WEBVTT - U.S. Bans Transactions With Russian Central Bank 0:00:01.800 --> 0:00:04.440 This is Bloomberg Business Week. I'm Karl Masser and I'm 0:00:04.480 --> 0:00:07.280 Bloomberg Quick Takes Tim Stanovk. We're here every day bringing 0:00:07.320 --> 0:00:09.840 you the latest news from the world to business and finance, 0:00:09.840 --> 0:00:13.640 plus technology, politics, economics, all purtnising the power of Business 0:00:13.680 --> 0:00:17.119 Week reporters and editors, not to mention our journalists and 0:00:17.120 --> 0:00:20.000 analysts in more than one twenty countries. You can download 0:00:20.000 --> 0:00:23.239 Bloomberg Business Week and iTunes, SoundCloud, or Bloomberg dot Com. 0:00:23.400 --> 0:00:25.200 You can also listen to our radio show at two 0:00:25.200 --> 0:00:27.880 pm Eastern Time on Bloomberg Radio, or watch us on 0:00:27.920 --> 0:00:32.440 YouTube search Bloomberg Clovel News. The US taking another step 0:00:32.440 --> 0:00:34.919 against Russia, you know that, following it's now five day 0:00:35.040 --> 0:00:38.919 old invasion of Ukraine. We heard President Bines administration earlier 0:00:39.400 --> 0:00:41.880 today banning US people and companies from doing business with 0:00:41.920 --> 0:00:44.040 the Bank of Russia, the Russian National Wealth Fund, and 0:00:44.040 --> 0:00:46.840 the Ministry of Finance. But then we just heard also 0:00:46.920 --> 0:00:49.760 from Jamie Diamond, and I've been talking with him about 0:00:50.200 --> 0:00:53.640 uh Swift specifically, which is that system messaging system used 0:00:53.840 --> 0:00:56.840 among the global financial community. Billions of messages sent each 0:00:56.920 --> 0:00:59.560 year using the Swift system. Jordan Fabian is Bloomberg News 0:00:59.560 --> 0:01:01.960 White House reporter. He joins us on the phone from Washington. 0:01:02.280 --> 0:01:05.120 D C. Jordan's where are we with the United States 0:01:05.120 --> 0:01:08.039 in the in the world where I shouldn't say the 0:01:08.120 --> 0:01:10.200 entire world, because not every country has done this, but 0:01:10.480 --> 0:01:13.000 the U S banning transactions with the Russian Central Bank, 0:01:13.040 --> 0:01:15.080 with the Wealth Fund, and to what extent can can 0:01:15.200 --> 0:01:19.479 businesses actually do business with Russia right now? The Bondo 0:01:19.520 --> 0:01:22.240 administration's goal is certainly to make it difficult. It's not 0:01:22.280 --> 0:01:25.200 impossible for that to happen. I think by targeting the 0:01:25.240 --> 0:01:27.520 central Bank in the way that they have, I mean, 0:01:27.560 --> 0:01:30.920 that's really uh something that you know, even the administration themselves, 0:01:30.920 --> 0:01:33.760 so they weren't even considering doing as early as last week. 0:01:34.160 --> 0:01:37.880 So um, you know, they're clearly frustrated. I think by 0:01:37.920 --> 0:01:40.640 the fact of the initial sanctions didn't convince Putting to 0:01:40.640 --> 0:01:42.880 pull out of Ukraine's and now they're unleashing some of 0:01:42.880 --> 0:01:45.679 the harshest measures they can to try and get him 0:01:45.680 --> 0:01:48.440 to reconsider that position. But now, as you pointed out, 0:01:48.480 --> 0:01:51.680 it's going to take the cooperation of allies and countries 0:01:51.720 --> 0:01:54.200 around the world to take similar steps to try and 0:01:54.240 --> 0:01:56.880 cut off Rusher's economy. But what did you make of 0:01:57.160 --> 0:02:00.680 I think both Tim and myself Jordan's kind of sat 0:02:00.760 --> 0:02:03.920 up straighter a little bit when JP Morgan's CEO and 0:02:04.000 --> 0:02:06.680 chairman Jamie Diamond just speaking with our Ed Hammond saying 0:02:07.120 --> 0:02:10.000 that there are a lot of workarounds for SWIFT, and 0:02:10.200 --> 0:02:12.639 we know the financial system and how you do business 0:02:12.880 --> 0:02:16.000 has complicated. There are lots of avenues. So how should 0:02:16.040 --> 0:02:18.160 we read a comment like that or how would you 0:02:18.200 --> 0:02:22.079 read it as you continue to report on this situation. Well, 0:02:22.120 --> 0:02:23.880 first of all, I mean, I think he's right, there 0:02:23.880 --> 0:02:26.440 are alternatives, like you mean, you can use telephone or 0:02:26.480 --> 0:02:29.560 fax machine even um there's also been talking about a 0:02:29.600 --> 0:02:33.320 possible alternative to SWIFT cropping up that you know, possibly 0:02:33.680 --> 0:02:36.120 China would be involved in that with Russia, and so 0:02:36.400 --> 0:02:38.760 he's right that they can get around it. But I 0:02:39.040 --> 0:02:41.040 and I think that's why U S officials have stressed 0:02:41.080 --> 0:02:44.760 that these Central Bank sanctions are perhaps even more beautiful 0:02:44.919 --> 0:02:46.880 and swift, even though the SWIFT has captured a lot 0:02:46.919 --> 0:02:49.600 of the public's attention over the past week or so, 0:02:49.800 --> 0:02:52.080 because that would mean essentially what they're trying to do 0:02:52.200 --> 0:02:54.840 is take all of these farm reserves that Russia has 0:02:54.880 --> 0:02:57.680 and and prevent the Kremlin from using it to skirt 0:02:57.720 --> 0:03:00.440 around the sanctions. So the view of the by administration 0:03:00.560 --> 0:03:02.360 right now is that that's that's the most important stuff 0:03:02.360 --> 0:03:05.160 they can say. UH. Credy Gupta, who's the markets correspondent 0:03:05.320 --> 0:03:08.080 here at Bloomberg, our our colleague Jordans, wrote this email 0:03:08.080 --> 0:03:09.760 this morning to us all that was really helpful and 0:03:09.760 --> 0:03:13.040 talked about some American companies that have exposure to Russia 0:03:13.040 --> 0:03:17.720 and McDonald's for example, Coca Cola, Mondli's International. Uh. Are 0:03:17.720 --> 0:03:20.839 these companies able to continue to do business in those 0:03:20.880 --> 0:03:23.560 countries right now? What is the status of of of 0:03:23.600 --> 0:03:26.360 that uh? And what would the buy An administration like 0:03:26.440 --> 0:03:30.160 to see? Well, it's a really good question him and 0:03:30.360 --> 0:03:32.239 I think, you know, it's hard to tell a company 0:03:32.280 --> 0:03:34.440 by company what they can and can't do. But what 0:03:34.520 --> 0:03:36.800 you're seeing, I think our company is deciding to be 0:03:36.880 --> 0:03:39.400 uncertainty is too great and they want to pull back 0:03:39.480 --> 0:03:42.120 and look at what VP did by exiting at Steak 0:03:42.200 --> 0:03:45.160 and Rosneft. I think Shell Oil anounced today that it's 0:03:45.160 --> 0:03:47.480 getting out of its partnership with gas from and so 0:03:47.880 --> 0:03:51.320 these companies, even if they're not specifically banned by sanctions 0:03:51.320 --> 0:03:53.960 from doing certain things, especially in the energy sector, they 0:03:54.000 --> 0:03:56.760 just might determine the risk is too great because the 0:03:56.880 --> 0:03:59.280 US might ratch it up even more, and so we 0:03:59.360 --> 0:04:01.880 just want to get out of doing business in Russia, 0:04:01.880 --> 0:04:04.560 and that would obviously be put a lot of pressure 0:04:04.600 --> 0:04:07.120 on on the Kremlin to uh, you know, try and 0:04:07.200 --> 0:04:10.600 keep the Russian economy afloat Jordan. International business, global business 0:04:10.640 --> 0:04:12.320 is a funny thing. I mean, how much of this 0:04:12.440 --> 0:04:15.720 is because of where we are right now, and how 0:04:15.840 --> 0:04:18.839 much of this could change in another week, in other words, 0:04:19.000 --> 0:04:21.560 the sanctions come off. I mean, how do you do 0:04:21.640 --> 0:04:24.080 you have any foresight or thought about how this play 0:04:24.120 --> 0:04:28.360 is longer term? Longer term? Excuse me, I mean it's 0:04:28.360 --> 0:04:31.279 a really good question. There's fod administration officials have been 0:04:31.320 --> 0:04:34.279 getting any indication they planned to put off the gas 0:04:34.680 --> 0:04:36.840 when it comes to the sanctions, that they would only 0:04:36.839 --> 0:04:40.039 be looked to increasing penalties. And you know, to your point, 0:04:40.440 --> 0:04:43.240 uh it is, I think for businesses that what they 0:04:43.240 --> 0:04:45.080 wanted certainty right that they're going to be able to 0:04:45.120 --> 0:04:48.160 operate in certain markets. And so when there's so much uncertainty, 0:04:48.520 --> 0:04:50.800 you know, we saw the SMP go down today. We 0:04:50.839 --> 0:04:56.200 saw obviously there's the rule really hitting record lows, and 0:04:56.240 --> 0:04:58.880 so it's just gonna cause chaos. And I think again 0:04:59.080 --> 0:05:00.960 a lot of these internation some companies are just going 0:05:01.040 --> 0:05:03.280 to decide it's not worth it to do business there 0:05:03.360 --> 0:05:05.440 right now, and it takes time for them to move. 0:05:05.600 --> 0:05:08.159 So you know, we might not see if the US 0:05:08.200 --> 0:05:10.880 snaps back sanction is necessarily going to open up their 0:05:10.920 --> 0:05:13.920 doors again next week, because who knows what's going to 0:05:14.000 --> 0:05:16.560 happen next with regard to Ukraine and the sanction situation. 0:05:16.880 --> 0:05:19.159 That's that's I'm I'm so glad you brought that up, Jordan, 0:05:19.160 --> 0:05:21.480 because that's exactly what I was wondering. Is this the 0:05:21.520 --> 0:05:24.720 type of thing that while the actual public outcry from 0:05:24.880 --> 0:05:28.240 Americans would be too much for some companies to actually 0:05:28.320 --> 0:05:30.680 be doing business or being connected with Russia right now 0:05:30.760 --> 0:05:33.600 or even in the near future. I mean, there is 0:05:33.640 --> 0:05:36.680 certainly something to that. A good example of that is 0:05:36.720 --> 0:05:39.720 state governors and state officials in the United States trying 0:05:39.760 --> 0:05:43.479 to pull Russian or Russian teamed vodka off the shelves 0:05:43.520 --> 0:05:46.120 of their stores. And that just shows the depth of 0:05:46.160 --> 0:05:49.200 the anti Russian sentiment right now among the public, at 0:05:49.240 --> 0:05:51.440 least the American public, and I know the public in 0:05:51.480 --> 0:05:55.040 many European countries as well, So it does become possibly 0:05:55.040 --> 0:05:58.160 a brand issue when uh, you know, these certain companies 0:05:58.600 --> 0:06:00.640 were operating in Russia. Mean, I think a lot of 0:06:00.680 --> 0:06:04.200 the reason VP pulled out of the Rosnest steak because 0:06:04.200 --> 0:06:06.039 they were receiving a ton of pressure from the UK 0:06:06.080 --> 0:06:09.039 government do so. So public at pressure only seems to 0:06:09.080 --> 0:06:11.600 be increasing and hardening against the Kremlin, at least in 0:06:11.640 --> 0:06:14.560 the West, and we'll certainly have to see how long 0:06:14.600 --> 0:06:17.680 that public pressure continues. Carol, Well, right, Like I think 0:06:17.680 --> 0:06:20.000 about different pressure points that we've seen over the last 0:06:20.040 --> 0:06:23.200 couple of years. What is it that stuck? Think about 0:06:23.279 --> 0:06:26.240 January six and donations that companies make too politicians who supported, 0:06:27.000 --> 0:06:30.159 you know, overthrowing the results of the election Middle East. Yeah, 0:06:30.680 --> 0:06:33.919 companies went back, yeah, actually making those donations. Jordan Fabian, 0:06:33.960 --> 0:06:36.600 Bloomberg News White House reporter on the phone from Washington, 0:06:36.680 --> 0:06:38.880 d C. You are listening to Bloomberg Business We Carroll Master, 0:06:38.960 --> 0:06:43.799 Tim Stanovic, We are Bloomberg. You're listening to Bloomberg Business 0:06:43.800 --> 0:06:47.640 Week with Carol Messer and Bloomberg Quick Takes. Tim Stinovic 0:06:48.120 --> 0:06:51.000 on Bloomberg Radio and joining us on the phone in 0:06:51.040 --> 0:06:54.320 New York, city is catching Glinsky, who, Man, there's a 0:06:54.320 --> 0:06:55.960 lot going on over the weekend. She works a lot 0:06:56.000 --> 0:06:58.760 of weekends she does courtesy of Warren Buffett and Berkshire 0:06:58.800 --> 0:07:01.200 away because Mr buff putting out his annual letter to 0:07:01.320 --> 0:07:04.200 shareholders this past weekend. Cat, we are grateful to have 0:07:04.279 --> 0:07:06.599 you with us, and we're grateful that you worked on Saturday, 0:07:06.680 --> 0:07:09.359 uh and probably throughout the weekend dissecting. You get a 0:07:09.360 --> 0:07:11.120 comp day for this. Now, we'll talk about that later. 0:07:11.960 --> 0:07:14.840 I do want to talk about big takeaways though, infrastructure. 0:07:14.920 --> 0:07:18.880 Might the growth plan potentially a little succession uh discussion 0:07:18.960 --> 0:07:22.760 or maybe not. Let's dive into it though with Catchy Klinsky. Cat. So, 0:07:22.760 --> 0:07:27.000 so what do we mean when you say, uh, infrastructure assets? 0:07:27.040 --> 0:07:29.880 What are we talking about here? Well, I think one 0:07:29.960 --> 0:07:33.120 of the interesting parts that Buffett has increasingly started to 0:07:33.160 --> 0:07:36.679 put in these letters is how much Berkshire really owns 0:07:36.680 --> 0:07:40.000 of infrastructure like property and plants. And he gave us 0:07:40.000 --> 0:07:42.440 an updated figure. It was a hundred fifty eight billion 0:07:42.480 --> 0:07:44.320 dollars at the end of last year. And I think 0:07:44.320 --> 0:07:46.560 it really is interesting because it really speaks to how 0:07:46.600 --> 0:07:49.080 bersher has changed. You know, people really think of Berkshire 0:07:49.360 --> 0:07:51.760 and Buffet set this himself as a collection sometimes of 0:07:51.840 --> 0:07:56.600 financial assets, and yet it's actually really become this industrial behemoth. 0:07:57.120 --> 0:07:59.480 And that's really underscored by the hundred fifty eight billion 0:07:59.480 --> 0:08:02.800 dollars infrastructure assets. I think that speaks to the fact too, 0:08:02.840 --> 0:08:06.240 that Berkshire can actually really earn some pretty good returns 0:08:06.280 --> 0:08:08.880 by reinvesting its own money and its businesses such as 0:08:08.920 --> 0:08:11.760 the railroad and the energy business, which are always going 0:08:11.800 --> 0:08:16.000 to be kind of steady operations for Berkshire. And so, yeah, 0:08:16.080 --> 0:08:18.760 you might not have you know, the crazy new retailers 0:08:18.760 --> 0:08:21.440 that Berkshire snapping up all the time, but you will 0:08:21.600 --> 0:08:24.679 have sort of these um steady and and and giant 0:08:24.920 --> 0:08:28.239 um companies. Hey, tat, so, is this a Warren Buffett 0:08:28.240 --> 0:08:31.560 play or is this a play um by Todd and Ted. 0:08:32.880 --> 0:08:36.000 So I would say the infrastructure play is definitely, you know, 0:08:36.040 --> 0:08:39.320 pieced together by Warren and and and partially because you know, 0:08:39.520 --> 0:08:41.960 really harkens back to the purchase of the energy business 0:08:41.960 --> 0:08:44.120 and the purchase of the railroad, both of which was 0:08:44.200 --> 0:08:46.600 kind of a Buffet play. And I think it really 0:08:46.640 --> 0:08:49.760 speaks to the fact that you know, um that yeah, 0:08:49.800 --> 0:08:52.320 he's reshaped the company over many years and you know 0:08:52.360 --> 0:08:55.320 he even joked a little bit sometimes not intentionally, but 0:08:55.400 --> 0:08:58.360 it's kind of built out into a company that is, yes, 0:08:58.600 --> 0:09:01.400 more industrial focus than it ever has been, and the 0:09:01.679 --> 0:09:04.200 way it becomes, you know, kind of a steady operation 0:09:04.400 --> 0:09:07.280 for even during bumps in the economy. Okay, I want 0:09:07.280 --> 0:09:09.240 to get to succession stuff, because there was kind of 0:09:09.240 --> 0:09:13.160 a rare mention of succession in this letter his likely successor, 0:09:13.200 --> 0:09:16.440 Greg Abele. Um, what do we learn about succession in 0:09:16.480 --> 0:09:17.920 the letter? And why was it kind of rare to 0:09:17.960 --> 0:09:21.520 hear from more in Buffett about that? Well, So Warren 0:09:21.679 --> 0:09:24.400 disclosed last year after a slip up from Charlie Munger, 0:09:24.559 --> 0:09:27.440 that greg Abel was the top pick and he's never 0:09:27.520 --> 0:09:29.800 actually named who was going to be the top pic 0:09:29.880 --> 0:09:32.600 when he stepped down. So that was huge news last year. 0:09:32.720 --> 0:09:34.760 And while we didn't get any sense of the timing 0:09:34.840 --> 0:09:37.200 of when it might occur, what we did get is 0:09:37.200 --> 0:09:40.199 we got a whole little letter from Greg Abele and 0:09:40.320 --> 0:09:43.440 it was focused on sustainability, so kind of, you know, 0:09:43.480 --> 0:09:45.679 a one topic letter, but I think it was really 0:09:45.720 --> 0:09:49.240 important because not only was Buffett willing to seed some 0:09:49.280 --> 0:09:52.120 page space to greg Abel, which is kind of key 0:09:52.160 --> 0:09:55.439 because investors increasingly need to be familiar with him and 0:09:55.520 --> 0:09:58.079 his ways of thinking. But it was addressing a topic 0:09:58.120 --> 0:10:00.720 that's really going to be important for Gregg going forward. 0:10:00.800 --> 0:10:03.520 I mean, obviously climate change has gathered, you know, a 0:10:03.600 --> 0:10:07.120 lot of the tension in more recent years. But if 0:10:07.120 --> 0:10:09.680 you're taking over as a CEO of a really big company, 0:10:09.760 --> 0:10:12.960 one that includes the railroad and an energy business and insurance, 0:10:13.000 --> 0:10:15.440 a came many businesses that are going to be affected 0:10:15.480 --> 0:10:18.880 by climate change and sustainability issues, You're gonna have to 0:10:19.080 --> 0:10:21.600 have a good argument for how company is handling it. 0:10:21.920 --> 0:10:24.200 And I think that was kind of key for investors 0:10:23.840 --> 0:10:26.679 that they got a sense of greg able and they 0:10:26.679 --> 0:10:28.520 got to hear from an an annual letter, which is 0:10:28.600 --> 0:10:30.360 rare cat I think it's so cool that he actually 0:10:30.400 --> 0:10:33.679 highlighted that. Considering this weekend, we're seeing alternative energy stocks 0:10:34.040 --> 0:10:35.839 kind of on a tear as a result of the 0:10:35.880 --> 0:10:38.640 Russian invasion into Ukraine, and it sounds like Europe is 0:10:38.679 --> 0:10:41.640 kind of rethinking and it's it's exposure and maybe this 0:10:41.840 --> 0:10:45.480 is a push more quickly to alternative energy as a result. 0:10:45.600 --> 0:10:47.800 Is everybody kind of rethinks where they're getting their energy 0:10:47.920 --> 0:10:51.360 is energy from from excuse me, and their exposure. Um. 0:10:51.480 --> 0:10:55.160 The other thing I think was interesting was Buffett conceding 0:10:55.200 --> 0:10:57.360 that there was little that excites him. That's not what 0:10:57.400 --> 0:10:58.800 you want to hear, especially when he's got a war 0:10:58.880 --> 0:11:02.679 chest like he does. Yeah, it's hit. It's so great, 0:11:02.720 --> 0:11:05.040 and it's been kind of a similar thing for many 0:11:05.120 --> 0:11:07.160 years now. Is that he's just he's not finding publicly 0:11:07.160 --> 0:11:09.720 traded stocks he wants to buy. He's not finding great acquisition. 0:11:10.160 --> 0:11:13.360 But I do think if you are bullish about him, 0:11:13.400 --> 0:11:16.280 you're bullish on the sense that he was willing to 0:11:16.320 --> 0:11:18.640 open up a completely different avenue that he had never 0:11:18.679 --> 0:11:21.720 pursued before, which was stuffed by back. He opened that 0:11:21.800 --> 0:11:27.280 up more more deeply in and last year he bought 0:11:27.280 --> 0:11:29.439 back a record amount of stock twenty seven point one 0:11:29.440 --> 0:11:32.439 billion dollars. Even a minuted in the letter that it's 0:11:32.440 --> 0:11:36.000 a mildly attractive option. AK, it's definitely not his favorite. 0:11:36.040 --> 0:11:38.439 I'm sure he'd love to strike a big deal, but 0:11:38.480 --> 0:11:40.480 I think it's really important to note that, yeah, he 0:11:41.559 --> 0:11:45.000 has opened it up, and he does have another way 0:11:45.040 --> 0:11:46.760 to put some of the cash to work. And to 0:11:46.920 --> 0:11:49.080 your point, Yeah, that's what I wanted to just finish 0:11:49.120 --> 0:11:51.880 on cat is he's essentially by doing that essentially saying, well, 0:11:51.880 --> 0:11:55.440 that's the most attractive use for our cash, right Yeah. Yeah, 0:11:55.440 --> 0:11:58.200 it's definitely the most attractive use for his cash right now. 0:11:58.240 --> 0:12:01.280 And I think not only that, but he made a 0:12:01.320 --> 0:12:03.800 hint at like sometimes just reinvesting in their own businesses 0:12:03.880 --> 0:12:07.960 right now their internal opportunities do that repurchases or yeah, 0:12:08.000 --> 0:12:11.520 deploying it back into the businesses is better than buying 0:12:11.559 --> 0:12:14.960 other businesses. And for some shareholders who really support that path, 0:12:15.040 --> 0:12:17.560 I think that's largely because they think he's being careful 0:12:17.600 --> 0:12:20.760 at a time when valuation are still relatively high given 0:12:21.559 --> 0:12:23.880 um despite the tact that recently we've had a little 0:12:23.960 --> 0:12:27.200 more market turmoil given the Russian Ukraine complex. Yeah, more 0:12:27.200 --> 0:12:29.199 of a value play, a little bit more than we've 0:12:29.240 --> 0:12:31.720 seen in a while. Um Cat, thank you as always, 0:12:31.760 --> 0:12:34.000 catch a Glenscape financial portter at Bloomberg News, our go 0:12:34.080 --> 0:12:36.959 to on all things. We're in Buffett in Berkshire. This 0:12:37.280 --> 0:12:41.000 is Bloomberg Business Week with Carol Masser and Bloomberg Quick 0:12:41.040 --> 0:12:44.520 Takes Tim Stinovic on Bloomberg Radio, and we want to 0:12:44.520 --> 0:12:46.040 get to a story that's going to be in the 0:12:46.080 --> 0:12:48.880 upcoming issue of Bloomberg Business Week. Magazine. In fact, it's 0:12:48.880 --> 0:12:51.920 among the most read. It's also the Bloomberg Big Take today, 0:12:52.040 --> 0:12:55.679 and it's about Wall Streets, risky razor blade trade making 0:12:55.679 --> 0:12:58.640 a comeback. We're talking leveraged et F s. The story 0:12:58.800 --> 0:13:02.480 is by Danitzakova, also joining us as Joel Webber, editor 0:13:02.520 --> 0:13:05.920 at Bloomberg business Week, Danitza's cross asset reporter for Bloomberg News. 0:13:05.960 --> 0:13:07.679 She joins us on the phone from our London bureau. 0:13:07.760 --> 0:13:09.760 Joel is here with us in the flesh in our 0:13:09.760 --> 0:13:14.360 Bloomberg Interactive Broker studio Leverage et F Joel, maybe allow 0:13:14.480 --> 0:13:17.679 somebody to get to three x the gains or losses 0:13:18.200 --> 0:13:21.960 in a single day of one of these indicas. UM 0:13:22.080 --> 0:13:24.800 more fun when it's the gains, but the other side 0:13:24.840 --> 0:13:27.720 can also happen. Well, what could go wrong? Well, that's 0:13:27.800 --> 0:13:29.880 that's the problem, is that a lot can go wrong. 0:13:30.400 --> 0:13:34.480 And uh, many retail investors don't really know what they're 0:13:34.520 --> 0:13:36.800 getting it just so it sounds like something that maybe 0:13:36.800 --> 0:13:41.319 they want some exposure to. Um, maybe maybe it promises 0:13:41.320 --> 0:13:45.160 a quick buck uh and and oftentimes that can happen 0:13:45.320 --> 0:13:49.000 and successfully. But the downside is also um always at 0:13:49.080 --> 0:13:51.920 a risk coup. So Deniza walk us through why we 0:13:51.920 --> 0:13:54.200 should be caring about this and and and reasonably a 0:13:54.240 --> 0:13:58.520 trade right now? Yeah, of course. So, first, I've seen 0:13:58.559 --> 0:14:01.760 a really historic bloom in those products. We're talking in 0:14:01.800 --> 0:14:04.960 terms of total assets, in terms of volumes UM just 0:14:05.000 --> 0:14:07.880 as an example for total assets, we've seen a fifty 0:14:07.880 --> 0:14:11.520 five percent growth just over a year UM in the US. 0:14:11.559 --> 0:14:16.319 This of course comes as retail traders UM have been 0:14:16.440 --> 0:14:19.560 entering market more and more, as votility has been rising. 0:14:19.960 --> 0:14:23.320 And some people actually say that Volmageddon, which happened in 0:14:23.320 --> 0:14:27.600 two thousand eighteen with one volatility product, was kind of 0:14:27.600 --> 0:14:29.840 an infliction point, and a lot of people heard about 0:14:29.840 --> 0:14:32.800 those products and instead of being concious about it, they're like, 0:14:32.920 --> 0:14:35.920 maybe we should give it a try. UM. So, definitely 0:14:35.960 --> 0:14:40.560 retail traders love them. They offer big returns quickly, but UM, 0:14:40.600 --> 0:14:43.400 as we talk in article, they may be offering big 0:14:43.440 --> 0:14:45.880 losses as well if you don't use them carefully. But 0:14:45.960 --> 0:14:48.880 in terms of regulation um uh and experts, a lot 0:14:48.920 --> 0:14:51.720 of people worn about the risk of those products first 0:14:51.720 --> 0:14:55.640 because they're very complex. A second, they're like very sophisticated 0:14:55.760 --> 0:14:58.680 vehicles that rely on day trading and timing the market, 0:14:58.680 --> 0:15:00.880 which is such a difficult thing, so obviously a lot 0:15:00.920 --> 0:15:03.320 of people are failing at that and in the carry costs, 0:15:03.320 --> 0:15:06.040 which can obviously just eat a way at everything. So 0:15:06.360 --> 0:15:10.120 there's some interesting tickers and e t f s in 0:15:10.120 --> 0:15:12.760 this space. What what are some of the biggest and 0:15:13.000 --> 0:15:15.240 especially in the era of the meme trader, which one 0:15:15.280 --> 0:15:17.800 is kind of grew in popularity the most. Yeah, the 0:15:17.840 --> 0:15:21.840 biggest one for sure are those who bet against the 0:15:21.920 --> 0:15:24.840 navdack or the performance of the navack so sqq and 0:15:24.920 --> 0:15:27.200 q q q uh. These are for sure the biggest 0:15:27.240 --> 0:15:31.280 one in terms of trade, trade volume and assets. But 0:15:31.360 --> 0:15:34.880 for example, interesting one is uv x y UM that's 0:15:34.920 --> 0:15:38.840 a very popular one. That's also a votility product, so 0:15:39.160 --> 0:15:41.840 these are kind of the most popular one. For example, 0:15:42.120 --> 0:15:47.920 um our interviewee she bets on small caps. She uses 0:15:47.960 --> 0:15:51.040 the t c A which is against three times the 0:15:51.040 --> 0:15:54.560 inverse performance of the Russell two thousands. So pretty much 0:15:54.560 --> 0:15:58.200 you can bet against any index um and you can 0:15:58.240 --> 0:15:59.960 have a lot of leverage. In the US it's only 0:16:00.160 --> 0:16:02.720 two or three times, but in other places of the 0:16:02.760 --> 0:16:05.720 world you can get up to five and even twenty 0:16:05.800 --> 0:16:11.080 in case yeah, well uh look good when it goes 0:16:11.160 --> 0:16:13.840 up or or you know your way on the right 0:16:13.880 --> 0:16:17.400 side of the bat, right exactly, uh Danitza. Who who 0:16:17.680 --> 0:16:20.960 are using these products and who should be using these products? 0:16:21.000 --> 0:16:25.320 What do experts say? Yeah, well, retail traders are definitely 0:16:25.880 --> 0:16:28.200 using them a lot, Like we have JP Morgan data 0:16:28.320 --> 0:16:32.080 showing that among gts this is um their most popular choice. 0:16:32.640 --> 0:16:35.680 As as I said, um big returns really fast, so 0:16:35.800 --> 0:16:39.080 that's kind of very tempting. But in terms of who 0:16:39.160 --> 0:16:41.840 should be using them, when we go to those big providers, 0:16:42.120 --> 0:16:44.520 whether pro shars or others, they all say they're very, 0:16:44.840 --> 0:16:47.520 very sophisticated investors. They've been on the market for a 0:16:47.600 --> 0:16:51.240 very long time and they should know how to use them, um, etcetera, etcetera. 0:16:51.320 --> 0:16:54.360 But even the sec when they look at their products, 0:16:54.880 --> 0:16:58.080 they say they pose risks even for those investors because 0:16:58.560 --> 0:17:01.320 it's just such a big bet on the market that 0:17:01.720 --> 0:17:04.440 even if you're aphisticated investor, you can get it wrong. 0:17:04.600 --> 0:17:06.080 All right, So how likely is it that we get 0:17:06.119 --> 0:17:07.760 it wrong and this kind leader is a kind of 0:17:07.800 --> 0:17:13.760 financial crisis? Well, what do people think? It really depends 0:17:14.320 --> 0:17:17.399 on on the product. Like with votility, obviously, this this 0:17:17.600 --> 0:17:21.720 is cost system wide risk with betting on an index. UM. 0:17:21.760 --> 0:17:24.520 I guess the chances of kind of UH causing a 0:17:24.560 --> 0:17:27.320 system wide risk UM is very small. But if you 0:17:27.359 --> 0:17:31.399 can imagine just the basic number of how many active 0:17:31.440 --> 0:17:36.080 majors UM do better than UH passive index and I 0:17:36.920 --> 0:17:40.640 don't know what's the number, Maybe just imagine that type 0:17:40.680 --> 0:17:43.480 of leverage three times and getting it right. So the 0:17:43.560 --> 0:17:46.800 chances of being