Coinbase Provides Credible Way To Hold Crypto: Ritholtz

call it seven d two thousand, seven hundred. Coin based Global, the big initial offering yesterday via a director listing. It is up two percent today after a wild day of trading yesterday. But it's up two percent today. What we need here is a little perspective on all things crypto. To do that, we turned to Barry Ridhold's founder RD Holt's Wealth Management. He's a Bloomberg Opinion calmness and host of Masters in Business on Bloomberg. Really like fantastic podcast.

All right, Barry, coin Base yesterday, A lot of folks are out there with a narrative that coin base, uh was a validation point for the crypto market. Is that how you viewed it. I was more intrigued by the fact that it was a direct listing by passing the usual I P O process. And you have folks, especially out in Silicon Valley, people like Bill Gurley of Benchmark Capital, who have been saying, hey, why are we having big brokerage firms and Wall Street capturing or miss pricing so

much of the value of these new companies. Hold that aside. Maybe that's a little too inside baseball, but but the what what coin base validates is that there is now a credible way uh to deal on an institutional basis with holding crypto. So some of the studies have shown maybe even of all mind coins have either been law or are locked in password protected Matt Mill where can access it? And and you know, imagine if a third of brokerage accounts, sorry you, your money is gone. You're

purposely rubbing salt in my wounds. Here, Berry, how much? How much bitcoin have you lost somewhere? How many? Nine eleven? I don't know, And even if I knew, I couldn't tell you because my wife already wants to kill me. So whenever she asked me like how much is it, I'm like, it's a very small amount. Don't worry. The g T three fully mocked up for the track for you. You definitely definitely that it's definitely regular password by blockchain wallet.

And uh, I promptly forgot about it. You know, it was two thousand twelve. What what did I know? So coin base is what solves theoretically anyway solves that problem because you don't have to I mean, I've heard stories about people etching past words on on metal bars and then sticking that into a into a bank vault, and then you have to worry is the melting point of that steel high enough in case the bank burns down? I mean, think about how crazy that is. Dude, Matthew

Mellen used to do. He Matthew Mellen used to put it on He used to go and buy laptops and then put it on them in cold storage and then go and buy safe and bring them to friends houses and then put it in the safe in a friend's house. You know, So like, uh, some people get very That's why I like the equity traded product that coin Shares does. You can buy bitcoin through them and they just hold it in custody for you. As someone who has had

computers and laptops. Going back to my Mac Classic, I wouldn't want to put a billion dollars of value on something as completely unreliable as a laptop in cold storage. Talk about a recipe for disaster, No hard pass, Barry. I want to get to UM. You know, I've been working here at Bloomberg since January of two thousand and UM. I think I started paying attention like six or seven

years later. I remember distinctly hearing arguments for the continued market run up in two thousands six seven that there was so much cash on the sidelines, and I was totally uh, you know, sold hook line and sinker on this. Man, If there's two trillion dollars in cash on the sidelines, then this market has a lot further to run. I've never heard the end of that argument. No matter what, there's always so much cash on the sidelines. What is this coming from. Well, it's one of those tropes that

live brokers used to talk people into buying or trading stocks. Look, there's always cash on the sidelines, number one. That doesn't go away. And if you want to talk about cash that matters, you're either talking about the velocity of money how fast cash is moving through the economy. And as we've seen in the velocity of money was very low even as the market rocketed up to new highs. So it can't be that. And and then there are other

things to look at. Um. The AII does a study on a monthly basis of how much cash is allocated within individual portfolios to stocks versus cash, and at peace it's too much stock, and and at lows it's too much cash. But you know, you get a signal from that once every five or ten years. It's nothing that's that's reliable. The one simple way to think about this is, all right, so all that cash on the sidelines, what's

going to happen with that? Well, Matt, if I'm going to buy a thousand shares of Amazon from you, I have cash, you have stocked. We engage in that transaction through through our robin Hood account. Now, how I have a thousand shares of Amazon and you have six thousand dollars in cash. The same exact amount of money is still on the sidelines. For every buyer of stock. There is a seller um who gets the cash, and so the cash on the sidelines never changes. It's just ownership

of the cash and the equity swaps hands it. By the way, does the dry powder article our argument for private equity hold up for you? Is that a different story. UM, So if you're talking about either private equity or venture capital or or anything's like that, you're really talking about a very different asset class that is attracting capital because

it's successful. Lets use venture capital is even better example, because private equity is kind of hard to determine what's private equity and what's UM traditional syndication and M and A and other stuff like that. Venture capital started out in the sixties and seventies as a way to, hey, how can we work with the Defense Department and others to steer money to these important technologies where if you remember or have read about spot nick Us Island, Russia.

And as as these companies became more and more successful, remember semiconductors and integrated circuits is something that was produced by UM the Apollo program and the Defense Department and at the same with the Internet. So as as more and more of these products scenes attracted more successful returns, more money flowed to that sector. Alright, fascinating conversation which we will have to continue. We've got to kick off our car show too. You mentioned the g T three.

I really want one, UM, really excited for naturally aspirated boxer still in Porsche's lineup. Now, I want to bring in former senior advisor of the US Treasury Department, Dan Katz. He is also a Bloomberg opinion contributor, and he's written a story about airlines um who have which have already received so many tens of billions of dollars in taxpayer help that maybe it's um, it's already too much. They

don't need anymore, Dan Um. In your in your piece, you point out that US airlines got a fifty billion dollar lifeline um last year last March, and then another twenty billion dollars through the bipartisan year end relief package and President biden stimulus plan. At this point, shouldn't the US government own the US airlines outright? Uh? Well, it's

it's great to be with you, Matt and uh. And you know, when I think about the amount of support that's been provided to the airline, I think you really have to break it up into what was done during the heart of the panic, and then what was done at at more recent times, and so in the context of the original uh, the original intervention in March, Now, the industry was really in an unprecedented free fall, you know, just to take Delta, which reported this morning, you know,

they reported this morning that they were actually cash positive in March and had access to about sixteen billion dollars of liquidity. But in March, in their same morning report, they were burning a hundred million dollars a day and only had access to six million dollars of liquidity. And deltas you know, widely acknowledged as one of the stronger carriers in terms of the financial position amongst the large

carriers out there. So we really faced what could potentially be a collapse of the industry or widespread, hugely widespread layoffs that would have come at the worst possible time, both for the labor market and also for our ability

to respond to the pandemic. So what we did in at the end of March, you know, under the leadership of of Secretary Minution, who was who's really uh, you know, extraordinary in this period, I think is clearly going to be remembered as one of the great Treasury secretaries in history.

As we put together a package that stabilized the airlines in the short term by offering UH some payroll support and also provided them access to loans, which had an extremely helpful effect in allowing them to gain access to credit markets where they've borrowed very very successfully over the last year. And the result of that has been that we've kept the airline that we kept the airline industry together during the hardest part of the pandemic and UH

and and gotten them through to the other side. UH. The question now is what should taxpayers do visa v airlines UH in the near term? And you know, I think I think there's little argument, based on the financial metrics that we're seeing from the carriers today that they needed another fourteen billion dollars in March. And then there's going to be another fight, probably in September when the protections associated with the March UH taxpayer funds expire, over

whether they should receive further support. And I think any reasonable observer would say it's time for the government to step back and allow the industry to stand on it. So, so, Dan, do you think do you think the industry is out of the woods now? Look, I'm not really in a position to accurately forecast what the return of airline demand is going to be like. Uh, you know, certainly there are big issues associated with international travel and also with

business travel, which is so important to these carriers strategy. Um. But what I will say is that they're all in a very strong financial propression. Most of them are in a very strong financial position, and so manage of teams employees are in a position to navigate that future demand purf uh, and it's time for them to do that in the absence of taxpayer support. I just want to

get something you said earlier about Steve Manuchin. You think he's going to go down as one of the great Treasury secretaries in history um owing to his actions during the pandemic bailout. The Paycheck Protection Program has so often been derided as inefficient and and inept at the hands of Steve Manuchin. Um, what do you think he did that that merits putting him up along the grates in

the in the Hall of fame for Treasury secretaries. Well, look, you know, just just quickly to respond to your point on the p p P, I think a lot of the news coverage, unsurprisingly has focused on uh some of uh, you know, less desirable outcomes as we implemented the program very very quickly. But what it hasn't focused on is the overwhelming speed and success of the vast, vast majority

of the program. That that in and out itself, right, the simplicity of getting it out there, speed of getting it out there, which which is always going to involve some execution risk, that that was hugely helpful to stabilize in the economy and keeping workers attached to attached to their healthcare and their and their employers, and also saving you know, many many millions of jobs at small businesses across the country. So I don't I don't think that's really a fair critique of the p p P and

in terms of the broader legacy. But but but wait, so you think the p p P was an efficiently used program. All that money um went to you're saying, save jobs and keep employee healthcare, and and that's documented. Well, I think that, uh you can if unipick find uh, you know, relatively small in relation to the entire scale of the program issues to include fraud access by public companies.

We're all familiar with the stories out there, but you know, some of my colleagues, Mike Falkoner and Steve Myron have looked at in the paper they put out at the end of last year, the program on the whole was hugely successful in saving tens of millions of jobs. And so I don't think it's fair to say because there was one news story about shake Shack, or there were a few instance to the fraud, that the whole program

is hard. I think if you look at the complete record, there's no question that this program was hugely important in protecting the economy through the worst of the pandemic. Dan, thanks so much for joining us. We appreciate it. Dan Katz, he's a former senior advisor at the U. S. Treasury Department from one. He's also a Bloomberg opinion contributor. Dan cats looking at the market here, Matt continued strength in this market. Continue to see green on the screen. It's

a positive economic data and some decent earnings. Yeah. Absolutely, the bank earnings picture, although I guess, um, you and Dave Wilson need to sit down over a beer and discuss that. Maybe you can meet in Montclair and figure out whether these bank earnings look good or bad. They are definitely they have definitely beaten by a large margin um. Certainly JP Morgan yesterday and Goldman Sachs, but even today Bank America I thought was really pretty good when they

came out with earnings a little bit early. We'll continue to watch reaction. This is Bloomberg. Let's get a look at this market holistical way. We do that with Chris Wolfe's the chief investment officer for First Republic Private Wealth Management. They have about two and twenty billion dollars in assets

under management. So christ Matt and I were just talking about this market, and we're saying, hey, even when you got a big company like a city like a Bank of American, report some really strong numbers, the stock doesn't necessarily move higher. Does that signal maybe a risk for this market that, uh, the market's really discounting just extraordinary earnings and if you don't deliver, you're not gonna get paid. Yeah. I think there's a syentim here, which is what's going

on in the first quarter. And I think a lot of expectations for investors were built up to a pretty high level. So what they're really looking for, I think is the guidance about the second half of the remainder part of this year. And that guidance has turned out to be just a little bit tepid. It makes sense for folks to offer guidance that's not super bullish right now.

So I think investors just built up an expectation that the guidance for the remainder of the year and particularly financials, you know, loan volume and other things, would be very strong, and it's just come in a little bit less than expected. I don't I don't read a lot into today's trading

that there's a huge risk here. I think what's behind all of it in terms of the economic data is still very strong that we're going to get into an earning season, not just for first quarter, which would be good, but I think it'll be carried through the second and third quarter. Does loan growth have to be strong for you to really expect seven, you know, eight percent growth this year for you to really expect to pop in.

Do people need to be running out and borrowing money for businesses if the economy is going to be growing that that quickly? You know? I think, Look, we wrote a piece a couple of months ago called the Year two Bridges. We thought one was gonna have required to get through it a healthcare bridge and a stimulus bridge and BOYD and we're getting that in spades. I do think there's some learnering concerns though about kind of the variants in COVID, and ultimately the Johnson Johnson vaccine news

has been to think a little bit challenging. So um, I think that healthcare bridge is mostly built, but it's got a ways to go, and the stimulus bridge is

just you know, being built as fast as possible. So why would we use this as an example because I think when you're talking about the second, third, and fourth quarter, there's a little bit of caution now, But as sentiment improves, the COVID bridge gets finalized and we get into a place where there's more infrastructure spending, I think sentiment improves a little bit more and that releases some of the

savings to get you to the seven, eight, nine. And by the way, there's even an outside chance on GDP that you print a nine or ten handle uh in one because of all the stimulus that hasn't been spent yet,

a lot of it's been saved. So to the extent companies looking to run out and borrow money, I think what they're gonna be is a little bit cautious and kind of use the first quarter and use the kind of spending story that consumers are going to put up there as sentiments improves as a way to respond to that. But you know, all things told, banks are in a pretty good shape to capture that, you know, potential loan

growth later this year. All right, Chris, we look at these equity markets here charging charging to ever higher highs. What's the biggest risks to the equity call right here? You know that. I think the biggest is really two of them. One is the bridges we just talked about fail for some reason. There's a variant mutation in the uh COVID story that we just don't understand yet. Science suggests that mutations are picking up outside the rest of the world, and that's kind of a tale to that

story as well. The big surprise has been how weak the vaccine response has been in Europe and other areas of the world. The US, despite all of our challenges, is actually leading in this regard. So the risks of the rest of the world just ends up with lots of variants running around and we end up in a reinfection pattern. And that's a meaningful one with respect to consumption sentiment and ultimately market multiples. UM. You know, I think the second piece is more strategic, and it's really

what's the relationship between US and China right now? It's you know, fairly challenged. There's a lot of things that look like China wants to be equal with the US.

In many ways they are, But the reality is, I think economically, things like digital currencies, for example, changing payment systems represents structural changes that I'm not sure how they're all going to play out, And I think for most investors, I'm not sure they're all bad, but they may represent a change and a big change to the way they think about investing in one and beyond. So what are you saying that China maybe as a command economy UM has a little bit of a lead here in the

in the short and near term. But with respect to blockchain technology all the way back to the you know, mine is tracking people with COVID. I mean, there's no privacy issues there. They run everything that that is absolutely true, but that's their model, and their their model works to put up GDP numbers, you know, fairly consistently. You can believe them or not but the reality is that's where they are. The relationship US has what China is important though,

key though. All right, Chris, thanks so much for joining us. Chris Wolf, their chief investment officer of First Republic Private Wealth Management, talking to us about the state of the economy as we're in the heart of bank earnings. This is Bloomberg I want to bring in right now. Can Leon, he's a global director of UH Industry and Equity Research at cf are A Research, talking to us about what we saw this morning and yesterday, Um, in terms of

bank earnings and what we can expect tomorrow. Can first off, UM, talk to me about Bank America earnings. They came out early, very early. In fact, it was the first time I can remember coming out in the five am hour Bank America earnings. They looked good. Um, initially not you know, JP Morgan, Goldman Sacks good, but still pretty good. And yet the stock is off. Why are investors selling it? So Bank of America is more of a commercial bank than a capital markets driven back JP Morgan also is

kind of a hybrid. Of course, Goldman, Sachs and Morgan Stanley are all feed in with the capital markets, which we like a lot Bank of America. Then when you look at the mechanics of how it drives growth and the high investor expectations ahead has to drive higher net interest income, which means a steepening yield curve, and then it's the US economy. Can we get the consumer and

commercial businesses to increase lown activity. Those measures were negative in the quarter, and that's why the stock is trading down. And the expectations is from the CFO of Bank America's maybe with a rising yield curve, you know, we can bring back a billion dollars of net interest income that's not there today. So it's a very different profile than a JP Morgan, which is a little bit more like an investment bank, or the ones we really liked with

strong buys, Goldman Sachs and Morgan Stanley. So that's interesting, Ken, because yesterday we had Chris Whale and on, chairman of Will and Global Advisors, and he was making the argument that you know, when you strip out some of the reserve reversals UH and some of the capital markets business, the underlying banking business, he thinks by YearIn is going to be in a world of trouble. Is that too

bearish from your perspective, it isn't. But most of the bank analysts, so I am a bank analyst, but you know they're siloed and and they they're just seeing, we're going to model out of higher net interesting home this

year and next year. And you know what's interesting here is when you look at traditional commercial banks, JP Morgan is the only one that has shown positive growth in this category since two thousand and fifteen, not Wills far Ago, Knock Bank of America, perhaps not some of the regional banks. So it is tough, but the overall environment works two ways. We have recovery, but you've got to see that pull

through into the bank metrics I mentioned. And secondly, the risk related to UH credit risk exposure and loan reserves is getting better. And that that to me, is more of a rear mirror conversation, more in front of us. When we were talking about this last year. JP Morgan still down off today's seven tenths of percent. It fell yesterday one nine percent. It was down on Tuesday one

down on Monday two tenths of percent. I mean, investors this week just don't like the bank um has it just run too far, too fast, you know, UH, so I've been covering these banks for over ten years and I've never seen JP Morgan even when they have a blowout quarter UM where the stock goes up. And in this case though, they had the window dressing as you've

mentioned of these loanloest reserves which boost earnings. But overall this is best in class UM commercial bank JP Morrigan, and they have a bigger exposure to the investment bank UM. I would say that, you know, over the long term, UH listeners should do JP Morgan as a very attractive

large cap core holding in their portfolio. So can as you're talking to your clients UM during this period, what are your top picks that you're pushing that you know financials have done so well so for portfolios thinking about sectors, and we had black Rock and Swab today as well, UH swaps today. These are these are phenomenal world class franchises UM. And I think if it gets to being a stock picking world, which is what we do to UM, I'm going to stay with the capital markets given more

in a risk on environment and low rate UM. You're gonna hear this lad and clear from Morgan Stanley tomorrow on great results and Goldman Sachs had a grand slam. It wasn't a home run, it was a grand slam. Uh. And that's where we are with strong boys. Um to the negative point of the other analysts you mentioned, we

also have a cell recommendation on Wells Fargo. I don't think they have uh, the real turn of positive interest income generation that they really need and loan activity because their franchise was hurt by some of the sales practices they had. That's where we are. Hey, Ken, thank you so much for joining us. We always appreciate getting your thoughts at this time at the quarter when we have

the big banks putting up their numbers. Ken Leone, Global director of Industry and Equity Research at c f r A Research has been covering the banks for about a decade. And it's interesting MANDI favoring those the big investment banks as opposed to perhaps some of the more commercial banks. Um. So that seems to be the way that he's looking at it right here in Goldman Saxes gets his strong

by rating. And again, as you pointed out, Matt, the banks, you know, maybe priced in to perfection, you know, buy on the rumors, selling the news type of thing here as they record their numbers. Thanks for listening to the Bloomberg Markets podcast. You can subscribe and listen to interviews of Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller. Put on fall Sweeney I'm on Twitter at pt Sweeney Before the podcast.

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