Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside my co host Matt Miller.
Every business day we bring you interviews from CEOs, market pros, and Bloomberg experts, along with essential market moving news.
Find the Bloomberg Markets Podcast called Apple Podcasts or wherever you listen to podcasts, and at Bloomberg dot com slash podcast. I want to get to our next guest, Jennifer Lee. She's a senior economist managing director at BIMO Capital Markets. Jennifer, lots of economic data this week, and likely we'll have you know an effect on what we hear from our photo reserve in the coming months. What are you looking at this week in terms of the eco data?
Good morning everyone, Thanks for having me on. Sorry I'm still laughing about the bike to nowhere. That's how I feel sometimes with so for this this week, I think all the key numbers are coming out tomorrow, although this morning is a reports on GDP was a little bit
kind of interesting. Even though we saw that downward revision, it was all due to inventories and net trade, but I noticed that the consumer spending portion was still a little bit, just a smidge higher, which is kind of interesting, but tomorrow's PC numbers, so it will be will be definitely the key because it's going to show you how Q three is beginning.
So that's interesting too because this is a revision to that and you are seeing consumer spending revised higher there and those expectations. When I look at the ECFC function in the Bloomberg terminal that takes sort of the estimates for the average what economists are expecting, you don't see even a quarterly contraction anymore coming up for the next few quarters. So when you do have so many economists expecting that potentially we could see a recession in the
next few quarters, how do you square that away? When you have data like this, it's being revised to the upside, so we are well.
Actually, it was interesting because when you look at the components, it was all durables that actually was revised lower, but again it was upward divisions to services and that's where all the demand has been. But we actually have a contraction for the first quarter. I had to look at my in my notes here for the first quarter actually in around the turn of the year, because we are still looking for the for growth to slow overall We're not looking for that hard landing that many were calling for,
you know, just a number of months ago. We're still looking for that soft landing. And so for all the data are putting in that direction, things are slowing, which is not a bad thing. Is what the Fed wants. This is what they really really want, and I think in terms of the consumer just to have them pulling back a little bit and eventually just taking all the spending off the table at some point in the early in the new year will help again growth slow even further, but not have that hard landing.
So if there is not a hard landing here, how do you think the Federal Reserve will kind of interpret some of this data?
Will they?
I mean, they could very well pat themselves on the back, take a little bit of a victory lap, and just kind of stand pat for a while. Is that something you foresee or did they do? You feel like they may feel like they have more work to do in terms of pushing rates up a little bit.
It's a it's all going to dependent. I mean, it sounds wishy washy, but that's you know, unfortunately, that is the case. Is everything is data dependent. I don't know they're gonna be doing victory laps. Just judging from what Fetcher Powell said last week in Wyoming, I don't think they're doing any victory lapse. You're still watching everything very carefully. He did get, by the way, give a nod to the more to the better inflation data of late, but he said it's just far too soon, and we already
knew that. I mean, a couple of months of better inflation data is are definitely not enough to uh to to have them be very very comfortable. I think they need a lot more than that. But for sure, our official call is still that they are going to stay the course and keep watching the data and not do anything. And of course there is a risk. I still think that the risk is to is to raise race if things do not cool or or cool more than they
want or less than they want. You know, I'm trying to say, of course, all the latest jobs data have been very interesting as well. With the ADP this morning, I don't take too much stock in it because it's sometimes quite locky compared to what the official data say.
But you know, overall we have seen that slowly in growth in job growth, in job demanded, lower job openings, though there are fewer job openings out there, still far more than the number of unput Americans out there, So it's still tight, but at least we're all heading in that right direction.
We talk so much about whether or not we'll see the Fed potentially raise at least one more time here, but what about just how long that they keep rates at an elevated level there, and how long are you expecting that to potentially happen.
So we are looking officially for the first rate cut to come probably sometime in the mid middle of twenty twenty four, mid year, so another year from now. We've actually been pushing that out a little bit more just because the data have shown that the US economy is a lot more resilient than anyone I would have hoped for at this point we're expected so if anything, they're going to keep rates for higher for longer.
So a lot.
So I don't think again, we're not going to see another rate cut or a rate cut coming until at the earliest middle of next year.
We're going to get obviously, on Friday, the change in non form payrolls consensus it is for a gain of one hundred and seventy thousand. That would be down from prior period of one hundred and eighty seven thousand.
But.
Unemployment rate kind of sticking around three and a half percent. Where do you think that unemployment rate goes I have no idea how this labor economy is working. We got the jolt s Nummer come down yesterday. But where do you think the unemployment rate ultimately goes higher?
If you have to pick a direction, it will be higher, but not too much higher. Probably something in the in the mid four I believe we have This is all to be expected at some point, like when you have over five hundred basis points of rate hikes coming from the Federal Reserve in such a short amount of time. At some point, you know, again, we're already seeing that
job growth slowing. The demand for jobs are also starting to wane a little bit, So we're going to start seeing that unemployment rate inch a little bit higher, but it's not going to be ratcheting higher. And at the same time, they're still demand out there for certain categories of workers. Maybe not you know, on a broader scale, but certain areas like construction, we're still lacking even on
the technology side. You know, I hearing stories about you know, shortage of engineers, for example, and not enough even though we've got all this money coming in on the fiscal side to build all these facilities to create semiconductors, we don't have enough people who are trained to build for that certain particular technologies. So certain pockets are still going
to be a lot more demand. But broadly speaking, just because of slower growth, because of higher interest rates, we're going to start seeing that jobles rate into a little bit higher.
