Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
Speaker 1: my co host Matt Miller. Every business day, we bring
Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast
Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and
Speaker 1: at Bloomberg dot com slash podcast. You know, we are
Speaker 1: on top of this crypto space here on this show,
Speaker 1: and it's becoming clearer and clearer that some regulation is
Speaker 1: coming to the world of crypto. Let's get some more
Speaker 1: color on that. Mary Beth Buchanan, President of the America's
Speaker 1: and global Chief Legal Officer Mercal Science. Mary Beth, it
Speaker 1: just feels like the drumbeat is really beginning to pound
Speaker 1: here for regulation of what is a growing crypto market.
Speaker 1: Gary Ginstler, a new ahead of the SEC certainly making
Speaker 1: some comments there. How do you think this will kind
Speaker 1: of really evolve over time? You know, I think there's
Speaker 1: been a lot of really great news in the cryptocurrency
Speaker 1: space in the last few weeks, and as crypto continues
Speaker 1: to grow and have mass adoption, not just in the
Speaker 1: US but across the globe, regulators are taking a much
Speaker 1: closer look at it, and they're looking at many different
Speaker 1: aspects from stable coins to defy U two. Uh, you
Speaker 1: know new expected guidance coming out today. From the fat
Speaker 1: of it's it's an exciting time. But I agree with
Speaker 1: you that additional regulation will be coming. So it's interesting
Speaker 1: to think about Gary Gensler regulating this space. Is bitcoin
Speaker 1: of security? No, I think that Gary Gensler is certainly
Speaker 1: in a great position to understand the cryptocurrency markets as
Speaker 1: he's been teaching at an m I T. The SEC
Speaker 1: has been pretty clear that bitcoin is not a security
Speaker 1: and so I don't think that there's any danger that
Speaker 1: this is going to change in the near future. So,
Speaker 1: Mary Beth, the US just this department created a National
Speaker 1: Cryptocurrency Enforcement Team. That sounds ominous, what is that? Yeah,
Speaker 1: the the Cryptocurrency Enforcement Team that was announced in early
Speaker 1: October by the Deputy Attorney General is an effort by
Speaker 1: many different components of the Department of Justice to come
Speaker 1: together and to really attack one of the latest plagues
Speaker 1: in the crypto space, which is ransomware attacks. Ransomware attacks
Speaker 1: have gone up a hundred and fifty in compared to
Speaker 1: so this task force is going to help root out
Speaker 1: those who would use cryptocurrency to try to attack and
Speaker 1: strangle businesses in the US and throughout the globe. What
Speaker 1: you've been involved in the digital space for quite a while, now, um,
Speaker 1: what can be done? You know when I whenever I
Speaker 1: see a ransomware attack, I always think that's silly because
Speaker 1: it's not an anonymous UM transaction. We know that it's
Speaker 1: going to wallets, we know which wallets it's trading in,
Speaker 1: but those wallets aren't attached to names, right, So what
Speaker 1: can be done in order to really attack the ransomware
Speaker 1: UM actors? We're going to need to see a lot
Speaker 1: of collaboration between cryptocurrency exchanges, UM, blockchain analytics companies like
Speaker 1: Marble Science, and the government. Recently, or rather later in
Speaker 1: late summer, the Justice Department called the industry together and
Speaker 1: shared with us some of the information that they've been
Speaker 1: learning with recent ransomware attacks, and we shared with the
Speaker 1: government some information that we've been learning. So I think
Speaker 1: that through this this collaboration information sharing, we're going to
Speaker 1: be able to stop stop these attackers before they can
Speaker 1: find additional victims. So, you know, maybe about a lot
Speaker 1: of folks are saying that this the crypto space really
Speaker 1: needs regulation, if for no other reason than for it
Speaker 1: to be validated and for its development and for more investment.
Speaker 1: How do you think this is going to play out?
Speaker 1: Is this something that our government currently has a capability
Speaker 1: to regulate? It just feels like so much is new
Speaker 1: about crypto and the knowledge level isn't anywhere where it
Speaker 1: needs to be. I think most of the private sector
Speaker 1: crypto companies want regulation, um, but but they want clear
Speaker 1: regulation and they want to have a voice in creating it.
Speaker 1: Right now, we do have a patchwork of regulations in
Speaker 1: the United States. We have different agencies that are looking
Speaker 1: at different aspects of how cryptocurrency operates. There may be
Speaker 1: a few spaces where we're still seeing the absence of
Speaker 1: some regulation, and what we need to do, I think,
Speaker 1: is identify where there's a vacuum and create a reasonable
Speaker 1: set of rules that make sense to make sure that
Speaker 1: we're addressing all aspects of the crypto space. I mean,
Speaker 1: what you do, or at least part of what you do,
Speaker 1: is you help financial companies, government entities. As you were saying, um,
Speaker 1: crypto companies prevent attacks, prevent you know, getting ripped off, Basically,
Speaker 1: if I'm an investor, my main concern is where do
Speaker 1: I hold this stuff? If I put a million or
Speaker 1: two million into crypto, I want somebody I can trust
Speaker 1: UM custoding that asset. Are we in a place where
Speaker 1: there there is a safe and trustworthy place for me
Speaker 1: to put those assets. There are a number of extremely
Speaker 1: UM well respected custodians that are holding cryptocurrency today, and
Speaker 1: those custodians are regulated. UM. They are utilizing the latest
Speaker 1: technology to monitor their transactions, to know who they're doing
Speaker 1: business with. And there are there are any options out
Speaker 1: there today from the traditional crypto custodian and even to
Speaker 1: certain US banks that are UM launching crypto custody services. Alright,
Speaker 1: very cool to get some time with you, Mary Beth Hope,
Speaker 1: but I hope we can get you back because UM,
Speaker 1: it seems to me mercle Science as a wealth of
Speaker 1: information that I think our clients would like to hear
Speaker 1: more about. Mary Beth Buchanan as President of the America's
Speaker 1: and Global Chief Legal Officer for mercal Science. Now, let's
Speaker 1: bringing David Cudlow right now. He's in the CEO and
Speaker 1: chief investment strategist at Mainstay Capital Management. They've got three
Speaker 1: point eight billion dollars and assets under management out of Michigan. David,
Speaker 1: always great to get you on the horn. Thanks so
Speaker 1: much for joining us. UM. Let's talk about it. Seems
Speaker 1: it seems like there's so many headwinds. You've got the
Speaker 1: supply chain constraints. You've got a labor shortage, we have
Speaker 1: inflation that looks more than transitory whatever that means, and
Speaker 1: now um abudding energy crisis. Should I be worried as
Speaker 1: an equities investor? Hey, good morning, Yeah, And I would
Speaker 1: add to that that we have, uh, consumer sediment has
Speaker 1: been falling. Uh confidence in the economy has been falling.
Speaker 1: And you know, if we look at the GDP numbers
Speaker 1: as forecasted by the Atlanta UM Atlanta fed their GDP
Speaker 1: down numbers, they've fallen over the past few months from
Speaker 1: close to seven percent projection for third quarter GDP down
Speaker 1: to zero point five percent, dangerously close to a quarter
Speaker 1: of contraction, although consensus estimates for GDP are quite a
Speaker 1: bit higher round for the third quarter. So, yeah, we
Speaker 1: have all these headwinds, uh that are that are coming
Speaker 1: towards I think first and foremost is the the probability.
Speaker 1: What most people think that the said will start to
Speaker 1: taper before the end of the year, and that doesn't
Speaker 1: mean eliminating liquidity the providing, but start to taper and
Speaker 1: scale it back. And then they're talking about interest rates
Speaker 1: um rising as as soon as the middle of next year,
Speaker 1: which we we don't think will happen. But you know,
Speaker 1: with that on the positive side, as we have just
Speaker 1: stellar corporate earnings in this year, and as liquidity is
Speaker 1: taken out of the system and we come back to fundamentals,
Speaker 1: we look at fundamentals for the market, uh, specifically priced
Speaker 1: to earnings ratios. UH, they're very, very good. They've actually
Speaker 1: come down through the year because earnings have been so good.
Speaker 1: We set a record in the first quarter, or second
Speaker 1: best in the second, and we expect the third best
Speaker 1: quarter here in the third quarters. It's easy comparisons because
Speaker 1: of COVID, but it's also because corporations are just have
Speaker 1: just got good balance sheets that have done really good
Speaker 1: in this recovery from COVID and going forward. So on
Speaker 1: that side of the equation the most important thing because
Speaker 1: in a long term that's what stocks should be priced on.
Speaker 1: His earnings. You know, we're just looking at incredible earnings
Speaker 1: and profit margins in and and really going you know,
Speaker 1: going forward to the fourth quarter as well, David, I
Speaker 1: look at the w T I crewed a north of
Speaker 1: eighty barrel. Have I missed the energy trade? No, I
Speaker 1: don't think so. Um, I don't think so at all.
Speaker 1: I mean, it's our favorite sector for the second half
Speaker 1: of this year. Are are still our favorite sectors coming
Speaker 1: into the fourth quarter is energy And you know, we
Speaker 1: we we look around the world at what's going on. Um.
Speaker 1: The OPEC hasn't helped out on the oil front. We've
Speaker 1: got another meeting next month. We'll see what happens. But
Speaker 1: it is, you know, a function of uh, this recovery,
Speaker 1: this robust recover we've had around the world from COVID,
Speaker 1: and economies are expanding their demanding more energy. There's been
Speaker 1: significant when we look we look at renewables, right the
Speaker 1: the emphasis has been on renewables, you know, for good reasons.
Speaker 1: You know, we all want renewable, sustainable energy. But but
Speaker 1: you know that right now in the US that makes
Speaker 1: up about of our energy supply, there's still about that
Speaker 1: comes from fossil fuels. In China that's even higher. So
Speaker 1: you know, we we have the natural gas issues in
Speaker 1: in Europe and UH and globally we have actually have
Speaker 1: coal burning plants that are being fired back up or
Speaker 1: increasing production. UH. We had we have expecting coal to
Speaker 1: be at the highest level of use UH in this
Speaker 1: country since and that's because of switches from l en
Speaker 1: G or natural gas to to coal because of the
Speaker 1: short supplies. So I think the energy trade has further
Speaker 1: to go, and I think that it makes sense for
Speaker 1: investors to be to have it to still continue to
Speaker 1: have exposure there. What do you think about the rates
Speaker 1: moves that we've seen recently, David that UM two years
Speaker 1: regardless of region were sold off drastically. At the beginning
Speaker 1: of the week, we've seen a curve flattening and we're
Speaker 1: looking at a tenuere US treasure yield right now one
Speaker 1: sixty six, whereas a month ago was one. Yeah, and
Speaker 1: from a low of of of around just under one nineteen,
Speaker 1: we've had a significant rise UM. You know. I think
Speaker 1: that's a function somewhat of a reaction to what the
Speaker 1: Fed has been trying to UH send signals on on
Speaker 1: their policy. UH. Certainly, the the pullback in the market
Speaker 1: I think was a response to that increased rates because
Speaker 1: we've seen that, right, We saw that in the first quarter,
Speaker 1: we had a similar spike in rates of about seventy
Speaker 1: basis points. The market market sold off, especially what we
Speaker 1: consider long duration equities like tech and gross stocks um
Speaker 1: and we've seen that again here. Uh. What's interesting now though,
Speaker 1: is rates of need to move higher. We've seen the uh,
Speaker 1: the market's rebound. I think that's you know, we're looking
Speaker 1: at us again a strong earning season once again, only
Speaker 1: you know, we've got maybe ten percent of companies that reported,
Speaker 1: but they're coming in uh, some mixed reports, but overall,
Speaker 1: we've got about eight percent of companies beating expectations. So
Speaker 1: that's that's helped the market rates continualize. And it's typically
Speaker 1: if it's a slow rise as a function of an
Speaker 1: expanding autonomy, we would live with that. When they spike
Speaker 1: or when they go up because of concerns about inflation,
Speaker 1: that's going to be a problem, which inflation is probably
Speaker 1: our biggest issue relative to start all right, David, David,
Speaker 1: thank you so much for joining us. Really appreciated. David Coula,
Speaker 1: CEO and chief investment Strategies at main Stay Capital. Let's
Speaker 1: talk now about the leading Economic Indicators, the Leading Index
Speaker 1: from the Conference Board right now, and what that's saying
Speaker 1: about the economy. In order to do that, we bring
Speaker 1: in autumn on ozel Drop. He's the director of Economic
Speaker 1: Research and Global Research share at the Conference Board. If
Speaker 1: you type in eco US on your Bloomberg terminal, you
Speaker 1: can see the Leading Index came out at slightly disappointing
Speaker 1: zero point two percent. We were looking for zero point
Speaker 1: four percent and the previous month had been zero point
Speaker 1: nine percent. So, Ottoman, thanks for joining us. Why the disappointment?
Speaker 1: Good morning, good to be here. So, um, the the
Speaker 1: zero point two percent is less than expected, but just
Speaker 1: keep it in perspective that that is still a good
Speaker 1: positive number. Uh. It continues a rising trend in the
Speaker 1: Leading Index, but it is a little bit slower um
Speaker 1: and a big reason for that this month in September
Speaker 1: was the large negative contribution to the index from housing
Speaker 1: residential construction UM and some softening and consumer confidence also
Speaker 1: contributed to that. But all in all, the majority of
Speaker 1: the Leading Index components have been rising six out of ten,
Speaker 1: so that still points to still a healthy expansion in
Speaker 1: the Earth economy. So Ottoman, what do you make of
Speaker 1: the labor market out there. We've still got a lot
Speaker 1: of people that are not in this labor force despite
Speaker 1: the you know, very high number of job postings. Is
Speaker 1: this a permanent new reality for the US labor market
Speaker 1: that just fewer people are going to be working? You know,
Speaker 1: I think the global pandemic has really caused a lot
Speaker 1: of disruption in labor markets in many sectors across uh,
Speaker 1: the Earth economy. And now UM, you know, we're dealing
Speaker 1: with the delta variant that's creating more headwinds. UH. It's
Speaker 1: keeping a lot of people on the sidelines because of
Speaker 1: you know, concerns about getting sick and you know, staying
Speaker 1: out of the labor force. UM. I think UM in
Speaker 1: the future that will um eventually settle down. Uh. The
Speaker 1: economy growth rates are you know settling down, uh to
Speaker 1: our new expansion trajectory. And we're all getting used to,
Speaker 1: you know, living with this. We're learning how to you know,
Speaker 1: work and shop. UM and UH. I think as things normalize,
Speaker 1: we'll see labor markets, you know, going back to the
Speaker 1: trends that we have been seeing before the pandemic. UM
Speaker 1: and UH, you know that was really going back to
Speaker 1: lower unemployment rates and even labor shortages. So well, we
Speaker 1: have labor shortages now, right, I mean one of the
Speaker 1: big problems is companies can't hire enough people. Yeah, so
Speaker 1: I think there there are probably two factors underlying those, right.
Speaker 1: What one is uh the sort of the course of
Speaker 1: the pandemic with the delta there and and people, um,
Speaker 1: you know, not being willing to work, um, in especially
Speaker 1: in in person services, so uh not being able to
Speaker 1: find the workers because of that low uh labor force participation. UM.
Speaker 1: But there's also underlying all of this. The context is
Speaker 1: UM this longer term demographic changes in the US population, UM,
Speaker 1: the aging population, the retirement of the baby boomers, so
Speaker 1: all of those are really um leading to a smaller
Speaker 1: pool of labor supply that's available. And uh, that's the
Speaker 1: larger context that we're operating in Alama Boomer And I'm
Speaker 1: working and I'll continue to work for why I think
Speaker 1: so so Automan also, Dron, thank you so much for
Speaker 1: joining us a director of economic research and global research
Speaker 1: chair at the conference score conference board. Again, the leading
Speaker 1: economic indicator for the month of September came in at
Speaker 1: zero point two Consensus was for zero point four percent.
Speaker 1: We had a revision as well. For the prior month
Speaker 1: it was zero point nine percent growth and that was
Speaker 1: revised down slightly uh to zero point eight percent, but
Speaker 1: still positive. And it'll be really interesting to see how
Speaker 1: this labor market continues to evolve post pandemic. You know.
Speaker 1: One of the more fascinating economic aspects of this pandemic,
Speaker 1: and they fledgedly recovery, is a changing labor market. We've
Speaker 1: got still five or six main folks that are out
Speaker 1: of the labor force, yet there are more than ten
Speaker 1: million job openings at the moment. It's just that mixed
Speaker 1: mixed mash. Mixed mash is really kind of interesting here.
Speaker 1: How will it develop? Law On next guest has some
Speaker 1: thoughts on that the radically changing labor market. Barry rid Hults,
Speaker 1: founder of rid Hult's Wealth Management, Bloomberg opinion columnists, and
Speaker 1: the host of Masters in Business. So, Barry, what do
Speaker 1: you make of this labor market here? UM seems to
Speaker 1: be a little bit different than what we had pre pandemic. Yeah,
Speaker 1: it certainly is. A number of things have changed, and
Speaker 1: we we've talked about this on the air about how
Speaker 1: a lot of workers UM took advantage of the past
Speaker 1: eighteen months and having lots of cash in their bank
Speaker 1: accounts due to the generosity of the Cares Act. And
Speaker 1: they you know, they up skilled, they got certified, they
Speaker 1: got degrees, and for a lot of dead end jobs.
Speaker 1: And there are really four industries that have run into
Speaker 1: a lot of trouble, hospitality, food service, most particularly UM
Speaker 1: and they've you know, Elvis has left the building. They
Speaker 1: they're no longer participating in those careers. And I think
Speaker 1: what we're starting to see, and I wrote about this
Speaker 1: about six months ago, is that the balance of power
Speaker 1: is shifting. And it's you know, we see these regular
Speaker 1: oscillations from capital to labor and back well, capital had
Speaker 1: the upper hand since the nineteen eighties. It's shifting back
Speaker 1: to the direction of labor. So one of the cool
Speaker 1: things about this, maybe not for employers, but for employees,
Speaker 1: is that they're going to get paid more. Um. You know,
Speaker 1: whenever we talked to somebody who runs a hotel chain
Speaker 1: or restaurants, they always say, I can't get anybody come
Speaker 1: in here. And I always say, well, why don't you
Speaker 1: just double their salary. I'm sure they'll show up. Is
Speaker 1: that going to lead to a price wage spiral? Though?
Speaker 1: Is that going to lead to inflation that sticks around.
Speaker 1: Um So, So first you have to look at the
Speaker 1: context and and and look more than just the past
Speaker 1: six months, by just about any measure, when we look
Speaker 1: at wages at the bottom half of the pay scale,
Speaker 1: for the past thirty years, they have lagged just about everything,
Speaker 1: just about every measure. They've lagged inflation, they've lagged productivity,
Speaker 1: they've lagged corporate profits, they've lagged c suite compensation, which
Speaker 1: certainly has been fairly robust for the past few decades.
Speaker 1: And so this is less of a hey, we're driving
Speaker 1: inflation forward, and more of a this is a reset.
Speaker 1: This is a catch up for wages that really have
Speaker 1: been far too low. And when you have an economy
Speaker 1: that's operating at pretty close to full capacity, well, guess what.
Speaker 1: At a certain point, um, a limited commodity has pricing power.
Speaker 1: And in this case, that limited commodity commodity is labor.
Speaker 1: Barry continue on the labor discussion. Three days a week, hybrid.
Speaker 1: It just feels right now that that's where, at least
Speaker 1: in the US, this market is going to. Do you
Speaker 1: think that's the case, It's a good bad do we care?
Speaker 1: So again, another really fascinating topic with a lot of
Speaker 1: moving pieces. So so first let's talk about the hybrid workforce,
Speaker 1: but also within that context bring in challenging and hiring
Speaker 1: and and and inflationary wage. Bush and I have to
Speaker 1: start by pointing out productivity is so important in this space.
Speaker 1: The big surprise from the work from home has been
Speaker 1: not only was it not a drop in productivity. When
Speaker 1: you look at the go to Fred look at productivity numbers,
Speaker 1: it's tripled over the past on an hourly output basis
Speaker 1: over the past eighteen months. That that's a massive, massive
Speaker 1: um increase. That's a that's a huge change from remember
Speaker 1: Robert Solo famously equipped. You can see the computer age everywhere,
Speaker 1: but in the productivity statistics, well, here we are a
Speaker 1: generation later from when he said that productivity is going
Speaker 1: up tremendously. So first, huge juge offset of inflation. If
Speaker 1: you're paying people more but you're getting more output from them,
Speaker 1: it's not inflationary. It's essentially a push. Now the allene
Speaker 1: is having that work its way downstream. Two bars and
Speaker 1: restaurants and hotels and frontline healthcare providers. In a lot
Speaker 1: of those fields, you're not seeing the same sort of
Speaker 1: productivity increase, except where people have made those investments in technology.
Speaker 1: So you go to a restaurant and the waiter isn't
Speaker 1: writing down your order, they're using an iPad and you're
Speaker 1: not even getting a menu. You're just using your phone
Speaker 1: to scan that that QR code on the table. Those
Speaker 1: sort of things gradually show up to the bottom line.
Speaker 1: They make things more productive, quicker better. You know, if
Speaker 1: restaurants have a faster turnover, they're they're seeing more people,
Speaker 1: they're they're making more revenue starting serving more meals. So
Speaker 1: maybe you'll start to see productivity gains there. But white
Speaker 1: collar workers productivity gains have been spectacular. Verry got an
Speaker 1: important question. I'm moving back to New York in just
Speaker 1: a couple of months. I gotta reportedly one one year
Speaker 1: old daughter and a um three point eight leader flat
Speaker 1: six in a stick shiftsion and baby seat in the
Speaker 1: in the back of that. I think, so what my
Speaker 1: my thought is this, I would love to give it
Speaker 1: to her. I met a guy the other day who
Speaker 1: had a nice going to give the eleven well when
Speaker 1: she's older. I met a guy the other day. He
Speaker 1: was with his dad. He was seventeen with his dad
Speaker 1: when he bought the car that he now drives. And
Speaker 1: but I'm I'm moving back. Freight rates are like twenty
Speaker 1: thousand for for container and use car prices are soaring.
Speaker 1: Do I let go of it before I come home?
Speaker 1: So my daughter is gonna live in a sea of
Speaker 1: self driving electric cars. It's gonna be pretty cool for
Speaker 1: this very very simple question. Is this an air cooled
Speaker 1: nine eleven or a later war No, it's so hit
Speaker 1: that bit. You can sell that, take the profit and
Speaker 1: then go by yourself for a car that will continue
Speaker 1: to appreciate. Minivan stick Now, well that you don't need
Speaker 1: a minivan in New York. You can uber wherever you're going.
Speaker 1: But if you want to give your daughter a nine eleven,
Speaker 1: give her something that that's going to be worth something
Speaker 1: in twenty years. You know, water cooled modern Porsche. They're
Speaker 1: great today, but you know ten years from now that
Speaker 1: that's gonna be pure electric. So go back to what
Speaker 1: is it p Give her an air cooled nine eleven
Speaker 1: and she'll teach her to drive a stick and she'll
Speaker 1: be a happy camper. I like it. Yeah, I'll go
Speaker 1: before that, because then the last air cold I don't
Speaker 1: like the way the head headlights were so slanty. I
Speaker 1: like the nine six four because I'm a child of
Speaker 1: the eighties, you know. That's the look for me, not
Speaker 1: the Turbo, just a simple maybe even an earlier eighties Carrera.
Speaker 1: Barry rid Holt's always great to have you on Bloomberg
Speaker 1: Opinion contributory. He runs rid Hole twelfth Management, and he
Speaker 1: writes a blog is well called The Big Picture. This
Speaker 1: is Bloomberg. Thanks for listening to the Bloomberg Markets podcast.
Speaker 1: You can subscribe and listen to interviews with Apple Podcasts
Speaker 1: or whatever podcast platform you prefer. I'm Matt Miller. I'm
Speaker 1: on Twitter at Matt Miller nineteen seventy three. Put on
Speaker 1: ball Sweeney. I'm on Twitter at pt Sweeney. Before the podcast.
Speaker 1: You can always catch us worldwide at Bloomberg Radio.