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This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along with Lisa Bromwitz and Amrie Hortenn. Join us each day for insight from the best in markets, economics, and geopolitics from our global headquarters in New York City. We are live on Bloomberg Television weekday mornings from six to nine am Eastern. Subscribe to the podcast on Apple, Spotify or anywhere else you listen, and as always on the Bloomberg Terminal and the Bloomberg Business app.
We begin this hour with Michael Green. He is the chief strategist at Simplify Asset Management. Michael, thanks for joining us here on this Black Friday. We'll let you get to shopping in just a second, but I do want to start before we get to the broader market. I do want to start with cryptocurrency for a big here, because this really has been one of the big barometers of the risk on sentiment that we've seen over the
past few weeks. Kind of started even before the election, but of course picked up a lot of steam once people got a look at what is going to be a new Trump administration. In January. You see this momentum continuing, well, I.
Think the real question is does the buying continue right.
So, we've seen extraordinary inflows into products like black Rocks, Spittwein ETF. We've seen an incredible innovation in Quote's right, the classic financial innovation with the single stock ETFs that
have powered entities like micro Strategy. Over the past month or so, those seem to be running out of gas and the financing costs associated with them, I think kind of give lie to this idea that financial conditions are affected in any way, shape or form by what the Federal Reserve is doing right now.
But this is clearly one of these things that is indicative of both.
People's expectations that the craziness is only kind of going to accelerate as it relates to government spending or inflation or the risks associated with a Trump administration.
And as people sort of take a look at that, Michael and they try to sort of make bets in the cryptos, We've seen a lot of people looking for proxies to do that. MicroStrategy, of course, was the proxy for quite some time. We started to see ETFs come into this space, and we started to see more of an embrace not only by retail investors, but by the institutional set as well. Do you expect that to continue?
Do you expect the embrace of crypto to be much more through these proxy vehicles rather than through the actual crypto asset itself.
Well, I think this actually tells you something about the space right which is that there's still is very little utility associated with the actual tokens themselves. Ultimately, this idea of digitally native securities is incredibly important. It really is an incredible innovation to think about changing away from our still paper based financial system to one that's really built around digitization and securities that are capable of having complex instruction sets embedded inside them.
But right now, we're basically just.
Trying to build enthusiasm for the space, and that is clearly being driven by promotional activity. We see that across space everywhere, from Blackrock on down to the extremes of the Michael Sailors.
Well, let's talk a little bit about these micro strategies single stock leverage, ETF. So I want to jump right into the weeds here, because, as reported by Bloomberg's Wildna Hirich, you're seeing this really interesting dynamic where they can't get their exposure through swaps anymore. They have to basically tap the options market and buy these call options, and there's
been a lot of concern about that. But I want to ask why, what is the end effect on the end client or is this more a problem for the issuers?
So those two separate components associated with it.
One is it is clearly an issue for the issuers themselves in that their prospectuses do not disclose the use of options, and so by attempting to maintain their investment mandate moving away from swaps into options, they are incurring costs and pursuing their investment strategies that are not fully disclosed to their investors that potentially creates liability at some point in the future or should these.
Begin to underperform.
By my calculations, the financing costs are somewhere in the range of five to ten percent per month at this point.
So while we sit here debating the idea should the FED cut by twenty five basis points, we're seeing areas of the market they're being propelled by speculation with interest rates closer to one hundred percent, So it really is not anything to do with the FED at this point, I would would argue the second issue that you have is that financing costs, because it ultimately means that these vehicles are facing a bleed associated with a failure of those options to go further into the money or deliver
against their volatility. That means that the carrying costs of these products are also in that kind of five percent plus ten percent area, meaning that the bitcoin market and the micro strategy market has to continue to rise it nearly one hundred percent a year in order for these
products to break even. That's a very you know, that is an incredible headwind, and a lot of the behavior that we're seeing in these in these single stock levered ETFs, I think ultimately we're going to find out we'll be treated as various forms of manipulation, and in all likelihood we'll see this stuff pulled off the market at some point in the future.
Well, we'll see that would certainly be dramatic.
But to put it simply, of course, these are not meant to be buy and hold investments.
The issuers themselves would tell you that.
But I want to talk to about the relationship between these leveraged single stock micro strategy ets and what it means for the actual micro Strategy underlying stock because you see micro Strategy treating at a record premium I believe to bitcoin itself, and there are some theories out there that it's actually these leverage single stock vehicles that are driving that.
Yeah, I don't think there's any question about that. If you look at the increasing premium that occurred. It happened almost simultaneously with the launch of the largest of these levered ETFs, MSTU being the ticker there. That actually very clearly power or the separation. There's very little to actually
debate around that. That's allowed it to push itself beyond Bitcoin. Now, what that's created is something similar to what happened with gray scale bitcoin trusts a year ago, in which are two years ago, in which a premium that it developed for grey scale bitcoin trust created demand for bitcoin.
This is working almost in reverse.
The premium for micro Strategy is leading to micro Strategy being able to issue shares and in turn by bitcoin. It's a far less direct route, but it's the same underlying effect that continues to power both both the stock and the coin.
The token higher at.
This point and just real quickly Michael I am curious that when we start, we're talking about this in the context specifically within the cryptosphere to some of that optimism mode. Does that bleed out into the broader market? I mean, can we take cues from what's going on in the cryptosphere for the rest of the market.
I think it's hard not to assume that there are going to be implications associated with this, right, So you have individuals who are investors in bitcoin who are feeling flush in the environment that will lead to them increasing their purchasing activity, et cetera.
So there are real world feedbacks to this.
There's also very real world feedbacks and the kind of the classic George Soros reflexivity component. This type of price activity facilitates micro strategy going out and raising real cash in the form of convertible debt, which is more issuance of shares, which in turn is used to purchase that bitcoin. They could theoretically hold on to that cash and use it for alternative corporate purchases, as we saw with stocks
like GameStop or with MC Entertainment. So far, Sailor seems to be much more aggressive in this process.
All right, Michael, great stuff, going to leave it. There have a wonderful rest of your week and weekend. Michael Green over at Simplify Asset Management.
Let's keep the conversation going with Jill Sanders.
She is head of retail over at it Center Global, joining us now and Jill, I want to go to this line in your notes. You're right that retailers have good reason to be cautiously optimistic, which is interesting because we talk about all of these headwinds potentially coming at retailers next year.
What is the case for optimism right now?
Well, in our survey, which we did right before a holiday, basically people said they're going to spend upwards of four percent more this year compared to last year. So that's the optimism. The causes is about the fact that everyone's looking for a deal. I mean, you heard any other correspondence point everyone's out there for Black Friday because they know that there's sales.
On today, sales on today.
But we were joking earlier that Black Friday it's really a state of mind.
It never ends.
I was actually out and about on Tuesday getting great deals as well. I mean this bleeding out of the bounds of Black Friday. What does that ultimately mean for retailers because it seems like it's just persistent discounting.
Well, Listen, agility is being put to the test this year because shoppers have only one less week compared to last year because it's where Thanksgiving fell. So retailers are really smart. They said, listen, I'm going to start doing my discounting early so I can get people to start shopping early.
And listen.
AI has been on the pitch for a long time in retail where retailers were planning out when to put things on sale so that hopefully will help them make sure that they don't lose margin over this period. It's all being worked out through advanced technology, which is great to see.
I'm curious just about how much some of these retailers can sort of prod the consumer into buying certain things. I mean, some of us, Jill, we have a hard time figuring out what to buy people, what the buy for our loved ones, you know, what gifts do they
really want? And I know some retailers have taken a more creative approach kind of to really put out these gifts guys and create other experiences whether they're in their store, to sort of plant those seeds in your head, probably for the more expensive stuff, but still, what are they doing?
Yeah, listen, this year is the year of curation and recommendation. Retailers know that people are getting inspiration from all different sources. Whether that's Instagram or Meta or Facebook, you name it. There's a bunch of places where people are getting suggestion. Some of the curation is happening not just in the store with really smart people working the store saying here's
what you should buy. It's also happening with technology. So think about if you're online and all of a sudden, this little pop up comes that says, hey, do you need any help? Who are you buying for? What are you looking for? What's your budget? Those types of recommendations is going to be what the future looks like in retail. So instead of you trying to search, people are trying to help you, trying to make.
It easier on you.
I am curious too with regards to physical stores and the idea of a lot of these physical stores trying to find ways to get people back in. We were just checking in with Macy's in Harold Square here in New York, which of course just really decks out a store. I mean, you go to that store just to see the displays and hopefully you buy something along the way. I know Bloomingdale's right across from Bloomberg headquarters here also
has these pretty expansive displays. Are we seeing these stores embrace that more because there have been some stores that said they're actually pulling back. Sach said they're not doing their normal light show this year.
Yeah, you know, stores are back this year, which is fantastic. You heard that stat that said there's a bunch of folks that are going to be shopping in stores this year, and so there is that retail shopping fund where you get together with your friends and you go to the stores. It's not so much about the decorations as much as it is about that feeling on Black Friday over Cyber Monday,
going in and going shopping. I think the key for retailers this year is going to be all about again curation, recommendation, and then let's not forget the store staff. Frontline workers have been really part of the equation. I always say, you can have the best discount, the best promotions, the best curation, the best assortment, but if that person behind the till is not in a good mood, it could
really really change your opinion of that retailer. So frontline work is is also something that retailers are taking care of this year.
Yeah, it's a great point that service matters.
I want to go to another line in your note because I thought this was interesting that retailers are focusing on inspirational content, which actually can improve sales according to your data.
What is inspirational content though?
Well, listen, I talked a little bit about AI, and AI has been used a lot of times with figuring out again your assortment, figuring out how that's to make sure that the supply is right, also how to get it to the store.
And then of.
Course you're using all sorts of AI for doing curation around your ads and your promotions. But now because of advanced technology, now the way that you advertise is also being inspirational, so you can have more tailored advertising to consumers now, which is fantastic a lot because of gen AI. So that's what I mean by inspirational and also gift ideas, suggestions, recommendations.
That's on the pitch this year. It's the year of curation.
You know. I always like to say where do people get their inspiration. Do they get it from, you know, looking at Instagram? Do they get it from going on the website of the retailer. Most retailers are saying, listen, I've got to play a big role of making sure that eyeballs.
Come to my website. How do I get them there?
Maybe I do have some ads on Instagram to get you to click through to come to my website.
Absolutely all about tantalizing folks. Jill Standish over at at a Centric.
Let's keep the conversation going now with Judy Dempsey.
She is non Resident Senior Fellow for Carnegie Europe, joining us now and it's great to.
Have you with us. Judy put us into the shoes.
Of European leadership right now, confronting the possibility of less American support for Ukraine, the possibility of increased terriffs here.
How does one prepare for that?
It's very difficult. I mean, there's so many own predictabilities. But clearly the present elect Trump wants to move very quickly. He's actually chosen former general to be his envoid, General Kellog to be the special envoy in Ukraine who will try to conduct negotiations. But the Europeans they say they want to say the table, will I'm not so sure they're going to get one. And secondly, if the Trump administration does actually reduce its military support for Ukraine, will
the Europeans be ready. There's a shortage of material already. Some countries such as the Nordic countries are supplying as much as they can, and some other countries are running short, and some other countries of the EU are a little bit reluctant, so they're not really prepared, but they have been warned of the day after when Donald Trump enters the White House, and maybe Ukraine is depending on the
Europeans for more military support. It's going to be very difficult to muster this very quickly.
And we'll talk about the past stability of tariffs here because you know, we make jokes about French wine and German cars for example, but you think about the balance of the European economy right now, and particularly the car industry for example, which has been under some pressure here, I.
Mean, how much would tariffs hurt? How should we be thinking about that?
Parents are an enormous worry for the outgoing German government particularly and the incoming one whoever that will be The real issue is that Donald Trump has a kind of difficult relationship with Germany. He sort of resents its huge expert circlus and the tariffs ten percent tariff is very very high. At the moment, trade between the Eurozone and
the United States is about weakness. To got four hundred and fifty billion a year, and this has actually increased over the COVID times when trade with between Europe and China sort of declined. The Europeans are increasingly relying on the US market. So you slap tariffs on and you still want to export, it's going to be very, very difficult for them.
The other key.
Point is that how the German automobile industry will react. We've seen announced closures in Volkswagen, We've seen the steel industry going to lay off six or seven thousand workers. What will happen to avoid tariffs? German manufacturer who will probably go over to the United States, which is exactly what Johnald Trump would like. But if that happens, it could have a negative spin off effect for the economies of Europe because we've mean more job losses and probably less competition.
Judy, I'm curious. I'm not unsympathetic to the challenges that Europe faces in the face of a new Donald Trump administration. But there are a lot of questions, at least from the US lens as so why Europe wasn't better prepared for this. They've had time, they knew this was a big possibility, and now here we are talking about what, at least on the contour, seems like a surprise to them.
You're talking in the sense of the Ukraine issue.
A Ukraine issue terrafs everything.
Yes, their cries. Yes, to use a terrible phrase, the writing has been on the wall. But the Europeans, they do talk an awful lot, and they talk about competitiveness and diversification from China, but they are really not prepared for the tariffs.
Firstly. Secondly, I think.
We really have to remember that the European economies are not only going to be hit by the tariffs, they are actually going through a period of d industrialization as a lot of fast pace, largely because of the China influence. Of course China has done to the electric cars, for instance, but also the whole element of digitization AI and others use.
The Europeans have incredibly slow to embrace these and that's another contributing factor for being unprepared for this new kind of transatlantic relationship.
And it raises another question too about just how common, if you will, the common Eurozone is. I mean, this is a collection of countries that I don't think have really acted in commonality for quite some time. I don't think they ever did, but they at least managed to put up a good facade for some time. But I think we've seen with regards to the Russians in France, Germany and of course what's going on in the Eastern Europe,
that there just isn't a lot of consensus. So how do you get to a solution.
It's very difficult. And what we've seen over the last say ten years is the increasing role of the member states. This is the role of the Executive, the European Commission, and now the member states for this, France, for this, Germany, for the the Netherlands, where the Supportic countries. They're all looking after the national interests. And if you look after national interests, you actually downgrade or make the whole idea of the European Union weaker. There's no talk any more
about integration, there's not even any discussion. But what's really necessary is completing monetary unions such as a banking union, and so in some ways the European Union as an economic project and as a political project has really slowed down, and there's no leadership either in Berlin or Paris and other countries to say, let's put our national interest behind us and try to integrate the European Union further so that we can deal with the new challenges coming from Washington,
from China and of course Russia and India.
All right, Judy got to leave it there.
I really appreciate you taking the time great to get your perspective.
That is Julie Densey of Carnegie Europe.
This is the Bloomberg Surveillance Podcast, bringing you the best in markets, economics, angiopolitics. You can watch the show live on Bloomberg TV weekday mornings from six am to nine am Eastern. Subscribe to the podcast on Apple, Spotify or anywhere else you listen, and as always on the Bloomberg Terminal and the Bloomberg Business out