Bitcoin Sell-Off Reflects Volatility--Not A Bursting Bubble

more than a billion dollars in crypto assets from London. Danny, thank you so much for being with us. Are we watching the bitcoin bubble burst right now? And is this just a fad that has ended? Hi? Lisa, great to be with you again. UM. It's certainly been a challenging week in the bitcoin space and market that's had an enormous excursion over the last few years from very low

numb as to very high numbers. UM certainly has been taking um some heat in the in the last a few sessions, and ironically, when sort of global markets started to become more volatile a month or so ago, Bitcoin remained stable for a period of time and then seems to have succumbed to UM, not just it's unique internal but also you know, a more global macro sense of pressure. UM. The bears in bitcoins have definitely scored a win in

this phase. UM. There is a lot of seems to be a lot of celebration amongst the sort of new real Roubini's and dan Crumbs of the world that finally their price predictions seemed to be coming right after a number of years. UM. But when you really put it in perspective, I mean this this last couple of weeks alone, and we've seen oil go from seventy five to fifty three dollars, and we've seen bitcoin go from sixty seven,

sixty eight to forty forty dollars. You know, there are some big moves out there in other commodities to UM. For some reason, the moods seems to be a little bit more negative in bitcoin as you sort of correctly stay say, you know, with some sort of bubble bursting phenomena rather than the sort of inherent volatility we have in the market. As a bitcoin practitioner, and like many others who've been around for a while, one tries not to get too excited when it goes up or too

disappointed when it goes down. So you know, I'm calling this just a very bolatle period, not a bursting Danny, can you just give people a little background on coin shares because there are a couple of different pieces to the coin shares story and on. For example, you own x BT. This is the exchange traded product in Europe that tracks the value of bitcoin. That's correct. Yeah, We're

an asset management company in the cryptocurrency space. Um. So we provide active products like XPT, provider private strategies like coin sches from one and even third parties, ruages like a fund of funds that we that we market for other people. We provide research, we provide execution custody, and you know, we hold ourselves out to be an emerging black rock type of organization where customers can come for

portfolio structuring, performance measurement, execution, custody and so on. All right, So, Danny, given that sort of bird's eye view on the market and the interest from institutions and others for bitcoin and cryptocurrencies, are you seeing a material decline in interest as the price goes down? Um? I think that the tip of the iceberg. When it comes to crypto assets. You know, our prices and these prices gonner by far the largest

amount of attention. UM. Last time, you know, we all sat together in New York, we talked about the emergence of the security token regime. You know that continues to build a pace and you know, more security tokens are coming to market. Those security to is the beginning to gather their sort of smart contracting ability and will see the end of this year or the first quarter of next year, UM, some new use cases for crypto and using these security tokens broadly for private assets and hard assets.

So you know, the the infrastructure development that's going on in crypto assets goes on regardless, and I think you know, prices tend to be up and down. When I look at the names of companies coming into the crypto space. You're familiar with Fidelities Investment we talked last time, or activity with the mura UM, the ice market coming on stream now towards the end of the year early next year with their Bitcoin futures contract IBM and now in

the mix as well. UM. You know, you're seeing a number of large companies coming to the market that weren't there before. You know, is this price decline, you know, switching off those plans not that I can see. Do you have a view towards pegging digital tokens to the value of the U s starle are because some cryptocurrency trading platforms like coin base, they've joined this consortium that is designed to peg the digital tokens to the to

the green back. It's an interesting development. Um. Certainly there is demand for that digital dollar. We've seen Packsos developed, Gemini developed, and there are some other earlier adopters with perhaps lower brand names, lesser brand names in the space. The primary use for these so called stable coins is to switch from volatile crypto assets into stable dollars while remaining within this electronic environment, digital environment, So that's quite appealing.

What has come before is the tether coin, which is sort of unregulated outside the banking system m dollar that has been widely adopted, probably the tune of two or three billion dollars as a placeholder for digital assets in a way to exchange value amongst them between different venues electronically without going through the banking system. But ted has been plagued by lack of transparency and some of the some of the participants not being of the highest caliber.

So the new coins that have come in a much higher caliber. They're fully in light of New York Department of Financial Services UM. The exchanges on which they're trading are typically now sort of fairly widely regulated and based in the United States, and therefore they're more legitimate that The trouble with the new dollar coins is they're open to interdiction by any regulator that i'd believe chooses to do so. So you've got you've got more more certainty,

but more interdiction. Thanks very much for being with us. Very illuminating. Danny Masters, chairman of coin Shares Group. It's got over a billion dollars worth of crypto assets under management, joining us from London. Bitcoin up about four percent today. This is Bloomberg. We have been talking a lot this week about the weakness that we've seen in the credit markets. High old bonds just suffered their worst months since late two thousand and fifteen, yield climbing to the highest similar

for investment grade credit. But is this a buying opportunity? And joining us down to discuss. Ken Monahan, a Moody pioneer co director of High Yield, joining us here in our eleven three old studios can wonderful to see you. So are you out there buying or do you think that this is the beginning of a more protracted sell off? Um? I'd say at this stage, Lisa, we're nibbling at the edges rather than buying in a big way. UM. It's clear that the high yeld marketplace has widened out significantly

in terms of spreads and in terms of returns. We've been flirting with zero percent all year long, so we're now a little underwater. Go back thirty days ago, we were a little above water. Uh, who knows where all in the year. But it's not going to be a big year in terms of returns, that's for sure. We are, I think, though, having uh said that, setting ourselves up for a potential for an attractive two thousand and nineteen. Do you buy for capital gains or do you buy

for the coupon? You know you gotta buy for total return. If you buy for coupon alone, I think you're setting yourself up for for trouble. I always tell my analysts that the worst way to achieve a seven percent return is to buy a seven percent coupon bond, you gotta buy either something that's going to move up in credit quality, or you can even buy something that's gonna move down in credit quality or down in price, but where you're gonna be very your self assured of what your coupon

income is. So, having said that, when you take a look, just as an example at the e t F that many people track, to look at high yield performance h y G, the I shares eyebox. It's down, as you said, three tents of a percent so far this year. So is that the incentive to buy it because it's down or do you wait until credit quality gets really bad and then go looking. Well, they're clearly your investors that want to buy at the bottom in a hig yield marketplace.

So they bought in two thousand and nine, they brought in two thousands three coming out of a recession. Having said that, I don't think that's what you need to

do to be successful in high yield. Interestingly, if you look at the risk adjusted return, and so you plot risk on one side and return on the other, and you use volatility as a proxy for risk, and you look at the high yield market returns over three, five, ten, fifteen, twenty twenty five years, you consistently see the same thing that the high yeld marketplace achieves an above average risk adjusted return, meaning it's above the plot line that you

would run through all the other asset classes. And I think that's really what makes it attractive. It does generate an attractive returning over a long period of time, and I think if you think of the high yielded investing kind of on a three to five year horizon rather than a one to two that's the better way of of approaching it. Okay, So can you said that you're

nibbling at the edges. What are you nibbling on? Well, we're selectively looking at some things, for example, in Europe because Europe has badly beaten up as the United States has been, Europe's even been worse. Uh, And we're beginning to look at some things in a margin market as well, because some emerging market corporate debt has been hit hard. Also countries. Oh, well, you know, there's some attractive things going on in some of the Latin American countries where

that clearly under some pressure. Argentina would be a very good example. Of that, but we think that there's some companies that are there that have longer term possibilities of success. I just want to go back to the comparison because I want to try to understand this. For example, I looked at the performance of h y G just to use that um from all of year to day today. Up right, Okay, if I look at the SMP five

D we're up right. So I'm trying to understand the contradiction. Well, I think one thing you need to keep in mind is that if you look at the high yield market place and you look at the e t f s in particular, they have not had a great return over a long period of time. They have underperformed the broader in a season the high yield market you want more

active man, I think you do need active management. And not only have the e t f s underperformed the major indicase, they've actually underperformed the media and high yield manager as well. If you're looking at what their performance has been, you said that we're setting up for a

strong what kind of returns are you expecting? Well, you know, a strong nineteen Let's recognize you know we're we're talking about that in the context of what will still be a marketplace where we're gonna have headwinds from the FED. So I think the expectations for a December right rise from the FED is pretty much locked in, and I think the markets are already adjusted for that. I still think there will be several whether it's three or four

in two thousand and nineteen, we'll have to see. I think that the comments that are coming out today that the FED may be slowing down in the spring or pulling back maybe a little too optimistic. But I think if we look at high yield, it can certainly have a mid single digit return, and if and if we have headwinds from the FED, that means investment grade is probably gonna lose money. Thanks very much trip being with

us pleasure. Ken Monahan, director of a global high yield for a MUNDI pioneer helping to manage more than ninety billion dollars, based in Durham, North Carolina, but joining us here on our Bloomberg Interactor Broker Studios. Thanks very much for being here. I will just say him that today it does look like other people seem to agree with Ken, because if you look at credit to fault swaps that

there is clearly a bid here. In other words, the perceived risk in high yield credit is declining today in tandem with the games that we're seeing in stock market. So it does seem to be a little bit of a reprieve from the super risk off feeling that we had yesterday. It'll be interesting to see whether that continues though. Right Indeed, Apple's largest iPhone assembly partner, Fox con plans to reduce expenses by nearly three billion dollars in as

it faces quote a very difficult and competitive year. Here to tell us more about apple It's supply chain and the future is none other than John Butler, our senior Telecom services and Equipment analyst for Bloomberg Intelligence. John Butler, what's happening to the new iPhone supply chain? Morning, Pim. Well, I think what's happening is these suppliers are adjusting to the new reality for Apple, which is they are going to keep driving hopefully revenue gains and revenue growth through

price not volume. In fact, it was interesting because I d C, which gives us great data on the whole market, came out with Q three numbers and globally the smartphone market shipments, We're down almost six percent year on year, So that's sort of the new reality for the supply chain for not just Apple suppliers. I know Samsung, for example, has been struggling for unit growth as well. So I

think that's what we're seeing. John. If this is something that everyone has known that Apple plans to generate the increase in growth in revenues from higher prices, why have Apple shares responded so badly to the ongoing bits of information that its suppliers are kind of struggling right now. Well, it sort of begs the question, you know, did Apple expect stronger sales of the new phones, particularly the ten are, which released in late October. It's a low it's a

great phone. It is a low cost version of the iPhone ten. It has an LCD screen, so if you can live with that, you're getting all the other features of the ten and I think that Apple and everyone had high hopes for that. The early reports are it's not selling. Well, they're just anecdotal reports. It's it's tough to really tell whether that's true or not. I personally think the game begins on Black Friday, UM because the holiday selling season is so big for smart phones. But

you know it's tough to say. I mean the supply chain, our semiconductor manufacturers, they tend to be very cyclical, right. They expand capacity until suddenly the market turns down and then there's over capacity, pressure on pricing and they need to cut back on personnel and facility. So I think

we're seeing that right now. But I'll say this Lasia, Apple does come up against very tough comps beginning next year too, So they're going to hit what I'll call a transitional period with iPhone growth, or at least that's my expectation. John Butler, I'm sure you've read the reports about Apple working on electronic medical records for US veterans.

What does that tell you about Apple's future strategy. So that speaks to the strategy of growing services to a point where it can pick up any slack and iPhone sales and services has been a great area for them. Everyone knows about Apple Care and and Apple Music. Those are well known consumer services. But they're also doing a very good job in healthcare. They're pushing on fitness very hard. Uh, They're doing a lot in medical records. I'll believe it when I see it pim By the way, medical records

are one of those areas. You know that privacy is such a big issue. It's been very difficult for the world to get to a common platform and frankly for you and I to access their own medical records. So hopefully Apple can push through that all the regulatory mess to get there. But that's the endgame, and I think it'll be a big market when they get there. John, just real quick here, do you think that the sell off and Apple shares over the past few weeks has

been overblown? I think people are looking ahead and seeing a slower growth environment. What the right number is is tough to say, but I think that's what you're seeing is a response a growing realization that iPhone really is coming up against tough comps, and we don't have any new hardware innovations yet. I think five G phones and flexible smartphone screens are going to drive that next cycle, but it's not coming next quarter. John Butler, thank you

so much for being with us. Happy Thanksgiving, Have a wonderful Turkey day. John Butler has senior Telecom services and Equipment analysts for Bloomberg Intelligence. Apple shares rebounding a little bit today, after a bunch of brutal days, the NAZZAC down quite a bit, Apple shares up at this point about nine tenths of one. It's been a rough couple of months for equity treagers and frankly for anyone who

deals in risk. And the big question is why does this have to do with expectations for slowing growth and a possible recession in the near term. John us sound to discuss Marvin Lowe, global macro strategist at State Street in Boston. Marvin, thank you so much for being with us. So what's your view? I mean, do you think that all of a sudden traders are suddenly waking up to the realization that there could potentially be a downturn in

the near future. Yeah, yeah, I think that's definitely. Um certainly made its way into the narrative, and data kind of supports people being a bit more concerned. You know. Certainly the rebound in some of the global economic data that we expected after the summer hasn't really come our way. And then most recently there has been a slowing of um U S data, which, while expected, is still you know, something that people might not have anticipated given how strong

data had been um going into the fall. Marvin, it's the federal reserves still going to raise interest rates in December and then four times in Yeah, December's December is the easy part of the equation. Yeah, I think that they will. I think that there's a very high threshold for them to change their mind done that, and I really don't see that happening going forward. I do think that they're committed for at least one or two more.

I know there's been a little bit of back and forth in terms of how committed they are in nineteen, but the data is still there for them to continue along the path, you know, whether we get to the four or five that they're talking about, you know, late nineteen early, I think that's really where the question starts to emerge. So, Marvin, what do you think that that would have to see to slow down? You know what, I think that we would need to really see data

kind of come in. I think that we would need to see the jobs market really start start to um peek if you will, um uh, you know, decreases in the unemployment rate would have to uh would have to slow up. Um. But you know, short of that, they are they are looking at an economy which is still at or you know, slightly above trend going into next year. Marvin. Earlier today we had a discussion about high yield debt. We were speaking to Ken Monahan of a Mundy pioneer.

He was bullish on high yield. Do you see any problems with investing in high yield debt given that we may be turning in the interest right cycle. Yeah, I'm not anywhere near as optimistic unhigh yield in particular. I think that, you know, certainly we are talking about a recession. I think the way you see as a classes behave they're starting to show concern about when that recession is going to occur. I think that there are, you know, certain aspects of high yield that are very different now

than they were before the crisis. Also that give me a concern, some of it coming from the investment grade space in terms of how large the triple be part of the market is, but also how a liquid and how um we've kind of changed, uh, the way high yield is traded. It kind of will make for volatility and will make for a challenge once we do get

to that turn. So in this period of time, what do you think is the riskiest asked as a class UM you know what I'm gonna say, I'm gonna say that, you know, some of the corporate UM credit parts of the market do do frighten me a bit? You know, they have not certainly sold off as much as a lot of the other asset classes, so there is a bit of catching up to do. Are you talking about

high yields or investment grade? You know, probably more probably more high yield at the moment, but you know, certainly investment grade, and you know, blindly just buying the index is UM is wrought with a lot of triple bs these days, so you know, really understanding those market dynamics are very important. How do you understand the market dynamics of what is going on in the European Union, specifically in Italy and will that affect interest rates in the

United States? You know what, at the moment, I think that UM it would have a minimal effect that at this point. You know, certainly longer term, there are a lot of questions as to how the EU is going to deal with Italy. You know, certainly all of the problems with regard to the amount of debt remains, but in terms of it producing volatilely and a catalyst for increased volatility. I think I think the markets and investors are correctly looking beyond maybe the certain headlines that we're

seeing over the last couple of weeks. Alright, So, given the fact that works probably going to see increased volatility, and you think that there is still a lot of risk in the lowest rated credit, what do you expect? What do you expect we're actually going to get a downturn. I mean, right now, very few people are saying it's

going to be the next six or twelve months. Yeah, you know, um, certainly, certainly the next six months looks like it's going to be okay, you know, and you know, put that in the perspective of certainly where we were. You know, if we're talking about two two and a half percent growth versus the three and a half four percent, it's not going to feel that great, but it still

is a trend or above trend um. I do think that from the perspective of liquidity um coming out of the market, whether it's the ECB's position and or the FEDS continuing hiking and and and reducing their balance sheet, we're going to see kind of that market volatility from UM an economic perspective, however, you know it is it is a two way going into type of type of discussion for me, Marvin, what do you make of companies that have either pulled or postponed their initial public offerings

because of market volatility and I'm thinking about and the possibility of an uber I p O. Do you think those things are off the table now? You know what UM no I I don't think so. You know, particularly when you talk about companies that have as large as a cachet um as you describe, Remember there is always evaluation. It's not as if these business models are worth zero. We're trying to sell it from a hundred. You know. Certainly we've gone through that UM you know, in the

in the early two thousands. By the time companies come to market, they generally have a much more developed business model that people understand, and we've kind of seen that with Spotify, you know, certainly Uber. Everybody everybody knows Uber. So there's a value to that. Whether or not the valuations are what UM the sellers want, now that's a different story. So we've seen a number of big analysts say it is a time to start adding to cash allocations.

Do you agree, And how much higher should cash be uh than over the past few years in your opinion, Yeah, I I think that, um, you know, whether it's a function of kind of UM anticipating the volatility and or keeping some powder dry. Cash does feel like UM, it's it's a decent place to get into. UM. You know,

I don't necessarily have an asset allocation. Uh. It's certainly it is a larger percentage than it was over the last few years when things were you know, much easier to see from a from a risk taking perspective, Marvin, the sense that there is a dollar shortage outside of the United States, Yeah, I do, UM, and you know, kind of as we get into the year end, I think that um, that's going to play for the traders in terms of how they want to position it. Um.

The dollar remains UM, you know, in demand. UM. We kind of see it coming from the emerging markets as well as other areas where you know, for the most parts, for the most part, our markets are are the most stable. So yeah, that that that that continues, you know, ironically, UM, whether or not we get um much appreciation in the dollar given everything else that's going on is a pretty active debate the market right now. Thank you very much

for spending time with us today. Marvin Lowe is global macro strategist for State Street, joining us from our Boston studios talking about interest rates, the European Union, Italy contagion, as well as HI yield debt. What do you think the main topic of discussion is going to be this year at Thanksgiving tables across the country. Uh, don't eat the romane lettuce. Indeed, last year was bitcoin, right, so this year, you know, bitcoin is ten years old. This year, well,

how's it doing? Not so hot? No, but I'll be interesting to see whether there are discussions about markets. You know, I know certainly my own family has been asking me what does this mean? What does this mean? Yeah, well hopefully you won't open your statements for the month. Yes, we leave it to leave it to left the pumpkin pie. Yes, leave it to lead and November. Thanks for listening to

the Bloomberg P and L podcast. You can subscribe and listen to interviews at Apple Podcasts, sound Cloud, or whatever podcast platform you prefer. I'm pim Fox. I'm on Twitter at pim fox I'm on Twitter at Lisa Abramo. It's one before the podcast. You can always catch us worldwide on Bloomberg Radio