A Look At Crypto, Markets, The Latest From Washington

speaking of out of n y c UM. They've got two point three trillion dollars of assets under management. Ben, thanks so much for joining us. UM, you know, more and more I conflate the world of e t f s with the crypto world. I know that's not really fair, but UM, we do have uh recently hyped new pro shares Bitcoin e t F as well as Greatcoins, Great Scales conversion of its Bitcoin trust into an e t F. What do you think about the two worlds colliding here? Well,

we've seen quite a bit of convergence. UM. As you noted, Bitcoin ETFs made a dramatic entrance into the e t F market, so it was really another milestone for the e t F industry, democratizing yet another asset class, and so it gives investors a new option for those seeking exposure to cryptocurrencies, in this case bitcoin, and clearly there's

pent up demand um. And you can see this convergence starting to happen to some degree here in real time, where the product that launched first set the all time record of fastest e t F to a billion dollars, did it in two days, ironically topping the previous record holder, which was Gold Physical Goal g l D back in two thousand four, which did it in three And clearly investors are not only preferring this access to crypto, but

certainly doing so in the e t F structure. Um. You know, as witnessed by the trading volume and the demand we've seen for the products. So ben give us a sense of how the Gray Stale as it converts from a trust to an e t F, how that will differ from the pro shares Bitcoin e TV Well, there are two very different things. So you know, Gray Scale obviously has been around for a while and they announced their intent to convert to an e t F and Gray Scales Bitcoin Trust holds the underlying bitcoin UM.

But in the case of the pro shares product and the other future space products, we saw another one UM launched by a firm called Valkyrie, and there are more behind it. Are investing in futures and there are some very important differences that investors need to be aware of in terms of how they work and the risks and

the returns they will receive. But most importantly, the futures et s don't hold Bitcoin, they hold a future, and there are costs to roll that futures contract, especially when like we have now, the futures curves slopes upward and there's a cost. So there will be some differences in how those products track UM, you know, compared to a

physical product UM. That's correct, UM, the bitcoin products will work very similar to the other products that investors UM and ETF investors know like U s O or U n G that are doing the same, but they're holding oil and gas in those cases. And the problem is you can you know the underlying asset. You can invest in both, and the convergence can be huge, like after even a year, right, correct, And that is something that's hard to predict, driven by markets, and it will directly

depend on the slope of the futures curve. UM, So it is a variable that investors need to be aware of, and certainly we've seen that in other markets, um, where you know similar Um, you know, similar things have happened. Ben, do you think the regulators will get to the point where there can be a straight up e t F with the underlying coin as opposed to the futures. Well, I mean, certainly, the SEC allowed the pro shares product to launch, and you know, they got comfortable really for

a couple of reasons. One was the nine Act regulatory scheme, which has common to most mutual funds. And second, they were able to get comfortable with exchange listed futures because they're regulated. And also it means that the e t F itself doesn't hold the underlying bitcoin. So certainly there's going to be, um, some work to be done to be able to get the SEC comfortable to allow ets to hold the bitcoin directly. So we're going to look for that evolution to occur to make sure those investor

protections are in place. Um. You know, again, before the SEC would get comfortable with those approvals. By the way, what was the pandemic like for E t F investing for the world of E t F s. You know, before the pandemic, I would sometimes go to these conferences UM for big E t F providers like Vanguard for example,

and noticed that the growth was just amazing. And because the kids right invest a lot of times through BTF, they prefer passive which is why I think of Vanguard UM investing UM or they can do kind of active investing with different ets. Is it did Did growth continue

like that throughout the pandemic? We've seen phenomenal growth, in fact, record setting growth for the industry as well as on our platform at being Y so right now, UM, we just hit one trillion in influence into e tfs globally UM a little more than seven billion of that coming in the US, which is shattering the all time records. We saw record setting and again we're seeing that here

in one so the flow has been incredible UM. But we're also seeing a trend UM with new product development UM slowly shift away from passive towards actively managed strategies. And that is something we're seeing pick up UM in terms of you know, those products you know, accelerating with both the new new that are new products that are coming to market as well as the assets, and that's

something I expect to continue. But certainly the passive ETFs have a big lead on active so there's quite a bit of ground for for those new products to make up given where the markets at today. Hey Man, thanks so much for joining us. We really appreciate it. Ben Slaven, Global Head of ets and Assets Servicing at b n Y Melan. I mean, you have, you know, a couple of these, the two fast growing areas that seems of finance, which is one e t S and two crypto makes

sense to pend together. It's like peanut butter and chocolate, right, exactly right. So it'll be interesting to see, you know, how many more come on the heels of the pro shares et F and then now the Gracesdale UH conversion from a trust into an ETF. How many more will

come down the pike. Yeah, and it'll be interesting to also see how this affects the price of the underlying right if more institutional investors and this is the big bet that a lot of his bitcoin and crypto investor making, that it'll become more adopted, not only institutionally, but just become a part of people's portfolios. Looking at bitcoin here up about nine tenths of one. Let's get to the big crypto story that seemingly everybody has been reading today

and talking about at the water cooler. Wall Street is a masking a crypto army and paying up for recruits. Z Song wrote this with Cat Doherty, and we have Cat here in the Interactive Broker studio with us. So Cat, I think it's really interesting because I've been covering bitcoin since first breached a thousand dollars and it was I did it kind of a fun two week piece where I only spent bitcoin, I didn't spend any US dollars.

