3: but certain areas like construction, we're still lacking even on
Speaker 3: the technology side. You know, I hearing stories about you know,
Speaker 3: shortage of engineers, for example, and not enough even though
Speaker 3: we've got all this money coming in on the fiscal
Speaker 3: side to build all these facilities to create semiconductors, we
Speaker 3: don't have enough people who are trained to build for
Speaker 3: that certain particular technologies. So certain pockets are still going
Speaker 3: to be a lot more demand. But broadly speaking, just
Speaker 3: because of slower growth, because of higher interest rates, we're
Speaker 3: going to start seeing that jobles rate into a little
Speaker 3: bit higher.
Speaker 4: Well across this pond. We do have the ECB having
Speaker 4: a meeting on September fourteenth, that is ahead of the
Speaker 4: Federal Reserves decision on September twentieth, but we are going
Speaker 4: to get some Eurozone inflation numbers on Thursday. How do
Speaker 4: you square away the issues when it comes to the
Speaker 4: inflation that Christine Leguard is clearly trying to fight and
Speaker 4: indicated that at Jackson Hole last week, versus what fetchair
Speaker 4: Jerome pal is trying to do in the United States.
Speaker 3: It's funny they're mentioning the ECB, because I for the ECB,
Speaker 3: it's almost like a coin toss right now. If anything,
Speaker 3: I would right now our official review, my official view
Speaker 3: is still that they're going to stay the course, just
Speaker 3: given that inflation has come down from those highs, given
Speaker 3: that all the hawks or most of the hawks have
Speaker 3: started to tone down their hawkishness, and the fact that
Speaker 3: China is slowing considerably as well. So I think that
Speaker 3: might be enough to put the lot of the ECB
Speaker 3: to sort of step aside a little bit. And she
Speaker 3: sort of hinted at that at that July meeting. However,
Speaker 3: the flat fact that inflation is still sticky. We got
Speaker 3: three new pieces of data overnight. Belgium, for example, it
Speaker 3: was like all over the map, Belgium CPI was relatively steady.
Speaker 3: German CPI edged a little bit lower, which is key,
Speaker 3: but it's just it wasn't as low as consensus had expected.
Speaker 3: And in Spain inflation rose for the second month in
Speaker 3: a row. So it's going to show that. I don't
Speaker 3: think we're going to go in to get a very
Speaker 3: clear signal from tomorrow's inflation report, and I think that
Speaker 3: will be put the ECB still at play for September.
Speaker 1: Well, most importantly, how are things in Canada.
Speaker 3: Things are slowing. It is actually slowing a little bit
Speaker 3: more than we had a little bit more actually than
Speaker 3: what's happening in the US. We're going to get some
Speaker 3: key data this week. On Friday, we're going to get
Speaker 3: our We're going to Foly going to release our real
Speaker 3: GDP for the second quarter, and we're looking for growth
Speaker 3: to slow to about a one point two percent a wicepace,
Speaker 3: which is about half of what we saw in Q one.
Speaker 3: We had a strong start to the year that we've
Speaker 3: been doing, dealing with a lot of wildfires almost see
Speaker 3: the coast to coast, labor strikes and all that's going
Speaker 3: to weigh on the second court. Of course, higher interest
Speaker 3: rates and consumers here are a lot more susceptible I
Speaker 3: guess two rates than they are in the US, So
Speaker 3: I think we are going to see slower growth. It's
Speaker 3: just something by the way, that the Bag of Canada
Speaker 3: is going to very much welcome because inflation is still
Speaker 3: too sticky. So as long as inflation or the economy
Speaker 3: continues to slow, which we're expecting in the second quarter,
Speaker 3: that will allow the Bag of Canada to stay also
Speaker 3: on hold for the rest of the year.
Speaker 1: Hi, Jennifer, thanks so much. We appreciate getting the global view,
Speaker 1: including our good friends to Northern Canada. Jennifer Lee, Senior
Speaker 1: Economists and Managing director at BMO Capital Markets, that is
Speaker 1: Bank of Montreal.
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Speaker 7: All.
Speaker 4: We did get a few different data points on the
Speaker 4: housing side today, so we were just talking about earlier
Speaker 4: the pending home sales unexpectedly rising for a second month,
Speaker 4: but also we did see that mortgage applications also rose
Speaker 4: in the latest week. So I want to get straight
Speaker 4: to our next guest, Odetta Cushy, Deputy chief Economists at
Speaker 4: First American, who's joining us on zoom to discuss the
Speaker 4: latest data in the housing market. Thanks so much for
Speaker 4: joining us. Walk us through these latest data points and
Speaker 4: what this really tells us about the housing market at
Speaker 4: this point, because we do know that mortgage rates are
Speaker 4: at about a two decade high at this point, that's right.
Speaker 8: So the recent increase in pending home sales, this is
Speaker 8: a second month in a row that there's been a
Speaker 8: modest increase in pending home sales, which is a leading
Speaker 8: indicator of a future sales. That's really a testament to
Speaker 8: the strength of the demand side of the equation. There's
Speaker 8: still quite a bit of pent up demand for homes,
Speaker 8: but insufficient supply to meet that demand. So some cautious
Speaker 8: optimism in the latest numbers. We saw this morning a
Speaker 8: weekly increase in purchase mortgage applications, although again a very
Speaker 8: modest increase on a year over year basis. We're still
Speaker 8: quite low both for mortgage applications and pending home sales.
Speaker 8: But you really see the strength of demand even in
Speaker 8: such a high interest rate environment and such a low
Speaker 8: inventory environment.
Speaker 4: What is the catalyst because typically the springtime is more
Speaker 4: of the boom there when you do see that when
Speaker 4: it comes to home sales, but this is a little
Speaker 4: bit later than that. Why is that, Well, the.
Speaker 8: Pent up demand there's been a lot of multiple offer situations,
Speaker 8: and so you know, the folks that are losing out
Speaker 8: on those multiple offer situations are on the sidelines, ready
Speaker 8: to jump in when there is sort of a house
Speaker 8: out there that meets their needs and what they're looking for.
Speaker 8: And so maybe a little break from seasonality there.
Speaker 1: So odetta is I'm going at the bank rate thirty
Speaker 1: year fixed mortgage seven point five three percent. Is there
Speaker 1: a level where that needs to decline, where that might
Speaker 1: free up sellers to maybe say, all right, I can
Speaker 1: in fact part with my lower rate mortgage and maybe
Speaker 1: put my home on the market. Is there a break
Speaker 1: given number out there that you think might be the
Speaker 1: magic number?
Speaker 8: Well, that's the big question right now. More than ninety
Speaker 8: percent of existing homeowners are locked into rates below six percent,
Speaker 8: So certainly we need to see something below seven percent
Speaker 8: to even see some movement there. There's not a lot
Speaker 8: of financial incentive for existing home owners to drop those
Speaker 8: record low mortgage rates that they locked into at this point.
Speaker 8: So I think, you know, well under seven percent, probably
Speaker 8: below six percent to unlock some of that inventory.
