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Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside

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Speaker 1: my co host Matt Miller. Every business day we bring

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Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along

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Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast

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Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and

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Speaker 1: at Bloomberg dot com slash podcast sixty portfolio. Many of

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Speaker 1: us grew up with that six stocks, fixed income to

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Speaker 1: fixing income to maybe you know kind of you know,

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Speaker 1: even out maybe some of the risk here give you

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Speaker 1: some return. But man, that did not work this year

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Speaker 1: or is not working this year. It's stocks down, the

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Speaker 1: US aggregate, the Bloomberg u S aggregate fixed income total

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Speaker 1: return unhedged down sixteen point eight percent. It is ugly

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Speaker 1: out there, folks. What are you doing the fixed income biz?

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Speaker 1: Let's check in with George Borie, chief Investment Strategies for

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Speaker 1: fixed income at all Spring Global Investments. George, you guys

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Speaker 1: in fixed income? I mean, does anybody want to talk

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Speaker 1: to you guys? A cocktail parties or is it just

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Speaker 1: stay away? What do you do? Yeah, good morning, Paul,

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Speaker 1: Thanks very much. Yeah, I think as you highlight um

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Speaker 1: you know, bond investors don't really set up or sign up,

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Speaker 1: i should say, for for double digit mark to market

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Speaker 1: losses UH in their portfolio. So it's it's been a

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Speaker 1: very very challenging year for fixed income. What we tell

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Speaker 1: clients is sort of two things. Number one, you know,

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Speaker 1: the bonds they bought, they they actually are performing as advertised.

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Speaker 1: They're paying the coupons that they were assigned to do.

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Speaker 1: But obviously, you know, sort of two things have happened.

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Speaker 1: Prices have gone up, and central banks have moved to

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Speaker 1: become much more hawkish. As a result, bond prices, at

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Speaker 1: least on a mark to market basis, has gone down

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Speaker 1: quite a bit. That's the bad news. The good news

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Speaker 1: is is that the yield level, the amount at which

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Speaker 1: we can invest today is actually very attractive relative to

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Speaker 1: history and certainly relative to the current kind of basket

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Speaker 1: or risks we're looking at today. So a ten year

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Speaker 1: treasury yields about four percent from one percent last year,

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Speaker 1: a basket of investment grade bonds yields six, and a

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Speaker 1: basket of say high yield bonds yields about ten. And

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Speaker 1: it's the power of compounding. If you can reinvest your

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Speaker 1: money today. At those yields, your forward looking returns are

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Speaker 1: gonna look very compelling and they'll help you clawback some

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Speaker 1: of those mark to market losses. They're not realized until

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Speaker 1: you sell the bonds. Well, George, to your point that

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Speaker 1: you know, if you look at a ten year treasury

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Speaker 1: right now yielding about four percent, if you look at

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Speaker 1: a three month T bill, uh, it's yielding about the same,

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Speaker 1: if not more so. In that environment, you just go

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Speaker 1: to the shortest thing possible. If the yield lever levels

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Speaker 1: are about the same or are you looking at duration here? Well,

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Speaker 1: in the short term, uh, you know, going for that

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Speaker 1: sort of one year T bill at at roughly four

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Speaker 1: to four and a quarter percent, that's not a bad idea.

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Speaker 1: It's a good safe place to park money. It will

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Speaker 1: sort of generate that yield for the next year. But

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Speaker 1: if you're looking a little bit further out, inflation is

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Speaker 1: unlikely to stay at these elevated levels. The central banks

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Speaker 1: moving aggressively to get inflation down, and and the important

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Speaker 1: thing to remember is the FED as very very powerful tools.

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Speaker 1: They will get what they want, but it may take

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Speaker 1: some time. So if you're looking say five, ten or

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Speaker 1: even thirty years out, and some people do look that

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Speaker 1: far out. Then that longer duration trade, locking in, say

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Speaker 1: ford to four and a quarter percent yield today may

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Speaker 1: look very nice five years out, and so we are

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Speaker 1: adding some of that duration. We are looking further out

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Speaker 1: the curve to lock in those longer term yields because

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Speaker 1: we think inflation will come down and yields will start

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Speaker 1: to come down as we sort of move beyond this

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Speaker 1: this spike in inflation. George, what's your call there and

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Speaker 1: all spring about this Federal reserve? It seems like seventy

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Speaker 1: five basis points is baked in for the next meeting

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Speaker 1: after that? How do you think the Federal Reserve will

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Speaker 1: you know, kind of play Yeah, that's that's that's a

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Speaker 1: that's a great, great question, Paul. You know, most people,

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Speaker 1: many people expect the Fed to raise rates another seventy

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Speaker 1: five basis points. Uh. And the real question is it

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Speaker 1: sort of where are we at the end of the year.

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Speaker 1: They have two more meetings before now in the end

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Speaker 1: of the year, and then importantly, most investors are looking

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Speaker 1: into next year. The market sort of wants to get

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Speaker 1: a sense of where the terminal rate, where will rates peak?

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Speaker 1: Right now, our view is that the Fed has been

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Speaker 1: very clear they want to get rates up to about

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Speaker 1: four and a half percent. They've recently reinforced that message,

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Speaker 1: and so you know, some folks in the market we're

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Speaker 1: expecting higher than that. We are not. We think we

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Speaker 1: get to sort of four and a half percent by

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Speaker 1: the end of the year, that would be another seventy

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Speaker 1: five in November, but then start to decelerate that pace.

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Speaker 1: That should allow them sometime and perhaps a little bit

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Speaker 1: of patients to be able to sort of start to

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Speaker 1: slow their rate of pace of of of rate, their

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Speaker 1: pace of rate tightening. So four and a half percent

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Speaker 1: as our target for the end of the year, we

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Speaker 1: think they'll likely sit there for an extended period of time.

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Speaker 1: That could be six months, nine months, perhaps even a year.

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Speaker 1: It really depends on how inflation behaves and how the

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Speaker 1: economy behaves. But the expectation for sort of this ongoing

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Speaker 1: rapid fire kind of increase, we think it is getting

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Speaker 1: a bit overblown, and we think the Fed actually is

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Speaker 1: starting to gain some room to sort of slow that pace,

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Speaker 1: but then allow markets and allow the economy to adjust

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Speaker 1: as those higher rates take hold. All right, George, great stuff.

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Speaker 1: Really appreciate getting your informed perspective on all things fixed income. Again,

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Speaker 1: a brutal, brutal start to the year two returns like

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Speaker 1: the fixed and gum world has never seen, is what

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Speaker 1: I have been told. George Borie, chief investment strategist for

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Speaker 1: fixed income at Offspring Global Investments. I want to get

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Speaker 1: right to our next guest, the Conversation of the Morning.

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Speaker 1: James Travitis, retired Admiral U S. Navy is in the

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Speaker 1: Navy for like thirty seven years, fifteenth commander of the

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Speaker 1: US European Command and NATO's sixteenth Supreme Allied Commander in Europe.

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Speaker 1: But I know the highlight of his career is that

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Speaker 1: he is a Bloomberg opinion columnist, which means he has

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Speaker 1: to speak with us here at Bloomberg Radio. Admiral, thank

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Speaker 1: you so much for taking the time out of your

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Speaker 1: busy schedule so many places ago. But let's start with Ukraine.

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Speaker 1: If I were to war game this out from this point,

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Speaker 1: how would it go? I just don't know how the

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Speaker 1: same places out there's spent so many mistakes by Mr Poutin,

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Speaker 1: I just don't know where he goes from here. Well,

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Speaker 1: I'll start with three little words, which are I don't know.

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Speaker 1: Nobody does. UM. War is unpredictable, but I'll give you

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Speaker 1: my estimate, having watched it closely, having been the NATO commander,

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Speaker 1: having visited Ukraine many many times. UM, these are very

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Speaker 1: tough people on both sides of that firing line. By

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Speaker 1: the way, both Russians and Ukrainians, UM, So don't look

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Speaker 1: for any sudden give out of either party here. So

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Speaker 1: here's what I think will happen over the coming weeks.

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Speaker 1: There is going to be a significant attack on the

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Speaker 1: city of Harsan, which is a major uh Ukrainian city.

