Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News. Hello and welcome to
Speaker 1: The Money Stuff Podcast, your weekly podcast where we talk
Speaker 1: about stuff related to money. I'm Matt Levine, and I
Speaker 1: write the Money Stuff column for Bloomberg Opinion.
Speaker 2: And I'm Katie Greifeld, a reporter for Bloomberg News and
Speaker 2: an anchor for Bloomberg Television.
Speaker 1: Bring this off script?
Speaker 2: Forgot for a moment. What do I do? Matt? It
Speaker 2: was funny last week we joked about.
Speaker 1: The all Tariffs episode. Yeah, I think I yeah, the
Speaker 1: monkey hand curled or whatever.
Speaker 2: Here we are, Here, we are.
Speaker 1: It's an episode, Kitty. I'm your in vocation next week.
Speaker 2: Yes you are.
Speaker 1: Service for the Money Stuff Podcast may or may not
Speaker 1: continue uninterrupted. But I'm going on vacation. I mentioned that
Speaker 1: because things have been a little crazy in the financial markets,
Speaker 1: and I do have some history of things being crazier
Speaker 1: when I'm on vacation. Someone liked a subject report about
Speaker 1: where the financial markets are more volatile when I'm on vacation. Certainly,
Speaker 1: Elon Musk seems to be a little bit more volatile
Speaker 1: when I'm on vocation. And one time, when I was
Speaker 1: an investment banker, I went on vacation, and it was
Speaker 1: September of two thousand and eight and the Lehman Brothers filed.
Speaker 2: For bankerscy, Like, oh first, oh my god.
Speaker 1: Yeah, So we're recording this on Wednesday. We are twenty
Speaker 1: minutes before we started recording, turned out that the tariffs
Speaker 1: were a joke.
Speaker 2: I mean I do. I mean, I shure her to think,
Speaker 2: what fresh hell awaits us next week when you are
Speaker 2: on vacation.
Speaker 1: I know, but I think that what I'm saying is
Speaker 1: there's some chance that it's no fresh hell. It's some
Speaker 1: chance that all of the tariffics I've ben't was this week.
Speaker 1: Donald Trump announced there's like a ninety day pause on
Speaker 1: the tariffs.
Speaker 2: And like, that's so naive.
Speaker 1: Who's going to remember any of this in ninety days?
Speaker 1: I know, it's pretty nicie. But still there's some chance
Speaker 1: that next week will be less crazy than this week,
Speaker 1: and sometimes it'll be much crazier.
Speaker 2: I mean, we can only hope and pray. But I'm
Speaker 2: glad you signposted that this is happening on Wednesday, because
Speaker 2: I mean, this podcast could be a relevant and by Friday.
Speaker 2: But at least what we know right now is that
Speaker 2: Trump said that he is pausing terrorists for ninety days
Speaker 2: on countries that didn't retaliate. That means China.
Speaker 1: He who knows, right, but it seems to me and
Speaker 1: the tyres are paused except on China.
Speaker 2: Yes, yes, In fact, he raised tariffs to one hundred
Speaker 2: and twenty five percent.
Speaker 1: Are not paused on other countries, right, they're like ten percent?
Speaker 1: I don't understand it. Yeah, well, let's the reciprocal who cares.
Speaker 2: Let's like a too deep into the details here, but
Speaker 2: this is interesting. We were going to talk about Walter Bloomberg,
Speaker 2: who sort of actually gave us a no no relation,
Speaker 2: no relation to Bloomberg News, but it kind of gave
Speaker 2: us a dry run of what we saw unfold in
Speaker 2: the markets because he he sent that tweet, that headline
Speaker 2: which turned out to be fake, but it was written
Speaker 2: in Bloomberg News style about a ninety day pause. I
Speaker 2: believe it was on Monday. I was, of course on
Speaker 2: live television as I often am during these events. That
Speaker 2: ended up being fake, but CNBC and Reuters ran with
Speaker 2: it and then had to issue corrections, but stocks surged
Speaker 2: after that. They then came back after it was revealed
Speaker 2: that that was not based in reality and again, it
Speaker 2: was like a nice dry run. It was a teachable
Speaker 2: moment that when there is any good news that you're
Speaker 2: going to see markets absolutely explode. And that's what's happening,
Speaker 2: at least for right now.
Speaker 1: It's so weird that it was accurate two days in advance, right, Yeah,
Speaker 1: it'd be one thing if he was like up, towers
Speaker 1: are off, but like it's the same. It's the real thing.
Speaker 1: Sort of.
Speaker 2: So do we want to talk about where the ninety
Speaker 2: day idea came from?
Speaker 1: Are you going to tell me where it came from?
Speaker 2: A friend of the show, Bill Lackman. At least he
Speaker 2: was one of the I think he's the first person
Speaker 2: I saw who floated that idea, tweeting over the weekend
Speaker 2: that Trump should do a ninety day pause because it
Speaker 2: takes a long time to negotiate deals and move manufacturing,
Speaker 2: et cetera.
Speaker 1: Manufacturer. Yeah, I mean, look a sure toketend anything makes sense.
Speaker 1: It makes sense. But I do love that, Like, it's
Speaker 1: not quite that Walter Bloomberg pseudonymous Twitter account.
Speaker 2: Who tweets I want to know it's so bad.
Speaker 1: It's not quite that he this up. It's like someone
Speaker 1: asked Trump advisor Kevin hasse This is the thing like
Speaker 1: with the Trump administration, you can ask anything and they'd
Speaker 1: be like, yeah, maybe that has what about a ninety
Speaker 1: day pause? And he said something like no, but you
Speaker 1: could sort of read it to me and.
Speaker 2: Maybe he made a noise and then he said, or Bill, yeah,
Speaker 2: you know, I think that the president is going to
Speaker 2: decide what the president is going to decide.
Speaker 1: Which is not exactly a no, it's not a yes.
Speaker 2: But you know, but boy, it doesn't exactly translate into
Speaker 2: the headline.
Speaker 1: You wouldn't send it all caps headline for that. If
Speaker 1: you would, it would be like Trump is going to
Speaker 1: do what Trump is going to do.
Speaker 2: It's not a very news You could send it any
Speaker 2: time a moment. So yeah, it doesn't exactly translate into
Speaker 2: the headline that Walter Bloomberg said. I love this only
Speaker 2: because I mean, Twitter is not real life, but this
Speaker 2: is a moment where Twitter briefly became real life.
Speaker 1: But like, by the way, as far as I can tell,
Speaker 1: you know, we're recording this like two o'clock on Wednesday.
Speaker 1: As far as I can tell, the only indication that
Speaker 1: the tires are paused is a truth social post true.
Speaker 2: That's true. Actually I saw things.
Speaker 1: Get like you know, there's you know how a bill
Speaker 1: becomes a law. It's like there's truth social right.
Speaker 2: Yeah, I want to read you something. I thought this
Speaker 2: was fantastic. So Commerce Secretary Howard Lutne posted Scott Bessett,
Speaker 2: and I sat with the President while he wrote one
Speaker 2: of the most extraordinary truth posts of his presidency, most
Speaker 2: not like you know, sat down with his scroll and
Speaker 2: his quill and like penned out like this, you know,
Speaker 2: poetry like Gettysburg address. It was a truth social post.
Speaker 2: So I mean that is where policy happens on social media.
Speaker 1: Now we're not going to add up just staring.
Speaker 2: This is why it needs to be a video podcast.
Speaker 2: And that's eyes just sort of went cold and we
Speaker 2: stare at each other.
Speaker 1: I mean, like I've written this is not interesting, But
Speaker 1: I've written this week about how the Constitution of the
Speaker 1: United States says that the all tier of power is
Speaker 1: in Congress, and like the whole set of rules in
Speaker 1: the Constitution and the actual Constitution about how revenue raising
Speaker 1: laws need to be passed where the House has to
Speaker 1: initiate them. It's like a whole thing, and like we
Speaker 1: have twisted the world where now it's like you sit
Speaker 1: down and you read it consequential truth social post, and
Speaker 1: that's how tax policy gets made. It's pretty weird, man,
Speaker 1: It's pretty weird.
Speaker 2: It is.
Speaker 1: This is going to be the Awkward Pauses.
Speaker 2: Episode of I want to talk about Walter Bloomberg a
Speaker 2: little bit more. We know that he's French. I think
Speaker 2: once he posted a screenshot that you know, his browser
Speaker 2: was in French or something, and that was interesting.
Speaker 1: I like that you pay as much attention to Walter
Speaker 1: Bloomberg as Walter bloom I'm going to assume pays attention
Speaker 1: to Bloomberg.
Speaker 2: I mean, I just love anyone who's so committed to
Speaker 2: the game, and he is so committed to the game
Speaker 2: so posting screenshots or rather just posting terminal headlines right.
Speaker 1: And one thing I said about it is like, what
Speaker 1: an amazing long game it would be to spend years
Speaker 1: just posting all cap terminal headlines for people who don't
Speaker 1: get the terminal and building up a following of people
Speaker 1: who want to follow Bloomberg terminal headlines in real time
Speaker 1: for years and years and years of just doing that
Speaker 1: consistently all the time, and then one day, one fake
Speaker 1: Bloomberg headline to move the market by two point five trillion.
Speaker 2: Lives, what a great rate.
Speaker 1: Yeah, you can't really monetize it because it's like you're
Speaker 1: moving all of the stocks. But like, I don't know,
Speaker 1: there's something really beautiful about doing such a enormous stock
Speaker 1: Manipulation as a is a harsh term, but you know
Speaker 1: he manipulated the stocks.
Speaker 2: Yeah, I mean, I'm sure you could find some way
Speaker 2: to monetize it.
Speaker 1: Oh, sure you can just buy some stocks, but it's
Speaker 1: like you can't, like you know, you're gonna make two
Speaker 1: point five trillion dollars by moving the market by two
Speaker 1: point five trillion dollars.
Speaker 2: Yeah.
Speaker 1: Remember when bitcoin spot ETFs were.
Speaker 2: Approved, Yeah, I'll never forget.
Speaker 1: And someone tweeted a fake headline about the media approved.
Speaker 2: Yeah that wasnt eight hours before they.
Speaker 1: Were approved, And it's like everyone knew when the SEC
Speaker 1: was going to act, and like someone treated that they
Speaker 1: got approved like a few hours earlier, and like there's
Speaker 1: like a little spike in bitcoin and it seemed to
Speaker 1: be some sort of attempt to manipulate the market. But
Speaker 1: it was so weird you never knew it was going
Speaker 1: to happen, and it did happen a few hours later.
Speaker 1: This is not like that. This was I think more
Speaker 1: or less a genuine surprise when Trump really did the
Speaker 1: thing that he was rumored to do two days earlier.
Speaker 2: But yeah, that's true. I mean, you know, actually he
Speaker 2: did say he did post on truth Social earlier on Wednesday.
Speaker 2: Now is a good time to buy?
Speaker 1: Amazing, what an amazing thing to do.
Speaker 2: It turns out that was the signal. And I'm so
Speaker 2: happy that I have this timestamped because I said on TV,
Speaker 2: this raises the possibility that actually the Trump put does exist.
Speaker 2: He's clearly watching the stock market and sees it puking
Speaker 2: right now, and then hours later comes out with this
Speaker 2: extremely stock market friendly headline.
Speaker 1: I know, but isn't it so weird because like, if
Speaker 1: you listen to the things that like the Trump team say,
Speaker 1: there are things like the tariffs will be good for
Speaker 1: America in the long term, right yeah, and then to
Speaker 1: like pause the tariffs like you would you would think
Speaker 1: that saying this is the time to buy it means
Speaker 1: because the market is incorrectly reacting to the glorious future
Speaker 1: ahead of us because of these tariffs. But in fact,
Speaker 1: it means because I'm bucking back the tariffs in a
Speaker 1: few hours. Well, maybe it doesn't mean that. Who knows, who.
Speaker 2: Knows, who knows he did sign it, TJT or whatever.
Speaker 2: I can't believe we aren't actually doing an episode on tariffs.
Speaker 1: It is disappointing.
Speaker 2: Anyway, So Walter Bloomberg, So I think it's at least
Speaker 2: the New York Times, but maybe too. The Wall Street
Speaker 2: Journal DMed him and he answered, and he sort of
Speaker 2: deconstructed how he got there. He said he saw some
Speaker 2: other account tweet it. Yeah, the market was responding, so
Speaker 2: then he ran with it.
Speaker 1: So this is like this is how everything works, right,
Speaker 1: because like then, like news stations were reporting it because
Speaker 1: they're like, the market is moving. Why is the market moving? Well,
Speaker 1: is this tweet? So we have to report on the tree? Yeah,
Speaker 1: that's a.
Speaker 2: Reasonable it's a daisy chain, yeah yeah.
Speaker 1: But it's really like it's you know, right, it's like
Speaker 1: this little snowball from like one person says a thing,
Speaker 1: and if you market moves on that, then someone else
Speaker 1: will say it because it's like, yeah, it's often very
Speaker 1: hard to explain market moves, and so people look for
Speaker 1: whatever they can and like one crisp tweet explaining the
Speaker 1: market move is like a useful thing, although here, like here,
Speaker 1: it clearly was the explanation.
Speaker 2: Can we have Walter Bloomberg on the show? I hope,
Speaker 2: so I'm going to DM him.
Speaker 1: Yeah, let's do it.
Speaker 2: I wonder if MS are open, I can find out.
Speaker 2: I can look at my phone right now.
Speaker 1: Should publish a terminal headline like Berg? Your MS to Katie.
Speaker 2: I'm just going to in all caps and put a
Speaker 2: little asterisk ahead of it so that whole think it's
Speaker 2: a Bloomberg headline. So you're saying, you know, it's hard
Speaker 2: to explain market moves. It's nice to have something crisp
Speaker 2: to point to. Shall we talk about what's going on
Speaker 2: in the treasury market? I guess yeah, A really satisfying
Speaker 2: boogeyman is just pointing to the basis trade to explain
Speaker 2: why bond yields have been blowing out even though everyone's
Speaker 2: worried about a recession, and up until an hour ago,
Speaker 2: stock markets had been pretty much flirting with bear market
Speaker 2: correction territory, you would expect treasuries to rally and bond
Speaker 2: yields to fall. That's not what has been happening. That.
Speaker 1: Yeah, you can tell various like fundamental macro stories about
Speaker 1: how the tariffs would cause treasure yields to rise and
Speaker 1: stock markets to fall. Right, Like, the story that I've
Speaker 1: been telling is the goal of the tariffs is to
Speaker 1: have foreigners buy more US goods and fewer US financial assets, which,
Speaker 1: like you would think would lead to losses in US
Speaker 1: financial assets such as stocks and also bonds. But it
Speaker 1: is also the case that the basis trade exists, and
Speaker 1: people do like talking about the basis trade. And one
Speaker 1: reason that people like talk about the basis trades is,
Speaker 1: like I've been thinking, like all week, like there's been
Speaker 1: huge moves in asset prices, driven entirely by like economic
Speaker 1: fundamentals and like government policy, right, but like huge moves
Speaker 1: and asset prices, And so every day you wake up
Speaker 1: and you're like, well, there's been huge moves in asset prices.
Speaker 1: What hedge fund is going to blow up? Right, Because
Speaker 1: like when they're big, like fundamental moves, like someone blows up, Right,
Speaker 1: And so you think a lot about contagion and deleveraging.
Speaker 1: And if you think about contigent and deleveraging, and you've
Speaker 1: been worrying about the basis trade for years and also
Speaker 1: know that the basis trade is run at like one
Speaker 1: hundred to one leverage ratios. Then like you know, you
Speaker 1: might think maybe someone is blowing out of a basis trade.
Speaker 2: Yeah, it's natural that you would think that. Also. I
Speaker 2: think it was Torston slock Over at Apollo who had
Speaker 2: a note out this week saying that he estimates the
Speaker 2: basis trade there's like eight hundred billion dollars in it
Speaker 2: right now. It makes sense why you would reach for that,
Speaker 2: given all the things that you just laid out. But
Speaker 2: I think also that people reach for it because it's
Speaker 2: hard to prove. We haven't seen any reports of a
Speaker 2: hedge fund blowing up.
Speaker 1: Like I really scare at these reports because I'm very
Speaker 1: interested in this question. And like there's definitely like stories
Speaker 1: like people are getting some margin calls, some hedge funds
Speaker 1: are doing some selling, but no one's like this fund
Speaker 1: liquidated at all its positions and shut down, right, Like
Speaker 1: there's no real this location. Yeah, Scott Bessen said this
Speaker 1: morning something like or said sometime this week something like
Speaker 1: this is a uncomfortable but normally leveraging.
Speaker 2: Yeah, you know you would expect, right, you would expect
Speaker 2: him to say that you.
Speaker 1: Know, I know, I know, but it also seems correct
Speaker 1: so far.
Speaker 2: Yeah, well, there's two trades that we're watching, right, It's
Speaker 2: the basis trade, but also it's swaps, like what's going
Speaker 2: on with asset swaps. There's a great piece from Edward Bolingbrook,
Speaker 2: and I kind of lump these together, but then I
Speaker 2: was reading a Wall Street Journal article that explained that
Speaker 2: these are two similar but different trades. Yeah, like swap spreads.
Speaker 1: Right, they're related trades because like on the one side
Speaker 1: of either trade you have like owning physical treasury bonds
Speaker 1: and on the other hand, you have some sort of
Speaker 1: interest rate derivative. So like with futures, it's like the
Speaker 1: basis trade is like you buy a treasury bond and
Speaker 1: you sell the futures contract that corresponds to that treasure bond.
Speaker 1: Swap spreads are like you sell a interest rate derivative
Speaker 1: that basically moves sofa. But it's it's kind of like
Speaker 1: the same, like it's like an unfunded long term interest
Speaker 1: rate contract.
Speaker 2: Right.
Speaker 1: And there again, like there's been a trade there where
Speaker 1: people think like treasuries will do well relative to the
Speaker 1: derivative for whatever reason. The reason has to be something
Speaker 1: like people will have better funding to buy treasuries, and
Speaker 1: so like one of the reasons for the basis trade
Speaker 1: in the swabs trade is like a belief that Trump
Speaker 1: would deregulate banks in such a way that banks would
Speaker 1: be more interested in using their balance sheet to hold
Speaker 1: actual treasuries, and so therefore demand for physical treasuries would
Speaker 1: go up relative to like demand for interest rate derivatives,
Speaker 1: which don't require as much balance sheet, and so banks
Speaker 1: would buy more treasuries. And so one reason to do
Speaker 1: like a basis trade of some form is because you
Speaker 1: think treasuries will go out relative to futures, and so
Speaker 1: you are betting on someone buying the treasuries from you.
Speaker 1: And one thing that's happened this week until today is
Speaker 1: for whatever reason, people are less interested in buying treasuries
Speaker 1: from you. Some of that is like been baked in
Speaker 1: for several weeks of like the projections about banks buying
Speaker 1: a lot of treasures because of regulation easing up don't
Speaker 1: seem to be coming true. And then some of it
Speaker 1: is like whatever fundamental events went on this week where
Speaker 1: people didn't want to buy treasuries.
Speaker 2: Yeah, I mean the swaps trade as I understand it,
Speaker 2: like that peaked in February, so that's been coming off
Speaker 2: the boil for a while.
Speaker 1: Yeah. I think the futures trade has too a little bit.
Speaker 1: But yeah, yeah, but all those swab spreads collapsed.
Speaker 2: Yeah, they cratered. I think that they hit at least
Speaker 2: a multi year low, if not a record low. But yeah,
Speaker 2: I don't know. I wonder where this goes in this
Speaker 2: new world or order.
Speaker 1: I don't know. I don't know.
Speaker 2: I will say that, you know, we were talking about
Speaker 2: the violent stock reaction to the upside to the ninety
Speaker 2: day pause. You saw shortened yields in the treasury market
Speaker 2: rise pretty sharply. The long end didn't react. Of course,
Speaker 2: I wanted timestamp this. We're talking on Wednesday, mid afternoon.
Speaker 2: But I don't know, Like I hear what you're saying
Speaker 2: that a product of these pols would just be people
Speaker 2: don't want to own US assets in general, but at
Speaker 2: least treasuries. The long end of the treasury curve had
Speaker 2: the narrative that, oh my god, we're worried about the economy,
Speaker 2: maybe might as well buy long end treasuries is a
Speaker 2: safe haven. But that obviously didn't happen this week.
Speaker 1: Yeah, I mean there's a lot of different markets for it, right,
Speaker 1: and like, yeah, nextent some of the market for long
Speaker 1: end treasures as tour and buyers. You can imagine less
Speaker 1: demand from them.
Speaker 2: Yeah, I guess it was expected though. I mean I've
Speaker 2: been tweeting about the treasury market all week, and I've
Speaker 2: had a lot of like tinfoil hats about since China
Speaker 2: dumping treasuries, if you knew this is going to happen, uh,
Speaker 2: I guess it was just expected that that haven impulse
Speaker 2: economic hard times you buy treasuries, that it's your muscle
Speaker 2: memory overwhelmed any overseas selling that you would see because
Speaker 2: China and Japan had been selling treasuries for years.
Speaker 1: Yeah. I wrote on that today, like Wednesday, Like the
Speaker 1: musclim memory stuff is like so interesting, right, Like in
Speaker 1: previous episodes of problems for the credit of the United States,
Speaker 1: people are like, better buy treasuries, right, and like it's
Speaker 1: not obvious that would always last forever. Yeah, you might
Speaker 1: like have some development that made you think, well, if
Speaker 1: like the demand for US financial assets goes down, then
Speaker 1: I should sell treasuries rather than buy them.
Speaker 2: Yeah, I don't know, We'll see mortgage rates are still
Speaker 2: really high, So I'm sad about that. Is there anything
Speaker 2: else to say about the Basis train at this moment?
Speaker 2: Seems scary?
Speaker 1: Yeah, I mean like there's a broader question of like
Speaker 1: will anyone blow up in this crazy volatility? Yeah, Like
Speaker 1: I don't know, Like you know, in general, like the
Speaker 1: theory is that banks are supposed to make money during
Speaker 1: periods of crazy volatility, but it's like that's like inaggregate
Speaker 1: and then like one person should blow up, right because
Speaker 1: they just get the crazy volatility wrong. Right. Someone was like, Oh,
Speaker 1: the market is so much further to go down, and
Speaker 1: like they got positioned themselves really short, and then like
Speaker 1: there's this huge rally on Wednesday asternoon. Yeah, someone's got
Speaker 1: to blow up.
Speaker 2: That's all. Some stat that the Basis trade is like
Speaker 2: double the size of what it was in twenty twenty
Speaker 2: when it blew up last and I still haven't seen
Speaker 2: any reports I've had trunk blow ups. So that'll be fun.
Speaker 1: Yeah, that'll be fun. Not an old Tiff episode.
Speaker 2: Do you have to talk about ETFs? Can we just
Speaker 2: say one thing? This was this was Matt's idea. Matt
Speaker 2: wanted to talk about leverage GTFS. This episode seen some
Speaker 2: comments on Spotify. I read all the comments. Someone said
Speaker 2: that this has turned into a boring ETF podcast. It's
Speaker 2: not my fault, man. This was Matt's idea, at least
Speaker 2: for this week.
Speaker 1: This is not a boring idea.
Speaker 2: This is The other ones were absolutely.
Speaker 1: The defiance micro strategy double short heads DTF. Its trade
Speaker 1: is it takes your money. It goes short a two
Speaker 1: time levered micro strategy ETF, and it also goes short
Speaker 1: two times levered inverse micro strategy ETF, So it is
Speaker 1: short two levered ETFs, one long, one short, so net
Speaker 1: it's short long micro strategy and short short micro strategy,
Speaker 1: each one doubled. So it's nothing right. It is neither
Speaker 1: long nor short micro strategy. All it is is it
Speaker 1: is short. The weird structural feature, which we've discussed more
Speaker 1: than once on this podcast, the weird structural feature of
Speaker 1: levered ETFs, which is that they track two times the
Speaker 1: move and micro strategy each day, but if you hold
Speaker 1: them for more than one day, they fail to track
Speaker 1: two times the move and micro strategy, and they weird,
Speaker 1: and like much of the time. The way they get
Speaker 1: weird is that they have some like slippage where they
Speaker 1: get less than the expected return. Yeah, and so if
Speaker 1: you're on the other side of that, you're you know,
Speaker 1: getting more than the expected return basically. And so like
Speaker 1: this thing has like they like a back test that
Speaker 1: makes like thirteen percent or something with no market risk,
Speaker 1: no correlation to anything else, just like a weird anomaly
Speaker 1: in the ETF market.
Speaker 2: Yeah, this is a real Frankenstein. I mean, as you
Speaker 2: laid out leverage gtfs, both long and short, they are
Speaker 2: one day only funds, especially you know for some of
Speaker 2: the crazier ones, that's really the only realistic holding period.
Speaker 2: I am a little bit salty because I wrote about
Speaker 2: a similar trade in my newsletter. It's called ETFIQ about
Speaker 2: Robert or Not of Research Affiliates. You did, he does
Speaker 2: this trade on the side. He told me that he
Speaker 2: likes too short both leverage long and inverse ETFs, and
Speaker 2: he described it as a slow, boring money machine, which
Speaker 2: I find really charming because I'm I mean, you would
Speaker 2: think that you would have to have a strong stomach
Speaker 2: to do this, to be shortening leverage gtfs, But I mean,
Speaker 2: as you just both sides exactly.
Speaker 1: You probably should have a strong stomach because like it's
Speaker 1: a boring money making trade for a reason, which is
Speaker 1: that it has some probability of blowing up in your face, right, Yeah,
Speaker 1: And the way it blows up in your face is
Speaker 1: like basically, the way these ets work is like they
Speaker 1: rebalance each day, and so the long one, like, every
Speaker 1: time the stock goes up, it has to buy more stock.
Speaker 1: Every time the stock goes down at the sell more stock,
Speaker 1: and so it is like volatility amplifying.
Speaker 2: Yeah, and if.
Speaker 1: The stock bounces around a lot, then it's constantly buying
Speaker 1: high and selling low and like bleeding because like people
Speaker 1: call it like volatility decay, Like they're yeah, bleeding like
Speaker 1: value each time they buy high and solo. But if
Speaker 1: the stock keeps going up, you're just compounding that. And
Speaker 1: so in fact, if the stock goes up every day,
Speaker 1: you get more than two times the return on micro
Speaker 1: strategy because you're like, you know, you keep buying into it.
Speaker 1: And so similarly, if you do this trade and the
Speaker 1: stock moves in one direction for a long time, I'm like,
Speaker 1: you're no longer fully edged, right, Like one of your
Speaker 1: legs those much better than the other leg. So it's
Speaker 1: a risky trade. Yeah, it's you know, it's effectively a
Speaker 1: market making trade, right, Like these ETFs are like creating volatility.
Speaker 1: They're like they're trading with someone on the other side
Speaker 1: who is like kind of a market maker and like
Speaker 1: selling them the volatility that they're giving people. We talk
Speaker 1: about them so much, like there's this podcast on this podcast,
Speaker 1: but people talk about like in general, there's sort of
Speaker 1: like a known thing that people kind of make fun of.
Speaker 1: And so if you're like a second level sophisticated retail investor,
Speaker 1: it's like, I know that people make fun of these
Speaker 1: like double levertytfs. How do I get on the other
Speaker 1: side of that? It's like, well, there's an ETF for
Speaker 1: that too. Yeah, Like people like Rob or not like
Speaker 1: are like how do I get on the other side
Speaker 1: of that? And you like do the trade, but then
Speaker 1: like someone's like, how do I package being on the
Speaker 1: other side of that and sell it to more retail investors?
Speaker 2: Yeah, Well, something that Rob and I talked about is that, yes,
Speaker 2: it's a great trade, but the borrowing costs can be
Speaker 2: pretty punishing. He's give me some details on his returns
Speaker 2: from doing this, and you know, I wrote this at
Speaker 2: the end of March, so things have changed. But he said.
Speaker 2: The twenty twenty fours gain for shorting again both long
Speaker 2: and inverse triple leverage GTFS, was around thirteen percent. Half
Speaker 2: of that went to borrowing costs for the short positions.
Speaker 2: You add in about five percent for collateral, and the
Speaker 2: return was about twelve percent. But that's with zero beta
Speaker 2: zero correlation to just about anything. That's a good trick,
Speaker 2: not a brilliant strategy, not of costs, but fun and
Speaker 2: low risks. So it's fun.
Speaker 1: It's fun. Yeah, it's one thing for Ropper or not
Speaker 1: to do it. I like the idea of like you
Speaker 1: look at the landscape of ETFs and you're like, what
Speaker 1: ETFs should people get mad about? I'm going to do
Speaker 1: the opposite of them. Yeah, it's like this is like
Speaker 1: the very like arcane version of that. But they were like,
Speaker 1: you know, anti Kathy Wood ETFs, where it was like,
Speaker 1: what are people negative about? I'm going to sell an
Speaker 1: ETF that package? Is that negativity? This is like people
Speaker 1: are negative about double levered ETFs. I'm going to find
Speaker 1: a way to make money on that.
Speaker 2: Here's the other side. Yeah, I'm interested to see these launch.
Speaker 2: It's just a filing. So sure. Rob did also say
Speaker 2: to me that anyone who buys a triple leverage GTF
Speaker 2: is crazy if they don't lend it out, because you
Speaker 2: did mention that there's a relatively short supply of these
Speaker 2: leverage gtfs that are available for lending, which is interesting.
Speaker 1: Like everybody who buys a triple LEVERYTF is there in
Speaker 1: sub sort of retail account, and some of them may
Speaker 1: not be aware that they can lend it out, or
Speaker 1: they may be they're brokers lending out for them. Probably so,
Speaker 1: as I mentioned, next week, I'm on vacation, and so
Speaker 1: I will not be recording a money Stuff podcast, but.
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