Rajaratnam Says Law Misunderstood Hedge Fund Business

Bloomberg Business Weekend iTunes, SoundCloud, or Bloomberg dot com. You can also listen to our radio show at two pm Eastern Time on Bloomberg Radio or watch us on YouTube. Searched Bloomberg Global News. Roger Roger Rottenham was the co founder of the technology hedge fund Galleon Group, one time managed more than seven billion dollars. He was arrested in charge with insider trading that was back in October of

oh nine. Twelve days of deliberations, a jury in New York did find him guilty of fourteen counts stemming from a seven year plot to trade on insider information from corporate executives, bankers, consultants, traders, and other insiders. Sentenced to eleven years in prison for his role in what prosecutors called one of the largest hedge fund insider trading rings in US history. He did serve seven and a half years in prison. He is out. He's written a book.

It's called Uneven Justice, The Plot to Sink Gallian, And we are delighted to have him in studio here in our Interactive Broker studio. Thank you for joining us and coming here. UM, how are you. I'm great, You're great. Well, I want if you would, UM, give us all the what was happening back in October of oh nine. I'm trying to take us back to the day. It was a Friday and you had FBI UH, an FBI agent knock unity door. What happened? Well, I was about to

fly to London that evening Friday. Also was my son's thirteenth birthday and we're going to celebrate that, and then I was going to take the last flight, UM from New York to London. UM, if you had asked me that morning, one of the hundred things you worry about inside of trading was not one of them. If you had asked me, the FBI guy is doing a good job, but the prosecutors are doing a job. Good job. I

would have said yes. I didn't know anybody who went to prison, nor did I know anybody who knew anybody who went to prison. So when I got that knock on the door at approximately six or seven o'clock kids in the house, I opened it and I saw this sea of blue um jackets with the FBI with guns drawn. And they said are you Raj Rajaratnam And I said yes, and they said you're on the rest. I said what for? And they said, we can't tell you, and then started

a first inness series of misconduct. They told me that I couldn't I won't see my son for twenty five years. They said, take a good look at your wife. She looks happy because she can spend all the money, and then hand me and took me down in their car to the FBI offices. We were talking when you came in, Raj, about when you actually had time to write this book, and you said you wrote some of that and you wrote it when when you were in prison? What what? What was it like? You know? I wrote of the

book by hand in prison. And as I told you, I have tremendous respect for Shakespeare and authors of that generation. Because you couldn't move paragraphs around. You couldn't do spell checks, you know. But when it's project that you're passionate about, uh, it's easy. I started writing one hour a day, then two hours and three hours, and I was exhausted after four hours. It's it's most authors will say that. I have to say, just picking back and went to mask.

One of the things that as our news room knows that you were coming in to talk with us. One of the questions that so many people ask me that you know, ask him, what was jail like? Jail was? I would say, if I had to say it in one way, spartan? Um, you know, I went to boarding mistreated at all, Well not really, but you know I went to boarding school in a different country, foreign country, at the age of eleven, and that life was spartan.

But you get used to it. Now. You have to be smart because in jail, like in the jungles of Africa, there are predators that tried to prey on you, try to get money from you, and you have to stand your ground and you know, give the impression that you're not going to be bullied. Did you ever run into um Rag Gypta because he was the former government SAX director He was convicted of insider trading, of passing illegal tips to you. He went to that same Massachusetts prison.

Did you run into him. Did you guys have conversations? Yeah, we had breakfast every day, We played scrabble, we played bridge. Yeah. Yeah. Um So I wonder as you look back at what happened, how it evolved, would you have done anything differently in terms of how you ran your fund um and how you ran things there. No, Carol, I I don't regret anything. Let me just explain. The SEC interviewed twenty four Galleon analysts, and all of them said, we didn't see anything that's wrong.

When you run a company with hundred and eighty people, somebody would see something if you did something wrong. I think what happened was the law enforcement people did not understand the hedge fund industry or the investment industry. What we do all day long is talk about stocks. I had thirty five analysts, really highly educated, highly skilled, that we were spending a forty million dollars a year. Right. That was the bedrock of my analysis and my trading.

Now you might ask me why do you talk to other people. You talk to other people because you want to know what's in the market, what are people chatting about? And is your view different from that of my trades that they alleged. We had an existing can precon in position before the alleged trip. Right at that time, the U S Attorney is Supre Barara, came up with his own theory of what insided trading should be or that

even he prosecuted. Five years after my conviction, the second Circuit firmly rejected his theory, saying that the person who did the trade or the tip should have known the tipper should have known that the tipper was violating a fiduciary responsibility and should have given a benefit. Soon after that, We've had a very few inside a training cases. Ros Now might be somebody listening right now and just asking

the question why why we are interviewing you. You do, of course I have a book out, But what would you say to somebody who says, you know, even after these convictions, why why should people listen to you? Okay, let me just take a step back and then I'll answer your question. Number one, all proceeds of the book are going to charity, so I'm not trying to get richer. I'm not getting rich org it. Number two, this is not about Raj Raj Ratnam. This is about a bigger issue.

It's social justice. And I had a front row seat. I was. They came into my apartment early in the morning. They arrested me. I went to trial. You know that of the people who are alleged, UM plea bargain. I knew there was a trial penalty, which is two x a sentence when you if you, if you pre bargain, and I spend time in prison. Right. The reason I'm writing this book is to begin a discussion on the

biggest social justice issue. Number One, the FBI lied in the affricat to get a white tap on me, right, and the judge allowed it. Now, the FBI lied and the judge allowed it. Every single American should be concerned, You, Tim and Cattle, you should be concerned that the FBI can lie and listen on to you. The second point is there are no checks and balances for law enforcement

with its prosecutors or FBI agents. I want to jump in because hence this really explains and you go into it all of this in your book on even just as hence the title, UM and I think we could probably go for hours, and I think it's productive that we do um, certainly as journalists and just society, to look into measures in terms of how law enforcement operates. We've certainly had a lot of conversations coming off of George Floyd over the last couple of years and just others,

case after case on Wall Street or elsewhere. I guess the point is bottom line. You know, many would argue that the case against you was solid. Uh, we've seen other to go to jail right as a result connected with it. We think about a nil kumar um and I'm just wondering, I mean, do you argue in the end that you were innocent, that you that there wasn't something There wasn't insider trading, there wasn't information that was going on, or are you concerned about the process good

or bad. But that got to a case that many said was very solid against you, and you were convicted, and you tried to appeal it and it and it still was undone. Those are great questions, and let me answer right as an American, I accept the juris credict number. Two Three years later, in a case against a quote conspirator of mine with the same stocks, the same district Southern District, the same cooperating witnesses. A jury found that person innocent a different jury. I'm sure you're gonna ask

me why. That's because Anil Kuma, the government's chief witnessed, totally recanted on his testimony and said I didn't give large any information that was useful, and that's in the court documents. Five years later, as I said, the second circuit reversed pre Barara's position, and one last point, Mr Barrara himself in assembled the task force with some of the same judges in my case and some prosecutors, and the conclusion was the loser murkey and this tremendous confusion

of the market participants. Now, as a market participant, I welcome rules. I want the rules to be followed not only by the market participants, but the authority. Do you feel like regulators, you know, don't really have enough information, don't really understand the way markets work. Are they just getting so complicated and intricate that it is tough to regulate? Well, I think I can already talk about my case. I don't think they understood the rules and the life of

an investor. Number two in their enthusiasm to bring a lot of cases. Because remember this was in the aftermarket of the financial crisis and made off and all of that. They wanted somebody that because the public were crying for blood, they didn't go after any of the big banks criminally, or so they tried. Many would argue that the prosecutor prosecutors were looking certainly into the big banks, they didn't look hard enough, right, And what they did was they

settled for billions of dollars. Now you know who paced those fines, the shareholders, not the management or the guys who did the mal feast. And they were banks that were hiding taxes, I mean hiding assets of Americans. There were banks that were doing a money launching for hotels and so on and so forth. So I maintain that I was not guilty. I respect the verdict of the jury because that's the bedrock of this system, and I will continue to talk about it because it's wrong, and

America it's looking for a criminal justice reform. It's a bipartisan issue, and criminal justice reform doesn't stop with brutality on the street. Now, I many much broader issues there. Very quickly thirty seconds, are you an investor still do you still invest in the market. I do in technology, in technology, and my passion is investing in deceptive technologies and deceptive come. This is a great time to be an investor. There's so much going from cryptocurrency to n

f t s, to cloud computing to security. So I do we missed cryptocurrencies? Yes? Bitcoin, Yes do coin? Okay, we gotta run. You are jem. Thank you for giving us time. I knew it wouldn't be enough, but I am so gracious that you did give us as much as you did. Thank you, Thank you, Carol, and thank you to thank you ros. It's a pleasure. Ra Raja Rottenham. His book is uneven, just as the plot to sink Gilly, and there's a lot of information in that book. There

certainly is. Uh. Let's talk a little bit about COVID right now, because most COVID nineteen cases in that we are seeing trace to the omicron variants so far have been mild illnesses. We got this news from the US Centers for Disease Control just in the last couple of hours. We're also seeing that vaccine boosters improved protection to as

much as SEV against the rapidly spreading amicron variant. This is based on preliminary UK data, So Carol, we're continuing to get more and more data about what exactly is going on with this newest variant, no doubt about it. And back as he always is on a Friday, usually Dr Ian lust Bed, a clinical professor of medicine at n y U landgown with us on the phone in New York City and so good to have you back with us. The headlines continue, but you and I and

Tim know this. Um tell us about what stands out for you, and especially that latest mask wearing that we're getting from the New York Governor saying that uttering all businesses to require masks indoors if they do not have a vaccine requirement. Hey guys, Happy Friday. And uh, I don't have any insight information on the governor, but I can say that, uh, you know, mask mandates, UH, you

know can make sense in some circumstances. You know, part of the problem is what kind of masks and how they're worn, uh, and enforcement and uh and how effective were they really when you already have infection throughout the community. So there are really a lot of questions. I think the Governor's approach is trying to feel like they're doing something. Uh, and this is relatively benign. I mean, that's you're not

forcing anyone to get vaccines. Okay, So Dr Lesbia, that's so interesting that you say that, because that's exactly the response ies offering people on Twitter who are like, wait a second. If you've been living in New York, which you know, in New York City at least, which um has really high adherence to mask wearing. Despite the complaints that I make about writing the subway each and every day, the fact is almost everybody except one or two people in the car are wearing a mask. This isn't going

to change much for you. You You know, I agree with you most people, although I was out on the streets of New York and there are a fair number of tourists and many people are are not wearing mask. But that's outside right, That was outside right, Yeah, exactly right. We don't need to I mean, correct me if I'm wrong, but we don't need to wear masks outside right, totally correct that You're there's really minimal, minimal risk. So I do think, um, you know, there can be some benefit.

You know, it turns out that for most of us in close quarters, for example, seeing patients. You know, we're we're wearing masks, and uh, it really is kind of a thick soup. Right, people are vaccinated, we're partially vaccinated. You know, what's the benefit of a third shot? As you say there, there does seem to be some benefit

with that. The good news is, at least based on the data from South Africa and the UK, is that this omicron variant is a it's probably gonna spread quite rapidly, be it does not appear to be giving severe disease, which I think was the relief news last Friday, you know, when we saw markets about face from sort of minus

four hundred back back up a bit. So I think eventually we are all going to get O macron because we see even people who have had Delta, at least in South Africa are are having uh infections with O macron. It does look like that third shot for the time being, really does reduce any sort of severe disease, which is certainly encouraging as well. But I think, you know, government is trying to do what they can do. Let's have masks. How effective it's going to be, It's hard to know.

I think it will make some positive impact. Will that just delay everyone eventually getting O macron? It's hard to know. My gut feeling is that probably most of us will get it, will probably have mild infection. We won't even know. And part of the reason is we don't test everyone. We may test people and you get that COVID positive or negative, but you don't know what strain it is. Just quickly, do we be worried about um? If we all get a macron? Are there going to be long

haulers as a result of it? Like? Do weaker variants? I guess if you can call it a weaker variant UM, does it still have the long haul concerns? And just got about thirty seconds real quick? Oh, I'm sorry, we have a couple of minutes forgive me. No, no, I think it's a great question, and you know, I think it really is too early to tell. In general, most viruses, as we say, mutate to become more infectious, and this

is certainly an example of that. And most viruses mutate, you know, as a selective advantage to be less lethal to their host, uh, you know, to the people who get the infection. So if that's the case, I think we will have less long hold to worry about. But we certainly with delta, we certainly have almost a third they say, of people who have had Delta may have some long hold symptom or another. We haven't really seen that with O macron yet. So fatigue and headache and

and O macron. The key feature there is this fatigue element headache, muscle ache. So you know, if you have that, certainly it's reasonable to to get tested. You know, when we do have you know, treatments. It's not clear whether the monoclonal antibodies that were helpful for Delta will be all that helpful for omicron. We haven't really seen that. Also, definitely a thick soup. Well, I'm wondering dr les better if indeed the data that we're getting that it is

is not as dangerous. And I want to be really careful with my words here because we are still getting a lot of data, but we know it's more transmissible. Is this potentially how the this this pandemic kind of ends. Does the does the omicron variants spread and and we all get it and hopefully that's okay. I think that's exactly what will happen. Tim. I think we will all be getting this highly transmissible to one degree or another. Most of us will not feel sex some of us

may not feel sick at all. There probably will be a few people who are immunocompromised who don't do well. But I do think eventually, when we all get antibodies to this and it spreads through billions, that will be how the pandemic ends. There may be other variants, they'll probably be less effective in competing with O. Macron. Uh. And I do think that's probably the scenario over time. Uh, you know, unless we get a surprise, you know, more

lethal variant which doesn't hopefully will not happen. Hey, that masse by center of it's at the center of an investigation to a possible new COVID NIGHTEA outbreak in Taiwan. Or that's after I work at a high security lab was confirmed as the island's first local case in more than a month. Does that alter your thinking at all

about this? Well, the whole situation with labs and and viral manipulation, you know, it was always a big question and concerned, you know, could there be other strings that developed? It looks like at this point, oh Macron, because for example, there's a ten day incubation period. I think this is going to be our final variant. It's hard to tell.

I don't have a crystal ball, but I think, um, we will all get a reasonable number of antibodies, and if future variants come along, hopefully we will not be so sick. And uh, ultimately, I think that's what will how it will all play out, all right, Thank you so much. Hey, have a good weekend. Dr In los Pader, clinical professor, medicine and why you landgo medical Center on the phone in New York City. How are you feeling over there, buddy, I'm feeling okay. Now, I'm glad I

got a booster. You're listening to Bloomberg Business Week with Carol Masser and Bloomberg Quick Takes Tim Stinovic on Bloomberg Radio. Hey, so we mentioned earlier in our boy to the Day about a lot of more than eighty containerships that were waiting two dock at the ports of l A and Long Beach, California, cutting half an EVM, although, as we pointed out, not exactly the case, right Tim, the vessels

are disappearing from the cure, actually hiding from it. They were loitering out the Pacific, out of reach of that official count. Everyone thought it was transitory. But well, just well, somebody who's not hiding today is Mr. Ed Ludlow. He's our West Coast correspondent at Bloomberg News. He's on location with us and the Port of Los Angeles. Ed, give us an update about what you're seeing. You were there a few months ago. What's it looking like now? Yeah,

things are worse by all accounts. You know, it's interesting because the data tells different stories. You know. You have the ships that Carol is just talking about them, seven of them, not just in the San Pedro Bay, which is immediately next to the port, but even further out tens of miles into the Pacific Ocean because they can't get a birth here at the Port of Los Angeles or Long Beach, and they're waiting on average three weeks

to come into ports to be on unloaded. It takes three weeks to come from China to the West Coast of America anyway, So they wait eating as long a anchor as it took them to make the journey in the first place. And all of that means tight inventory, right, tight supply. The things they're carrying and not making their way to shelves. And you saw in the CPI print this morning that means higher inflation. So wait, okay, better than it was the last time you were. There are

a lot worse, Like, how do we measure this? Yeah, it's it's a really good point. I was last here in the last week of September and I put this point to the Port of l A executive director Jean Siroka, are things better and how can you prove that? And he basically said that volumes are the same, right, the demand from the consumer is still great. The same amount of stuff is coming in and that's a challenge. They have opened the port, they say seven. Normally they'd worked

four hours a week or something, but they've opened. He says that what's that What that has meant is, well, you look over my shoulder for the YouTube audience and for the radio audience behind me, are towers of contain has stacked one on top of the other. The executive director of the reports says those idol containers aging containers, they call them a down six since late October when

they basically started finding people that weren't moving them on. However, I just spoke to the CEO of the Harbor Trucking Association, which represents the truck drivers that come and pick up these trucks, and he says, seven thing is nonsense and things are getting worse for them because they're not able to take containers away because there are too many empty containers filling up spots for containers that have stuff in them. It's just fascinating. So that's the problem that right that

was there before. Well, it's like this chain reaction. And if there is sort of one area where there's I mean that is it's a supply chain right where there is a bottleneck, then you're going to see that. Okay, so what's the solution for these empty containers? Then? Yeah, this is what's so fascinating that you know, there's no quick fix. There's a system. A truck driver arrives, is given a ticket. The ticket tells him which lane to

go to which container. He pulls up to that lane, the container goes on his truck, and he drives away or she drives away to the destination where the container is destined. What we're hearing is that there aren't appointments available. The congestion here is such that there's just not enough room to move around. There are too many empty containers

in the way. So you know, the long term seems to be better infrastructure, not hard infrastructure, but also software technology that can better synchronize the different arms of the system. If there is one bright spot, remember that's just the truck drivers. The other way the containers leave the port

is on rail. You can't see it behind me for the YouTube audience, but you have to take my word for it for the radio audience on the other side of the port of rail lines where they just move the containers off the ship, straight onto the rail and off it goes to its next destination. And that's where we are seeing improvement. Okay, So that's that's sound a little bit of good news. Okay, So how can we

think of what happens we're moving forward from here? If we think about this as you know, once in a lifetime supply chain bottleneck, when do things actually start to get better. There's a range of forecasts. You know, we've been speaking to people all day long. I think the consensus, it's fair to say, is that supply chain constraints in terms of the ability to move goods efficiently. Last well into at least two hot second half of two, potentially

even three. What this whole situation has exposed our long term shortcomings in infrastructure, and again I'm not just talking about hard infrastructure, roads, rails, port space. I'm talking also about digital infrastructure, the ability to coordinate between lots of different parties. And what you hear from all of them, irrespective of whether they blame each other, is that there needs to be better data sharing to fix this issue,

and that does all require money. Unfortunately, the federal government seems to be putting its money where its mouth is. So it's a lot of reasons why we still haven't cleared it. Um, Yeah, what's the outlaw care? Any indications, any clear clarity on that? Not? Not in particular. I mean, one thing that that all parties want to see is the passage of this bill that was passed in the House yesterday and is now headed to the Senate, and

that is around regulation. I can't believe I've steered the conversation towards regulation, but what they want is basically rules that hold the different parties to account. Remember the empty container issue from the truck driver's perspective, that's them saying you are the sport managers. You need to make it possible for us to pick up containers that actually have stuff in them. And there's a feeling that this build that's making its way through the Capitol will do that.

It will hold different parties in the sports system to account, which long term means it will run more efficiently. M hmm, Okay, perhaps that's not a no, it's a good it's a really good answer. It's just like, you know, we're in unprecedented territory here. I think there's no sort of there's no playbook for this, and I think people, just like when it comes to the virus, are are figuring this out as this happens in real time. ED. Yeah, I mean I Tom Keene is off today. But I didn't

know that first. So I went and opened my history books to understand the history of this place, and I also looked at the data around consumer demand. Right now, these were built in a time where Amazon dot Com didn't exactly, but Amazon has been around for a while. I've been getting a lot of pracktages from Amazon for years talking. I'm talking decades, and the thing is serious. I love love, thank you so much. That's I Love, the West Coast correspondent for Bloomberg News, joining us on

location from the port of Los Angeles. This is Bloomberg Business Week with Carol Masser and Bloomberg Quick Takes. Tim Stinovic on Bloomberg Radio. All Right, there's a great story. I gotta say, it's really a favorite story of mine this week is to look at the side are a side of E s G investing that many of us are either misunderstanding or just ignoring it. The story in the magazine is called the E s G Mirrage Tim. It's among our most read in the Bloomberg terminal today.

It's the Bloomberg Big Take. It's also I'm going to say it's a must read in this week's new issue of Bloomberg Business Week magazine. Yeah, that magazine available on newsstands now and at Bloomberg dot com slash business Week. Cam Simpson is one of the three bylines on the piece. He's the Projects and Investigations reporter for Bloomberg News and joins us on the phone from London. Cam I echo

Carol's comments about this piece. I think it's fantastic, and I also encourage people to read it online because of the interactive nature of it. But let's just start with M s C I because it's also a deep dive into M s C I. So, so what is M s C I and and how are they involved in E s G. Yeah, thanks so much for having me go. So I'd love to talk about this. Um. You know, MSCI has sort of been like a critical back office company on Wall Street for years that nobody ever heard of.

It was broad public in two thousand and seven and they produced, you know, they produced indexes for for the asset management business, like you know, uh, indexes that people turn into portfolios, model portfolios or even used to build

E s G R E t F funds. And then you know, they got in two thousand nineteen because they've been building up a business of E s G ratings, you know, creating the ratings that are the basis the underlying foundation of the entire E s G investing universe, which is you know, it's just completely skyrocketed and they

now totally dominate this business. You know, more than more than sixty cents out of every dollar in retail funds Bloomberg Intelligence calculated goes into funds that are built on M s C I S E s G alone is a crazy statistic. But well we put that to Nry Fernand's there's the only CEO and chairman M. S c I has ever had, and me said, no, that figure

is too low. It's every They're everywhere. Nobody else is even close, right, I mean, so much money, trillions of dollars are are being allocated based on these ratings and nobody really knows what they are, and nobody really understands what they are, and very fundamental basic things about them people don't get. So we just some kind of from first principles decided what does it take to be an investment grade E S G company? I mean they mimic the credit ratings right to which kind of gives them

an order of credibility that they don't deserve. They're not regulated,

the data is not regulated that they're based on. Like, it's just kind of everybody can come up with their own system, and everybody does come up with their own systems, and so cam I'm just gonna jumping because first of all, and everybody should read it and also check it out online because it's kind of a fun interactive way that it's been put together online as well, but there's a box highlighted if you read it online, it says some

companies with massive emissions or that have controversial records on climate change while they still manage upgrades, including for environmental factors. And I wrote next to it, wait, what, so how does that happen? Yeah? Well, I mean, look, you have to understand the basic lens of the system. So this to to kind of look at your impact on the world as a company. It's designed to do the opposite of that, is designed to look at risk that the world is creating to your bottom Climate change is a

great example. You know, unless you're a utility that's regulated for burning fossil fuels, climate change is in the risks you at all. It doesn't even factor in your score because the score is about is regulation going to cost your bottom line? Regulation from climate change? It's not are you contributing to climate change? Okay? So then when okay? So yeah, so I I guess the question is where

where does the consumer come into this? Because if M s C I has this clear understanding of what happens, and I don't know if the asset managers do as well, but then they sell these products to asset managers who in turn or offer these products asset managers, who in turn offer them to perhaps every day investors. Do where's the message lost? Because the message changes when it gets to the consumer. Look, it's lost from start to finish.

This is the This is by far biggest growth area in the global financial services industry, and everybody is jumping in with both feet because it's a place for them to make money. Black Rocks got the biggest et f in the world. Uh, and it's built on M s c I data. And you know, one of the only really critical differences between this and their core SMP five hundred fund is that they charged five times the fees. I mean, that's that's I think really what this is about.

That feels like that goes against e s G standards or metrics. Doesn't it feel that way? Well, But but not if you really know what the s G metrics are, because the metrics kind of what you think they are, right, So you know, look, we lifted up the hood. We looked at a hundred and fifty five upgrades. We looked at every upgrade in the SMP five hundred, every company that got an upgrade in this record period of growth, All of last year and the first half of this year.

And you know, we pretty much forensically show what you know, even when it's not stuff that's in directly contradiction to making the better, which is msci's marketing, and rebranded the company and Fernandes them and in two thousand nineteen at the start when he saw this coming, this boom, you know, the new brand is better portfolios are better investments for a better world. And so this is what everybody sells. It's the main pitch of the s G. But reality

is is the opposite. You can do more damage. You can have increased the carbon footprint of your portfolio by investing not just in E s G but in E s G portfolios and companies that have high E ratings like you said right like McDonald's is a great example.

There are emissions because of their supply chain, biggest beef, one of the biggest beef purchasers in the world, same as Portugal or Hungry, and they were going up and part of their score, MSc I took them out of the calculation of their score because they're not a utility burning fossil fuel, so it's not going to cost them anything.

One thing I would say is and what's interesting is I remember remember like early on with the E s G conversation, it's we started talking about, hey, folks, the reason as investors you have to care about climate change, even if you don't believe it, is that it's happening and it's going to impact companies. There will be financial impacts on their bottom lines as a result. So I kind of understand a little bit where M s c

I is coming from. But when you think about all the marketing that's going on when it comes to E s G funds, I think investors a lot of them were thinking, wait a minute, we're making investments that really help the environment. But there are a lot of critics out there. And you mentioned to Wreak Fancy in your story,

who was formerly head of E s G Blackrock. Um. There's so much in this story, including specific companies like JP Morgan, Dr Horton, that you go into uh McDonald's, which I really highly recommend that everybody check out because it really resonates and really gets very specific. Cam terrific, Thank you so much. Cam Simpson, Projects and Investigations reporter up Bloomberg News on the phone from London, um, we

apologize some of the audio was a little funky. He's in our weekend show, which is eight am on Bloomberg Radio. Also on her podcast feed, so you can hear a little bit more there. It's a little bit more of a clearer feed. And also perhaps you before you listen to that, go and check out camp. Story is available in the new issue of Bloomberg Business Week magazine. It's available on news stands. Also check it out on the Bloomberg terminal and then of course at Bloomberg dot com

slash business Week. Again, some really good interactive features in the story, so a good one to read online. You're listening to Bloomberg Business Week with Carol Messer and Bloomberg Quick Takes Tim Stinovic on Bloomberg Radio. All Right, it's a bitcoin on pace for its fourth consecutive weekly decline after brief bounce triggered by report showing US inflation accelerated, failing to unwind the negative sentiment that has recently gripped

digital asset markets. It's really been a trade as of late. In our weekly cryptocurrency segment, back with us Jusaka Chaw, she's head of OTC options Trading at the crypto exchange Crack, and she's also co founder of America's first approved crypto derivative platform, led your X. She's on the phone in New York City. Forgive me for that mispronunciation. UM, good

to have you back with us. You know, as we get more market information analysis on crypto, is there any conclusions on the usefulness or lack there of a bitcoin as an inflation hedge? Well, I think that the inflation hedge is definitely um a piece of not just the narrative but um of the fundamental offering of bitcoin. But at the same time, it is an early asset. You know, it is still the early days and has a lot

of idiosyncratic risk. And then I think on top of that d as it's gotten more institutionalized, there's more and more overlap in the participant base between the traditional markets and the crypto markets, and so that will necessarily lead to price action that might be more correlated in certain cases um than in others. So I think the short of it is that many people who are investing in bitcoin are doing so because it is an inflation hedge.

I think over time one would expect that to play out, But over shorter periods of time time, whether it's macro or idiosyncratic, there are a lot of other drivers of prices. Okay, So if it's an inflation hedge, was today's high report that did come in line with expectations? Was that priced in help us understand recent moves with the with the inflation read that we got today, because because I should

know it. As Carol mentioned cryptos, you know Bitcoin right now is just hired by six tents of one percent. It's kind of jumped around a little bit today. Yeah. I think the short term price moves are due more to UM the flows between the traditional markets and the

crypto market. So to use an example, if you look back at something like Thanksgiving or when you get a large crash, UM when there's an overlap of participants between the two and cash is king at the end of the day, UM, cash is king, whether it's crypto or whether it's traditional. Now where you start to see um some differentiation would be I think as things stabilized a little bit in the traditional markets and institutions come back in to reallocate to portfolios into risky assets is where

I think we'd start to see more differentiation. But over the short term, like if we're talking, you know, number minutes after a number comes out. I think it's driven more by those kinds of dynamics. Jus, you know, I'm just thinking we're almost down with one. What stands out about this past year when it comes to cryptocurrencies, Well, you know, for me, it's just the immense volatility still.

You know, I think if you had asked me or folks in the space a few years ago, if bitcoin hit a trillion dollar market cap, would you expect it to be less volatile? The answer would be absolutely and expected maybe to be up I don't know, forty fifty ball, and it sustains a like a realized of seven d ish ball is implied ball of ninety. And so I think that's really what stood out this year is even though um we've seen massive price appreciation, the volatility still

remains immensely high. Was just literally one month ago, November tenth is when we hit all time highs at sixty eight k as was highlighted in the Cracking Intelligence report UM and and that was just a month ago, and now we're lower. So I think that it's still even though it has matured in a lot of ways the volatility points to uncertainty, UM, fear from the traditional markets, just a number of factors that are still UM still out there. On Wednesday we saw eight. We saw a

handful I should say, crypto executive space, House lawmakers. It was on the eighth, just a couple of days ago. Your big takeaway from what we saw in terms of what we should expect when it comes to the way that lawmakers are thinking about regulation. I think it was more constructive than UM than a lot of people were worried about. Keep hearing that. The questions were pretty good

from lawmakers, right, Yeah, exactly they were. They were good, and honestly, credit to them because it's very difficult to keep up with everything that's going on in the space, and they have and they obviously have day jobs too, so they had to handle on it. And I think the tone overall was more constructive, and especially over the summer when UM the tone especially out of the SEC

was coming out about some of the impending regulation. I know there was a lot of concern in the crypto space, and so I think to a degree, UM, I wouldn't say that regulation has been d risk, but I think that folks maybe feel a little bit more comfortable that it will be more of a constructive environment. Hey, jes think I just got about thirty forty seconds left hair crypto, uh currency collectible? Are we still trying to figure out

exactly what it is? And just quickly, um, Well, n f T s are still having a really strong month, etheriums having a very strong month, and obviously Bitcoin as the inflation head. So I think all of the above is the short answer. Okay, well said, Well said. And we talked about n f T s and art. It's in our weekend show as well. I mean, it's interesting to see what the auction houses are doing right here, and U n f T. I'm a traditional list, I mean, right like art, I'm with the art in the out

of all, I remain I'm open minded. I yet to be convinced, but I do like the idea. And f t's in fashion that maybe it's pretty cool. You have so much. You talk about that in the new issue of Bloomberg Business Week magazine as well. All right, do you think a chat she's head of OTC options trading at crack and on the phone in New York City. Yeah, but you let me drive? Oh no, no, no, no, this is not a toy home. All right, please, I want to drive. It's a good question. This is the

drive to the clothes on Bloomberg Radio. TikTok, everybody, just about Timmans left in today's trading session. Hey, we are seeing, certainly on the SNP and the Dow, a leg up to our top levels, best levels of the session. So we're seeing some buying into the clothes here on what's been a really bullish week for the your equity averages. Well, let's get into it with Ryan Dietrich, chief market strategist at LPL Financial. He joins us on the phone from Charlotte,

North Carolina. Hey, Ryan, how are you? Hey? Tim and Carol. I'm I'm glad to be back. And like you said, we might have new all time highs today. So what did day to come on the radio with you. Well, let's talk some technicals here, because I know that's what certainly what you focus on. What are you keeping an eye on, especially in the wake of the fundamental data

that we got when it came to inflation today. Yeah, him, I mean you think about let's go back a week ago just for a second, right, we had all the selling the concerns. There was actually some buying late on

the last Friday a week ago today. Now you fast forward to this week up three and a half percent, the best week for equities since February, and today, if we closed it an all time high would actually be the sixty seventh all time high this year at the second most all time highs ever for the SP five, and would be the first new high of December, making it twelve or twelve. Every single month this year we had a new all time high on the SMP. Only

has ever done that. There's some cocktail bets you could bet there that four teen made new highs all twelve months. But here you go, what does it all mean? Well, you know, we come up, go on for a while, and fundamentals are decent, and the and they're strong actually, and the technicals are strong. But to us is the question as well, you know, we'll Santa come to town. And you look at history the first half of December, guys, historically it's kind of choppy and volatile. It's the second

half of December that's usually strong. And we don't need too many reasons to think that, you know, Santa might come to town again and we can have a four bias to end this year, hence the Santa Class rally. Let me just correct, so you're saying we could be near our sixty seventh all time high in the SMP, and this would be this the second year that we've

seen the most highs on the SMP team being the last. Well, no, so that is the most all time highs for any one year only other than more new all time highs. But this is the only other year besides to have a new high all twelve months'ways despice the data, but still the bottom line one has been amazing. Maybe let's

put it that way. Okay, So you you obviously I can hear the optimism you talk about the technicals, and I like looking at technicals to ryan what specifically are seeing that technically shows that this is a strong market with the ability to continue a move to the upside on the equity side. Yeah, I mean you great question there. I mean you look at kind of what's been leading us, and it is you know, it's it is your industrials, right,

your cyclical cyclical value names have been doing well. Financials been hanging in their technology, which last I checked, the most important group largest group in the SP five hundred it on a relative basis has broken out to all time highs on a relist drink basis verse SMP five hundred. So there are the correct groups in our opinion that

are leading, and those are positive signs. We had the little law, we had some selling you know, here and there throughout the year, But the true leaders of this market are the more aggressive areas and those are what are leading, and we like to see that, and that's a real positive. And again it doesn't mean we're gonna go straight up. I mean next year is a mid term yere, right, I mean, let's talk next year for

a second. I want to ask you about Ryan, is is how this all translates into what happens in Yeah, let's let me dust it off for a second here. So, um, you know, you think about it this year when you go back in history, guys, when you gain twenty percent, that next year has been higher in the last nine times, and seven of them a double digits. So that's just one data piece, but it does suggest the bull market is still alive. But the other thing is it's a

mid term year. Historically, when you look at the four year cycle, the mid term year is the most volatile. You have nearly a nineteen percent pete to trough average correction since the sixties, the last fifty years or so during a mid term year. Remember twenty eighteen we got almost a twenty percent correction in eighteen. UM stocks actually down in if we remember, you know that that time frame, So just be aware it's not gonna be quite as easy.

But still with the fundamentals the uh, you know, the monetary policy, fiscal policy tail winds there with a strong economy being led by the consumer, we'd still bet on upside. But we're not probably gonna gain twenty five percent next year. But hey, we take a ten to twelve game next year, and that's kind of what we think could happen. So okay, I hate to use this phrase of taking money off the table, but you know, you can be greedy and you can go too far. And what is an outpoint then?

I mean, you obviously are bullish, I get it, Ryan, But I mean, is there a point where it does make some some sense to maybe pull some money out of the market and just write it out, especially when there are still so many questions about economic growth? To be fair, uh, and whether or not the Fed's going to get it right when it comes to policy moves. Yeah, the FED will see the Fed sticks of landing and

that might start this Wednesday. Right. But but but you're right, Carol, and after a hundred and ten percent rally on the SMP, people have really been spoiled. If you've been fortunate enough to have not panicked in March and ridden this up, maybe it makes sense to during the cash register a little bit. But well, we like to look out of the lp L research. What are the credit markets telling us?

I want to get two geeky with this, but you look at high yield spreads, investment grade corporate spreads, they are not breaking out to new highs this year. They popped up on the recent concerns over a Macron and potentially FED tapering as we've all been talking about, but they've really calmed down, uh this this this week specifically. So the credit markets are kind of the smartest guys in the room until they start really worrying. That's when

you would start to worry a little more. And they're not right. So that's a good sign. Hey, just quickly, do you think it's wacky that you've got the NAZAC moving higher and you've got yields moving higher. That is not a typical correlation. No, you're you're exactly right, it's not. It's one of those one day things. Honestly, like it's not a one day thing. It's actually been I think eight nine or ten days that we've seen that correlation.

That's a great point, great point more recent. I guess some you know, you look at today, we've got the inflation data. We said, FED days get a little quirky. But maybe it's just a sign that hey, you know, technology which did lag there for about six months in the middle of the year, it's taking the baton again. And that's how that's have a healthy bowl market in our opinion, Carol, you know, you've passed the baton around and and maybe it's text time. We did just release

our two outlook this week. We called it passing the baton because we said we're going to go from monetary and fiscal policy being in charge to the consumers and small businesses and capital expenditures that are going to take charge. So we've been passing the baton is a nice theme for next year, but tech taking the batonages the healthy sign especially with the yield, like you said, making that movement there. All Right, we gotta run. Hey, have a

good weekend. Ryan Dtrich, chief market strategist at LPL Financial, with us on the phone from Charlotte, North Carolina. It has definitely been a week for the bulls. 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