Surveillance: Bitcoin Still Speculative, Patters Says

Pattison joins us. We are thrilled to ever whether she's with Bridgewater, director of Investment Research, but far more is her time on the street bringing a holistic ly together the foreign exchange market with everything else out there. Rebecca, wonderful to have you with us today. I'm Bitcoin. What did we learn this week? I put up there some of the dynamics, the silliness of it being a gold

equivalent or a coin equivalent. What did we learn? I think we got reaffirmation that it's a speculative asset and it still has a long ways to go to become a gold equivalent, to become a proper storehold of wealth, something that you can count on to have purchasing power over time, that's going to have stable and relatively low volatility.

This was not a low volatility week or so for bitcoin quite the contrary, Rebecca, do you see a generation with divide between certain age groups who believe this is the new golden other age groups that just do not. Anecdotally, Yes, anecdotally, it does seem that people who are looking for alternative uh sources of cash if you will, Um, you do have a bit of a younger generation bias towards the

cryptocurrencies versus gold. But um, you know, to me, it's it's not the generation as much as the retail versus the institutional. The money that's going into bitcoin and other cryptocurrencies today is still largely retail. Of course, you're getting a few more corporations, you're getting family offices, you're getting some hedge funds, But the large institutional money that's thinking about do I want this as part of the diversifying assets in my portfolio to protect me from draw downs

from from bad periods of market stress. We're not there yet. It might get there over time, but it's not there yet. So this is still an asset that I think is primarily one to be used for return and speculation, not the time. Over time though, Rebecca, do you think that invests the conditioning kicks in many people will ask us when they're not familiar with financial markets and macro, why does the end do so well when things get bad? And there are various ways of explaining that, but one

of them is it just does well. It's worked, and it's worked historically. Do we need to be conditioned by this somehow to start believing it a little bit more well? I think over time you could see that environment come together, and there's a couple of things I'd be watching. The

big one right now is the regulatory ecosystem. You know, it's very immature still for cryptocurrencies, and after the Colonial pipeline hack paid for with crypto, the ransom was paid for crypto, I think you are going to see regulators in the US focusing more on this, trying to make sure there isn't illicit activity, trying to increase transparency. That might make some holders a bitcoin not want to own

it anymore. They're there for the anonymity, but it could create an ecosystem that gives more um credibility to it, more encouragement for large institutional players to come in. If they come in and you have another source of liquidity there, that could bring down volatility over time. That's the positive flywheel that I think could change how bitcoin and perhaps other cryptocurrencies are perceived. Obviously, there's the environmental issues to

which are are clearly a problem for some investors. I think those things need to get addressed and the volatility needs to come down. But if those things can happen, I think this could evolve into some some type of digital gold. If you will, Rebecca, I want you to elaborate on the environmental concerns, because Elon Musk of Tesla highlighted this, and you highlighted this in a recent research report showing that bitcoin uses up more energy than say,

even uh switch relent. When you take a look at the energy consumption, it's basically a nation onto itself when it comes to this area. Can this be solved? How big of a concern is this for certain investors? Well, increasingly investors are focusing on on environmental and other e s G. Issues, so so it is an increasing concern for a lot of large institutions. There are ways it can be addressed. You can see changes in the technology used in bitcoin, for example, that could reduce energy usage.

You could see the type of energy used, more of a focus on renewable energy that could also be a positive trend. There's also another option here, which is that another cryptocurrency that has lower energy usage but also some of the positive characteristics like limited supply, you could see that supplant bitcoin. Just because Bitcoin is the dominant currency today doesn't mean it will always be. So I think there are some different paths, but over time it's going

to get addressed one way or another. Meanwhile, Rebecca, I want to pick up on something that John was talking about, because I know that this dovetails into the inflation call. The Bridgewater has had this whole cash is trash and that Ray Dally is talking about, but moving forward that inflation is going to be more of a threat. What do you make of the move recently lower in a longer term break even rates? Basically longer term inflation expectations

have come down even as we get this robust data. Yeah, I mean, Ore, this is such an unusual time, right. We're seeing the biggest US boom um that we've had in decades, and we have so many different cross currents. Given the reopenings coming out of the pandemic, demand rising faster than some supply commedian. You just mentioned that a few minutes ago in the European p m I data that that it's hard to have a high degree of

confidence how this is going to play out. But as we look at the year or so ahead, we see a decent amount of risk that inflation could keep rising. It's already rising, but stay higher for longer. And part of that is the supply taking a while to catch up with the increasing demand. And part of it is more structural forces globalization, which has helped reduced inflation for years, that's been plateauing and could possibly reverse a little bit.

