Speaker 1: Strap on your parachute. It's time for What Goes Up
Speaker 1: with Sarah Ponzick and Mike Reagan. Hello and welcome to
Speaker 1: What goes Up, a Bloomberg Weekly Markets podcast. I'm Sarah Ponzak,
Speaker 1: a reporter on the Cross Asset team, and I'm Mike Reagan,
Speaker 1: a senior editor at Bloomberg. This week on the show,
Speaker 1: the stock market maybe buying the vaccine optimism, but the
Speaker 1: bond market isn't really budging Tina forever, or in other words,
Speaker 1: there is no alternative in a world where low interest
Speaker 1: rates have become the norm. Our guest walks us through
Speaker 1: where to find alpha, and as always, don't fret. We
Speaker 1: will close out the episode with our tradition the Craziest
Speaker 1: Thing I saw in Markets this week, Sarah, I'm returning
Speaker 1: to my roots in the alternative assets space for this
Speaker 1: this segment this week, I've got to say I'm really
Speaker 1: proud because a listener did right in and not only
Speaker 1: did he righte in, he had a prices right for you.
Speaker 1: So we're going to turn the tables on you and
Speaker 1: you could also very much describe it in alternative assets.
Speaker 1: So don't you worry. I like the prices right element
Speaker 1: that listeners sliding into Sarah's DM. I believe what that's
Speaker 1: known as that's what's happening lately. Alright, fine, that's good,
Speaker 1: we'll accept. We'll accept submissions that week. Also, Sara, a
Speaker 1: very perilous podcast this week because by my account, apart
Speaker 1: from the guest who I'll introduced in a moment within
Speaker 1: microphone range, we also have one puppy, one one year
Speaker 1: old baby I believe a year and a half, and
Speaker 1: one really loud mouth dog that that's my dog. So
Speaker 1: so this should be interesting. I don't be for success.
Speaker 1: I think we should at a cat. I believe a
Speaker 1: cat as well, So we should have a pool to
Speaker 1: see which which of these disrupts the content first. But hopefully,
Speaker 1: hopefully we'll get through it with some silence from all
Speaker 1: the dogs and babies and cats part of the what
Speaker 1: goes up team here. But let's get to that guest
Speaker 1: first time on the show. We're very happy to have him.
Speaker 1: He is the managing director of t Assets Solutions at
Speaker 1: Man Solutions, which is a division of Man Group, the
Speaker 1: big hedge fund firm. His name is Peter vander Wert. Peter,
Speaker 1: Welcome to the show. Hi, Thanks for having me. It's
Speaker 1: nice of a here, Yeah, Peter, I wanted to just
Speaker 1: start off by since Man Group is such a big company,
Speaker 1: runs a lot of different funds, a lot of different strategies.
Speaker 1: I'm just curious what the how the Solutions group works
Speaker 1: into the firm and your role specifically. I mean, my
Speaker 1: impression is that the solution groups kind of creates bespoke
Speaker 1: portfolios based on what certain clients need. Is is that
Speaker 1: a fair assessment of what you guys do? Yeah, that's
Speaker 1: exactly right. So what we do in Man Solutions we
Speaker 1: reach across the engine. So Man has basically four distinct
Speaker 1: meaningful engines. We have a pure discretionary group called g LG.
Speaker 1: We've got a quant arm called h L which does
Speaker 1: a lot of trend and systematic strategies. We have Numeric
Speaker 1: which does more equity trading quantimental, and then some private markets.
Speaker 1: Man Solutions kind of reaches across those various engines looking
Speaker 1: for things that we can use to help clients, whether
Speaker 1: it's based on risk control or generating now uh, but
Speaker 1: in a bespoke way. So the real overarching goal at
Speaker 1: Man solish is a bit to deconstruct the hedge fund
Speaker 1: and deliver exactly what clients need as opposed to trying
Speaker 1: to just keep giving them the same product or the
Speaker 1: same product pitch. So to keep it pretty broad, I mean,
Speaker 1: considering where we stand in like you mentioned, bond yield
Speaker 1: extremely low, how much growth have you seen and how
Speaker 1: difficult has it become to kind of create come up
Speaker 1: with creative new solutions to get through the environment that
Speaker 1: we've been living in. So a lot of our clients
Speaker 1: are basically institutional investors. So the types that are grappling
Speaker 1: with the broad bond problem for two reasons. And you know,
Speaker 1: the first half of the problem is that yields are
Speaker 1: really low and they have pretty high return objectives. Right,
Speaker 1: So your average pension in the US needs to make
Speaker 1: seven percent to meet the return target. If you own
Speaker 1: a one percent yielding as that, you're really not going
Speaker 1: to get there easily. Right, You need that much exactly,
Speaker 1: you need that much more contribution from bonds. And so
Speaker 1: that's problem number one. And problem number two is sixty
Speaker 1: been really easy to run statically, Right, That's just it's
Speaker 1: a made up number. It's a made up construct. It's
Speaker 1: worked for thirty years and everyone quite likes it. Right,
Speaker 1: But if you get past the made up nous of it,
Speaker 1: it happens to be pretty stable because bonds contribute during
Speaker 1: a crash, and I think there's an increasing concern that
Speaker 1: maybe bonds don't have that much left to give in
Speaker 1: the next crash. So if I don't make much money
Speaker 1: and yield, and I don't get much out of a crash,
Speaker 1: then what is it doing in my portfolio at all?
