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All Right, I like it, I like it, I like it. The reign of Blackrock is coming to an end, at least in the seven point eight trillion dollar market for US exchange traded funds also known as et aps, which Blackrock has just dominated for decades. I know somebody who knows quite a bit about ETFs. That's none other than Bloomberg News senior markets reporter and BTV anchor Katie Graefeld. She writes all about Vanguard's rise for Bloomberg Business Week.
It hits newsstands later this week, but you can read her story now in the Playomberg Terminal in at Bloomberg dot com slash BusinessWeek. Also here in our Bloomberg Interactive Broker's Studio, we got the editor of Bloomberg Business Week, Joel Weber. Joel this, I mean, come on, was this was bound to happen at some point?
Yet Katie and I talk a lot about ETFs. I think from the get go, we'll just say, Larry think, if you're listening, you can reach Tim Stenovik at tst n O v ac one at Bloomberg dot That's right, this is not available yet.
I'm available.
But if you look at the trend line of how Vanguard has slowly, slowly, slowly risen and how black Rock has slowly slowly fallen, there will be an infection moment not too far away, right, Katie.
We don't know when, we don't know what. It will probably happen, probably.
In the next eighteen to twenty four months. There are some nuances there which I'm sure we'll get into. But I mean, like Joel said, this is something that the industry has been watching and waiting for for probably a decade.
At this point. Take a look at the chart of.
Market popcorn, A lot of popcorn, of popcorn.
Yeah, we've been waiting for this one. But Vanguard has been increasing its share of the US ETF market for twenty one straight years. Just amazing growth coming out of Valley Forge, Pennsylvania and Blackrock sleepy there, sleepy yeah, a lot of trees. But Blackrock, I mean, Blackrock is still enormous. Let's just put that out there, two point five trillion dollars in US ETF assets. But their share has been
dropping and dropping. Right now, it's at the lowest in at least twenty years, thirty two point five percent, Vanguard at twenty nine point five percent. That is the slimmest margin between these two.
What's up with that?
What's up with that?
So there's a few things going on right now. Vanguard enjoys a very very loyal investor base. You think about who they appeal to, it's financial advisors, it's retail investors, not yolo retail investors.
But actual mom and pop at.
Bogo head, yes, exactly, and those are very sticky assets, and that type of investor base it tends to shovel in money to these funds in almost every market cycle.
Actually, when things get worse, they pile in exactly, Oh, great buying opportunity, we're in.
Exactly, So that's what they're going, that's what they're enjoying. They have a very loyal, sticky asset base. Whereas you think about these black rock funds, they're enormous, they're very liquid, and they're trading tools, I mean wall Street uses these and Wall Street those flows are more volatile.
Well, I want to ask you about that, kittie. I too, hail from not far from Valley Forge, from Sleepy myself, so I can relate it. Always always been fascinated with Vanguard because the other reason is notoriously a cheapskate. You know, I do not want to spend more on something right, right, you can tell. But so I look at, okay, the flagshipt ETFs of both companies, you know, and Vanguard, you know, zero point three percent on the S and P five hundred.
It's expense ratio point zero three right, zero, yeah, point zero three percent.
Three basis points, three.
Basis points for those following at home that speak on Wall Street language. So to me, it's amazing this hasn't Why has it taken so long?
Like?
What makes the Blackrock funds competitive at a higher management fee than Vanguard?
Well, the thing is, I will say that Blackrock has been forced to sort of follow Vanguard's lead here. They've had to cut fees as well introduce their own very low fee products. You take a look at their S and P five hundred funds. The I shares one ticker IVV that also charges three basis points to match Vanguard's fee.
But in terms of why, I mean.
Blackrock has enjoyed this position at the top of the league table for so long, since two thousand and six.
They were an early mover here.
And that's really powerful in the ETF market. That first market advantage. You see it both on the issuer side and also when new product sets are introduced, when a new category is introduced, so that is in BlackRock's favor. Also, you think about some of their funds, I mean TLT, that is their long dated Treasury ETF.
And you love TL. You love talking about TL.
I'm talking about TLT so much because it has been insane, the volume and the fund this year has been incredible. People are shoveling so much money into this ETF this year even though I is TLT. Kind of it kind of is like these these funds that are these funds that Blackrock have a lot of them, are just capital market instruments, and that's really powerful. That's why I SPY, which charges nine basis points UH, which is the S and P five hundred tracking fund UH introduced by State Street.
It's the oldest, it's the biggest, it's relatively expensive, but it's just been around for so long that's what people use.
Yeah, still bigger than Vanguard's fund at more than three times the granted both are pretty cheap in the.
Grand scheme of life, but I mean this is a market that's measured in basis points, so it's pretty expensive.
You know, one thing that Blackrock has that Vanguard does not have. Tell me is a filing for a bitcoin ETF.
I was wondering when we would get that.
Well, we're here now. Everyone's favorite thing to talk about in the people's favorite thing to talk about it in this room. So if you haven't been following closely, there is no spot bitcoin ETF. But there's something like what thirteen filings something like that something I lost track. Vanguard is not one of them. So what's gonna happen if Blackrock has a moment here where they get to have a bitcoin ETF and Vanguard doesn't have one?
This is so fun. I'm so glad we're talking about this because it sort of gets into the spiritual differences between Blackrock and Vanguard. Blackrock has over four hundred ETFs. That is a lot of utfs, virtually every single asset, more than anybody else pretty much. Take a look at Vanguard. Even though there's only two hundred three hundred billion dollars that separates them in AUM, Vanguard only has eighty three funds. Vanguard is not They don't even have a commodities ETF.
So they're very plain vanilla.
By plain vanilla.
It's like hold the vanilla bean, just like straight vanilla.
Yeah, exactly, exactly.
And I asked Vanguard, h will you ever file for a spot bitcoin ETF? And usually it's hard to get Vanguard to say anything too fired up. They said absolutely, they have no intent to do this. The case for cryptocurrency is very weak, ki volatility, et cetera. Whereas Blackrock they are leading the charge here. A lot of people watching January to see if that spot bitcoin ETF gets approved, and if it does, that can give them a leg up. Especially if Blackrock puts their their spot pitcoin ETF into
some of their model portfolios. That could be a game changer here and buy them a little bit of time.
Except when Joel used to send me down to Vanguard to interview Jack Bogel, so probably ten years ago at this point, Yeah, talk about he was happy to shake things up. He would spit fire.
He'd have a few things to say about the point you think, that's no intent with like the g version of what you'd get from Jack exactly.
But you know, uh, Bogel never wanted to have an ETF in the first place. You know, you'd ask, you'd ask him about ETFs, and the the argument was, well, you can trade it all day, and he'd be like, why the heck would you want to do that? So exactly, So I wonder is it sort of the ghost of Bogel that's influencing Vanguard, or is it more to do with just the structure. You know, black Rock is a for profit company. It has its own stock, it has its own shareholders to answer to. Vanguard is a completely
different business model. So when you talk to us about that and and does that play a role in their decisions on things like this?
I think it is partly the Bogel effect.
Here to name.
Check a book by book called Yeah, I don't know if you know him, we can host a podcast together.
He's he's not quoted in this story though erics.
I mean that would be too do that, But yeah, I mean you think about again Bogel's choice words to your point. Vanguard doesn't say anything too. It's hard to rile them up. Bogel definitely was more outspoken, but yeah, he didn't have a lot of.
Love for commodities.
It makes sense that Vanguard doesn't have a lot of love for crypto. Again, to go back to the quote that they gave me, they say that most crypto assets they lack intrinsic economic value. They generate no cash flows. That is a biggie for Vanguard. It's the same thing with commodities not generating any cash flows. Just it's totally out of their profile that they would even venture into crypto.
It seems like Blackrock might be worried about this, like you've seen this lead continue to sort of slip away. It goes back to obviously Blackrock acquired Eye Shares and that was like this amazing acquisition. Do you get a sense that BlackRock's nervous about this, about the moment that they become sort of like the number two in the ETF game.
I will say that Blackrock is pretty competitive in spirit, and I think it's also to point out here even though their share is slipping, it's a case of the pie is just getting bigger.
The Pie is getting much bigger, right, much bigger. He's the podcast named Trillions Trillion grows a lot.
Yeah, we're up to seven point eight trillion dollars in US ETF assets, about ten trillion dollars globally. You take a look at Blackrocks US ETF assets, they're at two point five trillion dollars. That's an all time high. So it's not like blackrock is shrinking here.
It's just that you have this just very.
Formidable challenger in Vanguard, and also you have all of the others. I mean, you take a look at the percent of flows that are going to people outside of Blackrock, outside of Vanguard, and it's at a record high.
So it's not just that people want the boring stuff that, you know, boring low fee stuff that Vanguard has. So Joel asked about the competitiveness of blackrock and if they're watching this closely, what about Vanguard does do they care if they're number one?
No that I mean again, I always, as someone who's been covering this for a few years, I just love the spiritual differences between blackrock and Vanguard. Where blackrock is competitive and you know, wants to be number one, Vanguard does not care.
The exact quote.
That I got from them is Vanguard isn't focused on who's at top of the ETF league tables, and I believe them. So it's pretty interesting.
Like league what.
You watch that it has come to us.
I also the spiritual difference there is, like you know, the Financial Advisor, I think is a set that really gravitates to Vanguard, whereas like more of like I probably like the trader is who I think you said earlier, yeah right, yeah, yeah.
And I mean that's something that I make sure to put in every story cause it's very real. I mean, even though their share is going down, their importance on Wall Street Traders is only going up. A lot of people are using these as liquidity sleeves, et cetera, a way to get quick exposure these blackrock products because a lot of them just trade like water.
Well okay, no, no, well I was gonna ask Katie. You know there's also I mean, typically traditionally when you hear ETF, you think of a passive index tracking product until the names like Kathy would come up and others who are actually running actively managed ETFs.
Which has been a theme this year.
Yeah, active management has had that has been one of the big takeaways of the year.
Yeah. Yeah, So where do we stand with that? Are they are both of these companies losing share to providers that have more active ETFs.
That's where the others come in.
Can you take a look at the percent of share of flows that are going to outside of the big two and a lot of that is going to these actively managed ETFs. And I gotta say it's really interesting. Even though Blackrock likes to be number one in most things, they aren't a really huge player in the active ETF space. You take a look at their lineup again, they have over four hundred US ETFs, only thirty eight of them are actively managed, and they have launched a few rick
reader for example. They're big fixed income guy, I forget his exact title, but he's very important. He launched his first ETF this year. So they're bringing out some of their star players in the ETF rapper as an active strategy. But again, these these fun these issuers, they're not known for being active managers, even though they are so huge.
What do you think that it would be in the inside the tim centevik rapper, Oh god, I would.
Love to know.
You have aute to think about.
I feel like you would be extremely sensible, and then there would be like one to five percent of your portfolio that would be absolutely bananas.
Is that that Eric Baltus calls that the hot sauce? Yeah exactly. I just put a little bit of hot sauce. Yeah, you know, maybe a little bit more than you.
I would love a burrito right now. Why did you bring that up?
Sounds great?
All right, great rat anything you know, talk about around the corner.
Yeah, so this is a good piece, Katie. I didn't know we could actually talk for fourteen minutes about vanes then, but then I saw you come in the studio, and then I knew we could.
I was going to ask Katie to name all four hundred black rockets go at this point.
At this point, I could probably get at least one hundred of them.
Hey, check out this story. It's in the upcoming issue of Bloomberg and Business Week magazine. It's available on newsstands, online and on the Bloomberg Terminal later this week, but right now you can read the story on the Bloomberg Terminal and of course at Bloomberg dot com. It's about the seven point eight trillion dollar market for US traded ets,
which black Rock has dominated four decades. A big thank you to Bloomberg News senior markets recorder and BTV anchor Katie Greifeld, who writes all about it in the upcoming issue of Bloomberg Business Week. Also the editor of Bloomberg BusinessWeek, Joel Webber. Everyone here at a nice little roundtable in our Bloomberg Interactive Brokers studios. You're watching and listening to Bloomberg BusinessWeek.
You're listening to the Bloomberg Business This Week podcast. Catch us live weekday afternoons from three to six Eastern Listen on Bloomberg dot com, the iHeartRadio app, and the Bloomberg Business app, or watch us live on YouTube.
Well, maybe if you've been traveling internationally, you've seen these ads in airports or maybe in some international cities you've been going around in. The campaign features some of the most well known French athletes, chefs, scientists, designers and more. They chose France and they're telling you to do the same. It's all part of an international marketing effort aimed at
attracting interest in and investment to France. Of course, the seventh largest economy in the world, and one that right now is trying to distinguish itself from its European peers. Olivier Besch is the Minister Delegate for Foreign Trade, Economic Attractiveness and French Nationals Abroad. It's quite the title you have there, and that's not even your full title, I should say. He joins us here in the Bloomberg Interactive Brokers studio. Olivier, how are you?
Yeah, fine, good afternoon everybody.
Yeah, it's good to have you with us. Why is now the right place time to launch less such a launch, launch such a big campaign internationally?
Well, first of all because we had a very proper business agenda with President micro Goverdance since six years. And then we are the most attractive country in Europe for foreign investments for four years in a row. And I said, it's a party, really good time, just after the World Rudby Cup and just before the Olympics next year in Paris, to make this nation branding campaign for choosing France and say it too or investors around the world that they
are pretty really welcome here in France. I think it's time to face tremendous challenges in it in Spain, in health and France is a very good place to do it.
You know, Olivia, when you talk about tracking investment capital and businesses to France, sort of prioritize for us. What's at the top of that list. What would you really love to see come into France as far as investment flows.
Well, we don't have really priorities. I think we have a friend's twenty thirty investment plan for innovation. The first priority in this plan is to govermnize industry, but we also have priorities in artificial intelligence, in quantum, in biotechs, to invent together twenty new biomedicines to twenty thirty, yeah, and ten to twenty twenty five. We already have four.
We wanted to invest also in new energies like solar protunts, like windforms like hydrogen, and we wanted to use the new energies in mobilities to invent together the new plane maybe tomorrow hydrogen plane, electric plane, or with other proputions sustainable elevation fuel. So I think there is a lot of money in this plane to help businesses to invest in and we will be very happy if new American companies will be part of this venture.
What would you say to somebody who says, you know, it would be great for us to be investors in France, but were intimidated by the regulatory environment, not just by the regulatory environment of the EU, but also of the French government. And then also, let's be frank, the labor laws. I will say no.
I will tell to this person that they miss something. During the six last year, we really transform Friends. We reduce the tax burden. For instance, for twelve parate taxes, it was a thirty three point five percent, it's now twenty five percent. We cut ten maybe fifteen billion euro on tax production. We reform the labor law. It's more flexible now it's very secret, especially for job and I think we also reduce all the complexity. We simplify the
administrative procedures. We have key turn sites to implant a factory. Yeah, in nine months now in France. So I think that to France in twenty fifteen, it's not Friends in twenty twenty three, so it's really time for choosing France.
Well, and twenty twenty three kind of a strange year. I mean, I feel like we've had a few very strange years when it comes to global trade, geopolitics. I mean, starting with, you know, the trade wars with the US and China under the Trump administration, then the invasion of Ukraine now Israel, and I think you know, from where we're sitting, I think the assumption is that all of this has perhaps brought the US and Europe in France closer together, tightened their bonds. But I'm curious how you
see it. How does France and trade and investment in France fit into this really dramatic shift in geopolitics that we've seen over the last few years. Are there opportunities more problems than opportunities, and you know, how do you navigate all of these shifting.
I think you're right living in a time of shocks, sanitary shocks with COVID nineteen, then the invasion war in Ukraine from Russia now in the Middle East, and also climate chocks and maybe technologic shocks. But in this time of chocks, I think it's good first to restore the multi la terrorism and I think we have a real issue. Next February in the MC thirteen in Abuda by for the WTO we should restore the dispart settlement mechanism. It was one of the topics I spoke about with American
officials yesterday in Washington. And we have also to reinforce the links between friends and United States. Europe and the United States. We should now have permanent agreement on our dispute on sustainable still and aluminium with herbus borrowing or so I think we we we really have to change our trade. We need more sustainable trade with new standards, and I think Wto is a good place to do it.
But we must also reinforce the links between United States and Europe because it's not only trade, it's it's friends showing. It's also near showing. It's a place where we can bude together violo chain in the field we need for energy transition, for instance.
After all, the US and France are very close allies. Hey, just in the last minute that we have with you, want to talk politics a little bit. You're here in the US. We're about to be in a presidential election year.
Really next year?
Next year?
You haven't heard about that?
Yeah, I heard about it. How are you and and your government watching what happens here next year? A potential try two point oh?
Well, so you're right, friends in the United States, we are the oldest ally, we are friends you know, I'm coming from Alsast Regent and the border is friends and the border in Germany and Switzerland, and I personally know what we owned to the United States, just to our liberty. Yeah, my grandparents were lived two World wars, so we really have this link. And we don't forget, of course that Lafayette and the French troops participate to the War of
Independence in Cheesypeak or in Yorktown. So I would say that, of course we are already working well today with Biden administration, but we respect as a foreign government, we respect the democratic decision of the American people, and we will work, of course with all the American governments. We just hope that we will remain open is an issue.
It is not.
For us a solution today to face a certain levita.
I really appreciate you joining us. Olivia Besh, Minister Delegate for Foreign Trade, Economic Attractiveness and French Nationals Abroad.
You're listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from three to six Eastern on Bloomberg Radio, the Bloomberg Business app and YouTube. You can also listen live on Amazon Alexa from our flagship New York station, just say Alexa playing Bloom eleven thirty.
Bitcoin has been on a tear this year, Mike Reagan, it really has. It's not in Nvidia or meta platforms, but it's still up close to one hundred and forty percent so far this year. And you're the crypto guy, now, what's going on?
Well?
And it's it's funny because we talked about everything else moving after the FED, but look at Bitcoin today, up another four percent, knocking on the door of forty three thousand dollars a token again.
And I'm sorry, is it twenty twenty one to feel like it's trying to feel a little bit like it? Yeah, But you know, I think the.
Main thing is, you know, anticipation of these ETFs being approved. There's other more technical things the having next year, and really the prospects for lower interest rates more liquidity from the FED I think is helping too. But don't take it for me, because we've got a much better expert on this topic to walk us through everything going on in the crypto market. His name is Jason Urban. He is the global head of trading at Galaxy Digital. He's
joining us over zoom Zoom from New York City. Jason, thank you for joining the show.
Thanks for having me.
This is great and I'm glad I could be here on a day when when it's when it's good news and not bad news.
And well, Jason, you know, we mentioned that ETF and I think, you know, it's pretty much the consensus that optimism about. Finally, what's it been over a decade since the first application for a bitcoin ETF. We're finally potentially near the finish line where the SEC might actually approve one.
But I think a lot of question on people's minds is, you know, is that a sell the news event, is all the hype before the ETF is actually launched, or will we continue to see a bull market in bitcoin once we do get an ETF.
I think it's going to continue to be a bull market, and it's structural at the end of the day. If you think about the crypto ecosystem, one of the things that we've been missing for a long time is a steady supply of assets and an actual pathway for money to get in. And you can see that in how the basis trades, especially when the markets are going higher. That just means that there's less dollars in the ecosystem.
With an ETF, you're going to release that because people are going to be able to pledge it as margin, they're going to be able to buy it on margin, and so that is going to push it higher. It actually unleashes a lot of the value that has been very difficult, and I think we saw some of the darker days of crypto in twenty two when a lot of these lenders who had extended leverage in an irresponsible way,
but that leverage what was fueling it. I know we kind of you joked on the onset that twenty one is this twenty twenty one again, Well, the ETF is going to do that, but it's going to be able to happen in a more responsible, appropriate way, and that's what's going to pull it up. I mean, we're here
at Galaxy on the trade desk. We're seeing real, real buyers come in, people who are who are not fast money, but who are buy and hold, who are who believing in it, and they're not you know, the usual people that you would normally see. And quite frankly, frankly, it's really encouraging because when I will come on the desk and they say, x y Z just bought them, Like really, We've been talking to them for two years and finally,
you know, they've decided to pull the trigger. And so I think the ETF only only one makes them more comfortable, and then two structurally allows more money to flow into the ecosystem.
So I think it really is a big positive.
Oh, Jason, if only you could tell me who x y Z is. I have a feeling you won't, but.
X y Z wouldn't be a client anymore if I exactly.
But you know, Jason, obviously, if we do think back to twenty twenty one, it was such a different market than in that we weren't just talking about Bitcoin. We were talking about you know, doge coin and all these other fringe token salt coins. But really the other big story then was this lending crypto borrow and lending operations that really you know, some eye popping yields back in the days when there was no yield to be found anywhere. And of course it all it all sort of blew
up spectacularly last year. But I can't help but wonder if that lending and borrowing market will have a rebirth given what crypto prices are doing now. You know, we saw some new Sam Altman, the open Ai co founder, starting a bitcoin private credit fund. Where where is that element of the market, the lending and borrowing and yield farming? Where is all that? Are we coming back in that space as well?
Not as quickly as I think we'd like. I mean, here here, Galaxy, we have a lending business. Now, We've always lend oversecured and have been responsible with it. I think that what you're finding is that will come back, but you need to find the structure to allow that to come back because the days of you know, I think the true bitcoin is not your keys, not your coin. We're proven proven right in the aftermath of twenty one and so you know, as we look at our business
and what what the inbound we're getting. People are looking for leverage and there aren't a lot of places that are that are that are equipped to give it one and two have a structure in place that allows for that to happen.
Prime is prime is.
A h A true prime or a real prime is something that the ecosystem generally needs. We have a product that we're rolling out g One that that hopefully addresses some of that, but really on a full scale. It's not there and we can't. We're not getting there yet
as a as a community. And so that's why I think again back to the ETF, why that is important is because that is an equity that fits into a system that everyone is comfortable with and a lot of the traders and a lot of the trading desks that are in space, we'll just use that and.
They'll do a delta replacement.
They'll buy the ETF, they'll sell their bitcoin, release cash, use the cash to buy more bitcoin or some of these other coins that actually are very.
That that serve a purpose, right.
I think that when we looked at all coins and you know, some of the names on that, historically people forget that that's the technology. Hey, and there's a need for that.
Hey, Jason, I got to ask you a more basic question here, and what's one that just comes down to sort of fundamentals and beliefs. Here, I got to get you to react to what Jamie Diamond said last week, and for those who don't know what he said, the only true use case for crypto is criminals, drug traffickers. He talked about tax avoidance, money laundering. He said, if I was the government, I'd close it down. We have a minute left you What did you make of that?
Uh, he's talking his own book. I mean, if if I could, if I could look at how I would protect my brand or my ecosystem. Cryptos and blockchain is a disintermediating action, right, and so at the end of the day, of course he's going to say that dollars, physical dollars are used more for illicit activity than crypto. It can be traced everywhere, every it's immutable. The whole purpose of an immutable blockchain is that it can be tracked all the way back to its origin.
So if you're a bad.
Guy doing bad things, you're not using crypto, You're going to use other things that can't be tracked. And and so I think that he's just talking his own book, quite frankly.
All right, very interesting, very interesting. It's it's the gift that keeps on giving Jamie Diamond when he talks about crypto, I have to.
Say, yeah, yeah, they do have their own coining to it.
Jason Irban, Global head of Trading a Galaxy Digital, the Michael Novograts founded and led crypto firm. Thanks so much for joining us. This is Bloomberg.
I'm riding.
The journal.
Let me drive.
Oh no, no, no, who's gone.
Honey?
Please gravels.
I want to drive.
It's a good question.
This is the Drive to the Globes on Bloomberg Radio.
Hello.
Hello, live from the Bloomberg INTERACTI Broker's studio. We're streaming on YouTube and a Bloomberg Originals. Wednesday, December thirteenth, twenty twenty three. A Happy FED Day to everyone and especially the Fed. Shair Jay Powell, who pretty much could have done a song and dance up there, seemed like he was pretty excited about the direction that things are moving. We're seeing uh stocks higher, We're seeing yields go down. That was certainly the FED meeting heard around the world.
I'm Tim Stanebeck, along with my co host Bloomberg News is Mike Reagan, who's also now the leader of the Crypto team. Mike, what did you think of that?
Well, you know, it's interesting, Tim, I mean a lot of times when the FED comes out with a statement that's interpreted one way by the market as dubbish, Powell sort of appear to intentionally talk the market out of that reaction.
Didn't see that today.
I did not see that today at all, SMP up more than one percent, all the major indexes up more than one percent. I mean, these moves after a FED press conference oftentime can be volatile and sort of not necessarily indicative of what to expect tomorrow and for the rest of the week. But boy, for the moment, everyone seems very happy with this statement in press conference.
Yeah, they certainly do. It's a fascinating day, and I think everyone's going to remember who pays attention to this stuff where they were, because it does seem like that the FED has declared victory, although it kind of he came out and said we haven't yet declared victory. The market's saying that they've declared victory when it comes to the war on inflation.
Right, and that FED dot plot is so important, really telegraphing, you know, the likelihood of three rate cuts of a quarter point next year, so much closer to what the interest rate market was expecting. So you know, it's off to the races in both and bond markets today. Pretty pretty remarkable move.
Let's see what Sarah Ponsik has to say about all this. She's financial advisor UBS, a private wealth management She's somebody who our audience knows well and somebody who Mike you know pretty well because she was your co anchor of the What Goes Up podcast for so many years here at Bloomberg before she went over to ups, Sarah, good to have you with us.
How are you?
I'm great? And yeah, I was just about to say, Mike's come a really long way. How do the crypto teams? So it's the two of us hosted a podcast together.
Things.
Mike, you're gonna put all your clients in crypto? I assume I can't.
I can't discuss that.
Sarah.
What do you make of what we just heard from FED share J Powell? I mean, market's certainly loving it.
It really is remarkable. I mean the Fed essentially came to the table today. Powell came to the table and they patted themselves on the back saying that look, inflation has eased uh and economic growth has but you know, it's still looking pretty good. And it's really remarkable because the Fed had every option after this last month and
a half to push back against the bond market. We had seen in November the best month, the largest rally for the agg the bond market benchmark since nineteen eighty five, and that had really undone a lot of the tightening that the Federal Reserve had done. They had even said previously, oh, well, the market's done some of our tightening work for us. So again, they had every option to push back against the bond rally and they didn't, which is.
Really telling, really telling.
The fact that you know, the median dot next year is now showing seventy five basis points of cuts. Sure, that's the median. Some expect more, some expect less. But just the fact that the Fed did not push back against the markets easing over the past month and a half is something that's big for the market. Is clearly we're seeing in the rally in both bonds and stocks today.
You know, Sarah, I think one thing that has a lot of people nervous about a year like this is, at least for much of the year, it was such a top heavy rally. You know, those big famous tech stocks, the whether you call them the Magnificent seven or the Fangs, whatever, the latest whatever the kids are calling them these days, really drove the bus on this market rally this year. How are you thinking about that going forward and what are you telling your clients, I mean, is it time
to maybe diversify into everything else? Does that make sense?
At this point?
It does make sense, and we've seen that trade work. If you look at the month of November, for example, the equal weight version of the S and P five hundred, which gives every single company in the index the same weight as those magnificent seven or like as you like you said, whatever the kids are calling calling them these days, same exact weight, the equal weight version actually outperformed. We saw small caps outperformed. We saw cyclical industries that had
lagged all year long outperform. And what's interesting is if you look at the trade today, if you look at it by sector, look at your best performers. I'm looking at it right now. Your best industries are utilities up three point six percent, real estate up three and a half, Staples at one point seven, healthcare at one point six,
and your worst sectors are tech and communication services. So we're seeing a complete flip of what we've become accustomed to throughout this year, where the best performers are now the laggers. Yes they're still lagrating. Everything is rallying today, but we're seeing the laggards from this year really start to lead the way.
Anything make you nervous, Sarah.
That is always something that makes me nervous.
I've ever seen gets.
Deep inside.
Look, I mean, things are pretty good right now one on the bond side of the equation, and I would honestly say that one of the most difficult things for our clients over the past couple of years has been understanding that bonds can drop in value. You know, your bonds are still performing, they're still paying you income, but on paper are going to have losses because you know, rates are now higher than they were when you bought
those bonds. So that was really difficult. And now something to be optimistic about is bond holdings and bond performance. As you know, we really saw takeoff in November, and it seems like it's continuing to and we do expect bond returns over the next year and going forwards to be pretty strong. Now when it comes to stocks, it's interesting because when you look at the fundamentals, there are reasons to be optimistic going into next year, one being
corporate earnings. When you look at twenty twenty three, corporate earnings for the S and P five hundred were flat. We didn't see any growth, They didn't see any declines, but they didn't go anywhere. Now into twenty twenty four, our chief investment office is expecting that we should see about nine percent profit growth, which you know, stocks follow earnings,
so that would goode well for the market. But at the same time, when the market is now pricing in as many cuts as they're pricing in twenty twenty four, usually when the Fed starts cutting, it's not a slow grind. They start cutting pretty quickly because something's gone wrong. Now that could bode well for the bond market, could be a rocky one for the stock market. So I'm always worried about something. But yeah, sometimes things just seem too
good to be true. And even though you look, we're still projecting positive returns in the bond and stock market, you know, next year it's probably it could be a rocky ride. And the fact that everyone now seems to believe in this stock landing narrative, yet the Fed's going to potentially have to cut five times next year according to the market, something doesn't necessarily add.
Up there, you know, Sarah, I remember a year or two ago, I feel like half of the stories that came out of markets. Coverage were about how sixty forty is dead. You know, bond yields are at rock bottom, interest rates, stock valuations are high. You really need to rethink that. I can't help but wonder though, now, is is it sixty forty? Are the kids in the sixty forty these days? Is it back?
The kids that are into sixty forty these days? Sixty forties backs? At least for the month of November. What was it in the month of November? It was the best month for the sixty forty portfolios since the early nineties. So that just goes to show. But much of that is predicated upon the fact that the sixty forty portfolio was claimed to be dead. And don't get me wrong, the sixty forty portfolio has gone through many tribulations over the past couple of years because interest rates were at
rock bottom. You know, you really couldn't get much income from the bond market. And with the rise in bond yields and the rise in interest rates, we were going to see negative returns, you know, a bear market in bonds when that day came, which we saw for the past couple of years. Now, you know, stock returns should continue to be pretty strong. And on the flip side of that, when you look at the forty percent side, the bond side, well, if you are locking in bond yields,
then you should. If you're someone's still sitting in cash, you know, now's kind of the time the flag's been waived to go ahead and lock in yields. Further out on the curve, Well, now you can actually get income from that forty percent in bonds, and you can also potentially get capital appreciation what interest rates do come down over the next couple of years. So yes, Mike, I
think the kids would say sixty forty's back. But I would also add to that, we do believe and for the majority of our clients, we typically take a portion of that forty or sixty, depending on you the client's time horizon restolerance, and we allocate that to private markets as well. So I wouldn't say just Vanilla sixty forty, but maybe spice it up and add in a little bit of alternative investments as well.
All Sarah Ponsick, we love it when you join us. I think we'll have to do a remote down in book raton Florida and we can all hang out there this winter. Sarah Ponzick, financial advisor at UBS Private Wealth Management, joining us on a zoom from Florida.
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