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Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News. Hello and welcome to

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Speaker 1: The Money Stuff Podcast, your weekly podcast where we talk

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Speaker 1: about stuff related to money. I'm Matt Levine, and I

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Speaker 1: write the Money Stuff column for Bloomberg Opinion.

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Speaker 2: And I'm Katie Greifeld, a reporter for Bloomberg News and

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Speaker 2: an anchor for Bloomberg Television.

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Speaker 1: Bring this off script?

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Speaker 2: Forgot for a moment. What do I do? Matt? It

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Speaker 2: was funny last week we joked about.

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Speaker 1: The all Tariffs episode. Yeah, I think I yeah, the

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Speaker 1: monkey hand curled or whatever.

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Speaker 2: Here we are, Here, we are.

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Speaker 1: It's an episode, Kitty. I'm your in vocation next week.

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Speaker 2: Yes you are.

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Speaker 1: Service for the Money Stuff Podcast may or may not

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Speaker 1: continue uninterrupted. But I'm going on vacation. I mentioned that

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Speaker 1: because things have been a little crazy in the financial markets,

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Speaker 1: and I do have some history of things being crazier

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Speaker 1: when I'm on vacation. Someone liked a subject report about

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Speaker 1: where the financial markets are more volatile when I'm on vacation. Certainly,

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Speaker 1: Elon Musk seems to be a little bit more volatile

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Speaker 1: when I'm on vocation. And one time, when I was

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Speaker 1: an investment banker, I went on vacation, and it was

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Speaker 1: September of two thousand and eight and the Lehman Brothers filed.

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Speaker 2: For bankerscy, Like, oh first, oh my god.

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Speaker 1: Yeah, So we're recording this on Wednesday. We are twenty

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Speaker 1: minutes before we started recording, turned out that the tariffs

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Speaker 1: were a joke.

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Speaker 2: I mean I do. I mean, I shure her to think,

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Speaker 2: what fresh hell awaits us next week when you are

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Speaker 2: on vacation.

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Speaker 1: I know, but I think that what I'm saying is

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Speaker 1: there's some chance that it's no fresh hell. It's some

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Speaker 1: chance that all of the tariffics I've ben't was this week.

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Speaker 1: Donald Trump announced there's like a ninety day pause on

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Speaker 1: the tariffs.

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Speaker 2: And like, that's so naive.

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Speaker 1: Who's going to remember any of this in ninety days?

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Speaker 1: I know, it's pretty nicie. But still there's some chance

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Speaker 1: that next week will be less crazy than this week,

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Speaker 1: and sometimes it'll be much crazier.

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Speaker 2: I mean, we can only hope and pray. But I'm

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Speaker 2: glad you signposted that this is happening on Wednesday, because

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Speaker 2: I mean, this podcast could be a relevant and by Friday.

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Speaker 2: But at least what we know right now is that

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Speaker 2: Trump said that he is pausing terrorists for ninety days

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Speaker 2: on countries that didn't retaliate. That means China.

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Speaker 1: He who knows, right, but it seems to me and

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Speaker 1: the tyres are paused except on China.

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Speaker 2: Yes, yes, In fact, he raised tariffs to one hundred

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Speaker 2: and twenty five percent.

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Speaker 1: Are not paused on other countries, right, they're like ten percent?

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Speaker 1: I don't understand it. Yeah, well, let's the reciprocal who cares.

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Speaker 2: Let's like a too deep into the details here, but

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Speaker 2: this is interesting. We were going to talk about Walter Bloomberg,

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Speaker 2: who sort of actually gave us a no no relation,

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Speaker 2: no relation to Bloomberg News, but it kind of gave

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Speaker 2: us a dry run of what we saw unfold in

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Speaker 2: the markets because he he sent that tweet, that headline

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Speaker 2: which turned out to be fake, but it was written

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Speaker 2: in Bloomberg News style about a ninety day pause. I

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Speaker 2: believe it was on Monday. I was, of course on

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Speaker 2: live television as I often am during these events. That

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Speaker 2: ended up being fake, but CNBC and Reuters ran with

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Speaker 2: it and then had to issue corrections, but stocks surged

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Speaker 2: after that. They then came back after it was revealed

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Speaker 2: that that was not based in reality and again, it

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Speaker 2: was like a nice dry run. It was a teachable

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Speaker 2: moment that when there is any good news that you're

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Speaker 2: going to see markets absolutely explode. And that's what's happening,

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Speaker 2: at least for right now.

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Speaker 1: It's so weird that it was accurate two days in advance, right, Yeah,

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Speaker 1: it'd be one thing if he was like up, towers

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Speaker 1: are off, but like it's the same. It's the real thing.

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Speaker 1: Sort of.

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Speaker 2: So do we want to talk about where the ninety

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Speaker 2: day idea came from?

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Speaker 1: Are you going to tell me where it came from?

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Speaker 2: A friend of the show, Bill Lackman. At least he

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Speaker 2: was one of the I think he's the first person

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Speaker 2: I saw who floated that idea, tweeting over the weekend

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Speaker 2: that Trump should do a ninety day pause because it

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Speaker 2: takes a long time to negotiate deals and move manufacturing,

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Speaker 2: et cetera.

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Speaker 1: Manufacturer. Yeah, I mean, look a sure toketend anything makes sense.

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Speaker 1: It makes sense. But I do love that, Like, it's

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Speaker 1: not quite that Walter Bloomberg pseudonymous Twitter account.

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Speaker 2: Who tweets I want to know it's so bad.

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Speaker 1: It's not quite that he this up. It's like someone

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Speaker 1: asked Trump advisor Kevin hasse This is the thing like

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Speaker 1: with the Trump administration, you can ask anything and they'd

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Speaker 1: be like, yeah, maybe that has what about a ninety

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Speaker 1: day pause? And he said something like no, but you

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Speaker 1: could sort of read it to me and.

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Speaker 2: Maybe he made a noise and then he said, or Bill, yeah,

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Speaker 2: you know, I think that the president is going to

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Speaker 2: decide what the president is going to decide.

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Speaker 1: Which is not exactly a no, it's not a yes.

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Speaker 2: But you know, but boy, it doesn't exactly translate into

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Speaker 2: the headline.

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Speaker 1: You wouldn't send it all caps headline for that. If

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Speaker 1: you would, it would be like Trump is going to

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Speaker 1: do what Trump is going to do.

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Speaker 2: It's not a very news You could send it any

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Speaker 2: time a moment. So yeah, it doesn't exactly translate into

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Speaker 2: the headline that Walter Bloomberg said. I love this only

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Speaker 2: because I mean, Twitter is not real life, but this

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Speaker 2: is a moment where Twitter briefly became real life.

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Speaker 1: But like, by the way, as far as I can tell,

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Speaker 1: you know, we're recording this like two o'clock on Wednesday.

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Speaker 1: As far as I can tell, the only indication that

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Speaker 1: the tires are paused is a truth social post true.

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Speaker 2: That's true. Actually I saw things.

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Speaker 1: Get like you know, there's you know how a bill

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Speaker 1: becomes a law. It's like there's truth social right.

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Speaker 2: Yeah, I want to read you something. I thought this

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Speaker 2: was fantastic. So Commerce Secretary Howard Lutne posted Scott Bessett,

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Speaker 2: and I sat with the President while he wrote one

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Speaker 2: of the most extraordinary truth posts of his presidency, most

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Speaker 2: not like you know, sat down with his scroll and

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Speaker 2: his quill and like penned out like this, you know,

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Speaker 2: poetry like Gettysburg address. It was a truth social post.

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Speaker 2: So I mean that is where policy happens on social media.

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Speaker 1: Now we're not going to add up just staring.

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Speaker 2: This is why it needs to be a video podcast.

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Speaker 2: And that's eyes just sort of went cold and we

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Speaker 2: stare at each other.

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Speaker 1: I mean, like I've written this is not interesting, But

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Speaker 1: I've written this week about how the Constitution of the

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Speaker 1: United States says that the all tier of power is

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Speaker 1: in Congress, and like the whole set of rules in

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Speaker 1: the Constitution and the actual Constitution about how revenue raising

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Speaker 1: laws need to be passed where the House has to

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Speaker 1: initiate them. It's like a whole thing, and like we

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Speaker 1: have twisted the world where now it's like you sit

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Speaker 1: down and you read it consequential truth social post, and

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Speaker 1: that's how tax policy gets made. It's pretty weird, man,

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Speaker 1: It's pretty weird.

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Speaker 2: It is.

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Speaker 1: This is going to be the Awkward Pauses.

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Speaker 2: Episode of I want to talk about Walter Bloomberg a

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Speaker 2: little bit more. We know that he's French. I think

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Speaker 2: once he posted a screenshot that you know, his browser

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Speaker 2: was in French or something, and that was interesting.

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Speaker 1: I like that you pay as much attention to Walter

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Speaker 1: Bloomberg as Walter bloom I'm going to assume pays attention

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Speaker 1: to Bloomberg.

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Speaker 2: I mean, I just love anyone who's so committed to

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Speaker 2: the game, and he is so committed to the game

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Speaker 2: so posting screenshots or rather just posting terminal headlines right.

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Speaker 1: And one thing I said about it is like, what

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Speaker 1: an amazing long game it would be to spend years

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Speaker 1: just posting all cap terminal headlines for people who don't

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Speaker 1: get the terminal and building up a following of people

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Speaker 1: who want to follow Bloomberg terminal headlines in real time

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Speaker 1: for years and years and years of just doing that

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Speaker 1: consistently all the time, and then one day, one fake

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Speaker 1: Bloomberg headline to move the market by two point five trillion.

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Speaker 2: Lives, what a great rate.

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Speaker 1: Yeah, you can't really monetize it because it's like you're

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Speaker 1: moving all of the stocks. But like, I don't know,

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Speaker 1: there's something really beautiful about doing such a enormous stock

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Speaker 1: Manipulation as a is a harsh term, but you know

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Speaker 1: he manipulated the stocks.

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Speaker 2: Yeah, I mean, I'm sure you could find some way

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Speaker 2: to monetize it.

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Speaker 1: Oh, sure you can just buy some stocks, but it's

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Speaker 1: like you can't, like you know, you're gonna make two

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Speaker 1: point five trillion dollars by moving the market by two

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Speaker 1: point five trillion dollars.

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Speaker 2: Yeah.

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Speaker 1: Remember when bitcoin spot ETFs were.

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Speaker 2: Approved, Yeah, I'll never forget.

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Speaker 1: And someone tweeted a fake headline about the media approved.

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Speaker 2: Yeah that wasnt eight hours before they.

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Speaker 1: Were approved, And it's like everyone knew when the SEC

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Speaker 1: was going to act, and like someone treated that they

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Speaker 1: got approved like a few hours earlier, and like there's

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Speaker 1: like a little spike in bitcoin and it seemed to

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Speaker 1: be some sort of attempt to manipulate the market. But

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Speaker 1: it was so weird you never knew it was going

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Speaker 1: to happen, and it did happen a few hours later.

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Speaker 1: This is not like that. This was I think more

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Speaker 1: or less a genuine surprise when Trump really did the

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Speaker 1: thing that he was rumored to do two days earlier.

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Speaker 2: But yeah, that's true. I mean, you know, actually he

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Speaker 2: did say he did post on truth Social earlier on Wednesday.

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Speaker 2: Now is a good time to buy?

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Speaker 1: Amazing, what an amazing thing to do.

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Speaker 2: It turns out that was the signal. And I'm so

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Speaker 2: happy that I have this timestamped because I said on TV,

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Speaker 2: this raises the possibility that actually the Trump put does exist.

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Speaker 2: He's clearly watching the stock market and sees it puking

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Speaker 2: right now, and then hours later comes out with this

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Speaker 2: extremely stock market friendly headline.

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Speaker 1: I know, but isn't it so weird because like, if

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Speaker 1: you listen to the things that like the Trump team say,

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Speaker 1: there are things like the tariffs will be good for

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Speaker 1: America in the long term, right yeah, and then to

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Speaker 1: like pause the tariffs like you would you would think

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Speaker 1: that saying this is the time to buy it means

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Speaker 1: because the market is incorrectly reacting to the glorious future

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Speaker 1: ahead of us because of these tariffs. But in fact,

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Speaker 1: it means because I'm bucking back the tariffs in a

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Speaker 1: few hours. Well, maybe it doesn't mean that. Who knows, who.

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Speaker 2: Knows, who knows he did sign it, TJT or whatever.

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Speaker 2: I can't believe we aren't actually doing an episode on tariffs.

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Speaker 1: It is disappointing.

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Speaker 2: Anyway, So Walter Bloomberg, So I think it's at least

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Speaker 2: the New York Times, but maybe too. The Wall Street

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Speaker 2: Journal DMed him and he answered, and he sort of

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Speaker 2: deconstructed how he got there. He said he saw some

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Speaker 2: other account tweet it. Yeah, the market was responding, so

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Speaker 2: then he ran with it.

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Speaker 1: So this is like this is how everything works, right,

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Speaker 1: because like then, like news stations were reporting it because

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Speaker 1: they're like, the market is moving. Why is the market moving? Well,

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Speaker 1: is this tweet? So we have to report on the tree? Yeah,

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Speaker 1: that's a.

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Speaker 2: Reasonable it's a daisy chain, yeah yeah.

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Speaker 1: But it's really like it's you know, right, it's like

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Speaker 1: this little snowball from like one person says a thing,

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Speaker 1: and if you market moves on that, then someone else

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Speaker 1: will say it because it's like, yeah, it's often very

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Speaker 1: hard to explain market moves, and so people look for

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Speaker 1: whatever they can and like one crisp tweet explaining the

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Speaker 1: market move is like a useful thing, although here, like here,

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Speaker 1: it clearly was the explanation.

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Speaker 2: Can we have Walter Bloomberg on the show? I hope,

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Speaker 2: so I'm going to DM him.

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Speaker 1: Yeah, let's do it.

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Speaker 2: I wonder if MS are open, I can find out.

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Speaker 2: I can look at my phone right now.

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Speaker 1: Should publish a terminal headline like Berg? Your MS to Katie.

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Speaker 2: I'm just going to in all caps and put a

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Speaker 2: little asterisk ahead of it so that whole think it's

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Speaker 2: a Bloomberg headline. So you're saying, you know, it's hard

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Speaker 2: to explain market moves. It's nice to have something crisp

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Speaker 2: to point to. Shall we talk about what's going on

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Speaker 2: in the treasury market? I guess yeah, A really satisfying

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Speaker 2: boogeyman is just pointing to the basis trade to explain

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Speaker 2: why bond yields have been blowing out even though everyone's

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Speaker 2: worried about a recession, and up until an hour ago,

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Speaker 2: stock markets had been pretty much flirting with bear market

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Speaker 2: correction territory, you would expect treasuries to rally and bond

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Speaker 2: yields to fall. That's not what has been happening. That.

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Speaker 1: Yeah, you can tell various like fundamental macro stories about

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Speaker 1: how the tariffs would cause treasure yields to rise and

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Speaker 1: stock markets to fall. Right, Like, the story that I've

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Speaker 1: been telling is the goal of the tariffs is to

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Speaker 1: have foreigners buy more US goods and fewer US financial assets, which,

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Speaker 1: like you would think would lead to losses in US

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Speaker 1: financial assets such as stocks and also bonds. But it

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Speaker 1: is also the case that the basis trade exists, and

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Speaker 1: people do like talking about the basis trade. And one

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Speaker 1: reason that people like talk about the basis trades is,

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Speaker 1: like I've been thinking, like all week, like there's been

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Speaker 1: huge moves in asset prices, driven entirely by like economic

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Speaker 1: fundamentals and like government policy, right, but like huge moves

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Speaker 1: and asset prices, And so every day you wake up

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Speaker 1: and you're like, well, there's been huge moves in asset prices.

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Speaker 1: What hedge fund is going to blow up? Right, Because

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Speaker 1: like when they're big, like fundamental moves, like someone blows up, Right,

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Speaker 1: And so you think a lot about contagion and deleveraging.

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Speaker 1: And if you think about contigent and deleveraging, and you've

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Speaker 1: been worrying about the basis trade for years and also

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Speaker 1: know that the basis trade is run at like one

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Speaker 1: hundred to one leverage ratios. Then like you know, you

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Speaker 1: might think maybe someone is blowing out of a basis trade.

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Speaker 2: Yeah, it's natural that you would think that. Also. I

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Speaker 2: think it was Torston slock Over at Apollo who had

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Speaker 2: a note out this week saying that he estimates the

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Speaker 2: basis trade there's like eight hundred billion dollars in it

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Speaker 2: right now. It makes sense why you would reach for that,

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Speaker 2: given all the things that you just laid out. But

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Speaker 2: I think also that people reach for it because it's

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Speaker 2: hard to prove. We haven't seen any reports of a

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Speaker 2: hedge fund blowing up.

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Speaker 1: Like I really scare at these reports because I'm very

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Speaker 1: interested in this question. And like there's definitely like stories

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Speaker 1: like people are getting some margin calls, some hedge funds

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Speaker 1: are doing some selling, but no one's like this fund

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Speaker 1: liquidated at all its positions and shut down, right, Like

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Speaker 1: there's no real this location. Yeah, Scott Bessen said this

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Speaker 1: morning something like or said sometime this week something like

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Speaker 1: this is a uncomfortable but normally leveraging.

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Speaker 2: Yeah, you know you would expect, right, you would expect

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Speaker 2: him to say that you.

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Speaker 1: Know, I know, I know, but it also seems correct

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Speaker 1: so far.

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Speaker 2: Yeah, well, there's two trades that we're watching, right, It's

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Speaker 2: the basis trade, but also it's swaps, like what's going

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Speaker 2: on with asset swaps. There's a great piece from Edward Bolingbrook,

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Speaker 2: and I kind of lump these together, but then I

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Speaker 2: was reading a Wall Street Journal article that explained that

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Speaker 2: these are two similar but different trades. Yeah, like swap spreads.

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Speaker 1: Right, they're related trades because like on the one side

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Speaker 1: of either trade you have like owning physical treasury bonds

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Speaker 1: and on the other hand, you have some sort of

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Speaker 1: interest rate derivative. So like with futures, it's like the

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Speaker 1: basis trade is like you buy a treasury bond and

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Speaker 1: you sell the futures contract that corresponds to that treasure bond.

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Speaker 1: Swap spreads are like you sell a interest rate derivative

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Speaker 1: that basically moves sofa. But it's it's kind of like

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Speaker 1: the same, like it's like an unfunded long term interest

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Speaker 1: rate contract.

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Speaker 2: Right.

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Speaker 1: And there again, like there's been a trade there where

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Speaker 1: people think like treasuries will do well relative to the

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Speaker 1: derivative for whatever reason. The reason has to be something

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Speaker 1: like people will have better funding to buy treasuries, and

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Speaker 1: so like one of the reasons for the basis trade

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Speaker 1: in the swabs trade is like a belief that Trump

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Speaker 1: would deregulate banks in such a way that banks would

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Speaker 1: be more interested in using their balance sheet to hold

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Speaker 1: actual treasuries, and so therefore demand for physical treasuries would

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Speaker 1: go up relative to like demand for interest rate derivatives,

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Speaker 1: which don't require as much balance sheet, and so banks

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Speaker 1: would buy more treasuries. And so one reason to do

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Speaker 1: like a basis trade of some form is because you

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Speaker 1: think treasuries will go out relative to futures, and so

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Speaker 1: you are betting on someone buying the treasuries from you.

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Speaker 1: And one thing that's happened this week until today is

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Speaker 1: for whatever reason, people are less interested in buying treasuries

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Speaker 1: from you. Some of that is like been baked in

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Speaker 1: for several weeks of like the projections about banks buying

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Speaker 1: a lot of treasures because of regulation easing up don't

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Speaker 1: seem to be coming true. And then some of it

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Speaker 1: is like whatever fundamental events went on this week where

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Speaker 1: people didn't want to buy treasuries.

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Speaker 2: Yeah, I mean the swaps trade as I understand it,

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Speaker 2: like that peaked in February, so that's been coming off

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Speaker 2: the boil for a while.

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Speaker 1: Yeah. I think the futures trade has too a little bit.

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Speaker 1: But yeah, yeah, but all those swab spreads collapsed.

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Speaker 2: Yeah, they cratered. I think that they hit at least

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Speaker 2: a multi year low, if not a record low. But yeah,

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Speaker 2: I don't know. I wonder where this goes in this

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Speaker 2: new world or order.

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Speaker 1: I don't know. I don't know.

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Speaker 2: I will say that, you know, we were talking about

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Speaker 2: the violent stock reaction to the upside to the ninety

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Speaker 2: day pause. You saw shortened yields in the treasury market

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Speaker 2: rise pretty sharply. The long end didn't react. Of course,

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Speaker 2: I wanted timestamp this. We're talking on Wednesday, mid afternoon.

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Speaker 2: But I don't know, Like I hear what you're saying

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Speaker 2: that a product of these pols would just be people

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Speaker 2: don't want to own US assets in general, but at

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Speaker 2: least treasuries. The long end of the treasury curve had

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Speaker 2: the narrative that, oh my god, we're worried about the economy,

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Speaker 2: maybe might as well buy long end treasuries is a

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Speaker 2: safe haven. But that obviously didn't happen this week.

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Speaker 1: Yeah, I mean there's a lot of different markets for it, right,

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Speaker 1: and like, yeah, nextent some of the market for long

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Speaker 1: end treasures as tour and buyers. You can imagine less

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Speaker 1: demand from them.

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Speaker 2: Yeah, I guess it was expected though. I mean I've

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Speaker 2: been tweeting about the treasury market all week, and I've

359
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Speaker 2: had a lot of like tinfoil hats about since China

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Speaker 2: dumping treasuries, if you knew this is going to happen, uh,

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Speaker 2: I guess it was just expected that that haven impulse

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Speaker 2: economic hard times you buy treasuries, that it's your muscle

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Speaker 2: memory overwhelmed any overseas selling that you would see because

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Speaker 2: China and Japan had been selling treasuries for years.

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Speaker 1: Yeah. I wrote on that today, like Wednesday, Like the

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Speaker 1: musclim memory stuff is like so interesting, right, Like in

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Speaker 1: previous episodes of problems for the credit of the United States,

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Speaker 1: people are like, better buy treasuries, right, and like it's

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Speaker 1: not obvious that would always last forever. Yeah, you might

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Speaker 1: like have some development that made you think, well, if

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Speaker 1: like the demand for US financial assets goes down, then

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Speaker 1: I should sell treasuries rather than buy them.

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Speaker 2: Yeah, I don't know, We'll see mortgage rates are still

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Speaker 2: really high, So I'm sad about that. Is there anything

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Speaker 2: else to say about the Basis train at this moment?

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Speaker 2: Seems scary?

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Speaker 1: Yeah, I mean like there's a broader question of like

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Speaker 1: will anyone blow up in this crazy volatility? Yeah, Like

379
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Speaker 1: I don't know, Like you know, in general, like the

380
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Speaker 1: theory is that banks are supposed to make money during

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Speaker 1: periods of crazy volatility, but it's like that's like inaggregate

382
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Speaker 1: and then like one person should blow up, right because

383
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Speaker 1: they just get the crazy volatility wrong. Right. Someone was like, Oh,

384
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Speaker 1: the market is so much further to go down, and

385
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Speaker 1: like they got positioned themselves really short, and then like

386
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Speaker 1: there's this huge rally on Wednesday asternoon. Yeah, someone's got

387
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Speaker 1: to blow up.

388
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Speaker 2: That's all. Some stat that the Basis trade is like

389
00:19:02,160 --> 00:19:05,200
Speaker 2: double the size of what it was in twenty twenty

390
00:19:05,359 --> 00:19:08,400
Speaker 2: when it blew up last and I still haven't seen

391
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Speaker 2: any reports I've had trunk blow ups. So that'll be fun.

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Speaker 1: Yeah, that'll be fun. Not an old Tiff episode.

393
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Speaker 2: Do you have to talk about ETFs? Can we just

394
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Speaker 2: say one thing? This was this was Matt's idea. Matt

395
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Speaker 2: wanted to talk about leverage GTFS. This episode seen some

396
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Speaker 2: comments on Spotify. I read all the comments. Someone said

397
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Speaker 2: that this has turned into a boring ETF podcast. It's

398
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Speaker 2: not my fault, man. This was Matt's idea, at least

399
00:19:52,720 --> 00:19:53,240
Speaker 2: for this week.

400
00:19:53,440 --> 00:19:54,520
Speaker 1: This is not a boring idea.

401
00:19:54,640 --> 00:19:59,960
Speaker 2: This is The other ones were absolutely.

402
00:20:00,080 --> 00:20:04,879
Speaker 1: The defiance micro strategy double short heads DTF. Its trade

403
00:20:05,920 --> 00:20:11,840
Speaker 1: is it takes your money. It goes short a two

404
00:20:11,880 --> 00:20:16,640
Speaker 1: time levered micro strategy ETF, and it also goes short

405
00:20:16,640 --> 00:20:21,760
Speaker 1: two times levered inverse micro strategy ETF, So it is

406
00:20:21,800 --> 00:20:27,040
Speaker 1: short two levered ETFs, one long, one short, so net

407
00:20:27,359 --> 00:20:31,120
Speaker 1: it's short long micro strategy and short short micro strategy,

408
00:20:31,600 --> 00:20:34,800
Speaker 1: each one doubled. So it's nothing right. It is neither

409
00:20:34,920 --> 00:20:39,639
Speaker 1: long nor short micro strategy. All it is is it

410
00:20:39,720 --> 00:20:44,480
Speaker 1: is short. The weird structural feature, which we've discussed more

411
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Speaker 1: than once on this podcast, the weird structural feature of

412
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Speaker 1: levered ETFs, which is that they track two times the

413
00:20:52,000 --> 00:20:55,440
Speaker 1: move and micro strategy each day, but if you hold

414
00:20:55,480 --> 00:20:57,960
Speaker 1: them for more than one day, they fail to track

415
00:20:58,240 --> 00:21:00,440
Speaker 1: two times the move and micro strategy, and they weird,

416
00:21:00,960 --> 00:21:03,560
Speaker 1: and like much of the time. The way they get

417
00:21:03,560 --> 00:21:05,320
Speaker 1: weird is that they have some like slippage where they

418
00:21:05,320 --> 00:21:07,719
Speaker 1: get less than the expected return. Yeah, and so if

419
00:21:07,720 --> 00:21:10,399
Speaker 1: you're on the other side of that, you're you know,

420
00:21:10,440 --> 00:21:13,000
Speaker 1: getting more than the expected return basically. And so like

421
00:21:13,040 --> 00:21:15,320
Speaker 1: this thing has like they like a back test that

422
00:21:15,359 --> 00:21:18,280
Speaker 1: makes like thirteen percent or something with no market risk,

423
00:21:18,600 --> 00:21:22,119
Speaker 1: no correlation to anything else, just like a weird anomaly

424
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Speaker 1: in the ETF market.

425
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Speaker 2: Yeah, this is a real Frankenstein. I mean, as you

426
00:21:27,680 --> 00:21:30,479
Speaker 2: laid out leverage gtfs, both long and short, they are

427
00:21:30,520 --> 00:21:33,119
Speaker 2: one day only funds, especially you know for some of

428
00:21:33,119 --> 00:21:35,960
Speaker 2: the crazier ones, that's really the only realistic holding period.

429
00:21:36,640 --> 00:21:39,960
Speaker 2: I am a little bit salty because I wrote about

430
00:21:39,960 --> 00:21:44,200
Speaker 2: a similar trade in my newsletter. It's called ETFIQ about

431
00:21:44,240 --> 00:21:47,480
Speaker 2: Robert or Not of Research Affiliates. You did, he does

432
00:21:47,600 --> 00:21:51,040
Speaker 2: this trade on the side. He told me that he

433
00:21:51,280 --> 00:21:54,840
Speaker 2: likes too short both leverage long and inverse ETFs, and

434
00:21:54,960 --> 00:21:58,120
Speaker 2: he described it as a slow, boring money machine, which

435
00:21:58,160 --> 00:22:00,679
Speaker 2: I find really charming because I'm I mean, you would

436
00:22:00,880 --> 00:22:02,600
Speaker 2: think that you would have to have a strong stomach

437
00:22:02,680 --> 00:22:04,840
Speaker 2: to do this, to be shortening leverage gtfs, But I mean,

438
00:22:04,880 --> 00:22:07,879
Speaker 2: as you just both sides exactly.

439
00:22:07,359 --> 00:22:09,920
Speaker 1: You probably should have a strong stomach because like it's

440
00:22:09,920 --> 00:22:13,639
Speaker 1: a boring money making trade for a reason, which is

441
00:22:13,680 --> 00:22:17,159
Speaker 1: that it has some probability of blowing up in your face, right, Yeah,

442
00:22:17,200 --> 00:22:18,600
Speaker 1: And the way it blows up in your face is

443
00:22:18,600 --> 00:22:21,600
Speaker 1: like basically, the way these ets work is like they

444
00:22:21,640 --> 00:22:24,040
Speaker 1: rebalance each day, and so the long one, like, every

445
00:22:24,040 --> 00:22:25,600
Speaker 1: time the stock goes up, it has to buy more stock.

446
00:22:25,640 --> 00:22:27,600
Speaker 1: Every time the stock goes down at the sell more stock,

447
00:22:28,200 --> 00:22:32,040
Speaker 1: and so it is like volatility amplifying.

448
00:22:32,320 --> 00:22:33,320
Speaker 2: Yeah, and if.

449
00:22:33,200 --> 00:22:35,600
Speaker 1: The stock bounces around a lot, then it's constantly buying

450
00:22:35,680 --> 00:22:39,200
Speaker 1: high and selling low and like bleeding because like people

451
00:22:39,200 --> 00:22:42,879
Speaker 1: call it like volatility decay, Like they're yeah, bleeding like

452
00:22:43,200 --> 00:22:45,399
Speaker 1: value each time they buy high and solo. But if

453
00:22:45,440 --> 00:22:47,639
Speaker 1: the stock keeps going up, you're just compounding that. And

454
00:22:47,680 --> 00:22:50,280
Speaker 1: so in fact, if the stock goes up every day,

455
00:22:50,440 --> 00:22:52,360
Speaker 1: you get more than two times the return on micro

456
00:22:52,400 --> 00:22:54,560
Speaker 1: strategy because you're like, you know, you keep buying into it.

457
00:22:55,040 --> 00:22:58,240
Speaker 1: And so similarly, if you do this trade and the

458
00:22:58,280 --> 00:23:00,359
Speaker 1: stock moves in one direction for a long time, I'm like,

459
00:23:00,520 --> 00:23:02,359
Speaker 1: you're no longer fully edged, right, Like one of your

460
00:23:02,400 --> 00:23:06,080
Speaker 1: legs those much better than the other leg. So it's

461
00:23:06,080 --> 00:23:08,720
Speaker 1: a risky trade. Yeah, it's you know, it's effectively a

462
00:23:08,720 --> 00:23:12,520
Speaker 1: market making trade, right, Like these ETFs are like creating volatility.

463
00:23:12,560 --> 00:23:15,800
Speaker 1: They're like they're trading with someone on the other side

464
00:23:15,840 --> 00:23:17,320
Speaker 1: who is like kind of a market maker and like

465
00:23:17,359 --> 00:23:20,560
Speaker 1: selling them the volatility that they're giving people. We talk

466
00:23:20,600 --> 00:23:23,840
Speaker 1: about them so much, like there's this podcast on this podcast,

467
00:23:23,920 --> 00:23:25,879
Speaker 1: but people talk about like in general, there's sort of

468
00:23:25,880 --> 00:23:27,879
Speaker 1: like a known thing that people kind of make fun of.

469
00:23:28,320 --> 00:23:31,240
Speaker 1: And so if you're like a second level sophisticated retail investor,

470
00:23:31,240 --> 00:23:34,920
Speaker 1: it's like, I know that people make fun of these

471
00:23:34,960 --> 00:23:38,240
Speaker 1: like double levertytfs. How do I get on the other

472
00:23:38,280 --> 00:23:40,000
Speaker 1: side of that? It's like, well, there's an ETF for

473
00:23:40,040 --> 00:23:42,359
Speaker 1: that too. Yeah, Like people like Rob or not like

474
00:23:42,359 --> 00:23:43,680
Speaker 1: are like how do I get on the other side

475
00:23:43,680 --> 00:23:44,920
Speaker 1: of that? And you like do the trade, but then

476
00:23:44,960 --> 00:23:47,159
Speaker 1: like someone's like, how do I package being on the

477
00:23:47,200 --> 00:23:49,440
Speaker 1: other side of that and sell it to more retail investors?

478
00:23:49,560 --> 00:23:52,359
Speaker 2: Yeah, Well, something that Rob and I talked about is that, yes,

479
00:23:52,359 --> 00:23:54,639
Speaker 2: it's a great trade, but the borrowing costs can be

480
00:23:54,720 --> 00:23:58,800
Speaker 2: pretty punishing. He's give me some details on his returns

481
00:23:58,840 --> 00:24:00,840
Speaker 2: from doing this, and you know, I wrote this at

482
00:24:00,840 --> 00:24:03,639
Speaker 2: the end of March, so things have changed. But he said.

483
00:24:03,680 --> 00:24:08,520
Speaker 2: The twenty twenty fours gain for shorting again both long

484
00:24:08,560 --> 00:24:13,120
Speaker 2: and inverse triple leverage GTFS, was around thirteen percent. Half

485
00:24:13,160 --> 00:24:15,720
Speaker 2: of that went to borrowing costs for the short positions.

486
00:24:15,960 --> 00:24:18,520
Speaker 2: You add in about five percent for collateral, and the

487
00:24:18,560 --> 00:24:21,680
Speaker 2: return was about twelve percent. But that's with zero beta

488
00:24:21,840 --> 00:24:24,600
Speaker 2: zero correlation to just about anything. That's a good trick,

489
00:24:24,760 --> 00:24:27,560
Speaker 2: not a brilliant strategy, not of costs, but fun and

490
00:24:27,600 --> 00:24:29,080
Speaker 2: low risks. So it's fun.

491
00:24:29,200 --> 00:24:31,520
Speaker 1: It's fun. Yeah, it's one thing for Ropper or not

492
00:24:31,560 --> 00:24:34,000
Speaker 1: to do it. I like the idea of like you

493
00:24:34,040 --> 00:24:36,800
Speaker 1: look at the landscape of ETFs and you're like, what

494
00:24:36,880 --> 00:24:39,119
Speaker 1: ETFs should people get mad about? I'm going to do

495
00:24:39,160 --> 00:24:40,960
Speaker 1: the opposite of them. Yeah, it's like this is like

496
00:24:41,000 --> 00:24:43,679
Speaker 1: the very like arcane version of that. But they were like,

497
00:24:43,720 --> 00:24:45,919
Speaker 1: you know, anti Kathy Wood ETFs, where it was like,

498
00:24:46,840 --> 00:24:49,199
Speaker 1: what are people negative about? I'm going to sell an

499
00:24:49,200 --> 00:24:52,040
Speaker 1: ETF that package? Is that negativity? This is like people

500
00:24:52,119 --> 00:24:54,520
Speaker 1: are negative about double levered ETFs. I'm going to find

501
00:24:54,520 --> 00:24:55,359
Speaker 1: a way to make money on that.

502
00:24:55,520 --> 00:24:58,639
Speaker 2: Here's the other side. Yeah, I'm interested to see these launch.

503
00:24:58,760 --> 00:25:02,320
Speaker 2: It's just a filing. So sure. Rob did also say

504
00:25:02,359 --> 00:25:06,920
Speaker 2: to me that anyone who buys a triple leverage GTF

505
00:25:07,040 --> 00:25:09,240
Speaker 2: is crazy if they don't lend it out, because you

506
00:25:09,280 --> 00:25:12,479
Speaker 2: did mention that there's a relatively short supply of these

507
00:25:12,560 --> 00:25:16,760
Speaker 2: leverage gtfs that are available for lending, which is interesting.

508
00:25:17,040 --> 00:25:20,000
Speaker 1: Like everybody who buys a triple LEVERYTF is there in

509
00:25:20,080 --> 00:25:22,960
Speaker 1: sub sort of retail account, and some of them may

510
00:25:23,000 --> 00:25:24,439
Speaker 1: not be aware that they can lend it out, or

511
00:25:24,480 --> 00:25:28,919
Speaker 1: they may be they're brokers lending out for them. Probably so,

512
00:25:29,040 --> 00:25:31,959
Speaker 1: as I mentioned, next week, I'm on vacation, and so

513
00:25:32,240 --> 00:25:34,360
Speaker 1: I will not be recording a money Stuff podcast, but.

514
00:25:34,359 --> 00:25:36,560
Speaker 2: Fear not, fear not.

515
00:25:37,520 --> 00:25:40,720
Speaker 1: In approximately fifteen seconds will be recording a mail of

516
00:25:40,760 --> 00:25:42,240
Speaker 1: that episode, which will air next week.

517
00:25:42,640 --> 00:25:43,159
Speaker 2: Mail that.

518
00:25:45,840 --> 00:25:47,320
Speaker 1: And that was the Money Stuff podcast.

519
00:25:47,480 --> 00:25:49,480
Speaker 2: I'm Matt Levian and I'm Katie Greifeld.

520
00:25:49,840 --> 00:25:51,880
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521
00:25:51,920 --> 00:25:54,480
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522
00:25:54,240 --> 00:25:56,720
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523
00:25:56,800 --> 00:25:59,840
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524
00:26:00,040 --> 00:26:01,639
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525
00:26:01,640 --> 00:26:04,879
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527
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528
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530
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531
00:26:15,560 --> 00:26:16,520
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532
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533
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535
00:26:23,840 --> 00:26:26,159
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