Speaker 4: We did see July opending sales rise the most in
Speaker 4: the West and also actually increase in the South, but
Speaker 4: probably not surprisingly, they did fall in the Northeast. What
Speaker 4: kind of dynamics are you seeing from a regional perspective
Speaker 4: at this point?
Speaker 8: So the West is that's your traditionally more expensive markets,
Speaker 8: and those are all the markets where we've seen the
Speaker 8: most severe price declines from the peak, and so in
Speaker 8: a higher mortgage rate environment, something needs to give, and
Speaker 8: in this instance it has to be price. So the
Speaker 8: areas where we're seeing price adjust to the reality of
Speaker 8: higher mortgage rates, they're seeing a little bit more activity.
Speaker 8: So in this instance, it would be the West Coast,
Speaker 8: those traditionally more expensive markets.
Speaker 1: So if there really aren't a lot of existing home
Speaker 1: sales in the market or available on the market, are
Speaker 1: are the builders making up any of that kind of
Speaker 1: shortfall by just building more houses new houses?
Speaker 8: That's right, builders are picking up market share. Traditionally, existing
Speaker 8: home inventory makes up about ninety percent of total inventory.
Speaker 8: These days it's more like seventy, so builders have really
Speaker 8: stepped up to build more homes. They're also offering incentives
Speaker 8: rate buydowns, price declines to sort of help button entice
Speaker 8: buyers into the new home market.
Speaker 4: Which builders have been kind of setting themselves apart the
Speaker 4: most in and which ones do you think are struggling
Speaker 4: more depending on I guess which type of demographic and
Speaker 4: you're trying to cater to.
Speaker 8: It's really the bigger builders that have had a little
Speaker 8: bit more power to be able to do these rate buydowns.
Speaker 8: So I think in this market it's more advantageous to
Speaker 8: be one of the big builders rather than the small
Speaker 8: builders that maybe don't have the ability to offer some
Speaker 8: of these incentives.
Speaker 5: Oh data.
Speaker 1: One of the things that I hear from the home
Speaker 1: builders is, you know when they talk about their costs,
Speaker 1: and I don't even think about it, but that's the
Speaker 1: biggest cost. I guess it's just land and some of
Speaker 1: these markets everybody's flocking to Texas and Florida and places
Speaker 1: like that, Where do they get land and can they
Speaker 1: get it on an affordable basis.
Speaker 8: Lands it's really multiple supply side headwinds and higher costs
Speaker 8: for builders. The cost of land certainly is higher, but
Speaker 8: of course they also are are grappling with ongoing supply
Speaker 8: chain headwinds right those those aren't totally gone. And of
Speaker 8: course the price of labor has gone up. Wages in
Speaker 8: the construction industry have gone up as well, and so
Speaker 8: costs all around for builders have gone up, and that's
Speaker 8: made it very difficult for them to build at that
Speaker 8: sort of starter starter home priced here, that entry level
Speaker 8: priced here, and that's the level that we need at
Speaker 8: this point because it's a lot of first time home
Speaker 8: buyers out there that have been priced out of this
Speaker 8: market and they're looking for that starter home price here
Speaker 8: and builders just aren't able to build at that price
Speaker 8: point because of higher costs.
Speaker 4: So how do we end up fixing the inventory issue
Speaker 4: That clearly got exacerbated during the pendit pandemic, but that
Speaker 4: was already an issue even coming out of the housing crisis.
Speaker 8: There is some mitigating factors here on the existing home side.
Speaker 8: Of course, if rates fall, that will help to boost
Speaker 8: the market a bit. But we also have forty two
Speaker 8: percent of existing homeowners who don't have a mortgage on
Speaker 8: their home. They're free and clear on their home, and
Speaker 8: so those are and they're sitting on a ton of equity,
Speaker 8: and so a lot of those homeowners can sort of
Speaker 8: be a mitigating factor amidst this rate lock in period.
Speaker 8: They aren't financially disincentivized by higher mortgage rates because they
Speaker 8: don't have a mortgage, and so there's that aspect on
Speaker 8: the existing home side. On the new home side, we
Speaker 8: just need builders to continue to build more homes, and
Speaker 8: they do have quite a few challenges, whether it be
Speaker 8: regulatory challenges, and so anything that can be done to
Speaker 8: sort of ease some of those challenges for builders to
Speaker 8: allow them to build more homes where people are looking
Speaker 8: to buy.
Speaker 4: How much of a concern is it for you when
Speaker 4: they can't potentially offer some of those price points to
Speaker 4: maybe younger buyers at this point, then.
Speaker 8: We see that happening quite a bit. There's a lot
Speaker 8: of buyers that are now priced out of the existing
Speaker 8: home market, and of course the new home market is
Speaker 8: traditionally been more expensive. It's been more expensive to buy
Speaker 8: a new home rather than an existing home on average,
Speaker 8: So a lot of those buyers are still on the
Speaker 8: sidelines and waiting for rates to come down, or their
Speaker 8: looking at a lower price point home if they can
Speaker 8: find it in their work.
Speaker 4: So what if people aren't willing to move out of
Speaker 4: their house if they already locked in stay like a
Speaker 4: two percent mortgage rador? Obviously we had rates at historic
Speaker 4: loans which translated into mortgage rates. But what do you
Speaker 4: do with that dynamic if people aren't willing to move,
Speaker 4: and then obviously you would have homebuilders that need to
Speaker 4: build homes.
Speaker 8: That's exactly the issue that we're facing in today's market.
Speaker 8: Existing home sales have been so depressed mostly because you know,
Speaker 8: an existing homeowner doesn't want to let go of that home,
Speaker 8: and that's likely a dynamic that will continue to see
Speaker 8: play out in the housing market over the next several years.
Speaker 8: I don't anticipate rates to go below three percent again,
Speaker 8: and so I think that that will be constraining on
Speaker 8: the housing market for some time.
Speaker 1: All Right, So let's say I do the Mathodeta and
Speaker 1: I can afford to pay a seven handle on my mortgage.
Speaker 1: I go into a mortgage lender. Am I going to
Speaker 1: get that loan? So?
Speaker 8: Credit standards have eased a bit since earlier this year.
Speaker 8: Certainly credit availability has been generally low, but it will
Speaker 8: really depend on your borrower characteristics, right on what kind
Speaker 8: of a borrower that you are from the perspective of
Speaker 8: the lender. But they have eased a bit.
Speaker 1: I think I'm a good credit Would you loan to me?
Speaker 5: I would?
Speaker 1: Yeah, I figured I wouldn't like certain people in this room.
Speaker 1: I might not, but glad to see Adeta Cushy, thank
Speaker 1: you so much for joining us. Adeta Cushy is the
Speaker 1: deputy chief economist for First American. First American is a
Speaker 1: financial company. They provide title settlement and risk solutions for
Speaker 1: the real estate transactions, so they kind of get to
Speaker 1: see the whole space there.
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Speaker 9: The welcome now our Bloomberg TV and Radio audience. We
Speaker 9: are joined now by Michael Sunensheine, a great scale CEO
Speaker 9: and Bloomber Externally Basic also joining us as well.
Speaker 5: Michael.
Speaker 9: It's a real pleasure. This was a big day for
Speaker 9: you yesterday. What happens now? After the US Court sort
Speaker 9: of gave you some runway to be able to launch
Speaker 9: a spot bitcoin ETF? What do you do now?
Speaker 10: Yeah, so thank you so much for having me. Let's
Speaker 10: be clear about yesterday. So, yesterday was the culmination of
Speaker 10: more than a year worth of litigation. The SEC denied
Speaker 10: gbtc's conversion to an ETF. We immediately filed the lawsuit.
Speaker 10: Fourteen months later, now we finally got a decision from
Speaker 10: the DC Circuit and a panel of three judges unanimously
Speaker 10: voted and agreed with gray Scale, and that actually vacates
Speaker 10: the SEC denial order. Huge win for Gray Scale, huge
Speaker 10: win for our investors, and really the crypto and investment
Speaker 10: community is as a whole.
Speaker 11: But there's a process here to the point that you're making,
Speaker 11: and there is a chance that the SEC looks to
Speaker 11: broaden this out, potentially fight the decision, bringing this in
Speaker 11: front of a larger array of judges. And so if
Speaker 11: you're thinking about that potential ahead, do you have any
Speaker 11: concerns that the race to bring an ATF to the
Speaker 11: market will leave you behind.
Speaker 10: Well, So today is day one of a forty five
Speaker 10: day period during which the SEC has the ability to
Speaker 10: request a rehearing. Ultimately, at the end of that forty
Speaker 10: five day process, you could expect a final mandate from
Speaker 10: the court with operational next steps. Now, of course, in
Speaker 10: the interim, our attorneys are going to be working proactively
Speaker 10: with the SEC to try and make this conversion as
Speaker 10: expeditious as possible. But we really do need to ensure
Speaker 10: during this period we're adhering to the federal rules of
Speaker 10: the appellate court.
Speaker 11: Do you need to refile for an ETF and if
Speaker 11: you do need to refile or amend, are there certain
Speaker 11: things that you would add, such as a surveillance sharing agreement.
Speaker 11: Do you worry that the ones that already have one
Speaker 11: have a competitive advantage to your filing.
Speaker 10: Well, so the operational next steps on anything that Grayscale
Speaker 10: Willer won't have to do will be contained in that
Speaker 10: final mandate that comes out of the court. But one
Speaker 10: of the interesting things that we actually got from the
Speaker 10: Court in yesterday's decision was that the Court agreed with
Speaker 10: us that the arguments we've been putting forward all along
Speaker 10: throughout this process or such that the SEC already has
Speaker 10: the tools it needs to approve spot bitcoin products like GBTC,
Speaker 10: that there is sufficient surveillance between the CME where Bitcoin
Speaker 10: Future is trade in national securities exchanges like the New
Speaker 10: York Stock Exchange where we intend to list GBTC as
Speaker 10: an ETF. So there really shouldn't be any further grounds
Speaker 10: like the SEC has been relying on to continue denying
Speaker 10: these types of products from coming to market.
Speaker 12: Michael, you're very optimistic. Danny here by the way, and London,
Speaker 12: great to speak with you. It makes complete sense that
Speaker 12: you're optimistic and in a good mood. But do you
Speaker 12: have a nagging voice at the back of your head?
Speaker 12: That something might go wrong. What are you most afraid
Speaker 12: of that could kind of undo some of the progress
Speaker 12: that we saw in yesterday's decision.
Speaker 10: Well, I think we're really at a pivotal moment here
Speaker 10: for crypto. Certainly a lot of investors have been voicing
Speaker 10: to us increased optimism the recent Ripple victory, now obviously
Speaker 10: the Greyscale victory in court yesterday, as well as what
Speaker 10: they're seeing taking place in Washington. Right you now have
Speaker 10: draft legislation that's passing through Congress, and we're really optimistic
Speaker 10: that there will be greater regulatory clarity for investors through
Speaker 10: some of these types of actions. And I think if
Speaker 10: we take an even larger step back and look at
Speaker 10: the broader landscape, crypto has been one of the best
Speaker 10: performing assets year to date, and coming out of this
Speaker 10: most recent crypto winter, what we're hearing and what we're
Speaker 10: experiencing is that investors know that crypto as an asset
Speaker 10: class is most certainly here to stay.
Speaker 9: Can we just come back to refiling for a second.
Speaker 10: Sure, So, do you have to refile? We will have
Speaker 10: to see upon the final operational procedures that come through
Speaker 10: that final mandate that the court will issue.
Speaker 9: So you don't know, but you may.
Speaker 10: We don't know what the final opinion will say until
Speaker 10: we reach the end of that period, correct, is there.
Speaker 9: I've been reading us stuff from yesterday too that you know,
Speaker 9: you may have won this battle but then lose the
Speaker 9: war and that there's a bunch of other competitors now,
Speaker 9: so now you're not gonna be the only horse in town.
Speaker 10: Yes. So this is a topic we've talked about before, ladies.
Speaker 10: It's really a world in which there are multiple spot products.
Speaker 10: Is a world that Greyscale has long been ready for.
Speaker 10: There are multiple bitcoin futures products. We believe that there
Speaker 10: will be a world in which there are multiple spot
Speaker 10: bitcoin products. That being said, we want investors to have choice,
Speaker 10: and some of the things that we do think investors
Speaker 10: will look to when they are making those allocation decisions
Speaker 10: are the size of the fund, the liquidity of the fund,
Speaker 10: the track record of the fund. Right, let's not forget
Speaker 10: that GBTC is the largest bitcoin fund in the world.
Speaker 10: It's owned by millions and millions of investors, it has
Speaker 10: three plus percent of the outstanding bitcoin supply, and really
Speaker 10: now has almost a ten year track record of operational success. Right,
Speaker 10: whereas a lot of the other products coming to market
Speaker 10: are really making use of gbtc's operations, disclosures, reporting, and
Speaker 10: GBTC is really paving the way to broaden out that market.
Speaker 11: There's another massive market question here, and it's not just
Speaker 11: about the pace and time. It's about the structure and
Speaker 11: the fees. Because if you look at Blackrock Invesco Fidelity,
Speaker 11: these are asset managers with a history of coming in
Speaker 11: low and if you look at the fees that you
Speaker 11: have offered and really has made a very profitable entity
Speaker 11: for Digital Currency Group and gray Scale, how much lower
Speaker 11: exactly can fees get for the grayscale product in the
Speaker 11: form of an ETF.
Speaker 10: Well, what I've committed to historically, and we'll say again
Speaker 10: to you today, is we are committed to lowering fees
Speaker 10: when GBTC converts to an ETF. We'll obviously have to
Speaker 10: come back on and talk to you about what the
Speaker 10: fees are when that conversion actually happens.
