Bonds, ETFs, Ukraine, and Crypto (Podcast)

at Bloomberg dot com slash podcast sixty portfolio. Many of us grew up with that six stocks, fixed income to fixing income to maybe you know kind of you know, even out maybe some of the risk here give you some return. But man, that did not work this year or is not working this year. It's stocks down, the US aggregate, the Bloomberg u S aggregate fixed income total return unhedged down sixteen point eight percent. It is ugly out there, folks. What are you doing the fixed income biz?

Let's check in with George Borie, chief Investment Strategies for fixed income at all Spring Global Investments. George, you guys in fixed income? I mean, does anybody want to talk to you guys? A cocktail parties or is it just stay away? What do you do? Yeah, good morning, Paul, Thanks very much. Yeah, I think as you highlight um you know, bond investors don't really set up or sign up, i should say, for for double digit mark to market losses UH in their portfolio. So it's it's been a

very very challenging year for fixed income. What we tell clients is sort of two things. Number one, you know, the bonds they bought, they they actually are performing as advertised. They're paying the coupons that they were assigned to do. But obviously, you know, sort of two things have happened. Prices have gone up, and central banks have moved to become much more hawkish. As a result, bond prices, at least on a mark to market basis, has gone down

quite a bit. That's the bad news. The good news is is that the yield level, the amount at which we can invest today is actually very attractive relative to history and certainly relative to the current kind of basket or risks we're looking at today. So a ten year treasury yields about four percent from one percent last year, a basket of investment grade bonds yields six, and a basket of say high yield bonds yields about ten. And it's the power of compounding. If you can reinvest your

money today. At those yields, your forward looking returns are gonna look very compelling and they'll help you clawback some of those mark to market losses. They're not realized until you sell the bonds. Well, George, to your point that you know, if you look at a ten year treasury right now yielding about four percent, if you look at a three month T bill, uh, it's yielding about the same, if not more so. In that environment, you just go to the shortest thing possible. If the yield lever levels

are about the same or are you looking at duration here? Well, in the short term, uh, you know, going for that sort of one year T bill at at roughly four to four and a quarter percent, that's not a bad idea. It's a good safe place to park money. It will sort of generate that yield for the next year. But if you're looking a little bit further out, inflation is

unlikely to stay at these elevated levels. The central banks moving aggressively to get inflation down, and and the important thing to remember is the FED as very very powerful tools. They will get what they want, but it may take some time. So if you're looking say five, ten or even thirty years out, and some people do look that far out. Then that longer duration trade, locking in, say ford to four and a quarter percent yield today may look very nice five years out, and so we are

adding some of that duration. We are looking further out the curve to lock in those longer term yields because we think inflation will come down and yields will start to come down as we sort of move beyond this this spike in inflation. George, what's your call there and all spring about this Federal reserve? It seems like seventy five basis points is baked in for the next meeting after that? How do you think the Federal Reserve will you know, kind of play Yeah, that's that's that's a

that's a great, great question, Paul. You know, most people, many people expect the Fed to raise rates another seventy five basis points. Uh. And the real question is it sort of where are we at the end of the year. They have two more meetings before now in the end of the year, and then importantly, most investors are looking into next year. The market sort of wants to get a sense of where the terminal rate, where will rates peak?

Right now, our view is that the Fed has been very clear they want to get rates up to about four and a half percent. They've recently reinforced that message, and so you know, some folks in the market we're expecting higher than that. We are not. We think we get to sort of four and a half percent by the end of the year, that would be another seventy five in November, but then start to decelerate that pace.

That should allow them sometime and perhaps a little bit of patients to be able to sort of start to slow their rate of pace of of of rate, their pace of rate tightening. So four and a half percent as our target for the end of the year, we think they'll likely sit there for an extended period of time. That could be six months, nine months, perhaps even a year. It really depends on how inflation behaves and how the

economy behaves. But the expectation for sort of this ongoing rapid fire kind of increase, we think it is getting a bit overblown, and we think the Fed actually is starting to gain some room to sort of slow that pace, but then allow markets and allow the economy to adjust as those higher rates take hold. All right, George, great stuff.

