Speaker 1: This is Bloomberg Business Week. I'm Carol Masser and I'm
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Speaker 1: YouTube search Bloomberg Global News. So it's only June, and
Speaker 1: yet what a year it's already been for bitcoin. We
Speaker 1: hit a high of what more than sixty four thousand.
Speaker 1: Just today we went back below thirty thousand, and now
Speaker 1: we're back up above that mark twenty thousand, nine hundred
Speaker 1: and four dollars. Carol, it's been in here, but who's
Speaker 1: counting but fifty below the record, So it's quite a
Speaker 1: swing in a short period of time. Volatility is the
Speaker 1: name of the game. Fortunately, we have Katie Greifeld, who's
Speaker 1: Bloomberg News cross Asset reporter, also Bloomberg Quick Take, co
Speaker 1: anchor of quick Take stock with menon Eastern Time on
Speaker 1: Bloomberg quick Takes. She's joining us now from New York City. Katie,
Speaker 1: you have a new article out. It's called Bitcoin's money
Speaker 1: printing machine breaks down as futures fall Bitcoin, it's not
Speaker 1: just about for hedge funds um buying and holding it.
Speaker 1: What's going on here, That's exactly right. So there's a
Speaker 1: lot more to crypto trading than just buying and selling
Speaker 1: these coins. And there's been that's just really reliable trade
Speaker 1: called the basis trade, and it works because if you
Speaker 1: look at the Bitcoin futures curve, those longer dated contracts
Speaker 1: they traded a premium to the shorter daily contracts and
Speaker 1: to the price of bitcoin in the spot market. So
Speaker 1: it's pretty simple if you break it down, a hedge
Speaker 1: fund or any other sort of institutional type trader, they
Speaker 1: would buy uh crypto in the spot market and then
Speaker 1: sell the longer dated future and then basically pocket the
Speaker 1: difference between those two prices. And it was basically risk
Speaker 1: free because of your counterparty is the CME group, but
Speaker 1: not a lot of counterparty risks. But that's collapsed. You've
Speaker 1: seen Bitcoin futures across the curve collapse over the last
Speaker 1: several weeks, and that's because really that built in bullishness
Speaker 1: that because of bitcoin scarcity, you had that nice premium
Speaker 1: out the curve that's really come down and the market
Speaker 1: kind of doesn't know where it wants to go, all
Speaker 1: right to this arbitrage. I mean, I feel like to me,
Speaker 1: it's a reminder that it's just kind of a play
Speaker 1: in the markets, or is it? You know that argument,
Speaker 1: is bitcoin, Katie, something much more substantial, and we're moving
Speaker 1: towards it becoming kind of a normal and accepted part
Speaker 1: of our financial system versus man, this is just a
Speaker 1: really cool trade. I mean, it's a great way to
Speaker 1: make money. And for traditional Wall Street players, there's so
Speaker 1: many different ways to bring sort of the traditional type
Speaker 1: of arbitrage as you would try to do to the
Speaker 1: bitcoin market, and that's what you saw here, and it's
Speaker 1: not working anymore. And this was a way to get
Speaker 1: pretty much guaranteed double digit annual games doesn't work, and
Speaker 1: so you're left to deal really with the technicals because
Speaker 1: again bitcoin, it doesn't have any fundamentals, doesn't have any
Speaker 1: cash flows, and the technicals don't look too good right
Speaker 1: now either. So, uh, it's it's hard to say where
Speaker 1: it's going to go from here, but the stakes are
Speaker 1: much higher because Carol, like you say, uh, you know,
Speaker 1: Wall Street is much more in this trade than it
Speaker 1: has been in the past few years. So what are
Speaker 1: your sources telling you, Katie about this, this kind of
Speaker 1: arbitrage being over? Obviously, nobody knows where it goes from here,
Speaker 1: but it is the idea that if it starts rising again,
Speaker 1: the retail traders will will pile in again and they'll
Speaker 1: drive that price higher. The bullishness will be back, the
Speaker 1: demand will be back. Yeah, so chatting the sources about
Speaker 1: what's going on. So it may be dead for now,
Speaker 1: but there is a hope that maybe it could come
Speaker 1: back in the weeks and months to come. What's happened here,
Speaker 1: it's partly that basically too many people found out about it.
Speaker 1: You know, it's great the first you know, the first
Speaker 1: or second or you know, hundreds of trader in a trade,
Speaker 1: but if you're you know, the ten thousand's, it's not
Speaker 1: gonna look too good. So maybe as some of the
Speaker 1: frost comes out, you know, the traders onto walking through
Speaker 1: their hopeful that this could come back, but for right now,
Speaker 1: it's it's not. It's not a great trade. Do you
Speaker 1: feel like bitcoin and crypto we can liken to anything
Speaker 1: in our financial history? You know? I think about when
Speaker 1: high yield junk bonds were kind of considered a new
Speaker 1: fangled and wonky type of financial product and now it's
Speaker 1: part of the norm, right, So is there something we
Speaker 1: can kind of liken bitcoin and crypt crypto to or not? Really?
Speaker 1: It's a great question. And there is this, uh sort
Speaker 1: of name or inside joke in the crypto community that
Speaker 1: when you do get crashes like this, people will say,
Speaker 1: I'm in it for the technology, you know, they go
Speaker 1: back to the roots. They're in it for the blockchain.
Speaker 1: Blockchain technology that will maybe revolutionize the way we pay
Speaker 1: for things, maybe it'll revolutionize the banking system. So you're
Speaker 1: you are seeing more of that emerged that you know,
Speaker 1: we're not. It's there's still value here, But in terms
Speaker 1: of what it reminds me of it, I mean, it's
Speaker 1: hard to say. In some ways, it just feels completely new. Yeah,
Speaker 1: she didn't say tulips, you did, and you didn't say
Speaker 1: you didn't say, you know, it wasn't like the tech
Speaker 1: rally right. I don't. I don't. Wouldn't compare it to
Speaker 1: the tech rawl. It wouldn't do it. It's new, it's new,
Speaker 1: and it does have the potential to kind of, you know,
Speaker 1: to really disrupt um our system, our financial system. And
Speaker 1: I'm still kind of intrigued by blockchain, Tim, you got
Speaker 1: I can do? I do because this all comes at
Speaker 1: a time when institutional investors have an increased interest in
Speaker 1: bitcoin and cryptocurrency, and I wonder, Katie, if what if
Speaker 1: the volatility that we've seen over the last six months
Speaker 1: makes them second? Guess, Okay, wait a second, even though
Speaker 1: our clients want us to do this, um, is this
Speaker 1: something we want to touch and we have about forty
Speaker 1: thirty seconds left. That's what I would love to know too,
Speaker 1: because it's hard to look at bitcoin right now and
Speaker 1: the volatility that we've seen and say, as a corporate treasurer,
Speaker 1: I want to put this on my balance sheet. This
Speaker 1: is a great cash alternative. So that will definitely be
Speaker 1: a thread to watch. But I'm guessing if you ask
Speaker 1: Michael Saylor, he'll say I'm okay with this, but he
Speaker 1: gets it. You had him on last week and he
Speaker 1: seem all in and you know, issuing debt or selling
Speaker 1: debt like he's using it to buy more and more bitcoin.
Speaker 1: And we know that some of those purchases, depending on
Speaker 1: when he bought them, could be a little bit underwater.
Speaker 1: Right now, micro Strategy shares down by four point two percent,
Speaker 1: but it's not coming undone, it's not going apart. Four
Speaker 1: some would say would be managable. Kitty Gray Felt, Bloomberg News,
Speaker 1: crosses at reporter Bloomberg Quick take co anchor. Thank you
Speaker 1: so much. You're listening to Bloomberg Radio. I'm bro mac journal. Yeah,
Speaker 1: but you let me drive? Oh no, no, no, no,
Speaker 1: who's going to drug honey? Please, I'll do the riding gravel.
Speaker 1: I want to drive, Just drive baby? The question dry? Yeah,
Speaker 1: this is the drive to the globe. Give me thanks,
Speaker 1: we'll drying us. Dawn on Bloomberg Radio. All right, we've
Speaker 1: got just about ten and a half minutes left in
Speaker 1: today's trading session. J Powell. We heard, he came, he got,
Speaker 1: he spoke away. Stocks are higher, thank you very much.
Speaker 1: And stocks are higher, and yields I think they even
Speaker 1: backed off a little bit. So it seems like he
Speaker 1: certainly has created some calm or kept the calm and
Speaker 1: peace in the markets. Craig Fair is investment strategist at
Speaker 1: Edward Jones. Let's see what he has to say. He's
Speaker 1: on the phone from St. Louis. Craig, we are actually
Speaker 1: coming off our highs of the session, but as J.
Speaker 1: Powell was speaking, we did see an uptick in stocks
Speaker 1: and we really did see uh, it looked like yields
Speaker 1: maybe back off just a hair there. Um. Any comments
Speaker 1: on J. Powell, Yeah, I think I think your comment
Speaker 1: he came, he spoke dr higher. I mean that could
Speaker 1: be uh, maybe the moniker for the last fifteen months,
Speaker 1: if not the last ten years. Um. I think today,
Speaker 1: in particular, we did see a notable move higher during
Speaker 1: Chairman Poles testimony. During the day, stock flatish or most
Speaker 1: of the morning. I think again, taking a bit of
Speaker 1: a breather after two whipsaw days on Friday and Monday,
Speaker 1: I think that I think the reaction today was if
Speaker 1: Friday was a everything's about the change from the fad,
Speaker 1: if Monday was okay, maybe not. I think today was
Speaker 1: just a little bit of a calming effect. As Pal
Speaker 1: reiterated the fact that the FED is not going anywhere
Speaker 1: anytime soon, he also took took care to make sure
Speaker 1: that he noted that they're going to continue to focus
Speaker 1: on the employment mandate and that they still believe inflation
Speaker 1: is transitory, and that's exactly what the market wants to
Speaker 1: hear at this point. So was the volatility at the
Speaker 1: end of last week. Was was that warranted? I think
Speaker 1: to a degree only because you know, the word we've
Speaker 1: been using to describe this environment up until last week
Speaker 1: was a bit of complacency. The market felt a little
Speaker 1: too complacent about inflation risk equities continued to climb higher
Speaker 1: seemingly every single day and shrug off all the risks.
Speaker 1: I still think that the opportunities, the tail winds far
Speaker 1: outweigh the headwinds at the stage. But I think that
Speaker 1: was just shaking a little bit of a loose fruit
Speaker 1: out of the tree, which is necessary, particularly in a
Speaker 1: bull market as strong and as steady as this one
Speaker 1: has been over the last fifteen months or so. So
Speaker 1: I think it did serve to wake the market up
Speaker 1: a little bit that the Fed isn't going to keep
Speaker 1: its foot smashed on the accelerator forever um, and probably
Speaker 1: put a little bit more attention back on the will
Speaker 1: they won't they And part every single word that every
Speaker 1: FED governor says now for the next several weeks, UM
Speaker 1: probably just restored a little bit more realism into the market,
Speaker 1: is probably the way I would I would characterize it.
Speaker 1: And let's not forget that on a historical basis, folks,
Speaker 1: look at interest rates, they are still really really low,
Speaker 1: and they're really really low at the longer end of
Speaker 1: the yeeld curve. So it's not like we're going back
Speaker 1: to the levels we saw in the seventies or when
Speaker 1: we saw you know, people paying double digit high percentage
Speaker 1: you know, teams uh, mortgage rates. I mean, we need
Speaker 1: to put things in perspective, and we do expect the
Speaker 1: economy to get back on track. Having said that, do
Speaker 1: you agree with the Fed to maybe let the economy
Speaker 1: run a little hot, especially to work off those seven
Speaker 1: million plus jobs that are now are seven million Americans
Speaker 1: that are now out of work. I generally agree insofar
Speaker 1: as I would prefer the FED to air on the
Speaker 1: side of um letting the economy on hot, versus airing
Speaker 1: on the side of undercutting the recovery too soon. And
Speaker 1: and again we could go back to the sixties and
Speaker 1: there was a there was a kind of a mantra
Speaker 1: from the FED that changed again in the nineties, where
Speaker 1: the FED was much more tolerant of inflation, rightfully so,
Speaker 1: because operation was running low as globalization was picking back up.
Speaker 1: I think that paradigm has changed for a whole host
Speaker 1: of reasons. But obviously the pandemic has shifted things around,
Speaker 1: and I think inflation is a much more real threat
Speaker 1: than it was for the past two or three decades. Um.
Speaker 1: All that being said, I think that I think the
Speaker 1: FEDS approach now to outcome based um policy as opposed
Speaker 1: to expectation based policy, is probably the right one, but
Speaker 1: it also it should be it should be noted that
Speaker 1: also certainly raises the risk that the FED makes a
Speaker 1: policy mistake or falls behind the curve. But do you
Speaker 1: think that's what's out the markets a little skinish at
Speaker 1: this stage. Well, because it's it's it's an outcome based
Speaker 1: approaches is good for the economy, right the idea of
Speaker 1: getting these people, getting seven million Americans back to work.
Speaker 1: But if the concern is inflation and that creates some
Speaker 1: hotspots throughout the economy when it comes to prices, how
Speaker 1: do markets react? I think the markets are going to
Speaker 1: react in more of a knee jerk fashion like we
Speaker 1: saw over the last couple days. Because I think you're
Speaker 1: spot on, which is the FED will now take the
Speaker 1: approach of being tolerant of higher inflation until they believe
Speaker 1: higher inflation is here to stay, and we'll only know
Speaker 1: that once it's here. And I think that's the real
Speaker 1: concern here, which is the market is taking some comfort,
Speaker 1: or has taken some comfort at least, and the fact
Speaker 1: that the Fed isn't going to um pull the turn
Speaker 1: the music off or pull off the rug prematurely. But
Speaker 1: it does introduce a different kind of tail risk, which
Speaker 1: is at the FED falls behind the curves. Maybe it's
Speaker 1: for the FEDS fell slightly behind the curve and tried
Speaker 1: to catch up pretty quickly, and it wasn't great for
Speaker 1: stocks or bonds for a very short period of time, right,
Speaker 1: I don't think, but you know, back to your earlier point,
Speaker 1: I don't think this is the seventies. And then perspective
Speaker 1: use the word perspective, which couldn't be more perfect here.
Speaker 1: Interest rates, for goodness, six tenure yields are still at
Speaker 1: one fifty um and so that's that shouldn't be lost
Speaker 1: on the market at the stage, and I think some
Speaker 1: days it is yeah, no, exactly exactly, And and we
Speaker 1: know the FED. This is something that we've heard from
Speaker 1: several FEDS I feel like over the last decade or so,
Speaker 1: is that they will adjust according to what's needed and
Speaker 1: according to what their dual mandate shows them. In the meantime,
Speaker 1: what does it mean in terms of how you invest
Speaker 1: in this market environment? We're still broadly favorable on equities,
Speaker 1: and I think in an environment we look at what
Speaker 1: we call the three legged stool fundamentals, which is when
Speaker 1: you have a growing economy, that growing economy than fosters
Speaker 1: rising corporate profits and all of that is uh is
Speaker 1: supported by accommodative monetary policy. Over history, that's been a
Speaker 1: good a good environment to be fully invested in equities.
Speaker 1: And that's exactly where we are at this stage. It
Speaker 1: doesn't mean we're not going to have these these bouts
Speaker 1: of indigestion, which I think are going to become much
Speaker 1: more frequent as we move forward. And that's the you know,
Speaker 1: we have a neutral allocation to bonds within that strategy
Speaker 1: as well, because that is going to be the portfolio insurance,
Speaker 1: so to speak. When we get those bouts of of indigestion.
Speaker 1: But you know, our view is you want to continue
Speaker 1: to uh to diversify into a kind of a risk
Speaker 1: on environment where until we see an economy that's showing
Speaker 1: cracks or until we see an environment where the fet
Speaker 1: is truly tightening. Right, we're talking at this stage so
Speaker 1: much about just being less accommodative. We will be a
Speaker 1: bit more cautious when when the when the conversation shifts
Speaker 1: to tightening, because that's probably when the economic cycle and
Speaker 1: the business cycle are going to start to uh to
Speaker 1: wear thin. But I think we're still a ways away
Speaker 1: from that. So you get more specific there when the
Speaker 1: conversation shifts to tightening, Does that mean when the Fed
Speaker 1: hikes interest rates or does it mean before that? Yeah,
Speaker 1: it means before that so far as in just like
Speaker 1: we the conversation that picked up last week, which is
Speaker 1: it's the talk about the talk of tapering, right, the
Speaker 1: is not gonna taper until much later this year, if
Speaker 1: at all this year, maybe December. UM time will tell
Speaker 1: on that the market is going to um to get
Speaker 1: a little more jittery when when the Fed starts talking
Speaker 1: about it. And last week was the market talking about
Speaker 1: the FED talking about it, and so I think exactly
Speaker 1: to your point, Uh, real restrictive policy is the actual
Speaker 1: rate hikes that are are going to come for um
Speaker 1: sometimes you know would be would be our our best bet.
Speaker 1: James Bullard mentioned maybe two that's still a ways off.
Speaker 1: The market will start to recalibrate readjust in advance of
Speaker 1: those actual rate hikes. But that's the that's the policy
Speaker 1: that actually starts to undermine echhen you use at that
Speaker 1: stage exactly and in some ways folks were saying at
Speaker 1: this least most recent FED meeting was the FED plane
Speaker 1: catch up a little bit about what we've already seen
Speaker 1: play out in the market. So watch in particular that
Speaker 1: bond market in terms of what's going on. Hey, Craig,
Speaker 1: good stuff, Craig Fair. Uh so appreciate it. Investment strategies
Speaker 1: at every Jones on the phone from St. Louis. Thanks
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