Crypto Regulation, Supply Chain Constraints, Labor

coming to the world of crypto. Let's get some more color on that. Mary Beth Buchanan, President of the America's and global Chief Legal Officer Mercal Science. Mary Beth, it just feels like the drumbeat is really beginning to pound here for regulation of what is a growing crypto market. Gary Ginstler, a new ahead of the SEC certainly making some comments there. How do you think this will kind

of really evolve over time? You know, I think there's been a lot of really great news in the cryptocurrency space in the last few weeks, and as crypto continues to grow and have mass adoption, not just in the US but across the globe, regulators are taking a much closer look at it, and they're looking at many different aspects from stable coins to defy U two. Uh, you know new expected guidance coming out today. From the fat of it's it's an exciting time. But I agree with

you that additional regulation will be coming. So it's interesting to think about Gary Gensler regulating this space. Is bitcoin of security? No, I think that Gary Gensler is certainly in a great position to understand the cryptocurrency markets as he's been teaching at an m I T. The SEC has been pretty clear that bitcoin is not a security and so I don't think that there's any danger that this is going to change in the near future. So, Mary Beth, the US just this department created a National

Cryptocurrency Enforcement Team. That sounds ominous, what is that? Yeah, the the Cryptocurrency Enforcement Team that was announced in early October by the Deputy Attorney General is an effort by many different components of the Department of Justice to come together and to really attack one of the latest plagues

in the crypto space, which is ransomware attacks. Ransomware attacks have gone up a hundred and fifty in compared to so this task force is going to help root out those who would use cryptocurrency to try to attack and strangle businesses in the US and throughout the globe. What you've been involved in the digital space for quite a while, now, um, what can be done? You know when I whenever I see a ransomware attack, I always think that's silly because

it's not an anonymous UM transaction. We know that it's going to wallets, we know which wallets it's trading in, but those wallets aren't attached to names, right, So what can be done in order to really attack the ransomware UM actors? We're going to need to see a lot of collaboration between cryptocurrency exchanges, UM, blockchain analytics companies like

Marble Science, and the government. Recently, or rather later in late summer, the Justice Department called the industry together and shared with us some of the information that they've been learning with recent ransomware attacks, and we shared with the government some information that we've been learning. So I think that through this this collaboration information sharing, we're going to be able to stop stop these attackers before they can

find additional victims. So, you know, maybe about a lot of folks are saying that this the crypto space really needs regulation, if for no other reason than for it to be validated and for its development and for more investment. How do you think this is going to play out? Is this something that our government currently has a capability to regulate? It just feels like so much is new about crypto and the knowledge level isn't anywhere where it

needs to be. I think most of the private sector crypto companies want regulation, um, but but they want clear regulation and they want to have a voice in creating it. Right now, we do have a patchwork of regulations in the United States. We have different agencies that are looking

at different aspects of how cryptocurrency operates. There may be a few spaces where we're still seeing the absence of some regulation, and what we need to do, I think, is identify where there's a vacuum and create a reasonable set of rules that make sense to make sure that we're addressing all aspects of the crypto space. I mean, what you do, or at least part of what you do,

is you help financial companies, government entities. As you were saying, um, crypto companies prevent attacks, prevent you know, getting ripped off, Basically, if I'm an investor, my main concern is where do I hold this stuff? If I put a million or two million into crypto, I want somebody I can trust UM custoding that asset. Are we in a place where there there is a safe and trustworthy place for me

to put those assets. There are a number of extremely UM well respected custodians that are holding cryptocurrency today, and those custodians are regulated. UM. They are utilizing the latest technology to monitor their transactions, to know who they're doing business with. And there are there are any options out there today from the traditional crypto custodian and even to

certain US banks that are UM launching crypto custody services. Alright, very cool to get some time with you, Mary Beth Hope, but I hope we can get you back because UM, it seems to me mercle Science as a wealth of information that I think our clients would like to hear more about. Mary Beth Buchanan as President of the America's and Global Chief Legal Officer for mercal Science. Now, let's bringing David Cudlow right now. He's in the CEO and

chief investment strategist at Mainstay Capital Management. They've got three point eight billion dollars and assets under management out of Michigan. David, always great to get you on the horn. Thanks so much for joining us. UM. Let's talk about it. Seems it seems like there's so many headwinds. You've got the supply chain constraints. You've got a labor shortage, we have inflation that looks more than transitory whatever that means, and now um abudding energy crisis. Should I be worried as

an equities investor? Hey, good morning, Yeah, And I would add to that that we have, uh, consumer sediment has been falling. Uh confidence in the economy has been falling.

And you know, if we look at the GDP numbers as forecasted by the Atlanta UM Atlanta fed their GDP down numbers, they've fallen over the past few months from close to seven percent projection for third quarter GDP down to zero point five percent, dangerously close to a quarter of contraction, although consensus estimates for GDP are quite a

bit higher round for the third quarter. So, yeah, we have all these headwinds, uh that are that are coming towards I think first and foremost is the the probability. What most people think that the said will start to taper before the end of the year, and that doesn't mean eliminating liquidity the providing, but start to taper and scale it back. And then they're talking about interest rates um rising as as soon as the middle of next year,

which we we don't think will happen. But you know, with that on the positive side, as we have just stellar corporate earnings in this year, and as liquidity is taken out of the system and we come back to fundamentals, we look at fundamentals for the market, uh, specifically priced to earnings ratios. UH, they're very, very good. They've actually come down through the year because earnings have been so good.

We set a record in the first quarter, or second best in the second, and we expect the third best quarter here in the third quarters. It's easy comparisons because of COVID, but it's also because corporations are just have just got good balance sheets that have done really good in this recovery from COVID and going forward. So on that side of the equation the most important thing because in a long term that's what stocks should be priced on.

His earnings. You know, we're just looking at incredible earnings and profit margins in and and really going you know, going forward to the fourth quarter as well, David, I look at the w T I crewed a north of eighty barrel. Have I missed the energy trade? No, I don't think so. Um, I don't think so at all. I mean, it's our favorite sector for the second half of this year. Are are still our favorite sectors coming into the fourth quarter is energy And you know, we

we we look around the world at what's going on. Um. The OPEC hasn't helped out on the oil front. We've got another meeting next month. We'll see what happens. But it is, you know, a function of uh, this recovery, this robust recover we've had around the world from COVID, and economies are expanding their demanding more energy. There's been significant when we look we look at renewables, right the the emphasis has been on renewables, you know, for good reasons.

You know, we all want renewable, sustainable energy. But but you know that right now in the US that makes up about of our energy supply, there's still about that comes from fossil fuels. In China that's even higher. So you know, we we have the natural gas issues in in Europe and UH and globally we have actually have coal burning plants that are being fired back up or

increasing production. UH. We had we have expecting coal to be at the highest level of use UH in this country since and that's because of switches from l en G or natural gas to to coal because of the short supplies. So I think the energy trade has further to go, and I think that it makes sense for investors to be to have it to still continue to have exposure there. What do you think about the rates moves that we've seen recently, David that UM two years

regardless of region were sold off drastically. At the beginning of the week, we've seen a curve flattening and we're looking at a tenuere US treasure yield right now one sixty six, whereas a month ago was one. Yeah, and from a low of of of around just under one nineteen, we've had a significant rise UM. You know. I think that's a function somewhat of a reaction to what the Fed has been trying to UH send signals on on

their policy. UH. Certainly, the the pullback in the market I think was a response to that increased rates because we've seen that, right, We saw that in the first quarter, we had a similar spike in rates of about seventy basis points. The market market sold off, especially what we consider long duration equities like tech and gross stocks um and we've seen that again here. Uh. What's interesting now though, is rates of need to move higher. We've seen the uh,

the market's rebound. I think that's you know, we're looking at us again a strong earning season once again, only you know, we've got maybe ten percent of companies that reported, but they're coming in uh, some mixed reports, but overall, we've got about eight percent of companies beating expectations. So that's that's helped the market rates continualize. And it's typically if it's a slow rise as a function of an

expanding autonomy, we would live with that. When they spike or when they go up because of concerns about inflation, that's going to be a problem, which inflation is probably our biggest issue relative to start all right, David, David, thank you so much for joining us. Really appreciated. David Coula, CEO and chief investment Strategies at main Stay Capital. Let's talk now about the leading Economic Indicators, the Leading Index from the Conference Board right now, and what that's saying

about the economy. In order to do that, we bring in autumn on ozel Drop. He's the director of Economic Research and Global Research share at the Conference Board. If you type in eco US on your Bloomberg terminal, you can see the Leading Index came out at slightly disappointing zero point two percent. We were looking for zero point four percent and the previous month had been zero point nine percent. So, Ottoman, thanks for joining us. Why the disappointment?

Good morning, good to be here. So, um, the the zero point two percent is less than expected, but just keep it in perspective that that is still a good positive number. Uh. It continues a rising trend in the Leading Index, but it is a little bit slower um and a big reason for that this month in September was the large negative contribution to the index from housing residential construction UM and some softening and consumer confidence also

contributed to that. But all in all, the majority of the Leading Index components have been rising six out of ten, so that still points to still a healthy expansion in the Earth economy. So Ottoman, what do you make of the labor market out there. We've still got a lot of people that are not in this labor force despite the you know, very high number of job postings. Is this a permanent new reality for the US labor market

that just fewer people are going to be working? You know, I think the global pandemic has really caused a lot of disruption in labor markets in many sectors across uh, the Earth economy. And now UM, you know, we're dealing with the delta variant that's creating more headwinds. UH. It's keeping a lot of people on the sidelines because of you know, concerns about getting sick and you know, staying out of the labor force. UM. I think UM in

the future that will um eventually settle down. Uh. The economy growth rates are you know settling down, uh to our new expansion trajectory. And we're all getting used to, you know, living with this. We're learning how to you know, work and shop. UM and UH. I think as things normalize, we'll see labor markets, you know, going back to the trends that we have been seeing before the pandemic. UM and UH, you know that was really going back to

lower unemployment rates and even labor shortages. So well, we have labor shortages now, right, I mean one of the big problems is companies can't hire enough people. Yeah, so I think there there are probably two factors underlying those, right. What one is uh the sort of the course of the pandemic with the delta there and and people, um, you know, not being willing to work, um, in especially in in person services, so uh not being able to

find the workers because of that low uh labor force participation. UM. But there's also underlying all of this. The context is UM this longer term demographic changes in the US population, UM, the aging population, the retirement of the baby boomers, so all of those are really um leading to a smaller

pool of labor supply that's available. And uh, that's the larger context that we're operating in Alama Boomer And I'm working and I'll continue to work for why I think so so Automan also, Dron, thank you so much for joining us a director of economic research and global research chair at the conference score conference board. Again, the leading economic indicator for the month of September came in at zero point two Consensus was for zero point four percent.

We had a revision as well. For the prior month it was zero point nine percent growth and that was revised down slightly uh to zero point eight percent, but still positive. And it'll be really interesting to see how this labor market continues to evolve post pandemic. You know. One of the more fascinating economic aspects of this pandemic, and they fledgedly recovery, is a changing labor market. We've got still five or six main folks that are out of the labor force, yet there are more than ten

million job openings at the moment. It's just that mixed mixed mash. Mixed mash is really kind of interesting here. How will it develop? Law On next guest has some thoughts on that the radically changing labor market. Barry rid Hults, founder of rid Hult's Wealth Management, Bloomberg opinion columnists, and the host of Masters in Business. So, Barry, what do you make of this labor market here? UM seems to be a little bit different than what we had pre pandemic. Yeah,

it certainly is. A number of things have changed, and we we've talked about this on the air about how a lot of workers UM took advantage of the past eighteen months and having lots of cash in their bank accounts due to the generosity of the Cares Act. And they you know, they up skilled, they got certified, they got degrees, and for a lot of dead end jobs. And there are really four industries that have run into a lot of trouble, hospitality, food service, most particularly UM

and they've you know, Elvis has left the building. They they're no longer participating in those careers. And I think what we're starting to see, and I wrote about this about six months ago, is that the balance of power is shifting. And it's you know, we see these regular oscillations from capital to labor and back well, capital had the upper hand since the nineteen eighties. It's shifting back

to the direction of labor. So one of the cool things about this, maybe not for employers, but for employees, is that they're going to get paid more. Um. You know, whenever we talked to somebody who runs a hotel chain or restaurants, they always say, I can't get anybody come in here. And I always say, well, why don't you just double their salary. I'm sure they'll show up. Is that going to lead to a price wage spiral? Though? Is that going to lead to inflation that sticks around.

Um So, So first you have to look at the context and and and look more than just the past six months, by just about any measure, when we look at wages at the bottom half of the pay scale, for the past thirty years, they have lagged just about everything, just about every measure. They've lagged inflation, they've lagged productivity, they've lagged corporate profits, they've lagged c suite compensation, which certainly has been fairly robust for the past few decades.

And so this is less of a hey, we're driving inflation forward, and more of a this is a reset. This is a catch up for wages that really have been far too low. And when you have an economy that's operating at pretty close to full capacity, well, guess what. At a certain point, um, a limited commodity has pricing power. And in this case, that limited commodity commodity is labor. Barry continue on the labor discussion. Three days a week, hybrid. It just feels right now that that's where, at least

in the US, this market is going to. Do you think that's the case, It's a good bad do we care? So again, another really fascinating topic with a lot of moving pieces. So so first let's talk about the hybrid workforce, but also within that context bring in challenging and hiring and and and inflationary wage. Bush and I have to start by pointing out productivity is so important in this space. The big surprise from the work from home has been

not only was it not a drop in productivity. When you look at the go to Fred look at productivity numbers, it's tripled over the past on an hourly output basis over the past eighteen months. That that's a massive, massive um increase. That's a that's a huge change from remember Robert Solo famously equipped. You can see the computer age everywhere, but in the productivity statistics, well, here we are a generation later from when he said that productivity is going

up tremendously. So first, huge juge offset of inflation. If you're paying people more but you're getting more output from them, it's not inflationary. It's essentially a push. Now the allene is having that work its way downstream. Two bars and restaurants and hotels and frontline healthcare providers. In a lot of those fields, you're not seeing the same sort of productivity increase, except where people have made those investments in technology.

So you go to a restaurant and the waiter isn't writing down your order, they're using an iPad and you're not even getting a menu. You're just using your phone to scan that that QR code on the table. Those sort of things gradually show up to the bottom line. They make things more productive, quicker better. You know, if restaurants have a faster turnover, they're they're seeing more people, they're they're making more revenue starting serving more meals. So

maybe you'll start to see productivity gains there. But white collar workers productivity gains have been spectacular. Verry got an important question. I'm moving back to New York in just a couple of months. I gotta reportedly one one year old daughter and a um three point eight leader flat six in a stick shiftsion and baby seat in the in the back of that. I think, so what my my thought is this, I would love to give it

to her. I met a guy the other day who had a nice going to give the eleven well when she's older. I met a guy the other day. He was with his dad. He was seventeen with his dad when he bought the car that he now drives. And but I'm I'm moving back. Freight rates are like twenty thousand for for container and use car prices are soaring. Do I let go of it before I come home? So my daughter is gonna live in a sea of self driving electric cars. It's gonna be pretty cool for

this very very simple question. Is this an air cooled nine eleven or a later war No, it's so hit that bit. You can sell that, take the profit and then go by yourself for a car that will continue to appreciate. Minivan stick Now, well that you don't need a minivan in New York. You can uber wherever you're going. But if you want to give your daughter a nine eleven, give her something that that's going to be worth something

in twenty years. You know, water cooled modern Porsche. They're great today, but you know ten years from now that that's gonna be pure electric. So go back to what is it p Give her an air cooled nine eleven and she'll teach her to drive a stick and she'll be a happy camper. I like it. Yeah, I'll go before that, because then the last air cold I don't like the way the head headlights were so slanty. I like the nine six four because I'm a child of

the eighties, you know. That's the look for me, not the Turbo, just a simple maybe even an earlier eighties Carrera. Barry rid Holt's always great to have you on Bloomberg Opinion contributory. He runs rid Hole twelfth Management, and he writes a blog is well called The Big Picture. This is Bloomberg. 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 nineteen seventy three. Put on ball Sweeney. I'm on Twitter at pt Sweeney. Before the podcast. You can always catch us worldwide at Bloomberg Radio.