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Speaker 1: It's the gateway to Crimea, and that will be where

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Speaker 1: I would focus investors, analysts watch what happens in here soon.

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Speaker 1: If the Ukrainians really run the table, push the Russians out,

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Speaker 1: they're gonna have strong momentum. On the other hand, if

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Speaker 1: the Russians can bob down the Ukrainian advance, that will

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Speaker 1: also tell us something. So all of that all will

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Speaker 1: play itself out over the next month or so. Then

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Speaker 1: we're going to be deep in the guts of winter,

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Speaker 1: and hopefully as we come out of winter, both sides

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Speaker 1: will have been exhausted and be prepared to at least

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Speaker 1: begin a negotiations so we can start to find a

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Speaker 1: way out of this situation. Well, in the guts of winter,

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Speaker 1: I want to talk about the dollar and sense of

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Speaker 1: what war actually costs, because you know, there's a story

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Speaker 1: on the terminal today, uh the Ukrainian president saying that

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Speaker 1: his government needs seventeen billion dollars in immediate financing. That's immediate,

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Speaker 1: Whereas you have the EU on the other side saying

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Speaker 1: that the EU is going to develop funding around eighteen

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Speaker 1: billion euros just under eighteen billion dollars for next years.

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Speaker 1: So there's a real mismatch here. And I'd love to

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Speaker 1: hear your thoughts on whether or not you're worried that

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Speaker 1: the political will to fund Ukraine might fade as we

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Speaker 1: got into those winter months. I think the political will

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Speaker 1: will remain, but it's going to be more of a negotiation,

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Speaker 1: not a simple Ukraine says we need X, and we

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Speaker 1: hand them x. Um. I think it's gonna be more

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Speaker 1: a situation of Ukraine says we need X and we're

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Speaker 1: gonna say X. Sounds like a lot. How about why

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Speaker 1: plus some longer term Z and maybe some additional A,

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Speaker 1: B and C in terms of weapons. So you know,

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Speaker 1: we talk a lot in private equity. I'm the vice

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Speaker 1: chairman of the Carlisle Group. We talk a lot about

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Speaker 1: burn rates and on putin side, the burn rate is

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Speaker 1: pretty clear. It's the killed in action, the equipment destroyed.

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Speaker 1: He is a very high burn rate. The burn rate

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Speaker 1: on the Ukrainians is what you just put your finger on, Katie.

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Speaker 1: It's the patients, the resources, the dollars, the Euros, the

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Speaker 1: weapons of the West. I think that tap is not

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Speaker 1: going to be suddenly shut off, but I think it's

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Speaker 1: going to be more of a negotiation between the Ukrainians

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Speaker 1: and the West. Point forward, add I want to take

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Speaker 1: you to the other side of the globe to China.

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Speaker 1: They just finish up their party congress and the strengthened

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Speaker 1: g and potentially presenting much more risk to the global

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Speaker 1: environment here. How do you What are your takeaways from

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Speaker 1: what we've learned about China over the last couple of weeks. Well,

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Speaker 1: first and foremost, we've seen, as you point out correctly, Paul,

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Speaker 1: we've seen the emergence of g as a as a

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Speaker 1: pantheon leader in China. He's now up there with Mao

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Speaker 1: and Dan, and he is someone who is going to

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Speaker 1: be with us for a while. He appears to be

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Speaker 1: very healthy's late sixties, early seventies. He is in complete control.

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Speaker 1: And if you doubt me at all, go back and

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Speaker 1: review the video of the previous leader who Jentao, being

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Speaker 1: dragged out. It looks like a scene from George Orwell.

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Speaker 1: So clearly she is in full charge of I know.

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Speaker 1: I'll give you two things to focus on as investors.

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Speaker 1: One is he has remained adamant that he will continue

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Speaker 1: this zero COVID policy that has real implications for the

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Speaker 1: Chinese economy obviously, which then has a knock on effect globally.

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Speaker 1: Watched to see if now that he's installed and is

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Speaker 1: in full control, might he be willing to crack open

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Speaker 1: that COVID policy a little bit. And secondly, Taiwan. In

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Speaker 1: his speeches as part of this twentieth Party Congress where

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Speaker 1: he was just appointed, he talked quite aggressively about the

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Speaker 1: long term play on Taiwan. But my takeaway is don't

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Speaker 1: look for a military move there for the next three

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Speaker 1: to five years. He's not ready to go there. He's

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Speaker 1: watching the debacle in the Ukraine. He has uncertainties and

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Speaker 1: doubts about his own military about the Taiwanese. So I

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Speaker 1: think that those two are going to be indicators to

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Speaker 1: watch over the next few weeks. I've I want to

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Speaker 1: talk about a Bloomberg opinion column you wrote last week,

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Speaker 1: the headline of which is NATO's nuclear drills are a

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Speaker 1: risk worth taking. Of course, you're talking about the round

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Speaker 1: of exercises that started from NATO and Western Europe last week.

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Speaker 1: As you point out, it's a pretty fraught time in

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Speaker 1: Russian relations, to say the least. But talk me through

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Speaker 1: that argument and whether we should expect more of these drills. Sure,

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Speaker 1: let's start with the predicate that Russia has been rattling

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Speaker 1: the nuclear saber almost continuously since this war began. So

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Speaker 1: NATO every year, Katie and I commanded these drills. As

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Speaker 1: Supreme Allied Commander, NATO every year exercises its nuclear capabilities.

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Speaker 1: It's very routine. Um, it involves half of the NATO nations,

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Speaker 1: it's confined hundreds and hundreds of miles from the Russian

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Speaker 1: border out in Western Europe. Um. And it's it's a routine,

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Speaker 1: business as usual exercise. I fear that if NATO were

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Speaker 1: to say, oh, we're really concerned about Russian nuclear threats,

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Speaker 1: so we just won't exercise our capability. I think that

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Speaker 1: sends exactly the wrong signal to putin. It shows that

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Speaker 1: we're going to back down in the face of his threats,

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Speaker 1: and he'll begin to think, well, maybe they don't really

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Speaker 1: have that kind of capability to counter. So, yes, you're right,

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Speaker 1: it's a fraud. Time you've got to think it through.

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Speaker 1: But on this one, I come down on this side

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Speaker 1: of conducting those exercises, which are in fact in progress

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Speaker 1: right now. All right, Ada, Well, thank you so much

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Speaker 1: for joining us. We really appreciate your time and your

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Speaker 1: informed perspective on these global geopolitical issues facing the world,

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Speaker 1: facing markets, facing investors. James Travita's Admiral, United States Navy.

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Speaker 1: He was with the Navy for thirty seven years, fifteenth

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Speaker 1: Commander of the US European Command and NATO's sixteen Supreme

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Speaker 1: Allied Commander. He is a Vice chairman Global Affairs at

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Speaker 1: Carlisle Group and he is a Bloomberg opinion columnists, So

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Speaker 1: he is a a busy individual. We appreciate getting perspective

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Speaker 1: on some of these bigger issues here. On terms of geopolitics,

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Speaker 1: We've got Ukraine, we've got China, lots of areas of

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Speaker 1: concern out there, still the thick of earning season for

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Speaker 1: the global banks. Last week we had a lot of

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Speaker 1: the US names. Now we're starting to get some of

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Speaker 1: the European names. UBS, for example, which is one of

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Speaker 1: the many firms I can say I once worked at

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Speaker 1: because they were I used to work at painting weeb

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Speaker 1: which is now part of UBS. There's probably not many

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Speaker 1: financial institutions that aren't part of where I used to work,

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Speaker 1: for whatever that's worth. But UBS beat some some numbers today. Uh,

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Speaker 1: stock up a little bit. Alison Williams, she's been covering

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Speaker 1: bank stocks for decades on Wall Street. She's actually one

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Speaker 1: of the leading voices out there. So Allison, um, what

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Speaker 1: are you seeing from some of the European banks? Because

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Speaker 1: I guess my theme has just been I'm not sure

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Speaker 1: how they compete in the global banking business. But what

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Speaker 1: are you seeing with quartally numbers? So for UBS, I

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Speaker 1: mean there are a few key positives. I think you know,

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Speaker 1: the stock is really reacting to trends in the wealth business. Um,

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Speaker 1: so they're more focused on that business. They had nineteen

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Speaker 1: excuse me, seventeen billion of wealth inflows a couple of

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Speaker 1: billion as well in asset management, and so given UM

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Speaker 1: sort of the tough environment in Asia, we think that's

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Speaker 1: impressive and we think that is an indicator that their

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Speaker 1: their business health is strong going forward despite the fact

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Speaker 1: that we have some cyclical pressure in Asia on the

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Speaker 1: capital front, capital ratio much bigger than expected UM, so

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Speaker 1: investors I think are looking for UM that capital to

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Speaker 1: be returned, so that's exciting. They did up upside their

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Speaker 1: buy back to five point five billion, but that was

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Speaker 1: had been sort of signaled. And then over to UM

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Speaker 1: the investment bank that we always like to talk about

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Speaker 1: fixed income treading up over sixty so that's a small

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Speaker 1: business for them. UM but did very well. They had

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Speaker 1: a record quarter and sort of derivatives on UH currencies

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Speaker 1: and rates, which is where we're seeing all the strength.

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Speaker 1: On the negative side of things, equity trading worse than expected,

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Speaker 1: so that's more negative for them because that's a bigger

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Speaker 1: part of their business and those fees UM, like we've

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Speaker 1: seen at the bank's All quarter week. The one thing

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Speaker 1: that the one place where UBS is benefiting and they

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Speaker 1: are competing Asia Asia. I p o s have been

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Speaker 1: sort of the soul UM Bright spot in the I

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Speaker 1: p O market and ubs getting some benefit from that.

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Speaker 1: Their fees were stilled down, but they did get some

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Speaker 1: benefit there. And so also I want to go back

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Speaker 1: to last week and to US bank earnings because this

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Speaker 1: isn't a space I follow too closely, but I do

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Speaker 1: at least four times a year, and what stuck out

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Speaker 1: to me was the fact that net interest income absolutely

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Speaker 1: on fire. Bloomberg's Lisa for Home It's had a great

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Speaker 1: tweet which really have been thinking about since that if

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Speaker 1: you think about the pressure on the big banks to

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Speaker 1: pass on the higher interest rates to consumers hasn't really

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Speaker 1: amounted it much last week. I know that the big

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Speaker 1: banks CEO is one in front of Congress in the

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Speaker 1: past month or so and said that they would do that.

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Speaker 1: Hasn't seemed to happen yet. When would you expect to

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Speaker 1: see that? So they're passing it on in specific products

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Speaker 1: and businesses. So, for example, UM, the wealth business is

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Speaker 1: an area where they are passing on those increases. UM.

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Speaker 1: Other areas include the commercial banking business. So you are

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Speaker 1: seeing it UM in some areas. But you know, keep

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Speaker 1: in mind there's been a lot of changes, including overdraft

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Speaker 1: in the for the US banks UM, where UM they've

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Speaker 1: largely eliminated those fees. So in a way that's giving

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Speaker 1: the customers some some economics, though not necessarily interest rates. UM.

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Speaker 1: But I would say that in general, all the costs

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Speaker 1: on those sort of smaller accounts continue to be low.

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Speaker 1: Keep in mind, we're coming from like an incredibly low

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Speaker 1: interest rate environment UM. And so I think, as you know,

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Speaker 1: things are normalizing a bit there. UBS did see some

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Speaker 1: benefit from the net interest income line, similar to the

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Speaker 1: US banks, where the fourth quarter is going up and

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Speaker 1: UM looks to be higher. So also we're gonna hear

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Speaker 1: from Deutsche Bank, I guess tomorrow. I mean this is

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Speaker 1: way back in a decades ago I wrote a paper saying,

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Speaker 1: you know, predicting some of the big big who are

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Speaker 1: going to be the leaders and financial services. You know,

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Speaker 1: in the twenty one century. Deutsch Bank was one of

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Speaker 1: my names, but it hasn't worked out that way. What

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Speaker 1: do we do with Deutsche Bank? What does Germany do

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Speaker 1: with Deutsche Bank. You have to have a strong Deutsche Bank,

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Speaker 1: don't you. They are um executing on their strategy and

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Speaker 1: they do have strength in those German markets and in Europe,

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Speaker 1: and you know, they're big restructuring which took place, or

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Speaker 1: I guess their last restructuring took place, because there were many,

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Speaker 1: many years of restructuring. But you know, in nineteen they

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Speaker 1: made the tough decision to get out of equities for

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Speaker 1: the most part focused on fixed income trading. UM. It

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Speaker 1: took a couple of quarters, a couple of years maybe

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Speaker 1: even for that business to stabilize, but that business is

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Speaker 1: really um what's doing well this year. They also have

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Speaker 1: been hurt by the lower interest rates. Um. You know,

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Speaker 1: we we've had low interest rates in the US, but UM,

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Speaker 1: Europe I think has it's been even tougher. And so

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Speaker 1: Deutsche Bank. What you know, the read across are joint

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Speaker 1: bank is very positive from the fixed income trading that

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Speaker 1: we've seen at these banks. So we're going to expect

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Speaker 1: them to get the benefit from that as well as

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Speaker 1: from higher rates when they report tomorrow. And Allison, we're

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Speaker 1: we've said good bye to the US banks in terms

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Speaker 1: of reporting, we're getting through the European banks. What has

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Speaker 1: been the biggest stand out to you thus far? I mean,

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Speaker 1: the biggest driver has been the net interest income. I mean,

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Speaker 1: the growth is just super strong upside to the fourth quarter.

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Speaker 1: You know, banks are sort of varied in terms of

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Speaker 1: their caution or their optimism with regard to and then

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Speaker 1: I also thought that the most interesting data point on

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Speaker 1: the credit front because that's I think an area where

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Speaker 1: most investors are very uncertain about next year. But Jamie

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Speaker 1: diamond saying that five to six unemployment is about you know,

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Speaker 1: a couple of quarters of building reserves a six billion,

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Speaker 1: So giving that context, because the last cycle we had

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Speaker 1: was the pandemic, where it was over twenty billion UM,

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Speaker 1: next year's estimate is one billion, so I think kind

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Speaker 1: of level setting um the risk there and comparing that

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Speaker 1: to the very strong pretexts, pre profit, pre provision profit

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Speaker 1: that we're getting at these banks, I think sort of

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Speaker 1: help frames a debate that that is a manageable scenario. Alright,

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Speaker 1: great stuff. As always the Alison Williams Senior Global Banks

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Speaker 1: Analysts for Bloomberg Intelligence. She covers everything around the world

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Speaker 1: on the banks, and that's not enough. She's also the

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Speaker 1: co director of research for the America's for Bloomberg Intelligence,

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Speaker 1: so she does it all. We appreciate getting some of

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Speaker 1: her time. Katie. You know, one of the biggest growth

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Speaker 1: stories of recent time for me on Wall Street, and

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Speaker 1: I've been doing this for thirty five years. Is E

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Speaker 1: t S right? You know a thing or two about

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Speaker 1: et F? Don't yet? They're the future. And I say

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Speaker 1: that as someone who covers E t F for Print

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Speaker 1: News and also uh anchor show Me and Matt. He's

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Speaker 1: a little bit m I I for the next couple

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Speaker 1: of weeks, but the show will go on tomorrow. Unbelievable

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Speaker 1: growth story, folks, funds flows. If you want to know

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Speaker 1: where the money is going, boy, take a look at

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Speaker 1: the E t F. So let's take a couple of

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Speaker 1: segments here. Let's do two segments, Katie, We'll do a

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Speaker 1: little round table talk et F. See where the money

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Speaker 1: is going, where the smart money is going or leaving

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Speaker 1: Sylvia Jablonski, she joins in the Bloomberg Interactive Broker Studio.

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Speaker 1: She's the c i O at Defiance. They do nothing

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Speaker 1: but E t F s. And then when you think

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Speaker 1: of E t F S, I think of Eric Baltunus.

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Speaker 1: He is the senior et F and also Bloomberg Intelligence.

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Speaker 1: He is literally phoning it in from Philadelphia. God forbid.

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Speaker 1: He hasn't bedged in since last week. I mean all right, Eric,

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Speaker 1: we'll get to you in a second. Sylvia, I asked

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Speaker 1: you earlier. All fair, but I love to just get

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Speaker 1: your thoughts here. This has been a great growth story

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Speaker 1: e t F funds. It just seems like they're just

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Speaker 1: coming right out of mutual funds right into e t

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Speaker 1: F s. Is there a bare case for the e

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Speaker 1: t F industry that this tremendous funds flows you guys

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Speaker 1: have have in the industry have experienced. Yeah, great question.

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Speaker 1: Great to see you, Paul in person. So what's really

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Speaker 1: interesting about e t F flows this year is that

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Speaker 1: the flow and pace of people coming into e t

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Speaker 1: F s and coming into the market has only increased.

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Speaker 1: So we've seen outflows and things like the maddox and

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Speaker 1: some of the riskier types of products, just as investors

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Speaker 1: have gone risk off. But the good news is that

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Speaker 1: you've seen loads of flows. I think it's the second

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Speaker 1: or highest, second or third highest year ever um in

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Speaker 1: terms of months the last couple of months year over

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Speaker 1: your flows into things like value and dividends and utilities.

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Speaker 1: So you can see that investors have embraced the product

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Speaker 1: itself and they're just looking for kind of the more

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Speaker 1: defensive part of e t F themselves. But to your question,

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Speaker 1: I think, if anything, it's just going to get bigger

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Speaker 1: and bigger and bigger. The mutual fund, the high the

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Speaker 1: mutual fund is pretty much dying. Um. The e t

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Speaker 1: F good business for so long it was, but it

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Speaker 1: was just too expensive and you know, it doesn't trade

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Speaker 1: intra day. There's all these like funky things. ETFs are,

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Speaker 1: you know, transparent sometimes tax efficient vehicles, and people really

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Speaker 1: like them. They trade like stocks, but they're also evolving.

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Speaker 1: So now you see these single stock ETFs, you see

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Speaker 1: Leberty tfs, you see a specific number of stocks in

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Speaker 1: a basket that make up in e t F long short,

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Speaker 1: you know, thematic. So I just think that there's so

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Speaker 1: many different ideas and they're so easy to trade, and

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Speaker 1: they're so cheap um to put in your portfolio. So

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Speaker 1: I suspect they continue to grow. Yeah, the rise of

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Speaker 1: single stock ETFs raises some existential questions about what exactly

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Speaker 1: an e t F is. But I think of defiance,

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Speaker 1: you know, as firmly in the thematic box bucket. But

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Speaker 1: when you see the big wave of single stock e

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Speaker 1: t f s that have launched, is that something that

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Speaker 1: tempts you, so you'll see some pretty interesting things coming

429
00:24:13,359 --> 00:24:15,679
Speaker 1: from us. You know, there there are things like quiet

430
00:24:15,680 --> 00:24:17,119
Speaker 1: perias and things like that. But you can take a

431
00:24:17,119 --> 00:24:18,840
Speaker 1: look and see what some of the filings are from

432
00:24:18,840 --> 00:24:21,680
Speaker 1: the different et F fisuers out there. I think what's

433
00:24:21,720 --> 00:24:23,840
Speaker 1: super interesting about that is, you know, first you have

434
00:24:23,880 --> 00:24:27,760
Speaker 1: the classic et F structure and that gives you access

435
00:24:27,840 --> 00:24:30,280
Speaker 1: to you know, whatever it might be. Say say a

436
00:24:30,280 --> 00:24:33,400
Speaker 1: client wants access to electric vehicles and they buy eye

437
00:24:33,480 --> 00:24:35,879
Speaker 1: Drive or one of the e V vehicles. Well, in

438
00:24:35,960 --> 00:24:37,800
Speaker 1: that e t F you have the four or five

439
00:24:37,880 --> 00:24:40,160
Speaker 1: e V companies, and then you have loads of companies

440
00:24:40,200 --> 00:24:43,879
Speaker 1: like IBM, oracle Um, Honeywell and Starbucks that have not

441
00:24:43,880 --> 00:24:45,720
Speaker 1: I kind of making that up, but they have nothing

442
00:24:45,720 --> 00:24:47,399
Speaker 1: to do with e V. So there's a lot of filler.

443
00:24:47,920 --> 00:24:50,199
Speaker 1: And what Single Stocks did is took it to a

444
00:24:50,240 --> 00:24:52,640
Speaker 1: different place and said, well, actually the client only wants

445
00:24:52,680 --> 00:24:55,720
Speaker 1: access to Tesla, so let's just beef up their access

446
00:24:55,720 --> 00:24:57,840
Speaker 1: to Tesla and have a Tesla stock that's levered up.

447
00:24:58,160 --> 00:25:00,480
Speaker 1: And then I can see another world where you can

448
00:25:00,520 --> 00:25:03,760
Speaker 1: get a couple of stocks that give you discrete access

449
00:25:03,800 --> 00:25:05,720
Speaker 1: to the names you actually want and remove the feller

450
00:25:05,880 --> 00:25:07,840
Speaker 1: so you know you have that broad based access and

451
00:25:07,880 --> 00:25:11,160
Speaker 1: you'll be able to really have precise, transparent, pure sector

452
00:25:11,640 --> 00:25:14,000
Speaker 1: access to E t F evolution. Alright, folks, I'll tell you.

453
00:25:14,480 --> 00:25:16,720
Speaker 1: I think the best research out there on the E

454
00:25:16,800 --> 00:25:19,200
Speaker 1: t F industry and the trends is from our good

455
00:25:19,240 --> 00:25:22,320
Speaker 1: friend Eric about tunis. Eric, what are you guys working

456
00:25:22,359 --> 00:25:24,840
Speaker 1: on now? What what's kind of when you talk to

457
00:25:24,840 --> 00:25:26,920
Speaker 1: investors out there, and I know you've got lots of context.

458
00:25:27,280 --> 00:25:30,399
Speaker 1: What's the buzz in the ETF world? Yeah, I mean,

459
00:25:30,440 --> 00:25:32,760
Speaker 1: I think it's what Sylvia said. So all the buzz

460
00:25:33,200 --> 00:25:36,520
Speaker 1: is in the hot sauce lane, which you know, portfolios

461
00:25:36,520 --> 00:25:40,080
Speaker 1: are changing. We find that most people now have say

462
00:25:40,160 --> 00:25:43,000
Speaker 1: eight of their portfolio the core will call it, is

463
00:25:43,040 --> 00:25:47,800
Speaker 1: it boring? Sixty forty cheap Vanguard kind of dish? Then

464
00:25:47,920 --> 00:25:50,720
Speaker 1: they that's pretty boring and it's got to just sit

465
00:25:50,720 --> 00:25:52,399
Speaker 1: there and grow like a tree for thirty years. So

466
00:25:52,440 --> 00:25:54,560
Speaker 1: people are you know, they get itchy. So what they

467
00:25:54,560 --> 00:25:58,240
Speaker 1: want to do is decorate that core with things that

468
00:25:58,280 --> 00:26:02,840
Speaker 1: are completely different. So you know, thematic ETFs leverage, GTFS

469
00:26:03,520 --> 00:26:06,600
Speaker 1: crypto would fit, their arc would fit there. So all

470
00:26:06,680 --> 00:26:09,240
Speaker 1: of the action, interest and press is going to be

471
00:26:09,320 --> 00:26:12,679
Speaker 1: on people trying to satisfy the hot sauce lane. So

472
00:26:12,720 --> 00:26:15,639
Speaker 1: what you're gonna find and Defiance I'll speak for them

473
00:26:15,680 --> 00:26:18,080
Speaker 1: because she can't say it, but they filed for an

474
00:26:18,080 --> 00:26:21,639
Speaker 1: e t F that is leveraged but actually leverages on

475
00:26:21,720 --> 00:26:24,399
Speaker 1: an index that has only a concentrated number of stocks,

476
00:26:24,400 --> 00:26:28,960
Speaker 1: so it's actually purposely increasing the volatility. We just saw

477
00:26:28,960 --> 00:26:32,480
Speaker 1: a cannabis ETF go from like twenty something holdings to

478
00:26:32,640 --> 00:26:36,520
Speaker 1: six and I call that designing for max pop potential.

479
00:26:37,000 --> 00:26:40,000
Speaker 1: So there's going to be this sort of the united

480
00:26:40,040 --> 00:26:43,399
Speaker 1: the fee wars. The fee wars are where of the

481
00:26:43,440 --> 00:26:46,600
Speaker 1: portfolio is. But now we're now we're entering the shiny wars,

482
00:26:47,119 --> 00:26:50,000
Speaker 1: which e t F can be the shiniest and that

483
00:26:50,800 --> 00:26:54,320
Speaker 1: it seems crazy, but it makes sense. And the shiny

484
00:26:54,160 --> 00:26:57,640
Speaker 1: that area, that hot sauce area, that is where active

485
00:26:57,720 --> 00:26:59,920
Speaker 1: is going to exist. Like it or not. I pers

486
00:27:00,000 --> 00:27:02,560
Speaker 1: really think if I'm an active manager, I like it.

487
00:27:02,640 --> 00:27:05,959
Speaker 1: I want to reinvent myself as you know, uh so

488
00:27:06,080 --> 00:27:09,399
Speaker 1: and so's twenty best stocks. That is I think the

489
00:27:09,440 --> 00:27:12,600
Speaker 1: future for active and these trading tool type products that

490
00:27:13,000 --> 00:27:15,600
Speaker 1: Defiance is uh serving up as well as themes and

491
00:27:15,640 --> 00:27:18,719
Speaker 1: all that stuff. So that is probably might be one

492
00:27:18,760 --> 00:27:22,480
Speaker 1: of our top three themes. Yeah, Janice did that a

493
00:27:22,520 --> 00:27:25,880
Speaker 1: while ago, back in Denver, Colorado, years ago. Let's continue

494
00:27:25,920 --> 00:27:28,320
Speaker 1: this discussion on E t F s. It's a thing.

495
00:27:28,400 --> 00:27:32,400
Speaker 1: We have a TV show Monday's one pm. Wall Street Time,

496
00:27:32,520 --> 00:27:34,800
Speaker 1: Katie gray Feld, Matt Miller. That's how big it is.

497
00:27:34,920 --> 00:27:37,639
Speaker 1: Wednesday this week, Wednesday this week? Okay, why not? All right?

498
00:27:37,920 --> 00:27:40,840
Speaker 1: Sylvia Jablonsky, she's the CEO of Defiance. They're in that

499
00:27:40,960 --> 00:27:43,320
Speaker 1: E t F business. She's here in a Bloomberg Interactive

500
00:27:43,320 --> 00:27:46,160
Speaker 1: broker studio. And Eric Caltunas y'all knowman love him, senior

501
00:27:46,200 --> 00:27:48,760
Speaker 1: et F analysts with Bloomberg Intelligence. Eric, I'm gonna start

502
00:27:48,800 --> 00:27:51,080
Speaker 1: with you here. I thought this et F thing was

503
00:27:51,119 --> 00:27:53,240
Speaker 1: a scam when I first started following your work, But

504
00:27:53,280 --> 00:27:55,960
Speaker 1: now you've convinced me it's a real thing. Now I'm

505
00:27:55,960 --> 00:27:58,400
Speaker 1: at the point where do you have an argument? Eric,

506
00:27:58,400 --> 00:28:01,159
Speaker 1: wat the mutual fund will not go out of business.

507
00:28:01,200 --> 00:28:03,160
Speaker 1: I can't think of buying Why anybody would ever buy

508
00:28:03,160 --> 00:28:06,960
Speaker 1: a mutual fund? Yeah? No, I remember you pass them

509
00:28:07,000 --> 00:28:10,080
Speaker 1: by my desk, uh, I'd say once every couple of weeks.

510
00:28:10,080 --> 00:28:12,040
Speaker 1: I'm just saying, yeah, this et f thing is a

511
00:28:12,040 --> 00:28:15,760
Speaker 1: big scam. Uh, I was wrong. I was like some

512
00:28:15,840 --> 00:28:21,280
Speaker 1: workplace harassement exactly. No, he was. He was half kidding. Um,

513
00:28:21,320 --> 00:28:24,439
Speaker 1: so it was like yeah, but anyway, um, look you're

514
00:28:24,480 --> 00:28:28,679
Speaker 1: not alone. People didn't really take this seriously, especially legacy

515
00:28:28,720 --> 00:28:32,480
Speaker 1: asset managers. Last year they took in seven billion or

516
00:28:33,119 --> 00:28:36,080
Speaker 1: somewhere around there eight fifty billion, and so people are

517
00:28:36,400 --> 00:28:39,520
Speaker 1: even them. Holdouts like Morgan Stanley and Capital Group are

518
00:28:39,520 --> 00:28:42,400
Speaker 1: now coming in. So that's a that's a sign that

519
00:28:42,440 --> 00:28:44,960
Speaker 1: they are going to ultimately have a higher market share

520
00:28:44,960 --> 00:28:47,280
Speaker 1: of the mutual funds. Right now, they make up of

521
00:28:47,320 --> 00:28:49,760
Speaker 1: the assets that mutual funds have. I see that getting

522
00:28:49,760 --> 00:28:52,440
Speaker 1: to sixty seventy. I do think mutual funds will will

523
00:28:52,480 --> 00:28:55,400
Speaker 1: have a home. They're good in retirement plans. Et s

524
00:28:55,520 --> 00:28:57,960
Speaker 1: lose a lot of their superpowers when you go into

525
00:28:57,960 --> 00:28:59,960
Speaker 1: the four one k world because you can get the

526
00:29:00,000 --> 00:29:02,080
Speaker 1: institutional share class of mutual phone which is cheap. You

527
00:29:02,080 --> 00:29:03,840
Speaker 1: don't need to trade it in tax efficiency as an

528
00:29:03,880 --> 00:29:06,960
Speaker 1: advantage inside a plan like that because the tack taxes

529
00:29:06,960 --> 00:29:09,800
Speaker 1: are an issue. So I think mutual funds will survive there.

530
00:29:10,000 --> 00:29:12,240
Speaker 1: And I think for bonds there's a couple of areas

531
00:29:12,240 --> 00:29:14,680
Speaker 1: in the bond market where I think mutual funds could

532
00:29:14,840 --> 00:29:17,360
Speaker 1: make an argument that they're better because they can buy

533
00:29:17,880 --> 00:29:21,520
Speaker 1: more liquid bonds um in a way that e t

534
00:29:21,760 --> 00:29:24,480
Speaker 1: s can't because the index has to be pretty liquid

535
00:29:24,480 --> 00:29:27,320
Speaker 1: to crazy TF. So I think those are two two

536
00:29:27,360 --> 00:29:29,720
Speaker 1: places where mutual funds were hanging around. Well, Eric, it's

537
00:29:29,840 --> 00:29:32,200
Speaker 1: interesting that you mentioned that because, as you and I

538
00:29:32,320 --> 00:29:35,600
Speaker 1: talk about constantly, if you look at the flows, the

539
00:29:35,640 --> 00:29:38,960
Speaker 1: magnitude of the flows coming out of bond mutual funds

540
00:29:39,000 --> 00:29:42,480
Speaker 1: going into bond e t s is really staggering. A

541
00:29:42,560 --> 00:29:46,640
Speaker 1: record amount of outflows from bond mutual funds. So I

542
00:29:46,640 --> 00:29:51,080
Speaker 1: feel like that works against your argument there, Yeah, it does,

543
00:29:51,200 --> 00:29:53,560
Speaker 1: but there again, but you have there, Our bond mutual

544
00:29:53,600 --> 00:29:56,600
Speaker 1: funds have five trillion, bond e t f s have

545
00:29:56,760 --> 00:29:59,880
Speaker 1: like one trillion. So we're still so early in this

546
00:30:00,560 --> 00:30:02,960
Speaker 1: I think a lot of if you want treasuries or

547
00:30:03,040 --> 00:30:06,080
Speaker 1: you want like a bond exposure, honestly, e t F

548
00:30:06,120 --> 00:30:10,280
Speaker 1: probably works, but you have to remember bond managers buying

549
00:30:10,440 --> 00:30:13,440
Speaker 1: large outperformed the benchmark at a way higher rates than

550
00:30:13,480 --> 00:30:16,120
Speaker 1: on the equity side, like for example, in high yield

551
00:30:16,160 --> 00:30:20,040
Speaker 1: seventy active bondod managers UM have beaten h y g

552
00:30:20,360 --> 00:30:24,320
Speaker 1: over ten years. On the equity side, that numbers, so

553
00:30:24,920 --> 00:30:27,800
Speaker 1: bond managers, I think will for some smart money will

554
00:30:27,880 --> 00:30:31,520
Speaker 1: will remain popular, but there will be certainly some money

555
00:30:31,520 --> 00:30:33,920
Speaker 1: moving over, especially money that just wants sort of general

556
00:30:33,960 --> 00:30:36,240
Speaker 1: bond exposure. I think the et F will will win

557
00:30:36,320 --> 00:30:37,960
Speaker 1: some of those dollars as they are this year. Okay,

558
00:30:38,000 --> 00:30:40,080
Speaker 1: so we give us a sense of kind of who's

559
00:30:40,120 --> 00:30:42,520
Speaker 1: buying these e t F suh. You know, I think

560
00:30:42,560 --> 00:30:45,520
Speaker 1: back to retail versus institutional. How is that playing out

561
00:30:45,560 --> 00:30:48,680
Speaker 1: these days? How is that changing? Yeah, it's a great question.

562
00:30:48,720 --> 00:30:50,960
Speaker 1: And I think you know, if you looked back about

563
00:30:50,960 --> 00:30:53,840
Speaker 1: five or six years ago and tried to figure this out,

564
00:30:53,880 --> 00:30:55,880
Speaker 1: it's sort of dependent on the products. So if you

565
00:30:55,880 --> 00:30:58,479
Speaker 1: looked at kind of the thematic funds, it was more retail,

566
00:30:58,520 --> 00:31:00,560
Speaker 1: and the leverage funds it was more retail. And you know,

567
00:31:00,600 --> 00:31:03,640
Speaker 1: the classic vanguard black rock types of btfs were more institutional.

568
00:31:04,120 --> 00:31:06,120
Speaker 1: And now I would say, you know both. I mean

569
00:31:06,120 --> 00:31:09,240
Speaker 1: you have everything from hedge fund managers that are looking for,

570
00:31:09,440 --> 00:31:11,400
Speaker 1: you know, a quick sector exposure and don't want to

571
00:31:11,400 --> 00:31:13,440
Speaker 1: go buy the five hundred stocks, are just looking for

572
00:31:13,440 --> 00:31:15,200
Speaker 1: a quick hedge for a couple of days. Might use

573
00:31:15,240 --> 00:31:18,120
Speaker 1: it for ease of use um. You know, some of

574
00:31:18,120 --> 00:31:21,640
Speaker 1: the e t f s represent these niche sort of categories,

575
00:31:21,680 --> 00:31:23,880
Speaker 1: like whether it's defiance or ARC where you're looking at

576
00:31:24,240 --> 00:31:26,800
Speaker 1: like a five G or you know, next generation of

577
00:31:26,800 --> 00:31:28,320
Speaker 1: technology and things like that, and the e t F

578
00:31:28,360 --> 00:31:30,000
Speaker 1: is the quickest way to get exposure to that. But

579
00:31:30,400 --> 00:31:34,000
Speaker 1: it's most certainly you know, retail um post COVID, there's

580
00:31:34,040 --> 00:31:37,640
Speaker 1: just been a massive inflow of funds from millennials and

581
00:31:37,640 --> 00:31:40,720
Speaker 1: beyond into e t f s, particularly for thematic ETFs.

582
00:31:40,760 --> 00:31:42,720
Speaker 1: And now you know, institutions have just figured out that

583
00:31:42,760 --> 00:31:44,680
Speaker 1: they're super cheap and they're super easy to get the

584
00:31:44,680 --> 00:31:47,080
Speaker 1: exposure that you want for your sector rotation model or

585
00:31:47,080 --> 00:31:49,480
Speaker 1: whatever it might be. Set it and forget it, and

586
00:31:49,480 --> 00:31:52,200
Speaker 1: and you know, use that product with great transparency. So

587
00:31:52,240 --> 00:31:54,720
Speaker 1: it's it's sort of everyone across the board. Now you

588
00:31:54,760 --> 00:31:56,800
Speaker 1: have a TV show about a Katie. You know, I

589
00:31:56,880 --> 00:32:00,520
Speaker 1: was just thinking that, all right, real quick, Eric, what

590
00:32:00,560 --> 00:32:02,160
Speaker 1: are you working on? What are we going to see

591
00:32:02,160 --> 00:32:06,160
Speaker 1: from the Bloomberg intelligence on the front? Uh, you know

592
00:32:06,240 --> 00:32:08,080
Speaker 1: that thing I just mentioned back to the Janis twenty.

593
00:32:08,120 --> 00:32:10,240
Speaker 1: I'm writing something about how I think there'll be an

594
00:32:10,240 --> 00:32:13,720
Speaker 1: influx of personalities and old legacy managers coming out with

595
00:32:13,760 --> 00:32:17,280
Speaker 1: a Cathy Wood version of themselves, a concentrated best ideas

596
00:32:17,360 --> 00:32:21,000
Speaker 1: fund that can compliment Vanguard. I'm also writing about a

597
00:32:21,080 --> 00:32:24,880
Speaker 1: bond mutual fund that has lost twenty in a month

598
00:32:24,920 --> 00:32:28,440
Speaker 1: because it has a bunch of ill liquid bonds and outflows,

599
00:32:28,720 --> 00:32:30,120
Speaker 1: and how it's a little bit of a canary in

600
00:32:30,120 --> 00:32:32,040
Speaker 1: the coal mine. If we see something like this happened

601
00:32:32,040 --> 00:32:34,920
Speaker 1: with the Pimco fund, this could spell problems for the

602
00:32:34,960 --> 00:32:37,880
Speaker 1: market and cause chaos. And I think the bond fund

603
00:32:37,920 --> 00:32:39,800
Speaker 1: market is something to watch because it could make the

604
00:32:39,800 --> 00:32:42,920
Speaker 1: FED have to pivot. All right, Eric, good stuff, as always,

605
00:32:43,040 --> 00:32:46,280
Speaker 1: Eric bu Tuna. Somehow he's built a career and quite

606
00:32:46,280 --> 00:32:53,000
Speaker 1: a career doing his et F stuff. Crypto, Crypto, crypto,

607
00:32:53,120 --> 00:32:54,959
Speaker 1: you do something with crypto. Don't you do a lot

608
00:32:55,240 --> 00:32:58,239
Speaker 1: with crypto? You're a crypto person. I mean, all right,

609
00:32:58,760 --> 00:33:02,560
Speaker 1: here's Jamie Diamond until he buys off on crypto. I'm

610
00:33:02,600 --> 00:33:05,440
Speaker 1: not sure I'm buying off on crypto. That's your guy.

611
00:33:05,600 --> 00:33:08,160
Speaker 1: It might be my guide. But Bloomberg Business Week has

612
00:33:08,160 --> 00:33:10,880
Speaker 1: bought off. I mean, they didn't just write a story

613
00:33:11,560 --> 00:33:15,120
Speaker 1: or a number of stories. They did an entire issue

614
00:33:15,200 --> 00:33:18,360
Speaker 1: of Bloomberg Business Week magazine and it's just entitled the

615
00:33:18,400 --> 00:33:21,480
Speaker 1: Crypto Story. So we paid somebody for that title. But

616
00:33:21,920 --> 00:33:25,240
Speaker 1: the guy who actually wrote it is Matt Levine, Bloomberg

617
00:33:25,240 --> 00:33:27,480
Speaker 1: opinion columnists. He joined us here on a Bloomberg Interactive

618
00:33:27,480 --> 00:33:29,800
Speaker 1: Broker studio one of his two days a week. He

619
00:33:29,920 --> 00:33:35,000
Speaker 1: dangns us with his presence. Matt forty thousand words for Crypto.

620
00:33:36,120 --> 00:33:38,440
Speaker 1: What's the takeaway? I mean, I'm not sure I can

621
00:33:38,520 --> 00:33:42,240
Speaker 1: get through words, although I'm getting well. I read part

622
00:33:42,240 --> 00:33:44,920
Speaker 1: of on the train ride in. I'm maybe a third

623
00:33:44,960 --> 00:33:47,160
Speaker 1: of the way through. Finish it up on the way back.

624
00:33:47,240 --> 00:33:52,680
Speaker 1: What's the takeaway here? It's um No, I mean, like

625
00:33:52,720 --> 00:33:56,120
Speaker 1: the takeaway is is is sort of the middle of

626
00:33:56,120 --> 00:33:57,960
Speaker 1: the rara like I find crypto. I think Crypto is

627
00:33:57,960 --> 00:33:59,640
Speaker 1: really interesting. I think it's like building a lot of

628
00:33:59,640 --> 00:34:02,880
Speaker 1: interesting stuff. I think, um it remains flawed and has

629
00:34:02,920 --> 00:34:06,800
Speaker 1: not really kind of proven a like overwhelming and change

630
00:34:06,840 --> 00:34:08,520
Speaker 1: the world case yet, but I think it's changed the

631
00:34:08,560 --> 00:34:10,240
Speaker 1: world in a lot of small ways that are interesting

632
00:34:10,239 --> 00:34:12,799
Speaker 1: and that are worth kind of picking through. I like

633
00:34:12,920 --> 00:34:15,080
Speaker 1: this line I've already told you this. I like this

634
00:34:15,120 --> 00:34:17,600
Speaker 1: line in here that you know, I don't have strong

635
00:34:17,680 --> 00:34:20,840
Speaker 1: feelings either way about the value of crypto. I like finance.

636
00:34:20,920 --> 00:34:24,960
Speaker 1: I think it's interesting if you like finance, crypto is amazing.

637
00:34:24,960 --> 00:34:27,719
Speaker 1: And you and I have talked about how basically it

638
00:34:27,800 --> 00:34:32,759
Speaker 1: feels like crypto is creating this parallel financial system that

639
00:34:32,840 --> 00:34:37,560
Speaker 1: it's ingesting parts of the traditional finance world, and in

640
00:34:37,600 --> 00:34:41,000
Speaker 1: a way, it just feels like this grand market structure

641
00:34:41,040 --> 00:34:44,680
Speaker 1: experiment which doesn't necessarily have a lot of real world impacts.

642
00:34:44,719 --> 00:34:47,040
Speaker 1: Yet that's the way it feels to me. And that's

643
00:34:47,160 --> 00:34:49,560
Speaker 1: that's my own bias, which is that I like market structure.

644
00:34:49,600 --> 00:34:51,719
Speaker 1: But I think if you like market structure, people are

645
00:34:51,719 --> 00:34:53,920
Speaker 1: doing a lot of interesting things in market structure. And

646
00:34:53,960 --> 00:34:56,440
Speaker 1: when you think about, like who likes market structure, it's like,

647
00:34:57,000 --> 00:34:59,440
Speaker 1: you know, headshune people on high frequency traders. And so

648
00:34:59,560 --> 00:35:01,279
Speaker 1: one thing that is that is a real kind of

649
00:35:01,320 --> 00:35:03,399
Speaker 1: achievement of crypto is that it has attracted a lot

650
00:35:03,440 --> 00:35:06,319
Speaker 1: of people from traditional finance to build that they think

651
00:35:06,400 --> 00:35:08,560
Speaker 1: is a better financial system. So a lot of that

652
00:35:08,640 --> 00:35:10,480
Speaker 1: is incremental, but if you build a better way to

653
00:35:10,600 --> 00:35:13,160
Speaker 1: kind of do trading, then maybe one day you use

654
00:35:13,200 --> 00:35:17,240
Speaker 1: it to trade stocks or loans or something else. Decentralized finance.

655
00:35:17,760 --> 00:35:25,600
Speaker 1: What is that? I like, centralized finance like exchanges. Yeah,

656
00:35:25,640 --> 00:35:28,319
Speaker 1: I mean de centralized finances. Basically the idea that you

657
00:35:28,400 --> 00:35:31,080
Speaker 1: have smart contracts, like computer programs that kind of do

658
00:35:31,200 --> 00:35:33,640
Speaker 1: the work of running an exchange or a lending platform

659
00:35:33,760 --> 00:35:36,600
Speaker 1: or whatever, so that instead of setting you know, signing

660
00:35:36,600 --> 00:35:38,520
Speaker 1: a contract and setting up an account, that a broker

661
00:35:38,560 --> 00:35:40,319
Speaker 1: who then sets up an account you know, has a

662
00:35:40,360 --> 00:35:44,360
Speaker 1: membership on an exchange where you can trade stocks. Everything

663
00:35:44,480 --> 00:35:46,000
Speaker 1: is kind of an open protocol where you can just

664
00:35:46,080 --> 00:35:48,040
Speaker 1: kind of like go to your computer and trade stocks,

665
00:35:48,520 --> 00:35:53,160
Speaker 1: and uh, that creates a lot of opportunities for, among

666
00:35:53,200 --> 00:35:58,520
Speaker 1: other things, just like doing stuff with less permission. I

667
00:35:58,560 --> 00:36:00,440
Speaker 1: think that one thing that people in crypto really like

668
00:36:01,000 --> 00:36:03,640
Speaker 1: is that you don't need to like sign up a

669
00:36:03,680 --> 00:36:06,359
Speaker 1: bunch of accounts with big banks to get permission to trade.

670
00:36:06,400 --> 00:36:08,520
Speaker 1: You can just kind of go onto the to the

671
00:36:08,640 --> 00:36:11,000
Speaker 1: open platform and do the same trading as everyone else.

672
00:36:11,280 --> 00:36:13,640
Speaker 1: So it gives a lot of opportunity for kind of

673
00:36:13,640 --> 00:36:17,239
Speaker 1: competition and for innovation. So again, this is a question

674
00:36:17,239 --> 00:36:20,440
Speaker 1: I've already asked you, but to your point that I

675
00:36:20,480 --> 00:36:23,919
Speaker 1: don't know. Maybe crypto is able to build a more

676
00:36:24,560 --> 00:36:27,760
Speaker 1: or add to the efficiency of the existing financial system.

677
00:36:27,840 --> 00:36:30,400
Speaker 1: Maybe it makes it better somehow. Is that a worthy

678
00:36:30,640 --> 00:36:33,719
Speaker 1: enough goal? Who would be disappointed if that was the

679
00:36:33,800 --> 00:36:37,279
Speaker 1: ultimate sort of use case for this entire system that

680
00:36:37,400 --> 00:36:39,759
Speaker 1: has been built. You know, I think some number of

681
00:36:39,880 --> 00:36:42,480
Speaker 1: vcs who think that crypto is changing like the sort

682
00:36:42,520 --> 00:36:46,040
Speaker 1: of like how humans will interact will be disappointed to

683
00:36:46,080 --> 00:36:49,160
Speaker 1: the extent that their bets don't pay off as much

684
00:36:49,200 --> 00:36:51,640
Speaker 1: as they want. But I think that, like I don't know,

685
00:36:51,760 --> 00:36:53,920
Speaker 1: like I've spent my whole career in and around finance,

686
00:36:53,960 --> 00:36:56,359
Speaker 1: Like I think making the financial system better is a

687
00:36:56,400 --> 00:37:00,560
Speaker 1: totally worthy goal. And I mean, in my day job,

688
00:37:00,600 --> 00:37:03,080
Speaker 1: I think making the financial system more fun and interesting

689
00:37:03,160 --> 00:37:05,160
Speaker 1: is a worthy enough goal. So you know, I'm not

690
00:37:05,239 --> 00:37:07,319
Speaker 1: one to criticize that as a goal, but I do

691
00:37:07,360 --> 00:37:10,840
Speaker 1: think that, like there are people who whose view of

692
00:37:10,880 --> 00:37:15,719
Speaker 1: cryptos that it will sort of revolutionize uh society, It'll

693
00:37:15,800 --> 00:37:19,200
Speaker 1: it'll sort of increase human freedom, and that would be

694
00:37:19,480 --> 00:37:21,120
Speaker 1: you know, if you're like the hedgemnes are little bit

695
00:37:21,120 --> 00:37:23,399
Speaker 1: more efficient, that would be a disappointing outcome for people

696
00:37:23,440 --> 00:37:26,120
Speaker 1: who believe in that. I mean I'm just scrolling through this.

697
00:37:26,239 --> 00:37:32,080
Speaker 1: It's forty thousand two or it's awesome. I mean there's everything, awesome, graphics. Literally,

698
00:37:32,080 --> 00:37:34,319
Speaker 1: folks go to a magazine stand if you can find

699
00:37:34,320 --> 00:37:37,400
Speaker 1: a magazine stand and by Bloomberg Business Week. It is

700
00:37:37,520 --> 00:37:40,960
Speaker 1: just ridiculous. They talk, Matt, you cover everything here. I

701
00:37:40,960 --> 00:37:43,040
Speaker 1: don't know. I mean, I guess one of my questions

702
00:37:43,080 --> 00:37:45,040
Speaker 1: is it because I'm gonna walk this over to Jamie Diamond,

703
00:37:45,040 --> 00:37:47,480
Speaker 1: you know he's on Park Avenue. I'll take a copy

704
00:37:47,520 --> 00:37:50,279
Speaker 1: of this Bloomberg Business Week. He'll read it word every word.

705
00:37:50,440 --> 00:37:52,920
Speaker 1: Are you surprised or how do you view the fact

706
00:37:52,920 --> 00:37:58,000
Speaker 1: that main street main street Wall Street financial services industry

707
00:37:58,040 --> 00:38:01,960
Speaker 1: may not hasn't really embraced crypto. Is that a fair

708
00:38:01,960 --> 00:38:03,960
Speaker 1: statement and it's so are you surprised that they have

709
00:38:04,080 --> 00:38:08,600
Speaker 1: not embraced crypto? Um? No, I wouldn't say I'm surprised.

710
00:38:08,640 --> 00:38:10,640
Speaker 1: I mean, look, I think there have been tentative steps

711
00:38:10,719 --> 00:38:13,359
Speaker 1: because you know, it got a lot of attention and

712
00:38:13,440 --> 00:38:16,759
Speaker 1: like you know, until about a year until about this year,

713
00:38:16,800 --> 00:38:19,400
Speaker 1: like crypto kept going up, probably speaking, and so if

714
00:38:19,400 --> 00:38:21,759
Speaker 1: you're an asset manager, like that thing that goes up,

715
00:38:21,800 --> 00:38:24,840
Speaker 1: I want that. So there was some interest. Um, but

716
00:38:24,960 --> 00:38:26,920
Speaker 1: I'm not that surprised that people haven't embraced it, in

717
00:38:26,960 --> 00:38:28,960
Speaker 1: part because you know, there was a Bloomberg story like

718
00:38:29,040 --> 00:38:33,520
Speaker 1: yesterday about how investors WE pulled investors who said that

719
00:38:34,239 --> 00:38:37,320
Speaker 1: more SEC enforcement would make them more interested in crypto

720
00:38:37,400 --> 00:38:40,840
Speaker 1: because basically, like it still feels like the wild West.

721
00:38:40,880 --> 00:38:42,839
Speaker 1: It still feels like you're committing a crime when you

722
00:38:42,880 --> 00:38:45,799
Speaker 1: sort of get on a crypto exchange. And so I

723
00:38:45,800 --> 00:38:48,680
Speaker 1: think if you're a sort of conservative asset manager or

724
00:38:48,719 --> 00:38:51,760
Speaker 1: bank or bank regulator, you don't want to get involved

725
00:38:51,800 --> 00:38:54,920
Speaker 1: in something kind of weird until the regulatory stuff has

726
00:38:54,920 --> 00:38:56,440
Speaker 1: really figured out. And I think we're not at the

727
00:38:56,480 --> 00:39:00,560
Speaker 1: point SEC he's a crypto dude, now, Oh he's not.

728
00:39:00,680 --> 00:39:03,600
Speaker 1: He's like like crypto, he's caught it, taught a course

729
00:39:03,640 --> 00:39:09,239
Speaker 1: at m I T. I think that's the Yeah, he's

730
00:39:09,280 --> 00:39:11,520
Speaker 1: not like a knowledgeab about crypto, but he does seem

731
00:39:11,560 --> 00:39:14,200
Speaker 1: to hate it, which which like those things can easily

732
00:39:14,239 --> 00:39:17,000
Speaker 1: go together. Um, but like, I don't think that he

733
00:39:17,160 --> 00:39:19,400
Speaker 1: is not a booster of cryptoone anyway, and and is

734
00:39:19,440 --> 00:39:23,320
Speaker 1: I think making it difficult for the American crypto industry

735
00:39:23,400 --> 00:39:24,800
Speaker 1: to sort of, you know, do a lot of crypto,

736
00:39:24,960 --> 00:39:28,160
Speaker 1: which I think also UH is an impediment to mainstream

737
00:39:28,160 --> 00:39:33,080
Speaker 1: finance embracing crypto because like your regulators hate it, you know, Okay,

738
00:39:33,120 --> 00:39:40,160
Speaker 1: thirty seconds, what did you learn on your journey? What UH?

739
00:39:40,239 --> 00:39:44,840
Speaker 1: I learned about minor extractable maximum extractable value and UH

740
00:39:44,880 --> 00:39:49,040
Speaker 1: and UH and flashbots and just like the number of

741
00:39:49,080 --> 00:39:52,279
Speaker 1: arbitrages that exist in crypto that are totally different from

742
00:39:52,400 --> 00:39:55,680
Speaker 1: the arbitrages and complicated trading that exists in traditional finance.

743
00:39:56,040 --> 00:39:58,120
Speaker 1: They have like a sort of rhyme with traditional finance

744
00:39:58,160 --> 00:40:00,440
Speaker 1: where you can UH, you know, you're short of like

745
00:40:00,480 --> 00:40:02,960
Speaker 1: exploiting gaps and people's knowledge to make a lot of money.

746
00:40:02,960 --> 00:40:05,440
Speaker 1: But they're they're different in how they actually work in

747
00:40:05,480 --> 00:40:07,799
Speaker 1: ways that are very satisfying to finance nerds who want

748
00:40:07,800 --> 00:40:10,120
Speaker 1: to make a lot of money. That's that's how it

749
00:40:10,160 --> 00:40:11,960
Speaker 1: feels to me. I mean, it feels like the wild

750
00:40:11,960 --> 00:40:14,880
Speaker 1: wild West, but I'm in. I've now come across. I

751
00:40:14,920 --> 00:40:17,239
Speaker 1: think it's an asset class. I think it's real. I

752
00:40:17,280 --> 00:40:20,000
Speaker 1: have no idea, I have very little understanding and I

753
00:40:20,000 --> 00:40:21,600
Speaker 1: have no idea where it goes. And I feel pretty

754
00:40:21,600 --> 00:40:23,880
Speaker 1: good about that. You can't get it in any t

755
00:40:24,040 --> 00:40:27,120
Speaker 1: F yet though, Okay, fair enough. Matt Levine, he's a

756
00:40:27,160 --> 00:40:29,279
Speaker 1: calumnist for Bloomberg Opinion. He's written a couple of words

757
00:40:29,280 --> 00:40:31,160
Speaker 1: on this whole cryptospace. Go out and get your Bloomberg

758
00:40:31,160 --> 00:40:33,760
Speaker 1: Business Week magazine or get it online. It is definitely

759
00:40:33,760 --> 00:40:37,600
Speaker 1: worth it. It is the Bible. Thanks for listening to

760
00:40:37,640 --> 00:40:41,160
Speaker 1: the Bloomberg Markets podcast. You can subscribe and listen to

761
00:40:41,200 --> 00:40:45,360
Speaker 1: interviews with Apple Podcasts or whatever podcast platform you prefer.

762
00:40:45,760 --> 00:40:49,759
Speaker 1: I'm Matt Miller. I'm on Twitter at Matt Miller three.

763
00:40:50,080 --> 00:40:52,560
Speaker 1: Put on false Sweeney. I'm on Twitter at pt Sweeney

764
00:40:52,680 --> 00:40:55,319
Speaker 1: before the podcast. You can always catch us worldwide at

765
00:40:55,360 --> 00:40:56,080
Speaker 1: Bloomberg Radio