ETFs, CPI, Housing, And Crypto (Podcast)

way to go. Yeah, I'm the e bike is the way to go, all right, Tom Johnston, he's a partner Blue Horizon. I'm sorry, Tim Johnson, Thank you very much, Tim Johnson, partner Blue Horizon. Blue Horizon b n E E t F is listed on the NASDAC. I'm sorry. N y s E b n E is the ticker Blue Horizon New Energy Economy. I want to talk new energy because I think about oil barrel, I'm thinking about solar, I'm thinking about when I'm thinking about e bikes. Tim, thanks so much for joining us here. Talk to us

about what you're doing Blue Horizon New Energy Economy. What is the e t F that you guys have and kind of what's the focus. Yeah, thank you for having me.

So we have an index e t F, as you said, which is called Blue Horizon New Energy Economy one Index, and what we do is we cover five key segments across the new energy thematic, which we then subdivide into twenty five sub segments with a hundred name holding And what we're trying to do is actually reflect this transition you just talked about w t I and what's going on and what we would consider the old energy world. But we all know, as you said, we were transitioning

into this new energy economy. The bikes is one part of of that, but of course there's a whole range of different things including solar and generation all the way through to how we consume that energy that we see as being an important investment thematic going forward for the decade become and beyond. So who are the holdings here, um, in this e t F And are they all public companies? Um? Are they all you know, clean energy? What are we

talking about? Yeah? Absolutely so they're all public companies. We have a rigorous process where we go by, uh, these five sub segments which cover emobility, energy storage, performance materials, energy distribution, and energy generation. And what we do is we have a team that we've brought together from industry

with expertise in these different various backgrounds. And what we do is we evaluate companies that are listed not just in North America but but around the world to first of all, evaluate them from first principle's perspective, to understand the underlying principles of their business and to be able to rate them accordingly. But then we also look at things like liquidity and other aspects which are important to

build together effectively. What it is a fund that reflects this new energy transition in a in a very comprehensive way. All right, So, Tim, I'm all in on new energy, alternative energy. You know, I get it. But boy, it's six dollars a gallon for gas. I'm like, crank up the the drills, crank up the refineries. Let's get some more supply on the market. You can't do it that fast,

I guess. So are you sensing you know, in this environment where now, Tim, with with these higher energy prices a greater incentive for companies for consumers to embrace alternative how are you thinking about that because wait for me, it kind of goes both ways. Yeah, no, absolutely, and it is a cyclical cycle. Right with with any new technology or emerging industries, you're going to have waves where you're seeing the growth of these segments across the economies

around the world. And so what we see is, you know, you know, over the last couple of years, we've seen a real portion terms of all let's say, the old energy We've had a lot of background issues associated with the conflicts, but also the broader things that are affecting the economy around COVID, etcetera. That have put pressure on pricing, which includes the old energy commodities. But what we know

is that the world is shifting. The world is shifting away from this old energy economy to this new energy economy, and it's happening right now. It's happening under our feet. And so what we see is that whilst the old energy economy is is important and relevant today and we're seeing high prices as you said, in the oil sector, we do believe that this will all swing back and it will come back to favor these new energy companies that are really going to benefit from our entire shift

in terms of how this economy works. What do you make of the recent moves in the price. I mean we're looking at right now, be any um, but we ban up at thirty in the thirties, but almost thirty four at the beginning of last year. What's going on

with price? Yeah? Absolutely so. One of the benefits of having this broad range hundred name index is if you look across our volatility across the segment against the piers, but if you also look at the maximum draw down, you'll see that we generally outperform out piers in this sector. And so what we say is that this is a great part of your long term portfolio. This isn't something that we recommend people trade in and out on on

on a regular basis. It's more about if you believe in this transition to this new energy world, this new energy economy, then this is a great cornerstone for your for your portfolio as you look to transition through different segments and different macro backdrops. Tim just real quick thirty seconds. I'm heading down to Texas next week. Is the US ahead or behind kind of the rest of the world in terms of some of these new energy initiatives? Yeah, The US is desperately trying to catch up, and so

they've made you quite good strides. Over the last couple of years, we've seen an increase in regionalization of supply chains, and that will continue to benefit the US. The US, of course, is a major consumer of these materials and consumer of the end products which which rely on these materials, and so we see that the US will continue to enhance its position, but they still have a long way to go to catch up with other parts of the world.

All right, Tim, Thanks very much, Tim Johnson, their partner at Blue Horizon. The E t F ticker is B and E and you can check it out listed on the n y C and find out the details on your Bloomberg. Well, we're gonna get some CPI data Friday, and I think the question or the issue for many investors is is just going to show us that inflation has or maybe is peeking. And that's kind of what

I think some folks are looking for. Our next guess isn't so sure and a want chief US economists for Bloomberg Economics, uh, and I think so much for joining us here. When we see the CPI data on Friday, what do you expect to see. Are you looking for signs of of peak inflation? Yeah, so I'm looking for signs that services inflation is slowing and that core good inflation is um at zero or even um you know negative, because in order for inflation you're a year to be

peaking soon. We really need to see the core that's inflation coming down nearly fat otherwise are my team's expectation is that we likely could see at the new peak in July and potentially another new peak in September. Wow, that's is that consensus. I just got a message from every core I s I that says, um, you know, after a spike in inflation that goes down as fast as it went up. Yeah, I mean right now, the inflationary pictures fairly mixed. It's very difficult to read because

from one hand you have core versus headline issues. So headline is not speaking because gasoline prices are surging right now and food prices continue to search. Services inflation continued to search. But then uh, core inflation, the good on the good side, we see see thanks flowing. You know, targets earning yesterday tells earning forecasts yesterday tells you that

demand for for good, it's cooling rapidly. And then on the other hand, you also have the pc EU deflator, which is the FED Preferred inflation indicator, and that is even cooling faster than the c p I, the core PC I mean, because they have smaller weights on a lot of stuff that's driving those fast the CPI inflation like shelter, like gasoline and used cars, right, which we all we all three categories we expect to be driving

CPI inflation in the next few months. So and you know, for the headline number, which I think a lot of people obviously will focus on, I mean, it's driven by the stuff that just consumers have to deal with every day, as you mentioned, rising gasoline prices, rising prices at the supermarket, and there's really nothing that the Federal Reserve can do

to really impact those areas, is that right? Yeah, But the such objective right now is to pre empt inflation expectations to an anchor, because if expectations an anchored, then they're going to have to high create way higher in order to generate the same amount of this inflation compared to when expectations is not an anchored, and unfortunately often

times it is gasoline places in food prices that dry expectations. Furthermore, another thing that the FED should be trying to preempt is the wage price spiral, and that could be generated by indexation of cost of living to CPILE. It's tied to CPI, not PCD and and that so what they're trying to do is not to lower those immediately lower those prices, gas and food prices. Indeed, it's really to

pre empt expectations from it. Okay, by the way, Anna, the FED is just one piece, and I know the Biden administration would like us to believe that it's totally the FED responsibility and only the FED can deal with inflation. But clearly there are some things government can do. Gina Armando was talking about lifting some tariffs recently. What do you think Washington can and should do to help fight

rising prices? Yeah, I think one immediate policy or that they could do is to make any more policy mistake.

And this is about to come across a palace, but I think the student debt forgiveness, for example, the ten thousand dollars student net forgiveness, is going to be inflationary if they do so, especially as it's going to be universal and only capping a couple of making three hundred k. I estimated that, based on the advantised stations schedule of the students loan, that that it could generate an extra seventeen hundred dollars perpetually each year for a couple of

making you know, uh, three k. Um, it's um, it's it's huge amount. But it won't it won't. It won't be given to any couples make making more than three k. Right. And these people who we think of as um, you know, rich people, although we've seen surveys lately showing that a lot of them are still living paycheck to paycheck. They have the highest student debt, right, but also they have been earning a lot more. These are we're talking about lawyers and PhD in economic and you know, people who

could who could pay off. And I estimate that this um, this the student death forgiveness, could be contributing an additional of newer point five percentage point to inflation and this year or next year, this year to next year. So given where inflation is at right now, we certainly don't

need another you know, fifty basis points higher inflation. Well, at least you've got the uh, uh, the the rescinding of the salt tax acting in the opposite direction, right, because a lot of these people live in Connecticut, New Jersey and California, and uh they're getting hit hard by state and local taxes which they can no longer deduct. Well, but that that effect had been in trains and it

still hurts Anna. I limit that E shows Yeah, so Anna, you know one of the things that you know, I need to remind myself of as we think about inflation is this really is a global issue. It's not just the U S issue. And there's true is that typical anda do we typically see when the US is in a significantly inflationary environment that we see it in the

rest of the world as well. Well. The things that the fact that all all many countries are seeing inflationary pressure, it means there's a common shock across the world, and

that is the supply shock. But the issue is that US inflation is uniquely high um before the war in Ukraine, the US inflation is running about three percentage point higher than the rest of the advanced economy UH in the O, E, C D countries, which means that in US there's a specific demand component to the cost of our high inflation, which the Europe does not have for example. All right, Anna, thank you so much for joining us. Really appreciated. Annawan,

chiefs economist for Bloomberg Economics. Check out this resume. I was just gonna say, I mean, PhD from the Economics and University of chicagoy're pretty good. They're pretty good. They have a pretty good program, and they like numbers. There be an economics and statistics statistics from Berkeley also pretty good where she worked before Bloomberg. Former Federal Reserve Principal economist, former Chief International Economist on White House Council of Economic Yeah,

that's not bad. Former Deputy Director in the Office of International Economic Analysts at the U. S. Treasury, and former international economists. I also I love reading your research, So thank you very much for joining us, and I hope next time you come into New York City that join us in the studio here at seven thirty one Lexington Avenue, because we are so happy that you are working for

us and along chief US economist for Bloomberg LP. Here's the story going across the Bloomberg Manley call is pretty cool. Mike Novigrats, the founder and chief executive of Galaxy Digital Holdings says that two thirds of the hedge funds that invest in cryptocurrencies will fail as a consequence of the

current market downtown downturn. Not very bullish on the crypt on our next guest and you and he says, and we can get into this with our guests, but it's because the Central Bank has taken the punch bowl away. They have, I know, and that's kind of gonna be an issue on our next guest. I think might have some thoughts on that time. Or Hyatt, CEO of PGM. That's the investment arm of Prudential Insurance Company. They Prudential is a lifelong resident New Jersey. They are the pride

of Newark, New Jersey. We love to folks at Prudential there and what they do in Jersey time or thanks so much for joining it at PGIM. What do you guys think about crypto? What are you doing there? So you know, I think I agree with Agravats, but I think, but I think there is probably some money to be made by quantitage funds in alpha generation because there is so much speculative fear of missing out retail money flowing into crypto currencies that if you on the other side

of that, you can generate alpha. Uh. And maybe it's only one third of hedge funds to do that, But we've taken more of a lens, just a cold hard look at the data because there's just so much mythology and uh and you know social media frenzy around this. We took a cold hard look at the data and said, if you take bitcoins now a teenager, it's been around

for over twelve years. If you look at the data, particularly the last four years, you know, early early entrance had a great chance to make a lot of money with this. What does the data say And as a long term investment, should you hold cryptocurrencies in your portfolio as an institutional, as a sophisticated investor, Our answer is no. The data speaks volumes against that idea based on everything we see to date and what's going to happen in

the near future. Why, you know, one of the encouraging things for crypto balls has been UM adoption by institutional investors and more and more banks are opening trading desks, more and more banks are looking at custody UM and it seems like the ratio of retail to institutional continues to be bullish. Do you think that that's going to turn around? Now? I think it's going to turn around. You know. Again, the trick here to be a good

active investor is to look at the data. I will say yesterday we were looking at the e t f s and year to date, among the entire universe of e t s, which is a big universe. Now, um crypto e t s are the second biggest losers with

draw downs. The only e t s that have lost more are Russia e t f s. So if you go all the way back to even twenty nineteen and you look at the risk adjusted return of cryptocurrency is, given the draw down, given the volatility, given all the turbulence that they have, they aren't better than bonds and stocks. If you look at the correlations, which is what institutional investors do, Is it giving me diversified return with equities, with real estate, with go old? Definitely not. It's not,

you know for the first five seven years. It did for the last five years. It is giving you risk on levered access to the same risk you're getting elsewhere. You're not getting un correlated returns. Is it a safe haven you know, gold has five thousand years of history and intrinsic uses in industry and jewelry that does make it a decent long term inflation head never a great shot term, but a good long term inflation hedge in the only incidence of inflation, and we boy, we have

it in spades. Now Bitcoin is moving in the opposite direction to infish, and it's not acting as a safe haven. It's not acting as a hedge. It didn't act as a safe haven in in COVID, so it's not really playing the digital goal role. It's not really But maybe that's just now. I mean, if you look at maybe four thousand, nine hundred and ninety three years ago, gold

had like a five year spot of correlation. So it's always easier to say that these are the sort of early pangs of a new asset class, and you know it's going to be volatile and it's going to stabilize. But twelve years is a long time guy. So there's a lot of data now that that's showing it's not true. And I think I see two other headwinds coming down the road. One is regulators are getting smart around this and finally catching up. You know, regulation lags by several years.

We've seen it in tech, we're now seeing it with cryptocurrency. They're gonna be big regulatory headwinds from China all the way. They can just ban it and they have, you know, the mining of cryptocurrency. But regulators around the world are catching up on this and that's going to be a big headwind. And second, I think maybe it's two three

years down the road, maybe it's five. But when you have the digital dollar, the digital or the digital staring and all those stuffs are working CBDCs, why would I Why would I buy a stable coin that has liquidity risk, that has credit risks with unclear reserves when I can buy the digital dollar. Now all the infrastructure that cryptocurrencies have built, that is going to be where I think the value is. It's in the picks and the shovels, not in the goal. Cd d C is central bank

digital currency. Okay, shown off? Now all right, so Matt, we've been calling out some of the resumes of some of our guests today. Listen to this guy, Tamar PhD in economics from Oxford University. They're pretty good, but they're pretty good. Right now, he's in a radio station talking bitcoin, how the mighty have fallen? I mean when you look at like a I guess when I think about it, and I spent so long on the Wall Street and I figured it like if Wall streets into it, then

it's kind of real, you know. And uh, And I just don't see the Jamie Diamonds of the world embracing crypto. He hates it. He hates it. And I don't see a crypto trading desk on Goldman Sacts. They might have one, I don't know, but I have one in the works. And look, it doesn't matter if Jamie Diamond and Warren Buffett and everybody else over you know five doesn't like crypto.

That's not necessarily speaking that that's the question. How do you do you need the validation of Greater Wall Street too for the class you know as as you know, we manage over one point for treating and asclets, we don't need their validation. But but we do look for certain things in any new asset class. Right First, is

there a stable correlation without their asset classes? B? Is there a source of value that has some sort of intrinsic purpose beyond speculation and speculation could continue you know, retail investor. Scan might make money for a while, but is there a true source of value and that is there a stable regulatory regime or the regulatory headwinds. Bitcoin and other cryptocurrencies don't meet any of that. But we are bullish because I don't want to end on a

variation note. We are bullish around the innovations that accidentally happened in the creation of bitcoin. And I'm talking technology with the blockchain, blockchains, smart contracts, tokenization of real assets. I told you that real value. You're preaching to the choir here, tam or Matt has been all over this team or high thank you so much for joining us.

He's the CEO of p Jim joining us in our Bloomberg and our actor Broker studio, talking crypto as it continues to evolve as potentially an ASI class for some. All right, let's talk real estate, residential real estate again. Matt's been in the market. I am now out of the market. I prefer my position. But let's talk to someone who does this stuff for I mean Kenneth Leone, research director at CFR A. Ken has housing in this country,

has it peaked? So there's an incredible housing shortage. We're talking millions since the housing crisis over ten years ago. That's not going to go away. And housing probably has peaked near term because of the pressure from rising interest rates mortgage rates above five it's hurting the product categories of entry level home buyers also move up categories. And the only areas on the recent National Association Realtors Existing inventory sales that was positive was the seven hundred fifty

twill a million dollar category and above a million. So we are seeing moderation. Yes, I think we've seen a peak. So uh. By the way, Ken, we've been giving people's resumes out today. So you were imaging direct to a bear Stearns Senior VP at Lehman Brothers. Um, you were, uh, the global director of Equity Research at McGraw hill Financial. You know what you're doing, You know what you're talking about.

What do you expect from mortgage rates going forward? Because we're hearing about a FED that could raise at fifty basis point increments, you know, possibly for three or four meetings. Maybe they're gonna raise uh, they're gonna raise rates like by three percent by the time they're done here. What are we gonna see in terms of mortgage rates. Yeah,

it's a it's a great question. And and most importantly, the mortgage market is dan about sixty on originations, whether it's purchased or refi refights debt, and the FED quantitative tightening the mortgage back securities. You know they're gonna be peeling off thirty five billion in September, half of that starting in June. That's the macro to your reference to

Peers Sterns or Lehman. But you know, generally the markets will stay liquid, and I think for mortgage rates, h it's likely that uh not even the Mortgage Bankers Association, which is the bowl case for mortgage rates, is going above five point two in either two or twenty three. To answer your question, I think we're gonna see five and a half six percent on a mortgage rate. Can you mentioned supply of homes and kind of what I've heard really over the years is the housing industry there.

I mean, the homebuilders are really good at building those McMansions. There's big profit margins in for the builders there on those types of homes. But what they have not been building it's kind of the entry level home here. Is

that changing at all? Do you think it has changed, but you know, again, the backdrop how this market is different than when we hit the housing crisis back in OH eight or O nine is that UM, home builders learn their balances are strong, they have debt maturities that really becomes more measurable two or three years out on maturities, and uh, they have great liquidity, so they're not speculating.

They also change the mix of their land inventory to be about six to seventy option, which means they can cancel it for a small fee and the rest is own lot. Totally different picture than the spectacltive side, both from the home builders as well as home buyers that were subprime. PYCO scores are very high today, UM, and that's why I use the word moderation from the peak for the housing market. All right, Ken, great, great stuff.

We appreciate getting your thoughts. Can we own research directored cfr fr A. 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 on Fall Sweeney, I'm on Twitter at pt Sweeney before the podcast. You can always catch us worldwide at Bloomberg Radio