Treasury ETFs See Big Inflows, Hot Money Is Spooked: Balchunas

Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot Com. I wonder bring to Eric Beltuna, senior et F analysts for Bloomberg Intelligence, what are you seeing with respect to e t F flows and how instructive are they with respect to just how panicked investors have gotten? Yes, so I'm seeing a lot of red naturally. Um, you know, maybe you could call it a blood bath. In terms of Spy, Spy has lost about twenty three billion in a week. Um, you know, in a couple of days of eight bill

I in. So what this tells me is a lot of this sort of trading crowd, the hot money, as I call it, is really spooked. And Spy took in about twenty million in January, which helps ets blows go bonkers in the on the inside. But when the sell off started, Spy got hit hard as usual. Um, what I look for is deeper than spy. What are the allocators doing? And that's why I look for I v V. I v V is the cheap version that advisors love right of the smpts. And it's starting to see a

little trickle of red. It see it saw inflows hunt on Monday, believe it or not, and it is like a machine of inflows. But even it is starting to see a little red And to me, that's almost more would make me more nervous is when you see something like that or Vanguard ets start to see outflows, that is a that's a whole bigger issue. Because spies used like just like futures contract for a lot of people. They go in and out all the time. It's like a hotel. But when you see it on the more

buy and hold ets, I think it's a little more concerning. Well, so do you come on in here, because I'm wondering and you are there other gauges of flows that sort of indicate whether or not uh there is mass selling or whether this is just uh sort of around the edges macro bets. I mean there's a difference, Yeah, there is, and certainly there are plenty of numbers around that point. In that direction. Bank of America Merrill Lynch had their

weekly update out today. You know, they're talking about thirty

point six billion dollar outflow from equity funds. Now they're relying I think on data from ep f R to do that, uh, and they're talking about half a billion dollars coming out of gold, which is particularly interesting because, let's face it, you know, when you've seen these sort of upheaval that markets and have gone through the past, especially when you look at stocks, I mean, people have tended to run to areas where they see relative safety,

and gold has been among them. And gold have been down this week, which is really saying something about how people are looking at the precious metal and you're seeing outflows on top of that, I'll just point out that they tracked four billion dollars going into bonds. So even with the higher yields that we're seeing, uh, it hasn't really deterred investors from sort of moving money in there, because remember, those higher yields mean bonds have been falling

in value. Eric, can you explain the technical process that takes place during the trading day that causes most screens to light up like Christmas trees at the end of trading and the relationship between exchange traded funds in their positions. Well, look, I mean at the end of the day, you have a lot of trading going on UM and some ets have to re balance. UM. In that whole horrible Vick situation that happened earlier this week, that's where a lot

of that happened on the rebalance. But a stock ets are they don't own all that much and they don't rebalance, They rebound quarterly. So it's the Vics ones rebound Bailey, So UM, it's I don't think it's that big of a deal. I just think you have a lot of

trading at Didner day across the board. One thing I just want to comment on what Da've just said in gold, which I find fascinating, is you know gold is zero correlation to the market, not negative or inverse, and so it might it like just does its marches could have beat of its own drummer, and it was going up a lot during the past year, even when stocks are rallying, and now you have the opposite where we are seeing

flows that I think also contributes to nervous investors. Is SHV the one to three month Treasury ETF and Bill. I mean these are the shortest of this. This is a mattress. Basically, those two funds have taken in some money. They're rarely on the top ten lists and they are yesterday and t LT saw some money. So I do think treasuries are where most people go. And it's really panic. Gold is a little more performance based. That's really fascinating to me. And it makes a lot of sense if

you think about it. Uh, And this morning I was thinking, you know, if everything re prices down, that's awesome for true bond investors because that means you can actually buy stuff with higher yields. I mean, it's like, this is a good thing if you are sort of continuing to rotate money in so all of a sudden cash might start paying. Fascinating. Dave Wilson, Bloomberg SAX editor, columnist and blocker at M Live go on the Bloomberg Thank you so much. Eric Valcinas, thank you so much for joining

a senior et F analyst for Bloomberg Intelligence. Well, it seems like the lessons learned are of dubious quality. Right now, I'm just looking at one of the funds, the short Volatility funds that blew up or lost a lot of its value in the recent turmoil. Well, people are pouring money back in. Here to talk about it is Nick Colas, co founder of Data Check Research LLC, which is based in New York, also a Bloomberg prophet. Nick, what's going on here? If people just not learn their lesson the

short answers, No, they apparently have not. The longer answer is, I guess you know, if you liked shorting volatility at ten, you've gotta love shorting volatility at thirty on the VIX. And so you're right. Money is just poured back into this fund. Obviously the x I V went away or is closing, so there's fewer funds in which to focus this money in. S v X Y is really getting the benefit um, But you know it worked for a few minutes this morning at least s v X I

was up. No, we're talking about the pro shares short VIX short term futures fund s v X Why so, what are you looking at? Is this really really just a purely technical driven sell off in the stock market due to a number of different factors that will just sort of stop at some point and everybody will go back about their business or is there something more here? No, there's probably something more here. It's a it's a combination of two factors. The first is obviously fundamental and where

whereas in action going this year? Where a long term rates going this year? And what effect does that have evaluation? We started see that discussion shape up just two weeks ago, and then we kind of had it squared or cubed when we saw the inverse volatility funds blow up and that became more of a market structure issue. But the

combination has obviously been very damaging. And the one thing I'd say is, you know, the VIX is often a good indicator of fear, but it's not a great indicator of market bottoms if you look back at prior cycles. When the VIX bottoms, you've got to wait a month or two or three before the market actually turns. So to the direction of the VIX that actually matters the stocks more than just raw fear. So too late to sell,

too early to buy. Yes, that was the way we headed off our client note last night, and that's very much the way it feels, all right, And when it does become time to buy any particular areas you'd be focused on. Yeah, technology and financials two areas that we think do definitely still hold up. The one thing I'm really waiting for in terms a market flush is technology to really sell off. I mean, tech has held up extremely well in a rising rate environment and there's no

reason why it should. High pea stocks should sufferers interest rates rise, and they really haven't. So that'll, for me, will be the sign of a bottom, but also a good entry point. So what do you look at every day as kind of a key leading indicator as to

how equity markets are going to behave? The one thing I look at, which I don't see a lot of other people looking at yet, is something very simple Google Trends, which is a free tool online that allows you to see how many people are searching for a given term, And in this case, the term stock market is a very useful term because it tells you how much retail is paying attention to the current market volatility. In particular,

it tells you how you might open the next day. So, for example, yesterday we didn't get anywhere near the amount of attention on the stock market from Google searches that we did back on Monday, Less than half actually, which told me that retail for whatever reason, was not tuned into the market coming down yesterday, and sure enough we had a very good it open. What I do fear is that as you see market termino will continue, those numbers will go higher and higher, and retail will eventually

sell in that tradition is what creates the bottom. Can you talk a little bit about how you deploy capital at a time when perhaps you believe that the market is near a bottom, and I'm talking about not being a hero here, Yeah, I mean, the one thing I'll say is I mean in this business thirty years and I've had good friends get fired at the bottom of every cycle because they thought they knew better than the market. So my key takeaway is you're right, don't be a hero.

Allocate capital very sparsely as markets go through these churned phases and downward moves, because remember that a capital allocated anywhere near bottom is very high velocity capital, and it can really help or it can kill you. So that key takeaway is be extremely careful, do not try to time and bottom edge into positions over time, take off risk if you're overexposed, and live for the long term. So if your sense is that tail investors are not the ones panicking right now, who is I mean other

than the you know, sort of short vix funds. We did see the biggest ever weekly withdrawal from US equity funds. Who's pulling their money? I think it is basically everybody in retail is definitely definitely pulling some of it um. But it is also hedge funds are a manage money, financial advisor, manage money. It's everybody that got way too exposed to risk in the first part of the year, uh and basically got caught offsides and has to reduce risk.

So if you are a veteran of markets, can you share with us the maybe behavioral characteristics, so the things you do that will mitigate that kind of emotional response to when things are not going the way you want. I keep thinking of Phil Fisher, uh, long time you know, expert in the world of bonds, and he would always say that, you know, when you see market turmoil, go out to the movies, because that keeps you away from the desire to keep doing something. Sometimes the idea is

just step away. Stepping away is excellent advice. And I'll tell you a little story many years ago. I work for Stevie Cohen, from whom I learned a tremendous amount, and when things weren't going his way, he would ask his wife to bring his kids in for lunch, and he would just take an hour, hour and a half break, sit in the cafeteria downstairs and have lunch with his

kids and his family. And that I got the sense that that really kind of resentered him and took him away from the screen, even though he was obviously a very active trader. So I have seen that process work in the past with very successful people. I'm trying to understand the dynamic. What is driving the selling right now? I mean, you say everyone, and I understand that people got over exposed, but there really is not that much. I mean, there was one unexpectedly good payrolls number after

that one, is it? Yeah? So here's the thing, you know, the narrative around inflation has been floating around for the better part of a year. The narrative around central banks pulling back quantitative easing and doing quantitative tiding has been around for well over a year. And since literacy rates are so high in the US, I think we all assume that people understood those topics, but we everybody had this nagging feeling like there was going to be a reckoning.

And so while there was capital coming into the market, it wasn't comfortable capital, wasn't confident capital. It was capital that was there because everybody else was there. And you know, like all the best parties in nightclubs, when they start to clear out, they clear out really fast, and when they turn on the lights, it's not pretty. No, you never want to be there when the turn lights start get turned on. All right, Who you think is most at risk right now in terms of equities or in

terms of investors, well either way. So in terms of equities, tech is code and most exposed. I mean, I can't reiterate that enough. This is supposed to be a higher than one beta group. It has huge valuations and you can send that all the way into venture cap. But all if we continue to see market turmoil, venture capital is going to have a really tough time getting I p o s out of the door, getting deals done, and you're gonna see a lot of down rounds. That's

the biggest area in terms of investors. I worry that investors that have coming in the past five years. Younger investors, millennial investors who have never seen it down in market. They're gonna be brave for a little while, but you know, it's always that new money that creates the bottom, and they will do it just like every other generation has done it. Thanks very much sharing your insight and your experience.

Nikola's co founder Data trakt Research, and I want to congratulate you on the creation of Data tract Research and of your new company. Now let's get informed about the world of logistics and shipping. We have Lee Classgow He's our senior transport logistics and shipping analyst for Bloomberg Intelligence. Lee always a pleasure tell us about Amazon. Is Amazon really a threat to FedEx and ups? A threat might

be a little overkilled. Maybe on the margin, UM, they could, you know, take some share away from FedEx neups, But the longer term, we don't see it as a systemic risk to the parcel industry. There was an announcement today UM following a report in the Wall Street Journal that notes that that the Amazon was going to do a parcel deliver delivery in the l A area UM for

people in companies that are not on Amazon's network. UM. Some might view this as competition for UPS and FedEx, and some also might view it as Amazon looking for ways to get more companies into their Fulfillment by Amazon program. How expensive is this type of program the Amazon is proposing, Well,

that's a great question. Um, there are really no answer because they're not throwing much money at this is at least as it seems, and it looks like they're looking to do an asset light model, meaning that they're not going to own the trucks and the drivers, um, they'll outsource that that type of work and where they'll do

the sorting. Um. So it's really unclear on you know, what the costs would be for them, because I would assume that they're going to leverage their current facilities that they have for their for their for their fulfillment businesses um and just kind of a delivered deliver out of there.

So it's going to cost people. But you know, you're also going to have more technology, You're gonna have to have relationships with these uh contracted drivers, and you need you know, a steady flow of drivers and and and with the labor market tightening, um, that's probably not going to be uh, it's probably gonna be easier said than done. I would could this end up being beneficial for say FedEx and UPS because at some point Amazon may have to come back to them at least their drivers and

their trucks. Yeah, and that's that's a great question. I mean, you have are are kind of thought, is that you know, Amazon is two and a half percent call it of UPS as sales, maybe two of their sales, and a less than one percent of FedEx, so they're not there. They're a huge customer of both FedEx and UPS. But if Amazon went away tomorrow, it wouldn't be you know, the end of the world for those companies because to

the growth of e commerce. But but Amazon, you know, needs to to kind of tread lightly here because you know, if they if fed X and NEUPS see that Amazon is going head to head with them, they might not you know, want to necessarily carry their products during the peak season, which you know, Amazon really needs the parcel industry for help when it comes to they can't just

rely on the US Postal Service lead. Just to put this into context, I understand that FedEx operates about six hundred and fifty aircraft and UPS has a fleet of over two hundred and forty aircraft. That's pretty substantial. That's not something you can just put together in a week, right.

And you know Amazon has been in the new with with you know, leasing of a bunch of aircraft, and you know that's really more for their linehole business, so meaning that you know, they're willing to take more the logistics in house, which is completely normal for retailer or consumer products company. You know, Walmart and PepsiCo, for example, have the largest trucking fleets in the United States, you know, larger than many public trucking companies. UM, so that's kind

of a normal part of their business. You know, they want to rely as less as they possibly can on the outside world for their supply chain UM and then leverage the great networks of FedEx ups have built over the decades. UH. And the UPS is a case over a hundred years UM to UH to deliver packages for the final final mile and and maybe a little longer

than that as well. Really real quick, do you have a sense of timing with this type of program, the timing of the program of when Amazon could could roll this kind of thing. Oh, it's gonna it's I mean we're talking they're just opening in in l A. So it's one city. Uh, it's going to take probably a year to really be fully ramped up to cover a city of that large. Uh. And we'll see, you know,

where the other pilot programs go from there. Um and if they're really successful kind of migrating more UH retailers onto their fulfillment platform. Lee Glasgow, thank you so much for joining us. Lee Glasgow, Senior Transport Logistics and shipping analysts for Bloomberg Intelligence. There are many popular narratives about this week's sell off in US equities, among them jitters concerns over the deepening US deficit. But is this really

truly what's behind the scenes going on here? Ward McCarthy joins us right now. He's chief financial economist at Jefferies and Co. In New York. Ward, thank you so much for being with us. So about this deepening deficit? How much is that what's behind all of the activity this week? I think it's part of there a big picture that is changing in material ways from what we've had for a number of years. Here. What we're seeing is that

monetary policy accommodation is being withdrawn. It's being replaced with fiscal accommodation to try to support the economy. But one of the consequences of both the fiscal accommodation and the withdrawal of monetary accommodation is that the Treasury is going to have to borrow a whole lot more money. We estimate in fiscaleen For example, the Treasury is going to have to raise an additional four hundred and fifty billion over what it did last year, So that will mean

we'll have to raise about nine hundred and fifty billion dollars. So, uh, that's going to put some stresses on the bond market and we're already seeing that. Well four and fifty billion ward. Isn't that sort of the amount that the Federal Reserve is drawing down its balance sheet? Well, that's part of the part of what the Fed is um driving down.

Accounts for this increase in borrowing, but keep in mind, the Treasury also needs to fund the tax cuts that were passed in December, and they also have to fund the increased spending from the budget that was passed. Uh, well, I guess early, really early this morning. So that's the draw down in the Fed balance sheet is part of that four and fifty billion. It's not all of it, okay, So where can you clear up something for me? A lot of people are saying that if we don't get inflation,

yields can't rise that far. Is that a fallacy? Can we see yields rise substantially due to the supply demand dynamic regardless of inflation. Oh, you can see rates rise. It's always just a question of how much we are seeing signs that inflation is going to creep. I we've been in and one and a half to two percent inflation range. I think this year we're going to find ourselves by the third quarter in the two and a

half to three percent inflation range. But the increases in the auction sizes over a period of time, which is what the Treasury is going to do, is going to start to strain the the market's resources, and that alone will result in higher rates because higher rates are going to be required to attract the investor. Bit what if you were to look into the future, into the world of people perhaps not born or just the young adults right now, what do you think the picture looks like

in about ten years. Well, I think that we are seeing some important structural changes in the economy that I think will make for a better labor market than we have seen over the past ten years, even though it has been improving quite substantially. My primary concern is that the US fiscal situation is in the process of deteriorating so much that ten years from now it could be

a significant impediment to the us UH. To date, the US has been, you know, profligate on the fiscal side, but we have looked relatively good compared with some of the competitors, like say Europe, for example. But if You're continues to get his act together, um, then we are not going to get the free pass that we've had for such a long time here. Or where do you expect ten your yields in the US to be at the end of the year. Well, I think they're going

to be higher. You know. Trying to figure out exactly how much higher they're going to be is is somewhat difficult to say, um, but I think that we'll probably see them up around somewhere between three and a quarter and three and a half percent. Okay, So what's the line in the sand for stocks, for riskier credit, What's what's the level at which people say, you know, what I'm getting paid for for putting my money in cash. I'm getting paid for putting my money in government bonds.

I'm not gonna be in credit anymore. Well, the I think what we'll see is that there will be more of a differentiation in the type of credit. High credit should continue to do really well because the economy is doing very well, so that they'll still be appeal and

appeal to them the more credit credit worthy issues. I think that what we might see is that investors that to become a little bit more discerning in the types of credits that they want, because it's the lower credit types of companies that are going to struggle more as the interest rates ries. So Ward McCarthy give you about thirty seconds, what kind of credit paper and would you not touch right now? Well, that's really not my area

of expertise. Um. I just think that you're better off being in at some of the higher graded types of issues than the lower graded types of issues. And it's really not my place to pick specific issues. You know. It's interesting, pim. I was looking at Teva Pharmaceuticals, which just gave a pretty bleak forecast for the rest of the year, and they have more than thirty billion dollars of debt, and their bond prices are plummeting. They got downgraded to junk uh and they're having to really pay up.

So they're going to have some some bonds I've got to refinance this year. Will be interesting to see how that goes. Yeah, and rates are higher and with exacparate tax overhaul, that means that debt may not be as profitable to issue from issuers. Thank you very much. Ward McCarthy used financial economist Forecast Jeff. You can subscribe and listen to interviews at Apple Podcasts, SoundCloud, or whatever podcast platform you prefer. I'm pim Fox. I'm on Twitter at

pim Fox. I'm on Twitter at Lisa Abramo. It's one before the podcast. You can always catch us worldwide on Bluebirg Radio Katt the bo