And then I was a while ago when that wasn't a thing right now that nobody else was, well, there were there were some like there was a grocery store in green Point and there was a bar down in Murray Hill and I wore plaid blazers and it was fun, you know, but it wasn't that serious, and of course all the real Wall Street guys kind of pooh poohed

the story. Now there, I guess hiring these crypto kids who at the time we're like CouchSurfing paper millionaires and uh, and now are the only ones to know what they're doing that's right. And we're also seeing folks that are in these financial like traditional financial roles that are getting recruited to exclusively focus on crypto. So you have you have both. It's not just the CouchSurfing millennials youngers that

are getting hired to go to these banks. The banks are also acknowledging, hey, look, we have clients that are asking us what's going on. We need answers, So they are building teams that can bring the knowledge. And I think that goes both ways. It's it's not just going from the outside. In fact, often you need the institutional background. You need someone that knows how to work in a corporate job. You can't just go out and and and find someone who's never been in an office setting before.

So you get somebody like um, like a Mike mcgloane who was at S and P, who was at a B n UM and now is working for US and Bloomberg Intelligence and knows everything about crypto exactly um. And you also have just folks that have been working I I spoke with the lead at Bank of America who's building the team, and he has just this this desire this this hunger for knowledge, to learn more and more

about crypto. So he's been in a traditional research role and now he's tasked with building a team that is exclusively about crypto. But it's it goes beyond just crypto. It's how does crypto touch all of these other sectors that Bank of America already covers. So his pitch to me was that our clients are asking, Okay, maybe I don't want to get involved in a cryptocurrency, but I do realize that this is starting to touch the industries that I invest in, whether it's like energy or or others,

really anything. UM there's there's no escaping how crypto is bleeding into traditional finance. And so these banks are saying, Okay, with that acknowledgment, we're going to need to get the experts. We're going to need to come up with the answers and the research that can serve our client base. And I think JP Morgan's one of my favorite examples. They're hiring, their gearing up their trading desk, yet their CEO, Jamie Diamond,

as recently as last month, called bitcoin worthless. It is funny to see how the leaders view crypto UM and then the the action right, um, because they're not always aligned. That's a good example. Um. But I would just say that even if there's the belief, um from a CEO or even like the leader of the research team at these banks that's saying, oh, we don't want to specifically,

you know, jump into bitcoin, or maybe there's hesitation. Well, there's also the acknowledgment of Okay, if you have again clients, people that are asking or you're having to answer these questions. You can't just say, oh, sorry, we're ignoring this entirely, and you can go ask someone else. Well, that's how you that's how you lose business. So there's there's that answer.

I mean, this is really in some ways it demonstrates what a good leader Jamie Diamond can be because he has his personal opinion and he also runs the bank and uh, he's you know, he says that you could say, it's not worthless. Takes two people to make a market, right, Um, how much cat are people getting to to move right now? Because this is tight, This is a tight labor market.

People are already getting big bumps to move jobs. Right, So it depends on how senior role we're talking about, Um, for for the more senior roles like research trading heads, that could be a premium as much as fifty UM, but others their salary increases. It ferries as you know you you would expect. UM. We we saw some increases from the data that we were given UM of about nine in new roles versus their previous roles. So I

think it all depends on the person, their experience level. UM. Also how committed these UH institutional firms financial firms are to to really spending the money and getting the talent. Where are they getting these people from depends. We talked to UH a lot of people that were at like a black Rock or UM Brookfield, or or at at a traditional bank like a JP Morgan Bank of America UM. And then we also spoke with a lot of folks

that have gone over to crypto firms. Some of them you could consider startups, some of them are crypto like hedge funds UM. So it's going both ways, and I think that is the tension that I'm interested in tracking next because as Wall Street is looking to to gain that talent, they're also losing that talent to the crypto farms. Yeah. Absolutely, UM, it's almost like the banks versus fin techs, especially if most of the fintech start to dabble in crypto or

already are doing it. Cat Doorty helped to write that story. It's a huge hit on the Bloomberg terminal. Wall Street is amassing a crypto army. Now, I want to get back to politics, but bring it from Glasgow to Washington in the sense and talk about the what do they call it? The it was? It was a framework, framework, framework, President Biden's framework one point seven five trillion dollar framework, although over ten years, is starting to gather some steam.

Congressional Tax reporter Laura Davidson joins us out of DC to talk about UM when we can expect a vote? I guess that's what everyone wants to know. When is this thing actually gonna happen? Laura, that's a real good question. House leaders were hoping that they could do something, you know, as soon as this week. That's a super ambitious timeline. Over the weekends. They were thinking they might be able to vote on Tuesday again tomorrow. UM. The bill is

not yet written. There's still not agreement on some of the big pieces like drug pricing UM as well as you know, some of some of the other their pay for wars. So it's really unclear when there's going to be a vote there. Also, are you know a lot of political considerations here. Uh, you need to have both the moderates and progressives on board with the entire bill. Uh. And this is something that really could be you know,

weeks if not months away. Unbelievable. So, Laura, I mean, what's the and here you think about a one point seven five trillion. That's not a lot to the you know, the Matt Miller's in the world, but that's a big number to me. However, it's well down from what the Biden administration initially asked, what's the what we need in terms of America to invest in infrastructure? You don't, Yeah, I'm not sure what the right number is, but it's

certainly below what I think the administration really wanted. Does this suggest that the administration will kind of take whatever deal they can get at this point? Yeah, And this is really the political reality of only having you know, a you know, three four seat majority in the House as well as uh, you know, basically having no room for air in the Senate. Is they you know, couldn't get all the things that the administrator should want it.

You know, when you look at the plans that Biden put out in the spring, you know that was something like maybe six trillion, maybe even more of spending that he was outlining there. Um, that got curtailed back to three point five trillion in the deal that was reached earlier this year. And now you know, cut in half again one point seven five trillion. There's you know, the

five and fifty billion dollars worth of infrastructure spending. Uh, this is the heart infrastructure, you know, things like roads and bridges and airports approved in the Senate earlier this year. And now the kind of the second piece that they're figuring out is, you know, how much you spent on things like education and childcare and health care. And that's looking like you know, if it's one point seven five

is going to be the top number there. And I guess this is the important distinction, Laura, because I had lunch with the Republican lobbyists last week who was saying, we need a lot more than two or three or four trillions spent on infrastructure in the US to be competitive. But he was thinking of infrastructure as what's in the

first bill and not appreciating what's in this bill. Um, in terms of you know, the label infrastructure, what are people in Washington calling this They're really you know, they've been calling it the social infrastructure or the human infrastructure bill. That's kind of in the branding. You hear Democrats say a lot of things, you know, that housing is infrastructure or childcare is infrastructure, the idea that these things are

all you know, key tenants that support the economy. But the definition of infrastructure has been sort of running joke in Washington this year is that it's really not been you know, kind of what has traditionally been thought about as infrastructure but really expanded to include a lot of things. Um, you know that you kind of do have a you know, kind of infrastructure proponent, things like renewable energy and uh, you know, job training that sort of thing, as well

as you know, kind of a whole host of democratic priorities. So, you know, I'm not really sure who I need to be focusing on Laura over these you know, this next week or several weeks about like who's going to really get this thing done. I'm not sure it's the President, is it Pelosi, is it mansioned is mean, who do I need to be focusing on here. So there's a couple of key players here, and these are really the parties that are they're not yet satisfied with the bill.

One that's Cinema and Mansion, and they have not come out. They came out and sort of expressed general, um, you know, warmness that there was you know, progress and that a deal was being made, but they didn't actually endorse that framework that the President put out last week. So that's those are two parties to watch if you know what

do they need to get fully on board. The other person here on the other sub spectrum is is Senator burn Sanders if he wants to make sure there's something done on drug pricing that was not in the bill. There were lots of negotiations over the weekend to try to come up with some sort of field to lower the cost of prescription drugs. We'll see if that can make it in. Um. The other big thing, and this is you know, sort of on a whole different playing field,

but it's the state and local tax deduction. A lot of members, particularly in the House you know, representing areas New York, New Jersey, want to make sure that an expansion of that tax credit, that that tax deduction is in there if it wasn't in the framework. But House leaders have pledged they'll get in and they pretty much have to if they want to get that bill out of the chamber. And this has to be again something

that they can agree on in a bipartisan way. Surely Republicans UM want that tax deduction to be expanded as well, So this bill actually doesn't have to be bipartisan at all. Democrats are pushing it through in a way that they only need Democratic votes, but they basically need every Democrat uh to vote guest for it. The by part the infrastructure build that kind of the roads and bridges build, that was a bipartisan effort, but the social infrastructure build,

this is just a partisan Democrats only UM approach. So you and you actually you know, so you have It's really easy for Republicans right now because they're in the opposition, you're in the minority. They can just criticize the build. They don't actually have to to vote for anything. All right, Laura, thank you so much for joining us. We just appreciate getting your updates. Laard Davison, Congressional tax reporter for Bloomberg News.

Let's get back to the UH. Well, I guess he was talking about the markets, but let's focus more in on the market. Right now, we have Veronica Willis with US Investment Strategy Analysis UH Analysts, I should say, from Wells Fargo Investment Institute out of St. Louis. And in terms of what's important, Veronica in good morning, thanks for joining us for markets today. It seems like tech is really showing how much power. Big tech is showing how much power it has. How do you feel about the

UH mega cap names? Good morning, and thank you for having me on. You know, with tech, we've seen that they're you know, overshooting their earnings expectations and the earning season has been really good for those tech companies so far, and that's really helped to bolster the markets over the last week or so, with those big tech names really

doing well and really helping with market performance. There's such a heavy weighting and a lot of these US market u US equity indexes, big moves in those particular companies tend to move the market as well. Veronica, were you know a good ways through this third quarter earning season? Um,

what do you takeaways. Um, the takeaways are that even though some consumer competence type of data that came out over the last quarter started to weaken a little bit from the recovery that we saw from that, consumers are still spending. And so it's always always got to be

careful about that confidence measure. While consumers might not be so confident they're spending patterns are somewhat indicating otherwise, where a lot of these companies are able to report these earnings that have beat expectations or earnings that are doing

well because consumers are still comfortable and spending money. And so I think that that's the biggest takeaway from the earning season here, where a lot of these companies in the entertainment and sort of the discretionary types of companies are still doing well because consumers are still really comfortable spending. Yeah, we saw also savings rates sore for a second during

the lockdown. Of course, you can't really spend money very well for a while, but there's still above historical estimates in the US, I think about nine percent historically at least in recent you know, in recent decades we've seen about seven and change. Do you expect consumers to spend off the rest of that or are we in a new paradigm. I think that as we kind of entered the holiday shopping season, we can start to see some of that coming down. But it might be that we've

seen a shift in how people view saving. What they've experienced might have changed how they view making sure that they've got that safety net, and so we could see some kind of elevated levels of savings. But the holiday season will be um really crucial in determining whether that's a short term or a long term type of shift. Hey, Ronica, we just had the big tech names report earnings last week.

Generally good, good numbers, all the relatives. You know, some folks had some concerns about some of the social media companies numbers. But do I stick with big tech those names as great top line growth stories, or do I, you know, kind of go with the folks that are been saying, Hey, you need to be in that more cyclical trade, that reopening trade. Where are you telling your

clients to think about opportunities going forward. We've definitely made a shift towards those more cyclical sectors because that's what we think will perform the best at the point that we are in the economy. The we've had such an impressive run up with tech that sometimes you worry about just feeding more into that, and you know, we still

like tech as a sector. We're neutral there. So we're recommending for our clients to have kind of a market waiting in that sector, which is still pretty significant, and so you're still going to benefit from those tech companies, but we don't want our clients to over extend themselves in that particular area because we do think that those cyclical sectors will do really well. So when you look at UM two and try and factor in what inflation is going to be, like, which side of the transitory

argument do you fall on? UM We think that inflation will remain elevated through two. Looking out a little further, you know, past two a little murdeer, but we do think that those rates are going to remain elevated through the rest of this year and next year, and then maybe after next year we'll have some more clarity and expect that to trend a little bit more towards the averages that we've been seeing pre pandemic. But we do think that, you know, those inflation numbers are going to

be elevated through this year and next. Veronica got w t I crude oil pushing a gallon. Have I missed the energy trade? I think that energy could remain elevated. I don't think that you have missed the trade. I think it's expected to still perform well with prices at current levels, even if prices don't continue to move higher. Um,

if you're looking at energy types of stocks. With oil itself, it's so dependent on what would happen in the supply and demand side, So there are a lot of uncertainties. If more supply starts to come online, that could really push the price down lower. But what we're seeing is that really strong demand for crude oil and for its refined products like gasoline, heating oil and those other types of things, and so that kind of pushes the prices higher, and so you could see it kind of range bound

around the current levels right now. All Right, Matt's had a good run with with it. He's been playing bitcoin, I've been playing w t I crude Dude. President Biden's motorcade had more than eighty five cars in it this morning. Nice, there's demand for you, all right, Ronica. Willis Investment strategy channels for Walls Fargo. Thank you so much. Thanks for listening to the Bloomberg Markets podcast. You can subscribe and listen to interviews at Apple Podcasts or whatever podcast platform

you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller three. On False Sweeney, I'm on Twitter at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio