WEBVTT - Stock Drop Bears Markings of a Flash Crash: ISI’s DeBusschere 0:00:05.800 --> 0:00:08.360 Welcome to the Bloomberg p m L Podcast. I'm pim 0:00:08.400 --> 0:00:11.200 Fox along with my co host Lisa A. Bramowitz. Each 0:00:11.240 --> 0:00:14.440 day we bring you the most important, noteworthy, and useful 0:00:14.480 --> 0:00:17.079 interviews for you and your money, whether you're at the 0:00:17.120 --> 0:00:20.360 grocery store or the trading floor. Find the Bloomberg p 0:00:20.520 --> 0:00:32.839 m L Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. 0:00:32.840 --> 0:00:36.920 A lot of analysts are calling yesterday's market crash a 0:00:37.080 --> 0:00:40.880 highly technical sell off, so I think it's wonderful day 0:00:40.920 --> 0:00:43.800 to take a look at the infrastructure of markets. Was 0:00:43.840 --> 0:00:47.080 this a flash crash and what does that mean about 0:00:47.280 --> 0:00:50.280 markets going forward? I am very happy to bring in 0:00:50.280 --> 0:00:53.159 Dennis Debuscher. He is head of portfolio strategy at ever 0:00:53.240 --> 0:00:55.319 Core I s I and he joins us right now 0:00:55.840 --> 0:00:58.760 by phone. Dennis, thank you so much for being with us. 0:00:58.800 --> 0:01:03.560 So did we the witness a flash crash? And what 0:01:03.640 --> 0:01:07.200 was behind this? I mean people are blaming algorithms. How 0:01:07.319 --> 0:01:10.200 how valid is that? Yeah, I mean it's tough to 0:01:10.240 --> 0:01:13.400 identify how valid it is, and we it's difficult to 0:01:13.440 --> 0:01:17.200 know what a flash crash technically is because it's a 0:01:17.280 --> 0:01:20.720 terminus defined very loosely. But I would argue as far 0:01:20.800 --> 0:01:23.600 as the vixus concern and as far as volatility is concerned, 0:01:23.600 --> 0:01:26.680 it was absolutely a flash crash. If you invert the chart, 0:01:26.720 --> 0:01:29.759 of course UM and for the markets, UM you had 0:01:29.840 --> 0:01:32.880 elements of it. So what does that mean? The markets 0:01:32.880 --> 0:01:36.640 and certainly in a quantitative driven world optimized to certain 0:01:37.040 --> 0:01:41.080 certain conditions, and the conditions that existed was um in 0:01:41.120 --> 0:01:45.000 which led to a massive short volatility Trait either implicitly 0:01:45.080 --> 0:01:47.440 or explicitly, was that there was going to be no 0:01:47.520 --> 0:01:52.240 inflation forever, and they were by extension, no economic volatility 0:01:52.280 --> 0:01:54.640 and no market volatility. And it now it seems like 0:01:54.680 --> 0:01:57.280 you're pricing in some level of inflation, some higher level 0:01:57.320 --> 0:01:59.880 of rates, and that started to kick in this unwind 0:02:00.040 --> 0:02:03.840 of this ultra levered I would argue short volatility bet 0:02:04.480 --> 0:02:06.760 and given that we went to a high of fifty 0:02:06.840 --> 0:02:09.440 overnight on the vix from nine just not too long 0:02:09.520 --> 0:02:11.720 and long ago, and it really accelerated course today, I 0:02:11.760 --> 0:02:14.079 would say absolutely it's a flash crash. I would say. 0:02:14.080 --> 0:02:15.720 The one additional point here to make, and I don't 0:02:15.720 --> 0:02:21.000 think people realize, is algos make electronic trading, and electronic 0:02:21.040 --> 0:02:25.880 trading dominates all trading right now, and so orders the 0:02:26.000 --> 0:02:28.320 depth of them are not as what they used to 0:02:28.320 --> 0:02:31.480 be when used to have classic market making UM people 0:02:31.639 --> 0:02:35.480 and bank that balance. She's very very levered in ability 0:02:35.520 --> 0:02:38.400 to absorb losses. So you have very little depth. And 0:02:38.440 --> 0:02:40.400 if you have millions of orders going in one direction 0:02:40.639 --> 0:02:43.440 and you re optimize to higher volatility, it can set 0:02:43.440 --> 0:02:47.840 off these type of crash flash crash events. Dennis, we 0:02:47.880 --> 0:02:50.000 want to just step back for a second, because as 0:02:50.000 --> 0:02:52.880 you just describe, you know, a lot of the trading, 0:02:53.000 --> 0:02:57.280 the day to day price is set by machines and algorithms, 0:02:57.280 --> 0:03:01.160 whereas investors may actually buy companies that they think are 0:03:01.200 --> 0:03:04.800 doing well or are going to actually do better um speak. 0:03:04.840 --> 0:03:08.560 If you cannabat capital spending expenditures when it comes to 0:03:08.639 --> 0:03:12.880 companies and the tax overhaul plan and how that may 0:03:13.200 --> 0:03:17.280 in affect sort of build on the improvements that we 0:03:17.320 --> 0:03:19.960 saw in the stock market at least last year, and 0:03:20.040 --> 0:03:23.000 that we're going to see some spending when companies get 0:03:23.040 --> 0:03:24.600 their hands on all that cash not just going to 0:03:24.680 --> 0:03:27.919 be all shared by backs. Yeah, I mean, first, thanks 0:03:27.919 --> 0:03:32.280 for talking about fundamentals, so um yes, I mean one 0:03:32.320 --> 0:03:33.760 of the things we've noticed and you can see it 0:03:33.760 --> 0:03:37.080 in the FEDS regional diffusion indices of capex plants of 0:03:37.120 --> 0:03:41.120 all accelerated meaningfully. It appears that post tax reform, atly 0:03:41.200 --> 0:03:44.240 from the confidence readings you're getting from businesses, that capital 0:03:44.920 --> 0:03:48.760 capital spending is going to increase meaningfully, which adds um. 0:03:48.800 --> 0:03:51.080 You know another level, if you will, to GDP growth 0:03:51.080 --> 0:03:54.280 that's been entirely consumption driven for a long period of time, 0:03:54.400 --> 0:03:58.400 so companies will be spending more um that is going 0:03:58.440 --> 0:04:02.520 to create much higher relative to expectations levels of GDP growth, 0:04:02.600 --> 0:04:05.200 not only this year but next year. And so that's 0:04:05.200 --> 0:04:07.360 why you have US GDP growth trending up from two 0:04:07.360 --> 0:04:09.400 and a half to say maybe even three, and global 0:04:09.440 --> 0:04:12.200 GDP because it's not just a US phenomenon somewhere in 0:04:12.200 --> 0:04:15.680 the three to three nine range. That's a very solid backdrop. 0:04:15.800 --> 0:04:17.920 And if you have some inflation with that and not 0:04:17.960 --> 0:04:21.560 a lot, that's a really good at backdrop for asset prices. Historically, 0:04:21.880 --> 0:04:24.520 we also have central bank policy globally that isn't going 0:04:24.560 --> 0:04:28.800 to be pushing hard against improving economic growth. I either 0:04:28.920 --> 0:04:30.880 not going to be trying to lift the unemployment rate 0:04:30.880 --> 0:04:35.320 to stop inflation. So all of that says that and 0:04:35.360 --> 0:04:37.560 that's probably why credit spreads haven't blown out, which everybody 0:04:37.600 --> 0:04:40.760 has talked about. That's why economic fundamentals are likely to 0:04:40.760 --> 0:04:44.080 stay relatively solid. That a lot of what's happening now 0:04:44.160 --> 0:04:47.040 is technical. The fundamentals are still there, and the market 0:04:47.040 --> 0:04:50.040 is still biased higher over time and so and it's 0:04:50.160 --> 0:04:52.640 very good obviously for earnings on a go forward basis 0:04:52.680 --> 0:04:55.200 when you're looking at one consentus for this year and 0:04:55.240 --> 0:05:01.000 one so I guess and Dennis, the question is can 0:05:01.080 --> 0:05:06.680 investors just completely ignore technical sell offs or should they 0:05:06.680 --> 0:05:09.960 pay attention, especially given the fact that some estimate that 0:05:10.000 --> 0:05:13.440 there's two trillion dollars tied to short volatility strategies right 0:05:13.480 --> 0:05:18.320 now that really didn't move necessarily. I would never say 0:05:18.360 --> 0:05:20.359 I want to just ignore it, but I would sell you. 0:05:20.400 --> 0:05:25.320 The ability to profit from it is extremely difficult relative 0:05:25.360 --> 0:05:26.960 to history, when we used to have different measures of 0:05:27.000 --> 0:05:29.840 sentiment that you could say, like just talking to people 0:05:29.839 --> 0:05:32.800 in the street, etcetera, that they might be um um 0:05:33.000 --> 0:05:35.520 overly concerned about a market decline. I've been looking at 0:05:35.560 --> 0:05:37.520 my server all morning, and I can't tell if it's 0:05:37.520 --> 0:05:41.440 HAPPI or sad. I can't tell if it's capitulated. So 0:05:41.520 --> 0:05:43.880 I think you have to ride out the volatility if 0:05:43.880 --> 0:05:46.560 it's technical driven, are you really trying to assess the 0:05:46.560 --> 0:05:50.000 state of mind if your computer saying I'm just saying, 0:05:50.000 --> 0:05:52.360 in this new world, you know, trying to pick these 0:05:52.400 --> 0:05:55.680 bottoms and volatility has become to become very difficult. And 0:05:55.760 --> 0:05:58.039 to answer your question, more or less, you do have 0:05:58.160 --> 0:06:01.040 to as long as you believe in the fundamental longer 0:06:01.160 --> 0:06:02.640 term that our supporter of that, you do have to 0:06:02.680 --> 0:06:04.400 ignore a lot of this technical stuff and just have 0:06:04.480 --> 0:06:08.679 a you know, a tougher stomach stomach for it. Dennis 0:06:08.720 --> 0:06:11.800 does this as the head of portfolio strategy. It does 0:06:11.839 --> 0:06:15.720 this U sort of bring out that conversation with investors 0:06:15.720 --> 0:06:18.760 and clients. They say they can stomach the risk, but 0:06:18.920 --> 0:06:21.400 when the day like yesterday it takes place, it turns 0:06:21.400 --> 0:06:24.840 out that maybe they can't. I mean, yes, I mean 0:06:24.839 --> 0:06:27.839 in talking with UH, talking with the investors, that's obviously 0:06:27.880 --> 0:06:30.440 a concern. But I would also say, don't forget where 0:06:30.480 --> 0:06:33.280 we came from. We're just flat on on the end 0:06:33.279 --> 0:06:36.120 of season. I mean, you're up you know, two over 0:06:36.160 --> 0:06:40.480 twofold sense of financial crisis. You've had extremely UH favorable 0:06:40.520 --> 0:06:42.480 returns in the market. So I don't think there's any 0:06:42.520 --> 0:06:45.680 sense of panic at all from individual investors. Yes, there's 0:06:45.720 --> 0:06:48.279 concerns because on all over the TV is this low 0:06:48.360 --> 0:06:51.440 volatility unwind. But we're not out of place or anywhere 0:06:51.440 --> 0:06:54.040 close to a place where anybody thinks about Paine. Market 0:06:54.040 --> 0:06:56.839 returns have just been too strong. Thanks very much for 0:06:56.920 --> 0:06:58.680 being with us. Dennis to Busher, he is the head 0:06:58.680 --> 0:07:02.159 of portfolio Strategy for ever Core I s I, helping 0:07:02.160 --> 0:07:06.279 to manage more than eight billion dollars in a customer assets. 0:07:19.240 --> 0:07:22.120 Before we say anything or do anything with the bond market, 0:07:22.160 --> 0:07:24.440 we always check in with Ira Jersey. He is our 0:07:24.520 --> 0:07:28.320 chief US interest rate strategist for Bloomberg Intelligence. And I 0:07:28.360 --> 0:07:29.600 got a little bit of a sell off at the 0:07:29.600 --> 0:07:32.240 long end buying at the short end. Give us an 0:07:32.280 --> 0:07:34.920 update on what's going on in the treasury market. Yeah, 0:07:35.000 --> 0:07:37.680 So in the treasury market today, it's it's actually selling 0:07:37.720 --> 0:07:42.480 just about everywhere. Um. Yesterday was you know, pretty um, 0:07:42.520 --> 0:07:44.760 pretty correlated with the move in the VIX. If you 0:07:45.240 --> 0:07:47.920 if you look, we had one of the biggest uh, well, 0:07:47.920 --> 0:07:51.760 we certainly had the biggest rally of of treasury yields 0:07:51.760 --> 0:07:54.239 in the last couple of a couple of months where 0:07:54.520 --> 0:07:57.320 you had a fourteen basis point rally and tenure yields. 0:07:57.560 --> 0:08:00.400 And the last time you saw that was around and uh, 0:08:00.440 --> 0:08:04.160 you know other little jitters and markets and um, you 0:08:04.200 --> 0:08:06.280 know it was it was really huge moves and and 0:08:06.320 --> 0:08:09.040 the volume that went through was astounding. In fact, you 0:08:09.080 --> 0:08:13.000 don't normally see volume at three o'clock, like the volume 0:08:13.080 --> 0:08:16.720 after you see payrolls reports or FED or FED statements 0:08:16.760 --> 0:08:19.200 and uh, and that's exactly what you had yesterday, was 0:08:19.280 --> 0:08:22.600 just this massive volume going through lots of people. Well 0:08:22.640 --> 0:08:24.560 it's hard to tell if there were lots of people buying, 0:08:24.560 --> 0:08:27.400 but certainly the volume of buying was was quite astounding. Well, 0:08:27.440 --> 0:08:30.560 I want to home in on that because I'm wondering, 0:08:30.600 --> 0:08:32.800 do we have a sense of who's behind this. Is 0:08:32.840 --> 0:08:36.319 this real money accounts with people actually trying to liquidate 0:08:36.400 --> 0:08:40.920 some of their treasury holdings, or is this algorithmic trading 0:08:41.320 --> 0:08:45.240 that is correlated with stocks or whatever else. Uh, and 0:08:45.400 --> 0:08:47.800 is sort of moving on its own affair and we'll 0:08:47.840 --> 0:08:51.960 get at some point rectified as people reassess inflation and 0:08:52.000 --> 0:08:56.040 growth expectations. Yes, that's a good question. And you know, 0:08:56.160 --> 0:08:57.920 I talked to a lot of people yesterday and we 0:08:57.920 --> 0:08:59.840 were all kind of scratching our heads and saying like 0:09:00.240 --> 0:09:02.520 this can't be humans. It's a little bit too fast 0:09:02.559 --> 0:09:05.480 for that. So UM, it probably was some kind of 0:09:05.520 --> 0:09:08.760 either algorithm or um. You know, people were talking about 0:09:08.800 --> 0:09:13.520 potentially risk parity strategies, rebalancing or or or something like that. 0:09:13.559 --> 0:09:15.720 But to your point, and that's a great point, is 0:09:15.720 --> 0:09:18.280 that today's move is kind of counter to that. So 0:09:18.320 --> 0:09:21.640 we put out a note this morning um on on 0:09:22.040 --> 0:09:26.240 b I rates on your terminal and basically we discussed 0:09:26.240 --> 0:09:28.920 that Look, when you get these moves of you know, ten, fifteen, 0:09:28.960 --> 0:09:32.760 twenty basis points in ten year treasuries or across the market, 0:09:33.080 --> 0:09:36.440 you tend then to see a lower volatility day that follows, 0:09:36.640 --> 0:09:38.959 and usually some counter trend to that, and that's exactly 0:09:38.960 --> 0:09:41.959 what we're getting today, um and and in fact, over 0:09:42.000 --> 0:09:44.400 the last seven years, you tend to get these big 0:09:44.440 --> 0:09:47.760 bouts of volatility, and they might be driven by algorithmic 0:09:47.880 --> 0:09:51.160 or or electronic trading and UM and they tend to 0:09:51.200 --> 0:09:52.920 be very short lived. And then you wind up with 0:09:52.960 --> 0:09:56.400 people saying, okay, is this justified based on the fundamentals, 0:09:56.400 --> 0:09:59.800 as anything really changed? Um And once you realize that, no, 0:10:00.160 --> 0:10:03.560 things haven't really changed. From an economic standpoint, then you 0:10:03.559 --> 0:10:06.120 can get back to kind of the the old trends 0:10:06.160 --> 0:10:08.800 you were on. I just want to understand a little 0:10:08.800 --> 0:10:12.160 bit more about old trends and new trends, because earlier 0:10:12.160 --> 0:10:16.280 in the day we were speaking with Alberto Gallo of Algebras, 0:10:16.320 --> 0:10:21.000 and he I thought it was very, very impression when 0:10:21.000 --> 0:10:24.000 he said, people have been buying stocks for yield and 0:10:24.160 --> 0:10:28.360 bonds for capital gains. Is that about to change? Well, 0:10:28.400 --> 0:10:30.199 I think that that actually has changed. I mean, I 0:10:30.240 --> 0:10:32.679 think that changed probably two years ago when we hit 0:10:32.840 --> 0:10:36.640 the you know, one fifty yield on on tenure treasuries. 0:10:36.679 --> 0:10:40.000 Because once you start to move back from that, it's 0:10:40.000 --> 0:10:42.320 hard to see how you get significant returns or at 0:10:42.400 --> 0:10:45.040 least returns much higher than the coupon at this point 0:10:45.480 --> 0:10:48.079 on a lot of the treasury uh UM a lot 0:10:48.120 --> 0:10:51.320 of the treasury market, whereas in equities now you you 0:10:51.400 --> 0:10:54.360 have yields that are somewhat higher than than the dividend 0:10:54.400 --> 0:10:58.280 payouts of equities UM. And at the same time, I 0:10:58.280 --> 0:10:59.800 mean you have to look at things like Gina Martin 0:10:59.800 --> 0:11:02.800 att Are Equity Strategists, has done some great work on 0:11:02.800 --> 0:11:06.040 on things like earnings and the fundamentals are ultimately going 0:11:06.120 --> 0:11:09.520 to be the driver of of long term prospects for 0:11:09.520 --> 0:11:12.400 for equities. So within an environment like we have now 0:11:12.480 --> 0:11:16.160 we have slightly higher inflation, where you have growth prospects 0:11:16.160 --> 0:11:19.319 that seem okay at least in the in the near term. Um, 0:11:19.920 --> 0:11:22.959 you know, the question is is there going to be 0:11:23.000 --> 0:11:25.360 you know, pressure on margins and things like that, and 0:11:25.360 --> 0:11:27.719 and that can wind up meaning that you have an 0:11:27.720 --> 0:11:30.439 equity market that is based a lot more on fundamentals 0:11:30.440 --> 0:11:33.240 than necessarily people buying it for income like you've had 0:11:33.559 --> 0:11:38.040 over the past couple of years. Is this particular market 0:11:38.400 --> 0:11:41.920 are we already seeing jitters and uh some kind of 0:11:42.160 --> 0:11:45.480 pricing in of the debt ceiling and the possible risk 0:11:45.640 --> 0:11:48.959 there or can we expect a whole new hiccup as 0:11:49.000 --> 0:11:51.560 people start to wake up to that risk. Yeah. So, 0:11:51.559 --> 0:11:53.440 so the depth ceiling is going to show up in 0:11:53.440 --> 0:11:55.920 the in the T bill market, and there are the 0:11:55.960 --> 0:11:59.600 t buil market keeps on pricing. Uh, a problem with 0:11:59.640 --> 0:12:02.160 the depth sailing in and out and for various dates. 0:12:02.200 --> 0:12:05.600 Because the problem with the death ceiling with analyzing where 0:12:05.600 --> 0:12:07.199 the deaths when the death sailing is going to get 0:12:07.240 --> 0:12:10.000 hit this time of year, is that starting about now? 0:12:10.080 --> 0:12:11.880 You get a lot of tax refunds that come in, 0:12:11.960 --> 0:12:14.160 and the timing of when those come in winds up 0:12:14.200 --> 0:12:17.920 being very important because the way that the Treasury Department 0:12:17.960 --> 0:12:22.440 pays out um the tax refunds is by issuing treasury bills. 0:12:22.559 --> 0:12:24.920 And so we're at this point now where if you 0:12:24.960 --> 0:12:26.800 wind up getting a whole lot of people come in 0:12:26.800 --> 0:12:30.120 in the next two weeks, there it's possible that even 0:12:30.120 --> 0:12:32.160 in the first week of March we wind up with 0:12:32.160 --> 0:12:34.720 with the debt the death ceiling being a problem. Whereas 0:12:34.760 --> 0:12:36.839 if those are a little bit slower than they were 0:12:36.920 --> 0:12:39.000 stay last year, then you can wind up actually towards 0:12:39.040 --> 0:12:41.480 the end of March. So yeah, the market is already 0:12:41.480 --> 0:12:44.040 pricing for that. The market is pricing in and out 0:12:44.120 --> 0:12:48.480 different March t bills um as being the problem. For 0:12:48.480 --> 0:12:50.640 for the death ceiling. We we still think it's somewhere 0:12:50.880 --> 0:12:53.240 in the second half of March. That's what our model shows, 0:12:53.280 --> 0:12:56.360 but again there's a lot of uncertainty around the inputs 0:12:56.360 --> 0:12:58.920 to that model. And uh and and that's the behavior 0:12:59.040 --> 0:13:01.760 of the taxpayer. Thank you so much, iro A Jersey. 0:13:01.960 --> 0:13:04.800 A really important time to be watching the treasury market 0:13:04.880 --> 0:13:06.440 right now. Thank you so much for being with us 0:13:07.120 --> 0:13:10.480 Jersey is an interstate strategist for Bloomberg Intelligence, coming to 0:13:10.600 --> 0:13:28.720 us from our BI headquarters in Princeton, New Jersey. The 0:13:28.800 --> 0:13:34.200 real story of this week's turmoil really is volatility exchange 0:13:34.240 --> 0:13:38.599 traded notes and just generally the volatility and short volatility. 0:13:38.640 --> 0:13:41.360 Trained here to talk about that is Sarah Ponzack Cross, 0:13:41.440 --> 0:13:44.600 asked reporter with Bloomberg News. Uh, Sarah, thank you so 0:13:44.679 --> 0:13:47.480 much for being with us. So we did get news 0:13:47.520 --> 0:13:52.640 today that Credit Suites is liquidating, Uh, their short volatility 0:13:53.000 --> 0:13:57.079 exchange traded note. Not tiny, this had what three billion 0:13:57.080 --> 0:13:59.880 dollars at one point in it. Who are the investors 0:14:00.000 --> 0:14:03.520 behind us? And walk us through what happened here? So 0:14:03.720 --> 0:14:07.600 the investors behind this, it's definitely a combination. So Credit 0:14:07.640 --> 0:14:09.640 Suite was the biggest holder of x i V. They 0:14:09.640 --> 0:14:12.520 actually had about thirty two of the holding. So the 0:14:12.559 --> 0:14:14.760 remaining sixty eight we can't know for sure. It can 0:14:14.800 --> 0:14:17.160 be some institutional, but it is a lot of retail 0:14:17.200 --> 0:14:21.080 investors who don't understand exactly what the risks of these 0:14:21.120 --> 0:14:23.640 products are. I mean, I remember a couple of months back, 0:14:23.720 --> 0:14:27.400 we had stories coming about out of workers at Walmart 0:14:27.400 --> 0:14:31.560 who were making money off of buying these products trading 0:14:31.560 --> 0:14:33.960 the VIX because they just thought that it was easy money, 0:14:33.960 --> 0:14:36.720 because they thought this tranquility would stay calm forever. But 0:14:36.800 --> 0:14:40.160 they didn't understand what would actually happen if the VIX 0:14:40.240 --> 0:14:43.120 spikes like we saw it did happen yesterday. So my 0:14:43.280 --> 0:14:47.680 question is were there advisors that were peddling these products 0:14:47.760 --> 0:14:50.160 to them in a way that they shouldn't have been. 0:14:50.240 --> 0:14:53.240 We saw that black Rock came out today demanding more regulation, 0:14:53.680 --> 0:14:56.320 especially given the fact that exchange traded notes are often 0:14:56.360 --> 0:15:01.160 conflated with exchange traded funds. Uh so what are people 0:15:01.160 --> 0:15:03.280 saying about that exactly? So I think this is kind 0:15:03.320 --> 0:15:05.880 of a watershed moment for the e t F industry 0:15:05.920 --> 0:15:08.480 because we haven't had to deal like with something like 0:15:08.520 --> 0:15:10.720 this yet. And what happened is, like he said, Larry, 0:15:10.720 --> 0:15:13.640 thing came out black because come out they're urging more regulation, 0:15:13.960 --> 0:15:17.680 saying that the people create these funds need to actually 0:15:17.800 --> 0:15:21.400 say and let people know what these risks actually entail 0:15:21.440 --> 0:15:23.760 and kind of separate themselves from the E t F 0:15:23.800 --> 0:15:26.240 industry because they're not vanilla e T s. And I 0:15:26.240 --> 0:15:29.200 think someone like a black Rock is really nervous that 0:15:29.240 --> 0:15:31.560 people are going to start generalizing, and this is going 0:15:31.600 --> 0:15:33.960 to affect their products. People are going to be scared 0:15:34.280 --> 0:15:36.280 of buying their plane Vanilla A T S, buying the 0:15:36.360 --> 0:15:38.480 S and P five hundred because of what has happened 0:15:38.480 --> 0:15:40.280 with the vix. Now one was an E T N 0:15:40.400 --> 0:15:42.480 x I V, but then one of them was actually 0:15:42.480 --> 0:15:44.800 an E T F. It still operates in a similar way, 0:15:45.000 --> 0:15:48.040 but still they're basically saying that there's just been more 0:15:48.040 --> 0:15:50.560 regulations when you're not dealing with the plane Vanilla E 0:15:50.640 --> 0:15:55.440 T F explaining what the actual risks at hand are. Well, 0:15:55.480 --> 0:15:58.880 he is not playing vanilla when it comes to anything 0:15:58.960 --> 0:16:01.680 related to the markets, and that is Corey Johnson, and 0:16:01.720 --> 0:16:03.480 I want to bring him in. He is our anchor 0:16:03.480 --> 0:16:05.880 and editor at large for Bloomberg TV and Radio and 0:16:05.920 --> 0:16:09.280 co host with Carol Master Bloomberg Markets PM and also 0:16:09.360 --> 0:16:12.440 if you look back into his history his career history, 0:16:12.640 --> 0:16:15.960 he was also a portfolio manager previously at Kingsford Capital 0:16:16.240 --> 0:16:19.400 Management as well as Canal Capital and Corey, what do 0:16:19.440 --> 0:16:22.720 you make of this, Uh, this conversation about volatility and 0:16:22.800 --> 0:16:26.920 volatility linked exchange traded funds. So I think what's really 0:16:26.920 --> 0:16:29.160 amazing here is this is an unprecedented This is a 0:16:29.200 --> 0:16:35.400 true black Swan event written into the structure of this 0:16:35.640 --> 0:16:39.160 x I V product. The CT this exchange traded note 0:16:39.680 --> 0:16:41.800 was a really interesting clause, and it said that it's 0:16:41.840 --> 0:16:47.400 the underlying security spiked more than it could trigger essentially 0:16:47.440 --> 0:16:50.320 a liquidation, and that it never happened before ever in 0:16:50.320 --> 0:16:52.720 the history of the VIX. So even those people who 0:16:52.720 --> 0:16:55.000 were sophisticated and may have actually gone to the trouble 0:16:55.000 --> 0:16:57.000 of reading the perspectives and understanding what they were getting 0:16:57.040 --> 0:16:59.520 into might have looked at this and said, yeah, but 0:16:59.560 --> 0:17:01.760 when is is going to happen? And this really does 0:17:01.840 --> 0:17:04.440 get to the old saw. You know, it's different this time. 0:17:04.960 --> 0:17:07.520 It was different. This time, We've never ever seen volatility 0:17:07.560 --> 0:17:10.359 spike more than in a given day. Um. It was 0:17:10.400 --> 0:17:12.600 also interesting to see this happen really in the late 0:17:12.720 --> 0:17:15.960 moments of the trade yesterday, when it was clear that 0:17:16.000 --> 0:17:18.800 this thing was going to become um uh, you know, 0:17:18.800 --> 0:17:22.720 this whole this whole instrument is going to disappear, and uh, 0:17:22.800 --> 0:17:25.920 the underlong one of the underlowinged instruments suddenly traded down 0:17:25.920 --> 0:17:28.440 in the last half an hour of trading. Worth noting 0:17:28.480 --> 0:17:30.879 also that we know some of the robot advisors and 0:17:31.000 --> 0:17:33.680 Vanguard were unable to deal with clients at that point. 0:17:33.680 --> 0:17:36.800 They weren't picking up the phones, their systems weren't accepting trades. 0:17:37.040 --> 0:17:39.520 So any investors were in this through that giant brokerage 0:17:39.520 --> 0:17:42.920 House of Anger for example, couldn't get out. Um and uh, 0:17:43.000 --> 0:17:45.639 it's it's a it's a real problem. Uh. And you know, 0:17:45.640 --> 0:17:46.920 we talked with the value of this thing. We don't 0:17:46.960 --> 0:17:48.640 know who the holders are, but if you just add 0:17:48.680 --> 0:17:51.280 up the number of holdings that we do know about, 0:17:51.680 --> 0:17:55.680 there were about college fifteen million shares out, which means 0:17:55.720 --> 0:17:58.000 that the at at the ninety nine dollar value, we've 0:17:58.040 --> 0:18:02.399 had about a one point five billion dollar valuation completely 0:18:02.480 --> 0:18:06.399 wiped out overnight. And as you mentioned, that threshold that 0:18:06.480 --> 0:18:11.160 was reached yesterday increase for the VIX. Yeah, and certainly 0:18:11.200 --> 0:18:13.639 it is being liquidated and you have to wonder about 0:18:13.760 --> 0:18:17.120 what kind of build on effect it has. Being liquidated 0:18:17.160 --> 0:18:21.000 at a week time leaves even less value. Corey Johnson, 0:18:21.040 --> 0:18:23.639 thank you so much for joining us Bloomberg Markets co anchor, 0:18:24.040 --> 0:18:27.880 and also Sarah Ponzack Cross as reporter for Bloomberg News. 0:18:27.880 --> 0:18:43.680 Thank you both very much. The head of the Bank 0:18:43.720 --> 0:18:48.160 for International Settlements, he has really taken bitcoin to task. 0:18:48.280 --> 0:18:50.720 He describes it as quote a combination of a bubble 0:18:50.760 --> 0:18:53.480 a Ponzi scheme, and he says due to the energy 0:18:53.520 --> 0:18:57.840 consumption required for mining it, he calls it an environmental disaster. 0:18:58.440 --> 0:19:01.840 This was quote from Augustin Carston's he is the general 0:19:01.840 --> 0:19:04.480 manager of the Bank of International Settlements. Here to give 0:19:04.560 --> 0:19:06.920 us his view is Ryan Radloff. He is the chief 0:19:07.000 --> 0:19:10.760 executive of coin Shares UK, helping to manage about a 0:19:10.800 --> 0:19:14.400 billion dollars in crypto assets. Joining us from London, Ryan, 0:19:14.800 --> 0:19:19.080 just give you the opportunity to respond to Mr Carston's 0:19:19.240 --> 0:19:22.320 what would you say to him? Hi, thank you, thanks 0:19:22.320 --> 0:19:25.520 for having me. I mean, bitcoin is obviously a controversial 0:19:25.560 --> 0:19:28.440 topic and it's certainly not a ponzi um that we've 0:19:28.480 --> 0:19:30.439 been in a state of mania about it over the 0:19:30.520 --> 0:19:33.119 last twelve months. But really what bitcoin is is an 0:19:33.119 --> 0:19:37.720 index measure of the dissatisfaction of the current legacy financial system, 0:19:37.760 --> 0:19:40.200 and it's no surprise that individuals that are sitting on 0:19:40.240 --> 0:19:42.880 the other side of that in the legacy system would 0:19:42.920 --> 0:19:45.040 aim to take shots at it. But if you look 0:19:45.080 --> 0:19:47.000 at what bitcoin is doing across the world from a 0:19:47.080 --> 0:19:50.879 humanitarian standpoint, um, it is enabling people to be financially 0:19:50.960 --> 0:19:53.680 free for the first time without having an account with 0:19:53.680 --> 0:19:56.240 any bank or anywhere else. So it's serving just as 0:19:56.280 --> 0:19:59.000 much good um as any any one of those negative 0:19:59.000 --> 0:20:02.680 points that he mentioned. All Right, well, I've got to say, 0:20:03.080 --> 0:20:05.760 financial freedom isn't what I think of when I look 0:20:05.760 --> 0:20:08.800 at the star at the price of bitcoin over the 0:20:08.840 --> 0:20:11.919 past couple of weeks. Uh, it certainly is not financial 0:20:11.960 --> 0:20:15.359 freedom for the people who bought it at eighteen dollars, 0:20:15.400 --> 0:20:19.480 since it's fallen below six th latest reading in a second. 0:20:19.520 --> 0:20:22.240 But I'm just wondering, I mean, do you really think 0:20:22.280 --> 0:20:25.320 that the people who are in bitcoin right now are 0:20:25.680 --> 0:20:29.439 people protesting the structure of the financial system actually right now, 0:20:29.520 --> 0:20:31.560 just to clarify, it's a little over seven thousand dollars 0:20:32.000 --> 0:20:35.439 um but or or rather is this people who are 0:20:35.520 --> 0:20:38.360 bored of the markets that have gotten very tranquil, not 0:20:38.440 --> 0:20:42.200 this week withstanding, and are trying to make a big 0:20:42.240 --> 0:20:45.760 buck by going in here. Well, I think it's both 0:20:45.960 --> 0:20:48.240 without question. I mean, the early days of bitcoin, where 0:20:48.240 --> 0:20:51.480 you had technologist and early adopters, there's even this libertarian 0:20:51.560 --> 0:20:53.720 movement to it, as I mentioned. You know, in the 0:20:53.760 --> 0:20:57.560 last few months we've seen the users come into into 0:20:57.600 --> 0:21:01.320 crypto high your moment for a speculation purposes, and they're 0:21:01.320 --> 0:21:04.159 getting a hard lesson right now. UM, a lesson that 0:21:04.200 --> 0:21:06.000 many of us have learned over the last four years 0:21:06.000 --> 0:21:07.919 being in this market that this is going to correct 0:21:07.920 --> 0:21:10.760 every quarter. Um, it's it's going to be volatile. Hold 0:21:10.800 --> 0:21:13.840 on for the ride, um and you know, but it's 0:21:13.920 --> 0:21:16.920 it's going to be increasing and user adoption, network value 0:21:16.960 --> 0:21:19.240 over a long term scale. So we look at it 0:21:19.359 --> 0:21:22.480 much more on a long term horizon. Okay, so let's 0:21:22.520 --> 0:21:24.600 let's look at a long term horizon. Where are we 0:21:24.640 --> 0:21:27.879 headed with this? Well, there's a few new fundamentals to 0:21:27.920 --> 0:21:30.320 look at. Um. You know what what we see is 0:21:30.359 --> 0:21:33.680 bitcoin and you've heard this before, displacing the concept of 0:21:33.680 --> 0:21:36.439 of a digital gold and creating this new market for 0:21:36.560 --> 0:21:40.280 decentralized digital money, and the things that people should start 0:21:40.280 --> 0:21:43.840