Ending Short Selling Would Be A Mistake: Former E*Trade CEO

We had all the kinds of different players in the market there, but it seems to be maybe more theater, uh than real substance. Let's get some expert overview. We can do that today with former E Trade CEO Karl Rossner. He's now CEO of Left Terrorist Acquisition. Carl, thanks so much for joining us here. Again, what was your takeaway from the hearings yesterday? So so, I think I think you hit it. Thanks for having me on the show, And I think you hit it right on the right,

on the head right. There was a lot of political theater. There was some you know, sort of political one one upmanship and you know, making sure that each of them had their you know, three four or five minutes of fame as they call it. Um. But I do think a couple of points came out of it that we're

very helpful. Right. One was around payment for order flow. Um. I think maybe retail investors and some of the more wider audience maybe can start to understand that payment forward to flow does have a place when it comes for retail trading, and that there are tradeoffs to just you know, a knee jerk reaction of saying there is no no

more payment for order flow allowed. I think short selling, right, we'll come under pressure and they'll definitely be some reviews I think in additional rulemaking and lawmaking coming down the pipe, and then there will be a push over the next few years because I think it will take that long to move you know, clearing and settlement to a T plus one type arrangement, you know, agreeing with some of the witnesses in terms of the the difficulty of moving

the entire securities clearing to you know intra day. Yeah, I thought that was really interesting. Actually, Um, you know a lot of the comments from senators maybe one or how much their staffs had actually prepared them for this, but um, it was worth it to hear ken Griffin talk about because I thought Y T plus two, we're not in the Stone ages, let's do it instantly, And actually Ken Griffin explained that that would be really difficult and even dangerous for a lot of market participants. So, um,

I really learned something. What about the short selling pushback? Carl? Why, um wasn't there any? I mean, in an efficient market, you need people to go long and um to to to keep discipline in order, you need people to go short. Yeah, no,

I I agree. I think the short sellers are going to come under pressure, right if there's any area that and you've seen it from some of the senators who have written letters and some of the congress men and women who have you gotten involved, that they look at that as hedge funds gaming the market, and they're going to vilify hedge funds. So I do think you'll have some focus from you know, the SEC and and other relatry bodies to figure out what curbs and what pushback

can they put around shorts. I agree with you that in an efficient market you need all order types, right. You have to be able to to sort of look at the market both ways and having you know, run a public company when shorts get into your stock. You open your eyes and say, what do we you know, is something Are we doing something wrong? Right? Do we need to do something better? Are we getting a little bit behind? You know? It makes you think, and I think that's there are good aspects to it as well.

So I do hope they don't just knee jerk and you know, and start to try and move that out of the system. I think that would be a mistake. Well, Carl, one of the things, I mean, you know, we we've all seen short squeezes before. We've all seen short selling come under scrutiny. It happens seems like every four or five years. What's different this time is the use of social media and the ability of these short sellers to

really coordinate their actions. Do you expect there to be any regulatory overlay on perhaps the use of social media?

How do you think that might play out? So so, I look, I think you heard one of them, one of the witnesses yesterday say that, you know, in looking at their next sort of short selling campaign or other entities that might be looking at going short against they will employ sort of data scientists and data data experts to take a look at the social media boards and and see if there's a you know, and other way. I thought that was kind of funny too. And they

said they're going to employ data scientists. I figured they put their teenagers on Reddit, right, I mean, just just read Wall Street bets they will employ more than teenagers. That I can guarantee you, just given the amount of money that's at stake. But I agree, I mean, it's it's getting through that piece. I think social media is

here to stay. I think it's helpful and and by that I mean, of course it's here to stay, but I look at it in terms of, you know, for retail trading and for others to use that as a mode of communication and a mode for sharing ideas. I think it's a great tool for you know, for retail right to learn and to use it as an education tool.

When you start, you know, sort of getting down the edge of manipulation or you start getting on that, then then I look to regulators to say, there's a line, right, and this is where we think we can start drawing that line. But but again, you know, the knee jerk red line in the sand, it's not going to work. And Carl, if there is that red line to be drawn? Is it not the SEC? Maybe the CFTC that does it? Not are good friends down in the halls of Congress.

I don't. I don't believe that any rulemaking should come from the folks who were on that committee yesterday. Um. I think you need to go to deep market experts. I think you saw very clearly the difference among the witnesses in terms of their expertise, and you only hope that certain individuals like that are involved in market structure and putting things together that can work, because in my view,

it's always been a Jenga puzzle. But you can't just pull out one piece without knowing what else is going to fall. And that's that's what we need when people look at this. So I do think it's it's SEC. I I believe Gary Gensler. I believe you know, Secretary yelling right. You put the right people in the room with the right experience, and and maybe we can move things forward in a productive way that doesn't box out retail. Hey, Carl,

thank you so much. We appreciate that. Carl Rossner, he's a former e Trade CEO, is now the CEO of Left Terrorists Group. UM. You know, really interesting, Matt. I mean, you just feel like there are rules in place. The SEC is they're looking at these things. Well you know, yeah, well there's also you know, um age old rules of thumb.

There's no such thing as a free lunch, right, And when AOC was grilling Lad Tenev and saying, you know, you've got these free products have to be as good as the ones people pay for, you ask yourself if anyone really believes that's the case. Yeah, And I think it's just exposed not I guess, not surprisingly that the you know, the plumbing, if you will, back office Wall Street is not widely understood. So maybe maybe a little bit of knowledge came to light yesterday. Maybe that's going

to be helpful. The housing market continues to be a very pleasant surprise in a very difficult economic landscape here in US. Just today, sales have previously owned US homes

unexpectedly rose to a three month high in January. That there's pleasant, Yeah, absolutely, well, I think there's right because what we've seen, Matt, is particularly here in the metro New York area, but another urban areas people kind of fleeing the city during the pandemic, trying to get some more space going to suburbia, and that has created this extraordinary demand in many, many markets around the country. And we won't want to talk real estate, Matt. We talked

to Logan Mohachomy. He is the housing data analysts and also lead analysts for the Housing Wire. Logan thanks so much for joining us here. I mean, I know interest rates, mortgage rates are at or near you know, all time lows, despite a little move back in rates here, But are you surprised at how strong housing is in this country

given what's going on with the pandemic. Absolutely not. This has been my working thesis for many years that years four would have the best housing demographics ever recorded in US history. We have the biggest single uh demographic buying patch. Ages twenty seven and thirty three are the biggest ever. They're roughly about thirty two and a half million. And mortgage rates have always been low. They've been lows since

two thousand and eight. But when you combine the biggest demographic patch with the lowest mortgage rates ever and you're not working from an overheating housing cycle like we had in the previous expansion, home sales are gonna rise. And this is exactly what's happening here. And I don't think it's so much about COVID as it's more about simple demographics here. I think a lot of people make that that people are fleeing the cities and they need bigger homes.

This is just a continuation of a slowest steady cycle running into this massive demographic patch, and mortgage rates are low, and the problem with this is home prices are growing to pass the interesting thing. The interesting thing Logan is that the last for years has been pushing for more density. And I've always thought, you know, if if if I'm not wealthy, I don't want to be stuffed into a box next to a whole bunch of other people like

I want to get out there. But the problem is, of course the jobs are all in the city, right Is this going to uh? Is this new working from home UH era gonna stick? Are people going to be continue to be able to continue to do that so that you don't have to be stuck in a box so you can get out there and have a backyard and a garage of your own. You know, I if even if the working from home thesis doesn't work out,

I just generally think people would have moved. I mean, naturally, people buy bigger homes when they have families or bigger families, so this would have been the case anyway. The work from home model is like the most exciting thing get housing ever because if you don't have to live near your work, then if you wanted to, you can move to areas that are cheaper. And we're not talking about

state the state moving. You know, you could just move miles away from the city and things are more affordable. Uh So that is a very exciting I just think we have to wait until after the crisis is over and then when people are starting to you know, go back to work, and well, we'll see if this actually sticks. I just don't believe it's going to be as big

as many people think it will be. But naturally, even if COVID didn't happen, people would have been moving anyway, because you don't live in apartments when you when you when you when you're starting to create a family, you have to buy something bigger or rent something bigger. So this is just a natural progress of running into a decade where we have a lot of people ages thirty to thirty nine. So logan, let's talk about supply here.

I mean, there's been a concern that the supply that we've seen come on the residential housing market over the last decade or so has been more on the higher end the mcmanchion's, if you will. We haven't seen enough supply for the first time buyer, and that's been a problem. What's the stat us now? This is this is a long term issue. We've been building bigger and bigger homes for many decades, and the builders are trying to bring smaller homes into the mix. That's something that happened after

after the big sales miss they had back then. So naturally, even if you bring smaller homes into the market, we're still talking about homes that are over two thousand square foot. So there is no more kind of a kind of a small thousand square foot single family home anymore. Everything is bigger here in America. And it's just as as long as mortgage rates stay low, people will be able to buy homes. You know, millions and millions of people

buy homes every year. It's just that now we just have an extra push of uh demographics coming in with lower mortgage rates. And now you see what's happening. The prices are up year year fourteen percent. This is very unhealthy and the only thing that changes is too hot. Right the housing market is too hot, so you basically need mortgage rates to rise to calm that. To cool that down, we need a breather. Days from sales from our days on the market went went from forty three

days last year to twenty one days. If this continues, we could have another twelve percent home price growth year, and that's not healthy. Because mortgage rates are abnormally low because of COVID, it won't stay here that long. So hopefully as rates rise, economy is getting better, it just cools the market down a little bit to get a breathing.

There's way too many multiple dad offers right now generally in the market, and unlike the previous expansion where we didn't have the best demographics ever, we're running into a passionward. Just a lot of people need shelter. Logan is Florida at risk of becoming overcrowded. It just seems like every day I read a story here, story, see a story about this mass migration, companies relocating. It just seems like they're all going upon beach. I guess exactly. So who

tells us about the Florida market. You know, Florida it was always you know where that's where baby boomers actually go to retire. Now there's this, you know, if tech moves. I don't think that's too much of a story because you know, if a few companies move, they don't really bring all their workers in. So I these stories are great for headlines. I just don't think it's going to be the case where it's this this massive massive migration

from younger people, middle age people and boomers. It's it's just things are cheaper in Florida, and if you can work there and you want to raise your family, that's what's gonna happen. And Okay, COVID wasn't here, that will be there. Logan, thanks so much for joinings Logomota show me Housing appreciated, Greg Jared, We really appreciate that update. You know, looking at the ten year match again one point three, pushing pushing higher. It was wasn't long ago.

We're down in the very very low ones. Let's get a sense of what that means for the pros in the fixed income market. And there's nobody better to chat with an r J. Gallows, senior portfolio manager, head of the group Federated her music got. He manages eleven point nine billion out of a total firm wide assets under management of five seventy six billion. They're located in beautiful Pittsburgh, p A. When I was on the South side, Federate was a must stop to talk to the smart people

out there in Pittsburgh. R J. Again, we've got the ten yere at one point three two percent higher than we've seen in a while. What does that tell you, Well, it feels sort of good as a as a firm um we've been short duration and expecting a steeper curve, and on the year the ten years now up almost forty BIPs, the thirty years up almost forty five, two tens, two thirties up forty to forty five basis points as well. So in a business like this where we're trying to

position for what we anticipate happening. When you're short duration and expecting a curb to steep and then you get it right, it's helped returns and a lot of our bond portfolios, like the Total Return Blond pund I'm a co manager on that a lot of our portfolios have position wealth for the trade so far, We've got to keep looking forward from here. All right, Well, that's uh, I mean you deserve an iron city for that for sure. Do you think that the yield curve will continue steepening?

I mean, um, it does look like when that happens it causes a little bit of havoc in the equity markets. Yeah, it's a it's a great point. I think looking forward, we've remained short and still think the steepening has some more legs to go. The bottom line is when you get an entirely changeover in control in Washington, d C. That will lead to a fiscal expansion, meaning more debt and more spending with macroeconomic implications i e. Faster growth. Uh,

you shouldn't have inflation expectations rising. That's happened. You should have curve steepening. That's happened too. We don't think we're done with this dynamic. I mean, obviously we've had a

pretty good size move um. The vaccination push, despite its hurdles and bumps in the road because we know it hasn't been as smooth as many would have hoped, is still leading towards more people getting vaccinated over time, months roll forward, and that will also support in the economic normalization and pent up demand for services, travel, hospitality, etcetera. Are all wind at the back of the economy. So we're pretty bullish on the economy, which means that we

think freights should still be heading somewhat higher. We had the tenuere before the change in the Georgia Senate seats, probably around one and a quarter by the end of the year, and then once Georgia flipped control of the Democrats with narrow margins, we felt the ten years probably one fifty maybe with some upside beyond there. So we still have some room to go as we look forward

into the rest. I'm here. I'm here to tell you, by the way, UM, be happy about the vaccine situation that you've got, because you're one of the world leaders in terms of R and D, in terms of developing the vaccine, in terms of acquiring the doses, and in terms of giving them out. I know that when you're there in the US doesn't feel great, but you're doing better than almost any other country in the world. You're

up there with the UK and Israel. Here in Germany, you know, we basically having started yet so because I was so, we had a national sales conference recently, I was saying that exact thing to all of our sales people around the country. Even though you see it in the media, this frustration and disappointment. We are vaccinating and are more rapid pace than much of the rest of the world. And we're vaccinating and much more rapid pace than the well famous polio vaccine way back in the fifties.

People invoke that as being, you know, the gold standard. We're actually vaccinating more people now over the same time period than occurred in nineteen So this is a complicated process. I'm with you. But yet in the media and you know when you talk to your parents who still can't get their shot. Yeah, there's a lot of frustration, but in big picture perspectives I agree with. So now, what's what's the pushback then? Because usually the Germans are known

as for efficiency, so all things is the government. I will tell you what I what I have noticed. If you go onto JOHNS Hopkins website and look at who are the world leaders? Um, you see Israel, there, you see the United States, there, you see the UK there, um. And these are countries that had governments who think things like America first, right, These are countries, um, who have governments who think, you know, protect the homeland at all costs.

And because of you know, by the time Donald Trump left office, the US was vaccinating a million people a day. So whether you agree or disagree with his policies, um, it doesn't matter. The point is he already had the number up to Joe Biden's goal, right. And and then here in Germany you've got a more liberal, multilateral approach of things. They didn't want to grab the vaccines and have them before the Italians. They didn't want to leave the French in their dust, you know, they wanted to

bring everybody up at the same pace. So what they did is they decided to give it to this huge bureaucracy in Brussels and let them handle it. And then Brussels was like, we'll wait and see if we can get someone eBay later. All right. R J. Gallow, thank you so much for joining us there. Archi Gallo, Senior

portfolio manager at Federated Hermes and Matt. That's an interesting here because again the feeling is okay, it's going well, but it should be going a lot better, Like here in New Jersey, We've got these mega distribution centers set up all around the state. But they're just sitting there, you know, somewhat vacant and just waiting for supply. But I guess the good news is, uh, they are set up.

We are ready to go. And once you according to JOHNS Hopkins, you have administered fifty seven million doses, You've gotten sixteen million people vaccinated. A conversation that you and I had the other day reminded me of something that I want to bring up with Tim O'Brien. He's a Bloomberg opinion columnist, and he wrote, Texas shows what comes from ignoring climate change. Um. Clearly, Tim, Texas has had

something happened for which it was not prepared. Um. You know, Greg, Jared's family comes from down in San Antone, and uh, it's unlikely that they thought when were building a house that they should insulate their pipes. Right. Sort Of like, as Greg mentioned the other day, if you're building something in Chicago, you don't need to use San Francisco earthquake codes, right, because it's terribly unlikely that you're going to have an

earthquake in Chicago. And yet that's basically what happened in Texas. Well. Actually though Texas had the same problem in two thousand and eleven. It's entire grid from and UM industry and analysts said you should winter rise the grid. Uh. It's a straight forward, uh risk practice that will keep you in good stead. And at that point, Texas was beginning to diversify the energy sources that uses it used to power the grid, uh, and it made sense to winter

rise all of it. There are wind turbines and natural gas powered turbines in northern climates such as Sweden for example, that don't freeze up in the winter, and they didn't do it, and then low and beholds around and the grid freezes. The second piece of information is, uh, yeah, you wouldn't have to protect your home against earthquakes if

earthquakes were a we're a rarity in your area. But the reality of climate change and what you're seeing now with meteorology predictions is that it's likely Texas is going to have colder winters for some time now. Well, this is exactly why I love your column. You mentioned the two thousand eleven freezing in Texas. Back in two thousand four, Dennis Quaid and Jake Jillenhall made a movie called The Day After Tomorrow and it's pretty awesome. I highly recommended,

big budget popcorn flick. But the idea is global warming, as I knew when we were a kid, when I was a kid, or climate change can actually cause these huge cooling phases that roll down over North America and other parts of the globe. And that's what we're seeing now, right, that is what we're seeing now, and I think we should.

You know, it's it's obviously as an issue to political football, it's charged with a lot of ideological Asian but people should step away from that and just look at the facts of the matter and be practical about how to deal with it. I think, uh, you know, the energy companies in Texas have had you know, long track records

of of lush profitability. I think reinforcing their grid by winterizing it is not a profit killer and to protect him in the long run, but they haven't done that, so Tim, I guess, you know, it shouldn't be that much of a surprise to see some people in Texas come out and kind of point figures at the you know, the eco energy, the more efficient energy sources as a as a source of the issue here. But it's your colleague.

Matthew Winkler was out with a fascinating calm today saying, Hey, if you look at just job growth in Texas, it's coming from renewables. It's not coming from you know, uh, you know, fossil fuels, which is one of the reasons Texas embraced it. And and you know this whole topic that a lot of misinformation around it from from both

sides of the aisle. Um. You know, the Texas grid they've actually done a good job of trying to diversify and and and make their sources of energy um more diverse as sources of power I should say more diverse um uh than than other grids and uh. And it it took job positive development and and again it's useful in moments like this arise to look at the fact pat rather than saying windmills are coming to clean out your town, which is how I think the right jumped

on this when we first happened. Yeah, I love Winkler's column. He said, points out that Tesla employed nine people a decade ago. Now they employed forty eight thousand. That's just at their own company, not you know at suppliers and that there are three moved to Austin by the way. Yeah, yeah, totally. That's that. That's kind of the point. And what I

don't get is why doesn't Greg Abbott embrace it. You know, the governor of Texas was also one of the people kind of blaming the green energy um industry, and they're gonna supply him with the money that he needs to get re elected if I think he was freaked out about taking responsibility here. You know, he pointed a lot of fingers at at air COT, which is the public agency that oversees the grid, uh and saying that an investigation needed to occur because they let down Texas consumers. Well,

who oversees air Cot? The governor does and the Texas legislature does. And he then inside Texas said, you know, the problem with all this was natural gas deliveries. We couldn't get enough natural gas to keep powering the grid. But anyone on National Tellerson pos and said, it's wind And I think he's playing politics. It's he wants to avoid culpability for it because this could be a potential

career killer. Ted Cruz learned that yesterday, right when he flew off to cankon Um Greg Abbott could learn that as well. There's gonna be a lot of backlash from voters over this, So I think he took the low road the high road and offering a public response to what happened. So Tim Wawe've got on the line. You mentioned Ted Cruz. I mean that Cancoon situation. It seems

like such a rookie public relations blunder. What happened. You know, it's amazing like we saw this happening in in in the UK right when when they had the lockdown and members of Boris Johnson's government decided to take off on weekends for personal trips and uh, you know, it's just I think it's it's complete lack of empathy and indiscretion

and he should be penalized for it. It's completely bonkers that that that he flies to Cancoon from his state because the types are freezing, well was constituents are boiling water to stay alive. Yeah, I think it's probably, if I can speculate a little bit, he probably had the trip planned and thought, you know, I've had this plant. But you're right, I mean it didn't work well for dominic rob who is the one who decided to drive to Barnaby Castle. Um, and in fact, my favorite to

to sort of get away from the main topic. My favorite brewery is called brew Dog Scottish Brewery. But they have they gotten away from the topic. Well no, they they actually brewed to be here for Dominic. Rob called Barnaby Castle after he went it was quite good. So so there'll be a beer coming after Ted Cruz, can some delight or something some Texas whiskey? Hey, Tim, just real quickly again while we have yet, are you surprised that we haven't heard that much coming out of Palm Beach. Uh,

you know, I'm not surprised. I think I think Trump is laying low right now to let some of the fall out of the impeachment trial pass. I don't think that will last very long. He obviously didn't waste much time in going after Mitch McConnell after McConnell criticized him. Um, you know we've got news that that the children aren't, at least in the near term, gonna run for political office. Um. I think you know, I think you're going to start

to see him incoming weeks be more visible. Uh. The interesting thing will be how much traction does he continue to maintain in the incoming months and years. Hey, Tim, thanks so much for joining us. We appreciate it. As always, Tim O'Brien, Senior columnists for Bloomberg Opinion. You can read all of Tim's work and that of all of the Bloomberg Opinion columnists at Bloomberg dot com, slash Opinion, or on the Bloomberg terminal by typing O, P, I n go.

The good folks of Bloomberg Opinion. Lots of fantastic work coming out every single day. It's must read. 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 three. Pet On Ball Sweeney I'm on Twitter at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio