Fed Day, Markets, And Crypto (Radio)

banks today, Vince. And the first question I have is something that Cameron Cries mentioned in his Macroman column. Um. The idea is that there was no vert leak that the FED purposely told the Wall Street Journal We're gonna raise seventy five basis points. And I've heard this from many market participants, some of whom claim to have actual knowledge about it. Is that possible? Do you believe it? Uh? No, aren't really honest? Would you know? UM? I don't think.

I don't think the FED is of the mind to single out any one specific news source, UM to suggest that they were going to make something. Is it possible that they could raise seventy five basis points today. Absolutely, Um, but I would argue that they would be making a big mistake. The Fed really needs to explain, well, remind markets of a couple of things. Um that first of all, it takes six months from grodetary policy, that's the theory

to wind its way through the economy. We just started hiking rates and expectations, I mean expectations they can affect right away. Yeah, they can, But look at the data so far. Retail sales are dropping, home prices are dropping, Compass and Reds and firing countless employees yesterday because the real estate market is cooling and they have no sales

to support it. You know, this is actually if you go back to two thousand and twelve and you see look at CPI and you look at the Fed funds rate, you'll see countless gyrations in the set funds rate beginning at the end of hiking, only to crater those rates all the way back down to zero where they were in twenties fifteen when CPI collapsed, And the three month moving average of CPI across that time is pretty close to unchanged. It's it's a little higher now, but it's

higher now. For supply chain reasons, for oil reasons, and for fiscal policy with overly stimulating the economy during the pandemic. Absolutely none of those things had to do with monetary policy. So acute changes in monetary policy, you're gonna make matters worse. Not that, Vince. So I'm gonna call you out of consensus. How typically your career? Are you out of consensus? Uh? About the time went years in a row? So there you go. I've never lost money, absolutely never. I've never

lost money in any given years. But we're not betting on this though, right, I mean, I'm just looking at look, I'm I just um, look at this chart. If you want to access it yourself and have a Bloomberg terminal, you can type g hashtag b TV nine six two. I remember that because it's a famous Porsche Lament Porsche. But um, it's University of Michigan inflation expectations five to ten years out and they jump up like the hockey stick in Al Gore's climate change movie. Right, I mean

we're expecting now, UM, or at least the University of Michigan. Uh, people were surveyed by UM. The wolverines are looking at three point three percent inflation five to ten years out. That's what the FED needs to break. What we're what? Why why won't the economy do it forth? Why won't the drop in prices do it forth? Why won't those lack of wage growth cool demands as for them? Which is what it always does? All right? So is is a Are we in a stag inflationary environment right now? Vince?

Or we potentially will be? Yeah, we were heading towards. I mean, I'm I'm I'm looking at the chart you just said of inflationary expectations. I go back to December one, interest rate through zero and at the end of the set funds rate is two and a quarter to two point five. And on that chart you're just telling me about which I looked up, Uh, the end off to the end of ten year inflationary cost tenor inflation expectations

were dropping. While the spec explain that to me because they don't surprise anybody, because they forecast everything, because they use for guidance to tell us, listen, next month, we're gonna start raising rates and it'll be basis points there it'll be fifty. Like what if they just came out and shocked the market the concern is they would break something. But maybe with eight point six percent headline CPI, something needs to get broke. Well, I mean with but it's

it's it's it's it's starting to slowly roll over. I mean it, you know as well as I do. Spending in general is ropping because people the wage growth to go along with the price increases. We saw that in today's retail sales comes. That's not gonna go away because the FED races rates said has not. The fact is absolutely no control of disappointment. It's supply side. What are they gonna do. They're gonna try to raise rates to further curb demare. It's already happened in the housing world.

What more, what more do they need to do? Raising rates is not gonna is not gonna lower the price at the stake or or or dinner at a restaurant, or or anything else. It may lower the price of housing, but that's that's just about it. It's not gonna put more money in people's pockets so they can pay for something. You know, the set has been horrible at forecasting both inflation and economic growth since Greenspan. I mean, look a year and a half ago, they were this inflation was transitory.

Now they're saying it's permanent. Why is why are these Why am I so confident what they're doing? Good point. That's a good point, alright, Vince. That's why we had you on because we need the non consensus call from time to time, and Vince usually brings that game. Vince Signarella, global macro strategist at Bloomberg News. I want to bring in next guest, Jennifer Lee. She's a senior economist and

managing director Demo Capital Markets. Jennifer Obviously, uh, we were focusing on the ECB earlier this morning, on their surprise announcement kind of a nothing burger. I guess, as some people are saying, now all eyes turned to this Federal Reserve, and I would think the consensus feels like seventy five basis points, although we just had Vince Signarella, macro strategist for Bloomberg News saying, you know, they don't really have to do that. Fifty would be Okay, what are you

expecting this afternoon? It depends on who you're asking in our group about what we're protecting. But I think I think right now seventy basis points is probably the most likely outcome just give in that. It's almost like they backed themselves into a corner having that story come out. I don't know whether or not leak or not up a purposeful leak, but it's almost like if they don't do seventy five basis points, it won't go over well with the markets. Um, so it probably STUDI five basis

points and maybe a lot more hawkish language. By the way, you're not alone out there. I've noticed, Uh sometimes a chief strategists like Marco Kolanovitch doesn't agree with his chief economist or his CEO. So, um, it seems like the people within our group, by the way, well, uh, the problem is obviously inflation, and the FED needs to deal

with that. Whether it goes fifty now or seventy five now and then seventy five next week or fifty next week probably probably isn't that important, right Are they going to be able to get prices down? Can they really do anything about it? Vince was saying, you know what, this isn't something that monetary policy can necessarily solve. So monson paulicit being as the class sick blunt instrument. I mean,

there's the supply side. Um, of course, all the supply factors energy prices as well from the war, that has been a big contributor to to inflation. But at the same time, on the demand side, all the money that people saved during the pandemic broadly speaking, of course, all the fiscal support that has caused a huge um increase in demand, all that contempt demand. So what the FED was trying to do and what most central bankers are

trying to do is basically a collaborative. I can say that claber of the demand side with higher rates, and that will at least go some way to bring inflation lower. Maybe not quickly as quickly as we had expected, but it will go some way towards doing that. So also today, Jennifer, we had some economic data come out this morning. UM, retail sales a little bit weaker than expected. Any read through there for you, It wasn't as I mean, I don't think we should, even though consensus including US had

had a small increase expected for May. I don't think some of the details were too too shocky. Um. A lot of it was ours. I think that I was going a half percent or something like that. Gasoline, gasoline and sales are up a lot, but even X autos and X gas, you know, still up mildly. Some of the discretionary stuff was interesting, like sporting goods. I think we're still higher and people were still dining out, so

it wasn't all negative. But of course this is just the start, and I think we're gonna start seeing the big slow down cutting from the consumer. So how big is the question right especially considering how much the consumer um contributes to US economy growth. Is it going to be big enough to bring us into a recession? Well, right now, we're thinking more of a growth recession in terms of like just floor grows and starting to bring

the unemployment rate a little bit higher. UM, not an outrates recession that we are all accustomed to hearing about. Does everyone in your group expect just that, Jennifer, Yes, that is because that is a very widespread view with an opera on our group. UM. I will continue to lean on the fact that as of right now, the labor mark it continues to be super strong, but that

cannot last forever. And I think I mentioned this at least over the last few months, that you know, anyone who has several different job offers out there, you know, I hope that they're taking one of them now because

it's not going to be available forever. I mean, you can I'm imagining companies who perhaps have been looking for I don't know, I'm gonna say, like, you know, a dozen people to hire, and if they haven't been able to fill those jobs, mean at this point they were thinking maybe we don't need them, you know, and demands starting to taper off, maybe we won't be needing all those you know, we don't won't be needed to hire all theople of people. So you have to imagine that

it's going to start tapering off at some point. So Jennifer, just going back to last Friday with that CPI print, which was such a surprise I think to the marketplace, and we saw it into trading in the markets Friday, Monday and Tuesday. UM, a little bit of hindsight here. What's your kind of main takeaway from that. I feel that every country around the world continues to perhaps misread the inflation data or kind of expect some expecting plation

to start tapering off, but again it hasn't happened. Jeff Standon, this is why you're seeing all these central banks. You know, doing stepping up to do more, you know, except of course for the bag Japan. But um, you know again because we always it's just it's just continued to surprise on the high side, and I think it's going to continue doing so until it doesn't. By the way, I was thinking today, I was putting together a list of the things I could fund shorting jgbs. I mean, what

a cake walk, right? What are jgbs Japanese government bonds. I'm just gonna I'm just gonna borrow Japanese tenure bonds, sell them short and then like instead of a mortgage, or instead of corporate financing, or instead of selling treasuries, the US government could fund operations shorting jgbs. It's a there's no loss, there's no downside of this trade, Jennifer and Governor Caruda could continues to say that, you know that their economy is a lot different and that is

not the time to raise rates. There you go, all right, Jennifer Lee. Always appreciate getting a few minutes of your time on this FED days. We wait the FED statement two pm. Wall Street time. I am back here stuck in New York City, UM, with my friend Katie Greifeld, with whom I anchor every Monday, the E T F I Q Show on Bloomberg Television times on Mondays, Wednesdays. Sometimes on Wednesdays we're waiting for a decision from upper upper,

upper management on that. But she also focuses big lely on cryptocurrencies and it has been a world of hurt. Katie Gray felt, what with what was it called tara Um Luna and then UM what was the Celsius? And

now Three Arrows? What's names? I From what I can tell talking to UM investors to traders, this is just looking like a beautiful liquidation cascade that obviously, with Tera blowing up, we knew that a lot of people, a lot of high profile backers were involved in Tera, and you've sort of seen the slow drip out of that. Slow is a relative term. Everything happens faster in crypto, and now it seems like, uh, this is really happening, uh with a much greater intensity. A lot of leverage

is getting flushed out right now. And there's a lot of questions about a lot of those names you just mentioned, such as Three Arrows and some of the other big hedge funds in the space. All right, talk to us about coin Base, because that you know, a lot of folks were leading the financial services industry and saying, oh, this platform, this is the future. Um speaking of Cascade, Yes, and then boy and a lot of folks lost their jobs and so on. So what do we know about

these trading platforms? Uh? You know, everybody just focuses on the bitcoin and the price of bitcoin because you can see it on your Bloomberg terminal, But how about some of these exchanges, the kind of the plumbing. It's a great point that it's not just the price of bitcoin. You have an entire industry built around it as well. And if you think about coin Base, obviously, the news from this week was that they're going to lay off eight of their workforce. This, of course, I mean they've

hired aggressively just this year, a loan adding. I think people, this isn't entirely just a crypto problem. I mean, we've heard about a lot of crypto layoffs, but if you think about what's happening in the broader economy, we're seeing it with a bunch of other companies as well. I mean, if you think about what we heard about Amazon and Walmart,

they overstaffed too. It's just that this is hitting at a very painful time for crypto and you are seeing again some of the biggest names out their coin base having to announce these massive layoffs. We heard from Block five this week as well, laying off of their workforce. Interestingly, though, krack In just today another exchange came out and said that there are launching a global hiring push. So some of these firms are trying to swim against the current here. Yeah.

Actually I got to talk to Nick Carter yesterday from Castle Island Ventures. I was very excited about that. Him mustache. Yes, his mustache is awesome, and he says, plus, he also is one of the smartest voices on crypto. He was one of the first UM financial analysts on crypto on the street. And um he says, Look, if you're if you a good smart engineer with good experience, which a lot of those people from coin based are, it's gonna be no problem for you to find another job in

crypto or in tech. In in a broader sense. Um, but there is an issue, it seems with steaked ether like this first became apparent UM when when we saw that uh lido one platform was holding thirty one of all steaked ether. It's a custodian right for others. And and now, um, we've heard that the difficulty bomb has been delayed. This was a way to kind of speed up the merger from proof of work ether to proof of steak ether. Now Three Arrows has been liquidating its

steaked ether for regular ether. What's what's going on with this with the merge, as they call it, the switch to a more environmentally friendly way of minding crypto. It's a great question. We've been waving on the merged for a while. The latest we know is it's supposed to take place later this year. And like you said, I mean this ties back into the Three Rows capital conversation. One of the most prolific crypto hedge funds out there. They have a lot of exposure to steaked ether and

they had ten billion dollars under management. That's a lot of money. That is a lot of money. They were one of the investors in Terra. We know that they have exposures to state ether. All of the things that are kind of going wrong right now, so with steaked ether, so it's supposed to be redeemable for one ether after the merge takes place, but we don't know when exactly

that's going to happen. And what's happening now is you're seeing this big dislocation between the price of staked ether and ether itself, and that is really painful for funds such as Three Rows Capital. By the way, we're seeing on Bloomberg Television, I see Michael Sunnenshine from Gray Scale Capital is talking to Guy and Alex and Three Arrows reportedly had a more than five percent stake in the Gray Scale e T F. Right, Yes, not an e

T F Are you sorry? Yes? So they this is data is as of December that they had that five percent stake in uh Grace Scales Bitcoin Trust. Unclear whether they still do, unclear whether they're selling that right now in the secondary market. But I mean, if you think about hedge funds, they would sell their most liquid things first,

and I don't know. I would imagine g v D two shares are a little bit more liquid than steaked ether, but it's hard to know at this point as we again just see leverage get wiped out across the industry. And you know, with that, Katie, a lot of folks are saying I told you so. Even Bill Gates kind of jumped onto that bandwagon here, who are the true believers? Where are they? Who are they in crypto? Because uh, it was obviously it is still a very big story.

It was never Bill Gates, Yes, you can start with that. He was never believer, Jamie Diamond, Warren Buffett, especially really old people. Yeah, not not true believers. Well, I mean it's funny if you think about people, if you just think about what's different between now this moment and the first. It just feels like traditional Wall Street has too many arms into crypto to completely withdrawal. So we'll see if that's a layer that's involved with this crash. But it's

funny to talk about sun and Shine. So he is at Gray Skill, he's the CEO. There a song to him rate before his BTV interview. He's a true believer. He's a true believer. He made the point that you see periods like this, you get a lot of leverage flushed out, and basically it leads out the players who were maybe playing it a little too fast with the leverage too cute, too cute. It tends to be a healthy period. But that's what you would expect to hear

from some of those true believers. Michael sn and Shine. Absolutely right. But the bottom line, um, even though we're seeing a lot of unwinding of leverage, this isn't going away. I mean, even though we've seen a crash in the price, it's not sound like a man your anchors a weekly crypto show. Also, because I just heard David Rubinstein say

that yesterday. I mean, if you think about our world, and again I'm a journalist, I have no opinions are increasingly digital world kind of makes sense that digital money would be a part of it, that our lives would move increasingly online. I mean, I think about the true directory of my own life. All right, Katy gray Felt, thank you so much for joining us as always talking about the crypto, all things crypto. She's a Cross Asset reporter Bloomberg Quick Take co anchor. We are in Dallas, Texas.

We bring in Matthew Forster, c I O and Managing director b n Y Melon Lockwood Advisors. Matt, it's a fed day today. I'd love you know, this is kind of all we've been talking about here on radio, on television. What do you guys at bing and Y melon thinking about your feather reserve. Well, some of them that might be sci fi fans might like to have read um

Douglas Adams Hitchhiker's Guide to the Galaxy. And if you remember, that book comes with two bright bold words on the back that says, don't panic, right, And uh, you know, I think if you look at what has occurred around the world today with central banks, there's just a little tinge of panic. We have Ben Brunankee with an op ed, uh, you know, talking about the FED credibility and that this

isn't the seventies. We have the e c B with this unusual communicate which talks about how they're gonna be flexible around anti fragmentation. Uh. These kinds of unusual terms and literally vague wording I think doesn't maybe help. Uh. And we also, of course have the FED decision today, where you know, there's some discussion about how far they could go and whether or not a move with just a couple of days ago, we were thinking that fifty

basis points was baked into the cake. Um and here we have seventy five, then possibly even a hundred, and it looks like the market is completely shifted to having seventy five basis today points today, and usually the FED does not disappoint the markets when they've already built into that pricing, right. So I would have said fifty a few days ago, and now I think it's maybe likely that they got exactly and that's kind of what I

would think consensus might be. Hey, man, as we look around here, I see a lot of your you know, the firms you do, your partners. I looking at Janie Henderson, I'm looking at you know, Eating Vance and all these folks, and they're here, which is good because it's been a couple of years. What are you hearing from your partners, the folks that you would be in my melandue business with, because it's been a crazy two and a half years

and has sent and uh. Yeah. The important point for us to remember is that we work with all of these large firms here. We're there are suppliers to us on a third party asset manager. We've managed some of our own, uh, and so we work with all of them and we hear from them around products. So yesterday we did a little survey about how their product mix might be changing, and there's a lot of what's happened, you know, so far a year to date, and what we see is that our main partners are much more

concerned about the current capital market environment. It they were just a couple of months ago. So you know, a few months ago at the end of last year, of course markets were roiling um and all of these other pieces, uh, you know for all kinds of more esoteric products, maybe niche year products were highlighting what they wanted to think about, you know, direct indexing, e s g. All kinds of

other things. Now you know, they're back to focusing on the basics and protecting their clients against no really challenging capital markets that we've seen so far this year. Yeah, I like so it being why Melon talked to us about your business. I mean, again, the two and a half years of this crazy market we've been going through. Now we've got this inflation like we've never really seen and we're gonna have what they're saying is a couple more months of bad prints on the inflation front. How

does that affect your business? How does that affect your clients? Well, Uh, we're we've come through this fairly well. Uh and um, that's because we've had some hedges inflaces, whether that's direct equity hedges or hedges to say around a strong dollar with reguards of our international currency, uh, exposure from international equities that may not be ever. Remember, we have we manage many different, hundreds of different portfolios for various clients.

Some of those are custom builds, some of those are partners with the firms that you see here today. So we provide a large group of of investments around to our platforms and um, you know, all of those are they're doing different things here. So hopefully we can find something investors can find a way to find something that they feel comfortable within this particular mark environment. Yeah, it's crazy. I mean, anywhere you look this year, equities down plus stuff.

You know, the corporate bond index of Bloomberg Corporate bought index totally turned down twelve thirteen percent. There's really been no place to hide other than maybe, you know, commodities, you know, you maybe oil in your partner. Commodities and

energy have been the place to hide out. Even then, you've seen a lot of volatility, but clearly they're they're continue to be up, and I still think there's plenty of opportunities there to continue to add to some of your positions, because it doesn't look like any of these uh trends that we've seen resolution in the current Ukraine. Other things are going to happen soon enough to affect

some of those market prices. Uh. You know, we'll have to see how FED tightening continues to affect those prices. I think that's likely that it will in time. But you know, from the moment, we've got these big supply and balances, uh, you know around agricultural commodities or or or energy and to tricial commodity basket. So I think there's still opportunities there. But uh, there are still places

to hedge, you know, with the FED tightening so much. Again, you know, people don't a lot of American advisors don't think about this so much, but there's effects effects, you know anything, you know, and all commodities are priced in dollars, so you know, while the dollars rising, you're getting kind of a double kicker there. But your international effects exposure

is not hedged in many cases. So those are the kind of things that I think you might want to think about to try to take the sting out of the equity price and clients that we've seen. All right, Matthew, thanks for coming with us. I mean again, it looks like you guys having a great conference, great turnout. We're glad to be a part of it. Uh. For nothing else, it's just good to see you know, folks at getting

back together again face to face. I've seen people you know, huddling corners, you know, talking and that's kind of what it's all about. Yeah, we haven't seen because some of these colleagues I haven't met before because they're relative new hires, and that's like just great to actually get a chance to meet them. So we're all back in person and live here and have a lot of network and going on.

All right, it's good stuff. Matthew Farster, c I O and Managing Director B. N Y Melon Lockwood Advisorshare joining us here at this conference here at the Gay Lord, uh Texan resort. Great facility here, huge uh and it's doing a good job taking care of all the folks here. Looking at the markets here. We still got some green

on the screen. Ahead of that FED meeting two pm Wall Street times when we will get the statement and then of course to thirty or so Wall Street time PM we will get the conference with FED chairman Pal we'll face some questions. 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. An Impulse Sweeney I'm

on Twitter at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio