Markets, Consumer Confidence, And ETFs

Top Gun. No, I can't even imagine what is about. So the homework for the kids today is go home, get a streaming service of your choice and stream Top Gun. That's the homework because we are a Top Gun two coming out, and you've gotta be prepared for that. Dan, I know, I know Dan Genter has seen Top Gun. Dan Genter, CEO Chairman RNC Genter Capital Management, Dan, are you a Top Gun fan? I am absolutely a Top

gust fan. I've seen it several times. I'm actually a pilot myself, So it's like that explains it my theme movie, and I just I align with you. I can't believe they haven't seen it. But but I have faith in the future that they will go home and look at this and round out their education. Yes, I can't agree more. All right, then let's get back to these pesky markets here. We have some green on the screen today, but the bricks that are in this wall of worry, there's just

a lot of them. How are you looking at these markets today? What are you telling your clients? Well, I think that what you have to do, Paul, is which you always have to do in these kind of situations and crisis, is that the you have to really cut through the fundamentals. It's not that you can't totally ignore the emotion because obviously the market is going to trade it on emotion. Otherwise we just traded a constant p at all times. But you still have to come back

or what are the fundamentals of this market? You know, talking about aviation you started at thirty foot Look and you basically look at the overall economics and an essence are we are we going into a recession and they and the fact is, you know, we're not. You know, we're slowing, Earnings are slowing. Certainly growth is going to slow, but but look, we're still going to be probably above FED expectations at at least two and a half three GDP growth, you know, going in through the mainner of

this year. In three we think that earnings are certainly gonna slow, but we're probably going to see sp earnings up five or six percent, and so therefore you don't have a recession. The market is probably going to be flat slightly up. We see about a eight percent market over the next twelve months, and uh, mainly probably some pe contraction, but earnings are going to drive the rest

of it. And so it's still it's it's now very much of a stock pickers market, and uh, you can buy into some of this weakness and certainly the volatility

we're seeing, and that's what we're doing. Well, let's wrap some of the movements that we've seen in commodity markets into that, because obviously all eyes have been on crude oil for you know, several months now, and uh, I mean we're looking at crude oil at close to a hundred dollars a barrel, but a hundred two dollars a barrel, I mean, assuming we stay around this range, mean, what does that mean for you know, the fundamentals of the U S economy and for companies you know, dealing with

those input costs. Well, Katie, I mean you're absolutely right. Is that this market is driven independent of the war obviously, which is a major factor, but from an economic standpoint, is being driven by oil and inflation. And and even the oil is only three percent of the inflationary inputs now versus where it was many years ago, it's still a major factor when you start to look at how it affects every individual and and how it affects their

disposable income. I mean, the current increases that we've had an oil we estimate is going to cost the average family over a thousand dollars a year more. And so something's going to give with that. So a stabilization and oil is very key to us. We think that equal liberal was somewhere around eighty dollars. But it's going to affect earnings and that's part of what we're factoring in that it's going to slow the economy from overall consumption

because we're driven by consumption. And if you take money away from people, and increase in oil prices is basically like a tax. Uh you basically you take it away from people. Uh, It doesn't add anything to productivity. They just lose the ability to spend on something else and therefore earnings go down. It affects consumer, uh, mainly consumer non durables, but also durables. So that's to us as

part of that slowing effect. Anytime you have you know that displacement, if you will inflation, it goes through the whole system. But I don't think that that takes us negative. It just takes us to where we're at slower growth. So that's kind of where I wanted to go Dan, because a lot of folks are saying, boy, this Federal Reserve, it is clearly communicated that it wants to fight inflation in part through rate increases. But the risk is maybe they go too far, too fast and push this economy

into a recession, and nobody wants that. How do you kind of weigh those risks? Well, look, I think it's baked in that one thing. You know, with regard US two chairman policies being has been extraordinarily transparent. I believe he's also doing that now. I don't think we're going to be surprised. And and the market is largely discounting a lot of that already. I mean we've we've had a hundred basis points increase, uh, not exactly a parallel shift,

but close to it. Certainly the ten years up a hundred basis points, uh since November, and so a lot of it's baked in the cake already, and they are going to slow it now. We feel that we'll see definitely another seventy and almost certainly another hundred basis points from here. You know, we've modeled that out, uh to see what does that really do to us. We think it's largely baked. It's baked into our numbers with what I've mentioned earlier for SB orange growth and also for

the overall economy. Uh. Certainly it's going to squeeze the housing market. Uh. You know, it just makes everything once again more expensive. It really adds to inflation, if you will, because your cost of money is going to be higher. You know. Well, now, whether they overshoot it, I mean

personally I think that they'll go slower. Uh, they'll continue you as the as the data comes in, but it wouldn't be unusual for them to do a fifty A matter of fact, if you look historically, usually the first time the Fed reverses course from uh, they go fifty, they go fifty at the beginning, whether they're raising or lower, and they go fifty and at the end they go fifty. The signal that they've stopped. So it would not be out of normal to see that. Hey, Dan, thanks so

much for joining us there. Always appreciate getting your prospective. Dan Genter, CEO, ce IO and chairman. It's also a pilot of r n C Genter Capital Management. Here. Now, let's going to Lynn Franco and break down some of those UM consumer confidence number. She's the director of Economic Indicators and Surveys. At the conference board, Lynn talked to

us about the consumer today. What did your data show you, Well, we're saying that the consumer confidence is holding steady, so we went from one oh five seven last month to one oh seven point two. But it really is being suppoored by the present conditions where consumers are telling us at least the economy remains on somewhat stable footing, and that's really just because we have very strong employment conditions, so that's really sort of boosting consumer confidence. Looking ahead,

we've seen expectations that continue to deteriorate. UM within consumer sighting both inflation, especially rising prices at the gas pump, and the war in Ukraine as um, sort of the reasons why they are a little bit more apprehensive about the outlook. And you mentioned that, you know, there is a lot of confidence in the labor market, and looking at this morning's data, is the sheriff consumers who said the jobs were plentiful increased to a record high of

about fifty seven point two per cent. But I mean, how how much work is that confidence in the labor market doing right now? Because of course, you know, we're dealing with record high inflation. It seems like that hasn't undermined the labor market yet, correct, And in fact, our inflation question hit and all time high, so it's really

being offset by strong employment conditions. Um. But you know, we do expect inflation and you know, the war in Ukraine to continue to provide hig winds both to growth, spending and confidence. So it remains to be seen just how you know, well confidence holds up, and in terms of overall growth, we do have it somewhat weaker than last month. Our outlook has maybe GDP growing at about one point seven and Q one down to one point three and Q two and also consumer spending softening as

a result of higher inflation. Lynn, I mean, the labor markets just fascinates me. I'm still wondering where those three four or five million people are that we're in the workforce pre pandemic, Where are they now? Are they going to come back? What's the data you've seen, the analysis you've done about those people. Well, we've seen you know, in particular, you know, women have been hard hit right

in childcare has been an issue. So this is sort of one segment of the labor market that continues to uh sort of hasn't quite bounced back from you know, pre COVID pandemic levels. So I think that's going to continue for the next couple of months. But what we're seeing here and I think what we expect to see at the end of the week are pretty good employment numbers, so at least that will continue to support consumer confidence

and growth in the short term. And then focusing on the consumer, you know, a question we ask a lot is, Okay, when does inflation increase the point where you know, people start putting off purchases or stop spending as much money as they have been. Um, I'm curious you know what you see, uh. In regards to that question, well, we see a little bit of you know, inflation, and also I think, you know, interest rate hikes and anticipation of have being a little bit of a softening effect at

least that we're seeing over the last few months. And you know, sort of automobile purchases, home purchases. You know, we've seen mortgage rates of going up, so sort of these big ticket items that are interest rate sensitive, we're beginning to see a little bit of softening there as well. Lynn. Some economists are introducing the word recession into their talking points. Is that a meaningful risk for the US economy and your from your perspective, From our perspective, we don't see

your recession. We do see softening and growth and consumer spending over the next several months, but at this point so we're not forecasting recession. All right, Lynn, thank you so much for joining us. As always, Lynn Franco, the director of Economic Indicators and Surveys at the conference board at breaking down the consumer confidence number today, which came out a little bit better and expected. It is finally times talk about crypto. We're going to do that with

Greg King. He is the CEO of Osprey Funds. Uh. They offer access to cryptos such as Salana, Bitcoin, UH, Polka Dot, you name it via traditional vehicles. Greg, it's great to have you with us. Let's start with a big rebound that we've seen in the crypto space over the past week or so. I'm looking at bitcoin at just a hair below forty eight thousand dollars per coin. How has that translated into flows in your funds? Are

you seeing cash come in? So the bitcoin fund that we operate is traded on the secondary market under the ticular oh b tc UM. It's similar to UM, the Gray Skull Trust that's been up for a long time. It's just at a different price point, more more, less

expensive for investors. But these products trade a little bit differently than actual bitcoin because there's a fixed supply, So they traded premiums and discounts, and in times like this when the price is rallying, you can see that discount narrow. For a long time, those products traded in their premium, but over the last year or so, they've been trading in a discount. So it is an interesting opportunity for investors to get ahold of bitcoin at basically less based value.