Really appreciate getting your informed perspective on all things fixed income. Again, a brutal, brutal start to the year two returns like the fixed and gum world has never seen, is what I have been told. George Borie, chief investment strategist for fixed income at Offspring Global Investments. I want to get right to our next guest, the Conversation of the Morning.

James Travitis, retired Admiral U S. Navy is in the Navy for like thirty seven years, fifteenth commander of the US European Command and NATO's sixteenth Supreme Allied Commander in Europe. But I know the highlight of his career is that he is a Bloomberg opinion columnist, which means he has to speak with us here at Bloomberg Radio. Admiral, thank you so much for taking the time out of your busy schedule so many places ago. But let's start with Ukraine.

If I were to war game this out from this point, how would it go? I just don't know how the same places out there's spent so many mistakes by Mr Poutin, I just don't know where he goes from here. Well, I'll start with three little words, which are I don't know. Nobody does. UM. War is unpredictable, but I'll give you my estimate, having watched it closely, having been the NATO commander, having visited Ukraine many many times. UM, these are very

tough people on both sides of that firing line. By the way, both Russians and Ukrainians, UM, So don't look for any sudden give out of either party here. So here's what I think will happen over the coming weeks. There is going to be a significant attack on the city of Harsan, which is a major uh Ukrainian city. It's the gateway to Crimea, and that will be where I would focus investors, analysts watch what happens in here soon. If the Ukrainians really run the table, push the Russians out,

they're gonna have strong momentum. On the other hand, if the Russians can bob down the Ukrainian advance, that will also tell us something. So all of that all will play itself out over the next month or so. Then we're going to be deep in the guts of winter, and hopefully as we come out of winter, both sides will have been exhausted and be prepared to at least begin a negotiations so we can start to find a

way out of this situation. Well, in the guts of winter, I want to talk about the dollar and sense of what war actually costs, because you know, there's a story on the terminal today, uh the Ukrainian president saying that his government needs seventeen billion dollars in immediate financing. That's immediate, Whereas you have the EU on the other side saying that the EU is going to develop funding around eighteen billion euros just under eighteen billion dollars for next years.

So there's a real mismatch here. And I'd love to hear your thoughts on whether or not you're worried that the political will to fund Ukraine might fade as we got into those winter months. I think the political will will remain, but it's going to be more of a negotiation, not a simple Ukraine says we need X, and we hand them x. Um. I think it's gonna be more a situation of Ukraine says we need X and we're

gonna say X. Sounds like a lot. How about why plus some longer term Z and maybe some additional A, B and C in terms of weapons. So you know, we talk a lot in private equity. I'm the vice chairman of the Carlisle Group. We talk a lot about burn rates and on putin side, the burn rate is pretty clear. It's the killed in action, the equipment destroyed. He is a very high burn rate. The burn rate on the Ukrainians is what you just put your finger on, Katie.

It's the patients, the resources, the dollars, the Euros, the weapons of the West. I think that tap is not going to be suddenly shut off, but I think it's going to be more of a negotiation between the Ukrainians and the West. Point forward, add I want to take you to the other side of the globe to China. They just finish up their party congress and the strengthened g and potentially presenting much more risk to the global environment here. How do you What are your takeaways from

what we've learned about China over the last couple of weeks. Well, first and foremost, we've seen, as you point out correctly, Paul, we've seen the emergence of g as a as a pantheon leader in China. He's now up there with Mao and Dan, and he is someone who is going to be with us for a while. He appears to be very healthy's late sixties, early seventies. He is in complete control. And if you doubt me at all, go back and review the video of the previous leader who Jentao, being

dragged out. It looks like a scene from George Orwell. So clearly she is in full charge of I know. I'll give you two things to focus on as investors. One is he has remained adamant that he will continue this zero COVID policy that has real implications for the Chinese economy obviously, which then has a knock on effect globally. Watched to see if now that he's installed and is in full control, might he be willing to crack open

that COVID policy a little bit. And secondly, Taiwan. In his speeches as part of this twentieth Party Congress where he was just appointed, he talked quite aggressively about the long term play on Taiwan. But my takeaway is don't look for a military move there for the next three to five years. He's not ready to go there. He's watching the debacle in the Ukraine. He has uncertainties and doubts about his own military about the Taiwanese. So I think that those two are going to be indicators to

watch over the next few weeks. I've I want to talk about a Bloomberg opinion column you wrote last week, the headline of which is NATO's nuclear drills are a risk worth taking. Of course, you're talking about the round of exercises that started from NATO and Western Europe last week. As you point out, it's a pretty fraught time in Russian relations, to say the least. But talk me through

that argument and whether we should expect more of these drills. Sure, let's start with the predicate that Russia has been rattling the nuclear saber almost continuously since this war began. So NATO every year, Katie and I commanded these drills. As Supreme Allied Commander, NATO every year exercises its nuclear capabilities. It's very routine. Um, it involves half of the NATO nations, it's confined hundreds and hundreds of miles from the Russian

border out in Western Europe. Um. And it's it's a routine, business as usual exercise. I fear that if NATO were to say, oh, we're really concerned about Russian nuclear threats, so we just won't exercise our capability. I think that sends exactly the wrong signal to putin. It shows that we're going to back down in the face of his threats, and he'll begin to think, well, maybe they don't really have that kind of capability to counter. So, yes, you're right,

it's a fraud. Time you've got to think it through. But on this one, I come down on this side of conducting those exercises, which are in fact in progress right now. All right, Ada, Well, thank you so much for joining us. We really appreciate your time and your informed perspective on these global geopolitical issues facing the world, facing markets, facing investors. James Travita's Admiral, United States Navy.

He was with the Navy for thirty seven years, fifteenth Commander of the US European Command and NATO's sixteen Supreme Allied Commander. He is a Vice chairman Global Affairs at Carlisle Group and he is a Bloomberg opinion columnists, So he is a a busy individual. We appreciate getting perspective on some of these bigger issues here. On terms of geopolitics, We've got Ukraine, we've got China, lots of areas of concern out there, still the thick of earning season for

the global banks. Last week we had a lot of the US names. Now we're starting to get some of the European names. UBS, for example, which is one of the many firms I can say I once worked at because they were I used to work at painting weeb which is now part of UBS. There's probably not many financial institutions that aren't part of where I used to work, for whatever that's worth. But UBS beat some some numbers today. Uh, stock up a little bit. Alison Williams, she's been covering

bank stocks for decades on Wall Street. She's actually one of the leading voices out there. So Allison, um, what are you seeing from some of the European banks? Because I guess my theme has just been I'm not sure how they compete in the global banking business. But what are you seeing with quartally numbers? So for UBS, I mean there are a few key positives. I think you know, the stock is really reacting to trends in the wealth business. Um,

so they're more focused on that business. They had nineteen excuse me, seventeen billion of wealth inflows a couple of billion as well in asset management, and so given UM sort of the tough environment in Asia, we think that's impressive and we think that is an indicator that their their business health is strong going forward despite the fact that we have some cyclical pressure in Asia on the capital front, capital ratio much bigger than expected UM, so

investors I think are looking for UM that capital to be returned, so that's exciting. They did up upside their buy back to five point five billion, but that was had been sort of signaled. And then over to UM the investment bank that we always like to talk about fixed income treading up over sixty so that's a small business for them. UM but did very well. They had a record quarter and sort of derivatives on UH currencies and rates, which is where we're seeing all the strength.

On the negative side of things, equity trading worse than expected, so that's more negative for them because that's a bigger part of their business and those fees UM, like we've seen at the bank's All quarter week. The one thing that the one place where UBS is benefiting and they are competing Asia Asia. I p o s have been sort of the soul UM Bright spot in the I p O market and ubs getting some benefit from that. Their fees were stilled down, but they did get some

benefit there. And so also I want to go back to last week and to US bank earnings because this isn't a space I follow too closely, but I do at least four times a year, and what stuck out to me was the fact that net interest income absolutely on fire. Bloomberg's Lisa for Home It's had a great tweet which really have been thinking about since that if you think about the pressure on the big banks to pass on the higher interest rates to consumers hasn't really

amounted it much last week. I know that the big banks CEO is one in front of Congress in the past month or so and said that they would do that. Hasn't seemed to happen yet. When would you expect to see that? So they're passing it on in specific products and businesses. So, for example, UM, the wealth business is an area where they are passing on those increases. UM. Other areas include the commercial banking business. So you are

seeing it UM in some areas. But you know, keep in mind there's been a lot of changes, including overdraft in the for the US banks UM, where UM they've largely eliminated those fees. So in a way that's giving the customers some some economics, though not necessarily interest rates. UM. But I would say that in general, all the costs on those sort of smaller accounts continue to be low. Keep in mind, we're coming from like an incredibly low interest rate environment UM. And so I think, as you know,

things are normalizing a bit there. UBS did see some benefit from the net interest income line, similar to the US banks, where the fourth quarter is going up and UM looks to be higher. So also we're gonna hear from Deutsche Bank, I guess tomorrow. I mean this is way back in a decades ago I wrote a paper saying, you know, predicting some of the big big who are going to be the leaders and financial services. You know, in the twenty one century. Deutsch Bank was one of

my names, but it hasn't worked out that way. What do we do with Deutsche Bank? What does Germany do with Deutsche Bank. You have to have a strong Deutsche Bank, don't you. They are um executing on their strategy and they do have strength in those German markets and in Europe, and you know, they're big restructuring which took place, or I guess their last restructuring took place, because there were many,

many years of restructuring. But you know, in nineteen they made the tough decision to get out of equities for the most part focused on fixed income trading. UM. It took a couple of quarters, a couple of years maybe even for that business to stabilize, but that business is really um what's doing well this year. They also have been hurt by the lower interest rates. Um. You know, we we've had low interest rates in the US, but UM, Europe I think has it's been even tougher. And so

Deutsche Bank. What you know, the read across are joint bank is very positive from the fixed income trading that we've seen at these banks. So we're going to expect them to get the benefit from that as well as from higher rates when they report tomorrow. And Allison, we're we've said good bye to the US banks in terms of reporting, we're getting through the European banks. What has been the biggest stand out to you thus far? I mean,

the biggest driver has been the net interest income. I mean, the growth is just super strong upside to the fourth quarter. You know, banks are sort of varied in terms of their caution or their optimism with regard to and then I also thought that the most interesting data point on the credit front because that's I think an area where

most investors are very uncertain about next year. But Jamie diamond saying that five to six unemployment is about you know, a couple of quarters of building reserves a six billion, So giving that context, because the last cycle we had was the pandemic, where it was over twenty billion UM, next year's estimate is one billion, so I think kind of level setting um the risk there and comparing that to the very strong pretexts, pre profit, pre provision profit

that we're getting at these banks, I think sort of help frames a debate that that is a manageable scenario. Alright, great stuff. As always the Alison Williams Senior Global Banks Analysts for Bloomberg Intelligence. She covers everything around the world on the banks, and that's not enough. She's also the co director of research for the America's for Bloomberg Intelligence, so she does it all. We appreciate getting some of

her time. Katie. You know, one of the biggest growth stories of recent time for me on Wall Street, and I've been doing this for thirty five years. Is E t S right? You know a thing or two about et F? Don't yet? They're the future. And I say that as someone who covers E t F for Print News and also uh anchor show Me and Matt. He's a little bit m I I for the next couple of weeks, but the show will go on tomorrow. Unbelievable

growth story, folks, funds flows. If you want to know where the money is going, boy, take a look at the E t F. So let's take a couple of segments here. Let's do two segments, Katie, We'll do a little round table talk et F. See where the money is going, where the smart money is going or leaving Sylvia Jablonski, she joins in the Bloomberg Interactive Broker Studio. She's the c i O at Defiance. They do nothing but E t F s. And then when you think of E t F S, I think of Eric Baltunus.

He is the senior et F and also Bloomberg Intelligence. He is literally phoning it in from Philadelphia. God forbid. He hasn't bedged in since last week. I mean all right, Eric, we'll get to you in a second. Sylvia, I asked you earlier. All fair, but I love to just get your thoughts here. This has been a great growth story

e t F funds. It just seems like they're just coming right out of mutual funds right into e t F s. Is there a bare case for the e t F industry that this tremendous funds flows you guys have have in the industry have experienced. Yeah, great question. Great to see you, Paul in person. So what's really interesting about e t F flows this year is that the flow and pace of people coming into e t F s and coming into the market has only increased.

So we've seen outflows and things like the maddox and some of the riskier types of products, just as investors have gone risk off. But the good news is that you've seen loads of flows. I think it's the second or highest, second or third highest year ever um in terms of months the last couple of months year over your flows into things like value and dividends and utilities. So you can see that investors have embraced the product itself and they're just looking for kind of the more

defensive part of e t F themselves. But to your question, I think, if anything, it's just going to get bigger and bigger and bigger. The mutual fund, the high the mutual fund is pretty much dying. Um. The e t F good business for so long it was, but it was just too expensive and you know, it doesn't trade intra day. There's all these like funky things. ETFs are, you know, transparent sometimes tax efficient vehicles, and people really like them. They trade like stocks, but they're also evolving.

So now you see these single stock ETFs, you see Leberty tfs, you see a specific number of stocks in a basket that make up in e t F long short, you know, thematic. So I just think that there's so many different ideas and they're so easy to trade, and they're so cheap um to put in your portfolio. So I suspect they continue to grow. Yeah, the rise of single stock ETFs raises some existential questions about what exactly an e t F is. But I think of defiance,

you know, as firmly in the thematic box bucket. But when you see the big wave of single stock e t f s that have launched, is that something that tempts you, so you'll see some pretty interesting things coming from us. You know, there there are things like quiet perias and things like that. But you can take a look and see what some of the filings are from

the different et F fisuers out there. I think what's super interesting about that is, you know, first you have the classic et F structure and that gives you access to you know, whatever it might be. Say say a client wants access to electric vehicles and they buy eye

Drive or one of the e V vehicles. Well, in that e t F you have the four or five e V companies, and then you have loads of companies like IBM, oracle Um, Honeywell and Starbucks that have not I kind of making that up, but they have nothing to do with e V. So there's a lot of filler. And what Single Stocks did is took it to a different place and said, well, actually the client only wants access to Tesla, so let's just beef up their access to Tesla and have a Tesla stock that's levered up.

And then I can see another world where you can get a couple of stocks that give you discrete access to the names you actually want and remove the feller so you know you have that broad based access and you'll be able to really have precise, transparent, pure sector access to E t F evolution. Alright, folks, I'll tell you. I think the best research out there on the E t F industry and the trends is from our good friend Eric about tunis. Eric, what are you guys working

on now? What what's kind of when you talk to investors out there, and I know you've got lots of context. What's the buzz in the ETF world? Yeah, I mean, I think it's what Sylvia said. So all the buzz is in the hot sauce lane, which you know, portfolios are changing. We find that most people now have say eight of their portfolio the core will call it, is it boring? Sixty forty cheap Vanguard kind of dish? Then they that's pretty boring and it's got to just sit

there and grow like a tree for thirty years. So people are you know, they get itchy. So what they want to do is decorate that core with things that are completely different. So you know, thematic ETFs leverage, GTFS crypto would fit, their arc would fit there. So all of the action, interest and press is going to be

on people trying to satisfy the hot sauce lane. So what you're gonna find and Defiance I'll speak for them because she can't say it, but they filed for an e t F that is leveraged but actually leverages on an index that has only a concentrated number of stocks, so it's actually purposely increasing the volatility. We just saw a cannabis ETF go from like twenty something holdings to six and I call that designing for max pop potential. So there's going to be this sort of the united

the fee wars. The fee wars are where of the portfolio is. But now we're now we're entering the shiny wars, which e t F can be the shiniest and that it seems crazy, but it makes sense. And the shiny that area, that hot sauce area, that is where active is going to exist. Like it or not. I pers really think if I'm an active manager, I like it. I want to reinvent myself as you know, uh so

and so's twenty best stocks. That is I think the future for active and these trading tool type products that Defiance is uh serving up as well as themes and all that stuff. So that is probably might be one of our top three themes. Yeah, Janice did that a while ago, back in Denver, Colorado, years ago. Let's continue this discussion on E t F s. It's a thing. We have a TV show Monday's one pm. Wall Street Time, Katie gray Feld, Matt Miller. That's how big it is.

Wednesday this week, Wednesday this week? Okay, why not? All right? Sylvia Jablonsky, she's the CEO of Defiance. They're in that E t F business. She's here in a Bloomberg Interactive broker studio. And Eric Caltunas y'all knowman love him, senior et F analysts with Bloomberg Intelligence. Eric, I'm gonna start with you here. I thought this et F thing was a scam when I first started following your work, But now you've convinced me it's a real thing. Now I'm

at the point where do you have an argument? Eric, wat the mutual fund will not go out of business. I can't think of buying Why anybody would ever buy a mutual fund? Yeah? No, I remember you pass them by my desk, uh, I'd say once every couple of weeks. I'm just saying, yeah, this et f thing is a big scam. Uh, I was wrong. I was like some workplace harassement exactly. No, he was. He was half kidding. Um, so it was like yeah, but anyway, um, look you're

not alone. People didn't really take this seriously, especially legacy asset managers. Last year they took in seven billion or somewhere around there eight fifty billion, and so people are even them. Holdouts like Morgan Stanley and Capital Group are now coming in. So that's a that's a sign that they are going to ultimately have a higher market share of the mutual funds. Right now, they make up of the assets that mutual funds have. I see that getting

to sixty seventy. I do think mutual funds will will have a home. They're good in retirement plans. Et s lose a lot of their superpowers when you go into the four one k world because you can get the institutional share class of mutual phone which is cheap. You don't need to trade it in tax efficiency as an advantage inside a plan like that because the tack taxes are an issue. So I think mutual funds will survive there.

And I think for bonds there's a couple of areas in the bond market where I think mutual funds could make an argument that they're better because they can buy more liquid bonds um in a way that e t s can't because the index has to be pretty liquid to crazy TF. So I think those are two two

places where mutual funds were hanging around. Well, Eric, it's interesting that you mentioned that because, as you and I talk about constantly, if you look at the flows, the magnitude of the flows coming out of bond mutual funds going into bond e t s is really staggering. A record amount of outflows from bond mutual funds. So I feel like that works against your argument there, Yeah, it does, but there again, but you have there, Our bond mutual funds have five trillion, bond e t f s have

like one trillion. So we're still so early in this I think a lot of if you want treasuries or you want like a bond exposure, honestly, e t F probably works, but you have to remember bond managers buying large outperformed the benchmark at a way higher rates than on the equity side, like for example, in high yield seventy active bondod managers UM have beaten h y g

over ten years. On the equity side, that numbers, so bond managers, I think will for some smart money will will remain popular, but there will be certainly some money moving over, especially money that just wants sort of general bond exposure. I think the et F will will win some of those dollars as they are this year. Okay, so we give us a sense of kind of who's buying these e t F suh. You know, I think back to retail versus institutional. How is that playing out

these days? How is that changing? Yeah, it's a great question. And I think you know, if you looked back about five or six years ago and tried to figure this out, it's sort of dependent on the products. So if you looked at kind of the thematic funds, it was more retail, and the leverage funds it was more retail. And you know, the classic vanguard black rock types of btfs were more institutional.

And now I would say, you know both. I mean you have everything from hedge fund managers that are looking for, you know, a quick sector exposure and don't want to go buy the five hundred stocks, are just looking for a quick hedge for a couple of days. Might use

it for ease of use um. You know, some of the e t f s represent these niche sort of categories, like whether it's defiance or ARC where you're looking at like a five G or you know, next generation of technology and things like that, and the e t F is the quickest way to get exposure to that. But it's most certainly you know, retail um post COVID, there's just been a massive inflow of funds from millennials and beyond into e t f s, particularly for thematic ETFs.

And now you know, institutions have just figured out that they're super cheap and they're super easy to get the exposure that you want for your sector rotation model or whatever it might be. Set it and forget it, and and you know, use that product with great transparency. So it's it's sort of everyone across the board. Now you have a TV show about a Katie. You know, I was just thinking that, all right, real quick, Eric, what are you working on? What are we going to see

from the Bloomberg intelligence on the front? Uh, you know that thing I just mentioned back to the Janis twenty. I'm writing something about how I think there'll be an influx of personalities and old legacy managers coming out with a Cathy Wood version of themselves, a concentrated best ideas fund that can compliment Vanguard. I'm also writing about a bond mutual fund that has lost twenty in a month because it has a bunch of ill liquid bonds and outflows, and how it's a little bit of a canary in

the coal mine. If we see something like this happened with the Pimco fund, this could spell problems for the market and cause chaos. And I think the bond fund market is something to watch because it could make the FED have to pivot. All right, Eric, good stuff, as always, Eric bu Tuna. Somehow he's built a career and quite a career doing his et F stuff. Crypto, Crypto, crypto, you do something with crypto. Don't you do a lot with crypto? You're a crypto person. I mean, all right,

here's Jamie Diamond until he buys off on crypto. I'm not sure I'm buying off on crypto. That's your guy. It might be my guide. But Bloomberg Business Week has bought off. I mean, they didn't just write a story or a number of stories. They did an entire issue of Bloomberg Business Week magazine and it's just entitled the Crypto Story. So we paid somebody for that title. But the guy who actually wrote it is Matt Levine, Bloomberg opinion columnists. He joined us here on a Bloomberg Interactive

Broker studio one of his two days a week. He dangns us with his presence. Matt forty thousand words for Crypto. What's the takeaway? I mean, I'm not sure I can get through words, although I'm getting well. I read part of on the train ride in. I'm maybe a third of the way through. Finish it up on the way back. What's the takeaway here? It's um No, I mean, like the takeaway is is is sort of the middle of the rara like I find crypto. I think Crypto is

really interesting. I think it's like building a lot of interesting stuff. I think, um it remains flawed and has not really kind of proven a like overwhelming and change the world case yet, but I think it's changed the world in a lot of small ways that are interesting and that are worth kind of picking through. I like this line I've already told you this. I like this line in here that you know, I don't have strong feelings either way about the value of crypto. I like finance.

I think it's interesting if you like finance, crypto is amazing. And you and I have talked about how basically it feels like crypto is creating this parallel financial system that it's ingesting parts of the traditional finance world, and in a way, it just feels like this grand market structure experiment which doesn't necessarily have a lot of real world impacts. Yet that's the way it feels to me. And that's that's my own bias, which is that I like market structure.

But I think if you like market structure, people are doing a lot of interesting things in market structure. And when you think about, like who likes market structure, it's like, you know, headshune people on high frequency traders. And so one thing that is that is a real kind of achievement of crypto is that it has attracted a lot of people from traditional finance to build that they think

is a better financial system. So a lot of that is incremental, but if you build a better way to kind of do trading, then maybe one day you use it to trade stocks or loans or something else. Decentralized finance. What is that? I like, centralized finance like exchanges. Yeah,

I mean de centralized finances. Basically the idea that you have smart contracts, like computer programs that kind of do the work of running an exchange or a lending platform or whatever, so that instead of setting you know, signing a contract and setting up an account, that a broker who then sets up an account you know, has a

membership on an exchange where you can trade stocks. Everything is kind of an open protocol where you can just kind of like go to your computer and trade stocks, and uh, that creates a lot of opportunities for, among other things, just like doing stuff with less permission. I think that one thing that people in crypto really like is that you don't need to like sign up a bunch of accounts with big banks to get permission to trade.

You can just kind of go onto the to the open platform and do the same trading as everyone else. So it gives a lot of opportunity for kind of competition and for innovation. So again, this is a question I've already asked you, but to your point that I don't know. Maybe crypto is able to build a more or add to the efficiency of the existing financial system. Maybe it makes it better somehow. Is that a worthy

enough goal? Who would be disappointed if that was the ultimate sort of use case for this entire system that has been built. You know, I think some number of vcs who think that crypto is changing like the sort of like how humans will interact will be disappointed to the extent that their bets don't pay off as much as they want. But I think that, like I don't know, like I've spent my whole career in and around finance, Like I think making the financial system better is a

totally worthy goal. And I mean, in my day job, I think making the financial system more fun and interesting is a worthy enough goal. So you know, I'm not one to criticize that as a goal, but I do think that, like there are people who whose view of cryptos that it will sort of revolutionize uh society, It'll it'll sort of increase human freedom, and that would be you know, if you're like the hedgemnes are little bit more efficient, that would be a disappointing outcome for people

who believe in that. I mean I'm just scrolling through this. It's forty thousand two or it's awesome. I mean there's everything, awesome, graphics. Literally, folks go to a magazine stand if you can find a magazine stand and by Bloomberg Business Week. It is just ridiculous. They talk, Matt, you cover everything here. I don't know. I mean, I guess one of my questions is it because I'm gonna walk this over to Jamie Diamond, you know he's on Park Avenue. I'll take a copy

of this Bloomberg Business Week. He'll read it word every word. Are you surprised or how do you view the fact that main street main street Wall Street financial services industry may not hasn't really embraced crypto. Is that a fair statement and it's so are you surprised that they have not embraced crypto? Um? No, I wouldn't say I'm surprised.

I mean, look, I think there have been tentative steps because you know, it got a lot of attention and like you know, until about a year until about this year, like crypto kept going up, probably speaking, and so if you're an asset manager, like that thing that goes up,

I want that. So there was some interest. Um, but I'm not that surprised that people haven't embraced it, in part because you know, there was a Bloomberg story like yesterday about how investors WE pulled investors who said that more SEC enforcement would make them more interested in crypto because basically, like it still feels like the wild West. It still feels like you're committing a crime when you

sort of get on a crypto exchange. And so I think if you're a sort of conservative asset manager or bank or bank regulator, you don't want to get involved in something kind of weird until the regulatory stuff has really figured out. And I think we're not at the point SEC he's a crypto dude, now, Oh he's not.

He's like like crypto, he's caught it, taught a course at m I T. I think that's the Yeah, he's not like a knowledgeab about crypto, but he does seem to hate it, which which like those things can easily

go together. Um, but like, I don't think that he is not a booster of cryptoone anyway, and and is I think making it difficult for the American crypto industry to sort of, you know, do a lot of crypto, which I think also UH is an impediment to mainstream finance embracing crypto because like your regulators hate it, you know, Okay, thirty seconds, what did you learn on your journey? What UH?

I learned about minor extractable maximum extractable value and UH and UH and flashbots and just like the number of arbitrages that exist in crypto that are totally different from the arbitrages and complicated trading that exists in traditional finance. They have like a sort of rhyme with traditional finance where you can UH, you know, you're short of like exploiting gaps and people's knowledge to make a lot of money.

But they're they're different in how they actually work in ways that are very satisfying to finance nerds who want to make a lot of money. That's that's how it feels to me. I mean, it feels like the wild wild West, but I'm in. I've now come across. I think it's an asset class. I think it's real. I have no idea, I have very little understanding and I have no idea where it goes. And I feel pretty good about that. You can't get it in any t F yet though, Okay, fair enough. Matt Levine, he's a

calumnist for Bloomberg Opinion. He's written a couple of words on this whole cryptospace. Go out and get your Bloomberg Business Week magazine or get it online. It is definitely worth it. It is the Bible. Thanks for listening to the Bloomberg Markets podcast. You can subscribe and listen to interviews with Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller three. Put on false Sweeney. I'm on Twitter at pt Sweeney

before the podcast. You can always catch us worldwide at Bloomberg Radio