Surveillance: Crypto Contagion with Tchir

She has been writing a lot about that head of macro strategy at Academy Securities, and we're so glad you're actually in studio with us, which is fabulous. It is wonderful to have you on this pre Thanksgiving week, Peter. How much are you seeing, uh, some sort of I don't know, whales, and how much you're seeing something where it's a realistic pricing action of institutions having fully adopted a crypto asset, even if it does lose favor to some degree. I think we have one more big leg

down in crypto. I think we're going to see some selling off in bitcoin. I think of the things that supported it recently are the fact that there are a lot of whales who have invested interest in keeping it higher and there's all this talk about bitcoin maximalist, right, so there is a theory that okay, ft T the tokens that was where a lot of the trouble was maybe bitcoins, the quote unquote safe part of crypto. I think that narrative is going to get hurt a little bit.

Um and all the stuff that's been going on with a great scale trust so GBTC has been feeding into that a little bit. So people I believe have been selling that to buy bitcoin. I think that's going to turn out to be a mistake as well. Why isn't this a broader market story? How can this be so contained given that this story really grew up in the

era of free money. So I think earlier this year it's a great question, but I think earlier this year they were kind of tied together because you had a lot of people who are invested in crypto, they're invested in disruptive stocks. They all were doing it on margins, so every time one sneeze it would, you know, drag down everything else that got shaken out a little bit. So we're better off right now. I think the next leg of this is going to be, Wow, what happens

to the economy. You start looking at the amount of money that was being spent by even FTX on advertising crypto as a whole. Right, I think this is going to feed into the economy. I think the wealth effect is real. Right this time we've lost three trillion dollars down to just under a trillion, Right, there's been huge wealth effects. I think this is going to bleed into the economy. Generally, that's gonna be bad. I think it's going to turn out to be good for energy usage though, Peter,

thanks so much for coming in. You have an August firm, hugely conservative Academy and security as a former Adimals and the like as well. They hang on every bit of when Sheer publishes on rates risk and Taylor Swift, how that sell? You know, we got to do some clickbait too, even in our bid, because well, why do we sell bitcoin to a conservative shop like Academy. These people are gonna say it's unregulated, it can't be regulated, it's foreign. How do you sell bitcoin is a legit thing to

a bunch of conservative people Academy. So unfortunately I've been fairly negative on it. But I think we're having these conversations where do we step in, When does it get interesting for our firm to explore it. It's really gonna down to regulation. Do the regulators come out and create an environment that you can feel comfortable with? Right and right now? It's just not there. One of my big takeaways has been for the last year, you talk something

as simple as where something domiciled? And where are you and I are in the same page on this? Ali Baba is hanging out the Cayman Islands trying to play by a different rule book. I'm gonna defend Gary Gunsler here right now? What does he regulate? Where's the domicile? I think that's really the key issue, right You've got to have some sort of domicile here. And the big question I think a lot of people are talking about, even whether it's these gray sale trust is where is

the bitcoins? We talk about spotty tfs blah blah blah. Right, It's like, how do you confirm on a daily basis that what you think you hold in the crypto world is legitimately there without maybe publishing it and exposing yourself to thefter hacking. So I think that's really the key is most other assets you understand whether you own it, whether it's an equity, whether it's gold, you can pretty easily prove it. That's been the hard part with crypto.

I think that's what's going to have to get to the heart of regulation is how do we verify this? How do we get comfortable that we are auditing something and regulating something that's actually there. Neil Kashkari has been talking about how this is just a ponzi scheme. He doesn't really think that there's any they're they're here, and he's been very vocal about that on Twitter and in lecturers.

How much is the banking industry leveraged to the bitcoin and and and frankly to the crypto story, not necessarily by borrowing money to invest in crypto, but in building up teams of people designed to trade it, designed to invest in I don't think the banks have really put that much effort into it. I think they're building out,

but it's a small part of their business. The other part of this I do think people made a mistake is every time some bank announced they were doing something on crypto, everyone right, oh, this is great, they're adopting. If they're adopting, no, no, banks are very smart right. If there's a bit offered to be made, if there's some trading revenue be made, they're going to get involved. That's not a commitment to it. So I think banks can pull back if this doesn't work out. And to me,

bitcoin is always about adoption, the rate of adoption. When you want to get bullish on it, you see adoption coming up. I just don't see it going up anytime soon. In fact, I see it dropping is more and more people question why they want to be in this space. What's your call for two thousand three, Let's get out in front of your year ahead report? Uh, Taylor swift into it? I'm not sure about that. I think crypto going down will be subten thousand on bitcoin calling subten

thou definitely. I think that actually potentially happens even this year. I like rates, though, I think yields are actually probably the easiest trade. I want to be long yields right now. I think treasuries are going to rally. I think the economy is rolling over, the data is rolling over, and as Hockey says, the Fed wants to talk, the markets are starting not to listen to it. So I love owning bonds here well, but we were talking to Carl

Weinberg earlier and he says, quantitative tightening. What about quantitative tightening? So to me, quantitative tightening is a little bit the opposite of quantitative easing, in fact, almost exact opposite, and I find quantitative easing easier to explain. It's like if you have these Newton cradle right where you drop this one ball and stuff shoots out at the end. So

that's what happened. It shoots out and where it really exposed itself at the riskiest end of the spectrum, right, So everything the person winds up having to make a choice. I have to either buy longer duration assets, riskier assets, less liquid assets, and it really comes out at the far end. That's why I think crypto did so well, all these disruptive stocks. So when it comes back in, it's not going to express itself in yields. It's going

to be in the riskiest assets. I think stocks can still lag from here and it's not going to express itself regardless of what we're doing on the quantitative tightening and the bond markets up yield down. Stocks don't play no, I think not. I think maybe we get a little surge in stocks um after we get through this cryptodebacco where people get back to comfortable. Oh, lower yields is good for stocks, then I think the reality is gonna be no, No, yields are going lower because the economy

has rolled over. We've done too much. We have these problems, and quantitative tightening I think is more impactful on equities and risk assets than spawns. I mean, never more came out Taylor Swift with Jack getting off in the National. I mean what they did Peter during the pandemic. She just said I'm not I'm not laying low for the pandemic. And they just created and creating created. Look at the

payoff now, it's been phenomenal. I think one question that's been coming up directly to our businesses what does this do for EM and A activity. Right, We've already had DC that doesn't like M and A activity, And now all of a sudden you've got Live Nation these companies, you know, getting reported on. I think it's going to be interesting and I think that's gonna be a headwind for M and A next year. We're really prepared to talk about Taylor Swift. Is that really what we're doing here.

I wasn't that prepared, but I figured out the influence of the national on What she did here acoustically was stunning. I mean, I mean anthonas my hero, but you know, I'm not an expert in Taylor Swift. I will say that the controversy over some of the ticket sales is going to be something that song alicit off fairs. Moment I heard it, boom, Taylor Swift. Oh, I'm not actually share.

Thank you so much with Academy Securities right now. And if you're taking notes on the equity market, get out the pad, get out the paper, because Katie Kaminski, she researched strategist that Alpha simplex is a turtle. She is a turtle trader from way back, which is trend matters. Katie. Everybody would kill for your performance this year. Still up, what is the trend forward or our trends breaking? Now? Yeah, it's tom. It's been a phenomenal year for trend in

a year where things are very uncertain. Um. What we have noticed though, is that we're going through an inflection point right now like we saw earlier this summer. We're starting to see that shorter term signals and longer term signals are kind of at odds UM, and so I think we, just like the rest of the market, are

looking for a pivot to the next big trend. Uh so far um, You're looking at a day like today, the dollar is coming back a little bit, that may not be over UM, and of course short bond signals are still there in the data. Well, Katie, can you elaborate on that, this sort of pivot point that you see in terms of short term and longer term signals? What is that pivoting us too? Right, We've come from an era where bonds have been all over the place,

but we rally. Recently we saw stocks being rally both stocks and bonds rallying. What's the new pivot? What's that new reality? Well, the thing is we've really the challenge has been that we've had a mixed signal, so there's no clear signal net at this point. And that's where I say we're definitely at an inflection point. But if I had to look a little closer at what has changed the most, optimism has come into signals at a

level that is consistent with what we've seen recently. So you've seen more positive signals and equities, especially around the CPI print. You're also seeing a little bit more reversion out of the dollar trade, but that's still there. So that's why I kind of said it's a balance between what do we see shorter term and longer term, and the longer term signals are still definitely saying that there's some things to worry about ahead, especially the curve, the

yield curve being inverted recently. Katy, you've nailed it with bonds in particular. You went short bonds, which has been the widowmaker for so many years, and this was one of the areas where absolutely knocked it out of the park with nearly forty percent returns so far this year. How much do you buy this conviction that we're feeling in Wall Street that that's going to be the biggest area of out performance by ten year, by thirty year treasuries and you're gonna just do really well next year.

So we did some research this year on bonds. It was called the short of shorting bonds. And one of the things that we need to think about if we're moving into a much more focused on rising rates and higher rates environment, is that bonds are not going to behave under inflationary pressures like they did in the past, and this year was just the first data point to

show us that that's the case. And I think what has been the most fascinating to me is how we avoid thinking about long bias and so many of us are so dependent on being long bonds. We forgot what it's like to actually think about how do you deal with actually shorting bonds and how do you deal with bonds and valuation versus inflation? And I think that is going to be the key question for all investors in the next few years. What's great a trend following, folks?

And this is rumored folks, Liverpool maybe up for sale John Henry, owner the Red Sox arch Turtle trader. Rumor has it Henry may sell Liverpool to Kaminski. We'll have to see on that is well. We get a lot of emails Katie when you're when you're on with us. Are moving averages helpful to trend followers? Yes, I mean I think the way we think about it, moving averages give you one way to measure the strength of a trend. These days, we use a wide range of different methods.

Some of it is based on machine learning, some of it is based on different types of breakout signals. But the point is in environments where the world is very uncertain, you have to turn to what the market is doing as opposed to what it should do, because frankly, a few people actually know what it should do these days, because it's so volatile and unclear what the future is actually going to hold under this inflationary environment. Katie, thank

you so much. Katie Kaminski, arguably the number one performance of Rayance Girls this year at alphason Plus. Right now, we're going to turn to some of the focus on the year ahead. One of the biggest consensus calls go along bonds. David Riley, chief of US was strategist at Blue Bay Asset Management. Here to weigh in, is this year number one as well? Ten year, thirty year, The longer the better. M Yeah. I do think it's going to be a year when duration actually pays off and

it will make sense to be long duration. I'm actually more inclined to go in terms of the Treasury curve towards the five year point, and that's because I do think that it's more likely than not that the US economy goes into recession. I think we'll probably could therefore get some balls deepening in the curve. Normally you'd express that at the very short end, but we don't really know how far and how fast inflation we fall, and therefore we don't really know at what point does the

FED start considering ray cards. I think the five year is probably quite a good sort of sweet spot, and with that would also be buying some high grade credit at this level as well. See he likes the five year action, That's what he was just saying right there. Well,

thank you, dud. I do wonder, though, at what point you're looking at a return to the old normal, right at this idea that we're going back to an inflation that's sub two percent or even two and other people pushing back, where do you say to them, Look, we're not going to have a high inflation regime for a very long time, and bonds will be able to reassert themselves in a way that we're used to. M Well, because I do think that we are at all very

close to the peak in inflation. And yeah, I think it's right to highlight just how much uncertainty we do have in terms of how far and how fast inflation falls and that's obviously very critical for the fair and other central banks, and therefore for the outlook for the BOB market. But I don't see a sort of self

fulfilling or self perpetuating ways price spiral. And if you think we're going into recession, as I think we are going into not only a European but also US and global recession, UM, that's very negative and all sorts of ways and and and Saturday people are going to be losing their jobs on the back about that. But we know from experience that does bring inflation down. Inflation is going to be coming down, it's just about the pace

and the magnitude of that through next year. David tell me about the value of cash here, if we're quote unquote going into a recession, is cash good or is cash trash? UM? I do think that as we go into recession, I think what is going to be of particular value is to have liquidity within portfolios. That some of that's going to come from having holdings of UM cash. But I also think it means a bias towards UM credit call fixed income, which is now giving you a yield.

I mean, one of the key differences. There's a lot of differences. But one of the key differences going into three compared to when we went into two, when we went into this year, is that we're actually starting with much higher levels of yield and that's giving you an inconcussion which you otherwise wouldn't you know, didn't have at the start of two. So you have some liquidity, have some cash. I think a bias towards the more liquid securities, but I don't think it's an inviting I think that

our opportunities out there for you to deploy cash. I wouldn't be holding too much care. David. We need you to get back to England around I know that's what you're really focused on. Here. We thank you for coming on. We've got people outside. There's a ticketing snare for at the stadium. I players down worldwide. But also in minute three with McGuire and answering David, somebody talks about a Stone banker of a penalty. Can I mean Phararell's not here, David,

save us? What does stone barker me? You've called me out there, Tom. I'm not sure what actually means, but it sounds like it's a nailed on um penalty that has been conceded and by the way you described it, um it sounds that may have been conceded by England, which would rather be in keeping with the start that England often make two World Cup tournaments, a lot of the build up and then some disappointment when the game gets underway. Let's hope I'm wrong and let's hope it's

different this time around. David Riley with piercing analysis. They're in for John Farrell as well, David Riley, Blue Bay Asset managic. Right now, we're going to stop the show. And we made a decision here at least fifteen years ago to say, yes, we do economics, financing and investment, but far more we do international relations, not knowing the world would be turned upside down as we have seen

in the recent decades. Providing leadership worldwide on that has been Richard hass He's President of the Council on Foreign Relations. Full disclosure, I'm a member. When I pay my dues, I think I'm behind my dudes. Richard Hospul, Well, we'll go there another time. He is the bitcoin that payment was the bitcoin worked out. Richard hass is retiring, pulling away from truly his Counsel and Foreign Relations Richard has thank you so much for joining us so much to

talk about today. Where must the Council on Foreign Relations go to lead as fractious international diplomacy. Well, Tom freshwell, I'm not retiring from anything. I'm departing the Council after twenty years, but I'm gonna stay active in the public conversation, both about this country's role in the world as well as about the future of American democracy. But I think it's healthy for institutions despite what's going on in Disney.

I think it's kind of healthy for institutions every now and then to have a change in uh in leadership. I think for the Council, it's simply to continue to be a resource on a wide range of challenges, whether it's the revival of geopolitics or global issues. We are we're just finishing up a the COP twenty seven meeting in Charmel Shake, and quite honestly, I think it's almost

a complete and utter, utter failure. And I also think increasingly we need to look at the relationship between America internally and America externally and whether we're ever gonna be positioned to again lead the world because this world is not going to organize itself to meet the challenges it faces without an involved and effective United States. So I think the the inbox in this field is as full

as it's ever been. I agree that strongly in folks, A brief here, two hundred forty pages is Richard Hass. The bill of obligations is he, and we go in search of the will of America to move forward. Richard Hass, the new administration, the new Congress, the new presidency two years out, do they have the will to find their bill of obligations? I don't see a lot of it. Tom, I'll be honest, you know, I don't think we're off

to a great start. The new Republican House of Representatives seems much more interested in politics than policy, and investigations than legislation. I think for the next two years it's going to be extraordinarily difficult for the Biden administration to

get legislation passed really about anything. I think you're going to see there for an emphasis on foreign policy, where presidents traditionally have more discretion than they do on things domestic, and probably a greater emphasis on regulation on executive action again to essentially find ways to do things without requiring

Congress to to join in this fractius global order. How confident are you that the US remain close to Europe, at least as close to Europe as they have traditionally basis of the recent fissures not only with respect to exactly how to deal with the energy crisis, but also with tech investments and some of the the the bills that Congress has passed so far that really focused in the US to good question is I think it's a

mixed record. On one hand, if this administration, the Biden administration, stands for anything and it's a it's an alliance first foreign policy, and I think the entire management of the Ukraine crisis, the Russian crisis has been has been pretty good. You also see your growth in trans Atlantic trade, whether it because of energy or a d emphasis on trading with adversaries or re emphasis on trading with with UH

with friends. Where I'm worried about over the long term is not so much Russia as it is China, and I think there could be a growing split between what you might call American economic pressure on China, almost economic warfare, and Europe, led by Germany looking to China in many ways to compensate for the loss of economic ties with Russia.

And if there were to ever be a crisis over Taiwan, this divergence across the Atlantic one makes a crisis more likely because China may not fear sanctions, or if there were a crisis in the United States wanted to introduce sanctions, I could imagine a big transatlantic split. This is really important, especially as German Chancellor all Off Souls just went to China with a bunch of executives of big industrial companies.

How much do you give credence? Then the softening in tone that we've heard at least recently with the US and China and Tony blinking blinking heading over there early next year. Look, I think it's good. I'm an old fashioned diplomat, so I actually happened to believe in diplomacy. I think that's progress. I thought the meeting in Bali was a useful exchange. I think it's useful to have follow up. But let's not kid ourselves. These countries are

in very different pages. The question is whether they can set up some rules of the road about how to limit their differences over Taiwan. So it doesn't lead to complic But I don't see any sign, for example, that China is lending a hand to deal with North Korea, which is busy building up nuclear weapons and shooting off missiles. I don't see the China's helping with Iran. We can go around the world, so geo politically, the two countries are not on the same page. China is still not

helping with with with climate much. So again, to me, the real question of the United States and China with these talks is whether they can avoid negatives more than a chief positives. Richard Hasash, I grew up with part of the house being a middle twentieth century isolation is what was called a Chicago Tribune Midwest isolationism, something I'm sure you saw west of Overland, Ohio. And when I look at where we are today, Richard hass, we have

a new isolationism. It's always there, but this time it's different color. The character of America's new isolationism, right, we're seeing it Tom and it doesn't respect party lines. We're seeing it in both the Republican Party and the Democratic Party. You see in the Republican Party a kind of flirtation with Russia, this talk about conditioning or limiting aid to Ukraine on the progressive side of the Democratic Party again and in patience over money spent for foreign policy or

national security abroad, wanting to see more at home. What's missing on both sides of the aisle is an appreciation of two things. One is that money spent on foreign policy is good for us here at home. We are not going to do well in a world that unravels and to use my favorite word, in a world and in disarray. Secondly, what ails us at home for the most part is not a lack of resources being spent. You look at how much we're spending domestically, that's not

the problem. It's how we spend money is the issue, much more than how how much we spend. Plus increasingly is you know better than anybody. What's crowding out a lot of useful forms of domestic spending is not national security. It's servicing our debt. And that's something. If people on the left and the right wanted to free up money to devote to domestic causes, they could focus very much on the size of America's death. Richard Hoss, thank you

so much. With the council and his Council on Foreign Relations. The new book, The Bill of Obligations, is the will out there to move forward into the next decade. This is the Bloomberg Surveillance Podcast. Thanks for listening. Join us live weekdays from seven to ten am 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