All right, Greg, So we are going into a significantly rising interest rate environment. Do we have any data to show how crypto performs in that type of environment. It's

a great question. I think the part that we're focused on is real rates, right, because unfortunately real rates are pretty severely negative with the inflation numbers we've seen seven and a half percent and the ten years you know, two and a half and so in those environments, the natural comparison, of course, the bitcoin UM for those of us kind of living in that world, is the old world version of bitcoin gold, right, And I know a lot of people out there are cringing when I say that,

but the reality is that bitcoin has established itself as a digital substitute for gold, and so we would expect it to behave similarly and negative real interest rate environments are fantastic for gold historically, so you are seeing some of that develop in the price a bitcoin. You've also seen a few announcements with UM. I think it started a few weeks ago with the White House putting out the directive to UM, you know, responsibly innovate with digital assets.

But then more recently there were some announcements UM by a group in Korea that you know, audience members are not deep into the crypt of the world. They may not have heard of it. It's a large stable coin project UM called Terra that's buying quite a bit of bitcoin for its reserves. And so you have these new, uh you know, digital assets participants almost acting like miniature central banks and using bitcoin as their own reserve asset.

And Greg, I want to circle back to a point you made the fact that o b tc your inaugural product. It's trading at a discount similar to the Gray Scale product GBTC, and you know the way you framed it as you know you can pick up bitcoin at a discount. The pushback would be that long term holders of this trust, you know, they they've really seen there in vestments road and they're they're now they would have been better off

holding bitcoin itself. And I'm curious, how do you fix the discount if there is a fixed supply of your trust. I know that Gray Scale has been buying back shares of the trust, or rather their parent company. Has have you considered anything similar? We have? We have. I think that what we're focused on. We keep pretty close tabs on the um SEC in the regulatory environment. I think that's that's one of the themes you're seeing this year.

That's that's constructive. UM, you did get the Bitcoin features et F approved, You've got you know, the Biden White House putting on the directive. UM, there seems to be movement that's establishing some amount of clarity on the regulatory side, which is all good for the prospects of something like a bitcoin PF. And so our focus would be to convert our fund to an EPF when that's possible, and at that point we'd expected to trade in line with

fair value. By the way your comment earlier, I think, I think is UM totally dependent on when investors came into you know, either our product or other people's product. You know, So it's it's really everybody's got their own story in terms of when they came in UM and

when they when they came out. But you know, it's an unfortunate situation in the sense that the regulatory environment has just taken I mean, you had the wink of us twins filing for the first bitcoin ETF in two thousand thirteen, and I mean, given that we have been waiting so long, we did get movement in October, we got that derivatives back Bitcoin fund. That didn't seem to be the holy grail that the crypto industry was waiting for. Though, when do you think we could see movement and an

approval of a physically backed bitcoin ETF. Well, a couple of your own analysts wrote an article the other day about the SEC's proposal to expand the definition of the word exchange and some of the regulation. Um, this could open up the possibility for an ets sooner, um rather than later. However, when I say sooner in SEC speak, that's you know, a year ish or more. Um. I'm not sure personally that Mr Gensler is very keen on

the idea of a spot bitcoin ETF. He seems to have gotten comfortable with the idea of future is based obviously um, But primarily that's because, um, you know, the

futures are are regulated instruments, whereas bitcoin itself is not. So, you know, the definition of the word exchange being expanded could uh, you know, capture like a coin base, and therefore the trading of bitcoin on that exchange would by definition become regulated trading um, and so on and so forth, So it would be a step in that direction, but I still think there are other factors. Consider the main one is bitcoin trade so much offshore and that's just

really not um something that they can observe directly. All Right, Great King, thank you so much for joining us, always like chatting getting the updated all things crypto. Great King, CEO and founder of Osbrey Funds. Again, they've got the uh secure, cost effective access to a select group of crypto via traditional vehicles. That's what the folks at Osprey do.