Speaker 11: So the other strangeness here is the discount that the
Speaker 11: GBTC is currently trading at. You had gone from twenty
Speaker 11: four yesterday to fifteen below neat asset value back to
Speaker 11: twenty can you answer to this market volatility here and
Speaker 11: the uncertainty that investors are grappling with as you head
Speaker 11: towards this process.
Speaker 10: Well, there's a couple of things in that dynamic. So
Speaker 10: number one, there certainly was increased trading volume yesterday in GBTC,
Speaker 10: a lot of excitement and enthusiasm based on the victory
Speaker 10: that GBTC shareholders had in the court yesterday. Now, as
Speaker 10: we eventually approach an ETF, if you'd expect that eventually
Speaker 10: there will be an arbitrage mechanism through the ETF that
Speaker 10: will allow for any premiums or discounts to be eliminated.
Speaker 10: That's a really really important function of why ETFs serve
Speaker 10: in the capacity that they do, and it's really the
Speaker 10: core of what we've been fighting for throughout this entire lawsuit,
Speaker 10: right is to ensure that the optimal investment structure is
Speaker 10: there for investors and we do eliminate any premiums or discounts.
Speaker 12: Michael, have you heard anything from the SEC over the
Speaker 12: past twenty four hours, any updated communications or questions.
Speaker 10: We have not heard anything from the SEC. Only just
Speaker 10: from public reporting. We've seen certainly that the SEC is
Speaker 10: reviewing the decision much the same way. My team and
Speaker 10: my legal team is reviewing the decision as well, and
Speaker 10: again it is our intention to continue to have a
Speaker 10: proactive and constructive dialogue with the SEC during this forty
Speaker 10: five day period.
Speaker 9: I guess the question becomes, why here versus if crypto
Speaker 9: and bitcoin is going to become a hotter topic overseas, right,
Speaker 9: why launch here? Why not go somewhere else and launch.
Speaker 10: Well, this is the center of the financial markets and
Speaker 10: capital formation.
Speaker 9: But clearly the US government does not like crypto.
Speaker 10: Well, you know, from my standpoint, Greyscale now coming up
Speaker 10: on ten years of operational history, you know, we purposely
Speaker 10: decided to set up shop in the US, make use
Speaker 10: of existing rules and regulations, and it's our intention to
Speaker 10: continue to do so right enabling investors to access this
Speaker 10: innovative asset class, but in a way that feels traditional, familiar,
Speaker 10: and again within those regulatory you know, constraints to say
Speaker 10: that they're often used to.
Speaker 11: We were talking about the potential to either refile or amend.
Speaker 11: We were talking about the SEC's frustrations with crypto and
Speaker 11: fight against a lot of the parts of the crypto industry.
Speaker 11: Are you specifically addressing some of the SEC's concerns when
Speaker 11: it comes to their concerns around market manipulation, investor protection
Speaker 11: around retail investors, and are there any changes that need
Speaker 11: to be made before you head into a new relationship
Speaker 11: with them.
Speaker 10: Well, I think we always have and will continue to
Speaker 10: serve in a capacity that's educational with the SEC. This
Speaker 10: is an asset class that continues to evolve very rapidly,
Speaker 10: and we feel a tremendous responsibility to be serving in
Speaker 10: that capacity. Specifically though Shanali to manipulation, fraud, things of
Speaker 10: that nature. If you look closely at yesterday's opinion that
Speaker 10: the court issued, the court agreed with us that the
Speaker 10: SEC did not come up with substantive reasoning as to
Speaker 10: how to explain the difference between futures and spot and
Speaker 10: the fact that these mechanisms that we believe are already
Speaker 10: in place to detect things like fraud and manipulation in
Speaker 10: the bitcoin market are already present.
Speaker 12: Michael, you mentioned earlier in this conversation that you had
Speaker 12: some hope that Congress would take action when it comes
Speaker 12: to regulation.
Speaker 10: Perhaps there's more.
Speaker 12: Appetite for them to approve and to welcome such products.
Speaker 12: You said you haven't heard from the SEC. Have you
Speaker 12: heard from Congress? What sort of noise are you hearing
Speaker 12: around Capitol Hill?
Speaker 10: So we are certainly very engaged with both sides of
Speaker 10: the aisle in DC. There is no question now that
Speaker 10: crypto has become actually a nonpartisan issue, right We're realizing
Speaker 10: that so many of our legislators recognize that their underlying
Speaker 10: constituents are involved in crypto, are increasingly going to be
Speaker 10: involved in crypto, and they want to ensure that they're
Speaker 10: approaching legislation in an appropriate way that protects their underlying constituents.
Speaker 10: I am optimistic that this upcoming you know, Congress can
Speaker 10: actually move some legislation forward. And again, I do think
Speaker 10: it's really a pivotal time for US and other stalwarts
Speaker 10: within the crypto space to be educating our politicians about
Speaker 10: crypto so that they actually are looking at legislation through
Speaker 10: a very you know, knowledgeable lens.
Speaker 11: I'm going to push you just one more time on
Speaker 11: the fees here.
Speaker 10: Michael, of course you are Sonality Well.
Speaker 11: The reason being is this is a matter of competitiveness
Speaker 11: when we come to this market. It is also going
Speaker 11: to determine how much retail investors are going to really
Speaker 11: pay a product that has been more expensive than other
Speaker 11: ETFs in the past. Give us a roadmap here on
Speaker 11: how you're thinking about it, because you've had years to
Speaker 11: think about it.
Speaker 10: We have, and when GBTC converts to an ETF, we
Speaker 10: will lower the fee. You said that it's been more
Speaker 10: expensive than other ETFs. Notably, GBTC is not an ETF today, right,
Speaker 10: And so when GBTC converts to an ETF and it
Speaker 10: becomes in that product structure, and it perhaps is in
Speaker 10: an environment with other competing products, there will be other
Speaker 10: factors for us to consider there as well.
Speaker 6: Right.
Speaker 1: That was Grey Scale CEO Michael Sinstein, sitting down with
Speaker 1: our own Donnie Berger, Shanalie Bassic, and Alex Steele here
Speaker 1: at Bloomberg's HQ after the court. US Court ruled in
Speaker 1: favor of the Digital Currency Asset Manager. And let's get
Speaker 1: some more color on this because it is being held
Speaker 1: as a very important day in the world of crypto.
Speaker 1: Here James Seffert, he does his stuff for Living ETF
Speaker 1: research channels at Bloomberg Intelligence. James summarize for our listeners
Speaker 1: and our viewers here what the court ruled yesterday and
Speaker 1: why it's important to our good friends in the crypto space.
Speaker 7: Yeah, so Sunshine just did a good did a pretty
Speaker 7: good job of explaining what happened there. But at the
Speaker 7: end of the day, it was a complete and utter
Speaker 7: rebuke of all of the SEC's arguments for denying spot
Speaker 7: bitcoin ETFs in the past. Now specifically it was it
Speaker 7: was in favor of Gray Scales arguments. Basically, they went
Speaker 7: and they filed this lawsuit against the SEC and the
Speaker 7: DC Court of Appeals, and they were saying that this
Speaker 7: is a violation of the Administrative Procedures Act, which, to
Speaker 7: get wonky, just means you have to treat like situations alike.
Speaker 7: Regulator can't like look at one thing that's extremely similar
Speaker 7: and come up with a different answer. And what this
Speaker 7: ruling said is bitcoin futures ETFs are not substantially different
Speaker 7: from spot bitcoin etf which anyone who's been in financial
Speaker 7: markets knows that like futures markets are completely intertwined with
Speaker 7: the underlying spot.
Speaker 5: Markets of whatever they track.
Speaker 7: There's a ninety nine point nine percent correlation here. Basically,
Speaker 7: what the judges in this instant said is the SEC
Speaker 7: did not do any a good job at all of
Speaker 7: arguing why they approved futures ETFs and still denied spot
Speaker 7: bitcoin ETFs.
Speaker 4: So really, it doesn't mean that grey Scales Bitcoin trust
Speaker 4: would immediately be converting to an ETF. It's like you said,
Speaker 4: it means that the SEC did fail to explain why
Speaker 4: it approved bitcoin futures exchange treated products, but just not
Speaker 4: grace scals proposed products. So what does that mean next?
Speaker 7: Yeah, so, I mean it's a complicated question because one
Speaker 7: don't we don't fully know what it means.
Speaker 5: Next.
Speaker 7: I've read a bunch of these court case, these court
Speaker 7: decisions and opinions in the past to kind of understand,
Speaker 7: and in many cases the court will give like some
Speaker 7: sort of deadline before X y Z happens or they
Speaker 7: need to do this and what have you.
Speaker 5: And they kind of didn't do that here. So they
Speaker 5: have forty.
Speaker 7: Five days to The SEC has forty five days to
Speaker 7: go with an unbond hearing, which basically just means this
Speaker 7: is a panel of three judges decided this case and
Speaker 7: on bonk hearing you request to get one of those
Speaker 7: would be like with all the judges on the case,
Speaker 7: the on the court in this case, I think it's
Speaker 7: like seventeen judges. So basically rather than just three would
Speaker 7: be seventeen. But this was unanimous decision, right, So three
Speaker 7: judges all agreed and the language was very strong, rebuking
Speaker 7: everything that.
Speaker 5: The SEC said.
Speaker 7: So what next is I'm not really sure? Right, So
Speaker 7: the SEC they basically what they did is they vacated
Speaker 7: the SEC's order denying Greyscale's application to convert GBDC into
Speaker 7: an ETF. This isn't an approval letter that GBDC can
Speaker 7: now be an ETF. It's just your reasoning and your
Speaker 7: why you denied. This just isn't good enough, and you
Speaker 7: didn't do at all what you were supposed to do
Speaker 7: in issuing this order. So what comes next is basically
Speaker 7: trying to figure out what's the SEC gonna do. Are
Speaker 7: they going to come back and issue another denial order
Speaker 7: and basically say like come up with different reasons, or
Speaker 7: are they just going to come back and approve it.
Speaker 5: We also don't have timelines.
Speaker 7: Is the is Greyscale going to have to just go
Speaker 7: through this whole two hundred and forty day process again
Speaker 7: and refile. Is there going to be some other forty
Speaker 7: five sixty day deadline where the SEC is going to
Speaker 7: review this and then issue a statement we really don't know.
Speaker 1: Explain to me at least why and ETF on spot
Speaker 1: bitcoin is better than one that's based or based on futures.
Speaker 1: Why suspect works better?
Speaker 7: Yeah, so Spot Bitcoin, Spot ETFs in general are just
Speaker 7: the Holy Grail, right, I mean, the etf rapper It's
Speaker 7: technologies makes everything very easy. You can look at gold
Speaker 7: ETFs as a perfect example. But the reason that Spot
Speaker 7: is better is because in futures contracts, one.
Speaker 5: They're derivatives.
Speaker 7: So a lot of people don't like understand exactly what
Speaker 7: futures contracts are. And futures contracts they expire every month,
Speaker 7: so you need to roll these contracts. So basically what
Speaker 7: you're doing is you're buying this thing. Say you buy
Speaker 7: the September contract, then at the end of September you
Speaker 7: have to sell that contract and buy the October contract.
Speaker 5: And it's called rolling your futures.
Speaker 7: And if the futures market is in contango, which basically
Speaker 7: means if when you're selling your ETF if it goes
Speaker 7: from if when you're selling your futures, if you have
Speaker 7: to sell that that September futures contract and when you
Speaker 7: buy October the October contract is more expensive. You're losing
Speaker 7: out at a cost because you're selling, you're selling low
Speaker 7: and buying high, So there's additional call and constantly rolling
Speaker 7: these futures. Now those costs can go in reverse. But
Speaker 7: all it really means is it's not necessarily going to
Speaker 7: track the exact price of spot bitcoin over a really
Speaker 7: long term period. So over short term, for traders who
Speaker 7: want a couple days exposure, maybe even a couple weeks exposure,
Speaker 7: these futures ETFs are very good at giving exposure to bitcoin.
Speaker 7: But for buy and hold investors who want to hold
Speaker 7: this for a long term, or hold this for years,
Speaker 7: or what have you, like, the spot market is just
Speaker 7: so much better. And this is exemplified in twenty twenty three.
Speaker 7: So right now, futures ets like biddoh, the largest one
Speaker 7: in the US, is trailing spot bitcoin by eight percent
Speaker 7: this year.
Speaker 5: Going back to twenty twenty one.
Speaker 7: If before spop, before bitcoin futures ETFs were even approved,
Speaker 7: I mean those numbers go up to fifty sixty percent
Speaker 7: over a one year time period. Now, the future's market
Speaker 7: has gotten more efficient and that's unlikely to happen again.
Speaker 7: But you're still, like I said, the other date, you're
Speaker 7: trailing spot by eight percent, which that's a cost.
Speaker 5: That's a big cost that.
Speaker 7: You're taking on if you're investing in these bitcoin futures ets.
Speaker 4: We only have about a minute left, but the SEC
Speaker 4: is set to issue initial orders Friday on at least
Speaker 4: six spockcoin, spit bitcoin ETF applications. What are you expecting
Speaker 4: to happen?
Speaker 7: Yeah, so we actually just published a note this morning
Speaker 7: talking about this case and those applications. My base case
Speaker 7: is that those are going to be delayed. So the
Speaker 7: way this process works is there's a whole bunch of
Speaker 7: deadlines forty five days, forty five days, ninety days, sixty days,
Speaker 7: and until the last one they can just choose to
Speaker 7: delay rather than approve or deny. When they get to
Speaker 7: the last one, you have to approve, he deny. All
Speaker 7: these deadlines coming up on Friday, they can opt to delay,
Speaker 7: and it's very easy to do. I just think the SEC,
Speaker 7: I mean, it's not out of the complete realm of
Speaker 7: possibility that they just go ahead and approve these things.
