Speaker 1: This is Bloomberg Business Week. I'm Carol Masser and I'm
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Speaker 1: YouTube search Bloomberg Clobal News Katie. Something strange happening in
Speaker 1: homes across Texas, New York, Maine, and a handful of
Speaker 1: other states here in the US. In deregulated states such
Speaker 1: as these, customers are turned de facto natural gast forecasters
Speaker 1: gambling on the direction of highly volatile markets when it's
Speaker 1: time to renew their contracts. Michael Sasso is economy reporter
Speaker 1: for Bloomberg News. He and our colleague Noreen Malick right
Speaker 1: all about this phenomenon for Bloomberg News Today. Michael, good
Speaker 1: to have you with us. Joining us from our Atlanta
Speaker 1: be Euaro, Well, what exactly is happening here? What are
Speaker 1: what are Americans doing when they're trying to, I don't
Speaker 1: want to say, negotiate their energy bills, but figure out
Speaker 1: how they're going to actually pay less. Yeah, yeah, good,
Speaker 1: good to be here. Yeah. I I ran across this
Speaker 1: on a personal note when I was not happen to
Speaker 1: be in Atlanta area and I had got my natural
Speaker 1: gas renewal contract for my heating and it was up
Speaker 1: something like sixty or seventy percent, and I thought, what's
Speaker 1: going on here? And they they're wanting me to sign
Speaker 1: a contract for anywhere from a year two years. And
Speaker 1: I was thinking, how do I sign a contract when
Speaker 1: the it's sort of the top of the market, You
Speaker 1: know my rates? Have you want me to sign a
Speaker 1: contract for rates that are up sixty from a year ago?
Speaker 1: And the alternative was even better. If you don't want
Speaker 1: to sign a contract, you go for one of these
Speaker 1: floating or variable rates. And at that at this moment,
Speaker 1: those are up more than a hundred percent a d
Speaker 1: from where where I was a year ago. And that's
Speaker 1: just natural gas around the country. You mentioned Texas. Texas
Speaker 1: gets most of its power by burning natural gas. So
Speaker 1: it's it's electric rates are sort of closely aligned with
Speaker 1: natural gas and those people looking at increases and they're
Speaker 1: in the same scenario. They're in this no win situation.
Speaker 1: Do they that they're renew at these high rates? Do
Speaker 1: they keep going with variable rates with no promise that
Speaker 1: the prices are going to go down? It's a it's
Speaker 1: a tricky situation to be in. Right now, we'll tell
Speaker 1: us about some of the people who are in this
Speaker 1: situation that you spoke to for this story, because there's
Speaker 1: some great, great reporting in this piece about Floyd Stanley,
Speaker 1: for example. Yeah, that was something my colleague Marien and
Speaker 1: he talked. She talked to Floyd's she found him. He's
Speaker 1: in the Dallas area and he's kind of going at
Speaker 1: a full bore. He um actually has spreadsheets and he's
Speaker 1: evaluating electric contracts. There's a bewildering array of electric providers
Speaker 1: in Texas and he's spread charting each of them. And
Speaker 1: I believe, as I recalled, he locked in a two
Speaker 1: year rate because he was worried about rates going even higher.
Speaker 1: He was trying to limit his damage. UM. But yeah,
Speaker 1: so there's there's Floyd kind of spreadsheeting things. Here in Atlanta,
Speaker 1: there was a woman named Ramona Sandro who was trying
Speaker 1: to make a natural gas calculation and nash To booked,
Speaker 1: you know, two year contract, worried that prices were going
Speaker 1: to go up even more. Uh. And then on the
Speaker 1: opposite end, there was a fella here in Atlanta who
Speaker 1: did the opposite. He couldn't stomach today's prices. He's kind
Speaker 1: of gambling the natural gas rates are going to go down,
Speaker 1: so he's going kind of naked. He's kind of the
Speaker 1: floating rate even if it's above two dollars a quote
Speaker 1: unquote firm, which is more than more than it was
Speaker 1: a year ago. Yeah, I mean so, so what about
Speaker 1: the millions of Americans who don't have a choice when
Speaker 1: it comes to this stuff? How are they stomaching it? Well,
Speaker 1: maybe we're all we're all kind of paying uh, paying
Speaker 1: higher rates, whether you have one of the you're in
Speaker 1: one of these choice states or not. In a lot
Speaker 1: of cases there are you are having to go with
Speaker 1: a regulated utility rather than a deregulated state. For people
Speaker 1: who absolutely can't pay um. There is something called it's
Speaker 1: an acronym, it's l I. The word heap a p
Speaker 1: SO l I HEAP, and that is sort of a
Speaker 1: federal a utility assistance program that's kind of routed through
Speaker 1: each of the states. But as I understand, and we
Speaker 1: didn't write a lot about this, I just but I
Speaker 1: did research a little, the this l I HEAP program
Speaker 1: is pretty much tapped out around the country. So unfortunately,
Speaker 1: I mean, they're I wouldn't want to discourage someone from trying,
Speaker 1: and it's certainly worth it, but as I understand, there's
Speaker 1: a tremendous demand and not enough supply of this these
Speaker 1: assistance dollars right now. Michael Sasso, economy reporter for Bloomberg News,
Speaker 1: joining us this afternoon on the Throne from Atlanta. A
Speaker 1: really great piece highlighting the challenges that Americans are going
Speaker 1: through when it comes to figuring out the best way
Speaker 1: to actually pay for those high heating bills and when
Speaker 1: it comes winter and then cooling bills as the a
Speaker 1: C has been jacked up for so much of the summer.
Speaker 1: We didn't even mention Europe, but they make a really
Speaker 1: good point in the story that prices are even higher
Speaker 1: any Europe, so important to keep that in mind you're
Speaker 1: listening to Bloomberg Business Week with Carol Messer and Bloomberg
Speaker 1: Quick Takes Tim Stinovic on Bloomberg Radio. Well, when it
Speaker 1: comes to crypto, one number that I like to use
Speaker 1: a lot, I'll admit it is three trillion. That's at
Speaker 1: least the market cap of all crypto that it was
Speaker 1: at its high point a little earlier this year. Now,
Speaker 1: to get to that number, all you gotta do is
Speaker 1: you gotta take the coins out there and multiply them
Speaker 1: by the price of each coin. But the question is
Speaker 1: is that the right way to value the crypto market.
Speaker 1: It's something that Bill Donna hi Rich spent a lot
Speaker 1: of time thinking about and talking to analysts and economists about.
Speaker 1: She's cross asset reporter for Bloomberg News. Her story is
Speaker 1: in the current issue of Bloomberg Business Week magazine. It's
Speaker 1: available on newsstands, on the Bloomberg and at Bloomberg dot Com.
Speaker 1: Also with us this afternoon from the Interactive Broker Studio
Speaker 1: is Joel Webber, the editor of Bloomberg Business Week. Joel am,
Speaker 1: I am I doing it wrong? Three trillion dollars? Should
Speaker 1: I not be saying three trillion dollars? We're gonna after
Speaker 1: this little segment you you probably won't be saying that anymore.
Speaker 1: But the question just came from look like, as we
Speaker 1: sort of all plunged into crypto winter in in summer, uh,
Speaker 1: we just started asking bigger and bigger questions and then
Speaker 1: turning to our friends in the newsroom to help us
Speaker 1: try and answer some of them. And so the question
Speaker 1: that um we kind of came to Vildano was with
Speaker 1: was look like, people say this is three trillion, like
Speaker 1: is it really? And boy, did she ever go down
Speaker 1: a wormhole? It was a fun wormhole? How far down?
Speaker 1: I mean you went to the bottom of the rabbit hole?
Speaker 1: Well maybe in okay, well, okay, whatever kind of hole
Speaker 1: it was, we went down it, and Vildana, what did
Speaker 1: you learn? Well? I do want to give a shout
Speaker 1: at first to our brilliant editor Pat Regner a Business
Speaker 1: Week who who loves to think of these big meta questions,
Speaker 1: and this was definitely one of them where it's like, okay,
Speaker 1: how big actually was crypto? Because as you guys were
Speaker 1: just saying market cap, it's just you take the number
Speaker 1: of coins out there you multiplied by the price, So
Speaker 1: is that really an accurate reading of the value of
Speaker 1: the crypto market, and if you really think about it,
Speaker 1: there's a bunch of coins out there that are so
Speaker 1: called so called dormant coins, meaning that they really haven't
Speaker 1: been moving, they haven't been used for anything in something
Speaker 1: like five or more years, meaning that potentially that they're lost.
Speaker 1: And then you also have all of these different projects
Speaker 1: that had been coming out where you have a founder
Speaker 1: throwing out like a random supply number. For instance, they'll say, okay,
Speaker 1: we're gonna have twenty million tokens of x y z project,
Speaker 1: and really it's the founder who owns the majority of
Speaker 1: the project. So there they were just a bunch of
Speaker 1: issues and we really wanted to get down to this idea. Well, actually,
Speaker 1: how much were things worth if they weren't three trillion?
Speaker 1: So where did you even start? Who did you reach
Speaker 1: out to with the project like this? I just I
Speaker 1: feel like I would be chasing my tail for a
Speaker 1: few months, which I think I wanted and ask me
Speaker 1: I was chasing my rabbit tail. So who helped you? Well,
Speaker 1: the first thing I did was I wanted to look
Speaker 1: at the number of participants, so in the US at least,
Speaker 1: to try to get a read on how many people
Speaker 1: own or use or trade cryptocurrencies, and there actually is
Speaker 1: some data out on this. So we had a survey
Speaker 1: from the Federal Reserve. They had found that something like
Speaker 1: twelve of US adults had held crypto last year. And
Speaker 1: then there was a survey from Pew that showed about
Speaker 1: health crypto. So that's more than fifty million people in
Speaker 1: the US and it's not an insignificant number. So it
Speaker 1: was a good starting point. And then I ended up
Speaker 1: calling a crypto skeptic. That was my very first phone
Speaker 1: call that I made, and he basically said, this is
Speaker 1: all bs of Of course, Donna, I'm not gonna say so.
Speaker 1: In addition, you got the skeptic, but you also got
Speaker 1: some proponents and economists and everyone everyone else. I'm actually
Speaker 1: really curious, like how many people did you speak to?
Speaker 1: And of all of that universal characters, who is the
Speaker 1: most colorful. Well, probably the crypto skeptic was the most colorful,
Speaker 1: throwing out the curse words and whatnot. I spoke with
Speaker 1: a lot of people there. There were a lot of
Speaker 1: people who didn't end up making it into the story
Speaker 1: because there's so many different ways to try to to
Speaker 1: to measure even just engagements. So trying to measure so
Speaker 1: called entities for instance, which is also just like the
Speaker 1: people who are participating on different blockchains, and then there's
Speaker 1: yeah or if they're people of course, but that's actually
Speaker 1: one of the issues. So you have so many issues
Speaker 1: behind a lot of these measurements where um, maybe you
Speaker 1: are counting one person as ten different people because they
Speaker 1: have ten different accounts or you know. So it was
Speaker 1: really trying to figure out what is the best representation
Speaker 1: for for some of these numbers. So Vildanna, after speaking
Speaker 1: to the skeptic and Noel Atchison, who you refer to
Speaker 1: as the researcher, she of course is of Genesis Global Trading,
Speaker 1: the data crunchers as well, how do you think about
Speaker 1: crypto differently after reporting this piece. Well, one of the
Speaker 1: things that I ended up coming to a conclusion too
Speaker 1: was that there just had been so much leverage in
Speaker 1: in the crypto market, where at the height that three
Speaker 1: chillion number really encompassed a lot of different I don't
Speaker 1: I suppose lever just the best word to use. There
Speaker 1: was just so much froth, So removing taking that froth
Speaker 1: out of the three trillion number and then coming up
Speaker 1: with something, um, you know, for the story. We came
Speaker 1: up with somewhere on eight hundred billions, somewhere around where
Speaker 1: the crypto market actually is currently, the market capital is
Speaker 1: showing us it's worth, which is not nothing. It's definitely
Speaker 1: not not nothing. Which is I think, you know, back
Speaker 1: to the skeptic idea there. It's just like, okay, well
Speaker 1: there's there's real money here a little bit right, And
Speaker 1: definitely one thing that's significant there though, is, as one
Speaker 1: of our colleagues was sort of challenging us in the
Speaker 1: news room, was Okay, wait, isn't this as much as
Speaker 1: it started with? So what what just happened? Right? So
Speaker 1: I think the best way and one of the things
Speaker 1: that came up over and over again, so somebody I
Speaker 1: spoke with at UBS came up with this number. And
Speaker 1: then the two the two economist researchers from these big
Speaker 1: data crunching crypto firms, Chain Analysis and glass Node, which
Speaker 1: are both well known for looking at charts and trying
Speaker 1: to figure some of these things out, is they were
Speaker 1: all looking at something called realized value. And I hope
Speaker 1: I get this right. I don't want to upset any
Speaker 1: any of the crypto fans out there, but that's basically
Speaker 1: just the prices that coins actually fetch in their most
Speaker 1: recent transaction. And if you look at that number, so
Speaker 1: glass note, for instance, can actually give you a ratio
Speaker 1: of the market value versus realized value. The ratio at
Speaker 1: the height was something like three point two, and you
Speaker 1: take the three trillion divided by three point two and
Speaker 1: you get the sort of eight hundred undred billion dollar
Speaker 1: number that removes out all of that fraud. I can
Speaker 1: loosely follow that math. I would say, I'm a little
Speaker 1: bit challenging that you start with three trillion and you
Speaker 1: end up with a smaller amount, but it's still billions.
Speaker 1: I got it, I got it. I'm there many billions, billions,
Speaker 1: several hundred billions, but vildna, we don't have much time left.
Speaker 1: But I am curious what the reception has been like,
Speaker 1: because I don't know a lot of people were really
Speaker 1: carried go on, go on. Well, the one thing so
Speaker 1: in crypto, if you end up writing about the crypto
Speaker 1: space some times, it doesn't matter if it's a positive
Speaker 1: or negative story, you'll still get a lot of hatred
Speaker 1: on Twitter. So one of my things was, Okay, don't
Speaker 1: at me on Twitter, no matter what. I come up with,
Speaker 1: and actually all the atmes were very positive. Even all
Speaker 1: people within the crypto space were very receptive to this
Speaker 1: idea that Okay, market cap is just not a good
Speaker 1: way to be measuring the space. This is a really
Speaker 1: good insightful look at that what the crypto market is
Speaker 1: actually valued at. And it's just interesting to take a
Speaker 1: look at some of these readings and technical measures like
Speaker 1: the realized value one. The Internet is good, cryday, It's
Speaker 1: good today. Okay, we'll just give it, give it a
Speaker 1: few hours gold on and I'm sure, you know, we'll
Speaker 1: see how maybe I shouldn't have done this interview over
Speaker 1: crypto summer warmer than crypto, win that love that Buildona
Speaker 1: Hira Cross as reporter for Bloomberg News, joining us from
Speaker 1: the Bloomberg Interactive Broker's studio. Check out her story. It's
Speaker 1: featuring the current issue of Business Week magazine, available on newsstands,
Speaker 1: on the Bloomberg terminal and at Bloomberg dot com. A
Speaker 1: big negative. The editor the magazine, Joe Webber. This is
Speaker 1: Bloomberg Business Week with Carol Masser and Bloomberg Quick Takes.
Speaker 1: Tim Stinovic on Bloomberg Radio. Well Memes Dock Mania. It's
Speaker 1: set to live on despite wild swings thatt least at
Speaker 1: least according to our latest M Live Pulse survey. This
Speaker 1: story written by Bailey Lip Scholtz. Bailey is Bloomberg News
Speaker 1: Equities reporter. He joins US live from Hoboken, New Jersey
Speaker 1: this afternoon. Bailey, UM, how are you? I'm doing well, Tim,
Speaker 1: Are you doing all right with COVID? Yeah, and thank
Speaker 1: you for asking. I feel I feel great. The reason
Speaker 1: I ask how you are is because I saw on
Speaker 1: Instagram that you got engaged this weekend. So congratulations, Thank
Speaker 1: you very much, guys, I appreciate it. Yeah, pop the
Speaker 1: question on Saturday night, she said yes after many of
Speaker 1: cheers were shed. So I'm officially engaged in now with fiance,
Speaker 1: which is weird to say. We would have definitely not
Speaker 1: brought it off if she said no, just no. I
Speaker 1: need you to know that, Bailey, and she knows she's
Speaker 1: marrying the Meme stock master, Bailey Lips, which is which
Speaker 1: is fantastic. Bailey. It's really exciting. So we're sending you
Speaker 1: our best here from Bloomberg Business Week. We do want
Speaker 1: to talk about meme stocks, though, because the M Live
Speaker 1: Pulse survey is out and it says that investors think
Speaker 1: that MEME stocks are here to stay. So talk about
Speaker 1: the methodology here because this is something that our m
Speaker 1: Live team does and it's uh it gets a great
Speaker 1: idea of what investors are thinking about. Yeah, so every
Speaker 1: week we run a survey kind of try to be
Speaker 1: as topical as possible. So this was crafted really after
Speaker 1: the madness around the Botom Beyond about ten days ago,
Speaker 1: around that Ryan Cohen kind of boom and bust after
Speaker 1: he dumped the stock. But yeah, so nearly two thirds
Speaker 1: of the two respondents, so we are pulling both strategists
Speaker 1: and UH portfolio manager on the wall street as well
Speaker 1: as retail traders who have the terminal and are responding
Speaker 1: through the terminal link. And really the consensus for the
Speaker 1: most part was that even though you have kind of
Speaker 1: these boom and bus whether it's AMC, game Stop at
Speaker 1: Bath and Beyond, or even kind of the one offs
Speaker 1: like BlackBerry and cost Corps, there is an expectation that
Speaker 1: it will continue to live on in one way or another.
Speaker 1: In the real reasoning that I got from talking to
Speaker 1: some people about the idea um is just that commission
Speaker 1: free trading so whether you now have the ability to
Speaker 1: trade out of the money call options or just buy
Speaker 1: the underlying stock at a fractional share, I was going
Speaker 1: to continue to be a kind of thesis that Wall
Speaker 1: Street has to think about, and that's really being driven
Speaker 1: by things like Reddit, things like Twitter and other chat
Speaker 1: rooms like stock lists. Okay, so I get the sort
Speaker 1: of market structure, why you do have basically free trading, etcetera, etcetera.
Speaker 1: Talk to us about the psychology though, because we're in
Speaker 1: a very different place from when the mania first started,
Speaker 1: when people were locked at home. Now you're able to
Speaker 1: go out and do things. You might get COVID like
Speaker 1: our friend tended. But why is this still happening? There's
Speaker 1: still just an ability and kind of a mentality that
Speaker 1: you're bonding and connecting. So whether you're in a Reddit
Speaker 1: thread or a discord chat talking about how you just
Speaker 1: bought more eight preferred shares and you're excited about it,
Speaker 1: you feel like you're part of the movement. Is the
Speaker 1: understanding And really, if you kind of take that and
Speaker 1: add on the fact that in a market that for
Speaker 1: the most part still is beaten down, we still have
Speaker 1: pretty light volumes professional traders are more than happy to
Speaker 1: jump into some of these trends because it is an
Speaker 1: easy way to generate some alpha. And we are seeing
Speaker 1: like even with Beth and Beyond today at about people
Speaker 1: are trading the call options for forty five dollar strike
Speaker 1: price to stop right now is at So there still
Speaker 1: is very much that gambling aspect where investors and whether
Speaker 1: it's retail traders professional traders are more than happy to
Speaker 1: speculate with a small portion of their portfolio just given
Speaker 1: the potential returns. Bailey, does it tell us anything about
Speaker 1: capitulation or about big picture how investors should look at
Speaker 1: a bear market when we have retail traders and getting
Speaker 1: involved in companies like this, Yeah, I mean the real
Speaker 1: debate and kind of got a mixed reaction from both
Speaker 1: pros and retail traders on the idea that net that
Speaker 1: investors need to become that sellers but um for the
Speaker 1: market to really bottom. But it feels more like it's
Speaker 1: kind of just an offshoot and it's another area for
Speaker 1: investors to trade. You look at the memorabilia space, it
Speaker 1: still is booming even with the market really struggling to
Speaker 1: find its footing. So I don't as much as people
Speaker 1: like to connect it off and say the FED is
Speaker 1: going to have to continue to hike as long as bed,
Speaker 1: bathroom beyond on any given day. It does feel like
Speaker 1: in the consensus from some of the people I talked
Speaker 1: to is that that's very much misplaced and an easy
Speaker 1: thing to say, but doesn't actually at the end of
Speaker 1: the day drive a core fundamentals for the market, just
Speaker 1: because in the broad team of things they are, these
Speaker 1: are very much small companies. While the percentage jump is massive,
Speaker 1: it's just a drop in the bucket broadly speaking. Alright, well, Bailey,
Speaker 1: before we let you go, um, meme stocks, crypto versus spects,
Speaker 1: what did you get from professional investors freed versus retail investors?
Speaker 1: Just in fifteen seconds? Yeah, professional investors like crypto the
Speaker 1: most as do retail. Retail was a little bit more
Speaker 1: optimistic on Meme stocks about said that would be the
Speaker 1: best asset class. Professionals only said about fift so very
Speaker 1: much Crypto between the three was the favored asset in
Speaker 1: the next year. Bailey Lipsholtz, equities reporter for Bloomberg News,
Speaker 1: joining us this afternoon on the phone from Hoboken, New Jersey.
Speaker 1: Big thank you to Bailey and congratulations once again. I'm
Speaker 1: a colonel. Yeah, but you let me drive? Oh no,
Speaker 1: no, no no, no home, honey, please, I'll do the driving revels.
Speaker 1: I want to drive. It's good question. This is the
Speaker 1: drive to the globe effect up down on Bluebird Radio. Well,
Speaker 1: here we are, less than ten minutes to go to
Speaker 1: the those of trading on this Monday afternoon. The SP
Speaker 1: five is lower by four tenths of one percent, as
Speaker 1: is the Dow, the NASDAC, the lagger today down by
Speaker 1: close to eight tenths a little more than eight tenths
Speaker 1: of one percent. Let's get into it with Aaron Kennon,
Speaker 1: co founder and CEO of Clear Harbor Asset Management. They've
Speaker 1: got over a billion dollars in assets under management. Aaron
Speaker 1: joining us this afternoon on the phone from Stanford, Connecticut. Aaron,
Speaker 1: how are you the We're just fine. Thanks for having
Speaker 1: me back. Yeah, it's always good to have you with us.
Speaker 1: I gotta tell you I was so I'm I'm working
Speaker 1: from home because I'm recovering from COVID and I couldn't
Speaker 1: turn away last week in Jackson Hole even though I was,
Speaker 1: you know, on sick leave essentially, and I texted Katie afterward,
Speaker 1: and I was as we saw the sell off happen,
Speaker 1: and I said, Katie, this is what we've been talking
Speaker 1: about for weeks here, Like this shouldn't be surprising to people.
Speaker 1: We knew Powell was going to be hawkish. We know
Speaker 1: that inflation is the number one concern for the central Bank.
Speaker 1: Why is everyone so surprised by this? So I ask you,
Speaker 1: why is everyone so surprised? Right? So, I mean, I
Speaker 1: think the rhetoric has been consistent, but there has been
Speaker 1: a belief since perhaps mid June, that the FED at
Speaker 1: some point, perhaps even by the end of the year,
Speaker 1: would be in a position where they're looking at data
Speaker 1: and decelerating inflation, and that they may in fact be
Speaker 1: in a position to pivot. And I think what we
Speaker 1: heard on Friday was that's not that's not accurate. Do
Speaker 1: not fight the Fed. You know, if you're predicting a
Speaker 1: pivot soon, please do not bet on it. And so,
Speaker 1: in some sense, I think the Fed was probably pleased
Speaker 1: with the market reaction, while investors clearly we're not. We know,
Speaker 1: I mean, we know Neil cash Gari was pleased. He
Speaker 1: said that on the podcast a little earlier today, that
Speaker 1: story just coming out on the Bloomberg in the last
Speaker 1: couple of hours, Katie right, and I feel like Aaron
Speaker 1: Peal almost gave us a blueprint for how to invest
Speaker 1: in these markets, because think about what he said. He said,
Speaker 1: getting a grip on inflation, it could uh necessitate a
Speaker 1: period below trend growth. And if that's the case, how
Speaker 1: do you structure a portfolio around that? Well, it's tricky
Speaker 1: in the near term, but we're very much, you know,
Speaker 1: guided by a lot of the sort of thoughts around
Speaker 1: longer term trends. And if you look at major asset
Speaker 1: classes like fixed income, where you can quantify long term
Speaker 1: trends by just looking at yield to maturity um, that
Speaker 1: nominal number is significantly higher today than it was a
Speaker 1: year ago. And so that's a plus. But you know,
Speaker 1: clearly the equity market has been, you know, experiencing significantly
Speaker 1: higher volatively relative to just a year or two years ago.
Speaker 1: Even though volatility hasn't spiked recently, it's still elevated relative
Speaker 1: to any sort of historical analog. And so it makes
Speaker 1: sort of thinking about risk adjusted returns quite difficult. It
Speaker 1: makes the sixty forty portfolio start to look a little
Speaker 1: more attractive just because we've seen that move higher in
Speaker 1: the front end, in particular on on the yield side,
Speaker 1: where you know, twos today are at three forty two
Speaker 1: and Fed funds are served pricing in the idea of
Speaker 1: maybe three or three quarters four percent funds rate, and
Speaker 1: we through the historical analog that to your treasury yields
Speaker 1: in the peak in the FED funds rate tend to
Speaker 1: generally coincide with one another. So it's a tricky time
Speaker 1: to think about the short term and try to tactically
Speaker 1: dip into this market. But in the long term, you know,
Speaker 1: we still think there are plenty of opportunities. Well, let's
Speaker 1: talk short term opportunities and then long term opportunities. So
Speaker 1: what do you what what short term should investors be
Speaker 1: thinking about? Or maybe if we're saying investors, we should
Speaker 1: say traders if we're thinking about short term, right, So,
Speaker 1: I think if you're thinking about timing, you're thinking about
Speaker 1: being tactical when we try to be you know, maybe
Speaker 1: marginally tactical, but but more sort of structurally thinking long term. Um,
Speaker 1: you want to try to understand when the Fed's gonna
Speaker 1: pivot or when when the market's going to bottom. And
Speaker 1: so you know, tend to look at things like the
Speaker 1: energy complex. You know, we haven't seen a collapse in
Speaker 1: the energy complex for sure, that tends to augur a
Speaker 1: bottoming and asset prices for equities, we haven't seen a
Speaker 1: collapse in evaluations to any great extent. Usually evaluations pierce
Speaker 1: through let's say, twenty five year averages. Even back in
Speaker 1: mid June we were trading not too far away from
Speaker 1: the twenty five year average. And you know, we haven't
Speaker 1: seen the FED, as we just discussed, put their foot
Speaker 1: on the brakes and say, wait a minute, we're gonna
Speaker 1: pause and assess and maybe even cut in the future.
Speaker 1: That tends to augur again a bottoming process in the market.
Speaker 1: So I think we probably have a ways to go.
Speaker 1: If if history is any is any guide here, and
Speaker 1: I know it's often not this black and white, but
Speaker 1: I am curious when you look at, you know, what
Speaker 1: we heard from Powell, the current set up in markets.
Speaker 1: What looks more attractive to you at this point? Fixed
Speaker 1: income or equities? Oh gosh, well, I think on a
Speaker 1: volatility adjusted basis, based on just where yields are in
Speaker 1: the setup is um You know, certain components of fixed income.
Speaker 1: You know, look, look interesting um on on a risk
Speaker 1: adjusted basis. I think when you think about equities for
Speaker 1: the long haul, on a nominal return basis, equities over
Speaker 1: let's say ten year rolling period should return more. But
Speaker 1: I think that the trick will be is the willingness
Speaker 1: to accept um incrementally higher volatility to achieve those returns
Speaker 1: relative to history. You know, the SMP returns over the
Speaker 1: last ten years through December thirty one, we're about sixteen
Speaker 1: and a half percent. Well, over the last twenty five
Speaker 1: years there were just under ten percent. So just to
Speaker 1: sort of think about where we have to sort of
Speaker 1: revert towards the mean in the future to just capture
Speaker 1: that twenty five year return, it suggests we could be
Speaker 1: going through a rougher patch of lower anticipator returns for equities. Yeah,
Speaker 1: but I mean even that reversion to the meme is
Speaker 1: nothing to shake a stick at. Well, I mean it
Speaker 1: is if we're if we're moving from sixteen and a
Speaker 1: half to nine point seven, it would suggest that we
Speaker 1: have significantly more downside um and on a nominal basis,
Speaker 1: not just a real basis inequities just to capture that
Speaker 1: longer term return soon I got to ask, because we're
Speaker 1: seeing declines now, especially after Friday, um is the bottom
Speaker 1: in for for this market cycle? Well, you know, I
Speaker 1: go look at what where we were in mid June, Tim,
Speaker 1: and we had a still a steep you old curve.
Speaker 1: I think two stends were about fifteen basis points. Now
Speaker 1: we have about a negative thirty basis point in version.
Speaker 1: We had a dollar that you know, dip down about
Speaker 1: one on one, one o two, and now we're back
Speaker 1: up near twenty year highs and we have a FED
Speaker 1: that's sort of saying not so fast. Whereas I think
Speaker 1: back in mid June, we had a FED where at
Speaker 1: least the market perceived, you know, some sort of pivot
Speaker 1: around the corner, and we're trying to sort of anticipate
Speaker 1: that and market started rallying, and so UM, I think
Speaker 1: that the probability that we're at a bottom level is
Speaker 1: still on the lower end of the spectrum, and that
Speaker 1: we could still experience some pain here. And I also
Speaker 1: sort of point to the reality that quantitative tightening is
Speaker 1: going to accelerate in September. It's going to double in
Speaker 1: size from August to September. That's more liquidity coming on
Speaker 1: of our capital market system. That's rarely a positive for
Speaker 1: the equity market and for credit. Aaron Kennan, we love
Speaker 1: it when you take the time and join us. Thank
Speaker 1: you so much for joining us on Bloomberg Business Week
Speaker 1: this afternoon. Aaron Kennon is co founder and CEO of
Speaker 1: Clear Harbor Asset Management. They've got over a billion dollars
Speaker 1: in assets under management. Aaron joins us this afternoon from Stanford, Connecticut.
Speaker 1: You can follow him on Twitter at Aaron Kennon. That's
Speaker 1: a A R O N K E N N O N.
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