Everyone’s an Energy Trader as Power Bills Hit the Sky

You can also listen to our radio show at two pm Eastern Time on Bloomberg Radio, or watch us on YouTube search Bloomberg Clobal News Katie. Something strange happening in homes across Texas, New York, Maine, and a handful of other states here in the US. In deregulated states such as these, customers are turned de facto natural gast forecasters gambling on the direction of highly volatile markets when it's time to renew their contracts. Michael Sasso is economy reporter

for Bloomberg News. He and our colleague Noreen Malick right all about this phenomenon for Bloomberg News Today. Michael, good to have you with us. Joining us from our Atlanta be Euaro, Well, what exactly is happening here? What are what are Americans doing when they're trying to, I don't want to say, negotiate their energy bills, but figure out how they're going to actually pay less. Yeah, yeah, good,

good to be here. Yeah. I I ran across this on a personal note when I was not happen to be in Atlanta area and I had got my natural gas renewal contract for my heating and it was up something like sixty or seventy percent, and I thought, what's going on here? And they they're wanting me to sign a contract for anywhere from a year two years. And I was thinking, how do I sign a contract when the it's sort of the top of the market, You

know my rates? Have you want me to sign a contract for rates that are up sixty from a year ago? And the alternative was even better. If you don't want to sign a contract, you go for one of these floating or variable rates. And at that at this moment, those are up more than a hundred percent a d from where where I was a year ago. And that's just natural gas around the country. You mentioned Texas. Texas

gets most of its power by burning natural gas. So it's it's electric rates are sort of closely aligned with natural gas and those people looking at increases and they're in the same scenario. They're in this no win situation. Do they that they're renew at these high rates? Do they keep going with variable rates with no promise that the prices are going to go down? It's a it's

a tricky situation to be in. Right now, we'll tell us about some of the people who are in this situation that you spoke to for this story, because there's some great, great reporting in this piece about Floyd Stanley, for example. Yeah, that was something my colleague Marien and he talked. She talked to Floyd's she found him. He's in the Dallas area and he's kind of going at a full bore. He um actually has spreadsheets and he's

evaluating electric contracts. There's a bewildering array of electric providers in Texas and he's spread charting each of them. And I believe, as I recalled, he locked in a two year rate because he was worried about rates going even higher. He was trying to limit his damage. UM. But yeah,

so there's there's Floyd kind of spreadsheeting things. Here in Atlanta, there was a woman named Ramona Sandro who was trying to make a natural gas calculation and nash To booked, you know, two year contract, worried that prices were going to go up even more. Uh. And then on the opposite end, there was a fella here in Atlanta who did the opposite. He couldn't stomach today's prices. He's kind of gambling the natural gas rates are going to go down,

so he's going kind of naked. He's kind of the floating rate even if it's above two dollars a quote unquote firm, which is more than more than it was a year ago. Yeah, I mean so, so what about the millions of Americans who don't have a choice when it comes to this stuff? How are they stomaching it? Well, maybe we're all we're all kind of paying uh, paying higher rates, whether you have one of the you're in one of these choice states or not. In a lot of cases there are you are having to go with

a regulated utility rather than a deregulated state. For people who absolutely can't pay um. There is something called it's an acronym, it's l I. The word heap a p SO l I HEAP, and that is sort of a federal a utility assistance program that's kind of routed through each of the states. But as I understand, and we didn't write a lot about this, I just but I did research a little, the this l I HEAP program

is pretty much tapped out around the country. So unfortunately, I mean, they're I wouldn't want to discourage someone from trying, and it's certainly worth it, but as I understand, there's a tremendous demand and not enough supply of this these assistance dollars right now. Michael Sasso, economy reporter for Bloomberg News,

joining us this afternoon on the Throne from Atlanta. A really great piece highlighting the challenges that Americans are going through when it comes to figuring out the best way to actually pay for those high heating bills and when it comes winter and then cooling bills as the a C has been jacked up for so much of the summer.

We didn't even mention Europe, but they make a really good point in the story that prices are even higher any Europe, so important to keep that in mind you're listening to Bloomberg Business Week with Carol Messer and Bloomberg Quick Takes Tim Stinovic on Bloomberg Radio. Well, when it comes to crypto, one number that I like to use a lot, I'll admit it is three trillion. That's at least the market cap of all crypto that it was

at its high point a little earlier this year. Now, to get to that number, all you gotta do is you gotta take the coins out there and multiply them by the price of each coin. But the question is is that the right way to value the crypto market. It's something that Bill Donna hi Rich spent a lot of time thinking about and talking to analysts and economists about. She's cross asset reporter for Bloomberg News. Her story is

in the current issue of Bloomberg Business Week magazine. It's available on newsstands, on the Bloomberg and at Bloomberg dot Com. Also with us this afternoon from the Interactive Broker Studio is Joel Webber, the editor of Bloomberg Business Week. Joel am, I am I doing it wrong? Three trillion dollars? Should I not be saying three trillion dollars? We're gonna after this little segment you you probably won't be saying that anymore.

But the question just came from look like, as we sort of all plunged into crypto winter in in summer, uh, we just started asking bigger and bigger questions and then turning to our friends in the newsroom to help us try and answer some of them. And so the question that um we kind of came to Vildano was with was look like, people say this is three trillion, like is it really? And boy, did she ever go down a wormhole? It was a fun wormhole? How far down?

I mean you went to the bottom of the rabbit hole? Well maybe in okay, well, okay, whatever kind of hole it was, we went down it, and Vildana, what did you learn? Well? I do want to give a shout at first to our brilliant editor Pat Regner a Business Week who who loves to think of these big meta questions, and this was definitely one of them where it's like, okay,

how big actually was crypto? Because as you guys were just saying market cap, it's just you take the number of coins out there you multiplied by the price, So is that really an accurate reading of the value of the crypto market, and if you really think about it, there's a bunch of coins out there that are so called so called dormant coins, meaning that they really haven't been moving, they haven't been used for anything in something

like five or more years, meaning that potentially that they're lost. And then you also have all of these different projects that had been coming out where you have a founder throwing out like a random supply number. For instance, they'll say, okay, we're gonna have twenty million tokens of x y z project, and really it's the founder who owns the majority of the project. So there they were just a bunch of

issues and we really wanted to get down to this idea. Well, actually, how much were things worth if they weren't three trillion? So where did you even start? Who did you reach out to with the project like this? I just I feel like I would be chasing my tail for a few months, which I think I wanted and ask me

I was chasing my rabbit tail. So who helped you? Well, the first thing I did was I wanted to look at the number of participants, so in the US at least, to try to get a read on how many people own or use or trade cryptocurrencies, and there actually is some data out on this. So we had a survey from the Federal Reserve. They had found that something like twelve of US adults had held crypto last year. And then there was a survey from Pew that showed about

health crypto. So that's more than fifty million people in the US and it's not an insignificant number. So it was a good starting point. And then I ended up calling a crypto skeptic. That was my very first phone call that I made, and he basically said, this is all bs of Of course, Donna, I'm not gonna say so. In addition, you got the skeptic, but you also got some proponents and economists and everyone everyone else. I'm actually really curious, like how many people did you speak to?

And of all of that universal characters, who is the most colorful. Well, probably the crypto skeptic was the most colorful, throwing out the curse words and whatnot. I spoke with a lot of people there. There were a lot of people who didn't end up making it into the story because there's so many different ways to try to to

to measure even just engagements. So trying to measure so called entities for instance, which is also just like the people who are participating on different blockchains, and then there's yeah or if they're people of course, but that's actually one of the issues. So you have so many issues behind a lot of these measurements where um, maybe you are counting one person as ten different people because they

have ten different accounts or you know. So it was really trying to figure out what is the best representation for for some of these numbers. So Vildanna, after speaking to the skeptic and Noel Atchison, who you refer to as the researcher, she of course is of Genesis Global Trading, the data crunchers as well, how do you think about

crypto differently after reporting this piece. Well, one of the things that I ended up coming to a conclusion too was that there just had been so much leverage in in the crypto market, where at the height that three chillion number really encompassed a lot of different I don't I suppose lever just the best word to use. There was just so much froth, So removing taking that froth out of the three trillion number and then coming up

with something, um, you know, for the story. We came up with somewhere on eight hundred billions, somewhere around where the crypto market actually is currently, the market capital is showing us it's worth, which is not nothing. It's definitely not not nothing. Which is I think, you know, back

to the skeptic idea there. It's just like, okay, well there's there's real money here a little bit right, And definitely one thing that's significant there though, is, as one of our colleagues was sort of challenging us in the news room, was Okay, wait, isn't this as much as it started with? So what what just happened? Right? So I think the best way and one of the things that came up over and over again, so somebody I

spoke with at UBS came up with this number. And then the two the two economist researchers from these big data crunching crypto firms, Chain Analysis and glass Node, which are both well known for looking at charts and trying to figure some of these things out, is they were all looking at something called realized value. And I hope I get this right. I don't want to upset any any of the crypto fans out there, but that's basically just the prices that coins actually fetch in their most

recent transaction. And if you look at that number, so glass note, for instance, can actually give you a ratio of the market value versus realized value. The ratio at the height was something like three point two, and you take the three trillion divided by three point two and you get the sort of eight hundred undred billion dollar number that removes out all of that fraud. I can

loosely follow that math. I would say, I'm a little bit challenging that you start with three trillion and you end up with a smaller amount, but it's still billions. I got it, I got it. I'm there many billions, billions, several hundred billions, but vildna, we don't have much time left. But I am curious what the reception has been like, because I don't know a lot of people were really

carried go on, go on. Well, the one thing so in crypto, if you end up writing about the crypto space some times, it doesn't matter if it's a positive or negative story, you'll still get a lot of hatred on Twitter. So one of my things was, Okay, don't at me on Twitter, no matter what. I come up with, and actually all the atmes were very positive. Even all people within the crypto space were very receptive to this idea that Okay, market cap is just not a good

way to be measuring the space. This is a really good insightful look at that what the crypto market is actually valued at. And it's just interesting to take a look at some of these readings and technical measures like the realized value one. The Internet is good, cryday, It's

good today. Okay, we'll just give it, give it a few hours gold on and I'm sure, you know, we'll see how maybe I shouldn't have done this interview over crypto summer warmer than crypto, win that love that Buildona Hira Cross as reporter for Bloomberg News, joining us from the Bloomberg Interactive Broker's studio. Check out her story. It's featuring the current issue of Business Week magazine, available on newsstands, on the Bloomberg terminal and at Bloomberg dot com. A

big negative. The editor the magazine, Joe Webber. This is Bloomberg Business Week with Carol Masser and Bloomberg Quick Takes. Tim Stinovic on Bloomberg Radio. Well Memes Dock Mania. It's set to live on despite wild swings thatt least at least according to our latest M Live Pulse survey. This story written by Bailey Lip Scholtz. Bailey is Bloomberg News Equities reporter. He joins US live from Hoboken, New Jersey this afternoon. Bailey, UM, how are you? I'm doing well, Tim,

Are you doing all right with COVID? Yeah, and thank you for asking. I feel I feel great. The reason I ask how you are is because I saw on Instagram that you got engaged this weekend. So congratulations, Thank you very much, guys, I appreciate it. Yeah, pop the question on Saturday night, she said yes after many of cheers were shed. So I'm officially engaged in now with fiance,

which is weird to say. We would have definitely not brought it off if she said no, just no. I need you to know that, Bailey, and she knows she's marrying the Meme stock master, Bailey Lips, which is which is fantastic. Bailey. It's really exciting. So we're sending you our best here from Bloomberg Business Week. We do want to talk about meme stocks, though, because the M Live Pulse survey is out and it says that investors think

that MEME stocks are here to stay. So talk about the methodology here because this is something that our m Live team does and it's uh it gets a great idea of what investors are thinking about. Yeah, so every week we run a survey kind of try to be as topical as possible. So this was crafted really after the madness around the Botom Beyond about ten days ago, around that Ryan Cohen kind of boom and bust after

he dumped the stock. But yeah, so nearly two thirds of the two respondents, so we are pulling both strategists and UH portfolio manager on the wall street as well as retail traders who have the terminal and are responding

through the terminal link. And really the consensus for the most part was that even though you have kind of these boom and bus whether it's AMC, game Stop at Bath and Beyond, or even kind of the one offs like BlackBerry and cost Corps, there is an expectation that it will continue to live on in one way or another.

In the real reasoning that I got from talking to some people about the idea um is just that commission free trading so whether you now have the ability to trade out of the money call options or just buy the underlying stock at a fractional share, I was going to continue to be a kind of thesis that Wall Street has to think about, and that's really being driven by things like Reddit, things like Twitter and other chat

rooms like stock lists. Okay, so I get the sort of market structure, why you do have basically free trading, etcetera, etcetera. Talk to us about the psychology though, because we're in a very different place from when the mania first started, when people were locked at home. Now you're able to go out and do things. You might get COVID like our friend tended. But why is this still happening? There's still just an ability and kind of a mentality that

you're bonding and connecting. So whether you're in a Reddit thread or a discord chat talking about how you just bought more eight preferred shares and you're excited about it, you feel like you're part of the movement. Is the understanding And really, if you kind of take that and add on the fact that in a market that for the most part still is beaten down, we still have pretty light volumes professional traders are more than happy to jump into some of these trends because it is an

easy way to generate some alpha. And we are seeing like even with Beth and Beyond today at about people are trading the call options for forty five dollar strike price to stop right now is at So there still is very much that gambling aspect where investors and whether it's retail traders professional traders are more than happy to speculate with a small portion of their portfolio just given

the potential returns. Bailey, does it tell us anything about capitulation or about big picture how investors should look at a bear market when we have retail traders and getting involved in companies like this, Yeah, I mean the real debate and kind of got a mixed reaction from both pros and retail traders on the idea that net that investors need to become that sellers but um for the market to really bottom. But it feels more like it's kind of just an offshoot and it's another area for

investors to trade. You look at the memorabilia space, it still is booming even with the market really struggling to find its footing. So I don't as much as people like to connect it off and say the FED is going to have to continue to hike as long as bed,

bathroom beyond on any given day. It does feel like in the consensus from some of the people I talked to is that that's very much misplaced and an easy thing to say, but doesn't actually at the end of the day drive a core fundamentals for the market, just because in the broad team of things they are, these are very much small companies. While the percentage jump is massive,

it's just a drop in the bucket broadly speaking. Alright, well, Bailey, before we let you go, um, meme stocks, crypto versus spects, what did you get from professional investors freed versus retail investors? Just in fifteen seconds? Yeah, professional investors like crypto the most as do retail. Retail was a little bit more optimistic on Meme stocks about said that would be the best asset class. Professionals only said about fift so very much Crypto between the three was the favored asset in

the next year. Bailey Lipsholtz, equities reporter for Bloomberg News, joining us this afternoon on the phone from Hoboken, New Jersey. Big thank you to Bailey and congratulations once again. I'm a colonel. Yeah, but you let me drive? Oh no, no, no no, no home, honey, please, I'll do the driving revels. I want to drive. It's good question. This is the drive to the globe effect up down on Bluebird Radio. Well, here we are, less than ten minutes to go to

the those of trading on this Monday afternoon. The SP five is lower by four tenths of one percent, as is the Dow, the NASDAC, the lagger today down by close to eight tenths a little more than eight tenths of one percent. Let's get into it with Aaron Kennon, co founder and CEO of Clear Harbor Asset Management. They've got over a billion dollars in assets under management. Aaron joining us this afternoon on the phone from Stanford, Connecticut. Aaron,

how are you the We're just fine. Thanks for having me back. Yeah, it's always good to have you with us. I gotta tell you I was so I'm I'm working from home because I'm recovering from COVID and I couldn't turn away last week in Jackson Hole even though I was, you know, on sick leave essentially, and I texted Katie afterward, and I was as we saw the sell off happen, and I said, Katie, this is what we've been talking about for weeks here, Like this shouldn't be surprising to people.

We knew Powell was going to be hawkish. We know that inflation is the number one concern for the central Bank. Why is everyone so surprised by this? So I ask you, why is everyone so surprised? Right? So, I mean, I think the rhetoric has been consistent, but there has been a belief since perhaps mid June, that the FED at some point, perhaps even by the end of the year, would be in a position where they're looking at data and decelerating inflation, and that they may in fact be

in a position to pivot. And I think what we heard on Friday was that's not that's not accurate. Do not fight the Fed. You know, if you're predicting a pivot soon, please do not bet on it. And so, in some sense, I think the Fed was probably pleased with the market reaction, while investors clearly we're not. We know,

I mean, we know Neil cash Gari was pleased. He said that on the podcast a little earlier today, that story just coming out on the Bloomberg in the last couple of hours, Katie right, and I feel like Aaron Peal almost gave us a blueprint for how to invest in these markets, because think about what he said. He said, getting a grip on inflation, it could uh necessitate a period below trend growth. And if that's the case, how

do you structure a portfolio around that? Well, it's tricky in the near term, but we're very much, you know, guided by a lot of the sort of thoughts around longer term trends. And if you look at major asset classes like fixed income, where you can quantify long term trends by just looking at yield to maturity um, that nominal number is significantly higher today than it was a

year ago. And so that's a plus. But you know, clearly the equity market has been, you know, experiencing significantly higher volatively relative to just a year or two years ago. Even though volatility hasn't spiked recently, it's still elevated relative to any sort of historical analog. And so it makes

sort of thinking about risk adjusted returns quite difficult. It makes the sixty forty portfolio start to look a little more attractive just because we've seen that move higher in the front end, in particular on on the yield side, where you know, twos today are at three forty two and Fed funds are served pricing in the idea of maybe three or three quarters four percent funds rate, and we through the historical analog that to your treasury yields in the peak in the FED funds rate tend to

generally coincide with one another. So it's a tricky time to think about the short term and try to tactically dip into this market. But in the long term, you know, we still think there are plenty of opportunities. Well, let's talk short term opportunities and then long term opportunities. So what do you what what short term should investors be

thinking about? Or maybe if we're saying investors, we should say traders if we're thinking about short term, right, So, I think if you're thinking about timing, you're thinking about being tactical when we try to be you know, maybe marginally tactical, but but more sort of structurally thinking long term. Um, you want to try to understand when the Fed's gonna pivot or when when the market's going to bottom. And so you know, tend to look at things like the

energy complex. You know, we haven't seen a collapse in the energy complex for sure, that tends to augur a bottoming and asset prices for equities, we haven't seen a collapse in evaluations to any great extent. Usually evaluations pierce through let's say, twenty five year averages. Even back in mid June we were trading not too far away from

the twenty five year average. And you know, we haven't seen the FED, as we just discussed, put their foot on the brakes and say, wait a minute, we're gonna pause and assess and maybe even cut in the future. That tends to augur again a bottoming process in the market. So I think we probably have a ways to go. If if history is any is any guide here, and I know it's often not this black and white, but I am curious when you look at, you know, what we heard from Powell, the current set up in markets.

What looks more attractive to you at this point? Fixed income or equities? Oh gosh, well, I think on a volatility adjusted basis, based on just where yields are in the setup is um You know, certain components of fixed income. You know, look, look interesting um on on a risk adjusted basis. I think when you think about equities for the long haul, on a nominal return basis, equities over

let's say ten year rolling period should return more. But I think that the trick will be is the willingness to accept um incrementally higher volatility to achieve those returns relative to history. You know, the SMP returns over the last ten years through December thirty one, we're about sixteen and a half percent. Well, over the last twenty five

years there were just under ten percent. So just to sort of think about where we have to sort of revert towards the mean in the future to just capture that twenty five year return, it suggests we could be going through a rougher patch of lower anticipator returns for equities. Yeah, but I mean even that reversion to the meme is

nothing to shake a stick at. Well, I mean it is if we're if we're moving from sixteen and a half to nine point seven, it would suggest that we have significantly more downside um and on a nominal basis, not just a real basis inequities just to capture that longer term return soon I got to ask, because we're seeing declines now, especially after Friday, um is the bottom

in for for this market cycle? Well, you know, I go look at what where we were in mid June, Tim, and we had a still a steep you old curve. I think two stends were about fifteen basis points. Now we have about a negative thirty basis point in version. We had a dollar that you know, dip down about one on one, one o two, and now we're back up near twenty year highs and we have a FED

that's sort of saying not so fast. Whereas I think back in mid June, we had a FED where at least the market perceived, you know, some sort of pivot around the corner, and we're trying to sort of anticipate that and market started rallying, and so UM, I think that the probability that we're at a bottom level is still on the lower end of the spectrum, and that we could still experience some pain here. And I also sort of point to the reality that quantitative tightening is

going to accelerate in September. It's going to double in size from August to September. That's more liquidity coming on of our capital market system. That's rarely a positive for the equity market and for credit. Aaron Kennan, we love it when you take the time and join us. Thank you so much for joining us on Bloomberg Business Week this afternoon. Aaron Kennon is co founder and CEO of Clear Harbor Asset Management. They've got over a billion dollars

in assets under management. Aaron joins us this afternoon from Stanford, Connecticut. You can follow him on Twitter at Aaron Kennon. That's a A R O N K E N N O N. Thanks for listening to Bloomberg Business Week. Download the podcast on iTunes, SoundCloud, or Bloomberg dot com, and you can also listen to our radio show at two pm Eastern on Bloomberg Radio, or watch us on YouTube search Bloomberg Global News.