Speaker 7: It might be a nice little pushback against gray Scale
Speaker 7: for winning this court case, but theoretically grey Scale would
Speaker 7: then be able to launch GBDC as an ETF very
Speaker 7: quickly after, but we're expecting delay on those orders. So
Speaker 7: we don't expect anything because the SEC is likely trying
Speaker 7: to get things in order. As Sun and Shine said
Speaker 7: in his interview, they haven't heard anything from the SEC.
Speaker 7: There's been a public statement that they are viewing the
Speaker 7: opinion from the DC circuit. So I think the the
Speaker 7: SEC is basically just getting their ducks in a row
Speaker 7: and they're just gonna basically punt on this connect to deadline,
Speaker 7: which is what they've done historically with these deadlines.
Speaker 1: All right, James, excellent stuff. As always, you kind of
Speaker 1: laid it out there, force a big, big day for
Speaker 1: the crypto space. James c for ETF Research analyst for
Speaker 1: Bloomberg Intelligence. Down there in our Princeton campus.
Speaker 6: You're listening to the team. Ken's are live program Bloomberg
Speaker 6: Markets weekdays at ten am Eastern on Bloomberg dot com,
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Speaker 6: on demand wherever you get your podcasts.
Speaker 1: Let's talk about these markets. Let's do it for with
Speaker 1: someone who does this stuff for a living, Ron Sanchez.
Speaker 1: He's EVP and CIO at Fiduciary Trust inter National joining
Speaker 1: us live in our Bloomberg Interactive Brokers studio. Thanks for
Speaker 1: making it and run. What do you make of this market? Again,
Speaker 1: some folks on the street Scockprone City says some people
Speaker 1: may be playing catch up for the remainder of the
Speaker 1: year and that might push markets a little bit higher.
Speaker 1: How are you guys thinking about these markets?
Speaker 13: So, markets have been tricky this year, and I think
Speaker 13: there has been some catch up. Our view has been
Speaker 13: the entire year is that we do believe in the
Speaker 13: soft landing. I think those that have been looking for
Speaker 13: a recession have.
Speaker 14: Been will continue to wait.
Speaker 13: One has not materialized in our expectations, is one will
Speaker 13: not for the balance of the year into twenty four.
Speaker 13: So we think from a market perspective, we saw a
Speaker 13: lot of people jump into this market embrace the soft
Speaker 13: landing in July and again market returns for the year
Speaker 13: to date have been obviously quite surprising and quite favorable.
Speaker 13: But I do think they reflect a well entrenched or
Speaker 13: embedded soft landing that is now consensus.
Speaker 4: So how do you advise clients to position in this
Speaker 4: type of environment?
Speaker 13: So, again, after the sort of the market return here,
Speaker 13: it gets a little tricky, And as I said earlier,
Speaker 13: I do believe that our expectations are that it's a
Speaker 13: soft landing, and I think that is in price, and
Speaker 13: so I think from an expectation standpoint, you want to
Speaker 13: sort of be patient here. I do expect sort of
Speaker 13: choppy markets.
Speaker 14: Or range bound.
Speaker 13: I think that range bound not only relates to the
Speaker 13: S and P five hundred, but also fixed income as well.
Speaker 13: And I think we're looking at sort of an incremental
Speaker 13: return profile for.
Speaker 14: The balance of the year, but we should hold our.
Speaker 13: Gains and so again sort of a reasonably neutral view.
Speaker 4: Are your clients typically more longer term investors?
Speaker 14: They are indeed really long time so.
Speaker 4: Right, so you're not going to be making changes.
Speaker 13: We would not be a sort of uber tactical here
Speaker 13: and sort of outguess ourselves. Markets are reasonably priced here,
Speaker 13: and again, in the absence of a sharp contraction and
Speaker 13: economic activity, we would stay invested.
Speaker 1: So where are you in terms of your allocation? I
Speaker 1: don't know the equities fixing coming, I know what else
Speaker 1: you throw in our alternatives? Kind of where's your allocation today?
Speaker 1: Maybe how's that different from normal times or other times?
Speaker 13: So from a global perspective, we are neutral the US
Speaker 13: and underweight international. Again, I think from sort of the
Speaker 13: US is the outlier here with the strongest growth pattern
Speaker 13: by far. There are challenges, as we all know, in
Speaker 13: in emerging markets as specifically the largest one in China
Speaker 13: and Europe is going to be sort of challenged as well.
Speaker 13: They've had a great return profile sort of in earlier
Speaker 13: in the year here, but our expectations that's pretty slow
Speaker 13: growth in that government. So again we're neutral US slide
Speaker 13: underweight outside of the US, and within fixed income we
Speaker 13: are neutral and with sort of an eye towards some
Speaker 13: finding fixed income here reasonably attractive and looking to potentially
Speaker 13: extend duration.
Speaker 1: Well, so, okay, so I can go to the two
Speaker 1: year and a couple of days aore, I get at
Speaker 1: five percent in a two year treasury, Why don't you
Speaker 1: just go there and then go head out to the beach.
Speaker 4: Or money market funds?
Speaker 1: Right, money market for.
Speaker 13: Yeah, So that is one of the most interesting sort
Speaker 13: of dynamics for a strategist with clients saying, boy, for
Speaker 13: the first time, cash is king. I can get north
Speaker 13: of five percent on a two year note or a
Speaker 13: money market. But again from an equity standpoint, the SMP
Speaker 13: is up double digit returns and so need to be
Speaker 13: real careful about the allure of cash. It's nice to
Speaker 13: have reserves, it's nice to be in the front end
Speaker 13: of the curve. But again, at some point in time,
Speaker 13: as the economy does moderate here into twenty four, the
Speaker 13: return profile for sort of that short intermediate, meaning a
Speaker 13: four and five year is going to be more appealing
Speaker 13: from a total rate return standpoint. But right now five
Speaker 13: is certainly doesn't hurt.
Speaker 4: What do you think the catalyst would be to move
Speaker 4: that money from say money market funds back into stocks.
Speaker 13: So I think you saw a little bit of that
Speaker 13: in July. Again, the allure of a risk free rate
Speaker 13: of five, I think has pulled a lot of money
Speaker 13: to the sidelines, and I think sort of the sort
Speaker 13: of the soft landing has pulled people in. Those that
Speaker 13: have been forecasting a recession have sort of come in.
Speaker 13: I think that really was the the pop in July.
Speaker 13: But there's plenty of dry powder here, and that's why
Speaker 13: I think it's sort of difficult to become a sort
Speaker 13: of bearish in this environment, both for fixed income and equity.
Speaker 4: You said you were neutral on the US for equities correct,
Speaker 4: so what takes you to move it even higher? For
Speaker 4: another reading on.
Speaker 13: That, So valuations are are definitely on the upper end.
Speaker 13: The risk premia has compressed as equity markets have come
Speaker 13: down a little bit, and fixed income has has gone
Speaker 13: to four and a quarter on a ten year The
Speaker 13: compensation for equity is not overly compelling.
Speaker 14: From a historical standpoint.
Speaker 13: I think for us to be a little more confident
Speaker 13: about the return profile going forward is a little more
Speaker 13: confidence that the economy is in a soft landing more
Speaker 13: definitively and or high conviction, and that earnings are bottoming,
Speaker 13: so more of the micro Once earnings have bottomed, I
Speaker 13: think we'll look.
Speaker 14: A little more favorably.
Speaker 1: I'm looking at the Bloomberg Index browser, I n go
Speaker 1: on the Bloomberg terminal and boy in the US corporate
Speaker 1: hygyield space total return year to data six point eight
Speaker 1: percent doesn't seem like the hy old markets too concerned
Speaker 1: about a recession. How do you guys think about the
Speaker 1: hygyield space?
Speaker 13: So I think the hyold has been very, very compelling.
Speaker 13: Here for the first time in a number of years,
Speaker 13: you're still north of eight Three or four months ago,
Speaker 13: you were closer to a nine. And if you believe
Speaker 13: in the soft landing and that there wouldn't be real
Speaker 13: pressure on credits here, that is a great carry trade
Speaker 13: and I think it still does. And the total turn
Speaker 13: numbers are pretty impressive. But again from evaluation standpoint, you're
Speaker 13: talking about spreads inside of four hundred. So again, I
Speaker 13: think the soft landing is priced into a number of markets,
Speaker 13: but the income generation of eight and eight and a
Speaker 13: quarter is reasonably appealing.
Speaker 4: It's interesting because Gina Martin Adams at Bloomberg Intelligence, she
Speaker 4: takes a close look at when you're looking at S
Speaker 4: and P five hundred EPs growth but on a year
Speaker 4: of a year basis, but excluding energy, if you look
Speaker 4: at the most recent quarter, it actually was marginally higher,
Speaker 4: and then we see that growth back to return even
Speaker 4: close to double digits toward the end of this year
Speaker 4: in the fourth quarter. And I know you were saying
Speaker 4: you're waiting for earnings to bottom. Do you think that
Speaker 4: when you're looking at energy, is it masking some of
Speaker 4: the benefits that we're seeing in other industries as we
Speaker 4: see that sector particularly weakend obviously with that correlation with
Speaker 4: what we're seeing with inflation abbing and commodity prices.
Speaker 13: That's fair, and I do think we're probably in the
Speaker 13: process of troughing here and energy has sort of depressed
Speaker 13: the overall earnings. But the economy has been above trend
Speaker 13: for the last twelve months, and I do think it
Speaker 13: is going to be is going to moderate as we
Speaker 13: go into year end. So there is a slowing of
Speaker 13: economic activity from an elevated level. I do think that
Speaker 13: that evolves over the over the next two quarters where
Speaker 13: we sort of bottom on the.
Speaker 4: End right the once we see the repayments resumed for
Speaker 4: federal student loans, I know that the interest just started occurring,
Speaker 4: but those payments begin again in October. How much does
Speaker 4: that fit into the consumer spending dynamic as far as
Speaker 4: potentially weighing on that.
Speaker 13: So I do think that consumer spending most likely has peaked,
Speaker 13: and that we're our view is that we're starting to
Speaker 13: see normalization it again.
Speaker 14: It has above I think a couple of things. One,
Speaker 14: as you know.
Speaker 13: Excess savings has been very high, Labor markets have been strong,
Speaker 13: wage gains have been solid, and there has been a
Speaker 13: lot of pent up demands, especially for services coming out
Speaker 13: of the pandemic they called revenge travel and I think
Speaker 13: most of that has will remain solid but has been
Speaker 13: above and is going to moderate and we're looking at
Speaker 13: sort of those dynamics returning to sort of twenty nineteen
Speaker 13: or what we would refer to as normalized levels.
Speaker 1: What are you guys penciling in over futiary of trust
Speaker 1: about our federal What.
Speaker 14: Are they going to do?
Speaker 1: Are they done or are they going to keep? Are they
Speaker 1: going to hike one more time?
Speaker 13: I think they're done. And so markets, as you know,
Speaker 13: are sort of a coin toss. They're definitely pausing next
Speaker 13: month in September, and obviously November is live and sort
Speaker 13: of data dependent, but markets have it at a fifty
Speaker 13: to fifty I would take the under.
Speaker 4: What's the top question you actually hear from clients right
Speaker 4: now more?
Speaker 14: But the one that you referred to earlier.
Speaker 13: This is a confusing market and a risk free rate
Speaker 13: of five percent?
Speaker 14: Why would I? Why would I do anything? And again,
Speaker 14: sort of the near.
Speaker 13: Term appeal versus long term opportunity is always It's always
Speaker 13: the guidance and there's a persistent negativity. I guess the
Speaker 13: biggest question of the last six months to a year
Speaker 13: is the perpetual recession question.
Speaker 14: When, when, when when?
Speaker 13: And again we had a pushback pretty hard that we
Speaker 13: didn't see it as a twenty three development and we don't.
Speaker 4: See it in you CFC function. You don't see that obviously,
Speaker 4: not on an annual basis, but even on a quarterly basis.
Speaker 4: Either it's no longer there.
Speaker 1: Yeah, it's been the I guess most widely telegraph recession
Speaker 1: that has yet to occur. Hey, Ron, thanks for coming in.
Speaker 1: Really appreciate it. Ron Sanchez. He is the EVP and
Speaker 1: CIO at Fiduciary Trust Company International.
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Speaker 1: Thirty, Jess Menton Paul Sweeney live here in our Bloomberg
Speaker 1: Interactive Brokers studio. Let's get a little techy here, little wonky.
Speaker 1: Maybe we'll talk a little VR. And that's a virtual
Speaker 1: reality for those like John Tucker that may not be
Speaker 1: up on all that type of stuff. We might talk
Speaker 1: a little metaverse, and if we're not careful, we might
Speaker 1: even throw them a little AI and we can do
Speaker 1: all of this with Dan and Brian. He's president of
Speaker 1: the Americas and general manager for HTC. Hey, Dan, first,
Speaker 1: just give us give us an overview kind of what
Speaker 1: you guys do at HTC.
Speaker 7: One.
Speaker 15: Thanks for having me on. I really appreciate it, Paul
Speaker 15: and Jess, and it's great to be here. What HCC
Speaker 15: does is we are a technology company that focuses on
Speaker 15: a lot of different areas of innovation. You know, a
Speaker 15: lot of people know this for smartphones for many years.
Speaker 15: We now have over the last several years index towards
Speaker 15: virtual reality or extended reality, and we make products that
Speaker 15: create solutions for content creators to create content for the metaverse.
Speaker 15: We have also innovated and created solutions where you can
Speaker 15: actually stream content for the metaverse over say a five
Speaker 15: G network. And then we also create these headsets or
Speaker 15: wearables that you can interact with this data and this
Speaker 15: content in a very immersive way. So we are a
Speaker 15: you know, a holistic data, technology and innovation company that
Speaker 15: delivers all these different types of solutions for end users.
Speaker 4: Your firm did conduct a survey recently about how va
Speaker 4: our headsets are being used, particularly in healthcare and social
Speaker 4: assistance organizations. What did you find, You know.
Speaker 15: We found that over ninety percent of healthcare workers and
Speaker 15: healthcare providers expect to be using this technology in the
Speaker 15: future for training or for therapeutics. And so it really
Speaker 15: shows a resounding, you know, endorsement of hey, this is
Speaker 15: very effective. We know that can help with our healthcare
Speaker 15: professionals and training them. We can do reduce training costs,
Speaker 15: we can improve the actual training value. We can actually
Speaker 15: get better outcomes for our patients with better therapeutics and performance.
Speaker 15: So overall it becomes like a cost savings and an
Speaker 15: efficiency and a performance improvement in healthcare.
Speaker 1: So, Dan, one of the things you mentioned the met metaverse,
Speaker 1: and I don't think there is a concise definition of
Speaker 1: the metaverse, certainly not among shareholders of Meta formerly known
Speaker 1: as Fai Spoke, and that was a problem for the
Speaker 1: stock last year. To you, what is the metaverse.
Speaker 15: Well, it's really an extension of what we already do
Speaker 15: today in our internet today. It's really encompassing how you
Speaker 15: interact with the data. Think of yourself now as being
Speaker 15: able to as if you're wearing a wearable you know,
Speaker 15: it might be glasses, it might be VR glasses, it
Speaker 15: might be AR augmented reality glasses. You're simply interacting first
Speaker 15: party with that data and content. I gave an example
Speaker 15: a demo last year where we did a training for
Speaker 15: a knee operation and we had people that were on iPhones, iPads,
Speaker 15: a magical lea augmented reality glasses headset, a VR headset,
Speaker 15: and Android phones and we were all in this one
Speaker 15: space together doing this training together. But some people got
Speaker 15: to be in the space actually hands on doing the training,
Speaker 15: while other people were more of an observer. So the
Speaker 15: metaverse really becomes down to this very immersive, you know,
Speaker 15: vironment where you can interact, but it's not going to
Speaker 15: dismiss all the things that we use today in our
Speaker 15: everyday life.
Speaker 4: Whatever I hear metaverse, clearly, I think of Facebook, Parent
Speaker 4: Meta along with Apple, that are going along and spending
Speaker 4: a lot of money in this particular corner of the market.
Speaker 4: Where do you see this headed for these companies people
Speaker 4: are trying to kind of buy for different rivalship here
Speaker 4: As far as where it's headed and still a lot
Speaker 4: of uncertainty.
Speaker 15: Well, I think, you know, we're all approaching it at
Speaker 15: different angles. You know, Apple coming in, it's a great endorsement.
Speaker 15: They have great privacy policies, great data security policies that
Speaker 15: some of the other competitors do not have. We share
Speaker 15: those values as well, and that we protect our users data.
Speaker 15: We don't use that data to monetize it. So for us,
Speaker 15: you know, we're bringing solutions and value to the market
Speaker 15: to actually reduce costs, bring up efficiencies, bring in human
Speaker 15: performance improvements with training and things of that nature. Well
Speaker 15: clearly showing like how expensive this technology really is and
Speaker 15: if you're going to enter the market and not lose
Speaker 15: money on hardware, this is how much it really costs.
Speaker 15: So now you've got to see like a company like HCC,
Speaker 15: we come in right in the middle. People are getting
Speaker 15: great innovation for the price and the value. Meta they're
Speaker 15: really using a console you know model where they're subsidizing
Speaker 15: that hardware significantly and losing billions of dollars in order
Speaker 15: to you know, maintain that market share. But understand like
Speaker 15: that is all out of fear based, you know kind
Speaker 15: of management, and that they are very vulnerable in their
Speaker 15: current model to Apple and to you know, Google, an
Speaker 15: Android on the smartphone business to their revenue model, and
Speaker 15: they're trying to I think, you know, make themselves agnostic
Speaker 15: or you know, bolster against that vulnerability against those platforms
Speaker 15: and have more of a their own position. And so
Speaker 15: I think they're trying to buy their way out of
Speaker 15: that problem.
Speaker 10: Dan.
Speaker 1: When you think ahead over the next several years and
Speaker 1: you think about the VR business, the wearables business, how
Speaker 1: do you kind of think about it in a consumer
Speaker 1: use versus maybe business slash, you know, corporate use.
Speaker 15: Well, I think that you know, on the consumer side,
Speaker 15: you know, Meta is kind of settling the market at
Speaker 15: this very unnatural price point that doesn't really exist. And
Speaker 15: if you look at it, you know, the smartphone, comparing
Speaker 15: it to the early days of smartphone, you had probably
Speaker 15: about twelve to fifteen brands and companies you know, fighting,
Speaker 15: you know, in the market to grow the market, making
Speaker 15: a very healthy economy for you know, competition and supply
Speaker 15: chain and suppliers, which drove prices down. On the consumer side,
Speaker 15: it's really being strangled by that pricing tactic. So you're
Speaker 15: not seeing the competition come in because the other major
Speaker 15: players don't want to come in and lose their shirt
Speaker 15: on the enterprise and professional side, you can actually bring
Speaker 15: this technology for what it actually costs, and you can
Speaker 15: bring your companies and your partners and these types of
Speaker 15: customers massive value. Really see the savings right away within
Speaker 15: that year in terms of performance, higher retention rates with
Speaker 15: your training, more engagement, and if you have a diversified
Speaker 15: employee set that's spread out all over the world or
Speaker 15: all over the country, you can keep them connected right
Speaker 15: in these metaverse spaces. So this week I'm at the
Speaker 15: Industrial Immersive Conference down here in Houston, and companies like Exonmobile,
Speaker 15: Duke Energy, they've been using this technology since twenty sixteen,
Speaker 15: and they're now looking at all the different ways that
Speaker 15: they can be using this technology to improve site plans,
Speaker 15: site designs, working with their engineers in the field, and
Speaker 15: being able to actually see what they're working on, deconstructing
Speaker 15: existing platforms that are many, many years old that nobody
Speaker 15: knows how to work on anymore. So in terms of
Speaker 15: you know, growth and enterprise use and major corporations and
Speaker 15: brands being able to use it, we're seeing it grow
Speaker 15: very aggrastively on the enterprise side.
Speaker 1: Hey, Dan, really fascinating discussion. Thanks so much for joining
Speaker 1: us Dan O'Brien. He is the president of America's and
Speaker 1: a general manager for HTC, talking about the VR space,
Speaker 1: the wearable space, and then ultimately, presumably the metaverse.
Speaker 2: Thanks for listening to the Bloomberg Markets podcasts. You can
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Speaker 2: at Matt Miller nineteen seventy three.
Speaker 1: And I'm fall Sweeney. I'm on Twitter at Ptsweeney. Before
Speaker 1: the podcast. You can always catch us worldwide at Bloomberg
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