Well across this pond. We do have the ECB having a meeting on September fourteenth, that is ahead of the Federal Reserves decision on September twentieth, but we are going to get some Eurozone inflation numbers on Thursday. How do you square away the issues when it comes to the inflation that Christine Leguard is clearly trying to fight and indicated that at Jackson Hole last week, versus what fetchair Jerome pal is trying to do in the United States.
It's funny they're mentioning the ECB, because I for the ECB, it's almost like a coin toss right now. If anything, I would right now our official review, my official view is still that they're going to stay the course, just given that inflation has come down from those highs, given that all the hawks or most of the hawks have started to tone down their hawkishness, and the fact that China is slowing considerably as well. So I think that might be enough to put the lot of the ECB
to sort of step aside a little bit. And she sort of hinted at that at that July meeting. However, the flat fact that inflation is still sticky. We got three new pieces of data overnight. Belgium, for example, it was like all over the map, Belgium CPI was relatively steady. German CPI edged a little bit lower, which is key, but it's just it wasn't as low as consensus had expected. And in Spain inflation rose for the second month in
a row. So it's going to show that. I don't think we're going to go in to get a very clear signal from tomorrow's inflation report, and I think that will be put the ECB still at play for September.
Well, most importantly, how are things in Canada.
Things are slowing. It is actually slowing a little bit more than we had a little bit more actually than what's happening in the US. We're going to get some key data this week. On Friday, we're going to get our We're going to Foly going to release our real GDP for the second quarter, and we're looking for growth to slow to about a one point two percent a wicepace, which is about half of what we saw in Q one.
We had a strong start to the year that we've been doing, dealing with a lot of wildfires almost see the coast to coast, labor strikes and all that's going to weigh on the second court. Of course, higher interest rates and consumers here are a lot more susceptible I guess two rates than they are in the US, So I think we are going to see slower growth. It's just something by the way, that the Bag of Canada is going to very much welcome because inflation is still
too sticky. So as long as inflation or the economy continues to slow, which we're expecting in the second quarter, that will allow the Bag of Canada to stay also on hold for the rest of the year.
Hi, Jennifer, thanks so much. We appreciate getting the global view, including our good friends to Northern Canada. Jennifer Lee, Senior Economists and Managing director at BMO Capital Markets, that is Bank of Montreal.
You're listening to the Team Can't Live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg dot Com, the iHeartRadio app and the Blow our Business app, or listen on demand wherever you get your podcast.
All.
We did get a few different data points on the housing side today, so we were just talking about earlier the pending home sales unexpectedly rising for a second month, but also we did see that mortgage applications also rose in the latest week. So I want to get straight to our next guest, Odetta Cushy, Deputy chief Economists at First American, who's joining us on zoom to discuss the latest data in the housing market. Thanks so much for
joining us. Walk us through these latest data points and what this really tells us about the housing market at this point, because we do know that mortgage rates are at about a two decade high at this point, that's right.
So the recent increase in pending home sales, this is a second month in a row that there's been a modest increase in pending home sales, which is a leading indicator of a future sales. That's really a testament to the strength of the demand side of the equation. There's still quite a bit of pent up demand for homes, but insufficient supply to meet that demand. So some cautious
optimism in the latest numbers. We saw this morning a weekly increase in purchase mortgage applications, although again a very modest increase on a year over year basis. We're still quite low both for mortgage applications and pending home sales. But you really see the strength of demand even in such a high interest rate environment and such a low inventory environment.
What is the catalyst because typically the springtime is more of the boom there when you do see that when it comes to home sales, but this is a little bit later than that. Why is that, Well, the.
Pent up demand there's been a lot of multiple offer situations, and so you know, the folks that are losing out on those multiple offer situations are on the sidelines, ready to jump in when there is sort of a house out there that meets their needs and what they're looking for. And so maybe a little break from seasonality there.
So odetta is I'm going at the bank rate thirty year fixed mortgage seven point five three percent. Is there a level where that needs to decline, where that might free up sellers to maybe say, all right, I can in fact part with my lower rate mortgage and maybe put my home on the market. Is there a break given number out there that you think might be the magic number?
Well, that's the big question right now. More than ninety percent of existing homeowners are locked into rates below six percent, So certainly we need to see something below seven percent to even see some movement there. There's not a lot of financial incentive for existing home owners to drop those record low mortgage rates that they locked into at this point. So I think, you know, well under seven percent, probably below six percent to unlock some of that inventory.
We did see July opending sales rise the most in the West and also actually increase in the South, but probably not surprisingly, they did fall in the Northeast. What kind of dynamics are you seeing from a regional perspective at this point?
So the West is that's your traditionally more expensive markets, and those are all the markets where we've seen the most severe price declines from the peak, and so in a higher mortgage rate environment, something needs to give, and in this instance it has to be price. So the areas where we're seeing price adjust to the reality of higher mortgage rates, they're seeing a little bit more activity. So in this instance, it would be the West Coast, those traditionally more expensive markets.
So if there really aren't a lot of existing home sales in the market or available on the market, are are the builders making up any of that kind of shortfall by just building more houses new houses?
That's right, builders are picking up market share. Traditionally, existing home inventory makes up about ninety percent of total inventory. These days it's more like seventy, so builders have really stepped up to build more homes. They're also offering incentives rate buydowns, price declines to sort of help button entice buyers into the new home market.
Which builders have been kind of setting themselves apart the most in and which ones do you think are struggling more depending on I guess which type of demographic and you're trying to cater to.
It's really the bigger builders that have had a little bit more power to be able to do these rate buydowns. So I think in this market it's more advantageous to be one of the big builders rather than the small builders that maybe don't have the ability to offer some of these incentives.
Oh data.
One of the things that I hear from the home builders is, you know when they talk about their costs, and I don't even think about it, but that's the biggest cost. I guess it's just land and some of these markets everybody's flocking to Texas and Florida and places like that, Where do they get land and can they get it on an affordable basis.
Lands it's really multiple supply side headwinds and higher costs for builders. The cost of land certainly is higher, but of course they also are are grappling with ongoing supply chain headwinds right those those aren't totally gone. And of
course the price of labor has gone up. Wages in the construction industry have gone up as well, and so costs all around for builders have gone up, and that's made it very difficult for them to build at that sort of starter starter home priced here, that entry level priced here, and that's the level that we need at this point because it's a lot of first time home buyers out there that have been priced out of this market and they're looking for that starter home price here
and builders just aren't able to build at that price point because of higher costs.
So how do we end up fixing the inventory issue That clearly got exacerbated during the pendit pandemic, but that was already an issue even coming out of the housing crisis.
There is some mitigating factors here on the existing home side. Of course, if rates fall, that will help to boost the market a bit. But we also have forty two percent of existing homeowners who don't have a mortgage on their home. They're free and clear on their home, and so those are and they're sitting on a ton of equity, and so a lot of those homeowners can sort of be a mitigating factor amidst this rate lock in period.
They aren't financially disincentivized by higher mortgage rates because they don't have a mortgage, and so there's that aspect on the existing home side. On the new home side, we just need builders to continue to build more homes, and they do have quite a few challenges, whether it be regulatory challenges, and so anything that can be done to sort of ease some of those challenges for builders to allow them to build more homes where people are looking to buy.
How much of a concern is it for you when they can't potentially offer some of those price points to maybe younger buyers at this point, then.
We see that happening quite a bit. There's a lot of buyers that are now priced out of the existing home market, and of course the new home market is traditionally been more expensive. It's been more expensive to buy a new home rather than an existing home on average, So a lot of those buyers are still on the sidelines and waiting for rates to come down, or their looking at a lower price point home if they can find it in their work.
So what if people aren't willing to move out of their house if they already locked in stay like a two percent mortgage rador? Obviously we had rates at historic loans which translated into mortgage rates. But what do you do with that dynamic if people aren't willing to move, and then obviously you would have homebuilders that need to build homes.
That's exactly the issue that we're facing in today's market. Existing home sales have been so depressed mostly because you know, an existing homeowner doesn't want to let go of that home, and that's likely a dynamic that will continue to see play out in the housing market over the next several years. I don't anticipate rates to go below three percent again, and so I think that that will be constraining on the housing market for some time.
All Right, So let's say I do the Mathodeta and I can afford to pay a seven handle on my mortgage. I go into a mortgage lender. Am I going to get that loan? So?
Credit standards have eased a bit since earlier this year. Certainly credit availability has been generally low, but it will really depend on your borrower characteristics, right on what kind of a borrower that you are from the perspective of the lender. But they have eased a bit.
I think I'm a good credit Would you loan to me?
I would?
Yeah, I figured I wouldn't like certain people in this room. I might not, but glad to see Adeta Cushy, thank you so much for joining us. Adeta Cushy is the deputy chief economist for First American. First American is a financial company. They provide title settlement and risk solutions for the real estate transactions, so they kind of get to see the whole space there.
You're listening to the tape. Cans are live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio, the tune in app, Bloomberg dot Com, and the Bloomberg Business App. You can also listen live on Amazon Alexa from our flagship New York station, Just say Alexa play Bloomberg eleven thirty.
The welcome now our Bloomberg TV and Radio audience. We are joined now by Michael Sunensheine, a great scale CEO and Bloomber Externally Basic also joining us as well.
Michael.
It's a real pleasure. This was a big day for you yesterday. What happens now? After the US Court sort of gave you some runway to be able to launch a spot bitcoin ETF? What do you do now?
Yeah, so thank you so much for having me. Let's be clear about yesterday. So, yesterday was the culmination of more than a year worth of litigation. The SEC denied gbtc's conversion to an ETF. We immediately filed the lawsuit. Fourteen months later, now we finally got a decision from the DC Circuit and a panel of three judges unanimously voted and agreed with gray Scale, and that actually vacates
the SEC denial order. Huge win for Gray Scale, huge win for our investors, and really the crypto and investment community is as a whole.
But there's a process here to the point that you're making, and there is a chance that the SEC looks to broaden this out, potentially fight the decision, bringing this in front of a larger array of judges. And so if you're thinking about that potential ahead, do you have any concerns that the race to bring an ATF to the market will leave you behind.
Well, So today is day one of a forty five day period during which the SEC has the ability to request a rehearing. Ultimately, at the end of that forty five day process, you could expect a final mandate from the court with operational next steps. Now, of course, in the interim, our attorneys are going to be working proactively with the SEC to try and make this conversion as
expeditious as possible. But we really do need to ensure during this period we're adhering to the federal rules of the appellate court.
Do you need to refile for an ETF and if you do need to refile or amend, are there certain things that you would add, such as a surveillance sharing agreement. Do you worry that the ones that already have one have a competitive advantage to your filing.
Well, so the operational next steps on anything that Grayscale Willer won't have to do will be contained in that
final mandate that comes out of the court. But one of the interesting things that we actually got from the Court in yesterday's decision was that the Court agreed with us that the arguments we've been putting forward all along throughout this process or such that the SEC already has the tools it needs to approve spot bitcoin products like GBTC, that there is sufficient surveillance between the CME where Bitcoin Future is trade in national securities exchanges like the New
York Stock Exchange where we intend to list GBTC as an ETF. So there really shouldn't be any further grounds like the SEC has been relying on to continue denying these types of products from coming to market.
Michael, you're very optimistic. Danny here by the way, and London, great to speak with you. It makes complete sense that you're optimistic and in a good mood. But do you have a nagging voice at the back of your head? That something might go wrong. What are you most afraid of that could kind of undo some of the progress that we saw in yesterday's decision.
Well, I think we're really at a pivotal moment here for crypto. Certainly a lot of investors have been voicing to us increased optimism the recent Ripple victory, now obviously the Greyscale victory in court yesterday, as well as what they're seeing taking place in Washington. Right you now have draft legislation that's passing through Congress, and we're really optimistic that there will be greater regulatory clarity for investors through
some of these types of actions. And I think if we take an even larger step back and look at the broader landscape, crypto has been one of the best performing assets year to date, and coming out of this most recent crypto winter, what we're hearing and what we're experiencing is that investors know that crypto as an asset class is most certainly here to stay.
Can we just come back to refiling for a second.
Sure, So, do you have to refile? We will have to see upon the final operational procedures that come through that final mandate that the court will issue.
So you don't know, but you may.
We don't know what the final opinion will say until we reach the end of that period, correct, is there.
I've been reading us stuff from yesterday too that you know, you may have won this battle but then lose the war and that there's a bunch of other competitors now, so now you're not gonna be the only horse in town.
Yes. So this is a topic we've talked about before, ladies. It's really a world in which there are multiple spot products. Is a world that Greyscale has long been ready for. There are multiple bitcoin futures products. We believe that there will be a world in which there are multiple spot
bitcoin products. That being said, we want investors to have choice, and some of the things that we do think investors will look to when they are making those allocation decisions are the size of the fund, the liquidity of the fund, the track record of the fund. Right, let's not forget that GBTC is the largest bitcoin fund in the world. It's owned by millions and millions of investors, it has three plus percent of the outstanding bitcoin supply, and really
now has almost a ten year track record of operational success. Right, whereas a lot of the other products coming to market are really making use of gbtc's operations, disclosures, reporting, and GBTC is really paving the way to broaden out that market.
There's another massive market question here, and it's not just about the pace and time. It's about the structure and the fees. Because if you look at Blackrock Invesco Fidelity, these are asset managers with a history of coming in low and if you look at the fees that you have offered and really has made a very profitable entity for Digital Currency Group and gray Scale, how much lower exactly can fees get for the grayscale product in the form of an ETF.
Well, what I've committed to historically, and we'll say again to you today, is we are committed to lowering fees when GBTC converts to an ETF. We'll obviously have to come back on and talk to you about what the fees are when that conversion actually happens.
So the other strangeness here is the discount that the GBTC is currently trading at. You had gone from twenty four yesterday to fifteen below neat asset value back to twenty can you answer to this market volatility here and the uncertainty that investors are grappling with as you head towards this process.
Well, there's a couple of things in that dynamic. So number one, there certainly was increased trading volume yesterday in GBTC, a lot of excitement and enthusiasm based on the victory that GBTC shareholders had in the court yesterday. Now, as we eventually approach an ETF, if you'd expect that eventually there will be an arbitrage mechanism through the ETF that will allow for any premiums or discounts to be eliminated.
That's a really really important function of why ETFs serve in the capacity that they do, and it's really the core of what we've been fighting for throughout this entire lawsuit, right is to ensure that the optimal investment structure is there for investors and we do eliminate any premiums or discounts.
Michael, have you heard anything from the SEC over the past twenty four hours, any updated communications or questions.
We have not heard anything from the SEC. Only just from public reporting. We've seen certainly that the SEC is reviewing the decision much the same way. My team and my legal team is reviewing the decision as well, and again it is our intention to continue to have a proactive and constructive dialogue with the SEC during this forty five day period.
I guess the question becomes, why here versus if crypto and bitcoin is going to become a hotter topic overseas, right, why launch here? Why not go somewhere else and launch.
Well, this is the center of the financial markets and capital formation.
But clearly the US government does not like crypto.
Well, you know, from my standpoint, Greyscale now coming up on ten years of operational history, you know, we purposely decided to set up shop in the US, make use of existing rules and regulations, and it's our intention to continue to do so right enabling investors to access this innovative asset class, but in a way that feels traditional, familiar, and again within those regulatory you know, constraints to say that they're often used to.
We were talking about the potential to either refile or amend. We were talking about the SEC's frustrations with crypto and fight against a lot of the parts of the crypto industry. Are you specifically addressing some of the SEC's concerns when it comes to their concerns around market manipulation, investor protection around retail investors, and are there any changes that need to be made before you head into a new relationship with them.
