Speaker 1: Bloomberg Audio Studios, podcasts, radio news, no Reel.
Speaker 2: Rubini he is the CEO of Rubini Macro Associates, and
Speaker 2: we're also joined by Atlas Capital Team CEO Raise A. Bundi,
Speaker 2: who of course just launched this fund that we're talking about. Atlas,
Speaker 2: of course is a fintech company that Rubini co founded.
Speaker 2: It's great to have the both of you with us,
Speaker 2: and Noriel I want to start with you since you
Speaker 2: are a first time ETF issuer, and something we like
Speaker 2: to ask the debuts in the ETF industry is why now?
Speaker 2: What brought you to this rapper now? When it comes
Speaker 2: to why implement your strategy here?
Speaker 3: Well, why now is because we live in a world
Speaker 3: where after COVID, the risk of spaculationary shocks that lead
Speaker 3: to high inflation and lower economic growth are becoming more
Speaker 3: severe and these types of stackflationary problems are.
Speaker 4: Going to be more serious during IT administration.
Speaker 3: If you think about the impact of TARI protectionism and
Speaker 3: trade wars, the impact of restriction to migration and the
Speaker 3: SUPVIB labor deficits and tax cuts that are unfunded, attempt
Speaker 3: to weaken the dollar, attempt to interfere with the fed,
Speaker 3: getting out of the partis accord, and worsing in global
Speaker 3: climate change. All these factors economic theory would suggest that
Speaker 3: will lead to higher inflation, lower economic growth.
Speaker 4: And therefore traditional safe assets.
Speaker 3: That head you against those risks like long deguration fixing
Speaker 3: income don't do well in that type of environment. So
Speaker 3: you need a different type of asset location cred yourself
Speaker 3: against the idea of economic risk, inflation, the business currency, edullarization,
Speaker 3: geopolitical environmental risks.
Speaker 1: Thank you for answering that. Clearly it's tied to your
Speaker 1: economic health, and we can dig into that a little
Speaker 1: bit later on. But Raza, I want to bring you
Speaker 1: into the conversation as well, is why the etf rapper?
Speaker 1: Why is that the best format for really articulating this view.
Speaker 5: Well, the origin of the ATLAS program was out of
Speaker 5: the national security landscape back in twenty seventeen, when we
Speaker 5: were evaluating some of the risks that were kind of
Speaker 5: upcoming in our view, geopolitical risks, climate risks, asymmetric risks,
Speaker 5: socio political risks, and we felt that it was necessary
Speaker 5: to build a more resilient US treasury alternative, and the
Speaker 5: Trump administration actually came up with an idea of a
Speaker 5: goldbacked treasury instrument, which we took upon ourselves to commercialize
Speaker 5: because the Treasury Department couldn't do so themselves. It would
Speaker 5: cannibalize their existing market, and they didn't have enough goal
Speaker 5: to really create much of an issuance. See the origin
Speaker 5: of this story came about by trying to create that
Speaker 5: treasury alternative that could withstand the risks that we were forecasting.
Speaker 5: And so therefore we thought the ETF rapper would be
Speaker 5: the best solution, especially because we dynamically allocate these assets
Speaker 5: as we see market signals coming in, whether growth or
Speaker 5: inflation risks. So the UTF was just an ideal liquid
Speaker 5: and very well regulated and well structured instrument.
Speaker 6: All right, Noreel, this is a question for you. We
Speaker 6: talk about inflation. Right in twenty twenty two, inflation went
Speaker 6: up fed raise rates, and that caused treasuries to go down. Right,
Speaker 6: A lot of bonds went down with stocks that year.
Speaker 6: The sixth, the and the forty both fell. You have
Speaker 6: fifty percent treasuries in here, and I did notice a
Speaker 6: triple leverage bear ETF in there. Can you talk about
Speaker 6: managing that kind of a situation where inflation causes rates
Speaker 6: to go up, bonds to go down, how do you
Speaker 6: protect this treasury.
Speaker 3: Exposure point is that we are going away in our
Speaker 3: portfolio from long duration sinkle and treasures because, as you
Speaker 3: pointed out, when there are economic shocks that are inflationary,
Speaker 3: long bund you go higher, the price falls, but also
Speaker 3: equity price like twenty twenty two go down. So the
Speaker 3: traditional safe acet is long duration treasury doesn't work in
Speaker 3: a situation which inflation is rising. That's why in our
Speaker 3: portfolio treasury we stay completely away from long term treasuries
Speaker 3: and all our allocation of treasury is short term treasuries
Speaker 3: and tips that actually do well in times where inflation
Speaker 3: is higher and we have those types of economic shocks.
Speaker 3: So the point is the traditional safe asset that is
Speaker 3: negatively correlated with equities in a sixty four allocation doesn't
Speaker 3: do well in the world of higher inflation like we
Speaker 3: saw in twenty twenty two, twenty three, even this year. Therefore,
Speaker 3: you need an alternative, and alternative combines things that do
Speaker 3: well when inflation is higher. Short term treasury keeps good
Speaker 3: commodities and environmentally sustainable rates.
Speaker 5: Nouriel.
Speaker 2: That's really interesting and just to draw about on that point,
Speaker 2: it sounds like your position basically for curve steepener, that
Speaker 2: you have all this exposure to the short end of
Speaker 2: the treasury curve a position for the long end yields
Speaker 2: to go higher.
Speaker 3: Yeah, in our view of the world over time, all
Speaker 3: the inflationary shocks that they scribed before implied that long
Speaker 3: bond deals are going to be higher, both in nominal
Speaker 3: terms and in real terms.
Speaker 4: As we're going to have tariff migration restriction.
Speaker 3: It depends on defense challenged and budget depths that run away. Therefore,
Speaker 3: the traditional safe asset doesn't do well. You know, in
Speaker 3: twenty twenty two, bond yields went from one percent to
Speaker 3: three and a half and any treasury lost more than
Speaker 3: a SMPS and p Fel fifteen percent. Why teny treasure
Speaker 3: lost price by twenty percent. So in a world in
Speaker 3: which average inflation might be five percent rather than two percent,
Speaker 3: bond yields may be closer to seven eight percent rather
Speaker 3: than the current four plus, and there for twenty three
Speaker 3: dollars of treasuries that the traditional safe aset we subject
Speaker 3: a massive price ras thirty forty percent losses. That's the
Speaker 3: kind of worldware I think, not high inflation not hyper inflation,
Speaker 3: but even arise in inflation from two to five six
Speaker 3: as a massive damaging effect for the traditional long duration
Speaker 3: of fixing on assets.
Speaker 1: So this will be an actively managed fund in no reel.
Speaker 1: How often do you anticipate making changes to their portfolio?
Speaker 4: Not very often.
Speaker 3: This takes a long term view that actually dos forces respectflationary.
Speaker 4: So, first of all, is.
Speaker 3: A impartly a quantitive approach. We look at states of
Speaker 3: the world in terms of growth and inflation and the
Speaker 3: terms and location. There's an element of it that is
Speaker 3: slightly distractionary, but we think about optimizing maybe once a month,
Speaker 3: not more often than that.
Speaker 6: This is a question for Raiser. When you think about
Speaker 6: the stock market, it seems like Trump once stalks up,
Speaker 6: he brags about the stock market a lot, and if
Speaker 6: they go down, you think he would just bend over
Speaker 6: backwards to make stocks go back up. In your opinion,
Speaker 6: do you see that not happening this second term, or
Speaker 6: do you think that this ETF is needed just in
Speaker 6: case the stock market, you know, kind of goes its
Speaker 6: own direction.
Speaker 5: Well, there's a tremendous amount of risks offshore that we
Speaker 5: need to look at. This levit Israeli for example, truce
Speaker 5: agreement may just create more risks against a war against
Speaker 5: the Iranians and the Israelis, which obviously has effects on
Speaker 5: the oil supply that comes out of the Persian Gulf.
Speaker 5: These kind of risks do significantly impact the stock market,
Speaker 5: especially as that oil goes to China, and there's obviously
Speaker 5: some other risks associated with the South China see and
Speaker 5: so we don't see these events being positive for the
Speaker 5: stock market. And we see this instrument, and this instrument
Speaker 5: is science to do so doing well at times such
Speaker 5: as this. So that's why we'd launched it at this time.
Speaker 2: Train and Reesa, I have another question for you. I
Speaker 2: thought an interesting detail was that this ETF was launched
Speaker 2: through Goldman Sachs ETF Accelerator program. It's not quite a
Speaker 2: white label, but for those listening who maybe aren't familiar
Speaker 2: with the concept, basically, Goldman Sachs helped you do the
Speaker 2: back office stuff, as I believe it or understand it,
Speaker 2: to get this ETF to the masses. Can you talk
Speaker 2: us through why you went with that setup, for example,
Speaker 2: rather than hiring out an ETF team.
Speaker 5: Yeah, in twenty eighteen, when we came off the back
Speaker 5: end of working through the Alternative Treasury Instrument idea through
Speaker 5: the Trump administration of the National Security think tank we
Speaker 5: were working through. The Golden Sacks team took it upon
Speaker 5: themselves to help us devise this program as a more
Speaker 5: resilient US Treasury instrument. They built an index initially, we
Speaker 5: built an annuity with them, and we just felt their
Speaker 5: team was really strong. They're really focused on national security,
Speaker 5: they're focused on resiliency, They've got a very strong relationship
Speaker 5: with Washington, and they've got a fantastic team at the
Speaker 5: ETF Accelerator, Lisa Mantle, Steve Sachs. These are really really
Speaker 5: strong teams that we rely on to execute these trades,
Speaker 5: and we think that there's more work to be done
Speaker 5: underneath the illiquid portion of the CTF at a time
Speaker 5: and a place when the scale allows it. So the
Speaker 5: platform is very strong, but also the connectivity to the
Speaker 5: other parts of Goldman and their natural inclination to be
Speaker 5: more focused on national security and resiliency and economic security
Speaker 5: matters made them a natural choice. We're very proud to
Speaker 5: be working with.
Speaker 6: Them and no reel. You know, when you think about
Speaker 6: this ETF, the big market for ETF's advisors financial advisors
Speaker 6: are like seventy percent of ETF users. What does this
Speaker 6: replace for a typical sixty forty advisor? Is this going
Speaker 6: into the bond or the equity or maybe some other
Speaker 6: alternative portion they might have.
Speaker 3: No, it's a substitute for the bond portion, because, as
Speaker 3: I pointed out, the traditional defensive acet is long term
Speaker 3: treasury doesn't work in a world in which inflation is
Speaker 3: going to be gradually higher, bond is going to be higher,
Speaker 3: prices are going to be lower for those bonds at
Speaker 3: the time that there could be correction in equity markets.
Speaker 3: The whole point of sixty four is based on a
Speaker 3: negative correlation between bond prices and active prices. Risk on growth,
Speaker 3: equity do well, bond prices fall, risk of recession. Bond
Speaker 3: prices go higher, the yield goes down, equities do worse.
Speaker 4: But that works only if inflation is low and stable. Instead,
Speaker 4: in the world.
Speaker 3: In which gradual inflation goes higher, you lose on the
Speaker 3: equity portion of your portfolio, and you use also on
Speaker 3: the bond portion of your portfolio.
Speaker 4: So when you lose on.
Speaker 3: The bond portion of your folio, go to have an
Speaker 3: asset is actually truly defense see where interests are higher
Speaker 3: because either there's.
Speaker 4: Higher inflation or bigger deficies than that.
Speaker 3: So it's an alternative to the bond part of your portfolio,
Speaker 3: the defensive part of your portfolio.
Speaker 1: We're talking about this ETF that you've launched, which is
Speaker 1: a way to kind of guard against some of the
Speaker 1: economic outlook problems that you foresee given the new government
Speaker 1: that we're going to have starting next year. You mentioned
Speaker 1: stackflation earlier and how you are worried about that scenario
Speaker 1: based on what you've heard from the president like so
Speaker 1: far when it comes to cabinet picks, initial terror threats.
Speaker 1: Can you quantify the risk of stackflation over the next
Speaker 1: four years. Are we're talking about twenty percent odds or
Speaker 1: we're talking about seventy percent odds.
Speaker 3: Well, some of the economic policies of Trump may lead
Speaker 3: to higher economic growth, to being pro business, keeping tax
Speaker 3: or it's low economy, but unfortunately many of the other
Speaker 3: policy is going to have an implication of higher inflation
Speaker 3: and lower economic growth. The first thing he has already
Speaker 3: announced is going to be tariff against Mexico, Canada, and China.
Speaker 4: And that's only the beginning.
Speaker 3: You said we might have up to twenty percent tarif
Speaker 3: on all our trade partners, up to sixty percent against China.
Speaker 3: He wants to have massive deportation of people. In the
Speaker 3: last few years, the increasing migration has kept the lead
Speaker 3: on wage growth, has increased the label supply, has increased
Speaker 3: economic growth. So definitely mass deportation is t inflationary. He
Speaker 3: wants not only to make all those tax cuts permanent,
Speaker 3: but you made other promises and no taxes on tips,
Speaker 3: on overtime and so security on income earn abroad and
Speaker 3: so on and so on. This estimate that these things
Speaker 3: we have to the deficit by eight thrillion dollars. Too
Speaker 3: much demand inflationary. It might want to weekend a dollar
Speaker 3: that's going to be inflationary. You may interfere with independence
Speaker 3: of the FED. Getting out of the Parish Accords is
Speaker 3: going to make climate change much worse, increase a food price,
Speaker 3: and things of that sort. So if you look at
Speaker 3: this list of policies than others, all of them have
Speaker 3: the impact that over time inflation will be higher, growth
Speaker 3: is going to be lower. That's a standard analysis. What's
Speaker 3: going to be implication of this policy.
Speaker 4: So we have to.
Speaker 3: Worry about the world in which overall over the next
Speaker 3: few years, inflation is going to be gradually higher.
Speaker 4: Economic growth could be lower, and therefore you have to.
Speaker 3: Find an edge against the world in which body is
Speaker 3: on the longside, maybe much higher than four percent, and
Speaker 3: I go towards six, seven, even eight percent. In a
Speaker 3: scenariohere inflation goes from two through three, four five. So
Speaker 3: that's the kind of concerns I have and the kind
Speaker 3: of tail risks inflation the basement of h currency potential,
Speaker 3: dinualarization that's become unsustainable, climate change, geopolitical risks that fragment
Speaker 3: the world and lead to less growth and more inflation.
Speaker 3: That kind of things we start to have to worry
Speaker 3: about and hedge against.
Speaker 6: It's interesting, no reel a lot of things you just said,
Speaker 6: or what a bitcoiner would say as to why you
Speaker 6: should buy bitcoin. There's now the Bitcoin ETF there over
Speaker 6: one hundred billion dollars, clearly a big hit. There's talk
Speaker 6: that it could be a strategic reserve. You have gold
Speaker 6: in the portfolio. Is there anything that could move you
Speaker 6: to add bitcoin to your ETF to help accomplish some
Speaker 6: of these goals?
Speaker 3: You know, the bitcoin is highly volatile. You can go
Speaker 3: out by ten percent one day and down ten to
Speaker 3: fifteen percent another day. If you want to a stable
Speaker 3: store of value, you will not put bitcoin into your portfolio.
Speaker 3: The kind of acids we're actually thinking about are all
Speaker 3: acids that do well.
Speaker 4: When you have lower growth and you have higher inflation.
Speaker 3: Whether it's tapes, short term treasure is, gold is a
Speaker 3: hedge against inflation, the basement, dinularization, geopolitics, financial crisis, some
Speaker 3: exposure to add commodities.
Speaker 4: They're going to do well in a world.
Speaker 3: Of inflation, of ami, chain and environmentally sustainable rids. So
Speaker 3: it's a diversified portfolio of assets that historical have done
Speaker 3: well in these types of tailor is. I'm skeptical for
Speaker 3: a lot of reasons about cryptocurrency is a bitcoin because
Speaker 3: they're not currencies. They're not the unit of account, they're
Speaker 3: not the scale of means of payment, they're not the
Speaker 3: stable store of value, and if you want well preservation
Speaker 3: rather than high relativity, you want to stay away from
Speaker 3: those types of acids.
Speaker 2: Truly interesting to hear those comments because, I mean, as
Speaker 2: are pointed out, some of the things you're saying really
Speaker 2: resonate with a lot of the crypto community. But it
Speaker 2: sounds like that volatility is just keeping you away here.
Speaker 2: But I mean the argument can be made that you
Speaker 2: take a look at gold and it's not exactly a
Speaker 2: reliable hedge of inflation. I mean, it goes back and
Speaker 2: forth over the past four years. I know we're close
Speaker 2: to record highs right now, but when it comes to
Speaker 2: a stable store of value, are you sure that you
Speaker 2: found it?
Speaker 1: In goald.
Speaker 3: Well Gold as the benefit that has a variety of
Speaker 3: hedging characteristics.
Speaker 4: Usually when inflation is higher.
Speaker 3: It does well when there is a risk of the
Speaker 3: basement of your currency. Does well in a world in
Speaker 3: which central banks are moving away.
Speaker 4: From all as because of.
Speaker 3: The dollarization, because we've weaponized the dollar for nacial security
Speaker 3: and foreign policy reasons, good goes higher. Part of the
Speaker 3: reason why gold has gone higher forty percent this year
Speaker 3: is because central banks of.
Speaker 4: Our arrival versifying away.
Speaker 3: When there's a financial crisis and your money is not
Speaker 3: even safe in a bank, gold does well.
Speaker 4: So it's not a perfect act. Can go up and down.
Speaker 3: Is one element of a portfolio where you're hedging against
Speaker 3: a variety of tailor risks, and from that point of view,
Speaker 3: is a better store of value than cryptocurrencies that are
Speaker 3: based on not taking the vaporware.
Speaker 1: All right, Oriel Rabini always with the sharp insights Norial
Speaker 1: Robinia Rubini Macroso sees, thank you so much for joining
Speaker 1: us today