WEBVTT - Roubini Macro Associates Chairman & CEO Nouriel Roubini Talks His New ETF

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news, no Reel.

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<v Speaker 2>Rubini he is the CEO of Rubini Macro Associates, and

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<v Speaker 2>we're also joined by Atlas Capital Team CEO Raise A. Bundi,

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<v Speaker 2>who of course just launched this fund that we're talking about. Atlas,

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<v Speaker 2>of course is a fintech company that Rubini co founded.

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<v Speaker 2>It's great to have the both of you with us,

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<v Speaker 2>and Noriel I want to start with you since you

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<v Speaker 2>are a first time ETF issuer, and something we like

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<v Speaker 2>to ask the debuts in the ETF industry is why now?

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<v Speaker 2>What brought you to this rapper now? When it comes

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<v Speaker 2>to why implement your strategy here?

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<v Speaker 3>Well, why now is because we live in a world

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<v Speaker 3>where after COVID, the risk of spaculationary shocks that lead

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<v Speaker 3>to high inflation and lower economic growth are becoming more

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<v Speaker 3>severe and these types of stackflationary problems are.

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<v Speaker 4>Going to be more serious during IT administration.

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<v Speaker 3>If you think about the impact of TARI protectionism and

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<v Speaker 3>trade wars, the impact of restriction to migration and the

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<v Speaker 3>SUPVIB labor deficits and tax cuts that are unfunded, attempt

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<v Speaker 3>to weaken the dollar, attempt to interfere with the fed,

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<v Speaker 3>getting out of the partis accord, and worsing in global

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<v Speaker 3>climate change. All these factors economic theory would suggest that

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<v Speaker 3>will lead to higher inflation, lower economic growth.

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<v Speaker 4>And therefore traditional safe assets.

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<v Speaker 3>That head you against those risks like long deguration fixing

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<v Speaker 3>income don't do well in that type of environment. So

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<v Speaker 3>you need a different type of asset location cred yourself

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<v Speaker 3>against the idea of economic risk, inflation, the business currency, edullarization,

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<v Speaker 3>geopolitical environmental risks.

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<v Speaker 1>Thank you for answering that. Clearly it's tied to your

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<v Speaker 1>economic health, and we can dig into that a little

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<v Speaker 1>bit later on. But Raza, I want to bring you

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<v Speaker 1>into the conversation as well, is why the etf rapper?

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<v Speaker 1>Why is that the best format for really articulating this view.

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<v Speaker 5>Well, the origin of the ATLAS program was out of

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<v Speaker 5>the national security landscape back in twenty seventeen, when we

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<v Speaker 5>were evaluating some of the risks that were kind of

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<v Speaker 5>upcoming in our view, geopolitical risks, climate risks, asymmetric risks,

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<v Speaker 5>socio political risks, and we felt that it was necessary

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<v Speaker 5>to build a more resilient US treasury alternative, and the

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<v Speaker 5>Trump administration actually came up with an idea of a

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<v Speaker 5>goldbacked treasury instrument, which we took upon ourselves to commercialize

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<v Speaker 5>because the Treasury Department couldn't do so themselves. It would

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<v Speaker 5>cannibalize their existing market, and they didn't have enough goal

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<v Speaker 5>to really create much of an issuance. See the origin

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<v Speaker 5>of this story came about by trying to create that

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<v Speaker 5>treasury alternative that could withstand the risks that we were forecasting.

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<v Speaker 5>And so therefore we thought the ETF rapper would be

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<v Speaker 5>the best solution, especially because we dynamically allocate these assets

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<v Speaker 5>as we see market signals coming in, whether growth or

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<v Speaker 5>inflation risks. So the UTF was just an ideal liquid

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<v Speaker 5>and very well regulated and well structured instrument.

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<v Speaker 6>All right, Noreel, this is a question for you. We

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<v Speaker 6>talk about inflation. Right in twenty twenty two, inflation went

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<v Speaker 6>up fed raise rates, and that caused treasuries to go down. Right,

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<v Speaker 6>A lot of bonds went down with stocks that year.

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<v Speaker 6>The sixth, the and the forty both fell. You have

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<v Speaker 6>fifty percent treasuries in here, and I did notice a

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<v Speaker 6>triple leverage bear ETF in there. Can you talk about

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<v Speaker 6>managing that kind of a situation where inflation causes rates

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<v Speaker 6>to go up, bonds to go down, how do you

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<v Speaker 6>protect this treasury.

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<v Speaker 3>Exposure point is that we are going away in our

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<v Speaker 3>portfolio from long duration sinkle and treasures because, as you

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<v Speaker 3>pointed out, when there are economic shocks that are inflationary,

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<v Speaker 3>long bund you go higher, the price falls, but also

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<v Speaker 3>equity price like twenty twenty two go down. So the

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<v Speaker 3>traditional safe acet is long duration treasury doesn't work in

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<v Speaker 3>a situation which inflation is rising. That's why in our

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<v Speaker 3>portfolio treasury we stay completely away from long term treasuries

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<v Speaker 3>and all our allocation of treasury is short term treasuries

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<v Speaker 3>and tips that actually do well in times where inflation

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<v Speaker 3>is higher and we have those types of economic shocks.

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<v Speaker 3>So the point is the traditional safe asset that is

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<v Speaker 3>negatively correlated with equities in a sixty four allocation doesn't

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<v Speaker 3>do well in the world of higher inflation like we

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<v Speaker 3>saw in twenty twenty two, twenty three, even this year. Therefore,

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<v Speaker 3>you need an alternative, and alternative combines things that do

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<v Speaker 3>well when inflation is higher. Short term treasury keeps good

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<v Speaker 3>commodities and environmentally sustainable rates.

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<v Speaker 5>Nouriel.

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<v Speaker 2>That's really interesting and just to draw about on that point,

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<v Speaker 2>it sounds like your position basically for curve steepener, that

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<v Speaker 2>you have all this exposure to the short end of

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<v Speaker 2>the treasury curve a position for the long end yields

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<v Speaker 2>to go higher.

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<v Speaker 3>Yeah, in our view of the world over time, all

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<v Speaker 3>the inflationary shocks that they scribed before implied that long

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<v Speaker 3>bond deals are going to be higher, both in nominal

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<v Speaker 3>terms and in real terms.

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<v Speaker 4>As we're going to have tariff migration restriction.

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<v Speaker 3>It depends on defense challenged and budget depths that run away. Therefore,

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<v Speaker 3>the traditional safe asset doesn't do well. You know, in

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<v Speaker 3>twenty twenty two, bond yields went from one percent to

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<v Speaker 3>three and a half and any treasury lost more than

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<v Speaker 3>a SMPS and p Fel fifteen percent. Why teny treasure

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<v Speaker 3>lost price by twenty percent. So in a world in

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<v Speaker 3>which average inflation might be five percent rather than two percent,

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<v Speaker 3>bond yields may be closer to seven eight percent rather

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<v Speaker 3>than the current four plus, and there for twenty three

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<v Speaker 3>dollars of treasuries that the traditional safe aset we subject

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<v Speaker 3>a massive price ras thirty forty percent losses. That's the

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<v Speaker 3>kind of worldware I think, not high inflation not hyper inflation,

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<v Speaker 3>but even arise in inflation from two to five six

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<v Speaker 3>as a massive damaging effect for the traditional long duration

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<v Speaker 3>of fixing on assets.

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<v Speaker 1>So this will be an actively managed fund in no reel.

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<v Speaker 1>How often do you anticipate making changes to their portfolio?

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<v Speaker 4>Not very often.

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<v Speaker 3>This takes a long term view that actually dos forces respectflationary.

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<v Speaker 4>So, first of all, is.

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<v Speaker 3>A impartly a quantitive approach. We look at states of

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<v Speaker 3>the world in terms of growth and inflation and the

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<v Speaker 3>terms and location. There's an element of it that is

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<v Speaker 3>slightly distractionary, but we think about optimizing maybe once a month,

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<v Speaker 3>not more often than that.