The trend towards capital over labor that's starting to reverse a little bit as you see higher wages, higher minimum wages, etcetera. Um. And so if you see some of these secular forces slowing or reversing somewhat and these cyclical forces, we think you could be in a slightly higher inflation environment. So the day to day moves aside. I think you want to be looking as an investor, does my portfolio have enough protection if that risk becomes reality? And this isn't

just as the FED likes to say, transitory inflation. Rebecca, I want to get in trouble with Ray Dalio. So I'm gonna ask a rude question, and you're such a pro you'll give me an honest answer right now. Stock bond correlations are really quite odd. That goes into rate parity strategies and such. What is a duration the timeline of this odd correlation where it begins to affect portfolios. We're hearing short term no big deal. When does no big deal become a big deal? So, Tom, I think

I don't think that's a rude question at all. I think you're you're highlighting a couple of things that that are worth unpacking a little bit. Um First, when we think about risk parity strategies all weather, which is our our strategy, it's it's a strategic long term assid allocation.

What we're trying to do is get rid of some of the volatility that can come with changes in economic environments, growth, inflation, and what that allows us to do is get more steady returns over time and then we can compound that, which is, as Einstein said, isn't at the eighth wonder of the world. Um. So that's a very different strategy than save pure alpha, where we're really focusing on uncorrelated

return streams that are over shorter time periods. It's more tactical UM For for folks who are thinking about risk parity strategy, remember it's never been determined on one asset or one country. It's going to be a balanced mix about sets. So even if bond yields rise um, there are going to be other bonds that are still attractive China, for example, the tenure yield. There is still three much

more normal policy mix going on. And then you're gonna have other assets that are going to give you that diversification and that balance no matter what the environment is. But the other thing Tom, that I think is really important that you just said is about correlation. And I think you know every sixty forty portfolios or the last couple of decades have just been able to sit back and let it roll in. You've had rising stocks and

falling bond yields. And today there is a chance that you're going to see that relationship break apart, and you need to understand why that's happening and then what you do about it. If we think that relationship is breaking apart in part because of inflation, then you want to

make sure that you don't have too many bonds. You want to make sure that you also have other assets to protect you against that risk, whether it's gold which has been recovering nicely recently, inflation linked bonds, even equities that give you more of a steady cash flow over time that aren't going to be as vulnerable to that duration issue. Rebecca, always smile and always enjoy a contribution.

Rebecca Pattison NAP which want a director of investment research one of our high points of the day to get you recalibrated on global Wall Street and particularly American Wall Street. He is after saying two hundred thousand jobs will be

jettison truly and exile on Wall Street. Michael Mayo joins US with Wells Fargo from his decades of work, including a dark day with Credit Sweets years ago to now holding court at Wells Fargo ahead of the US large cap bank research Mike Mayo with US, Mike, I've got to rip up the script. This is all anybody's talking about, and you are the one to give perspective. Can a duo run consumer banking? They're gonna try that at JP Morgan. Is it feasible? I'm never a fan of dual heads.

Having said that AP Morgan cultivates a culture of collaboration, so whoever collaborates better is ironically the one who could ultimately win. We have two women who are in contention to take Jamie Diamond's job, having said that, you know, when Jamie Diamond retires N plus five at five years to, whenever you ask him the question. So I don't think it's happening anytime soon. I think that the board wants him to stay. Investors wanted to stay. But you do

have two women who are in contention. If the two women are in contention, two men in contention, you know, let's be honest. This is absolutely original stuff to your research note which stopped Wall Street a few days ago, how old the dominant JP Morgan consumer franchise and adapt an adjust to automation, to digital banking and the rest that you highlight, Well, JP Morgan is a microcosm of

the broader industry. And for you Tom and going to the classics, I'm going to the Greek philosopher Plato who said necessity is the mother of invention. Banks have no choice but to get more efficient, to use automation and the streamline. So whether it's JP Morgan or any other bank, even though they're opening up branches and hiring advisors and all sorts of people. Over the next ten years, we expect headcount to decline by two hundred thousand jobs, up

to two hundred thousand jobs for the banking industry. And that's because you have automation in the back office, digitization the front office, and because banks have no choice as they compete against big tech, big retail at a bunch

of non banks that have a lot less regulation. How is that going to go down politically, Mike, Uh, not always well, but it could be better than in the past because with natural attrition, banks can try to, you know, walk that fine line between becoming a lot more efficient and without destroying their you know, political and regulatory reputations and also their E s G scores because everyone's watching. You know, if you fire a lot of people, that hurts your interesting E s G scores. And so it's

a it's a it's a tough job. It's a different job to be a bank deo today. In the past, it was about creating, generating sustained long term value. Today it's doing that and a lot more. You need to be more tuned to issues around climate UH and social issues UM and diversity, and so it's a bigger challenge. What does that mean for the physical presence on main Street, Well, a lot less branches. You're going to see a lot

less branches and a lot less people per branch. And they call it d I Y do it yourself and also more do it together services. So you'll see banks, you know, working with customers that show them how to adapt to using more digital tools. And the pandemic Herbo charged the tech revolution at banks. You can't force a change in customer behavior, but the pandemic did so, and that played into the banking industry's strategic UH playbook for

the next five or ten years. Mike, when you talk about competition from a number of different sources, we should also talk about competition from the Federal Reserve itself, for forum, the US government, the Federal Reserve saying yesterday that they're going to put out a report on the US digital dollar debate this summer that could disintermediate the big banks. How much you paying attention to this, Well, you have

to pay attention to this. I mean there's threats to banks and disenter mediation of banking goes back half a century, and so you first saw that with traditional bank loans getting the center mediated to the capital markets, and then you've seen that with some of the fintech players and the payments business, and so you have to watch, you know, anything related to you know, digital uh currencies or anything else. Having said that, I think the banking industries business model

resiliency for the largest banks is underappreciated. And a deposit at a large bank is different than a deposit at another bank. It's driven by a hybrid distribution system that's physical and digital. It's driven by multiproducts, whether it's a checking account, savings account, credit card, mortgage investment. So, um, yes, you have to watch this. But the death of banks

has been greatly exaggerated the last few decades. Mike, perhaps the death of banks, but just quickly here, I'm wondering what you think in terms of mergers and acquisitions, how consolidated could the industry get as they cut what you estimate to be two hundred thousand jobs. Absolutely, there should be an acceleration and bank mergers. Goliath is winning. The largest banks have scale, The smaller banks need to generate

that scale. That was mentioned as the number one reason for the biggest recent merger in the last few years now known as as truest Um. So we wouldn't be surprised to see half the number of banks out there over the next decade. Just before we run, Mike, a lot has been made of v SG and diversity, and you touched on that yourself in this conversation. You would want to bring it up. Why do you think that wasn't a big part of the consideration for Morgan Stanley

shake up. Look, ultimately, um, you know, the ability of managers to generate the returns helped the firm as a whole um and represent the firm you know drives these decisions. And so Jamie Diamond didn't select the two women coheads of consumer who are likely the next one of those are the next successor because they're women. It's because they're the most capable. So I think the chips ball where they will, well said Mike, Thank you, Mike Mayo West Farco ahead of US large cap bank research on a

situation on Wall Street. Terry Hinges joins US now with Venia policy. Their under here in a good student of the dynamics of Washington, Terry. There's isolationism in America. It's always been there, back to the founders, a certain character, let's say, in the pre World War Two era, all sorts of shades. After World War Two, a unique Trump isolationism, a sense there, and now with Israel, Gaza, and even with this announcement from the I m F for a

cash call, a new isolationism in Washington. What does that look like? Uh, Tom, good morning. What I think it looks like is a essentially a rebalancing of international responsibilities with the with domestic responsibilities. There's a I think there's a sense, and there's been a sense for about five or six years that frankly I think predates Trump. Uh, that we've been spending too much time and effort thinking globalism is going to solve all our problems and instead

understanding that it's exacerbated a lot. What I'll shorthand is the flyover country problem and try a fly over part nation problem. And uh, and we ought to be spending some more time with that. So you know, we're back to the old wrangle of exactly how much time and effort we ought to be spending on domestic priorities as opposed to worrying about the international and you know, frankly,

that complicates policy making across the board. Do you ascribe to the tradition that foreign policy doesn't matter when people waltz into the two thousand twenty two or two thousand twenty four booth or does it matter this time around? I think it matters to them always. Frankly. There there are always issues that that that differentiate candidates. Uh. And you know, we we see a lot of those happening right now. You've already you've already hit on it with

the part of it with Middle East policy. Uh. China. China policy, of course is a very big and you know, frankly bipartisan initiative at this point that anybody that wanted to change China policy at this point would be looked at very skeptically. Uh. You know, the eyeballs on Russia, same thing. Uh, just to name three off the top. But yeah, it does matter to It does matter to voters. Let's jump to June, the president's first big obous trip,

when he's going to go go over to Europe. What do you think the priorities are the priorities for them are they want to show Firstly, they want to show off, uh that they're America's back them, that they want uh to show cozy relationships across the board with the European

Union number one. Number two, they actually want to show how they're moving the ball forward, and they're gonna have to get past this, uh, this nord Stream problem and put it into a broader context to show how that decision to wave sanctions there is positive for other aspects of the European project. And third, they want to show united front against Russia, but more importantly China. Uh, that's where they go. They've got a Germany of them, haven't they.

With that in mind, Harry, not so much as a European problem is a Germany problem. Yeah, yeah, exactly. You know, there's some wags and Brussels always say if Hitler had understood that Dolly to do was to conquered everybody economically, uh, as Germany has with the the U. Uh. You know that we wouldn't have had the Second World War. But the more important part of this is that, uh, you've got a new government, You've got more instability in Germany for the first time in a long time. You've got

a new government, a new way of looking at things. Uh. Some people say a loss of confidence. Uh. So that is that those are all variables that the administration is going to have to work with to resolve. So it's a higher mountain than it was just a few months ago. I meanwhile, here at home, Terry, one reason why I love reading your reports is because you actually assign probabilities

to the likelihood of certain legislative initiatives getting passed. Where are we in terms of the probability of a bipartisan infrastructure bill getting passed in the near term, Well, thank you, Liza, and and you know I've been non consensus uh was non consensus uh about sixty six for some time on that. I think that's coming together, Uh, in a kind of eight hundred billion to one trillion range at the top.

There's clearly a desire to want to do something there, and on a bipartisan basis, it amounts to a plus up of about a hundred percent over what we would be spending on infrastructure anyway. So it's not insignificant, but it would take a quite a while to roll out. The bigger question is that you know whether or not, uh, it's gonna be able to roll out faster. It doesn't sound like that's gonna happen, So the people won't see in businesses won't see a difference to that very much.

And I also think it makes the the what the administration calls the Family's Package, which is most of the rest of us call everything else, uh, that much harder to get. Democrats will understand that the last train is going to leave the station. They want everything they want in it. People tend to forget that the Affordable Care Act had got passed on reconciliation, but it took something like five months after the House at first passed it

to finalize it. And that's a positive case. So you know, they're Washington is going to fool around with the Family's Package into the winter and probably you know, i'd say at least into the winter with the likelihood of that getting passed. If I have that very much below at this point, I'll give you, I'll give you it's alive and kicking it, but I don't see the path forward for it right now. Jerry. We had the privilege speaking to the Republican from Montana yesterday, Steve Danes, and it

was really good conversation. I am fascinated by how you translate the middle ground of American politics is personified by John Tester and Steve Danes in Montana. What's the future of the middle in America if Montana is living it? Um, you know what, those are two very smart members. I've had the plug her to spend a fair amount of time with Senator Tester over the years. And uh, he's a very capable senator. The U and and somebody's really looking out for things the you know, the the uh.

The way people present themselves these days is market themselves in politics is polarized, they'd say, necessarily so. But there's an awful lot of people trying to figure out what the middle ground is and and work on it from there. We're losing some of those good people, people like Rob Portman and Pat Toomey, but as you point out, people like Tester and Danes are still there, and uh, you know,

between him, people like Tim Scott, for example. I think there's there's still an awful lot of people in the Congress, particularly in the Senate, that are looking to try to figure out exactly how to deal with the what we'll call the problems of the middle uh and UH and improve things, so you know, I remain optimistic about that

in the long term. Terry, go ahead from you as always Terry hinesad panchea policy founder and the latest down in d C. Right now, Lisa Browns and I welcome you to, without question, your most important conversation of the day, because it's what we all do as we break red before the pandemic. In this pandemic and coming out of the pandemic, there is flat out no one in the restaurant and food business who has committed to optimism more

than Daniel Ballut. He joins us this morning with an eleven thousand foot triumphant Grand Central Station and the new Vanderbilt Tower. Daniel, thank you so much for joining us on La Pavillon in the success. This is huge, huge optimism. How urgent is it for you to fill every seat starting yesterday? Well, thank you tomb for having me on

good morning. Um, of course it's us to open a new restaurant, always for anyone, but it is huge in this time because we really feel that we are coming out of the pandemic and it's time to bring the city back together. And I think for me, it's not about how many sick, can we feel and all that, but just bring back jobs, bring back hope, and and have the opportunity to create something new and unique and one Vanderbilt the project finish on time, finish on budget

throughout the year the pandemic. It never we had slowed down, but we never stopped. And I think that's uh, that's something which I'm very proud of to be associated with sl Green and the project there because the project kept ongoing. When you came to New York, you couldn't get into the fancy restaurants. You were a pittle and chef and nobody wanted to talk to you anything like that. I know now you pick up the phone and you get

my table instantly. What I want to know is will we change how we eat after this horrific pandemic, whether the fancy or the less fancy. Do you sense that will change the way we approach food. I don't think so. I think people want to go back to indulge. People want to go back to be pampered, to be to discover new restaurants, to be able to enjoy the food to the fullest. And of course we are very conscious and we have to keep our safety as a priority

for us the staff, we keep wearing masks. We try to not make maybe so many dishes who can be sharable and uh, and we try to really respect also distance and timings or that so guests feel comfortable, people are anxious to go out. And uh, I see in my restaurant at Danielle or Babble also that Terras is so much in demand now. It's fantastic, volute. Whenever you walk down the street in New York City, you see all of the restaurants absolutely flooded with people looking to

get back. There is a question though, and you're not seeing that in Midtown. In Midtown it still is a bit of a ghost town as offices still try to bring some workers back and have a questionable time frame. What does the power launch of the post pandemic era look like, Well, right now it looks like nothing because there's not that many restaurants up and for power lunch.

But I think, uh, there's definitely a bus in Midtown, and I see around Grand Central, I see people coming back to the office, and we have people coming out of work and coming to have a drink at the bar at La Pavillon. But so that means they must have been working around there. And I think Power Lunch will come back in September, resume when the all the hotels are open. New York is back, and I think

the office will bring back people because they have to. Well, when you talk Chapalad about the cities that are going to be the culinary leader is going forward, what do you hear from your peers, from your fellow chefs in terms of which cities are the best ones to open a higher end restaurant. Well, I think New York City is still the number one city for sure. I mean there's, of course, you can always be a big fish in

a small pound. But in New York City, I think we have the capability for welcoming tourists and business and entertainment and sports in that no other city can. And of course there's the hype of Miami. There's that have, But when it comes to find dining and when it comes to all dining, I think New York City and clearing all neighborhoods. It's amazing. And you know, people are craving to come back to New York City. I see the double deck bus passing by the Pabion because it's

on the second floor. I see the double deck bus full of people and I'm like, wow, is there's some tourist back and I here concierge according us and telling us the hotel are reopening. So it's it's it's a good sign. I mean, just a question of for the all the office building to be able to bring back their staff, and certainly the unemployment tourisum so we can

bring people back to work. The romance Daniel of of of being a grand central station and looking out that window of the Chrysler building, it speaks back to La Pavillon of N two as well. Boy, if we changed how we eat now, what's your biggest challenge in developing repeat customers? What is the food angle, the menu angle that you need to do in two thousand twenty one to keep them coming in? Interestingly enough, yes, vegetable is the rage. But twenty four years ago went up in

Cafebruary in New York. I had already a vegetarian menu, and so this I expanded more and so look beyond the menu will be see food for vegetable and ten percent of selected high quality meat. And so there's definitely a trend between um, I wanted to have a certain uh focus on the locality, so the New England for the most part, and also vegetable within the five state state around New York, and I think this will be

our focus there. But um, in general, people are craving for good food, good wine, and of course healthy food. That's our responsibility, a colossal financial risk. Really really interesting Daniable, congratulations and launching La Pavon and just really really interesting to see in the coming months is New York City comes back? Thank you so a Daniable loud you claim restaurant.

This is the Bloomberg Surveillance Podcast. Thanks for listening. Join us live weekdays from seventy ten a m. Eastern on Bloomberg Radio and on Bloomberg Television each day from six to nine am for insight from the best in economics, finance, investment, and international relations. And subscribe to the Surveillance podcast on Apple podcast, SoundCloud, Bloomberg dot com, and of course on the terminal. I'm Tom Keene and this is Bloomberg