It Pays to Invest in Your Vices

You can also listen to our radio show at two pm Eastern Time on Bloomberg Radio, or watch us on YouTube search Bloomberg Global News. This next guest we actually caught up with in Dallas last month at the b N y Mail and Pershing Insight twenty two conference. We talked about investing what's often called vice company. So great to have back with us. Dan Aaron's is managing director and portfolio manager at Advisor Shares in Investments. Joining us

from Dallas. Dan, how are you. I'm doing well. Thanks for having me on again. Guys, Well, it's great to have you back. My first question is did you get COVID at that event? Because I did, Oh, I did not. I'm sorry that makes two of us. Dan, I'm glad to hear that you were okay after that, because Carol came back from Texas with a little gift that ended up lessing what aryl about a month. Yeah, I ended up with back to back COVID because I had a

rebound case. Um. It was not fun, but it was so fun that we got to meet and catch up with you, UM and talk a little bit about vice investing. We've been checking out some of your e t F they're actively managed. They invest in things like cannabis. There's a handful of them. Uh, there's also psychedelics, there's hotel, there's restaurants. They've all had a pretty good month overall. Tell us about your world and if you're seeing inflows into these funds and how you're thinking about them in

today's current environment. Certainly, and there's UM quite a few different funds that we have, but a lot of people have been interested in, you know, investing in certain themes. It's a good thing you can do in e t F And you know, we've always espoused a little bit about investing in vice and what it really means though, is just investing in people's habits, investing in what people do no matter what the stock markets doing or no

matter what the economy is doing. And that's why there's probably some more eyeballs on our types of funds because the Fed's raising rates. There's all this talk about is it a recession, is it not a recession, or are they moving the goal line? But but Danner, eyeballs meaning that people are actually investing money in your funds. Yeah, so um, you know, we think people should be looking

at the vice investments now forment for investment. Our cannabis funds have once again been seeing some inflows, some movement in this past month, and that might be what you're referring to. So um, you know, a few different things to talk about here, But we've always said that alcohol, even tobacco stocks, things like gaming. So these are things that have long history of weathering difficult times or rough markets historically. They've done it for decades, holding up better

in recessionary or or rough times. I can't say they're always going to go up when the market is going down or anything crazy like that, but they have a long history of holding up. What is now, Dann, I want to jump in here because we don't have a ton of time, and I'm really curious about consumer behavior. It's something that I've been taking a lot about because the consumer is absolutely in charge when it comes to this economy. But I get what you're saying about tobacco.

I mean it's, after all, it's addictive, so you know, in a recessionary times and it's held up. Um, alcohol, I'm wondering do people trade down because we've been hearing about from Walmart, for example, that people are trading down when it comes to generics versus name brands. I'm wondering if we see that type of behavior when it comes to vices we commonly do. Now it's been too short term. We don't really have the statistics yet for what's going

on right now. But what we'll typically see, um, Actually, in the last few years, craft bears have been very hot, and craft liquors, a lot of your smaller batch designer alcohols have been more in vogue. But if things last, if we actually go into a real recession, um, what you're gonna see is more of the middle brands and more of the mass produced beer holding up better than some of the other things. We might see, as you said, some people trading down from the from the higher end liquors.

That's true when I asked about psychedelics, because we recently in Bloomberg Pursuits did a whole thing on magic mushrooms. The entire Pursuit section last week dedicated to it. It's pretty remarkable, right, and talks about the psychic psychedelics, but also consumer products. Um, what else we talk about alternative meats based off of funky and you know the root

of mushroom. Really interesting stuff happening in the space. So what are you seeing and what's I'm curious about the opportunities for you since it's actively managed, are you finding more opportunities companies publicly held to actually invest in. Yeah, a few years ago, it wouldn't have been possible to have a psychedelics ets like we do. UM that ticker symbol p SILL, which is short for psilocybin. But now

there are enough companies to invest in. But I want to stress the people, it's still a very small fund. These are microcap stocks, but we have a whole handful listed on the New York Stock Exchange or more often on NASDAC. But people need to understand investing in a psychedelics company is it's a lot different than cannabis that we also invest in psychedelics. We're talking about real biotech pharmaceutical companies here doing real research on mental health treatments

that can be used with all sorts of psychedelics. Psilocybin mushrooms is the most common, but brain injury, PTSD, depression. Uh. We know that a lot of those drugs have been overprescribed by big pharma, and I think this is a good solution. Yeah, we've definitely covered that in the magazine Business Week. Um, Dan, thanks so much. Dan Aaron's managing director,

portfolio manager Advisor shares Investments. This is Bloomberg Business Week with Carol Masser and Bloomberg Quick Takes Tim Stinovic on Bloomberg Radio. I don't know if you noticed it, Tim, You probably did because you watch this closely. Bitcoin and Ether, the world's two largest digital tokens, headed toward their best month since I'm in a revival of risk capatite and

global markets and optimism about an Ethereum network upgrade. I saw this and I thought to myself, talk about, you know, correlation between US equity markets, because yeah, risk on and I think that's certainly what we're seeing. I'm interested what we hear from Doug Schwank. Though our next guests CEO at Digital Asset Research. They provide crypto data, clean crypto data for institutions. We should not that Bloomberg did announce a partnership with Digital Asset Research back in June to

provide terminal users with clean crypto pricing. Doug, good to have you with us. How are you great? How are you doing pretty well? Thanks? Well, I want to start with pricing and what Carol mentioned that we're seeing the best month in what Carol about a year for Yeah, for for bitcoin and for for ether um. Is this just risk on? Is that what it is? Well, I think we're looking at the coming ethereum merge where we go to a proof of steak. That's really I think

the biggest story in the near term. Obviously there's a huge macro impact here as well. Um the fact that the FED is raising rates um as people expect basis points yesterday. I think that's a big part of the story. Can you can you? I just want to follow up on that and have you explained proof of steak versus proof of work for audience if they haven't been following this closely. Yeah, So historically um ethereum and today um ethereum validates transactions with proof of work. So there are minors.

You may have heard about this with bitcoin. It's it's uh both bitcoin ethereum. It's the way that uh that people in a decentralized network agree on transactions. So proof of of work involves solving a math puzzle to agree on what the right solution to it to um that puzzle is, and then if there's enough consensus as it as it were, the the word is consensus that that suggests what UM will what we will all agree are

the right transactions to validate on the network. Proof of work is a much more um kind of computer intensive algorithm versus proof of steake, where we're going to see people um uh put their assets at risk. So I'm going to stake some assets and if I can confirm transactions on the network, If I say, look, this ethereum transaction goes through because it's it's a valid transaction, I put my assets at risk. And if I am wrong and I validate transactions that are nefarious, then I'll lose

some amount of my assets. So proof of steak is a is a much more UM. It's much more driven by what I put at risk instead of do I solve the right math problem and and uh and therefore confirmed the right transactions. So you're all about First of all, there's a bunch of us who are like, okay, man, I gotta google more and understand this. I mean, it's funny. I did a future of Money panel at b and

y Mail and Pershing Insight in June. Tim and I were there and we were talking, and I had a bunch of crypto experts, you really understand this, And they said, you know, the language where we are in this whole world is very very early on and and there's you know, we're kind of learning and finding our way Doug on this, including the terminology UM and and so we're kind of learning as we go. But but you talk about clean

crypto pricing, and that's what you're getting to. I assume, well, we think about pricing coming from those who are transacting data. I think that's a little bit different than the validation, the proof of work, proof of mistake, you know, the the ethere emerge. We pull prices from the likes of a coin base or kracking or or similar types of exchanges, and we just we try to clean up those because in a it's a very unregulated world, and when the

when exchanges are unregulated, we see some bad behavior. And so when we think about like wash trading or u K email issues or other types of things, we just want to make sure that the price that people see is is a high quality price. And and we've seen from people like Michael Saylor is micro Strategy micro Strategy. Yeah, he said, look, I can't rely on what I see out there, and that's been in the Wall Street Journal,

has been on Bloomberg, has been in other places. Look, you know, we want to make sure that when people are relying on a price, they know that it's a high quality. I mean, that's what happens when they're different exchanges selling sort of the same thing, right, Doug, I mean, okay,

we do. We only have a minute left, but I want to get your take on this because Carol and I were talking about this ahead of the interview, and it's just I think a lot of this is so confusing for the end consumer, and I wonder if if that is a barrier to adoption. That plus the volatility that we've seen over the last year. Is that a barrier to the adoption in the industry and just have

about thirty seconds. Of course, it is a big barrier, and I think there's lots of help that we could see from you know, from regulator regulators and uh, you know, the congressional and other leaders who could bring kind of clarity to some of these issues and help us with UM a better UM framework for for prices. But absolutely it's a huge barrier. Well, we'll be sure to continue this conversation with you, Doug in the future. Dutch Wan

Key's chief executive officer at our Digital Asset Research. It's a provider of crypto asset data and research. This is Bloomberg Business Week with Carol Messer and Bloomberg Quick Takes Tim Stinovic on Bloomberg Radio. It's all about the climate. We're going to talk about the author of a book about climate restoration, a different way of really protecting our environment and really making a difference. Yeah, I get you know,

it's interesting, Carol. We talked about technologies that can actually help us avoid a catastrophe when it comes to climate change. And the author who's going to be joining us in just a second. Your Fakowski argues that there are actually technologies out there that are safe and effective in reducing carbon Yeah, this is an interesting dude. He's an m I T. Educated physicist and engineers worked for NASA. Uh. He's also worked at the fair Child Slumbers, a AI

intel lab in Paladato, California. So he looks at this from a very it sounds like scientific way. So let's get to Peter. He joins us now via zoom from Los Altos, California. Peter, it is good to have you here with us. We've only got a certain amount of time. Climate. Anything with the climate is a big topic that you could spend hours on. Tell us about your thesis. What

is climate restoration? Well, climate restoration is very interesting. It's the it's the goal of restoring a climate that humans have actually survived long term, and so it's much more radical than the conventional thinking of trying to reduce the damage. It's Uh, it's the engineering idea of we want to restore what works for human beings, and it turns out that we have the technology and the finance to do it.

We just need to start talking about it because we've been talking about a much worse schal What's interesting is I've never heard of this technology that you argue we have right now. Ocean pasture restoration, for example, synthetic limestone manufacture, seaweed permaculture, and methane oxidation. These are the four technologies you say that can help us get us there. Let's start with ocean pasture restoration. How does it work? Yeah,

so the four methods. First of all, the reason that you haven't heard about them is that we haven't had a goal of restoring the climate yet. These have all been around for quite a while. UM ocean pastor restoration also called ocean iron fertilization. It is this the same process that nature uses to uh to cool the planet before ice ages, and so nature removes a trillion tons of CEO two before for each ice age. There have been ten in the last million years, and we know

how to do the same thing. And the idea is, uh, we all know that photosynthesis, like trees, absorbed c O two. But the trouble with trees, of course, is that they end up dying after a few decades and the carbon goes back into the air when the trees rock in the ocean. When plants grow, they sink and so and then there's no oxygen in the deep ocean, and so

the carbon. They take the carbon with them as they and of course a lot of the plants are eaten by fish and all the detritus sinks into the deep ocean. And as I said, that's how nature uh cool the planet for our ice ages. And so the way this operates, and it was tested ten years ago. It was tested also by mont Pinitubo thirty years ago. Um is uh local, it's localized, and it's intermittent. So you do it. They do it in eddies which are about a hundred miles

in diameter in the ocean. And uh, the eddie contains the iron. The iron is phenomenally small amount. It's like a hundredth of a teaspoon per square meter. And um, within days it turns green from blue. Blue is beautiful, but it's not green. Green is where you have photosynthesis. And then within another week or so fish start coming in and feeding on there on the the luncheon counter there, uh and and off you go. When it was tested they were told that they just a question of a

hundred million tons of CEO two. That sounds like a lot what's interesting is, you know, and we're gonna continue the conversation just a moment and maybe talk about some of the other methods and just got about a minute here and then we'll continue on the other side of the break. But I do wonder at the same time, do we not also though you need to think about reducing our carbon footprint? Yes, we absolutely do? Well, yes or no, that we we need to reduce our carbon footprint.

Worrying is really less effective than doing it, and so I focus on just do it. Uh. You know, I'm planning to have an electric car be my next car when my current car wears out, and I think probably a lot of the people listening are already planning on that, so that transition is happening, but we haven't been thinking

about actually restoring the climate. And especially for our young listeners, plan on being around rather than giving up the ghosts, because if you plan on being around, then you'll pay attention to these big four solutions. And I want to continue with that and talk seaweed permaculture and exactly what it is and how it gets carbon out of the ecosystem. Yeah, seaweed perma culture is a variation on on the iron fertilization.

So as I said, Uh, the important thing in the ocean is when you grow plants, when they die, they sink is no oxygen and the oxygen stays out. And with sea permaculture, the for the nutrients that are missing are brought up from the deep ocean in a large pipe solar powered, takes very very little energy, and then um, the seaweed grows. Some of the seaweed is used, is actually harvested and sold for products, some of which sell for a thousand dollars a ton um. And uh, probably

half the seaweed ends up falling deep into the ocean. Uh, some of it cut, some of it just naturally falling. And it's fairly simple. The difficulty is you've got they build a structure that this the help grows on and and that takes some technology. But just like the the iron fertilization, it's that's a commercial product, and so so it pays for itself a peter you spent it. It's a commercial product. Let's talk an end there, because I'm wondering, if this is so effective, where's the money in it?

And I asked in the you know, the question not in a cynical way, but in a way that motivates companies to do this to make sure that we have a future. Yes, it's an interesting challenge because uh you know, of the we have are the four pathways, and they're all self financing. UM and this is the same model that put a c O two into the air. That is, we had companies selling us heat and energy which had

a byproduct putting CEO two. Up with these four products, the the UH, the seaweed, the limestone, the ocean fertilization which leads to fish. You get product which has a byproduct of pulling CEO two out. Right now, the challenge is UM and this is something that we're dealing with right now, is we're afraid to list these on the on the open market because the customers I can say,

wait a minute, my U retirement depends on it. And so we want to make sure that people doing this are primarily interested in restoring the climate for our children and grandchildren a second really interested in making money. Well, it almost sounds like you've got to have governments involved who recognize these methods and before it gets too late. Peter Fakowski, thank you so much. Founder uh In Germany,

Meritus a foundation for climate restoration. Check out his book that has got the title of climate restoration in it. I'm roc journal. Yeah, but you let me drive? Oh no, no, no no home leave, I'll do. I want to drive. It's good question to drive. This is the drive to the globe coming down on Bluebird Radio. All right, everybody, tick talk just about tidn't happen. It's left in today's trading sessions and we are getting ready to wrap up

the day, wrap up the week. It's been a trade wrap up the month, and we know it's been an unbelievable one for equities. Ever. All yeah, it's been pretty remarkable for the S and p F foundered up eight point three percent this month. The nasdak uh can posit up eleven percent this month. Still not positive for the year, but what a difference just a month. Makes really curious to hear what Jimmy Lee has to think about it. He's the founder and CEO of the Wealth Consulting Group.

They've got two point nine billion dollars in assets under management, and I would imagine after a rally in the last couple of days that number has gone up a little bit Jimmy joining us on the phone from Las Vegas. Jimmy, how are you? I'm great and good afternoon. Yeah, good afternoon to YouTube. So the big question that that Carol and I have been asking each other off air and asking our guests on air has been is this is just a bear market rally because we're getting so much

conflicting data here. Well, I'm a little surprised that we've had such a strong run with equities. You're not the only one, yeah, without having a better inflation pread at least one. But as I've been saying for the last few months, I think that we could be in for a strong fourth quarter. It looks like we're getting it

a little bit earlier. So what I think has changed is that maybe while the consumer sentiment is still awful, just horrible, I think investor sentiment may have changed, and maybe instead of selling into the rallies, it's gonna be more about buying into the dips Again, who do you

believe consumers are investors? And some of the economic data points I will point out that we've talked about certainly today are Michael McKee, who follows a global economics says, you know a lot of the state is backward looking. You have to remember that markets tend to be forward looking. So I'm just curious when you look at it. And then let's throw the bond market into it. You know, that tenure, I feel like comfortably staying below that three mark. I mean, how do you kind of you know, size

each of them against one another. It's very confusing, and especially with the bond market. But I think that the consumer is still strong. I think in certain areas of the economy, such as housing, other areas have been you know that we're just bit up so high. I think obviously we're seeing uh pullbacks there, which is great. I think it's healthier to get that in some of these

sectors that were so hot. But you know, I think that again, I've been talking about record cash balances with the consumer, which we know makes up the majority of our U S economy, And so as long as the consumer keep spending and businesses um can also invest down the road. So you know, I think that's that's the key, as consumers need to continue to continue spending in And one thing that you know, I've been noticing over the last several months is that not just the consumer, but

major investors were so bearish. It's been a long time since I felt that so many investors, professional investors were so barish that it made me feel like we could have been kind of sneering the bottom. And here we are with the nice bounds we have seen that and our been Signella has written about this. Tim we talked about it. Um that the U S personal savings rate is a acentage of disposable income has been dropping steadily since the pandemic, while revolving credit we're talking about credit

card debt has been steadily rising. Jimmy, doesn't that maybe borrow that at some point that's gonna all come home to roost. You know, as long as we don't go into a royal recession, UM, I think will be okay. So sure, those statistics are not good, um, and there was a lot of money still is floating around our economy. But um, as long as we don't lose major lots of jobs across the board, across you know, industries, I think,

I think we're gonna be all right. And so I think, you know, on the long end of the bond market is predicting kind of a weak economy. Um, I think what we could be set up for is a very volatile third quarter. So maybe we end up, you know, getting some sell off off these recent gains, some profit taking from traders. But I think in the fourth quarter we've got some catalysts such as potentially Ukraine. Um, we've

got the FED, which is the biggest one. So if the Fed, you know, at some point when they say that they're gonna pause, my guess is that the markets were gonna be up fifteen by then, which can be getting close to now, but that could be a lows from the lows, which obviously we're we're pretty close to now, um, But so we could get some trading back and forth. But by the time they say that, I think we're going to get a lot of the returns back already. And then once they say that, I think that's gonna

help to see in a rally in equities. So you don't think you don't think the FED is going to continue raising rates, you think the pause is coming in September. I want to make sure I understand this. No, no no, no, no, I think they're gonna raise rates at least at least once or twice. The second time could be mu flowers. As most people predict but the futures markets are predicting.

But you know, if the economic data seems lousy, and if if inflation data actually um comes lower over the next several months, UM, then I think they've got a chance to say that. And so as we talked about information lagging, I actually do think inflation is getting better. We just haven't seen it in the numbers yet, and so hopefully um, this next month, you know, we'll see that. Hey, you're watching the high yield market. Always important to get an idea of whether or not we're starting to see

more companies get into trouble. UM, tell us more about that and what you are seeing. And we've we've been we've been watching that and it's one of the triggers that we used to be risk off to a degree. And you know, but the spreads have kind of tightened a little bit, so as they were widening, we're getting

a little bit concerned. But what I do know is is that there are some institutional investors out there that are getting ready for, you know, a potential opportunity if we do have a recession, and if there are opportunities to buy distress that a major discounts. I know, that a lot of the players that its historically done that are getting ready to do it, raising funds and and calling on people like this, like us to to see if we have investors that might be interested in that.

And so we're really watching that. But they've tightened a little bit. So it's getting a little better. What about when it comes to the global outlook here and and how you're thinking about Ukraine, how you're thinking about energy and Europe, and how are you thinking about China? Yeah, I think I think that it's going to get better. So I'm hopeful, you know, that as time continues on, that the global economy becomes more and more open in China, um,

you know, doesn't close up again. And so I'm hoping that the COVID situation gets better, not worse, and that the global economy improves. I think the US will lead it. And again, but I think there are some values overseas, and so I think investors still should be allocated overseas. All right, we gotta ron, Hey, listen, nice to spend

some time with you. Jimmy Lee, founder and CEO of Wealth Consulting Group uh and it has about two point nine billion in assets under management, joining us once again on the phone from Las Vegas. 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 m