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<v Speaker 6>This is a question for Raiser. When you think about

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<v Speaker 6>the stock market, it seems like Trump once stalks up,

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<v Speaker 6>he brags about the stock market a lot, and if

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<v Speaker 6>they go down, you think he would just bend over

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<v Speaker 6>backwards to make stocks go back up. In your opinion,

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<v Speaker 6>do you see that not happening this second term, or

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<v Speaker 6>do you think that this ETF is needed just in

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<v Speaker 6>case the stock market, you know, kind of goes its

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<v Speaker 6>own direction.

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<v Speaker 5>Well, there's a tremendous amount of risks offshore that we

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<v Speaker 5>need to look at. This levit Israeli for example, truce

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<v Speaker 5>agreement may just create more risks against a war against

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<v Speaker 5>the Iranians and the Israelis, which obviously has effects on

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<v Speaker 5>the oil supply that comes out of the Persian Gulf.

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<v Speaker 5>These kind of risks do significantly impact the stock market,

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<v Speaker 5>especially as that oil goes to China, and there's obviously

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<v Speaker 5>some other risks associated with the South China see and

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<v Speaker 5>so we don't see these events being positive for the

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<v Speaker 5>stock market. And we see this instrument, and this instrument

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<v Speaker 5>is science to do so doing well at times such

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<v Speaker 5>as this. So that's why we'd launched it at this time.

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<v Speaker 2>Train and Reesa, I have another question for you. I

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<v Speaker 2>thought an interesting detail was that this ETF was launched

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<v Speaker 2>through Goldman Sachs ETF Accelerator program. It's not quite a

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<v Speaker 2>white label, but for those listening who maybe aren't familiar

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<v Speaker 2>with the concept, basically, Goldman Sachs helped you do the

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<v Speaker 2>back office stuff, as I believe it or understand it,

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<v Speaker 2>to get this ETF to the masses. Can you talk

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<v Speaker 2>us through why you went with that setup, for example,

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<v Speaker 2>rather than hiring out an ETF team.

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<v Speaker 5>Yeah, in twenty eighteen, when we came off the back

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<v Speaker 5>end of working through the Alternative Treasury Instrument idea through

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<v Speaker 5>the Trump administration of the National Security think tank we

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<v Speaker 5>were working through. The Golden Sacks team took it upon

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<v Speaker 5>themselves to help us devise this program as a more

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<v Speaker 5>resilient US Treasury instrument. They built an index initially, we

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<v Speaker 5>built an annuity with them, and we just felt their

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<v Speaker 5>team was really strong. They're really focused on national security,

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<v Speaker 5>they're focused on resiliency, They've got a very strong relationship

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<v Speaker 5>with Washington, and they've got a fantastic team at the

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<v Speaker 5>ETF Accelerator, Lisa Mantle, Steve Sachs. These are really really

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<v Speaker 5>strong teams that we rely on to execute these trades,

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<v Speaker 5>and we think that there's more work to be done

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<v Speaker 5>underneath the illiquid portion of the CTF at a time

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<v Speaker 5>and a place when the scale allows it. So the

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<v Speaker 5>platform is very strong, but also the connectivity to the

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<v Speaker 5>other parts of Goldman and their natural inclination to be

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<v Speaker 5>more focused on national security and resiliency and economic security

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<v Speaker 5>matters made them a natural choice. We're very proud to

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<v Speaker 5>be working with.

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<v Speaker 6>Them and no reel. You know, when you think about

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<v Speaker 6>this ETF, the big market for ETF's advisors financial advisors

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<v Speaker 6>are like seventy percent of ETF users. What does this

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<v Speaker 6>replace for a typical sixty forty advisor? Is this going

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<v Speaker 6>into the bond or the equity or maybe some other

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<v Speaker 6>alternative portion they might have.

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<v Speaker 3>No, it's a substitute for the bond portion, because, as

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<v Speaker 3>I pointed out, the traditional defensive acet is long term

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<v Speaker 3>treasury doesn't work in a world in which inflation is

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<v Speaker 3>going to be gradually higher, bond is going to be higher,

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<v Speaker 3>prices are going to be lower for those bonds at

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<v Speaker 3>the time that there could be correction in equity markets.

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<v Speaker 3>The whole point of sixty four is based on a

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<v Speaker 3>negative correlation between bond prices and active prices. Risk on growth,

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<v Speaker 3>equity do well, bond prices fall, risk of recession. Bond

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<v Speaker 3>prices go higher, the yield goes down, equities do worse.

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<v Speaker 4>But that works only if inflation is low and stable. Instead,

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<v Speaker 4>in the world.

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<v Speaker 3>In which gradual inflation goes higher, you lose on the

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<v Speaker 3>equity portion of your portfolio, and you use also on

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<v Speaker 3>the bond portion of your portfolio.

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<v Speaker 4>So when you lose on.

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<v Speaker 3>The bond portion of your folio, go to have an

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<v Speaker 3>asset is actually truly defense see where interests are higher

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<v Speaker 3>because either there's.

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<v Speaker 4>Higher inflation or bigger deficies than that.

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<v Speaker 3>So it's an alternative to the bond part of your portfolio,

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<v Speaker 3>the defensive part of your portfolio.

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<v Speaker 1>We're talking about this ETF that you've launched, which is

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<v Speaker 1>a way to kind of guard against some of the

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<v Speaker 1>economic outlook problems that you foresee given the new government

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<v Speaker 1>that we're going to have starting next year. You mentioned

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<v Speaker 1>stackflation earlier and how you are worried about that scenario

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<v Speaker 1>based on what you've heard from the president like so

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<v Speaker 1>far when it comes to cabinet picks, initial terror threats.

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<v Speaker 1>Can you quantify the risk of stackflation over the next

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<v Speaker 1>four years. Are we're talking about twenty percent odds or

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<v Speaker 1>we're talking about seventy percent odds.

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<v Speaker 3>Well, some of the economic policies of Trump may lead

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<v Speaker 3>to higher economic growth, to being pro business, keeping tax

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<v Speaker 3>or it's low economy, but unfortunately many of the other

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<v Speaker 3>policy is going to have an implication of higher inflation

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<v Speaker 3>and lower economic growth. The first thing he has already

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<v Speaker 3>announced is going to be tariff against Mexico, Canada, and China.

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<v Speaker 4>And that's only the beginning.

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<v Speaker 3>You said we might have up to twenty percent tarif

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<v Speaker 3>on all our trade partners, up to sixty percent against China.

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<v Speaker 3>He wants to have massive deportation of people. In the

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<v Speaker 3>last few years, the increasing migration has kept the lead

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<v Speaker 3>on wage growth, has increased the label supply, has increased

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<v Speaker 3>economic growth. So definitely mass deportation is t inflationary. He

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<v Speaker 3>wants not only to make all those tax cuts permanent,

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<v Speaker 3>but you made other promises and no taxes on tips,

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<v Speaker 3>on overtime and so security on income earn abroad and

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<v Speaker 3>so on and so on. This estimate that these things

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<v Speaker 3>we have to the deficit by eight thrillion dollars. Too

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<v Speaker 3>much demand inflationary. It might want to weekend a dollar

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<v Speaker 3>that's going to be inflationary. You may interfere with independence

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<v Speaker 3>of the FED. Getting out of the Parish Accords is

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<v Speaker 3>going to make climate change much worse, increase a food price,

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<v Speaker 3>and things of that sort. So if you look at

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<v Speaker 3>this list of policies than others, all of them have

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<v Speaker 3>the impact that over time inflation will be higher, growth

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<v Speaker 3>is going to be lower. That's a standard analysis. What's

0:13:18.040 --> 0:13:19.720
<v Speaker 3>going to be implication of this policy.

0:13:19.880 --> 0:13:20.760
<v Speaker 4>So we have to.

0:13:20.720 --> 0:13:23.400
<v Speaker 3>Worry about the world in which overall over the next

0:13:23.400 --> 0:13:26.360
<v Speaker 3>few years, inflation is going to be gradually higher.

0:13:26.600 --> 0:13:29.160
<v Speaker 4>Economic growth could be lower, and therefore you have to.

0:13:29.120 --> 0:13:32.360
<v Speaker 3>Find an edge against the world in which body is

0:13:32.440 --> 0:13:35.599
<v Speaker 3>on the longside, maybe much higher than four percent, and

0:13:35.720 --> 0:13:38.800
<v Speaker 3>I go towards six, seven, even eight percent. In a

0:13:38.880 --> 0:13:42.640
<v Speaker 3>scenariohere inflation goes from two through three, four five. So

0:13:42.720 --> 0:13:45.439
<v Speaker 3>that's the kind of concerns I have and the kind

0:13:45.480 --> 0:13:50.320
<v Speaker 3>of tail risks inflation the basement of h currency potential,

0:13:50.360 --> 0:13:56.439
<v Speaker 3>dinualarization that's become unsustainable, climate change, geopolitical risks that fragment

0:13:56.559 --> 0:13:59.560
<v Speaker 3>the world and lead to less growth and more inflation.

0:14:00.080 --> 0:14:02.360
<v Speaker 3>That kind of things we start to have to worry

0:14:02.400 --> 0:14:03.600
<v Speaker 3>about and hedge against.

0:14:04.360 --> 0:14:06.720
<v Speaker 6>It's interesting, no reel a lot of things you just said,

0:14:06.800 --> 0:14:09.600
<v Speaker 6>or what a bitcoiner would say as to why you

0:14:09.600 --> 0:14:13.240
<v Speaker 6>should buy bitcoin. There's now the Bitcoin ETF there over

0:14:13.280 --> 0:14:16.240
<v Speaker 6>one hundred billion dollars, clearly a big hit. There's talk

0:14:16.360 --> 0:14:19.400
<v Speaker 6>that it could be a strategic reserve. You have gold

0:14:19.400 --> 0:14:21.640
<v Speaker 6>in the portfolio. Is there anything that could move you

0:14:21.760 --> 0:14:26.800
<v Speaker 6>to add bitcoin to your ETF to help accomplish some

0:14:26.800 --> 0:14:28.920
<v Speaker 6>of these goals?

0:14:29.320 --> 0:14:32.120
<v Speaker 3>You know, the bitcoin is highly volatile. You can go

0:14:32.200 --> 0:14:35.120
<v Speaker 3>out by ten percent one day and down ten to

0:14:35.160 --> 0:14:39.160
<v Speaker 3>fifteen percent another day. If you want to a stable

0:14:39.200 --> 0:14:42.600
<v Speaker 3>store of value, you will not put bitcoin into your portfolio.

0:14:43.040 --> 0:14:45.960
<v Speaker 3>The kind of acids we're actually thinking about are all

0:14:46.000 --> 0:14:47.480
<v Speaker 3>acids that do well.

0:14:47.440 --> 0:14:50.200
<v Speaker 4>When you have lower growth and you have higher inflation.

0:14:50.360 --> 0:14:53.680
<v Speaker 3>Whether it's tapes, short term treasure is, gold is a

0:14:53.680 --> 0:14:59.280
<v Speaker 3>hedge against inflation, the basement, dinularization, geopolitics, financial crisis, some

0:14:59.400 --> 0:15:01.400
<v Speaker 3>exposure to add commodities.

0:15:01.440 --> 0:15:03.360
<v Speaker 4>They're going to do well in a world.

0:15:03.120 --> 0:15:07.600
<v Speaker 3>Of inflation, of ami, chain and environmentally sustainable rids. So

0:15:07.640 --> 0:15:11.400
<v Speaker 3>it's a diversified portfolio of assets that historical have done

0:15:11.520 --> 0:15:14.880
<v Speaker 3>well in these types of tailor is. I'm skeptical for

0:15:14.920 --> 0:15:19.160
<v Speaker 3>a lot of reasons about cryptocurrency is a bitcoin because

0:15:19.160 --> 0:15:21.680
<v Speaker 3>they're not currencies. They're not the unit of account, they're

0:15:21.680 --> 0:15:23.680
<v Speaker 3>not the scale of means of payment, they're not the

0:15:23.680 --> 0:15:26.400
<v Speaker 3>stable store of value, and if you want well preservation

0:15:26.560 --> 0:15:29.120
<v Speaker 3>rather than high relativity, you want to stay away from

0:15:29.120 --> 0:15:30.520
<v Speaker 3>those types of acids.

0:15:30.520 --> 0:15:34.360
<v Speaker 2>Truly interesting to hear those comments because, I mean, as

0:15:34.360 --> 0:15:36.920
<v Speaker 2>are pointed out, some of the things you're saying really

0:15:36.960 --> 0:15:40.240
<v Speaker 2>resonate with a lot of the crypto community. But it

0:15:40.240 --> 0:15:43.520
<v Speaker 2>sounds like that volatility is just keeping you away here.

0:15:43.560 --> 0:15:47.200
<v Speaker 2>But I mean the argument can be made that you

0:15:47.240 --> 0:15:49.360
<v Speaker 2>take a look at gold and it's not exactly a

0:15:49.400 --> 0:15:52.480
<v Speaker 2>reliable hedge of inflation. I mean, it goes back and

0:15:52.520 --> 0:15:54.720
<v Speaker 2>forth over the past four years. I know we're close

0:15:54.760 --> 0:15:57.200
<v Speaker 2>to record highs right now, but when it comes to

0:15:57.240 --> 0:15:59.200
<v Speaker 2>a stable store of value, are you sure that you

0:15:59.280 --> 0:15:59.600
<v Speaker 2>found it?

0:15:59.640 --> 0:16:00.720
<v Speaker 1>In goald.

0:16:02.160 --> 0:16:05.720
<v Speaker 3>Well Gold as the benefit that has a variety of

0:16:05.760 --> 0:16:06.920
<v Speaker 3>hedging characteristics.

0:16:07.040 --> 0:16:09.720
<v Speaker 4>Usually when inflation is higher.

0:16:09.760 --> 0:16:11.920
<v Speaker 3>It does well when there is a risk of the

0:16:11.960 --> 0:16:14.680
<v Speaker 3>basement of your currency. Does well in a world in

0:16:14.680 --> 0:16:16.560
<v Speaker 3>which central banks are moving away.

0:16:16.600 --> 0:16:22.440
<v Speaker 4>From all as because of.

0:16:21.960 --> 0:16:25.280
<v Speaker 3>The dollarization, because we've weaponized the dollar for nacial security

0:16:25.440 --> 0:16:28.080
<v Speaker 3>and foreign policy reasons, good goes higher. Part of the

0:16:28.080 --> 0:16:30.920
<v Speaker 3>reason why gold has gone higher forty percent this year

0:16:31.040 --> 0:16:33.960
<v Speaker 3>is because central banks of.

0:16:33.960 --> 0:16:35.640
<v Speaker 4>Our arrival versifying away.

0:16:35.920 --> 0:16:38.280
<v Speaker 3>When there's a financial crisis and your money is not

0:16:38.320 --> 0:16:40.360
<v Speaker 3>even safe in a bank, gold does well.

0:16:40.600 --> 0:16:43.200
<v Speaker 4>So it's not a perfect act. Can go up and down.

0:16:43.600 --> 0:16:46.760
<v Speaker 3>Is one element of a portfolio where you're hedging against

0:16:46.760 --> 0:16:49.320
<v Speaker 3>a variety of tailor risks, and from that point of view,

0:16:49.600 --> 0:16:52.800
<v Speaker 3>is a better store of value than cryptocurrencies that are

0:16:52.840 --> 0:16:54.960
<v Speaker 3>based on not taking the vaporware.

0:16:55.240 --> 0:16:58.480
<v Speaker 1>All right, Oriel Rabini always with the sharp insights Norial

0:16:58.560 --> 0:17:01.120
<v Speaker 1>Robinia Rubini Macroso sees, thank you so much for joining

0:17:01.200 --> 0:17:01.560
<v Speaker 1>us today