Well, I think we always have and will continue to serve in a capacity that's educational with the SEC. This is an asset class that continues to evolve very rapidly, and we feel a tremendous responsibility to be serving in that capacity. Specifically though Shanali to manipulation, fraud, things of
that nature. If you look closely at yesterday's opinion that the court issued, the court agreed with us that the SEC did not come up with substantive reasoning as to how to explain the difference between futures and spot and the fact that these mechanisms that we believe are already in place to detect things like fraud and manipulation in the bitcoin market are already present.
Michael, you mentioned earlier in this conversation that you had some hope that Congress would take action when it comes to regulation.
Perhaps there's more.
Appetite for them to approve and to welcome such products. You said you haven't heard from the SEC. Have you heard from Congress? What sort of noise are you hearing around Capitol Hill?
So we are certainly very engaged with both sides of the aisle in DC. There is no question now that crypto has become actually a nonpartisan issue, right We're realizing that so many of our legislators recognize that their underlying constituents are involved in crypto, are increasingly going to be involved in crypto, and they want to ensure that they're approaching legislation in an appropriate way that protects their underlying constituents.
I am optimistic that this upcoming you know, Congress can actually move some legislation forward. And again, I do think it's really a pivotal time for US and other stalwarts within the crypto space to be educating our politicians about crypto so that they actually are looking at legislation through a very you know, knowledgeable lens.
I'm going to push you just one more time on the fees here.
Michael, of course you are Sonality Well.
The reason being is this is a matter of competitiveness when we come to this market. It is also going to determine how much retail investors are going to really pay a product that has been more expensive than other ETFs in the past. Give us a roadmap here on how you're thinking about it, because you've had years to think about it.
We have, and when GBTC converts to an ETF, we will lower the fee. You said that it's been more expensive than other ETFs. Notably, GBTC is not an ETF today, right, And so when GBTC converts to an ETF and it becomes in that product structure, and it perhaps is in an environment with other competing products, there will be other factors for us to consider there as well.
Right.
That was Grey Scale CEO Michael Sinstein, sitting down with our own Donnie Berger, Shanalie Bassic, and Alex Steele here at Bloomberg's HQ after the court. US Court ruled in favor of the Digital Currency Asset Manager. And let's get some more color on this because it is being held as a very important day in the world of crypto. Here James Seffert, he does his stuff for Living ETF
research channels at Bloomberg Intelligence. James summarize for our listeners and our viewers here what the court ruled yesterday and why it's important to our good friends in the crypto space.
Yeah, so Sunshine just did a good did a pretty good job of explaining what happened there. But at the end of the day, it was a complete and utter rebuke of all of the SEC's arguments for denying spot bitcoin ETFs in the past. Now specifically it was it
was in favor of Gray Scales arguments. Basically, they went and they filed this lawsuit against the SEC and the DC Court of Appeals, and they were saying that this is a violation of the Administrative Procedures Act, which, to get wonky, just means you have to treat like situations alike. Regulator can't like look at one thing that's extremely similar
and come up with a different answer. And what this ruling said is bitcoin futures ETFs are not substantially different from spot bitcoin etf which anyone who's been in financial markets knows that like futures markets are completely intertwined with the underlying spot.
Markets of whatever they track.
There's a ninety nine point nine percent correlation here. Basically, what the judges in this instant said is the SEC did not do any a good job at all of arguing why they approved futures ETFs and still denied spot bitcoin ETFs.
So really, it doesn't mean that grey Scales Bitcoin trust would immediately be converting to an ETF. It's like you said, it means that the SEC did fail to explain why it approved bitcoin futures exchange treated products, but just not grace scals proposed products. So what does that mean next?
Yeah, so, I mean it's a complicated question because one don't we don't fully know what it means.
Next.
I've read a bunch of these court case, these court decisions and opinions in the past to kind of understand, and in many cases the court will give like some sort of deadline before X y Z happens or they need to do this and what have you.
And they kind of didn't do that here. So they have forty.
Five days to The SEC has forty five days to go with an unbond hearing, which basically just means this is a panel of three judges decided this case and on bonk hearing you request to get one of those would be like with all the judges on the case, the on the court in this case, I think it's like seventeen judges. So basically rather than just three would be seventeen. But this was unanimous decision, right, So three judges all agreed and the language was very strong, rebuking everything that.
The SEC said.
So what next is I'm not really sure? Right, So the SEC they basically what they did is they vacated the SEC's order denying Greyscale's application to convert GBDC into an ETF. This isn't an approval letter that GBDC can now be an ETF. It's just your reasoning and your why you denied. This just isn't good enough, and you didn't do at all what you were supposed to do in issuing this order. So what comes next is basically
trying to figure out what's the SEC gonna do. Are they going to come back and issue another denial order and basically say like come up with different reasons, or are they just going to come back and approve it.
We also don't have timelines.
Is the is Greyscale going to have to just go through this whole two hundred and forty day process again and refile. Is there going to be some other forty five sixty day deadline where the SEC is going to review this and then issue a statement we really don't know.
Explain to me at least why and ETF on spot bitcoin is better than one that's based or based on futures. Why suspect works better?
Yeah, so Spot Bitcoin, Spot ETFs in general are just the Holy Grail, right, I mean, the etf rapper It's technologies makes everything very easy. You can look at gold ETFs as a perfect example. But the reason that Spot is better is because in futures contracts, one.