Speaker 1: As the question we get, Yeah, I'm glad you bring
Speaker 1: that up, Peter. I feel like I've edited about straight
Speaker 1: stories about the death of sixty forty and what's what's
Speaker 1: replacing everything in that? You sound like you're on the
Speaker 1: front lines of that. Is there really this legitimate groundswell
Speaker 1: of people trying to reimagine that sixty? And granted, like
Speaker 1: as you said, that's a made up number, maybe you're
Speaker 1: really seventy thirty or fifty fifty if you're more conservative,
Speaker 1: but it really does seem like there's this mad dash
Speaker 1: to to sort of replace that forty with something a
Speaker 1: little bit uh, you know, better yielding than than treasuries
Speaker 1: at this point, you know, the sixty is kind of
Speaker 1: the straw man that everyone uses that. I mean, by
Speaker 1: and large, i'd love to tell you that all of
Speaker 1: our pensions are treasuries, but I mean they've already taken
Speaker 1: a sneaky walk away from sovereign bonds, and they've picked
Speaker 1: up more corporate credit. They've picked up some high yield,
Speaker 1: so the forty doesn't exactly look like treasury bonds. The sixty, though,
Speaker 1: really does look a lot like equities, so that part
Speaker 1: you know they're still looking for a return. And so
Speaker 1: one of the arguments I do get though, for people
Speaker 1: who use treasuries and still rely on them, as if
Speaker 1: you're a big five billion pension or a huge institution,
Speaker 1: what can you get that scalable like bonds are scalable.
Speaker 1: The nice thing about US deficit spending is that there's
Speaker 1: trillion of bonds available if you need to use them.
Speaker 1: It's pretty hard to say I can get thirty trillion
Speaker 1: of gold, unless you know Elon Musk succeeds and sends
Speaker 1: something to an asteroid and minds a bunch of gold
Speaker 1: up there and brings it back, at which point it
Speaker 1: might not be worth exactly what you thought it was worth,
Speaker 1: but at least you have enough gold for your portfolio. Solution, Sarah,
Speaker 1: I think Peter has been listening to to my strategy
Speaker 1: there that I think so too. We've we've brought up
Speaker 1: the asteroid a fair amount of times. I think it's
Speaker 1: come up on the last three shows somehow, I promise you,
Speaker 1: but I agree the topic. I think is the only
Speaker 1: one who will be able to do it, and I
Speaker 1: think it perfectly finally explains Tesla's valuations. But you realize
Speaker 1: there's a Twilight Zone episode that's predicated on them finding
Speaker 1: infinite amount of gold and they like go into like
Speaker 1: some kind of deep sleep. They wake up five hundred
Speaker 1: years later and gold is worthless because there's infinite amount
Speaker 1: of gold in the world, so that the end isn't
Speaker 1: really good. You know, you you bring up you do
Speaker 1: bring up gold, And I want to ask you about gold, Peter,
Speaker 1: what is the role of gold in a portfolio? Right now?
Speaker 1: I feel like this year there has been a lot
Speaker 1: of back and forth about the use of gold. Some say, yes,
Speaker 1: it's an inflation hedge, Others say it's just a safe
Speaker 1: haven um. Lately, though, the narrative has been that we're
Speaker 1: going to get a vaccine, whether it's from Visor and Maderna,
Speaker 1: a mix of the two, or even more we'll see
Speaker 1: growth pickup, we'll see inflation pick up. But gold has
Speaker 1: not been rising as it did earlier in the year.
Speaker 1: It's been falling, Like, what, what's the situation there? What's
Speaker 1: the case? Well, I think the problem with gold when
Speaker 1: people talk about is this tendency that we need to
Speaker 1: explain to day's move based on something. Right, stocks were down,
Speaker 1: marketing crisis, gold is up, or you know something inflation
Speaker 1: is showing up, gold is up. I think if we
Speaker 1: really bottom line what's happening is, first, the Fed's kept
Speaker 1: rates low, so gold is an alternative, is not painful
Speaker 1: to carry, so there's nothing wrong with that. I do
Speaker 1: think there's a narrative calling it a safe haven. You
Speaker 1: know Cam Harvey, who you may have hund on before.
Speaker 1: I think it has talked about as a safe haven,
Speaker 1: and I'm kind of with him. It's a little hard
Speaker 1: on portfolio construction to have assets that fall with equities
Speaker 1: as frequently as gold does, and it's a high vaal
Speaker 1: asset rights sev vold. It's as vulnatble as equities are,
Speaker 1: so it's not the easiest thing to use in your
Speaker 1: portfolio as a safe haven. But I see the logic
Speaker 1: of it right, you can kind of feel reliable. On
Speaker 1: the flip side, the inflation bit Cam has written a
Speaker 1: lot about that, you know, the fact that it seems
Speaker 1: like gold prices way outstripped the level of inflation. What
Speaker 1: you see is it seems to be low level of
Speaker 1: rates that's pushing gold higher. So gold is quite correlated
Speaker 1: to bonds. So if I'm a big pension, I say,
Speaker 1: how do I replace my bonds? Maybe I should use gold.
Speaker 1: The first thing I find is that when equities fall,
Speaker 1: sometimes it falls, so that's not a good bond replacement.
Speaker 1: And the second thing I find is, over the last
Speaker 1: twenty years, it's been very correlated to bonds, which means
Speaker 1: if bonds fall, it's likely gold fall. So that means
Speaker 1: I'm replacing a bond with something that's behaving a bit
Speaker 1: like a bond on a risk basis. So the whole
Speaker 1: narrative works. If the FED keeps rates controlled and we
Speaker 1: have inflation, that's when you want to own gold. It's
Speaker 1: a pretty narrow subset of things that might happen to
Speaker 1: make that really work. But then you'll see a funds
Speaker 1: and I think gold is very much a flow of
Speaker 1: funds thing. You know, as much money and sentiment builds up,
Speaker 1: it keeps going and going and going, and so we
Speaker 1: like looking at that more on a trend basis, maybe
Speaker 1: you know, owning it in the trend and getting rid
Speaker 1: of it if the trend breaks, and using it in
Speaker 1: that kind of construction. But I think the big dilemma
Speaker 1: for all investors again the scalable concept, would you replacet
Speaker 1: of your portfolio with gold, And first you probably wouldn't. Second,
Speaker 1: there actually isn't enough gold out there right. The World
Speaker 1: Gold Council has a cool website. You can check out
Speaker 1: a gold dot org and they tell you kind of
Speaker 1: what they think how much gold is above the ground
Speaker 1: and how much is in the ground. And there's a
Speaker 1: few trillion dollars of gold left in the ground. So
Speaker 1: that's not enough for the two trillion of financial assets
Speaker 1: to use as a diversifier. So in a way, gold
Speaker 1: is in terms of what could cause a superspike. There's
Speaker 1: not enough gold out there. But it's also its own
Speaker 1: worst enemy because you know, if everyone needs it, there's
Speaker 1: just not enough of it. So it kind of doesn't
Speaker 1: fit a solution unless you're a niche investor. And so
Speaker 1: I do think some of our investors are a bit
Speaker 1: guilty of saying it's not scalable, so I won't use it. Well,
Speaker 1: it's scalable if you're running ten twenty billion dollars, right,
Speaker 1: It just isn't scalable for everyone. But I think of
Speaker 1: reliability is really the key thing, right, doesn't fit my portfolio?
Speaker 1: Is it reliable? Does it kind of do what I want?
Speaker 1: If it goes down a lot in a crash, it's
Speaker 1: draining liquidity from me where bonds have historically given me liquidity.
Speaker 1: That's a big problem, right, So I think, well, we
Speaker 1: look at portfolio constructions. We want to make sure that
Speaker 1: the hedge like things, the diversifiers, don't take liquidity from you. Right.
Speaker 1: It seems to me, um difficult, maybe impossible that if
Speaker 1: you are trying to replace that or whatever your your
Speaker 1: bond allocation is that you pretty much have to embrace
Speaker 1: more risk to do that, which is kind of goes
Speaker 1: against the grain of why you you have that in
Speaker 1: the safety of bonds to begin with. And what alternative
Speaker 1: I've I've heard a few times is well, look at
Speaker 1: some of the real cyclical currencies, you know, and if
Speaker 1: if you're you know, want sort of a hedge against
Speaker 1: an economic slowdown. You could shut some of the glocal currencies.
Speaker 1: I guess, you know, maybe the keywi or the Ausy
Speaker 1: dollar or something like that that strikes me as especially risky.
Speaker 1: But is that, you know, does that fit into a
Speaker 1: possible body replacement? Is is sort of dabbling in the
Speaker 1: currency markets because I gotta say, you know, it's it's
Speaker 1: a treacherous place for people who aren't sort of dedicated
Speaker 1: to to that macro look view of the world and
Speaker 1: and the currency. So you know, if I don't love
Speaker 1: gold given some of its risk attributes, and and it
Speaker 1: does work, I think in some portfolio constructions over a
Speaker 1: long term currencies are going to be a bit of
Speaker 1: a worry. So we do run hedging businesses tailheage type
Speaker 1: portfolios for clients. And actually Ausi dollar is one of
Speaker 1: those currencies that does really badly in deflationary times. It's
Speaker 1: pretty reliable, and we like using options around it because
Speaker 1: options are often very cheap, so it's pretty cool to
Speaker 1: use in a solution with a lot of different things
Speaker 1: that might be going. So you have option hedges and
Speaker 1: indices and currencies and gold and credit as a composite
Speaker 1: that works pretty well, but if you're gonna start relying
Speaker 1: on it again for its slug of the fort there's
Speaker 1: a couple of things you gotta make sure you're right.
Speaker 1: Pretty much, you feel comfortable in deflationary regime, but I
Speaker 1: bet you've had a lot of conversations about inflationary regimes lately,
Speaker 1: and you know, what is all this fiscal stimulus going
Speaker 1: to do? And how how is it gonna look? Well,
Speaker 1: those currencies that look deflationary and bad times are going
Speaker 1: to go up in inflationary regimes, right, we should feel
Speaker 1: confident that commodities will go up with inflation, and so
Speaker 1: Ausie dollar could That means if you're not using options,
Speaker 1: you have kind of unlimited upside downside on this stuff, right.
Speaker 1: And so if we're going to use the Ausie dollar
Speaker 1: and you're saying short it as a kind of a
Speaker 1: safe haven or a protective instrument for your portfolio, a
Speaker 1: big inflationary regime could be a bit of a shock, right,
Speaker 1: And the same might be for Canadian currency commodities. So
Speaker 1: there's there's quite a bit of difficulty anytime we start
Speaker 1: going a further afield from you know what bonds have done, right,
Speaker 1: Bonds were kind of always a nice risk off set.
Speaker 1: But one of the things we haven't even mentioned is
Speaker 1: that correlations could change. Right, Bond equity correlation has been
Speaker 1: very reliable, and so we haven't been challenged with a
Speaker 1: unit firs where bonds and equities go down simultaneously since
Speaker 1: the nineties, right, maybe the seventies in terms of meanings
Speaker 1: full size. I think what we're going to see is
Speaker 1: a lot of regime shifts going forward. I don't think
Speaker 1: we have a good grasp on what the aftershocks of
Speaker 1: the pandemic are, so we can have a lot of
Speaker 1: movement and currencies, a lot of movement in bonds different
Speaker 1: than what we're expecting. So you kind of alluded to
Speaker 1: where we're going with the bondary replacement argument in a sense,
Speaker 1: and maybe it's a two part discussion. The first part
Speaker 1: is should you replace bonds? And the second part is
Speaker 1: if you decide you shouldn't you know, do you go
Speaker 1: to a a hundred percent risk on? And then what you know,
Speaker 1: how do you deal with a crash? And I think
Speaker 1: you kind of said maybe you should just go a
Speaker 1: d percent risk on And that's a little bit what
Speaker 1: we're looking at. What does it look like with a
Speaker 1: hundred percent risk on what are the tails, what are
Speaker 1: the crashes look and what can you do to mitigate
Speaker 1: that crash risk? And you know, in our business people
Speaker 1: have been trying to replicate bonds for decades, and so
Speaker 1: they would take a bunch of positive carry stuff and
Speaker 1: staple it together, glue it in a basket, take a
Speaker 1: bunch of tail hedges and trend and interesting kind of
Speaker 1: defensive looking things and glue that together, mush it all
Speaker 1: together and make this Frankenstein that was going to be
Speaker 1: a bond replacement. And you can tell that I'm not
Speaker 1: a strong advocate of doing that kind of stuff um
Speaker 1: these days. Though, if I start with a construct that
Speaker 1: bonds don't make anything, then maybe the construct for me
Speaker 1: is just to build something that's risk mitigating, right and
Speaker 1: try to reduce a drag. And that's the first step
Speaker 1: to having an all risk portfolio. So on that note,
Speaker 1: something you said that really resonates is the fact that
Speaker 1: we don't really know what the aftermath of the COVID
Speaker 1: nineteen chok is really going to look like. And it
Speaker 1: makes me wonder, how can you go about having any
Speaker 1: conviction in portfolio construction or whatever it may be going
Speaker 1: forwards from this point in time when they're still are
Speaker 1: so many unknowns and so many questions about what the
Speaker 1: economy is going to look like post COVID one, we
Speaker 1: are actually even going to get to a post COVID world,
Speaker 1: I mean, it's really difficult to kind of make any decisions.
Speaker 1: Feels like it does feel like that, And and the
Speaker 1: best way to kind of articulate our view on that
Speaker 1: as a firm is take a look at all the
Speaker 1: forecasts for the market at the beginning of the last
Speaker 1: four years right, and the strategists never get it right.
Speaker 1: And and we're not saying we're smarter, we're saying we
Speaker 1: probably wouldn't get it right either. We've got Cambridge and
Speaker 1: Oxford QUANTZ running all over the place in London, and
Speaker 1: nobody's pretending that they can get that right. And so
Speaker 1: if none of us really can come together and get
Speaker 1: pretty decent forecasts, you know, as it is, if everyone's
Speaker 1: forecasts were right, then the market woul immediately moved to
Speaker 1: the forecast right. We can kind of accept this as
Speaker 1: an odd tautology, but given that none of us can
Speaker 1: forecast it right, our view is that going forward, we
Speaker 1: can't get the regimes. It's not quite the same as
Speaker 1: we remember everything. So maybe directly attacking risk is the
Speaker 1: way you have to go. So, you know, tail hedging
Speaker 1: is very expensive, but there are things you can do
Speaker 1: with futures, and there are other things you can do
Speaker 1: to start attacking the specific risk profile of your portfolio.
Speaker 1: And I think the whole conversation about bonds, you never
Speaker 1: really had to explain any to anyone how well bonds
Speaker 1: didn't make as much during a crisis as we thought
Speaker 1: because they kind of kept doing what you needed to. Now,
Speaker 1: going back to the gold and the FX and tailhaging,
Speaker 1: all these conversations, when they don't work, you wind up
Speaker 1: with this. What happened was conversation and and no c
Speaker 1: I O of a pension or no investor in a fund,
Speaker 1: No one likes to hear what happened was as the
Speaker 1: first few words introducing what went wrong? Right, Nobody ever
Speaker 1: says what happened was, we really did a great job
Speaker 1: and we made a lot of money for you. It's
Speaker 1: always what happened was different from what we expected. And
Speaker 1: so you know, as we talk about bond replacements, what
Speaker 1: we really want to have is things that just directly
Speaker 1: attacked the exact risk we have and maybe we have
Speaker 1: to accept that there's a drag associated with doing that
Speaker 1: kind of exact risk attacks. Oh you know, if I'm
Speaker 1: going to use the Japanese yend the hedge equities and
Speaker 1: it doesn't work, I can lose a lot. Whereas if
Speaker 1: I use you know, puts and I spent a little
Speaker 1: too much, I know it's gonna work. And that's the
Speaker 1: real tension, Like how do I reconcile between the cost
Speaker 1: of mitigating risk and the potential return? Sir? I I
Speaker 1: can't get that image of Cambridge and uh, who's the
Speaker 1: other one? Where the clans for Cambridge Cambridge at Oxford
Speaker 1: quantz running all over London. It's it sounds like a
Speaker 1: muddy python or a Betty Hills kids. And the truth
Speaker 1: is they probably never moved from their desks. But period,
Speaker 1: you know, you bring up tail risk kedging and I
Speaker 1: assume the best I don't know, Maybe the only way
Speaker 1: to do that is in is in the options market. Um,
Speaker 1: and what a crazy year it's been for the options market.
Speaker 1: I mean, we we've come around to this idea that
Speaker 1: the retail day traders of the world sort of became
Speaker 1: almost this new whale in the options market, and correct
Speaker 1: me if I think if I'm sort of off based
Speaker 1: in that description, but at least in the press, that's
Speaker 1: kind of the picture that's been presented. Has this new
Speaker 1: sort of mom and pop or maybe it's college kid
Speaker 1: in a basement day trader, this whole new class of
Speaker 1: of options player. Have they really shifted sort of the
Speaker 1: complexion of the options market? Is it a permanent shift?
Speaker 1: And you know, boy, I would think for a sophisticated
Speaker 1: shop like yours, that's kind of easy pickings to sort
Speaker 1: of to sort of exploit this kind of this kind
Speaker 1: of new fast money coming into the market. I know
Speaker 1: that's a twelve part. I was actually thinking that was
Speaker 1: ten parts, but that's less. But answer however many parts
Speaker 1: you feel like it's a bit like quiz sho. I'll
Speaker 1: take the fourth part first. So so the first part,
Speaker 1: you know, maybe i'll broadly talk about what I think
Speaker 1: is happening in option. So to begin with the retail
Speaker 1: dynamic is a big change. So we used to see
Speaker 1: retail investors buying the short vall et F products like
Speaker 1: the x I V and of course we all remember
Speaker 1: the spectacular outcome and keep in mind that the VALL
Speaker 1: industry has created a long vall only product called the
Speaker 1: v x X, which is down from it's high, and
Speaker 1: created a short VAUL product that was loss in a day.
Speaker 1: So you know, it's the same underlying after all. So
Speaker 1: it's a little confusing I think too investors. But they
Speaker 1: still they keep seem want to come back to these
Speaker 1: sort of things, these these structured products. But what I
Speaker 1: will say is that's a shift one that they're really
Speaker 1: not selling vall the same magnitude as they used to be.
Speaker 1: And and you are right, they've turned buyer of sorts. Right,
Speaker 1: So just looking at the top five text stocks, we
Speaker 1: saw about thirty billion dollars in in volume a day
Speaker 1: trading in two thousand nineteen. Decent sized number, it sounds
Speaker 1: like a lot. That number in August of this year
Speaker 1: was as high as a hundred twenty billion, so that's
Speaker 1: a lot. And retail investors, you know, there's a big
Speaker 1: day trading component. They tend to want to buy low
Speaker 1: cost options. That doesn't mean they're cheap, that means they're
Speaker 1: short order dated, right, A one year option costs a
Speaker 1: lot more than a one week and if you want
Speaker 1: the most bang for your buck, especially as a day trader,
Speaker 1: you'll go for short dated options. So that's a real
Speaker 1: dynamic their net buying them, the market makers who sell
Speaker 1: them have to kind of hedge around it. They have
Speaker 1: to make a lot of moves sup portfolio. So we
Speaker 1: saw some vall spikes even as the market was going up,
Speaker 1: Vault was going up. That's a pretty unusual phenomenon. We
Speaker 1: only saw it kind of. You could flippantly say, we
Speaker 1: know how that ended, but it took a while for
Speaker 1: that to end. Right, So it's a transitory thing that
Speaker 1: retails playing a lot of options, but how long at lasts?
Speaker 1: You know, it could be a work from home for thing.
Speaker 1: We can probably attribute something to that. If you're making
Speaker 1: some money, you keep doing it. So that's one. But
Speaker 1: there are a number of other transitory and structural changes
Speaker 1: to the market, and maybe I'll run through them quickly.
Speaker 1: You know, the elections passed, that was transitory, or at
Speaker 1: least it's almost past, you know, so let's assume it's past. Yes,
Speaker 1: we'll just have we'll footnoted in you know, typical fashion
Speaker 1: subject to terms and conditions, what where they um? So,
Speaker 1: so that's passed two degree? Right, we still have the
Speaker 1: George outcome. I don't know that changes the balance of
Speaker 1: power enough to have big legislation, but that's there. The pandemic,
Speaker 1: although it doesn't feel transitories after all, transitory as well, right,
Speaker 1: So at some point the pandemic will be over and
Speaker 1: things will normalize and maybe that's unfortunately a year out
Speaker 1: or less, depends on your vaccine view. So those transitory
Speaker 1: things passed, but they're largely responsible for the fact that
Speaker 1: volves about double where it was when the SMP was
Speaker 1: here earlier in the year, so doubles a lot higher.
Speaker 1: So that's kind of we need to see that all
Speaker 1: clear up. But there's the structural change, which we keep
Speaker 1: coming back to the same problem, which is the bond problem.
Speaker 1: You know, if bonds aren't the best thing to diversify
Speaker 1: your portfolio and protect you, it may mean that you're
Speaker 1: going to tailhedging. And so although tailhdging is twice as
Speaker 1: expensive now as it was in January, people might be
Speaker 1: more drawn to it, partially because they need to do
Speaker 1: something defensive with less return from bonds potentially going forward,
Speaker 1: and secondarily because the market has gone up a heck
Speaker 1: of a lot, and so you know, an option might
Speaker 1: look expensive to a professional vall guy, but to someone
Speaker 1: buying a PUT saying, I think this marketing, it's cheap
Speaker 1: to the intellectual scenario of things could be really bad.
Speaker 1: And that's certainly true in tech stocks. Right, we have
Speaker 1: plenty of stocks. If it costs you five percent to
Speaker 1: buy out of the money put, if everything goes back
Speaker 1: to normal, you just made seventy in your head, right,
Speaker 1: that seems pretty good. And so I think that's part
Speaker 1: of the dynamic as well. I think it's that time. Oh,
Speaker 1: it is that time. Indeed, hopefully Peter came prepared for
Speaker 1: that time. I was forewarned that very special time. Stand
Speaker 1: clear of the craziest things we saw in markets this week, Sara,
Speaker 1: Let's start with whoever is sliding into your d M s.
Speaker 1: I I no one slides into my d M S.
Speaker 1: I don't know why. I don't no idea. I'm gonna
Speaker 1: every next time someone mice on Twitter, Reaganonymous, it's a
Speaker 1: great Twitter handle. The ms are open. Good, what did
Speaker 1: what they say? So we're gonna play a little bit
Speaker 1: of prices, right. This comes from at Jamie Blascow. B Uh,
Speaker 1: he said, maybe you can play the price is right
Speaker 1: with Mike this time. So I'm gonna run you through
Speaker 1: this scenario here, both of you. Basically a racing pigeon.
Speaker 1: Uh So, first of all, I did not know that
Speaker 1: pigeon racing was a thing. Apparently it very much is.
Speaker 1: But there was an auction recently for a racing pigeon.
Speaker 1: I'll give you some details. Belgian bread, supposedly top of
Speaker 1: the pack. Um, So, how much do you think this
Speaker 1: racing pigeon went for? Oh? I like this guy. I
Speaker 1: can't participate because I read this, so I'm not going
Speaker 1: to pretend air edition. I don't have I told you
Speaker 1: you're a natural at this Peter, I should have just
Speaker 1: gone for like five thousand dollars away from the price,
Speaker 1: but we would have been amazed at how how correct
Speaker 1: you were. Does this pigeon have a record, you know,
Speaker 1: win loss record? We can look at um. So I
Speaker 1: don't have the win loss record in front of me. However,
Speaker 1: I can tell you that this is a winning pigeon.
Speaker 1: This is this is an elite pigeon. You're telling this
Speaker 1: is the the Hussain Bolt of pigeons. I take exactly
Speaker 1: Okay for that pigeon, I would bid five dollars for
Speaker 1: that pigeon. That's actually pretty good at a starting point,
Speaker 1: because I was in the tens just thinking there's a
Speaker 1: crazy person who's got ten. All right, you're ready for this,
Speaker 1: You're ready for this. A wealthy Chinese pigeon racing fan
Speaker 1: put down a record price at one point six million euros,
Speaker 1: which comes out to one point nine million dollars for
Speaker 1: this one. And the purpose, I guess is he already
Speaker 1: owns another pigeon that is also an elite pigeon, and
Speaker 1: I think the goal is to breathe the two to
Speaker 1: create an extra elite Oh oh my god. It's a
Speaker 1: like making bitcoin at that price. So race mining mining pigeons, well,
Speaker 1: well now I'm fat. Now I I will not be
Speaker 1: able to think of anything else until I research racing pigeons.
Speaker 1: It's going to get really into pigeon racing. Now, grab
Speaker 1: now you now that you're getting into you know that
Speaker 1: that that bubbles over exactly, that's right, I know, right, yeah.
Speaker 1: Once I find out out about it, I'm like the
Speaker 1: shoeshine boy of the pigeon racing world. I got it.
Speaker 1: It's amazing. I got a head it to that guy.
Speaker 1: That's pretty good, I I said to him immediately, I said, yes,
Speaker 1: this is amazing. I will absolutely play prices right with Mike,
Speaker 1: and I'm glad that we got to flip the tables
Speaker 1: on you this time. Because it's it's a hard game.
Speaker 1: You have nothing to compare it to. You have no
Speaker 1: idea what a previous racing pigeon has gone for. It's difficult.
Speaker 1: I know the price discovery and racing pigeons, but yeah,
Speaker 1: it is bad. All you have to be is anchored,
Speaker 1: and you could just be wrong. I thought I thought
Speaker 1: I was going to anchor you by saying five thousand
Speaker 1: dollars off because I thought you'd be in the hundred
Speaker 1: thousand range by so much for behavioral finance, almost two million.
Speaker 1: But I mean it makes you. It leads you to
Speaker 1: believe that there are people that must be betting some
Speaker 1: pretty serious bucks on on racing pigeons. If you're gonna
Speaker 1: if you're gonna buy one for two million, I mean,
Speaker 1: that's like a thoroughbred Kentucky Derby winner type of pa.
Speaker 1: Maybe not a winner, but I'm very confused about how
Speaker 1: is there a track set up for the pigeons? They
Speaker 1: can fly? How do they stay on the track. I
Speaker 1: don't really understand. I guess I'm gonna have to look
Speaker 1: this up, but I think this is in the messenger
Speaker 1: pigeon genre. Yeah, if I didn't, I didn't read the
Speaker 1: whole article because once you get past the price, you're
Speaker 1: kind of, you know, intellectually, it's hard to say what's
Speaker 1: gonna what's gonna compel me to really say this is
Speaker 1: the right price? And it totally fits right, all right, Peter, Well,
Speaker 1: I gotta say, you got a tough, tough factor beat.
Speaker 1: Can you beat the racing pigeon for one point nine million?
Speaker 1: Was it? Wow? Well, no, I can't give you absurd
Speaker 1: because it's you know, that's that's at But the thing
Speaker 1: that I thought was pretty interesting. So after the vaccine hits,
Speaker 1: we we saw big shifts in momentum stocks. You know,
Speaker 1: growth got a decent hit and maybe value gotta jump.
Speaker 1: But one of the things I thought was pretty fascinating
Speaker 1: just watching Zoom over the course of the year. And
Speaker 1: I'm not making an opinion at all about the relative
Speaker 1: valuation of Zoom, whether you should buy or sell it,
Speaker 1: because that's not our bag. But I do think it's
Speaker 1: pretty fascinating watching a stock go from seventeen billion to
Speaker 1: a hundred sixty billion, you know, as a replacement to
Speaker 1: the entire airline sector in the U S and the
Speaker 1: entire hotel sector, And so Zoom at one point was
Speaker 1: worth more than those two sectors combined. And actually I thought, Okay,
Speaker 1: well that's crazy. But then after the vaccine hits, Zoom
Speaker 1: fell fifty billion in market cap and those two sectors
Speaker 1: picked up fifty billion in market cap. So I thought
Speaker 1: it was just kind of a fascinating maybe that's how
Speaker 1: it was supposed to turn out kind of day. Regardless
Speaker 1: of whether you think Zoom should replace the entire airline
Speaker 1: and lodging industry in the United States or so, I
Speaker 1: thought it was pretty interesting. And it's a sign of
Speaker 1: a lot of things that are going on in the market.
Speaker 1: So even when we see the market steadily churning a
Speaker 1: bit higher, there's a lot of crazy stuff going on
Speaker 1: beneath the surface of this, and a lot of rotations.
Speaker 1: And you know, what's Zoom worth, what's you know, what's
Speaker 1: work from home look like a year from now? And
Speaker 1: I think we all got to grapple with that, in
Speaker 1: addition to all the other things we've got to worry
Speaker 1: about in our portfolios. Absolutely, absolutely, that's a pretty clean rotation.
Speaker 1: They're fifty billion out of Zoom and it was straightforward
Speaker 1: just but you've got a lot of planes and hotels
Speaker 1: for that, right. It's pretty amazing when you look at
Speaker 1: some of the runs, some of the pickups and market
Speaker 1: cap that we've seen in individual companies this year and
Speaker 1: what's come out of entire industries and just comparing them,
Speaker 1: I mean, it is, it's absolutely, it's wild. And after all,
Speaker 1: Amazon pioneered this right in retail spaces very small market
Speaker 1: cap to Amazon's market capitalization related to retail, right, And
Speaker 1: so they're converting ten pe multiple kind of businesses into
Speaker 1: hundred multiple right, So every dollar they take has a
Speaker 1: huge multiple sign. So I guess it's okay in that context,
Speaker 1: but it's pretty fascinating to to to watch it kind
Speaker 1: of evolve over time. Yeah, it doesn't seem sustainable in
Speaker 1: the longer run though, I guess, well, it never feels sustainable.
Speaker 1: But then, I mean, in two thousand, would you have
Speaker 1: guessed that Amazon would be worth a trillion and a half.
Speaker 1: You would. I'm the tailheage guy, so I would have
Speaker 1: been sitting there and in two thousand two. I would
Speaker 1: have had all this, you know, victory celebrating. All right,
Speaker 1: I gotta prices right for you too. Now, Uh, this
Speaker 1: is in the alternative asset space. And when I say alternative,
Speaker 1: I mean it, uh maybe not, maybe not. That's about
Speaker 1: as alternative as it gets. This is uh courtesy the BBC. Uh.
Speaker 1: This was an auction that occurred in in the UK,
Speaker 1: so you'll have to price this in uh in sterling.
Speaker 1: A lock of Elvis Presley's hair sold at auction in
Speaker 1: the UK. Apparently Elvis had this barber who used to
Speaker 1: travel around with him and cut his hair. And the guy,
Speaker 1: I would you know, the hair that would fall into
Speaker 1: like the smock that he put around Elvis. He'd packed
Speaker 1: it up, putting in his bag, and then when he'd
Speaker 1: get home, he'd unload all this hair and say, you know,
Speaker 1: maybe the fans would like this, so we'd give out
Speaker 1: little snippets of hair to fans. And then I guess
Speaker 1: the guy went broke and started selling the locks of
Speaker 1: hair to two people. So this Elvis hairlock was sold
Speaker 1: to a collector who resold it recently in the UK
Speaker 1: in pounds sterling. Peter, what would you pay for a
Speaker 1: a lock of Elvis Presley's hair. Well, that's a great
Speaker 1: out because you just told me what I would pay,
Speaker 1: so I don't actually have to get and I can
Speaker 1: say I would say I pay very little for it
Speaker 1: because I just wouldn't believe it's real. Okay, well rephrased
Speaker 1: any way, just just you know, let's say I had
Speaker 1: to make a market for like and so I'm gonna
Speaker 1: I just don't think it's worth a pigeon. So I'm
Speaker 1: gonna sit there quietly at a hundred thousand and and
Speaker 1: and call it a day. It's the most I feel
Speaker 1: like I can lose on this, and you know, maybe
Speaker 1: I can find someone a year or two. All Right,
Speaker 1: I'm trying to keep my poker face and not give
Speaker 1: it away. Sarah, I feel like I have a comparison here,
Speaker 1: so Peter, just so you know. In another in another episode, Mike,
Speaker 1: I kid, you not brought us, uh, Michael Jackson's ivy basket,
Speaker 1: which went for a lot less than we had expected
Speaker 1: it to go for it. It's extremely creepy. It's very creepy.
Speaker 1: But what I'm thinking is that if Michael Jackson's ivy
Speaker 1: basket went for much less, than expected. Then hair lock
Speaker 1: can't have no way. It went for a hundred thousands,
Speaker 1: so I'm gonna go a little bit lower. Uh, I'm
Speaker 1: gonna go with thirty thousand. And I still think I'm okay.
Speaker 1: I like that deductive reasoning you employed in there. I
Speaker 1: like going first. I was gonna guess over. I would
Speaker 1: have guessed over both of you guys, because again I
Speaker 1: think I feel like the hair. You could clone Elvis
Speaker 1: with this hair. Someday some mad scientists could clone Elvis.
Speaker 1: So you gotta you gotta factor that into evaluation. But
Speaker 1: there's only four thousand quid that it was really low. Yeah, yeah, yeah,
Speaker 1: I'm with you. I think it's a six figure collectible.
Speaker 1: But I guess who knows. Maybe this barber has just
Speaker 1: flooded the market with Elvis sarabocks. Yeah. Well, let's hope
Speaker 1: that the listeners don't actually attribute my skill at pricing
Speaker 1: construction skill. Most people don't want to erode all The
Speaker 1: tax avoidance of my strategy is quite good, I am, honestly,
Speaker 1: I am. There's nothing to compare them to. I am
Speaker 1: so off every single week. It's tough. I picked I
Speaker 1: picked the tough ones. I picked up I would I
Speaker 1: would tell you though, you guys, I would have I
Speaker 1: would have taken I would have gone above both you
Speaker 1: so so so pretty good, good, good good answers, I think,
Speaker 1: But sorry, is that? Are you off the hook then?
Speaker 1: With your didn't come with one? And Peter and I've
Speaker 1: got to do it just because we haven't mentioned it
Speaker 1: in so long. Uh and again this could also be
Speaker 1: described as a cop out, but I'm going to go
Speaker 1: ahead and mention bitcoin because we've a rise about eighteen
Speaker 1: thousand for the first time, up a hundred this year.
Speaker 1: It's almost as if it came out of nowhere. At
Speaker 1: the beginning of the air we close to seven thousand,
Speaker 1: so bitcoin hype coming back pretty crazy. You could buy
Speaker 1: four Elvis hairlocks from one bitcoin at this point. Well,
Speaker 1: I know the three of us could chat for likely
Speaker 1: hours longer, but I know we've already gone well over
Speaker 1: our time limit, so we've got to leave it there.
Speaker 1: Peter van joy Wert, thank you so much for joining
Speaker 1: us today. Yeah, thank you for having It's quite fun.
Speaker 1: What goes up. We'll be back next week. Until then,
Speaker 1: you can find us on the Bloomberg Terminal website and
Speaker 1: app or wherever you get your podcasts. We'd love it
Speaker 1: if you took the time to rate and review the
Speaker 1: show on Apple Podcasts so more listeners can find us.
Speaker 1: And you can find us on Twitter, follow me at
Speaker 1: Sarah pont Sec, Mike is that Reaganonymous, and you can
Speaker 1: also follow Bloomberg Podcasts at Podcasts. Also thank you to
Speaker 1: Charlie Pellett of Bloomberg Radio and the voice of the
Speaker 1: New York City Subway System. What Goes Up is produced
Speaker 1: by Jordan Goscore. The head of Bloomberg podcast is Francesco Levie.
Speaker 1: Thanks for listening, See you next time.