All right, let's talk to our next guy because I really want to get her thoughts here because I she has a really interesting view of this market that perhaps investors should be on the lookout for bear market rallies, which I find very interesting. Katerina semin Eddie, Senior vice president, Private Wealth advisor from Morgan Stanley. So, Katerina, are you buying this move higher in the markets or is this a bear market rally? Well, thank you for having me

on um. This is a good question. Right, we had a pretty big pullback followed by seemingly a big rally. But the question is are we in the bear markets? And we believe so, we believe that yes, this is a bear market. We have been in a bear market for quite some time. We came into this year concerned about evaluations, fed tightening and plation growth slow down, you know, all of the above, and of course the war in Ukraine introduced this new component of now unpredictability and making

all these concerns that we have, you know significantly, you know, wars. Now. This is not to say that there are no pockets of opportunity in this market. There absolutely are. The investors should be in position to take advantage of them. But they are bear market rallies and they have to be seen as such, and it is very important for the outlook for the remainder of this year and in fact for the next year as well. And Katerina wrap in what we're seeing in some of these mega cap tech

names in because we're looking at Apples. At Apples eleven straight days day of gains, that is the longest streak since two thousand three. I don't think smartphones even existed back then. But the fact that you are seeing such importantly big parts of the market also contribute in this. You know, maybe it's a dead cat bounce, I mean, how does that change the profile of this bear market? Does that shorten the time that we might be in it. Well, Katie, you you raise a really good point um in the

market that is volatile. That also introduced the two pockets of speculation. UH. Investors tend to go with some of the names and sectors that they are comfortable with. And if you look over the last couple of years, TEX has done extremely well, So this is a known that for an active investor, you know, is what they go with. But in fact, even though I agree that this is definitely a stock picker's market, this is not a good time to buy the index. We would guide the investors

towards more defensive sectors financial, healthcare, real estate utilities. We would like for them to actually use the dips in the market between the bear market rallies to increase the quality of the investment portfolio and dig in, dig in for the volatility, dig in for the unknown because this word, you know, we don't know how long it's going to last, and the fact that it is having on global economy in terms of oil and gas prices, in terms of

supply chain interruptions, in terms of quest of transportation, and how all of this is going to translate into our economy and in QUOTEA beyond the global level, you know, it is still unknown, so we have to take advantage of the buying opportunities. But instead of just focusing on the sectors that have done well in the past, like technology, we think that it's a much smarter move to go into the sectors that will be positioned well going forward

and strategically prepare the portfolios for heightened level of volatility. Katarina, how concerned are you that perhaps this Federal Reserve does not get it right, does not engineer soft landing, and in fact, through their rate policy, pushes this economy into a recession. Is that in your forecast? Oh? Um, I think that said is taking the overall global situation and specifically the level of inflation that is historically unprecedented very seriously.

They are, um, there's no certain terms that they said is going to be aggressive in their rate increases, But in my opinion, economy is strong enough to accommodate these rate increases. So when we're looking overall of the economy, we certain they have our share of concerns, but we're not seeing the recession in the books for US at least for this year. Next year remains to be seen, you know, but we are paying close attention to earnings of course, you know the valuations and so far valuations

have been looking you know, better than expected. But we think that the negative revisions are going to continue, UM and even though we're not pulling for the recession at the moment, you know, we expect higher volatility and that is the message that you know, we're really conveying to our is our clients in you know a number of

different ways. That's why quality of the investment portfolios is more important than ever positive real yield sensitivity all of the holdings, you know, is before we were kind of looking at the dividend income or just generally income generating ability of portfolios from perspective of fixed income is just to kind of value at it. Now it's more important than ever that at this historically you know, high levels of inflation, that that portfolios will be able to weather

this storm. But in my opinion said is UM has has very strong resolved in order to get it right this time. All right, Katerina, thanks so much for joining us. Uh. Yet again, we appreciate getting your views of these market and be aware of bear market rallies is kind of My takeaway here Katerina Seminetti, Senior vice president Private Wealth Management at Morgan Stanley. UH, and they've got a huge private wealth business over there, Morgan Stanley. UH. They've really

doubled down on that business order last decade. I would say thanks for listening to the Bloomberg Markets podcast. You can subscribe and listen to interviews of Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller nineteen seventy three. Put on false Sweeney. I'm on Twitter at p T Sweeney before the podcast. You can always catch us worldwide at Bloomberg Radio