wrong, at least from my reporting, seems 0:17:46.800 --> 0:17:50.760 to be maybe higher than the chances of getting it right. Well. 0:17:50.920 --> 0:17:52.359 The other thing to keep in mind here is like 0:17:52.400 --> 0:17:54.720 there are E t F s and then there are 0:17:54.800 --> 0:17:56.399 you know, non E t f There's the E t 0:17:56.520 --> 0:17:58.440 n s and the E t p s which can 0:17:58.480 --> 0:18:01.000 often be where the where the more of the dangerous 0:18:01.040 --> 0:18:07.000 stuff live. You know, maybe you've heard about it, and 0:18:07.040 --> 0:18:09.960 maybe I can talk about it some more sometimes, but 0:18:10.080 --> 0:18:13.720 when when investors, you know, forever the distinction between the 0:18:13.720 --> 0:18:17.360 two has been sort of a concern. And how how 0:18:17.960 --> 0:18:21.520 risky of that from a regulatory standpoint, UM are are 0:18:22.080 --> 0:18:25.320 is the industry? Yes for sure, So most of the 0:18:25.359 --> 0:18:28.920 meltdowns have actually been happening, not necessarily in a TS 0:18:28.920 --> 0:18:33.520 but other products. UM. In terms of regulation, we haven't 0:18:33.520 --> 0:18:36.280 seen too many changes. In two thousand and eighteen, there 0:18:36.320 --> 0:18:39.560 was a derivative RUSE that kept that leverage at two 0:18:39.600 --> 0:18:47.480 times for e TFU. But they're often um, they're often addressed. Uh. 0:18:47.520 --> 0:18:51.840 They say they're enhanced protection, but currently anyone can access those. 0:18:52.520 --> 0:18:55.680 For example, guestly says that they pose risks to sophisticated 0:18:55.840 --> 0:18:59.640 investors to the system, but still there there there aren't 0:18:59.640 --> 0:19:02.280 too many restrictions for them. All right, we gotta run. Hey, listen, 0:19:02.359 --> 0:19:03.879 great story and it's going to be in the upcoming 0:19:03.920 --> 0:19:07.000 issue of Bloomberg Business Week magazine, Big Nakedive Denitza Sakova 0:19:07.080 --> 0:19:10.439 and Joel Webber of Bloomberg Business Week. You're listening to 0:19:10.560 --> 0:19:14.520 Bloomberg Business Week with Carol Messer and Bloomberg Quick Takes 0:19:14.600 --> 0:19:18.680 Tim Stinovic on Bloomberg Radio. We're getting a little lost 0:19:18.720 --> 0:19:22.720 with our next guest, Andy Brown, Yeah, because we just 0:19:22.760 --> 0:19:25.040 have so much He's fresh back from the Olympics. Yeah, 0:19:25.080 --> 0:19:26.240 we want to talk to him about that. We also 0:19:26.280 --> 0:19:28.840 want to talk to him about UM China and Russia 0:19:28.960 --> 0:19:31.639 and that relationship because Andy wrote about it in his 0:19:31.680 --> 0:19:35.199 Saturday column China has a big Ukraine problem, Bloomberg New 0:19:35.240 --> 0:19:38.080 Economy Editorial Director Andy Brown. He is here in our 0:19:38.119 --> 0:19:41.880 interactive Broker's studio. Good to have you here. Let's start 0:19:41.880 --> 0:19:43.880 with Ukraine and Russia first of all, because I feel 0:19:43.920 --> 0:19:46.719 like every discussion we have andy about the Russian invasion 0:19:46.800 --> 0:19:50.480 into Ukraine, we bring up China and what the relationship is? 0:19:50.560 --> 0:19:53.120 How do you see it? So the way I see 0:19:53.160 --> 0:19:56.760 it from China's perspective is that right from the start, 0:19:56.920 --> 0:20:03.000 China has miscalculated and blundered. And it begins with this 0:20:03.160 --> 0:20:08.520 extraordinary meeting between Sejimping and Vladimir Putin, literally hours ahead 0:20:08.560 --> 0:20:12.639 of the Olympic opening ceremony, and Putin gets c to 0:20:12.840 --> 0:20:18.280 sign up to this radical world changing agenda, which essentially 0:20:18.359 --> 0:20:22.320 declares that that China and Russia have no limits to 0:20:22.359 --> 0:20:25.000 their relationship. We've gone back to the sort of Sino 0:20:25.080 --> 0:20:30.080 Soviet Pact of the early fifties, and Putin hasn't mentioned, 0:20:30.119 --> 0:20:34.919 apparently to see that he's about to invade Ukraine, and 0:20:34.960 --> 0:20:37.720 so of course when he does, it looks for all 0:20:37.760 --> 0:20:40.680 the world as though China is complicit, or at the 0:20:40.760 --> 0:20:44.520