They're derivatives.
So a lot of people don't like understand exactly what futures contracts are. And futures contracts they expire every month, so you need to roll these contracts. So basically what you're doing is you're buying this thing. Say you buy the September contract, then at the end of September you have to sell that contract and buy the October contract.
And it's called rolling your futures.
And if the futures market is in contango, which basically means if when you're selling your ETF if it goes from if when you're selling your futures, if you have to sell that that September futures contract and when you buy October the October contract is more expensive. You're losing out at a cost because you're selling, you're selling low and buying high, So there's additional call and constantly rolling
these futures. Now those costs can go in reverse. But all it really means is it's not necessarily going to track the exact price of spot bitcoin over a really long term period. So over short term, for traders who want a couple days exposure, maybe even a couple weeks exposure, these futures ETFs are very good at giving exposure to bitcoin. But for buy and hold investors who want to hold this for a long term, or hold this for years, or what have you, like, the spot market is just
so much better. And this is exemplified in twenty twenty three. So right now, futures ets like biddoh, the largest one in the US, is trailing spot bitcoin by eight percent this year.
Going back to twenty twenty one.
If before spop, before bitcoin futures ETFs were even approved, I mean those numbers go up to fifty sixty percent over a one year time period. Now, the future's market has gotten more efficient and that's unlikely to happen again. But you're still, like I said, the other date, you're trailing spot by eight percent, which that's a cost.
That's a big cost that.
You're taking on if you're investing in these bitcoin futures ets.
We only have about a minute left, but the SEC is set to issue initial orders Friday on at least six spockcoin, spit bitcoin ETF applications. What are you expecting to happen?
Yeah, so we actually just published a note this morning talking about this case and those applications. My base case is that those are going to be delayed. So the way this process works is there's a whole bunch of deadlines forty five days, forty five days, ninety days, sixty days, and until the last one they can just choose to delay rather than approve or deny. When they get to the last one, you have to approve, he deny. All these deadlines coming up on Friday, they can opt to delay,
and it's very easy to do. I just think the SEC, I mean, it's not out of the complete realm of possibility that they just go ahead and approve these things. It might be a nice little pushback against gray Scale for winning this court case, but theoretically grey Scale would then be able to launch GBDC as an ETF very quickly after, but we're expecting delay on those orders. So we don't expect anything because the SEC is likely trying
to get things in order. As Sun and Shine said in his interview, they haven't heard anything from the SEC. There's been a public statement that they are viewing the opinion from the DC circuit. So I think the the SEC is basically just getting their ducks in a row and they're just gonna basically punt on this connect to deadline, which is what they've done historically with these deadlines.
All right, James, excellent stuff. As always, you kind of laid it out there, force a big, big day for the crypto space. James c for ETF Research analyst for Bloomberg Intelligence. Down there in our Princeton campus.
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Let's talk about these markets. Let's do it for with someone who does this stuff for a living, Ron Sanchez. He's EVP and CIO at Fiduciary Trust inter National joining us live in our Bloomberg Interactive Brokers studio. Thanks for making it and run. What do you make of this market? Again, some folks on the street Scockprone City says some people may be playing catch up for the remainder of the year and that might push markets a little bit higher. How are you guys thinking about these markets?
So, markets have been tricky this year, and I think there has been some catch up. Our view has been the entire year is that we do believe in the soft landing. I think those that have been looking for a recession have.
Been will continue to wait.
One has not materialized in our expectations, is one will not for the balance of the year into twenty four. So we think from a market perspective, we saw a lot of people jump into this market embrace the soft landing in July and again market returns for the year to date have been obviously quite surprising and quite favorable. But I do think they reflect a well entrenched or embedded soft landing that is now consensus.
So how do you advise clients to position in this type of environment?
So, again, after the sort of the market return here, it gets a little tricky, And as I said earlier, I do believe that our expectations are that it's a soft landing, and I think that is in price, and so I think from an expectation standpoint, you want to sort of be patient here. I do expect sort of choppy markets.
Or range bound.
I think that range bound not only relates to the S and P five hundred, but also fixed income as well. And I think we're looking at sort of an incremental return profile for.
The balance of the year, but we should hold our.
Gains and so again sort of a reasonably neutral view.
Are your clients typically more longer term investors?
They are indeed really long time so.
Right, so you're not going to be making changes.
We would not be a sort of uber tactical here and sort of outguess ourselves. Markets are reasonably priced here, and again, in the absence of a sharp contraction and economic activity, we would stay invested.
So where are you in terms of your allocation? I don't know the equities fixing coming, I know what else you throw in our alternatives? Kind of where's your allocation today? Maybe how's that different from normal times or other times?
So from a global perspective, we are neutral the US and underweight international. Again, I think from sort of the US is the outlier here with the strongest growth pattern by far. There are challenges, as we all know, in in emerging markets as specifically the largest one in China and Europe is going to be sort of challenged as well. They've had a great return profile sort of in earlier in the year here, but our expectations that's pretty slow
growth in that government. So again we're neutral US slide underweight outside of the US, and within fixed income we are neutral and with sort of an eye towards some finding fixed income here reasonably attractive and looking to potentially extend duration.
Well, so, okay, so I can go to the two year and a couple of days aore, I get at five percent in a two year treasury, Why don't you just go there and then go head out to the beach.
Or money market funds?
Right, money market for.
Yeah, So that is one of the most interesting sort of dynamics for a strategist with clients saying, boy, for the first time, cash is king. I can get north of five percent on a two year note or a money market. But again from an equity standpoint, the SMP is up double digit returns and so need to be real careful about the allure of cash. It's nice to have reserves, it's nice to be in the front end
of the curve. But again, at some point in time, as the economy does moderate here into twenty four, the return profile for sort of that short intermediate, meaning a four and five year is going to be more appealing from a total rate return standpoint. But right now five is certainly doesn't hurt.
What do you think the catalyst would be to move that money from say money market funds back into stocks.
So I think you saw a little bit of that in July. Again, the allure of a risk free rate of five, I think has pulled a lot of money to the sidelines, and I think sort of the sort of the soft landing has pulled people in. Those that have been forecasting a recession have sort of come in. I think that really was the the pop in July. But there's plenty of dry powder here, and that's why I think it's sort of difficult to become a sort of bearish in this environment, both for fixed income and equity.
You said you were neutral on the US for equities correct, so what takes you to move it even higher? For another reading on.
That, So valuations are are definitely on the upper end. The risk premia has compressed as equity markets have come down a little bit, and fixed income has has gone to four and a quarter on a ten year The compensation for equity is not overly compelling.
From a historical standpoint.
I think for us to be a little more confident about the return profile going forward is a little more confidence that the economy is in a soft landing more definitively and or high conviction, and that earnings are bottoming, so more of the micro Once earnings have bottomed, I think we'll look.
A little more favorably.
I'm looking at the Bloomberg Index browser, I n go on the Bloomberg terminal and boy in the US corporate hygyield space total return year to data six point eight percent doesn't seem like the hy old markets too concerned about a recession. How do you guys think about the hygyield space?
So I think the hyold has been very, very compelling. Here for the first time in a number of years, you're still north of eight Three or four months ago, you were closer to a nine. And if you believe in the soft landing and that there wouldn't be real pressure on credits here, that is a great carry trade and I think it still does. And the total turn numbers are pretty impressive. But again from evaluation standpoint, you're
talking about spreads inside of four hundred. So again, I think the soft landing is priced into a number of markets, but the income generation of eight and eight and a quarter is reasonably appealing.
It's interesting because Gina Martin Adams at Bloomberg Intelligence, she takes a close look at when you're looking at S and P five hundred EPs growth but on a year of a year basis, but excluding energy, if you look at the most recent quarter, it actually was marginally higher, and then we see that growth back to return even close to double digits toward the end of this year in the fourth quarter. And I know you were saying
you're waiting for earnings to bottom. Do you think that when you're looking at energy, is it masking some of the benefits that we're seeing in other industries as we see that sector particularly weakend obviously with that correlation with what we're seeing with inflation abbing and commodity prices.
That's fair, and I do think we're probably in the process of troughing here and energy has sort of depressed the overall earnings. But the economy has been above trend for the last twelve months, and I do think it is going to be is going to moderate as we go into year end. So there is a slowing of economic activity from an elevated level. I do think that that evolves over the over the next two quarters where we sort of bottom on the.
End right the once we see the repayments resumed for federal student loans, I know that the interest just started occurring, but those payments begin again in October. How much does that fit into the consumer spending dynamic as far as potentially weighing on that.
So I do think that consumer spending most likely has peaked, and that we're our view is that we're starting to see normalization it again.
It has above I think a couple of things. One, as you know.
Excess savings has been very high, Labor markets have been strong, wage gains have been solid, and there has been a lot of pent up demands, especially for services coming out of the pandemic they called revenge travel and I think most of that has will remain solid but has been above and is going to moderate and we're looking at sort of those dynamics returning to sort of twenty nineteen or what we would refer to as normalized levels.
What are you guys penciling in over futiary of trust about our federal What.
Are they going to do?
Are they done or are they going to keep? Are they going to hike one more time?
I think they're done. And so markets, as you know, are sort of a coin toss. They're definitely pausing next month in September, and obviously November is live and sort of data dependent, but markets have it at a fifty to fifty I would take the under.
What's the top question you actually hear from clients right now more?
But the one that you referred to earlier.
This is a confusing market and a risk free rate of five percent?
Why would I? Why would I do anything? And again, sort of the near.
Term appeal versus long term opportunity is always It's always the guidance and there's a persistent negativity. I guess the biggest question of the last six months to a year is the perpetual recession question.
When, when, when when?
And again we had a pushback pretty hard that we didn't see it as a twenty three development and we don't.
See it in you CFC function. You don't see that obviously, not on an annual basis, but even on a quarterly basis. Either it's no longer there.
Yeah, it's been the I guess most widely telegraph recession that has yet to occur. Hey, Ron, thanks for coming in. Really appreciate it. Ron Sanchez. He is the EVP and CIO at Fiduciary Trust Company International.
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Thirty, Jess Menton Paul Sweeney live here in our Bloomberg Interactive Brokers studio. Let's get a little techy here, little wonky. Maybe we'll talk a little VR. And that's a virtual reality for those like John Tucker that may not be up on all that type of stuff. We might talk a little metaverse, and if we're not careful, we might even throw them a little AI and we can do all of this with Dan and Brian. He's president of
the Americas and general manager for HTC. Hey, Dan, first, just give us give us an overview kind of what you guys do at HTC.
One.
Thanks for having me on. I really appreciate it, Paul and Jess, and it's great to be here. What HCC does is we are a technology company that focuses on a lot of different areas of innovation. You know, a lot of people know this for smartphones for many years. We now have over the last several years index towards virtual reality or extended reality, and we make products that create solutions for content creators to create content for the metaverse.
We have also innovated and created solutions where you can actually stream content for the metaverse over say a five G network. And then we also create these headsets or wearables that you can interact with this data and this content in a very immersive way. So we are a you know, a holistic data, technology and innovation company that delivers all these different types of solutions for end users.
Your firm did conduct a survey recently about how va our headsets are being used, particularly in healthcare and social assistance organizations. What did you find, You know.
We found that over ninety percent of healthcare workers and healthcare providers expect to be using this technology in the future for training or for therapeutics. And so it really shows a resounding, you know, endorsement of hey, this is very effective. We know that can help with our healthcare professionals and training them. We can do reduce training costs, we can improve the actual training value. We can actually get better outcomes for our patients with better therapeutics and performance.
So overall it becomes like a cost savings and an efficiency and a performance improvement in healthcare.
So, Dan, one of the things you mentioned the met metaverse, and I don't think there is a concise definition of the metaverse, certainly not among shareholders of Meta formerly known as Fai Spoke, and that was a problem for the stock last year. To you, what is the metaverse.
Well, it's really an extension of what we already do today in our internet today. It's really encompassing how you interact with the data. Think of yourself now as being able to as if you're wearing a wearable you know, it might be glasses, it might be VR glasses, it might be AR augmented reality glasses. You're simply interacting first
party with that data and content. I gave an example a demo last year where we did a training for a knee operation and we had people that were on iPhones, iPads, a magical lea augmented reality glasses headset, a VR headset, and Android phones and we were all in this one space together doing this training together. But some people got to be in the space actually hands on doing the training,
while other people were more of an observer. So the metaverse really becomes down to this very immersive, you know, vironment where you can interact, but it's not going to dismiss all the things that we use today in our everyday life.
Whatever I hear metaverse, clearly, I think of Facebook, Parent Meta along with Apple, that are going along and spending a lot of money in this particular corner of the market. Where do you see this headed for these companies people are trying to kind of buy for different rivalship here As far as where it's headed and still a lot of uncertainty.
Well, I think, you know, we're all approaching it at different angles. You know, Apple coming in, it's a great endorsement. They have great privacy policies, great data security policies that some of the other competitors do not have. We share those values as well, and that we protect our users data. We don't use that data to monetize it. So for us, you know, we're bringing solutions and value to the market to actually reduce costs, bring up efficiencies, bring in human
performance improvements with training and things of that nature. Well clearly showing like how expensive this technology really is and if you're going to enter the market and not lose money on hardware, this is how much it really costs. So now you've got to see like a company like HCC, we come in right in the middle. People are getting
great innovation for the price and the value. Meta they're really using a console you know model where they're subsidizing that hardware significantly and losing billions of dollars in order
to you know, maintain that market share. But understand like that is all out of fear based, you know kind of management, and that they are very vulnerable in their current model to Apple and to you know, Google, an Android on the smartphone business to their revenue model, and they're trying to I think, you know, make themselves agnostic or you know, bolster against that vulnerability against those platforms
and have more of a their own position. And so I think they're trying to buy their way out of that problem.
Dan.
When you think ahead over the next several years and you think about the VR business, the wearables business, how do you kind of think about it in a consumer use versus maybe business slash, you know, corporate use.
Well, I think that you know, on the consumer side, you know, Meta is kind of settling the market at this very unnatural price point that doesn't really exist. And if you look at it, you know, the smartphone, comparing it to the early days of smartphone, you had probably about twelve to fifteen brands and companies you know, fighting, you know, in the market to grow the market, making a very healthy economy for you know, competition and supply
chain and suppliers, which drove prices down. On the consumer side, it's really being strangled by that pricing tactic. So you're not seeing the competition come in because the other major players don't want to come in and lose their shirt on the enterprise and professional side, you can actually bring this technology for what it actually costs, and you can bring your companies and your partners and these types of
customers massive value. Really see the savings right away within that year in terms of performance, higher retention rates with your training, more engagement, and if you have a diversified employee set that's spread out all over the world or all over the country, you can keep them connected right
in these metaverse spaces. So this week I'm at the Industrial Immersive Conference down here in Houston, and companies like Exonmobile, Duke Energy, they've been using this technology since twenty sixteen, and they're now looking at all the different ways that they can be using this technology to improve site plans, site designs, working with their engineers in the field, and being able to actually see what they're working on, deconstructing
existing platforms that are many, many years old that nobody knows how to work on anymore. So in terms of you know, growth and enterprise use and major corporations and brands being able to use it, we're seeing it grow very aggrastively on the enterprise side.
Hey, Dan, really fascinating discussion. Thanks so much for joining us Dan O'Brien. He is the president of America's and a general manager for HTC, talking about the VR space, the wearable space, and then ultimately, presumably the metaverse.
Thanks for listening to the Bloomberg Markets podcasts. You can subscribe and listen to interviews at Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller nineteen seventy three.
And I'm fall Sweeney. I'm on Twitter at Ptsweeney. Before the podcast. You can always catch us worldwide at Bloomberg Radio