WEBVTT - Awkward Pauses: Tariffs, Basis, Leverage 0:00:02.720 --> 0:00:10.640 Bloomberg Audio Studios, Podcasts, Radio News. Hello and welcome to 0:00:10.640 --> 0:00:13.680 The Money Stuff Podcast, your weekly podcast where we talk 0:00:13.720 --> 0:00:17.000 about stuff related to money. I'm Matt Levine, and I 0:00:17.000 --> 0:00:19.040 write the Money Stuff column for Bloomberg Opinion. 0:00:19.280 --> 0:00:22.400 And I'm Katie Greifeld, a reporter for Bloomberg News and 0:00:22.440 --> 0:00:23.680 an anchor for Bloomberg Television. 0:00:23.720 --> 0:00:25.800 Bring this off script? 0:00:26.079 --> 0:00:29.319 Forgot for a moment. What do I do? Matt? It 0:00:29.400 --> 0:00:31.400 was funny last week we joked about. 0:00:31.440 --> 0:00:34.479 The all Tariffs episode. Yeah, I think I yeah, the 0:00:34.560 --> 0:00:35.880 monkey hand curled or whatever. 0:00:36.159 --> 0:00:38.040 Here we are, Here, we are. 0:00:38.080 --> 0:00:41.120 It's an episode, Kitty. I'm your in vocation next week. 0:00:41.240 --> 0:00:41.760 Yes you are. 0:00:42.000 --> 0:00:44.680 Service for the Money Stuff Podcast may or may not 0:00:44.760 --> 0:00:48.040 continue uninterrupted. But I'm going on vacation. I mentioned that 0:00:48.159 --> 0:00:51.680 because things have been a little crazy in the financial markets, 0:00:51.960 --> 0:00:57.160 and I do have some history of things being crazier 0:00:57.600 --> 0:01:01.120 when I'm on vacation. Someone liked a subject report about 0:01:01.160 --> 0:01:04.480 where the financial markets are more volatile when I'm on vacation. Certainly, 0:01:04.480 --> 0:01:06.320 Elon Musk seems to be a little bit more volatile 0:01:06.360 --> 0:01:09.640 when I'm on vocation. And one time, when I was 0:01:09.680 --> 0:01:13.039 an investment banker, I went on vacation, and it was 0:01:13.480 --> 0:01:15.720 September of two thousand and eight and the Lehman Brothers filed. 0:01:15.480 --> 0:01:17.600 For bankerscy, Like, oh first, oh my god. 0:01:17.840 --> 0:01:21.679 Yeah, So we're recording this on Wednesday. We are twenty 0:01:21.720 --> 0:01:24.440 minutes before we started recording, turned out that the tariffs 0:01:24.480 --> 0:01:25.000 were a joke. 0:01:26.520 --> 0:01:28.600 I mean I do. I mean, I shure her to think, 0:01:28.680 --> 0:01:31.120 what fresh hell awaits us next week when you are 0:01:31.120 --> 0:01:31.600 on vacation. 0:01:31.640 --> 0:01:33.039 I know, but I think that what I'm saying is 0:01:33.040 --> 0:01:35.520 there's some chance that it's no fresh hell. It's some 0:01:35.640 --> 0:01:38.840 chance that all of the tariffics I've ben't was this week. 0:01:39.280 --> 0:01:41.480 Donald Trump announced there's like a ninety day pause on 0:01:41.520 --> 0:01:42.520 the tariffs. 0:01:42.440 --> 0:01:44.200 And like, that's so naive. 0:01:44.240 --> 0:01:46.959 Who's going to remember any of this in ninety days? 0:01:47.360 --> 0:01:49.559 I know, it's pretty nicie. But still there's some chance 0:01:49.560 --> 0:01:51.720 that next week will be less crazy than this week, 0:01:51.720 --> 0:01:53.200 and sometimes it'll be much crazier. 0:01:53.280 --> 0:01:55.760 I mean, we can only hope and pray. But I'm 0:01:55.800 --> 0:01:58.360 glad you signposted that this is happening on Wednesday, because 0:01:58.560 --> 0:02:01.080 I mean, this podcast could be a relevant and by Friday. 0:02:01.560 --> 0:02:04.280 But at least what we know right now is that 0:02:05.040 --> 0:02:08.520 Trump said that he is pausing terrorists for ninety days 0:02:08.520 --> 0:02:11.639 on countries that didn't retaliate. That means China. 0:02:11.800 --> 0:02:14.080 He who knows, right, but it seems to me and 0:02:14.560 --> 0:02:16.560 the tyres are paused except on China. 0:02:16.680 --> 0:02:19.200 Yes, yes, In fact, he raised tariffs to one hundred 0:02:19.240 --> 0:02:20.000 and twenty five percent. 0:02:20.720 --> 0:02:22.960 Are not paused on other countries, right, they're like ten percent? 0:02:23.200 --> 0:02:26.440 I don't understand it. Yeah, well, let's the reciprocal who cares. 0:02:26.520 --> 0:02:28.680 Let's like a too deep into the details here, but 0:02:28.760 --> 0:02:32.320 this is interesting. We were going to talk about Walter Bloomberg, 0:02:32.760 --> 0:02:35.720 who sort of actually gave us a no no relation, 0:02:36.000 --> 0:02:39.000 no relation to Bloomberg News, but it kind of gave 0:02:39.080 --> 0:02:41.320 us a dry run of what we saw unfold in 0:02:41.360 --> 0:02:45.520 the markets because he he sent that tweet, that headline 0:02:45.520 --> 0:02:47.280 which turned out to be fake, but it was written 0:02:47.280 --> 0:02:49.800 in Bloomberg News style about a ninety day pause. I 0:02:49.800 --> 0:02:51.840 believe it was on Monday. I was, of course on 0:02:51.919 --> 0:02:55.160 live television as I often am during these events. That 0:02:55.320 --> 0:02:57.800 ended up being fake, but CNBC and Reuters ran with 0:02:57.800 --> 0:03:00.679 it and then had to issue corrections, but stocks surged 0:03:00.720 --> 0:03:04.200 after that. They then came back after it was revealed 0:03:04.240 --> 0:03:07.440 that that was not based in reality and again, it 0:03:07.520 --> 0:03:09.560 was like a nice dry run. It was a teachable 0:03:09.600 --> 0:03:11.960 moment that when there is any good news that you're 0:03:12.000 --> 0:03:16.000 going to see markets absolutely explode. And that's what's happening, 0:03:16.040 --> 0:03:17.000 at least for right now. 0:03:17.400 --> 0:03:20.799 It's so weird that it was accurate two days in advance, right, Yeah, 0:03:20.880 --> 0:03:22.400 it'd be one thing if he was like up, towers 0:03:22.400 --> 0:03:24.519 are off, but like it's the same. It's the real thing. 0:03:24.600 --> 0:03:24.960 Sort of. 0:03:25.040 --> 0:03:26.880 So do we want to talk about where the ninety 0:03:26.960 --> 0:03:27.960 day idea came from? 0:03:28.200 --> 0:03:29.520 Are you going to tell me where it came from? 0:03:29.560 --> 0:03:32.320 A friend of the show, Bill Lackman. At least he 0:03:32.440 --> 0:03:34.440 was one of the I think he's the first person 0:03:34.520 --> 0:03:37.160 I saw who floated that idea, tweeting over the weekend 0:03:37.200 --> 0:03:40.240 that Trump should do a ninety day pause because it 0:03:40.280 --> 0:03:43.640 takes a long time to negotiate deals and move manufacturing, 0:03:43.720 --> 0:03:44.160 et cetera. 0:03:45.440 --> 0:03:48.560 Manufacturer. Yeah, I mean, look a sure toketend anything makes sense. 0:03:48.600 --> 0:03:50.920 It makes sense. But I do love that, Like, it's 0:03:50.960 --> 0:03:54.360 not quite that Walter Bloomberg pseudonymous Twitter account. 0:03:54.000 --> 0:03:56.280 Who tweets I want to know it's so bad. 0:03:58.240 --> 0:04:02.160 It's not quite that he this up. It's like someone 0:04:02.360 --> 0:04:05.480 asked Trump advisor Kevin hasse This is the thing like 0:04:05.520 --> 0:04:08.080 with the Trump administration, you can ask anything and they'd 0:04:08.080 --> 0:04:12.080 be like, yeah, maybe that has what about a ninety 0:04:12.120 --> 0:04:14.760 day pause? And he said something like no, but you 0:04:14.760 --> 0:04:15.960 could sort of read it to me and. 0:04:15.920 --> 0:04:21.479 Maybe he made a noise and then he said, or Bill, yeah, 0:04:21.760 --> 0:04:23.880 you know, I think that the president is going to 0:04:23.880 --> 0:04:26.040 decide what the president is going to decide. 0:04:25.800 --> 0:04:28.760 Which is not exactly a no, it's not a yes. 0:04:28.920 --> 0:04:32.400 But you know, but boy, it doesn't exactly translate into 0:04:32.440 --> 0:04:32.880 the headline. 0:04:32.920 --> 0:04:35.160 You wouldn't send it all caps headline for that. If 0:04:35.160 --> 0:04:37.640 you would, it would be like Trump is going to 0:04:37.680 --> 0:04:38.640 do what Trump is going to do. 0:04:38.680 --> 0:04:41.240 It's not a very news You could send it any 0:04:41.360 --> 0:04:45.279 time a moment. So yeah, it doesn't exactly translate into 0:04:45.320 --> 0:04:49.640 the headline that Walter Bloomberg said. I love this only 0:04:49.680 --> 0:04:52.560 because I mean, Twitter is not real life, but this 0:04:52.640 --> 0:04:56.400 is a moment where Twitter briefly became real life. 0:04:56.560 --> 0:04:58.960 But like, by the way, as far as I can tell, 0:04:59.040 --> 0:05:01.320 you know, we're recording this like two o'clock on Wednesday. 0:05:02.240 --> 0:05:05.440 As far as I can tell, the only indication that 0:05:05.480 --> 0:05:09.640 the tires are paused is a truth social post true. 0:05:10.160 --> 0:05:13.560 That's true. Actually I saw things. 0:05:13.400 --> 0:05:16.200 Get like you know, there's you know how a bill 0:05:16.240 --> 0:05:18.719 becomes a law. It's like there's truth social right. 0:05:18.600 --> 0:05:21.440 Yeah, I want to read you something. I thought this 0:05:21.560 --> 0:05:26.440 was fantastic. So Commerce Secretary Howard Lutne posted Scott Bessett, 0:05:26.440 --> 0:05:28.400 and I sat with the President while he wrote one 0:05:28.400 --> 0:05:34.040 of the most extraordinary truth posts of his presidency, most 0:05:34.600 --> 0:05:37.520 not like you know, sat down with his scroll and 0:05:37.560 --> 0:05:40.400 his quill and like penned out like this, you know, 0:05:40.839 --> 0:05:43.679 poetry like Gettysburg address. It was a truth social post. 0:05:43.720 --> 0:05:46.599 So I mean that is where policy happens on social media. 0:05:46.640 --> 0:05:51.360 Now we're not going to add up just staring. 0:05:52.880 --> 0:05:54.920 This is why it needs to be a video podcast. 0:05:55.520 --> 0:05:57.920 And that's eyes just sort of went cold and we 0:05:57.960 --> 0:05:58.640 stare at each other. 0:05:58.760 --> 0:06:03.080 I mean, like I've written this is not interesting, But 0:06:03.080 --> 0:06:06.320 I've written this week about how the Constitution of the 0:06:06.400 --> 0:06:10.120 United States says that the all tier of power is 0:06:10.160 --> 0:06:12.839 in Congress, and like the whole set of rules in 0:06:12.880 --> 0:06:16.000 the Constitution and the actual Constitution about how revenue raising 0:06:16.640 --> 0:06:18.240 laws need to be passed where the House has to 0:06:18.240 --> 0:06:21.800 initiate them. It's like a whole thing, and like we 0:06:21.880 --> 0:06:24.960 have twisted the world where now it's like you sit 0:06:25.000 --> 0:06:27.760 down and you read it consequential truth social post, and 0:06:27.960 --> 0:06:31.760 that's how tax policy gets made. It's pretty weird, man, 0:06:31.839 --> 0:06:32.680 It's pretty weird. 0:06:33.400 --> 0:06:33.760 It is. 0:06:39.040 --> 0:06:40.760 This is going to be the Awkward Pauses. 0:06:40.440 --> 0:06:42.880 Episode of I want to talk about Walter Bloomberg a 0:06:42.920 --> 0:06:47.080 little bit more. We know that he's French. I think 0:06:47.279 --> 0:06:52.359 once he posted a screenshot that you know, his browser 0:06:52.440 --> 0:06:55.440 was in French or something, and that was interesting. 0:06:56.680 --> 0:06:58.920 I like that you pay as much attention to Walter 0:06:58.920 --> 0:07:01.400 Bloomberg as Walter bloom I'm going to assume pays attention 0:07:01.440 --> 0:07:01.960 to Bloomberg. 0:07:02.200 --> 0:07:04.719 I mean, I just love anyone who's so committed to 0:07:04.720 --> 0:07:07.240 the game, and he is so committed to the game 0:07:07.560 --> 0:07:11.680 so posting screenshots or rather just posting terminal headlines right. 0:07:12.040 --> 0:07:13.560 And one thing I said about it is like, what 0:07:13.680 --> 0:07:16.680 an amazing long game it would be to spend years 0:07:17.280 --> 0:07:19.880 just posting all cap terminal headlines for people who don't 0:07:19.880 --> 0:07:23.240 get the terminal and building up a following of people 0:07:23.280 --> 0:07:26.840 who want to follow Bloomberg terminal headlines in real time 0:07:27.360 --> 0:07:30.240 for years and years and years of just doing that 0:07:30.480 --> 0:07:33.559 consistently all the time, and then one day, one fake 0:07:33.600 --> 0:07:36.400 Bloomberg headline to move the market by two point five trillion. 0:07:36.280 --> 0:07:37.320 Lives, what a great rate. 0:07:37.760 --> 0:07:39.960 Yeah, you can't really monetize it because it's like you're 0:07:40.000 --> 0:07:41.880 moving all of the stocks. But like, I don't know, 0:07:42.040 --> 0:07:49.320 there's something really beautiful about doing such a enormous stock 0:07:49.400 --> 0:07:51.520 Manipulation as a is a harsh term, but you know 0:07:51.640 --> 0:07:52.840 he manipulated the stocks. 0:07:53.120 --> 0:07:55.840 Yeah, I mean, I'm sure you could find some way 0:07:55.880 --> 0:07:56.600 to monetize it. 0:07:56.680 --> 0:07:58.240 Oh, sure you can just buy some stocks, but it's 0:07:58.240 --> 0:08:00.720 like you can't, like you know, you're gonna make two 0:08:00.760 --> 0:08:03.160 point five trillion dollars by moving the market by two 0:08:03.160 --> 0:08:04.200 point five trillion dollars. 0:08:04.320 --> 0:08:04.800 Yeah. 0:08:05.040 --> 0:08:07.840 Remember when bitcoin spot ETFs were. 0:08:07.720 --> 0:08:09.960 Approved, Yeah, I'll never forget. 0:08:09.920 --> 0:08:14.880 And someone tweeted a fake headline about the media approved. 0:08:15.040 --> 0:08:17.000 Yeah that wasnt eight hours before they. 0:08:17.000 --> 0:08:19.440 Were approved, And it's like everyone knew when the SEC 0:08:19.600 --> 0:08:21.720 was going to act, and like someone treated that they 0:08:21.760 --> 0:08:24.040 got approved like a few hours earlier, and like there's 0:08:24.080 --> 0:08:27.280 like a little spike in bitcoin and it seemed to 0:08:27.320 --> 0:08:30.120 be some sort of attempt to manipulate the market. But 0:08:30.160 --> 0:08:31.800 it was so weird you never knew it was going 0:08:31.840 --> 0:08:33.440 to happen, and it did happen a few hours later. 0:08:34.320 --> 0:08:38.439 This is not like that. This was I think more 0:08:38.520 --> 0:08:41.000 or less a genuine surprise when Trump really did the 0:08:41.000 --> 0:08:42.880 thing that he was rumored to do two days earlier. 0:08:42.920 --> 0:08:46.840 But yeah, that's true. I mean, you know, actually he 0:08:46.920 --> 0:08:51.800 did say he did post on truth Social earlier on Wednesday. 0:08:52.240 --> 0:08:53.839 Now is a good time to buy? 0:08:53.960 --> 0:08:56.120 Amazing, what an amazing thing to do. 0:08:56.160 --> 0:08:58.280 It turns out that was the signal. And I'm so 0:08:58.400 --> 0:09:01.800 happy that I have this timestamped because I said on TV, 0:09:02.280 --> 0:09:05.840 this raises the possibility that actually the Trump put does exist. 0:09:05.920 --> 0:09:08.560 He's clearly watching the stock market and sees it puking 0:09:08.640 --> 0:09:11.240 right now, and then hours later comes out with this 0:09:11.520 --> 0:09:13.840 extremely stock market friendly headline. 0:09:14.000 --> 0:09:16.920 I know, but isn't it so weird because like, if 0:09:16.960 --> 0:09:20.240 you listen to the things that like the Trump team say, 0:09:20.840 --> 0:09:24.160 there are things like the tariffs will be good for 0:09:24.280 --> 0:09:27.520 America in the long term, right yeah, and then to 0:09:27.640 --> 0:09:33.400 like pause the tariffs like you would you would think 0:09:33.600 --> 0:09:35.280 that saying this is the time to buy it means 0:09:35.480 --> 0:09:39.400 because the market is incorrectly reacting to the glorious future 0:09:39.679 --> 0:09:42.200 ahead of us because of these tariffs. But in fact, 0:09:42.240 --> 0:09:44.440 it means because I'm bucking back the tariffs in a 0:09:44.440 --> 0:09:47.160 few hours. Well, maybe it doesn't mean that. Who knows, who. 0:09:47.040 --> 0:09:50.320 Knows, who knows he did sign it, TJT or whatever. 0:09:50.360 --> 0:09:53.280 I can't believe we aren't actually doing an episode on tariffs. 0:09:53.559 --> 0:09:56.480 It is disappointing. 0:09:56.160 --> 0:10:01.520 Anyway, So Walter Bloomberg, So I think it's at least 0:10:01.520 --> 0:10:03.800 the New York Times, but maybe too. The Wall Street 0:10:03.880 --> 0:10:06.520 Journal DMed him and he answered, and he sort of 0:10:06.559 --> 0:10:09.319 deconstructed how he got there. He said he saw some 0:10:09.400 --> 0:10:12.360 other account tweet it. Yeah, the market was responding, so 0:10:12.400 --> 0:10:13.559 then he ran with it. 0:10:13.960 --> 0:10:16.160 So this is like this is how everything works, right, 0:10:16.160 --> 0:10:19.040 because like then, like news stations were reporting it because 0:10:19.040 --> 0:10:21.680 they're like, the market is moving. Why is the market moving? Well, 0:10:21.800 --> 0:10:24.280 is this tweet? So we have to report on the tree? Yeah, 0:10:24.400 --> 0:10:24.640 that's a. 0:10:24.640 --> 0:10:27.280 Reasonable it's a daisy chain, yeah yeah. 0:10:27.000 --> 0:10:30.000 But it's really like it's you know, right, it's like 0:10:30.000 --> 0:10:32.439 this little snowball from like one person says a thing, 0:10:32.440 --> 0:10:34.240 and if you market moves on that, then someone else 0:10:34.280 --> 0:10:36.839 will say it because it's like, yeah, it's often very 0:10:36.840 --> 0:10:39.960 hard to explain market moves, and so people look for 0:10:40.000 --> 0:10:42.679 whatever they can and like one crisp tweet explaining the 0:10:42.720 --> 0:10:46.800 market move is like a useful thing, although here, like here, 0:10:46.800 --> 0:10:48.079 it clearly was the explanation. 0:10:48.280 --> 0:10:50.640 Can we have Walter Bloomberg on the show? I hope, 0:10:50.679 --> 0:10:52.000 so I'm going to DM him. 0:10:52.120 --> 0:10:52.760 Yeah, let's do it. 0:10:52.760 --> 0:10:55.680 I wonder if MS are open, I can find out. 0:10:56.400 --> 0:10:57.719 I can look at my phone right now. 0:10:57.760 --> 0:11:01.960 Should publish a terminal headline like Berg? Your MS to Katie. 0:11:02.000 --> 0:11:04.199 I'm just going to in all caps and put a 0:11:04.240 --> 0:11:06.240 little asterisk ahead of it so that whole think it's 0:11:06.280 --> 0:11:24.000 a Bloomberg headline. So you're saying, you know, it's hard 0:11:24.040 --> 0:11:26.760 to explain market moves. It's nice to have something crisp 0:11:26.840 --> 0:11:29.520 to point to. Shall we talk about what's going on 0:11:29.559 --> 0:11:33.840 in the treasury market? I guess yeah, A really satisfying 0:11:33.880 --> 0:11:36.600 boogeyman is just pointing to the basis trade to explain 0:11:36.640 --> 0:11:39.439 why bond yields have been blowing out even though everyone's 0:11:39.480 --> 0:11:42.000 worried about a recession, and up until an hour ago, 0:11:42.200 --> 0:11:45.880 stock markets had been pretty much flirting with bear market 0:11:46.280 --> 0:11:49.640 correction territory, you would expect treasuries to rally and bond 0:11:49.679 --> 0:11:52.400 yields to fall. That's not what has been happening. That. 0:11:53.679 --> 0:11:57.760 Yeah, you can tell various like fundamental macro stories about 0:11:57.800 --> 0:12:01.400 how the tariffs would cause treasure yields to rise and 0:12:01.600 --> 0:12:04.240 stock markets to fall. Right, Like, the story that I've 0:12:04.280 --> 0:12:07.560 been telling is the goal of the tariffs is to 0:12:08.559 --> 0:12:13.320 have foreigners buy more US goods and fewer US financial assets, which, 0:12:13.360 --> 0:12:17.079 like you would think would lead to losses in US 0:12:17.160 --> 0:12:22.560 financial assets such as stocks and also bonds. But it 0:12:22.640 --> 0:12:24.880 is also the case that the basis trade exists, and 0:12:25.600 --> 0:12:27.920 people do like talking about the basis trade. And one 0:12:27.920 --> 0:12:29.439 reason that people like talk about the basis trades is, 0:12:29.600 --> 0:12:34.319 like I've been thinking, like all week, like there's been 0:12:34.400 --> 0:12:37.440 huge moves in asset prices, driven entirely by like economic 0:12:37.480 --> 0:12:40.480 fundamentals and like government policy, right, but like huge moves 0:12:40.480 --> 0:12:43.360 and asset prices, And so every day you wake up 0:12:43.360 --> 0:12:45.439 and you're like, well, there's been huge moves in asset prices. 0:12:46.200 --> 0:12:48.120 What hedge fund is going to blow up? Right, Because 0:12:48.160 --> 0:12:50.920 like when they're big, like fundamental moves, like someone blows up, Right, 0:12:51.320 --> 0:12:53.800 And so you think a lot about contagion and deleveraging. 0:12:53.960 --> 0:12:57.040 And if you think about contigent and deleveraging, and you've 0:12:57.080 --> 0:13:00.800 been worrying about the basis trade for years and also 0:13:01.000 --> 0:13:02.640 know that the basis trade is run at like one 0:13:02.679 --> 0:13:04.920 hundred to one leverage ratios. Then like you know, you 0:13:05.040 --> 0:13:08.440 might think maybe someone is blowing out of a basis trade. 0:13:08.679 --> 0:13:12.160 Yeah, it's natural that you would think that. Also. I 0:13:12.200 --> 0:13:14.280 think it was Torston slock Over at Apollo who had 0:13:14.280 --> 0:13:16.760 a note out this week saying that he estimates the 0:13:16.800 --> 0:13:19.960 basis trade there's like eight hundred billion dollars in it 0:13:20.040 --> 0:13:22.040 right now. It makes sense why you would reach for that, 0:13:22.080 --> 0:13:23.800 given all the things that you just laid out. But 0:13:23.840 --> 0:13:26.240 I think also that people reach for it because it's 0:13:26.240 --> 0:13:29.960 hard to prove. We haven't seen any reports of a 0:13:30.000 --> 0:13:31.400 hedge fund blowing up. 0:13:31.640 --> 0:13:33.520 Like I really scare at these reports because I'm very 0:13:33.520 --> 0:13:36.640 interested in this question. And like there's definitely like stories 0:13:36.720 --> 0:13:40.160 like people are getting some margin calls, some hedge funds 0:13:40.160 --> 0:13:43.880 are doing some selling, but no one's like this fund 0:13:44.320 --> 0:13:46.480 liquidated at all its positions and shut down, right, Like 0:13:46.520 --> 0:13:50.760 there's no real this location. Yeah, Scott Bessen said this 0:13:50.840 --> 0:13:53.559 morning something like or said sometime this week something like 0:13:53.880 --> 0:13:56.439 this is a uncomfortable but normally leveraging. 0:13:56.679 --> 0:13:59.360 Yeah, you know you would expect, right, you would expect 0:13:59.400 --> 0:14:00.080 him to say that you. 0:14:00.040 --> 0:14:03.240 Know, I know, I know, but it also seems correct 0:14:03.360 --> 0:14:03.679 so far. 0:14:03.920 --> 0:14:07.480 Yeah, well, there's two trades that we're watching, right, It's 0:14:07.480 --> 0:14:10.960 the basis trade, but also it's swaps, like what's going 0:14:10.960 --> 0:14:14.880 on with asset swaps. There's a great piece from Edward Bolingbrook, 0:14:14.920 --> 0:14:16.760 and I kind of lump these together, but then I 0:14:16.800 --> 0:14:19.040 was reading a Wall Street Journal article that explained that 0:14:19.120 --> 0:14:25.120 these are two similar but different trades. Yeah, like swap spreads. 0:14:25.560 --> 0:14:28.320 Right, they're related trades because like on the one side 0:14:28.320 --> 0:14:31.360 of either trade you have like owning physical treasury bonds 0:14:31.640 --> 0:14:33.600 and on the other hand, you have some sort of 0:14:33.760 --> 0:14:36.280 interest rate derivative. So like with futures, it's like the 0:14:36.280 --> 0:14:38.680 basis trade is like you buy a treasury bond and 0:14:38.720 --> 0:14:42.520 you sell the futures contract that corresponds to that treasure bond. 0:14:43.280 --> 0:14:47.920 Swap spreads are like you sell a interest rate derivative 0:14:48.040 --> 0:14:51.280 that basically moves sofa. But it's it's kind of like 0:14:51.320 --> 0:14:54.600 the same, like it's like an unfunded long term interest 0:14:54.680 --> 0:14:55.360 rate contract. 0:14:55.720 --> 0:14:55.960 Right. 0:14:56.000 --> 0:15:00.920 And there again, like there's been a trade there where 0:15:00.920 --> 0:15:05.000 people think like treasuries will do well relative to the 0:15:05.000 --> 0:15:09.760 derivative for whatever reason. The reason has to be something 0:15:09.920 --> 0:15:13.160 like people will have better funding to buy treasuries, and 0:15:13.200 --> 0:15:15.760 so like one of the reasons for the basis trade 0:15:15.760 --> 0:15:19.640 in the swabs trade is like a belief that Trump 0:15:19.720 --> 0:15:23.480 would deregulate banks in such a way that banks would 0:15:23.560 --> 0:15:28.080 be more interested in using their balance sheet to hold 0:15:28.280 --> 0:15:32.280 actual treasuries, and so therefore demand for physical treasuries would 0:15:32.320 --> 0:15:35.240 go up relative to like demand for interest rate derivatives, 0:15:35.440 --> 0:15:38.960 which don't require as much balance sheet, and so banks 0:15:39.000 --> 0:15:42.440 would buy more treasuries. And so one reason to do 0:15:42.520 --> 0:15:46.680 like a basis trade of some form is because you 0:15:46.680 --> 0:15:48.840 think treasuries will go out relative to futures, and so 0:15:49.000 --> 0:15:51.800 you are betting on someone buying the treasuries from you. 0:15:52.120 --> 0:15:55.960 And one thing that's happened this week until today is 0:15:56.920 --> 0:15:59.520 for whatever reason, people are less interested in buying treasuries 0:15:59.520 --> 0:16:01.920 from you. Some of that is like been baked in 0:16:01.960 --> 0:16:05.880 for several weeks of like the projections about banks buying 0:16:05.880 --> 0:16:08.040 a lot of treasures because of regulation easing up don't 0:16:08.040 --> 0:16:09.720 seem to be coming true. And then some of it 0:16:09.800 --> 0:16:11.880 is like whatever fundamental events went on this week where 0:16:11.880 --> 0:16:13.320 people didn't want to buy treasuries. 0:16:13.560 --> 0:16:16.720 Yeah, I mean the swaps trade as I understand it, 0:16:16.760 --> 0:16:19.280 like that peaked in February, so that's been coming off 0:16:19.280 --> 0:16:20.240 the boil for a while. 0:16:20.360 --> 0:16:22.200 Yeah. I think the futures trade has too a little bit. 0:16:22.240 --> 0:16:25.400 But yeah, yeah, but all those swab spreads collapsed. 0:16:25.640 --> 0:16:30.080 Yeah, they cratered. I think that they hit at least 0:16:30.120 --> 0:16:33.240 a multi year low, if not a record low. But yeah, 0:16:33.320 --> 0:16:34.920 I don't know. I wonder where this goes in this 0:16:35.920 --> 0:16:36.880 new world or order. 0:16:37.160 --> 0:16:38.200 I don't know. I don't know. 0:16:38.600 --> 0:16:40.360 I will say that, you know, we were talking about 0:16:40.360 --> 0:16:42.920 the violent stock reaction to the upside to the ninety 0:16:42.960 --> 0:16:48.120 day pause. You saw shortened yields in the treasury market 0:16:48.440 --> 0:16:51.320 rise pretty sharply. The long end didn't react. Of course, 0:16:51.360 --> 0:16:54.760 I wanted timestamp this. We're talking on Wednesday, mid afternoon. 0:16:55.240 --> 0:16:57.640 But I don't know, Like I hear what you're saying 0:16:57.720 --> 0:17:01.680 that a product of these pols would just be people 0:17:01.720 --> 0:17:03.720 don't want to own US assets in general, but at 0:17:03.800 --> 0:17:06.480 least treasuries. The long end of the treasury curve had 0:17:06.480 --> 0:17:09.320 the narrative that, oh my god, we're worried about the economy, 0:17:09.320 --> 0:17:12.840 maybe might as well buy long end treasuries is a 0:17:12.840 --> 0:17:16.280 safe haven. But that obviously didn't happen this week. 0:17:16.800 --> 0:17:20.920 Yeah, I mean there's a lot of different markets for it, right, 0:17:20.960 --> 0:17:23.360 and like, yeah, nextent some of the market for long 0:17:23.400 --> 0:17:26.280 end treasures as tour and buyers. You can imagine less 0:17:26.280 --> 0:17:27.080 demand from them. 0:17:27.280 --> 0:17:29.600 Yeah, I guess it was expected though. I mean I've 0:17:29.600 --> 0:17:31.320 been tweeting about the treasury market all week, and I've 0:17:31.320 --> 0:17:33.480 had a lot of like tinfoil hats about since China 0:17:33.600 --> 0:17:36.239 dumping treasuries, if you knew this is going to happen, uh, 0:17:36.320 --> 0:17:39.399 I guess it was just expected that that haven impulse 0:17:39.680 --> 0:17:42.639 economic hard times you buy treasuries, that it's your muscle 0:17:42.680 --> 0:17:46.480 memory overwhelmed any overseas selling that you would see because 0:17:46.600 --> 0:17:49.440 China and Japan had been selling treasuries for years. 0:17:49.720 --> 0:17:52.399 Yeah. I wrote on that today, like Wednesday, Like the 0:17:52.520 --> 0:17:55.240 musclim memory stuff is like so interesting, right, Like in 0:17:55.359 --> 0:17:59.399 previous episodes of problems for the credit of the United States, 0:17:59.400 --> 0:18:02.120 people are like, better buy treasuries, right, and like it's 0:18:02.119 --> 0:18:05.200 not obvious that would always last forever. Yeah, you might 0:18:05.280 --> 0:18:09.440 like have some development that made you think, well, if 0:18:09.520 --> 0:18:12.919 like the demand for US financial assets goes down, then 0:18:13.000 --> 0:18:15.040 I should sell treasuries rather than buy them. 0:18:15.280 --> 0:18:19.320 Yeah, I don't know, We'll see mortgage rates are still 0:18:19.320 --> 0:18:22.720 really high, So I'm sad about that. Is there anything 0:18:22.760 --> 0:18:24.960 else to say about the Basis train at this moment? 0:18:25.280 --> 0:18:25.959 Seems scary? 0:18:26.560 --> 0:18:28.439 Yeah, I mean like there's a broader question of like 0:18:29.840 --> 0:18:33.479 will anyone blow up in this crazy volatility? Yeah, Like 0:18:33.520 --> 0:18:35.560 I don't know, Like you know, in general, like the 0:18:35.560 --> 0:18:38.080 theory is that banks are supposed to make money during 0:18:38.119 --> 0:18:41.560 periods of crazy volatility, but it's like that's like inaggregate 0:18:41.600 --> 0:18:43.680 and then like one person should blow up, right because 0:18:43.680 --> 0:18:47.639 they just get the crazy volatility wrong. Right. Someone was like, Oh, 0:18:47.720 --> 0:18:50.520 the market is so much further to go down, and 0:18:50.600 --> 0:18:52.800 like they got positioned themselves really short, and then like 0:18:52.920 --> 0:18:57.120 there's this huge rally on Wednesday asternoon. Yeah, someone's got 0:18:57.119 --> 0:18:57.640 to blow up. 0:19:00.000 --> 0:19:02.080 That's all. Some stat that the Basis trade is like 0:19:02.160 --> 0:19:05.200 double the size of what it was in twenty twenty 0:19:05.359 --> 0:19:08.400 when it blew up last and I still haven't seen 0:19:08.480 --> 0:19:11.520 any reports I've had trunk blow ups. So that'll be fun. 0:19:11.920 --> 0:19:32.960 Yeah, that'll be fun. Not an old Tiff episode. 0:19:34.000 --> 0:19:37.600 Do you have to talk about ETFs? Can we just 0:19:37.640 --> 0:19:40.560 say one thing? This was this was Matt's idea. Matt 0:19:40.600 --> 0:19:43.480 wanted to talk about leverage GTFS. This episode seen some 0:19:43.560 --> 0:19:47.320 comments on Spotify. I read all the comments. Someone said 0:19:47.320 --> 0:19:50.080 that this has turned into a boring ETF podcast. It's 0:19:50.119 --> 0:19:52.680 not my fault, man. This was Matt's idea, at least 0:19:52.720 --> 0:19:53.240 for this week. 0:19:53.440 --> 0:19:54.520 This is not a boring idea. 0:19:54.640 --> 0:19:59.960